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What changed in CB Financial Services, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CB Financial Services, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+305 added−315 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-10)

Top changes in CB Financial Services, Inc.'s 2023 10-K

305 paragraphs added · 315 removed · 213 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

79 edited+10 added−18 removed170 unchanged
Biggest changeThe accounting rules require that, at the time of purchase, we designate a debt security as held to maturity, available-for-sale, or trading, depending on our ability and intent. Securities available for sale are reported at fair value, while securities held to maturity are reported at amortized cost. Our entire debt securities portfolio is designated as available-for-sale.
Biggest changeFederal and Pennsylvania state laws generally limit our investment activities to those permissible for a national bank. The accounting rules require that, at the time of purchase, we designate a debt security as held to maturity, available-for-sale, or trading, depending on our ability and intent.
Enforcement. The Pennsylvania Department of Banking maintains enforcement authority over the Bank, including the power to issue cease and desist orders and civil money penalties and to remove directors, officers or employees. It also has the power to appoint a conservator or receiver for a bank upon insolvency, imminent insolvency, unsafe or unsound condition or certain other situations.
The Pennsylvania Department of Banking maintains enforcement authority over the Bank, including the power to issue cease and desist orders and civil money penalties and to remove directors, officers or employees. It also has the power to appoint a conservator or receiver for a bank upon insolvency, imminent insolvency, unsafe or unsound condition or certain other situations.
The Bank’s operations are also subject to federal and state laws applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; 17 • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; • Truth in Savings Act; and • Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such laws.
The Bank’s operations are also subject to federal and state laws applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; • Truth in Savings Act; and • Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such laws.
Any change in such regulation, whether by the Pennsylvania Department of Banking and Securities, the FDIC, the Federal Reserve Board or Congress could have a material impact on the operations of the Bank. Set forth below is a brief description of material regulatory requirements that are or will be applicable to CB Financial Services, Inc., and Community Bank.
Any change in such regulation, whether by the Pennsylvania Department of Banking and Securities, the FDIC, the Federal Reserve Board or Congress could have a material impact on the operations of the Bank. 13 Set forth below is a brief description of material regulatory requirements that are or will be applicable to CB Financial Services, Inc., and Community Bank.
All loans originated by the Bank are subject to its underwriting guidelines. Loan approval authorities vary based on loan size in the aggregate. Individual officer loan approval authority generally applies to loans of up to $1.0 million. Loans above that amount and up to 65% of the Bank’s legal lending limit may be approved by the Loan Committee.
All loans originated by the Bank are subject to its underwriting guidelines. Loan approval authorities vary based on loan size in the aggregate. Individual officer loan approval authority generally applies to loans of up to $1.0 10 million. Loans above that amount and up to 65% of the Bank’s legal lending limit may be approved by the Loan Committee.
We intend to focus on building our mobile and online capabilities through an improved mobile banking platform and product offering, omnichannel experience that is consistent with quick results and interactive alerts. • Enhance profitability and efficiency while continuing to invest for future growth. Margin compression continues to be a challenge.
We intend to focus on building our mobile and online capabilities through an improved mobile banking platform and product offering, omnichannel experience that is consistent with quick results and interactive alerts. 5 • Enhance profitability and efficiency while continuing to invest for future growth. Margin compression continues to be a challenge.
The 2031 Note initially bears a fixed interest rate of 3.875% per year to, 13 but excluding, December 15, 2026 and thereafter at a floating rate equal to the then-current three-month term SOFR plus 280 basis points. The 2031 Note qualifies as Tier 2 capital under regulatory guidelines.
The 2031 Note initially bears a fixed interest rate of 3.875% per year to, but excluding, December 15, 2026 and thereafter at a floating rate equal to the then-current three-month term SOFR plus 280 basis points. The 2031 Note qualifies as Tier 2 capital under regulatory guidelines.
In addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.
In addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. 15 Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.
We further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, keeping the employee portion of health care premiums to a minimum and sponsoring various wellness programs. Market Area The Company’s southwestern Pennsylvania market area consists of Allegheny, Fayette, Greene, Washington and Westmoreland Counties.
We promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, keeping the employee portion of health care premiums to a minimum and sponsoring various wellness programs. Market Area The Company’s southwestern Pennsylvania market area consists of Allegheny, Fayette, Greene, Washington and Westmoreland Counties.
We also consider the length of employment with the borrower’s present employer. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount. We primarily originate home equity loans secured by first lien mortgages.
We also consider the length of employment with the borrower’s present employer. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount. 8 We primarily originate home equity loans secured by first lien mortgages.
Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties. Holding Company Regulation General.
Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s 17 privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties. Holding Company Regulation General.
In evaluating the property securing the loan, the factors considered include the net operating income of the mortgaged property before debt service and depreciation, and the ratio of the loan amount to the appraised value of the property. We generally will not lend to high 9 volatility commercial real estate projects.
In evaluating the property securing the loan, the factors considered include the net operating income of the mortgaged property before debt service and depreciation, and the ratio of the loan amount to the appraised value of the property. We generally will not lend to high volatility commercial real estate projects.
All insured institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate- 15 income borrowers. The FDIC is required to assess the Bank’s record of compliance with the Community Reinvestment Act.
All insured institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The FDIC is required to assess the Bank’s record of compliance with the Community Reinvestment Act.
Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% 18 or more of the company’s outstanding voting stock, unless the Federal Reserve has found that the acquisition will not result in control of the company.
Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless the Federal Reserve has found that the acquisition will not result in control of the company.
Commercial and industrial business loans involve a greater risk of default than one- to four-residential mortgage loans of like duration because their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any. 10 Consumer Loans.
Commercial and industrial business loans involve a greater risk of default than one- to four-residential mortgage loans of like duration because their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Consumer Loans.
However, the ability to attract and maintain deposits and the rates paid on these deposits has been and will continue to be significantly affected by market conditions. Borrowings. Deposits are our primary source of funds for lending and investment activities.
However, the ability to attract and maintain deposits and the rates paid on these deposits has been and will continue to be significantly affected by market conditions. 12 Borrowings. Deposits are our primary source of funds for lending and investment activities.
Further, the legislation requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the 14 Federal Reserve to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination.
Further, the legislation requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination.
We may originate loans to consumers with a credit score below 660. This may be defined as subprime loans, however there are typically mitigating circumstances that according to FDIC guidance and our opinion would not designate such loans as “subprime.” Home Equity Loans. At December 31, 2022, home equity loans totaled $57.5 million.
We may originate loans to consumers with a credit score below 660. This may be defined as subprime loans, however there are typically mitigating circumstances that according to FDIC guidance and our opinion would not designate such loans as “subprime.” Home Equity Loans. At December 31, 2023, home equity loans totaled $57.5 million.
Bureau of Labor Statistics (Second Quarter 2022) The market area has been impacted by the energy industry through the extraction of untapped natural gas reserves in the Marcellus Shale and Utica Shale Formation. The Utica Shale formation lies beneath most of Ohio, West Virginia, Pennsylvania and New York, as well as Kentucky, Maryland, Tennessee, Virginia and a part of Canada.
Bureau of Labor Statistics (Second Quarter 2023) The market area has been impacted by the energy industry through the extraction of untapped natural gas reserves in the Marcellus Shale and Utica Shale Formation. The Utica Shale formation lies beneath most of Ohio, West Virginia, Pennsylvania and New York, as well as Kentucky, Maryland, Tennessee, Virginia and a part of Canada.
An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2022, the Bank was in compliance with the loans-to-one borrower limitations. Capital Distributions.
An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2023, the Bank was in compliance with the loans-to-one borrower limitations. Capital Distributions.
The debt securities portfolio consists primarily of U.S. government agency securities, obligations of states and political subdivisions, and mortgage-backed securities and collateralized mortgage obligations of government sponsored enterprises. We expect the composition of our debt securities portfolio to continue to change based on liquidity needs associated with loan origination activities.
The debt securities portfolio consists primarily of U.S. government agency securities, obligations of states and political subdivisions, mortgage-backed securities and collateralized mortgage obligations of government sponsored enterprises, collateralized loan obligations and corporate bonds. We expect the composition of our debt securities portfolio to continue to change based on liquidity needs associated with loan origination activities.
The Bank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $50.0 million. At December 31, 2022, we did not have any outstanding balances under any of these borrowing relationships.
The Bank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $50.0 million. At December 31, 2023, we did not have any outstanding balances under any of these borrowing relationships.
As of December 31, 2022, the Bank was in compliance with this requirement. The Bank also is able to borrow from the FHLB of Pittsburgh, which provides an additional source of liquidity for the Bank. Federal Reserve System.
As of December 31, 2023, the Bank was in compliance with this requirement. The Bank also is able to borrow from the FHLB of Pittsburgh, which provides an additional source of liquidity for the Bank. Federal Reserve System.
Copies of the Company's reports, proxy and information statements, and other information filed electronically with the Securities and Exchange Commission (the “SEC”) are available free of charge through the SEC’s website address at https://www.sec.gov and through the Bank’s website address at https://www.communitybank.tv . Community Bank Community Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania.
Copies of the Company's reports, proxy and information statements, and other information filed electronically with the Securities and Exchange Commission (the “SEC”) are available free of charge through the SEC’s website address at https://www.sec.gov and through the Bank’s website address at https://www.cb.bank . Community Bank Community Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania.
In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well and has the authority to establish higher capital requirements for individual associations where necessary. At December 31, 2022, the Bank’s capital exceeded all applicable requirements.
In assessing 14 an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well and has the authority to establish higher capital requirements for individual associations where necessary. At December 31, 2023, the Bank’s capital exceeded all applicable requirements.
The first $32.4 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The Bank complies with the foregoing requirements. However, effective March 26, 2020, the FRB reduced reserve requirement ratios on all net transaction accounts to 0%, eliminating reserve requirements for all depository institutions, in response to the COVID-19 pandemic.
The first $36.1 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The Bank complies with the foregoing requirements. However, effective March 26, 2020, the FRB reduced reserve requirement ratios on all net transaction accounts to 0%, eliminating reserve requirements for all depository institutions, in response to the COVID-19 pandemic.
Our one- to four-family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. We generally originate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency, which, for 2022, is typically $647,200 for single-family homes, except in certain high-cost areas in the United States.
Our one- to four-family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. We generally originate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency, which, for 2023, is typically $726,200 for single-family homes, except in certain high-cost areas in the United States.
The success of our business is highly dependent on our employees, who provide value to our clients and communities through their dedication to helping clients achieve the American dream of home ownership and financial security. Demographics. As of December 31, 2022, we employed 184 full-time and 3 part-time employees in Pennsylvania and West Virginia.
The success of our business is highly dependent on our employees, who provide value to our clients and communities through their dedication to helping clients achieve the American dream of home ownership and financial security. Demographics. As of December 31, 2023, we employed 159 full-time and 3 part-time employees in Pennsylvania and West Virginia.
During the year ended December 31, 2022, we had no debt securities that were deemed to be other than temporarily impaired. We also invest in equity securities, which consist primarily of mutual funds and a portfolio of bank stocks. This portfolio is valued at fair value with changes in market price recognized through noninterest income.
During the year ended December 31, 2023, we had no debt securities that were deemed to be impaired. We also invest in equity securities, which consist primarily of mutual funds and a portfolio of bank stocks. This portfolio is valued at fair value with changes in market price recognized through noninterest income.
At December 31, 2022, we held available-for-sale municipal bonds with a fair value of $13.3 million compared to $19.0 million at December 31, 2021. 100% of our municipal bonds are issued by local municipalities or school districts located in Pennsylvania. Municipal bonds may be general obligation of the issuer or secured by specific revenues.
At December 31, 2023, we held available-for-sale municipal bonds with a fair value of $3.4 million compared to $13.3 million at December 31, 2022. 100% of our municipal bonds are issued by local municipalities or school districts located in Pennsylvania. Municipal bonds may be general obligation of the issuer or secured by specific revenues.
The Bank is a member of the Federal Home Loan Bank (“FHLB”) System. Our deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). Our principal executive office is located at 100 North Market Street, Carmichaels, Pennsylvania, and our telephone number at that address is (724) 966-5041. Our website address is https://www.communitybank.tv .
The Bank is a member of the Federal Home Loan Bank (“FHLB”) System. Its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The principal executive office is located at 100 North Market Street, Carmichaels, Pennsylvania, and the telephone number at that address is (724) 966-5041. The website address is https://www.cb.bank .
Short-term borrowings may also consist of federal funds purchased. At December 31, 2022, the Bank maintained a Borrower-In-Custody of Collateral line of credit agreement with the FRB for $119.0 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by commercial and consumer indirect auto loans.
Short-term borrowings may also consist of federal funds purchased. At December 31, 2023, the Bank maintained a Borrower-In-Custody of Collateral line of credit agreement with the FRB for $103.8 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by commercial and consumer indirect auto loans.
At December 31, 2022, the principal balance and unamortized debt issuance costs for the 2031 Note were $15.0 million and $362,000, respectively. Subsidiary Activities Community Bank is the only subsidiary of the Company. The Bank wholly-owns Exchange Underwriters, Inc., a full-service, independent insurance agency.
At December 31, 2023, the principal balance and unamortized debt issuance costs for the 2031 Note were $15.0 million and $322,000, respectively. Subsidiary Activities Community Bank is the only subsidiary of the Company. The Bank wholly-owns Exchange Underwriters, Inc., a former full-service, independent insurance agency.
Our deposit sources are primarily concentrated in the communities surrounding our branch offices. As of June 30, 2022, our FDIC-insured deposit market share in the counties we serve was 0.56% out of 48 bank and thrift institutions.
Our deposit sources are primarily concentrated in the communities surrounding our branch offices. As of June 30, 2023, our FDIC-insured deposit market share in the counties we serve was 0.60% out of 48 bank and thrift institutions.
Our FDIC-insured deposit market share in the counties we serve, excluding Allegheny County, which is the second most populous county in Pennsylvania, but where the Bank's has limited presence with one branch, was 4.98% out of 32 bank and thrift institutions. Such data does not reflect deposits held by credit unions.
Our FDIC-insured deposit market share in the counties we serve, excluding Allegheny County, which is the second most populous county in Pennsylvania, but where the Bank's has limited presence with one branch, was 5.15% out of 31 bank and thrift institutions. Such data does not reflect deposits held by credit unions.
The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, our interest rate risk position and our competitors’ loan products. Adjustable-rate mortgage loans secured by one- to four-family residential real estate totaled $46.7 million at December 31, 2022.
The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, our interest rate risk position and our competitors’ loan products. Adjustable-rate mortgage loans secured by one- to four-family residential real estate totaled $56.1 million at December 31, 2023.
Census Bureau (State - July 2022; County - July 2021) (2) Based on the latest data published by the U.S. Bureau of Labor Statistics (December 2022) 7 (3) Based on the latest data published by the U.S.
Census Bureau (State - July 2023; County - July 2022) (2) Based on the latest data published by the U.S. Bureau of Labor Statistics (December 2023) (3) Based on the latest data published by the U.S.
We originate construction loans to individuals to finance the construction of residential dwellings and also originate loans for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. At December 31, 2022, $44.9 million, or 4.3% of our total loan portfolio, consisted of construction loans.
We originate construction loans to individuals to finance the construction of residential dwellings and also originate loans for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. At December 31, 2023, $43.1 million, or 3.9% of our total loan portfolio, consisted of construction loans.
One of our primary lending activities is the origination of fixed-rate, one- to four-family, owner-occupied, residential mortgage loans with terms up to 30 years secured by property located in our market area. At December 31, 2022, one- to four-family mortgage loans totaled $259.9 million.
One of our primary lending activities is the origination of fixed-rate, one- to four-family, owner-occupied, residential mortgage loans with terms up to 30 years secured by property located in our market area. At December 31, 2023, one- to four-family mortgage loans totaled $278.2 million.
None of these employees are represented by a collective bargaining agreement. During 2022, we hired 55 employees and our voluntary turnover rate was 29%. Diversity and Inclusion. We strive toward having a powerful and diverse team of employees, knowing we are better together with our combined wisdom and intellect.
None of these employees are represented by a collective bargaining agreement. During 2023, we hired 49 employees and our voluntary turnover rate was 19%. Diversity and Inclusion. We strive toward having a powerful and diverse team of employees, knowing we are better together with our combined wisdom and intellect.
As an alternative to pledging securities, the facility is also used for standby letters of credit to collateralize public deposits in excess of the level insured by the FDIC. Commitments for standby letters of credit to secure public deposits were $26.2 million and $69.0 million as of December 31, 2022 and 2021.
As an alternative to pledging securities, the facility is also used for standby letters of credit to collateralize public deposits in excess of the level insured by the FDIC. Commitments for standby letters of credit to secure public deposits were $18.9 million and $26.2 million as of December 31, 2023 and 2022.
The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows for 2022: a 3% reserve ratio is assessed on net transaction accounts up to and including $640.6 million; a 10% reserve ratio is applied above $640.6 million.
The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows for 2024: a 3% reserve ratio is assessed on net transaction accounts up to and including $644.0 million; a 10% reserve ratio is applied above $644.0 million.
We generate loans through our marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. At December 31, 2022, $330.7 million, or 31.5%, of our total loan portfolio was invested in residential loans. One- to Four-Family Mortgage Loans .
We generate loans through our marketing efforts, existing customers and 7 referrals, real estate brokers, builders and local businesses. At December 31, 2023, $347.8 million, or 31.3%, of our total loan portfolio was invested in residential loans. One- to Four-Family Mortgage Loans .
Home equity loans in a junior lien position totaled $2.6 million at December 31, 2022 and entail greater risks than one- to four-family residential mortgage loans or home equity loans secured by first lien mortgages.
Home equity loans in a junior lien position totaled $4.8 million at December 31, 2023 and entail greater risks than one- to four-family residential mortgage loans or home equity loans secured by first lien mortgages.
Our principal lending activity has been the origination in our local market area of residential one- to four-family, commercial real estate, construction, commercial and industrial, and consumer loans. At December 31, 2022, our total loans receivable, which excludes the allowance for loan losses, increased $29.1 million, or 2.8%, to $1.05 billion compared to $1.02 billion at December 31, 2021.
Our principal lending activity has been the origination in our local market area of residential one- to four-family, commercial real estate, construction, commercial and industrial, and consumer loans. At December 31, 2023, our total loans receivable, which excludes the allowance for credit losses, increased $60.5 million, or 5.8%, to $1.11 billion compared to $1.05 billion at December 31, 2022.
The Bank will receive a pro rata refund of the amount prepaid to the dealer only if the loan prepays within the first six months or if the collateral for the loan is repossessed. The Bank is responsible for pursuing repossession if the borrower defaults on payments.
The Bank will receive a pro rata refund of the amount prepaid to the dealer only if the loan prepays within the first six months or if the collateral for the loan is repossessed. The Bank is responsible for pursuing repossession if the borrower defaults on payments. The Bank discontinued this product offering as of June 30, 2023.
At December 31, 2022, all MBS’s had fixed rates of interest. MBS’s are created by pooling mortgages and issuing a security with an interest rate that is less than the interest rate on the underlying mortgages. CMO’s generally are a specific class of MBS’s that are divided based on risk assessments and maturity dates.
MBS’s are created by pooling mortgages and issuing a security with an interest rate that is less than the interest rate on the underlying mortgages. CMO’s generally are a specific class of MBS’s that are divided based on risk assessments and maturity dates.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Management cannot predict what assessment rates will be in the future. 16 Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
U.S. Government Agency Securities. At December 31, 2022, we held U.S. Government and agency securities with a fair value of $44.6 million compared to $52.6 million at December 31, 2021. At December 31, 2022, these securities had an average expected life of 6.1 years.
U.S. Government Agency Securities. At December 31, 2023, we held U.S. Government and agency securities with a fair value of $3.9 million compared to $44.6 million at December 31, 2022. At December 31, 2023, these securities had an average expected life of 8.0 years.
We originate commercial real estate loans that are secured primarily by improved properties, such as retail facilities, office buildings and other non-residential buildings as well as multifamily properties. At December 31, 2022, $436.8 million, or 41.6% of our total loan portfolio, consisted of commercial real estate loans.
We originate commercial real estate loans that are secured primarily by improved properties, such as retail facilities, office buildings and other non-residential buildings as well as multifamily properties. At December 31, 2023, $467.2 million, or 42.1% of our total loan portfolio, consisted of commercial real estate loans.
We originate consumer loans that primarily consist of indirect auto loans and, to a lesser extent, secured and unsecured loans and lines of credit. As of December 31, 2022, consumer loans totaled $146.9 million, or 14.0%, of our total loan portfolio, of which $140.3 million were indirect auto loans. Consumer loans are generally offered on a fixed-rate basis.
We originate consumer loans that primarily consist of indirect auto loans and, to a lesser extent, secured and unsecured loans and lines of credit. As of December 31, 2023, consumer loans totaled $111.6 million, or 10.1%, of our total loan portfolio, of which $103.9 million were indirect auto loans. Consumer loans are generally offered on a fixed-rate basis.
Our one- to four-family mortgage loans customarily include due-on-sale clauses, which give us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan. 8 Fixed-rate one- to four-family residential mortgage loans with terms of 15 years or more are originated for resale to the secondary market.
Our one- to four-family mortgage loans customarily include due-on-sale clauses, which give us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan.
For commercial loans, the borrower is contacted in an attempt to reestablish the loan to current payment status and ensure timely payments continue. Collection efforts continue until the loan is 60 days past due, at which time demand payment, default, and/or foreclosure procedures are initiated.
For commercial loans, the borrower is contacted in an attempt to reestablish the loan to current payment status and ensure timely payments continue. Collection efforts continue until the loan is 60 days past due, at which time demand payment, default, and/or foreclosure procedures are initiated. We may consider loan workout arrangements with certain borrowers under certain circumstances. Investment Activities General.
Finally, MBS’s are assigned lower risk-weightings for purposes of calculating our risk-based capital level. 12 Investments in MBS’s involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may result in adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities.
Investments in MBS’s involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may result in adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities. Collateralized Loan Obligation Securities.
The Company may exclude from income 100% of dividends received from the Bank as members of the same affiliated group of corporations. For federal income tax purposes, corporations may carryforward net operating losses indefinitely, but the deduction is limited to 80% of taxable income. For its 2022 and 2021 fiscal year, the Company’s maximum federal income tax rate was 21%.
The Company may exclude from income 100% of dividends received from the Bank as members of the same affiliated group of corporations. For federal income tax purposes, corporations may carryforward net operating losses 18 indefinitely, but the deduction is limited to 80% of taxable income.
Greene County is a significantly more rural county compared to the counties in which we have our other branches. Our offices located in Allegheny, Washington, Fayette, and Westmoreland Counties are in the southern suburban area of metropolitan Pittsburgh. Our branches from the FWVB merger extend the Company’s market area into West Virginia with three offices in Marshall and Ohio Counties.
Greene County is a significantly more rural county compared to the counties in which we have our other branches. Our offices located in Allegheny, Washington, Fayette, and Westmoreland Counties are in the southern suburban area of metropolitan Pittsburgh.
We also invest in a limited amount of special revenue municipal bonds, which are used to fund projects that will eventually create revenue directly, such as a toll road or lease payments for a new building. Mortgage-Backed Securities. We invest in mortgage-backed (“MBS”) and collateralized mortgage obligation (“CMO”) securities insured or guaranteed by the United States government or government-sponsored enterprises.
We 11 also invest in a limited amount of special revenue municipal bonds, which are used to fund projects that will eventually create revenue directly, such as a toll road or lease payments for a new building. Mortgage-Backed Securities.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what assessment rates will be in the future.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of the Bank.
These resources provide employees with the skills they need to achieve their career goals, build management skills, and become leaders within our Company. The safety, health and wellness of our employees is a top priority. The COVID-19 pandemic continued to present a unique challenge with regard to maintaining employee safety while continuing successful operations.
These resources provide employees with the skills they need to achieve their career goals, build management skills, and become leaders within our Company. The safety, health and wellness of our employees is a top priority.
We may consider loan workout arrangements with certain borrowers under certain circumstances. 11 Investment Activities General. The Company’s investment policy is established by its Board. The policy emphasizes safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with the Company’s interest rate risk management strategy.
The Company’s investment policy is established by its Board. The policy emphasizes safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with the Company’s interest rate risk management strategy.
At December 31, 2022, the Company, on a consolidated basis, had total assets of $1.41 billion, total liabilities of $1.30 billion and stockholders’ equity of $110.2 million.
At December 31, 2023, the Company, on a consolidated basis, had total assets of $1.46 billion, total liabilities of $1.32 billion and stockholders’ equity of $139.8 million.
At December 31, 2022, we had a maximum borrowing capacity with the FHLB of up to $435.3 million and available borrowing capacity of $407.4 million. At December 31, 2022, we had no FHLB advances outstanding.
At December 31, 2023, we had a maximum borrowing capacity with the FHLB of up to $478.9 million and available borrowing capacity of $438.3 million. At December 31, 2023, we had $20.0 million FHLB advances outstanding.
Exclusive of PPP loans, commercial and industrial loans generally have terms of maturity from five to seven years with adjustable interest rates tied to the prime rate, LIBOR, SOFR or the weekly average of the FHLB of Pittsburgh three- to ten-year fixed rates.
At December 31, 2023, $111.3 million, or 10.0% of our total loan portfolio, consisted of commercial and industrial loans. 9 Commercial and industrial loans generally have terms of maturity from five to seven years with adjustable interest rates tied to the prime rate, SOFR or the weekly average of the FHLB of Pittsburgh three- to ten-year fixed rates.
These securities, which consist of MBS’s issued by Ginnie Mae, Fannie Mae and Freddie Mac, had an amortized cost of $143.3 million and $143.9 million at December 31, 2022 and 2021, respectively. The fair value of our MBS portfolio was $121.1 million and $143.1 million at December 31, 2022 and 2021, respectively.
These securities, which consist of MBS’s issued by Ginnie Mae, Fannie Mae and Freddie Mac, had an amortized cost of $178.0 million and $143.3 million at December 31, 2023 and 2022, respectively, and a fair value of $159.7 million and $121.1 million at December 31, 2023 and 2022, respectively. At December 31, 2023, all MBS’s had fixed rates of interest.
As such, investments in corporate debt involve default risk that the company may fail to make timely payments of interest or principal. We perform a credit analysis to verify the creditworthiness of the financial institution prior to purchase. Sources of Funds General. Deposits have traditionally been the Company’s primary source of funds for use in lending and investment activities.
We perform a credit analysis to verify the creditworthiness of the financial institution prior to purchase. Sources of Funds General. Deposits have traditionally been the Company’s primary source of funds for use in lending and investment activities.
Our Team members need to have the tools, training, processes, and leadership to support their delivery of a truly exceptional client experience.
Our Team members need to have the tools, training, processes, and leadership to support their delivery of a truly exceptional client experience. Improving our operational efficiency empowers our employees to work smarter and enables us to be more responsive to our clients.
The Bank also has one loan production office in Allegheny County, a corporate center in Washington County and an operations center in Greene County in Pennsylvania.
The Bank operates 10 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and three offices in Marshall and Ohio Counties in West Virginia. The Bank also has a loan production office in Allegheny County, a loan production office and a corporate center in Washington County and an operations center in Greene County, Pennsylvania.
Our current investment policy permits us to invest in U.S. treasuries, U.S government agency securities, mortgage-backed securities, investment grade corporate bonds, obligations of states and political subdivisions, short-term instruments, and other securities. The investment policy also permits investments in certificates of deposit, securities purchased under an agreement to resell, banker’s acceptances, commercial paper and federal funds.
Our current investment policy permits us to invest in U.S. treasuries, U.S government agency securities, mortgage-backed securities (MBS's), collateralized mortgage obligations (CMO's), investment grade corporate bonds, obligations of states and political subdivisions, short-term instruments, collateralized loan obligations (CLO's) and other securities.
Corporate Debt. At December 31, 2022, we held corporate debt securities with a fair value of $8.3 million. We invest in corporate debt issued by financial institutions which have fixed to floating-rate terms. Corporate debt are unsecured, medium or long term, interest-bearing bonds issued by financial institutions that are backed only by the general credit of the issuer.
The Bank held no CLO's as of December 31, 2022. Corporate Debt. At December 31, 2023, we held corporate debt securities with a fair value of $7.7 million. We invest in corporate debt issued by financial institutions which have fixed to floating-rate terms.
We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees.
We value our employees by investing in a healthy work-life balance, competitive compensation and benefit packages and a vibrant, team-oriented environment centered on professional service and open communication. We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees.
The PDBS may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors. 16 At December 31, 2022, the Bank met the criteria for being considered “well capitalized.” In addition, the final capital rule adopted in July 2013 revises the prompt corrective action categories to incorporate the revised minimum capital requirements of that rule.
At December 31, 2023, the Bank met the criteria for being considered “well capitalized.” In addition, the final capital rule adopted in July 2013 revises the prompt corrective action categories to incorporate the revised minimum capital requirements of that rule. Enforcement.
("Exchange Underwriters" or “EU”), a wholly-owned subsidiary located in Washington County that is a full-service, independent insurance agency that offers property and casualty, commercial liability, surety and other insurance products. Exchange Underwriters' independent insurance agents shop from over 50 of the nation’s leading insurance providers to find the policy that fits their client's needs.
("Exchange Underwriters" or “EU”), a wholly-owned subsidiary located in Washington County that was a full-service, independent insurance agency that offered property and casualty, commercial liability, surety and other insurance products.
The tax is imposed on income or loss from the federal income tax return on a separate-company basis for the Company and Exchange Underwriters. The federal return income or loss is adjusted for various items treated differently by the Pennsylvania Department of Revenue.
The federal return income or loss is adjusted for various items treated differently by the Pennsylvania Department of Revenue. The Company is subject to additional state tax filing requirements in West Virginia and Ohio.
We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards that we believe are conservative.
We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards that we believe are conservative. Although we intend to continue our efforts to originate commercial real estate and commercial and industrial loans, we intend to continue our philosophy of managing loan exposures through our conservative, yet reasonable, approach to lending.
State Taxation. The Bank is subject to the Pennsylvania Bank and Trust Company Shares Tax (“Shares Tax”) rate of 0.95%. The tax is imposed on the Bank’s adjusted equity. The Company and Exchange Underwriters are subject to the Pennsylvania Corporate Net Income Tax, otherwise known as “CNI tax.” The CNI tax rate in 2022 and 2021 was 9.99%.
For its 2023 and 2022 fiscal year, the Company’s maximum federal income tax rate was 21%. State Taxation. The Bank is subject to the Pennsylvania Bank and Trust Company Shares Tax (“Shares Tax”) rate of 0.95%. The tax is imposed on the Bank’s adjusted equity.
During the years ended December 31, 2022 and 2021, we originated none and $12.6 million of fixed-rate residential mortgage loans, respectively, which were subsequently sold in the secondary mortgage market.
Fixed-rate one- to four-family residential mortgage loans with terms of 15 years or more are originated for resale to the secondary market. During the year ended December 31, 2023, we originated $2.4 million of fixed-rate residential mortgage loans, respectively, which were subsequently sold in the secondary mortgage market.
The following table sets forth certain economic statistics for our market area.
Our market area extends into West Virginia with three offices in Marshall and Ohio Counties. 6 The following table sets forth certain economic statistics for our market area.
Information on this website is not and should not be considered to be a part of this Report.
Information on this website is not and should not be considered to be a part of this Report. Business Strategy We intend to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our customers.
Our current investment policy generally does not permit investment in stripped mortgage-backed securities, short sales, derivatives, or other high-risk securities. Federal and Pennsylvania state laws generally limit our investment activities to those permissible for a national bank.
The investment policy also permits investments in certificates of deposit, securities purchased under an agreement to resell, banker’s acceptances, commercial paper and federal funds. Our current investment policy generally does not permit investment in stripped mortgage-backed securities, short sales, derivatives, or other high-risk securities.
Removed
After the consolidation of one branch in 2022 and the consolidation and sale of eight branches in 2021, the Bank reduced the total number of branches to 13 and operates from 10 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and three offices in Marshall and Ohio Counties in West Virginia.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisk Related to Our Liquidity Position If we are unable to borrow funds, we may not be able to meet the cash flow requirements of our depositors, creditors, and borrowers, or the operating cash needed to fund corporate expansion and other corporate activities. Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost.
Biggest changeLiquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. Our liquidity is used to make loans and to repay deposit liabilities as they become due or are demanded by customers.
Furthermore, our customers are also affected by inflation and the 24 rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Climate change and related legislative and regulatory initiatives may materially affect the Company’s financial condition and results of operations.
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Climate change and related legislative and regulatory initiatives may materially affect the Company’s financial condition and results of operations.
Additionally, we have legal fees associated with the resolution of problem assets as well as additional costs, such as taxes, insurance and maintenance related to our other real estate owned. The resolution of nonperforming assets also requires the active involvement of management, which can adversely affect the amount of time we devote to the income-producing activities of the Bank.
Additionally, we have legal fees associated with the resolution of problem assets as well as additional costs, such as taxes, insurance and maintenance related to our other real estate owned. The resolution of nonperforming assets also requires the active involvement of management, which can adversely affect the amount of time we devote to the income-producing 19 activities of the Bank.
Decreases in the fair value of securities available for sale resulting from increases in interest rates therefore could have an adverse effect on the Company’s stockholders’ equity. 21 Risks Related to Our Acquisition Activity Impairment in the carrying value of goodwill could negatively affect our results of operations. We have recorded goodwill in connection with our recently completed mergers.
Decreases in the fair value of securities available for sale resulting from increases in interest rates therefore could have an adverse effect on the Company’s stockholders’ equity. Risks Related to Our Acquisition Activity Impairment in the carrying value of goodwill could negatively affect our results of operations. We have recorded goodwill in connection with our recently completed mergers.
In addition, bank regulators periodically review the Company’s allowance for loan losses and may require it to increase the allowance for loan losses or recognize further loan charge-offs. Any increase in the allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on the Company’s financial condition and results of operations.
In addition, bank regulators periodically review the Company’s allowance for credit losses and may require it to increase the allowance for credit losses or recognize further loan charge-offs. Any increase in the allowance for credit losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on the Company’s financial condition and results of operations.
This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition 22 due to potential negative publicity.
This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.
The occurrence of any system failures, interruption or breach of security could damage the Company’s reputation and result in a loss of customers and business thereby, subjecting it to additional regulatory scrutiny, or could expose it to litigation and possible financial liability.
The occurrence of any system failures, interruption or breach of security could damage the Company’s reputation and result in a loss of customers and business thereby, subjecting it to additional regulatory scrutiny, or could expose it to litigation 21 and possible financial liability.
The Company’s profitability will depend upon its continued ability to compete successfully in its market areas. General Risk Factors A worsening of economic conditions could adversely affect the Company’s financial condition and results of operations.
The Company’s profitability will depend upon its continued ability to compete successfully in its market areas. 22 General Risk Factors A worsening of economic conditions could adversely affect the Company’s financial condition and results of operations.
At December 31, 2022, we had $9.7 million of goodwill on our Consolidated Statements of Financial Condition after incurring goodwill impairment of $18.7 million in 2020. Any further impairment to goodwill could have a material adverse impact on the Company’s consolidated financial conditions and results of operations. 100% of the goodwill is assigned to the Community Banking reporting unit.
At December 31, 2023, we had $9.7 million of goodwill on our Consolidated Statements of Financial Condition after incurring goodwill impairment of $18.7 million in 2020. Any further impairment to goodwill could have a material adverse impact on the Company’s consolidated financial conditions and results of operations. 100% of the goodwill is assigned to the Community Banking reporting unit.
If our estimate of the allowance for loan losses is inadequate, we will have to increase the allowance accordingly. 20 If the Company’s allowance for loan losses is not sufficient to cover actual loan losses, the Company’s results of operations would be negatively affected.
If our estimate of the allowance for loan losses is inadequate, we will have to increase the allowance accordingly. If the Company’s allowance for credit losses is not sufficient to cover actual credit losses, the Company’s results of operations would be negatively affected.
We do not record interest income on non-accrual loans or real estate owned. We must reserve for probable losses, which results in additional provisions for loan losses. As circumstances warrant, we must write down the value of properties in our other real estate owned portfolio to reflect changing market values.
We do not record interest income on nonaccrual loans or real estate owned. We must reserve for probable losses, which results in additional provisions for loan losses. As circumstances warrant, we must write down the value of properties in our other real estate owned portfolio to reflect changing market values.
Economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased the Company’s level of risk. Accordingly, the Company could suffer losses if it fails to properly anticipate and manage these risks. Reforms to and uncertainty regarding LIBOR may adversely affect our business.
Economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased the Company’s level of risk. Accordingly, the Company could suffer losses if it fails to properly anticipate and manage these risks.
See Note 1 of the consolidated financial statements for additional detail. Risk Related to Changes in Market Interest Rates Changes in interest rates may reduce the Company’s profits and impair asset values. The Company’s earnings and cash flows depend primarily on its net interest income.
Risk Related to Changes in Market Interest Rates Changes in interest rates may reduce the Company’s profits and impair asset values. The Company’s earnings and cash flows depend primarily on its net interest income.
Further, the Company may be required to expend additional capital resources on professional advisors, which could increase operational expenses and therefore negatively impact our net income. ITEM 1B UNRESOLVED STAFF COMMENTS Not applicable
Further, the Company may be required to expend additional capital resources on professional advisors, which could increase operational expenses and therefore negatively impact our net income. ITEM 1B UNRESOLVED STAFF COMMENTS Not applicable 23 ITEM 1C CYBERSECURITY Our risk management program is designed to identify, assess and mitigate risks across our company.
The Company’s accounting policies are essential to understanding its financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the value of the Company’s assets, liabilities, and financial results.
Some of these policies require the use of estimates and assumptions that may affect the value of the Company’s assets, liabilities, and financial results.
Events and conditions that could result in impairment in the value of our goodwill include worsening business conditions and economic factors, particularly those that may result from the impact of a downturn in the economy as a result of COVID-19, changes in the industries in which we operate, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term profitability and cash flows.
Events and conditions that could result in impairment in the value of our goodwill include worsening business conditions and economic factors, particularly those that may result from the impact of a downturn in the economy as a result of COVID-19, changes in the industries in which we operate, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term profitability and cash flows. 20 Risk Related to Our Liquidity Position If we are unable to borrow funds, we may not be able to meet the cash flow requirements of our depositors, creditors, and borrowers, or the operating cash needed to fund corporate expansion and other corporate activities.
The Bank is a member of the FHLB of Pittsburgh, which provides funding through advances to members that are collateralized with mortgage-related assets. We maintain a portfolio of available-for-sale securities that can be used as a secondary source of liquidity. There are other sources of liquidity available to us should they be needed.
We maintain a portfolio of available-for-sale securities that can be used as a secondary source of liquidity. There are other sources of liquidity available to us should they be needed.
Currently, the manner and impact of this transition and related developments, as well as the effect of these developments on our funding costs, securities portfolio and business, is uncertain. Risks Related to Accounting Matters Changes in the Company’s accounting policies or in accounting standards could materially affect how the Company reports its financial condition and results of operations.
Risks Related to Accounting Matters Changes in the Company’s accounting policies or in accounting standards could materially affect how the Company reports its financial condition and results of operations. The Company’s accounting policies are essential to understanding its financial condition and results of operations.
Our liquidity is used to make loans and to repay deposit liabilities as they become due or are demanded by customers. Liquidity policies and procedures are established by the board, with operating limits set based upon the ratio of loans to deposits and percentage of assets funded with non-core or wholesale funding.
Liquidity policies and procedures are established by the board, with operating limits set based upon the ratio of loans to deposits and percentage of assets funded with non-core or wholesale funding. We regularly monitor our overall liquidity position to ensure various alternative strategies exist to cover unanticipated events that could affect liquidity.
We regularly monitor our overall liquidity position to ensure various alternative strategies exist to cover unanticipated events that could affect liquidity. We also establish policies and monitor guidelines to diversify our wholesale funding sources to avoid concentrations in any one market source. Wholesale funding sources include federal funds purchased, securities sold under repurchase agreements, non-core deposits, and debt.
We also establish policies and monitor guidelines to diversify our wholesale funding sources to avoid concentrations in any one market source. Wholesale funding sources include federal funds purchased, securities sold under repurchase agreements, non-core deposits, and debt. The Bank is a member of the FHLB of Pittsburgh, which provides funding through advances to members that are collateralized with mortgage-related assets.
Removed
Risks Related to COVID-19 Pandemic The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations. The COVID-19 pandemic has caused significant economic dislocation in the United States.
Added
We maintain an allowance for credit losses which represents management's best estimate of credit losses within the existing portfolio of loans. The allowance, in the judgement of management, is appropriate to reserve for estimated credit losses and risks inherent in the loan portfolio.
Removed
Although the domestic and global economies have begun to recover from the COVID-19 pandemic as many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic 19 environment and may persist for some time, including labor shortages and disruptions of global supply chains.
Added
The level of the allowance for credit losses reflects management's continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic conditions and unidentified losses in the current loan portfolio.
Removed
The growth in economic activity and in the demand for goods and services, coupled with labor shortages and supply chain disruptions, has also contributed to rising inflationary pressures.
Added
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of which may undergo material changes.
Removed
As a result of the COVID-19 pandemic and the related adverse economic consequences, we could be subject to the following risks, among others, any of which individually or in combination with others could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: • demand for our products and services may decline, making it difficult to grow assets and income; • if high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; • collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; • limitations may be placed on our ability to foreclose on properties we hold as collateral; • our allowance for loan losses may have to be increased if borrowers experience financial difficulties, which will adversely affect our net income; • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; • our cybersecurity risks are increased as the result of an increase in the number of employees working remotely; • we rely on third-party vendors for certain services and the unavailability of a critical service due to the COVID-19 pandemic could have an adverse effect on us; and • Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.
Added
Changes in economic conditions or forecasts, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for credit losses.
Removed
In determining the adequacy of the allowance for loan losses, the Company analyzes its loss and delinquency experience by loan categories and considers the effect of existing economic conditions.
Added
When considering financial, operational, regulatory, reputational and legal risk, our program is well matched for our size and complexity. Our Chief Technology Officer, in conjunction with the Chief Operating Officer, is currently responsible for managing our information security program.
Removed
In addition, the Company makes various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of the loans.
Added
Given the increasing risk involving cybersecurity and the Bank’s evolving needs and reliance on technology, our strategy involves the addition of a Chief Information Security Officer. The Chief Information Security Officer will be primarily responsible for the cybersecurity component of our risk program.
Removed
If the results of these analyses are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in the portfolio, which would require additions to the allowance and would reduce net income.
Added
These responsibilities include performing and maintaining a cyber risk assessment, defense operations, incident response, vulnerability assessment, threat intelligence, access levels, third party risk and vendor management and business continuity planning. This key role will be developed as we expand our overall risk management program. Our objectives for managing cybersecurity risk is to greatly minimize the impacts of external threats.
Removed
The Financial Accounting Standard Board ("FASB") has issued an accounting standard update that will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.
Added
This includes, but is not limited to, efforts to penetrate, disrupt or misuse our systems or information. Our information security program is designed to comply with industry standards, such as the National Institute of Technology Cybersecurity Framework. We successfully leverage several associations, industry groups, audits and enhanced monitoring to promote the effectiveness of our program.
Removed
In 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments .
Added
Our Chief Technology Officer, who reports to our Chief Operating Officer, collaborates regularly with peer banks and other industry groups to identify and implement best practices. Our program is regularly reviewed in an effort to address emerging trends and threats. We maintain multiple controls in an effort to manage cybersecurity threats.
Removed
For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current accounting principles generally accepted in the United States of America ("GAAP") and instead requires an entity to reflect its estimate of all current expected credit losses ("CECL").
Added
We employ various preventative and detective controls to monitor, block and prevent suspicious activity including those that provide real-time alerts and response. We have systems designed to mitigate cyber risk, which includes ongoing training for employees, preparedness and tabletop exercises, and recovery testing.
Removed
Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and debt securities, at the net amount expected to be collected.
Added
We maintain a robust vendor management program that identifies, assesses and documents risk associated with external service providers. We proactively monitor email servers for malicious activity and limit remote work only to qualified positions. We leverage internal and external auditors to review processes, systems and controls related to our information security program to ensure they are operating effectively.
Removed
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the Statements of Financial Condition and periodically thereafter.
Added
Management proactively responds to all recommendations designed to strengthen or improve our operating environment. We maintain a detailed Incident Response Plan which outlines the steps we would implement in the event of an actual or potential cybersecurity event. The Incident Response Plan includes timely notification of an escalation to the appropriate levels of management and Board of Directors.
Removed
This differs significantly from the incurred loss model required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses.
Added
The Incident Response Plan is reviewed and updated at least annually and mandates coordination and collaboration across all levels of management and all areas of the Bank. The Board of Directors reviews components of the information security program on annual basis including policies, procedures, risk assessments, table top testing results, attestations, budgets and strategies.
Removed
Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
Added
These components are presented by Executive Management as part of the regular board meeting schedule and strategic planning process. 24
Removed
In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies resulting in a required implementation date for the Company as of January 1, 2023. Upon adoption, the Company expects to record a cumulative effect adjustment to retained earnings that will increase stockholders’ equity by $2.1 million, net of tax.
Removed
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority ("FCA"), which regulates the London Inter-bank Offered Rate (“LIBOR”), announced in July 2017 that the sustainability of LIBOR cannot be guaranteed.
Removed
The administrator for LIBOR announced on March 5, 2021 that it will permanently cease to publish most LIBOR settings beginning on January 1, 2022 and cease to publish the overnight, one-month, three-month, six-month and 12-month USD LIBOR settings on July 1, 2023.
Removed
Accordingly, the FCA has stated that is does not intend to persuade or compel banks to submit to LIBOR after such respective dates. Until such time, however, FCA panel banks have agreed to continue to support LIBOR.
Removed
It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere.
Removed
A committee of private-market derivative participants and their regulators convened by the Federal Reserve, the Alternative Reference Rates Committee (“ARRC”), was created to identify an alternative reference interest rate to replace LIBOR. The ARRC announced Secured Overnight Financing Rate (“SOFR”), a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as its preferred alternative to LIBOR.
Removed
Subsequently, the Federal Reserve announced final plans for the production of SOFR, which resulted in the commencement of its published rates by the FRB of New York on April 2, 2018. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR at this time is uncertain.
Removed
The uncertainty as to the nature and effect of such reforms and actions and the political discontinuance of LIBOR may adversely affect the value of and return on our financial assets and liabilities that are based on or are linked to LIBOR, our results of operations or financial condition.
Removed
In addition, these reforms may also require extensive changes to the contracts that 23 govern these LIBOR based products, as well as our systems and processes.
Removed
The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers may result in our incurring significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.

Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed0 unchanged
Biggest changeThe insurance brokerage services segment, Exchange Underwriters, operates from one office. We believe that our office facilities are adequate to meet our present and immediately foreseeable needs. 25 The following table sets forth certain information concerning the main and each branch office at December 31, 2022.
Biggest changeWe believe that our office facilities are adequate to meet our present and immediately foreseeable needs. The following table sets forth certain information concerning the main and each branch office at December 31, 2023. Location Owned or Leased PENNSYLVANIA Main Office (Greene County): 100 North Market Street, Carmichaels, PA 15320 Owned Barron P. "Pat" McCune, Jr.
Operations Center (Greene County): 600 Evergreene Drive, Waynesburg, PA 15370 Owned Branch Offices (Greene County): 30 West Greene Street, Waynesburg, PA 15370 Owned 100 Miller Lane, Waynesburg, PA 15370 Building Owned, Ground Lease 1993 South Eighty Eight Road, Greensboro, PA 15338 Owned Branch Offices (Washington County): 65 West Chestnut Street, Washington, PA 15301 Building Owned, Ground Lease 4139 Washington Road, McMurray, PA 15317 Leased 200 Main Street, Claysville, PA 15232 Owned Branch Offices (Fayette County): 545 West Main Street, Uniontown, PA 15401 Building Owned, Ground Lease Branch Office (Westmoreland County): 1670 Broad Avenue, Belle Vernon, PA 15012 Owned Branch Office (Allegheny County): 714 Brookline Boulevard, Pittsburgh, PA 15226 Owned Northern Business Center: 100 Pinewood Lane, Suite 101, Warrendale, PA 15086 Leased Exchange Underwriters 2111 North Franklin Drive, Washington, PA 15301 Owned WEST VIRGINIA Branch Offices (Ohio County): 1701 Warwood Avenue, Wheeling, WV 26003 Owned 875 National Road, Wheeling, WV 26003 Owned Branch Office (Marshall County): 809 Lafayette Avenue, Moundsville, WV 26041 Owned
Operations Center (Greene County): 600 Evergreene Drive, Waynesburg, PA 15370 Owned Branch Offices (Greene County): 30 West Greene Street, Waynesburg, PA 15370 Owned 100 Miller Lane, Waynesburg, PA 15370 Building Owned, Ground Lease 1993 South Eighty Eight Road, Greensboro, PA 15338 Owned Branch Offices (Washington County): 65 West Chestnut Street, Washington, PA 15301 Building Owned, Ground Lease 4139 Washington Road, McMurray, PA 15317 Leased 200 Main Street, Claysville, PA 15232 Owned Branch Offices (Fayette County): 545 West Main Street, Uniontown, PA 15401 Building Owned, Ground Lease Branch Office (Westmoreland County): 1670 Broad Avenue, Belle Vernon, PA 15012 Owned Branch Office (Allegheny County): 714 Brookline Boulevard, Pittsburgh, PA 15226 Owned Northern Loan Production Office: 100 Pinewood Lane, Suite 101, Warrendale, PA 15086 Leased Southpointe Loan Production Office: 325 Southpointe Boulevard, Canonsburg, PA 15317 Leased WEST VIRGINIA Branch Offices (Ohio County): 1701 Warwood Avenue, Wheeling, WV 26003 Owned 875 National Road, Wheeling, WV 26003 Owned Branch Office (Marshall County): 809 Lafayette Avenue, Moundsville, WV 26041 Owned
ITEM 2. PROPERTIES At December 31, 2022, our premises and equipment had an aggregate net book value of approximately $17.8 million. We conduct our business through 13 branch offices. The branch offices are utilized by the community banking segment. In addition, the community banking segment has a corporate office, operations center and loan production office.
ITEM 2. PROPERTIES At December 31, 2023, our premises and equipment had an aggregate net book value of approximately $19.7 million. We conduct our business through 13 branch offices. The branch offices are utilized by the community banking segment. In addition, the community banking segment has a corporate office, an operations center and two loan production offices.
Location Owned or Leased PENNSYLVANIA Main Office (Greene County): 100 North Market Street, Carmichaels, PA 15320 Owned Barron P. "Pat" McCune, Jr. Corporate Center (Washington County): 2111 North Franklin Drive, Washington, PA 15301 Owned Ralph J. Sommers, Jr.
Corporate Center (Washington County): 2111 North Franklin Drive, Washington, PA 15301 Owned Ralph J. Sommers, Jr.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS At December 31, 2022, we were not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts that management believes are immaterial to our financial condition, results of operations and cash flows. ITEM 4. MINE SAFETY DISCLOSURES None. PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS At December 31, 2023, we were not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts that management believes are immaterial to our financial condition, results of operations and cash flows. ITEM 4. MINE SAFETY DISCLOSURES None. 25 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePlan Category Number of securities to be issued upon exercise of outstanding options warrants and rights Weighted-average exercise price of outstanding options warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (A) (B) (C) Equity compensation plans: Approved by stockholders 283,748 (1) $ 24.52 (1) 333,335 (2) Not approved by stockholders — — — Total 283,748 $ 24.52 333,335 (1) Represents stock options available to be exercised under the 2015 Equity Incentive Plan (the "2015 Plan").
Biggest changePlan Category Number of securities to be issued upon exercise of outstanding options warrants and rights Weighted-average exercise price of outstanding options warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (A) (B) (C) Equity compensation plans: Approved by stockholders 337,444 (1) $ 24.11 (1) 161,464 (2) Not approved by stockholders — — — Total 337,444 $ 24.11 161,464 (1) Represents stock options available to be exercised from Treasury Stock under the 2015 Equity Incentive Plan (the "2015 Plan") and stock options granted under the 2021 Equity Incentive Plan (the "2021 Plan") that can be issued from a reserve upon exercise.
The 2015 Plan shall remain in effect as long as any awards are outstanding, but as a result of the approval of the 2021 Equity Incentive Plan (the "2021 Plan"), no more awards can be granted under the 2015 Plan.
The 2015 Plan shall remain in effect as long as any awards are outstanding, but as a result of the approval of the 2021 Equity Incentive Plan, no more awards can be granted under the 2015 Plan.
Certain shares of Company common stock are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. 26 Equity Compensation Plans The following table provides information at December 31, 2022, for compensation plans under which equity securities may be issued.
Certain shares of Company common stock are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. Equity Compensation Plans The following table provides information at December 31, 2023, for compensation plans under which equity securities may be issued.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is traded on the NASDAQ Global Market under the symbol “CBFV.” The approximate number of holders of record of the Company’s common stock as of March 7, 2023, was 625.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is traded on the NASDAQ Global Market under the symbol “CBFV.” The approximate number of holders of record of the Company’s common stock as of March 6, 2024, was 606.
(2) Represents 333,335 shares available under the 2021 Plan (the "Share Limit") that can be issued of which a maximum of 333,335 shares may be issued as stock options and 166,667 shares may be issued as restricted stock awards or units based on the terms of the Plan whereby the Share Limit is reduced, on a one-for-one basis, for each share of common stock subject to a stock option grant, and on a two and one-half-for-one basis for each share of common stock issued pursuant to restricted stock awards or units.
(2) Represents 161,464 shares available under the 2021 Plan (the "Share Limit") that can be issued of which a maximum of 161,464 shares may be issued as stock options or 64,586 shares may be issued as restricted stock awards or units based on the terms of the Plan whereby the Share Limit is reduced, on a one-for-one basis, for each share of common stock subject to a stock option grant, and on a two and one-half-for-one basis for each share of common stock issued pursuant to restricted stock awards or units.
At December 31, 2022, 104,465 stock options, and 27,765 restricted shares have been granted under the 2021 Plan. Issuer Purchases of Equity Securities The following table provides information relating to our purchase of shares of our common stock during the three months ended December 31, 2022.
At December 31, 2023, 183,440 stock options, and 67,990 restricted shares have been granted under the 2021 Plan. Issuer Purchases of Equity Securities The Company did not repurchase any of its equity securities during the three months ended December 31, 2023.
Removed
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of the Publicly Announced Program Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program October 1-31, 2022 4,620 $ 21.88 4,620 $ 8,603,128 November 1-30, 2022 0 — 0 8,603,128 December 1-31, 2022 0 — 0 8,603,128 Total 4,620 $ 21.88 4,620 (1) On April 21, 2022, the Company announced that the Board had approved a program commencing on May 2, 2022 to repurchase up to $10.0 million of the Company's outstanding common stock.
Removed
This repurchase is set to expire on May 1, 2023. In connection with the program, as of December 31, 2022, the Company purchased a total of 62,178 shares of the Company's common stock at an average price of $22.46 per share. ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. 2022 2021 Year Ended December 31, Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost (Dollars in Thousands) Assets: Interest-Earning Assets: Loans, Net (1) $ 1,019,124 $ 42,010 4.12 % $ 1,014,405 $ 39,799 3.92 % Securities Taxable 220,818 3,852 1.74 162,987 2,990 1.83 Tax Exempt 8,383 270 3.22 11,829 366 3.09 Equity Securities 2,693 91 3.38 2,657 84 3.16 Interest Bearing Deposits at Other Banks 70,765 1,473 2.08 177,768 304 0.17 Other Interest-Earning Assets 3,092 154 4.98 3,733 186 4.98 Total Interest-Earning Assets 1,324,875 47,850 3.61 1,373,379 43,729 3.18 Noninterest-Earning Assets 81,553 91,075 Total Assets $ 1,406,428 $ 1,464,454 Liabilities and Stockholders' equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits $ 282,850 $ 1,362 0.48 % $ 272,256 $ 232 0.09 % Savings 248,334 88 0.04 247,864 98 0.04 Money Market 194,223 976 0.50 201,222 281 0.14 Time Deposits 124,817 1,599 1.28 171,805 2,514 1.46 Total Interest-Bearing Deposits 850,224 4,025 0.47 893,147 3,125 0.35 Short-term Borrowings: Securities Sold Under Agreement to Repurchase 27,360 63 0.23 43,988 98 0.22 Other Borrowed Funds 17,609 693 3.94 7,172 182 2.54 Total Interest-Bearing Liabilities 895,193 4,781 0.53 944,307 3,405 0.36 Noninterest-Bearing Demand Deposits 389,553 378,374 Other Liabilities 4,072 8,168 Total Liabilities 1,288,818 1,330,849 Stockholders' Equity 117,610 133,605 Total Liabilities and Stockholders' Equity $ 1,406,428 $ 1,464,454 Net Interest Income (FTE) (Non-GAAP) (2) $ 43,069 $ 40,324 Net Interest Rate Spread (FTE) (Non-GAAP) (2)(3) 3.08 2.82 Net Interest-Earning Assets (4) $ 429,682 $ 429,072 Net Interest Margin (FTE) (Non-GAAP) (2)(5) 3.25 2.94 Return on Average Assets 0.80 0.79 Return on Average Equity 9.56 8.66 Average Equity to Average Assets 8.36 9.12 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 148.00 145.44 PPP Loans $ 5,666 $ 734 12.95 $ 45,905 $ 2,189 4.77 (1) Net of the allowance for loan losses and includes nonaccrual loans with a zero yield (2) Refer to Explanation of Use of Non-GAAP Financial Measures in this Report for the calculation of the measure and reconciliation to the most comparable GAAP measure.
Biggest changeThe yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. 2023 2022 Year Ended December 31, Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost (Dollars in Thousands) Assets: Interest-Earning Assets: Loans, Net (1) $ 1,076,928 $ 54,763 5.09 % $ 1,019,124 $ 42,010 4.12 % Securities Taxable 208,472 4,017 1.93 220,818 3,852 1.74 Tax Exempt 5,821 199 3.42 8,383 270 3.22 Equity Securities 2,693 106 3.94 2,693 91 3.38 Interest-Earning Deposits at Other Banks 61,638 3,084 5.00 70,765 1,473 2.08 Other Interest-Earning Assets 3,027 211 6.97 3,092 154 4.98 Total Interest-Earning Assets 1,358,579 62,380 4.59 1,324,875 47,850 3.61 Noninterest-Earning Assets 48,448 81,553 Total Assets $ 1,407,027 $ 1,406,428 Liabilities and Stockholders' equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits $ 354,060 $ 6,741 1.90 % $ 282,850 $ 1,362 0.48 % Money Market 199,962 4,554 2.28 194,223 976 0.50 Savings 220,146 202 0.09 248,334 88 0.04 Time Deposits 156,310 4,936 3.16 124,817 1,599 1.28 Total Interest-Bearing Deposits 930,478 16,433 1.77 850,224 4,025 0.47 Short-term Borrowings 931 32 3.44 27,360 63 0.23 Other Borrowed Funds 26,328 1,207 4.58 17,609 693 3.94 Total Interest-Bearing Liabilities 957,737 17,672 1.85 895,193 4,781 0.53 Noninterest-Bearing Demand Deposits 326,408 389,553 Total Funding and Cost of Funds 1,284,145 1.38 1,284,746 0.37 Other Liabilities 6,764 4,072 Total Liabilities 1,290,909 1,288,818 Stockholders' Equity 116,118 117,610 Total Liabilities and Stockholders' Equity $ 1,407,027 $ 1,406,428 Net Interest Income (Non-GAAP) (2) $ 44,708 $ 43,069 Net Interest Rate Spread (Non-GAAP) (2)(3) 2.74 3.08 Net Interest-Earning Assets (4) $ 400,842 $ 429,682 Net Interest Margin (Non-GAAP) (2)(5) 3.29 3.25 Return on Average Assets 1.60 0.80 Return on Average Equity 19.42 9.56 Average Equity to Average Assets 8.25 8.36 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 141.85 148.00 (1) Net of the allowance for credit losses and includes nonaccrual loans with a zero yield (2) Refer to Explanation of Use of Non-GAAP Financial Measures in this Report for the calculation of the measure and reconciliation to the most comparable GAAP measure.
The Company attempts to maximize observable inputs and limit the use of unobservable inputs when developing fair value measurements, Fair value measurements for assets where there exists limited or no observable market data and that are based primarily upon the Company’s or other third-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment and other such factors.
The Company attempts to maximize observable inputs and limit the use of unobservable inputs when developing fair value measurements, Fair value measurements for assets where there exists limited or no observable market data and that are based primarily upon the Company’s or other third-party’s estimates, are often calculated based on the characteristics of the asset, the 31 economic and competitive environment and other such factors.
While management uses 29 the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making evaluations. Additions are made to the allowance through periodic provisions charged to income and recovery of principal and interest on loans previously charged-off.
While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making evaluations. Additions are made to the allowance through periodic provisions charged to income and recovery of principal and interest on loans previously charged-off.
The specific component relates to loans that are classified as impaired. A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due for principal and interest according to the original contractual terms of the loan agreement.
The specific component relates to loans that are classified as impaired. A loan is considered impaired when, based upon current information and events, it is probable that the Company will 30 be unable to collect all amounts due for principal and interest according to the original contractual terms of the loan agreement.
In the application of the market approach, the Guideline Public Company ("GPC") method of appraisal is based on the premise that pricing multiples of publicly traded companies can be used as a tool to be applied in valuing a closely held entity.
In the application of the market approach, the Guideline Public Company method of appraisal is based on the premise that pricing multiples of publicly traded companies can be used as a tool to be applied in valuing a closely held entity.
The Bank’s primary sources of funds consist of deposit inflows, loan repayments, and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
The Bank’s primary sources of funds consist of deposit inflows, loan repayments, and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.
Level 30 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs. Level 3 – Fair value is based on significant unobservable inputs.
Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs. Level 3 – Fair value is based on significant unobservable inputs.
Such loans are placed under close supervision, with consideration given to the need for additions to the allowance for loan losses and (if appropriate) partial or full charge-off. Management believes the volume of nonperforming assets can be partially attributed to unique borrower circumstances as well as the economy in general.
Such loans are placed under close supervision, with consideration given to the need for additions to the allowance for credit losses and (if appropriate) partial or full charge-off. Management believes the volume of nonperforming assets can be partially attributed to unique borrower circumstances as well as the economy in general.
Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein. Refer to the "Reconciliations of Non-GAAP Financial Measures to GAAP" within this Item 7 for further information. Comparison of Financial Condition at December 31, 2022 and 2021 Assets.
Where Non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein. Refer to the "Reconciliations of Non-GAAP Financial Measures to GAAP" within this Item 7 for further information. Comparison of Financial Condition at December 31, 2023 and 2022 Assets.
Although we maintain our allowance for loan losses at a level that we consider to be adequate to provide for potential losses, there can be no assurance that such losses will not exceed the estimated amounts or that we will not be required to make additions to the allowance for loan losses in the future.
Although we maintain our allowance for credit losses at a level that we consider to be adequate to provide for potential losses, there can be no assurance that such losses will not exceed the estimated amounts or that we will not be required to make additions to the allowance for credit losses in the future.
Future additions to our allowance for loan losses and changes in the related ratio of the allowance for loan losses to nonperforming loans are dependent upon the economy, changes in real estate values and interest rates, the view of the regulatory authorities toward adequate loan loss reserve levels, and inflation.
Future additions to our allowance for credit losses and changes in the related ratio of the allowance for credit losses to nonperforming loans are dependent upon the economy, changes in real estate values and interest rates, the view of the regulatory authorities toward adequate credit loss reserve levels, and inflation.
The composition and maturities of the debt securities portfolio at December 31, 2022, are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.
The composition and maturities of the debt securities portfolio at December 31, 2023, are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.
The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2022. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.
The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2023. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.
The information at December 31, 2022 and 2021, and for the years ended December 31, 2022 and 2021 is derived in part from, and should be read together with, the Company's audited consolidated financial statements and notes included in this Report and should be read together therewith.
The information at December 31, 2023 and 2022, and for the years ended December 31, 2023 and 2022 is derived in part from, and should be read together with, the Company's audited consolidated financial statements and notes included in this Report and should be read together therewith.
The following table sets forth the composition of our securities portfolio at the dates indicated. 2022 2021 December 31, Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in Thousands) Available-for-Sale Debt Securities: U.S.
The following table sets forth the composition of our securities portfolio at the dates indicated. 2023 2022 December 31, Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in Thousands) Available-for-Sale Debt Securities: U.S.
Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities and agreements with respect to investments. The following tables present certain of our contractual obligations at December 31, 2022.
Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities and agreements with respect to investments. The following tables present certain of our contractual obligations at December 31, 2023.
At December 31, 2022, we had no loans that were not classified as nonaccrual, 90 days past due or troubled debt restructurings where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.
At December 31, 2023 and December 31, 2022, we had no loans that were not classified as nonaccrual or 90 days past due where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure as nonaccrual or 90 days past due.
The information at December 31, 2020 and for the year ended December 31, 2020 is derived in part from audited financial statements that are not included in this Report.
The information at December 31, 2021 and for the year ended December 31, 2021 is derived in part from audited financial statements that are not included in this Report.
The GPC method using trading activity of 31 publicly traded companies that are most similar to the Company may also be considered when the banking industry has a sufficient level of mergers and acquisitions activity The results of the income and market approaches may be weighted to determine the concluded fair value of the reporting unit.
The Guideline Public Company method using trading activity of publicly traded companies that are most similar to the Company may also be considered when the banking industry has a sufficient level of mergers and acquisitions activity The results of the income and market approaches may be weighted to determine the concluded fair value of the reporting unit.
The Company is a separate legal entity from the Bank and must provide for its own liquidity to pay dividends to stockholders, to pay principal and interest on its subordinated debt and for other corporate purposes. At December 31, 2022, the Company (on an unconsolidated basis) had liquid assets of $16.3 million.
The Company is a separate legal entity from the Bank and must provide for its own liquidity to pay dividends to stockholders, to pay principal and interest on its subordinated debt and for other corporate purposes. At December 31, 2023, the Company (on an unconsolidated basis) had liquid assets of $16.0 million.
The DCF model also uses prospective financial information. Estimating future earnings and capital requirements involves judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments. Under the market approach, Level 1 and 2 inputs are used when measuring fair value.
The discounted cash flow model also uses prospective financial information. Estimating future earnings and capital requirements involves judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments. Under the market approach, Level 1 and 2 inputs are used when measuring fair value.
(3) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. Net interest rate spread (GAAP) was 3.07% and 2.81% for the year ended December 31, 2022 and 2021, respectively (4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. Net interest rate spread (GAAP) was 2.73% and 3.07% for the year ended December 31, 2023 and 2022, respectively. (4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets. Net interest margin (GAAP) was 3.24% and 2.92% for the year ended December 31, 2022 and 2021, respectively 42 Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the years indicated.
(5) Net interest margin represents net interest income divided by average total interest-earning assets. Net interest margin (GAAP) was 3.28% and 3.24% for the year ended December 31, 2023 and 2022, respectively. 42 Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the years indicated.
This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $602.5 million of residential and commercial mortgage loans and the Bank’s investment in FHLB stock.
This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $677.2 million of residential and commercial mortgage loans and the Bank’s investment in FHLB stock.
The Bank also maintains a Borrower-In-Custody of Collateral line of credit agreement with the FRB for $119.0 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $172.9 million of commercial and consumer indirect auto loans.
The Bank also maintains a Borrower-In-Custody of Collateral line of credit agreement with the FRB for $103.8 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $142.9 million of commercial and consumer indirect auto loans.
The Bank can attract and retain deposits by adjusting the interest rates offered. The Bank’s primary investing activities are the origination of loans. For the year ended December 31, 2022 the Bank had net loan originations of $31.4 million.
The Bank can attract and retain deposits by adjusting the interest rates offered. The Bank’s primary investing activities are the origination of loans. For the year ended December 31, 2023 the Bank had net loan originations of $63.5 million.
The Bank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $50.0 million as of December 31, 2022. At December 31, 2022, the Bank had funding commitments totaling $156.7 million, consisting primarily of commitments to originate loans, unused lines of credit and letters of credit.
The Bank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $50.0 million as of December 31, 2023. At December 31, 2023, the Bank had funding commitments totaling $146.1 million, consisting primarily of commitments to originate loans, unused lines of credit and letters of credit.
The estimates are based on the same methodologies and assumptions used for the Bank's regulatory reporting requirements. Of the amount at December 31, 2022, an estimated $6.5 million are uninsured time deposits and the following table sets forth their maturity.
The estimates are based on the same methodologies and assumptions used for the Bank's regulatory reporting requirements. Of the amount at December 31, 2023, an estimated $23.2 million are uninsured time deposits and the following table sets forth their maturity.
The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21% for 2022 and 2021. All average balances are daily average balances.
The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21%. All average balances are daily average balances. Nonaccrual loans are included in the computation of average balances only.
Refer to Explanation of Use of Non-GAAP Financial Measures in Item 7 of this Report for the calculation of the measure and reconciliation to the most comparable GAAP measure. . (5) Represents noninterest expense divided by the sum of net interest income and noninterest income. (6) Capital ratios are for Community Bank only.
Refer to Explanation of Use of Non-GAAP Financial Measures in Item 7 of this Report for the calculation of the measure and reconciliation to the most comparable GAAP measure. (5) Represents noninterest expense divided by the sum of net interest income and noninterest income.
At December 31, 2022, certificates of deposit due within one year of that date totaled $69.4 million, or 63.6% of total certificates of deposit. While liquidity levels at December 31, 2022 are currently sufficient, if these certificates of deposit do not remain with the Bank, the Bank may be required to seek other sources of funds.
At December 31, 2023, certificates of deposit due within one year of that date totaled $136.0 million, or 59.0% of total certificates of deposit. While liquidity levels at December 31, 2023 are currently sufficient, if these certificates of deposit do not remain with the Bank, the Bank may be required to seek other sources of funds.
The Bank believes that it had sufficient liquidity at December 31, 2022, to satisfy its short- and long-term liquidity needs at that date. The Bank’s most liquid assets are cash and due from banks, which totaled $103.7 million at December 31, 2022. Unpledged securities, which provide an additional source of liquidity, totaled $14.4 million.
The Bank believes that it had sufficient liquidity at December 31, 2023, to satisfy its short- and long-term liquidity needs at that date. The Bank’s most liquid assets are cash and due from banks, which totaled $68.2 million at December 31, 2023. Unpledged securities, which provide an additional source of liquidity, totaled $49.8 million.
Year Ended December 31, 2022 2021 Real Estate: Residential (0.03) % — % Commercial — 0.01 Construction — — Commercial and Industrial 3.90 (0.04) Consumer 0.04 0.06 Other — — Total Loans 0.25 % 0.01 % Allocation of Allowance for Loan Losses.
Year Ended December 31, 2023 2022 Real Estate: Residential 0.05 % (0.03) % Commercial (0.01) — Construction — — Commercial and Industrial (0.89) 3.90 Consumer 0.14 0.04 Other — — Total Loans (0.05) % 0.25 % Allocation of Allowance for Credit Losses.
Critical Accounting Policies and Use of Critical Accounting Estimates Critical accounting policies are those that involve significant judgments, estimates and assumptions by management and that have, or could have, a material impact on the Company’s income or the carrying value of its assets. Allowance for Loan Losses.
(6) Capital ratios are for Community Bank only. 28 Critical Accounting Policies and Use of Critical Accounting Estimates Critical accounting policies are those that involve significant judgments, estimates and assumptions by management and that have, or could have, a material impact on the Company’s income or the carrying value of its assets. Allowance for Credit Losses (ACL).
December 31, 2022 2021 2020 (Dollars in Thousands) Selected Financial Condition Data: Assets $ 1,408,938 $ 1,425,479 $ 1,416,720 Cash and Due From Banks 103,700 119,674 160,911 Securities 190,058 224,974 145,400 Loans, Net 1,037,054 1,009,214 1,031,982 Deposits 1,268,503 1,226,613 1,224,569 Short-Term Borrowings 8,060 39,266 41,055 Other Borrowings 14,638 17,601 8,000 Stockholders’ Equity 110,155 133,124 134,530 Year Ended December 31, 2022 2021 2020 (Dollars in Thousands) Selected Operating Data: Interest and Dividend Income $ 47,716 $ 43,557 $ 47,467 Interest Expense 4,781 3,405 5,563 Net Interest and Dividend Income 42,935 40,152 41,904 Provision (Recovery) for Loan Losses 3,784 (1,125) 4,000 Net Interest and Dividend Income After Provision (Recovery) for Loan Losses 39,151 41,277 37,904 Noninterest Income 9,820 16,280 9,471 Noninterest Expense 34,891 42,862 56,767 Income (Loss) Before Income Tax Expense 14,080 14,695 (9,392) Income Tax Expense 2,833 3,125 1,248 Net Income (Loss) $ 11,247 $ 11,570 $ (10,640) At or For the Year Ended December 31, 2022 2021 2020 Per Common Share Data: Earnings (Loss) Per Common Share - Basic $ 2.19 $ 2.15 $ (1.97) Earnings (Loss) Per Common Share - Diluted 2.18 2.15 (1.97) Dividends Per Common Share 0.96 0.96 0.96 Dividend Payout Ratio (1) 44.04 % 44.65 % (48.73) % Book Value Per Common Share $ 21.60 $ 25.31 $ 24.76 Common Shares Outstanding 5,100,189 5,260,672 5,434,374 28 At or For the Year Ended December 31, 2022 2021 2020 Selected Financial Ratios: Return on Average Assets 0.80 % 0.79 % (0.77) % Return on Average Equity 9.56 8.66 (7.18) Average Interest-Earning Assets to Average Interest-Bearing Liabilities 148.00 145.44 139.89 Average Equity to Average Assets 8.36 9.12 10.75 Net Interest Rate Spread (2) 3.07 2.81 3.13 Net Interest Rate Spread (Non-GAAP) (2)(4) 3.08 2.82 3.15 Net Interest Margin (3) 3.24 2.92 3.30 Net Interest Margin (Non-GAAP) (3)(4) 3.25 2.94 3.32 Net Charge-Offs to Average Loans 0.25 0.01 0.11 Noninterest Expense to Average Assets 2.48 2.93 4.12 Efficiency Ratio (5) 66.14 75.95 110.50 Asset Quality Ratios: Allowance for Loan Losses to Total Loans 1.22 % 1.13 % 1.22 % Allowance for Loan Losses to Nonperforming Loans 221.06 159.40 88.15 Allowance for Loan Losses to Nonaccrual Loans 320.64 233.37 117.28 Delinquent and Nonaccrual Loans to Total Loans 0.81 0.78 1.50 Nonperforming Loans to Total Loans 0.55 0.71 1.39 Nonperforming Loans to Total Assets 0.41 0.51 1.02 Nonperforming Assets to Total Assets 0.41 0.51 1.04 Capital Ratios: Common Equity Tier 1 Capital to Risk-Weighted Assets (6) 12.33 % 11.95 % 11.79 % Tier 1 Capital to Risk-Weighted Assets (6) 12.33 11.95 11.79 Total Capital to Risk-Weighted Assets (6) 13.58 13.18 13.04 Tier 1 Leverage Capital to Adjusted Total Assets (6) 8.66 7.76 7.81 Other: Number of Branch Offices 13 14 22 Number of Full-Time Equivalent Employees 197 200 257 (1) Represents dividends per share divided by net income per share.
December 31, 2023 2022 2021 (Dollars in Thousands) Selected Financial Condition Data: Assets $ 1,456,091 $ 1,408,938 $ 1,425,479 Cash and Due From Banks 68,223 103,700 119,674 Securities 207,095 190,058 224,974 Loans, Net 1,100,689 1,037,054 1,009,214 Deposits 1,267,159 1,268,503 1,226,613 Short-Term Borrowings — 8,060 39,266 Other Borrowed Funds 34,678 14,638 17,601 Stockholders’ Equity 139,834 110,155 133,124 Year Ended December 31, 2023 2022 2021 (Dollars in Thousands) Selected Operating Data: Interest and Dividend Income $ 62,225 $ 47,716 $ 43,557 Interest Expense 17,672 4,781 3,405 Net Interest and Dividend Income 44,553 42,935 40,152 (Recovery) Provision for Credit Losses - Loans (284) 3,784 (1,125) Recovery for Credit Losses - Unfunded Commitments (218) — — Net Interest and Dividend Income After (Recovery) Provision for Credit Losses 45,055 39,151 41,277 Noninterest Income 24,012 9,820 16,280 Noninterest Expense 38,782 34,891 42,862 Income Before Income Tax Expense 30,285 14,080 14,695 Income Tax Expense 7,735 2,833 3,125 Net Income $ 22,550 $ 11,247 $ 11,570 27 At or For the Year Ended December 31, 2023 2022 2021 Per Common Share Data: Earnings Per Common Share - Basic $ 4.41 $ 2.19 $ 2.15 Earnings Per Common Share - Diluted 4.40 2.18 2.15 Dividends Per Common Share 1.00 0.96 0.96 Dividend Payout Ratio (1) 22.73 % 44.04 % 44.65 % Book Value Per Common Share $ 27.31 $ 21.60 $ 25.31 Common Shares Outstanding 5,119,543 5,100,189 5,260,672 At or For the Year Ended December 31, 2023 2022 2021 Selected Financial Ratios: Return on Average Assets 1.60 % 0.80 % 0.79 % Return on Average Equity 19.42 9.56 8.66 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 141.85 148.00 145.44 Average Equity to Average Assets 8.25 8.36 9.12 Net Interest Rate Spread (2) 2.73 3.07 2.81 Net Interest Rate Spread (Non-GAAP) (2)(4) 2.74 3.08 2.82 Net Interest Margin (3) 3.28 3.24 2.92 Net Interest Margin (Non-GAAP) (3)(4) 3.29 3.25 2.94 Net (Recoveries) Charge-offs to Average Loans (0.05) 0.25 0.01 Noninterest Expense to Average Assets 2.76 2.48 2.93 Efficiency Ratio (5) 56.56 66.14 75.95 Asset Quality Ratios: Allowance for Credit Losses to Total Loans 0.87 % 1.22 % 1.13 % Allowance for Credit Losses to Nonperforming Loans 433.35 221.06 159.40 Allowance for Credit Losses to Nonaccrual Loans 433.35 320.64 233.37 Delinquent and Nonaccrual Loans to Total Loans 0.62 0.81 0.78 Nonperforming Loans to Total Loans 0.20 0.55 0.71 Nonperforming Loans to Total Assets 0.15 0.41 0.51 Nonperforming Assets to Total Assets 0.16 0.41 0.51 Capital Ratios: Common Equity Tier 1 Capital to Risk-Weighted Assets (6) 13.64 % 12.33 % 11.95 % Tier 1 Capital to Risk-Weighted Assets (6) 13.64 12.33 11.95 Total Capital to Risk-Weighted Assets (6) 14.61 13.58 13.18 Tier 1 Leverage Capital to Adjusted Total Assets (6) 10.19 8.66 7.76 Other: Number of Branch Offices 13 13 14 Number of Full-Time Equivalent Employees 161 197 200 (1) Represents dividends per share divided by net income per share.
The magnitude and timing of further interest rate action is unknown. Explanation of Use of Non-GAAP Financial Measures In addition to traditional measures presented in accordance with generally accepted accounting principles (“GAAP”), we use, and this Report contains or references, certain non-GAAP financial measures.
Explanation of Use of Non-GAAP Financial Measures In addition to traditional measures presented in accordance with generally accepted accounting principles (“GAAP”), we use, and this Report contains or references, certain Non-GAAP financial measures.
Management will continue to periodically review the entire loan portfolio to determine the extent, if any, to which further additional loan loss provisions may be deemed necessary. 46 Analysis of the Allowance for Loan Losses.
Management will continue to periodically review the entire loan portfolio to determine the extent, if any, to which further additional credit loss provisions may be deemed necessary. 46 Analysis of the Allowance for Credit Losses. The following table summarizes changes in the allowance for credit losses by loan categories for each year indicated.
December 31, 2022 2021 (Dollars in Thousands, Except Share and Per Share Data) Stockholders' Equity (GAAP) (Numerator) $ 110,155 $ 133,124 Goodwill and Other Intangible Assets, Net (13,245) (15,027) Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 96,910 $ 118,097 Common Shares Outstanding (Denominator) 5,100,189 5,260,672 Book Value per Common Share (GAAP) $ 21.60 $ 25.31 Tangible Book Value per Common Share (Non-GAAP) $ 19.00 $ 22.45 Liquidity Liquidity is the ability to meet current and future financial obligations of a short-term nature.
December 31, 2023 2022 (Dollars in Thousands, Except Share and Per Share Data) Stockholders' Equity (GAAP) (Numerator) $ 139,834 $ 110,155 Goodwill and Other Intangible Assets, Net (10,690) (13,245) Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 129,144 $ 96,910 Common Shares Outstanding (Denominator) 5,119,543 5,100,189 Book Value per Common Share (GAAP) $ 27.31 $ 21.60 Tangible Book Value per Common Share (Non-GAAP) $ 25.23 $ 19.00 Liquidity Liquidity is the ability to meet current and future financial obligations of a short-term nature.
Net Interest Income. Net interest income increased $2.8 million, or 6.9%, to $42.9 million for the year ended December 31, 2022 compared to $40.2 million for the year ended December 31, 2021. Net interest margin (Non-GAAP FTE) increased 31 bps to 3.25% for the year ended December 31, 2022 compared to 2.94% the year ended December 31, 2021.
Net Interest Income. Net interest income increased $1.6 million, or 3.8%, to $44.6 million for the year ended December 31, 2023 compared to $42.9 million for the year ended December 31, 2022. Net interest margin (Non-GAAP) increased 4 bps to 3.29% for the year ended December 31, 2023 compared to 3.25% the year ended December 31, 2022.
The following table reconciles net interest income, net interest spread and net interest margin on a FTE basis for the periods indicated: Year Ended December 31, 2022 2021 (Dollars in Thousands) Interest Income per Consolidated Statements of Income (GAAP) $ 47,716 $ 43,557 Adjustment to FTE Basis 134 172 Interest Income (FTE) (Non-GAAP) 47,850 43,729 Interest Expense per Consolidated Statements of Income (GAAP) 4,781 3,405 Net Interest Income (FTE) (Non-GAAP) $ 43,069 $ 40,324 Net Interest Income (GAAP) $ 42,935 $ 40,152 Divided by : Average Interest Earning Assets $ 1,324,875 $ 1,373,379 Net Interest Margin (GAAP) 3.24 % 2.92 % Adjustment to FTE Basis 0.01 0.02 Net Interest Margin (FTE) (Non-GAAP) 3.25 % 2.94 % Net Interest Rate Spread (GAAP) 3.07 % 2.81 % Adjustment to FTE Basis 0.01 0.01 Net Interest Rate Spread (FTE) (Non-GAAP) 3.08 % 2.82 % Tangible book value per common share is a non-GAAP measure and is calculated based on tangible common equity divided by period-end common shares outstanding.
The following table reconciles net interest income, net interest spread and net interest margin on a FTE basis for the periods indicated: Year Ended December 31, 2023 2022 (Dollars in Thousands) Interest Income per Consolidated Statements of Income (GAAP) $ 62,225 $ 47,716 Adjustment to FTE Basis 155 134 Interest Income (Non-GAAP) 62,380 47,850 Interest Expense per Consolidated Statements of Income (GAAP) 17,672 4,781 Net Interest Income (Non-GAAP) $ 44,708 $ 43,069 Net Interest Income (GAAP) $ 44,553 $ 42,935 Divided by : Average Interest-Earning Assets $ 1,358,579 $ 1,324,875 Net Interest Margin (GAAP) 3.28 % 3.24 % Adjustment to FTE Basis 0.01 0.01 Net Interest Margin (Non-GAAP) 3.29 % 3.25 % Net Interest Rate Spread (GAAP) 2.73 % 3.07 % Adjustment to FTE Basis 0.01 0.01 Net Interest Rate Spread (Non-GAAP) 2.74 % 3.08 % Tangible book value per common share is a Non-GAAP measure and is calculated based on tangible common equity divided by period-end common shares outstanding.
The fair value measure is based on the value that those transactions indicate. These approaches involve significant estimates and assumptions. In the application of the income approach, fair value of a reporting unit is determined using a discounted cash flow (“DCF”) analysis.
The fair value measure is based on the value that those transactions indicate. These approaches involve significant estimates and assumptions. In the application of the income approach, fair value of a reporting unit is determined using a discounted cash flow analysis. The income approach relies on Level 3 inputs along with a market-derived cost of capital when measuring fair value.
Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.
Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as loss are considered uncollectible and of such little value that continuance as an asset is not warranted.
For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out of period items that occurred this past year.
For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.
In addition, the Bank maintains a 49 credit arrangement with the FHLB with a maximum borrowing limit of approximately $435.3 million and available borrowing capacity of $407.4 million as of December 31, 2022. $26.2 million was utilized toward standby letters of credit to collateralize public deposits in excess of the level insured by the FDIC.
In addition, the Bank maintains a credit 49 arrangement with the FHLB with a maximum borrowing limit of approximately $478.9 million and available borrowing capacity of $438.3 million as of December 31, 2023. At December 31, 2023, $18.9 million of standby letters of credit were utilized to collateralize public deposits in excess of the level insured by the FDIC.
The information in this section has been derived from the audited consolidated financial statements, which appear in this Report. You should read the information in this section in conjunction with the business and financial information the Company provided in this Report.
The information in this section has been derived from the audited consolidated financial statements, which appear in this Report. You should read the information in this section in conjunction with the business and financial information the Company provided in this Report. Cautionary Statement Concerning Forward-Looking Statements See the first page of this Report for information regarding forward-looking statements.
Such agencies have, in the past, and may in the future require us to classify certain assets which management has not otherwise classified or require a classification more severe than established by management. The following table shows the principal amount of special mention and classified loans at December 31, 2022 and 2021.
Such agencies have, in the past, and may in the future require us to classify certain assets which management has not otherwise classified or require a classification more severe than established by management.
If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods and require management to further evaluate goodwill for impairment. If the Company determines a triggering event occurs in the future, changes in the judgments, assumptions and inputs noted above could result in additional goodwill impairment. Other-Than-Temporary Impairment.
If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods and require management to further evaluate goodwill for impairment.
Nonperforming assets decreased $1.5 million to $5.8 million at December 31, 2022, compared to $7.3 million at December 31, 2021. Nonperforming loans decreased $1.5 million to $5.8 million at December 31, 2022 compared to $7.3 million at December 31, 2021.
Nonperforming assets decreased $3.4 million to $2.4 million at December 31, 2023, compared to $5.8 million at December 31, 2022. Nonperforming loans decreased $3.6 million to $2.2 million at December 31, 2023 compared to $5.8 million at December 31, 2022.
The ratio of allowance for loan losses to nonaccrual loans ratio increased to 320.64% at December 31, 2022, compared to 233.37% at December 31, 2021. Nonaccrual loans decreased $1.0 million to $4.0 million at December 31, 2022 compared to $5.0 million at December 31, 2021.
The ratio of allowance for credit losses to nonaccrual loans ratio increased to 433.35% at December 31, 2023, compared to 320.64% at December 31, 2022. Nonaccrual loans decreased $1.8 million to $2.2 million at December 31, 2023 compared to $4.0 million at December 31, 2022.
December 31, 2022 2021 (Dollars in Thousands) Nonaccrual loans: Real Estate: Residential $ 1,649 $ 1,393 Commercial 1,814 2,058 Commercial and Industrial 415 1,496 Consumer 120 16 Total Nonaccrual Loans 3,998 4,963 Accruing Loans Past Due 90 Days or More: Consumer — — Total Accruing Loans 90 Days or More Past Due — — Total Nonaccrual Loans and Accruing Loans 90 Days or More Past Due 3,998 4,963 Troubled Debt Restructurings, Accruing Real Estate Residential 534 613 Commercial 1,260 1,674 Commercial and Industrial 7 16 Total Troubled Debt Restructurings, Accruing 1,801 2,303 Total Nonperforming Loans 5,799 7,266 Real Estate Owned: Residential — 36 Commercial — — Total Real Estate Owned — 36 Total Nonperforming Assets $ 5,799 $ 7,302 Nonaccrual Loans to Total Loans 0.38 % 0.49 % Nonperforming Loans to Total Loans 0.55 0.71 Nonperforming Assets to Total Assets 0.41 0.51 At December 31, 2022, we had no loans 90 days or more past due that were still accruing interest.
December 31, 2022 (Dollars in Thousands) Nonaccrual Loans: Real Estate: Residential $ 1,649 Commercial 1,814 Commercial and Industrial 415 Consumer 120 Total Nonaccrual Loans 3,998 Accruing Loans Past Due 90 Days or More: Total Accruing Loans Past Due 90 Days or More — Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More 3,998 Troubled Debt Restructurings, Accruing: Real Estate Residential 534 Commercial 1,260 Commercial and Industrial 7 Total Troubled Debt Restructurings, Accruing 1,801 Total Nonperforming Loans 5,799 Total Nonperforming Assets $ 5,799 44 At December 31, 2023 and December 31, 2022, we had no loans 90 days or more past due that were still accruing interest.
The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category. 2022 2021 December 31, Amount Percent of Total Loans (1) Amount Percent of Total Loans (1) (Dollars in Thousands) Real Estate: Residential $ 2,074 31.5 % $ 1,420 31.4 % Commercial 5,810 41.6 5,960 38.5 Construction 502 4.3 1,249 8.3 Commercial and Industrial 2,313 6.7 1,151 8.7 Consumer 1,517 14.0 1,050 12.0 Other — 1.9 — 1.1 Total Allocated Allowance 12,216 100.0 10,830 100.0 Unallocated 603 — 752 — Total Allowance for Loan Losses $ 12,819 100.0 % $ 11,582 100.0 % (1) Represents percentage of loans in each category to total loans Reconciliations of Non-GAAP Financial Measures to GAAP Reconciliations of non-GAAP financial measures discussed in this Report to the most directly comparable GAAP financial measures are included in the following tables.
The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category. 2023 2022 December 31, Amount Percent of Total Loans Amount Percent of Total Loans (Dollars in Thousands) Real Estate: Residential $ 3,129 31.3 % $ 2,074 31.5 % Commercial 2,630 42.1 5,810 41.6 Construction 639 3.9 502 4.3 Commercial and Industrial 1,693 10.0 2,313 6.7 Consumer 1,367 10.1 1,517 14.0 Other 249 2.6 — 1.9 Total Allocated Allowance 9,707 100.0 12,216 100.0 Unallocated — — 603 — Total Allowance for Credit Losses $ 9,707 100.0 % $ 12,819 100.0 % Reconciliations of Non-GAAP Financial Measures to GAAP Reconciliations of Non-GAAP financial measures discussed in this Report to the most directly comparable GAAP financial measures are included in the following tables. 48 Interest income on interest-earning assets, net interest rate spread and net interest margin are presented on a fully tax-equivalent (“FTE”) basis.
Total loans increased $29.1 million, or 2.8%, to $1.05 billion at December 31, 2022 compared to $1.02 billion at December 31, 2021.
Total loans increased $60.5 million, or 5.8%, to $1.11 billion at December 31, 2023 compared to $1.05 billion at December 31, 2022.
The decrease of $11.8 million in the special mention loan category is primarily due to commercial real estate and commercial and industrial loan upgrades and payoffs, and a $2.7 million commercial and industrial charge-off. Allowance for Loan Losses. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.
The increase of $11.2 million in the special mention loan category is primarily due to construction loan downgrades. Allowance for Credit Losses. The allowance for credit losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.
Total assets decreased $16.5 million, or 1.2%, to $1.41 billion at December 31, 2022, compared to $1.43 billion at December 31, 2021. Cash and Due From Banks. Cash and due from banks decreased $16.0 million, or 13.3%, to $103.7 million at December 31, 2022, compared to $119.7 million at December 31, 2021.
Total assets increased $47.2 million, or 3.4%, to $1.46 billion at December 31, 2023, compared to $1.41 billion at December 31, 2022. Cash and Due From Banks. Cash and due from banks decreased $35.5 million, or 34.2%, to $68.2 million at December 31, 2023, compared to $103.7 million at December 31, 2022.
The following table sets forth the allocation of allowance for loan losses by loan category at the dates indicated. The table reflects the allowance for loan losses as a percentage of total loans receivable. Management believes that the allowance can be allocated by category only on an approximate basis.
The following table sets forth the allocation of allowance for credit losses by loan category at the dates indicated. The table reflects the allowance for credit losses as a percentage of total loans.
The following table sets forth the distribution of our average deposit accounts, by account type, for the years indicated. 2022 2021 Year Ended December 31, Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (Dollars in Thousands) Non-Interest Bearing Demand Deposits $ 389,553 31.4 % — % $ 378,374 29.8 % — % NOW Accounts 282,850 22.8 0.48 272,256 21.4 0.09 Savings Accounts 248,334 20.0 0.04 247,864 19.5 0.04 Money Market Accounts 194,223 15.7 0.50 201,222 15.8 0.14 Time Deposits 124,817 10.1 1.28 171,805 13.5 1.46 Total Deposits $ 1,239,777 100.0 % 0.32 % $ 1,271,521 100.0 % 0.25 % The following table sets forth time deposits classified by interest rate as of the dates indicated.
The following table sets forth the distribution of our average deposit accounts, by account type, for the years indicated. 2023 2022 Year Ended December 31, Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate (Dollars in Thousands) Noninterest-Bearing Demand Accounts $ 326,408 26.0 % — % $ 389,553 31.4 % — % Interest-Bearing Demand Accounts 354,060 28.2 1.90 282,850 22.8 0.48 Money Market Accounts 199,962 15.9 2.28 194,223 15.7 0.50 Savings Accounts 220,146 17.5 0.09 248,334 20.0 0.04 Time Deposits 156,310 12.4 3.16 124,817 10.1 1.28 Total Deposits $ 1,256,886 100.0 % 1.31 % $ 1,239,777 100.0 % 0.32 % The following table sets forth time deposits classified by interest rate as of the dates indicated.
Tangible book value per share (Non-GAAP) decreased $3.45, or 15.4%, to $19.00 compared to $22.45 at December 31, 2021. Refer to “Explanation of Use of Non-GAAP Financial Measures” at the end of this section.
Tangible book value per share (Non-GAAP) increased $6.23, or 32.8%, to $25.23 at December 31, 2023 compared to $19.00 at December 31, 2022. Refer to “Explanation of Use of Non-GAAP Financial Measures” at the end of this section.
Average loans for the year ended December 31, 2022 increased $4.7 million compared to the year ended December 31, 2021. Loan Portfolio Composition. The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated.
Excluding the $34.9 million decrease in indirect automobile loans, total loans increased $95.4 million, or 9.1%. Average loans, net for the year ended December 31, 2023 increased $57.8 million compared to the year ended December 31, 2022. Loan Portfolio Composition. The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated.
December 31, 2022 2021 (Dollars in Thousands) Less than 0.25% $ 43,516 $ 39,573 0.25% to 0.49% 10,732 20,568 0.50% to 0.99% 7,721 10,943 1.00% to 1.49% 5,929 11,110 1.50% to 1.99% 4,717 7,561 2.00% to 2.49% 7,379 11,841 2.49% to 2.99% 12,779 13,427 3.00% to 3.99% 16,210 21,531 4.00% or Greater 143 159 Total Time Deposits $ 109,126 $ 136,713 36 The following table sets forth, by interest rate ranges and scheduled maturity, information concerning our time deposits at the date indicated.
December 31, 2023 2022 (Dollars in Thousands) Less than 0.25% $ 8,009 $ 43,516 0.25% to 0.49% 5,512 10,732 0.50% to 0.99% 5,139 7,721 1.00% to 1.49% 4,316 5,929 1.50% to 1.99% 3,626 4,717 2.00% to 2.49% 6,220 7,379 2.49% to 2.99% 146 12,779 3.00% to 3.99% 604 16,210 4.00% to 4.99% 145,475 143 5.00% or Greater 51,594 — Total Time Deposits $ 230,641 $ 109,126 37 The following table sets forth, by interest rate ranges and scheduled maturity, information concerning our time deposits at the date indicated.
The Company did not have loans held for sale at the dates indicated below. 2022 2021 December 31, Amount Percent Amount Percent (Dollars in Thousands) Real Estate: Residential $ 330,725 31.5 % $ 320,798 31.4 % Commercial 436,805 41.6 392,124 38.5 Construction 44,923 4.3 85,028 8.3 Commercial and Industrial 70,044 6.7 89,010 8.7 Consumer 146,927 14.0 122,152 12.0 Other 20,449 1.9 11,684 1.1 Total Loans 1,049,873 100.0 % 1,020,796 100.0 % Allowance for Loan Losses (12,819) (11,582) Loans, Net $ 1,037,054 $ 1,009,214 Loan Portfolio Maturities and Yields.
The Company did not have loans held for sale at the dates indicated below. 2023 2022 December 31, Amount Percent Amount Percent (Dollars in Thousands) Real Estate: Residential $ 347,808 31.3 % $ 330,725 31.5 % Commercial 467,154 42.1 436,805 41.6 Construction 43,116 3.9 44,923 4.3 Commercial and Industrial 111,278 10.0 70,044 6.7 Consumer 111,643 10.1 146,927 14.0 Other 29,397 2.6 20,449 1.9 Total Loans 1,110,396 100.0 % 1,049,873 100.0 % Allowance for Credit Losses (9,707) (12,819) Loans, Net $ 1,100,689 $ 1,037,054 35 Loan Portfolio Maturities and Yields.
Payment Due by Period Total Less Than Or Equal to One Year More Than One to Three Years More Than Three to Five Years More Than Five Years (Dollars in Thousands) Certificates of deposit $ 109,126 $ 69,355 $ 24,256 $ 12,240 $ 3,275 Other Borrowed Funds 14,638 — — — 14,638 Operating Lease Obligations 2,339 358 627 466 888 Total $ 126,103 $ 69,713 $ 24,883 $ 12,706 $ 18,801 Capital Resources At December 31, 2022 and 2021, respectively, the Bank was considered "well capitalized" under the regulatory framework for prompt corrective action. 50 The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized at the dates indicated. 2022 2021 December 31, Amount Ratio Amount Ratio (Dollars in Thousands) Common Equity Tier 1 Capital (to Risk-Weighted Assets) Actual $ 121,188 12.33 % $ 113,086 11.95 % For Capital Adequacy Purposes 44,221 4.50 42,571 4.50 To Be Well Capitalized 63,875 6.50 61,491 6.50 Tier I Capital (to Risk-Weighted Assets) Actual 121,188 12.33 113,086 11.95 For Capital Adequacy Purposes 58,961 6.00 56,761 6.00 To Be Well Capitalized 78,615 8.00 75,682 8.00 Total Capital (to Risk-Weighted Assets) Actual 133,478 13.58 124,668 13.18 For Capital Adequacy Purposes 78,615 8.00 75,682 8.00 To Be Well Capitalized 98,269 10.00 94,602 10.00 Tier I Leverage Capital (to Adjusted Total Assets) Actual 121,188 8.66 113,086 7.76 For Capital Adequacy Purposes 55,969 4.00 58,307 4.00 To Be Well Capitalized 69,962 5.00 72,884 5.00 Impact of Inflation and Changing Price The consolidated financial statements and related notes of the Company have been prepared in accordance with GAAP.
Payment Due by Period Total Less Than Or Equal to One Year More Than One to Three Years More Than Three to Five Years More Than Five Years (Dollars in Thousands) Certificates of deposit $ 230,641 $ 136,016 $ 86,600 $ 6,135 $ 1,890 Other Borrowed Funds 34,678 — 20,000 — 14,678 Operating Lease Obligations 1,981 355 505 437 684 Total $ 267,300 $ 136,371 $ 107,105 $ 6,572 $ 17,252 Capital Resources At December 31, 2023 and 2022, respectively, the Bank was considered "well capitalized" under the regulatory framework for prompt corrective action. 50 The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized at the dates indicated. 2023 2022 December 31, Amount Ratio Amount Ratio (Dollars in Thousands) Common Equity Tier 1 Capital (to Risk-Weighted Assets) Actual $ 143,654 13.64 % $ 121,188 12.33 % For Capital Adequacy Purposes 47,385 4.50 44,221 4.50 To Be Well Capitalized 68,445 6.50 63,875 6.50 Tier I Capital (to Risk-Weighted Assets) Actual 143,654 13.64 121,188 12.33 For Capital Adequacy Purposes 63,180 6.00 58,961 6.00 To Be Well Capitalized 84,240 8.00 78,615 8.00 Total Capital (to Risk-Weighted Assets) Actual 153,861 14.61 133,478 13.58 For Capital Adequacy Purposes 84,240 8.00 78,615 8.00 To Be Well Capitalized 105,300 10.00 98,269 10.00 Tier I Leverage Capital (to Adjusted Total Assets) Actual 143,654 10.19 121,188 8.66 For Capital Adequacy Purposes 56,385 4.00 55,969 4.00 To Be Well Capitalized 70,481 5.00 69,962 5.00 Impact of Inflation and Changing Price The consolidated financial statements and related notes of the Company have been prepared in accordance with GAAP.
Loans classified as loss are considered uncollectible and of such little value that continuance as an asset is not warranted. 45 As part of the periodic exams of the Bank by the FDIC and the Pennsylvania Department of Banking and Securities, the staff of such agencies reviews our classifications and determines whether such classifications are adequate.
As part of the periodic exams of the Bank by the FDIC and the Pennsylvania Department of Banking and Securities, the staff of such agencies reviews our classifications and determines whether such classifications are adequate.
Year Ended December 31, 2022 2021 (Dollars in Thousands) Balance at Beginning of Year $ 11,582 $ 12,771 Provision for Loan Losses 3,784 (1,125) Charge-offs: Real Estate: Residential (32) (13) Commercial — (40) Construction — — Commercial and Industrial (2,712) — Consumer (151) (213) Other — — Total Charge-offs (2,895) (266) Recoveries: Real estate: Residential 145 17 Commercial — — Construction — — Commercial and Industrial 117 43 Consumer 86 142 Other — — Total Recoveries 348 202 Net Charge-offs (2,547) (64) Balance at End of Year $ 12,819 $ 11,582 Allowance for Loan Losses to Total Loans 1.22 % 1.13 % Allowance for Loan Losses to Nonaccrual Loans 320.64 233.37 Allowance for Loan Losses to Nonperforming Loans 221.06 159.40 Net Charge-offs to Average Loans 0.25 0.01 The allowance for loan losses increased $1.2 million, or 10.7%, to $12.8 million at December 31, 2022, compared to $11.6 million at December 31, 2021.
Year Ended December 31, 2023 2022 (Dollars in Thousands) Balance at Beginning of Year $ 12,819 $ 11,582 Impact of ASC 326 - Loans (3,385) — (Recovery) Provision for Loan Losses (284) 3,784 Charge-offs: Real Estate: Residential (219) (32) Commercial and Industrial — (2,712) Consumer (370) (151) Total Charge-offs (589) (2,895) Recoveries: Real estate: Residential 43 145 Commercial 32 — Commercial and Industrial 876 117 Consumer 195 86 Total Recoveries 1,146 348 Net Recoveries (Charge-offs) 557 (2,547) Balance at End of Year $ 9,707 $ 12,819 Allowance for Credit Losses to Total Loans 0.87 % 1.22 % Allowance for Credit Losses to Nonaccrual Loans 433.35 320.64 Allowance for Credit Losses to Nonperforming Loans 433.35 221.06 Net (Recoveries) Charge-offs to Average Loans (0.05) 0.25 The allowance for credit losses decreased $3.1 million, or 24.3%, to $9.7 million at December 31, 2023, compared to $12.8 million at December 31, 2022.
There were sales of securities in 2021 that were higher-interest securities, which were replaced by lower-interest securities that decreased the yield year over year. • Interest income on tax-exempt investment securities decreased $76,000, or 26.3%, to $213,000 for the year ended December 31, 2022 compared to $289,000 for the year ended December 31, 2021 primarily driven by a decrease of $3.4 million in average balance from municipal securities calls. • Interest from other interest-earning assets, which primarily consists of interest-earning cash, increased $1.1 million, or 232.0% for the year ended December 31, 2022 compared to the year ended December 31, 2021.
While average investment securities decreased $12.3 million, there was a 19 bps increase in average yield. • Interest income on tax-exempt investment securities decreased $56,000, or 26.3%, to $157,000 for the year ended December 31, 2023 compared to $213,000 for the year ended December 31, 2022 primarily driven by a decrease of $2.6 million in average balances of municipal securities. • Interest from other interest-earning assets, which primarily consists of interest-earning cash, increased $1.7 million, or 102.5%, to $3.3 million for the year ended December 31, 2023 compared to $1.6 million for the year ended December 31, 2022.
Cautionary Statement Concerning Forward-Looking Statements See the first page of this Report for information regarding forward-looking statements. 27 Selected Financial Data The following tables set forth selected historical financial and other data of the Company at and for the years ended December 31, 2022, 2021 and 2020.
Selected Financial Data The following tables set forth selected historical financial and other data of the Company at and for the years ended December 31, 2023, 2022 and 2021.
(2) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities. (3) Represents net interest income as a percentage of average interest-earning assets.
(2) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities. (3) Represents net interest income as a percentage of average interest-earning assets. (4) Fully taxable-equivalent (FTE) yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21%.
Income tax expense decreased $292,000 to $2.8 million for the year ended December 31, 2022, compared to $3.1 million for the year ended December 31, 2021 and is primarily attributed to a write down in premises and equipment and intangible assets. 41 Average Balances and Yields.
Income Tax Expense. Income tax expense increased $4.9 million to $7.7 million for the year ended December 31, 2023, compared to $2.8 million for the year ended December 31, 2022 and is primarily attributed to the increase in pre-tax income. 41 Average Balances and Yields.
Government Agencies $ 53,993 $ 44,634 $ 53,992 $ 52,561 Obligations of States and Political Subdivisions 14,053 13,342 17,951 18,955 Mortgage-Backed Securities - Government-Sponsored Enterprises 46,345 41,427 55,373 56,559 Collateralized Mortgage Obligations - Government Sponsored Enterprises 96,930 79,642 88,493 86,583 Corporate Debt 9,487 8,315 7,481 7,450 Total Available-for-Sale Debt Securities $ 220,808 187,360 $ 223,290 222,108 Equity Securities: Mutual Funds 875 990 Other 1,823 1,876 Total Equity Securities 2,698 2,866 Total Securities $ 190,058 $ 224,974 Securities Portfolio Maturities and Yields.
Government Agencies $ 4,995 $ 3,949 $ 53,993 $ 44,634 Obligations of States and Political Subdivisions 3,481 3,373 14,053 13,342 Mortgage-Backed Securities - Government-Sponsored Enterprises 57,377 54,532 46,345 41,427 Collateralized Mortgage Obligations - Government-Sponsored Enterprises 120,655 105,130 96,930 79,642 Collateralized Loan Obligations 29,862 29,804 — — Corporate Debt 9,484 7,719 9,487 8,315 Total Available-for-Sale Debt Securities $ 225,854 $ 204,507 $ 220,808 $ 187,360 Equity Securities: Mutual Funds 888 875 Other 1,700 1,823 Total Equity Securities 2,588 2,698 Total Securities $ 207,095 $ 190,058 Securities Portfolio Maturities and Yields.
Interest and dividend income increased $4.2 million, or 9.5%, to $47.7 million for the year ended December 31, 2022 compared to $43.6 million for the year ended December 31, 2021. • Interest income on loans increased $2.2 million, or 5.6%, to $41.9 million for the year ended December 31, 2022 compared to $39.7 million for the year ended December 31, 2021.
Net interest margin (GAAP) increased to 3.28% for the year ended December 31, 2023 compared to 3.24% for the year ended December 31, 2022. Interest and dividend income increased $14.5 million, or 30.4%, to $62.2 million for the year ended December 31, 2023 compared to $47.7 million for the year ended December 31, 2022.
December 31, 2022 2021 (Dollars in Thousands) Special Mention $ 43,804 $ 55,579 Substandard 14,499 15,069 Doubtful 415 512 Loss — — Total $ 58,718 $ 71,160 The total amount of special mention and classified loans decreased $12.4 million, or 17.5%, to $58.7 million at December 31, 2022, compared to $71.2 million at December 31, 2021.
The following table shows the principal amount of special mention and classified loans at December 31, 2023 and 2022. 45 December 31, 2023 2022 (Dollars in Thousands) Special Mention $ 54,978 $ 43,804 Substandard 14,457 14,499 Doubtful — 415 Loss — — Total $ 69,435 $ 58,718 The total amount of special mention and classified loans increased $10.7 million, or 18.3%, to $69.4 million at December 31, 2023, compared to $58.7 million at December 31, 2022.
Total liabilities increased $6.4 million, or 0.5%, to $1.30 billion at December 31, 2022 compared to $1.29 billion at December 31, 2021. Deposits. Total deposits increased $41.9 million to $1.27 billion as of December 31, 2022 compared to $1.23 billion at December 31, 2021.
Total liabilities increased $17.5 million, or 1.3%, to $1.32 billion at December 31, 2023 compared to $1.30 billion at December 31, 2022. Deposits. Total deposits decreased $1.3 million to $1.267 billion as of December 31, 2023 compared to $1.269 billion at December 31, 2022.
The allowance for loan losses (“allowance”) is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.
Prior to the adoption of ASU 2016-13, the Company calculated the allowance for loan losses ("allowance"), using an incurred loan loss methodology. The following policy related to the allowance in prior periods. The allowance for loan losses (“allowance”) is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.
The decrease was primarily related to the $2.9 million commercial and industrial loan charge-off in the current year. The following table presents the ratio of net charge-offs (recoveries) as a percent of average loans for the periods indicated.
Net charge-offs for the year ended December 31, 2022 were $2.5 million. The following table presents the ratio of net (recoveries) charge-offs as a percent of average loans for the periods indicated.
The following table sets forth the amounts and categories of our nonperforming assets at the dates indicated. Included in nonperforming loans and assets are troubled debt restructurings, which are loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties.
Included in nonperforming loans and assets are TDRs, which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section.
The breakdown of noninterest expense for the year ended December 31, 2022 compared to year ended December 31, 2021 is as follows: Year Ended December 31, 2022 2021 Dollar Change Percent Change (Dollars in Thousands) Salaries and Employee Benefits $ 18,469 $ 19,938 $ (1,469) (7.4) % Occupancy 3,047 2,968 79 2.7 % Equipment 739 1,034 (295) (28.5) % Data Processing 2,152 2,154 (2) (0.1) % FDIC Assessment 638 1,014 (376) (37.1) % PA Shares Tax 979 887 92 10.4 % Contracted Services 1,628 4,011 (2,383) (59.4) % Legal and Professional Fees 1,237 994 243 24.4 % Advertising 527 749 (222) (29.6) % Other Real Estate Owned (Income) (151) (183) 32 (17.5) % Amortization of Intangible Assets 1,782 1,926 (144) (7.5) % Intangible Assets and Goodwill Impairment — 1,178 (1,178) (100.0) % Writedown of Premises and Equipment — 2,293 (2,293) (100.0) % Other 3,844 3,899 (55) (1.4) % Total Noninterest Expense $ 34,891 $ 42,862 $ (7,971) (18.6) % Noninterest expense decreased $8.0 million, or 18.6%, to $34.9 million for the year ended December 31, 2022 compared to $42.9 million for the year ended December 31, 2021.
The breakdown of noninterest expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 is as follows: Year Ended December 31, 2023 2022 Dollar Change Percent Change (Dollars in Thousands) Salaries and Employee Benefits $ 21,903 $ 18,469 $ 3,434 18.6 % Occupancy 2,998 3,047 (49) (1.6) % Equipment 1,064 739 325 44.0 % Data Processing 3,014 2,152 862 40.1 % Federal Deposit Insurance Corporation Assessment 754 638 116 18.2 % Pennsylvania Shares Tax 889 979 (90) (9.2) % Contracted Services 1,166 1,628 (462) (28.4) % Legal and Professional Fees 1,182 1,237 (55) (4.4) % Advertising 426 527 (101) (19.2) % Other Real Estate Owned (Income) (115) (151) 36 (23.8) % Amortization of Intangible Assets 1,766 1,782 (16) (0.9) % Other 3,735 3,844 (109) (2.8) % Total Noninterest Expense $ 38,782 $ 34,891 $ 3,891 11.2 % Noninterest expense increased $3.9 million, or 11.2%, to $38.8 million for the year ended December 31, 2023 compared to $34.9 million for the year ended December 31, 2022. • Salaries and employee benefits increased $3.4 million to $21.9 million for the year ended December 31, 2023 compared to $18.5 million for the year ended December 31, 2022.
The respective decreases are primarily attributable to the full payoff in the current year of one of the Bank’s larger nonperforming commercial and industrial relationships. 44 The following table presents the components of the ratio of nonaccrual loans to total loans at the dates indicated. 2022 2021 December 31, Nonaccrual Loans Total Loans Nonaccrual Loans to Total Loans Nonaccrual Loans Total Loans Nonaccrual Loans to Total Loans (Dollars in Thousands) Real Estate: Residential $ 1,649 $ 330,725 0.50 % $ 1,393 $ 320,798 0.43 % Commercial 1,814 436,805 0.42 2,058 392,124 0.52 Construction — 44,923 — — 85,028 — Commercial and Industrial 415 70,044 0.59 1,496 89,010 1.68 Consumer 120 146,927 0.08 16 122,152 0.01 Other — 20,449 — — 11,684 — Total $ 3,998 $ 1,049,873 0.38 % $ 4,963 $ 1,020,796 0.49 % Nonaccrual loans decreased $1.0 million to $4.0 million at December 31, 2022 compared to $5.0 million at December 31, 2021.
The following table presents the components of the ratio of nonaccrual loans to total loans at the dates indicated. 2023 2022 December 31, Nonaccrual Loans Total Loans Nonaccrual Loans to Total Loans Nonaccrual Loans Total Loans Nonaccrual Loans to Total Loans (Dollars in Thousands) Real Estate: Residential $ 1,476 $ 347,808 0.42 % $ 1,649 $ 330,725 0.50 % Commercial 360 467,154 0.08 1,814 436,805 0.42 Construction — 43,116 — — 44,923 — Commercial and Industrial 316 111,278 0.28 415 70,044 0.59 Consumer 88 111,643 0.08 120 146,927 0.08 Other — 29,397 — — 20,449 — Total $ 2,240 $ 1,110,396 0.20 % $ 3,998 $ 1,049,873 0.38 % Nonaccrual loans decreased $1.8 million to $2.2 million at December 31, 2023 compared to $4.0 million at December 31, 2022.
A majority of the decrease was due to accounts that were transitioned into other deposit products and account for most of the interest-bearing demand deposit increase. ◦ Other borrowed funds. Other borrowed funds decreased $3.0 million to $14.6 million at December 31, 2022 due to $3.0 million of Federal Home Loan Bank borrowings that matured in the current period.
These accounts were transitioned into other deposit products and account for a portion of the interest-bearing demand deposit increase. ◦ Other borrowed funds. Other borrowed funds increased $20.0 million, or 136.6%, to $34.7 million at December 31, 2023, compared to $14.6 million at December 31, 2022.
There were no gains from sales of mortgage loans for the year ended December 31, 2022 compared to $1.1 million for the year ended December 31, 2021. • Net loss on securities was $168,000 for the year ended December 31, 2022, compared to a gain of $526,000 for the year ended December 31, 2021.
The sale of assets was completed on December 8, 2023. • Net loss on securities was $10.2 million for the year ended December 31, 2023, compared to a loss of $168,000 for the year ended December 31, 2022.
An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the “distinct possibility” that the Company will sustain “some loss” if the deficiencies are not corrected.
Substandard assets include those characterized by the “distinct possibility” that the Company will sustain “some loss” if the deficiencies are not corrected.
The income approach relies on Level 3 inputs along with a market-derived cost of capital when measuring fair value. Fair value is determined by converting anticipated benefits into a present single value. Once the benefit or benefits are selected, an appropriate discount or capitalization rate is applied to each benefit.
Fair value is determined by converting anticipated benefits into a present single value. Once the benefit or benefits are selected, an appropriate discount or capitalization rate is applied to each benefit. These rates are calculated using the appropriate measure for the size and type of company, using financial models and market data as required.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed17 unchanged
Biggest changeEVE EVE as a Percent of Portfolio Value of Assets Net Interest Income at Risk Change in Interest Rates in Basis Points Dollar Amount Dollar Change Percent Change NPV Ratio Basis Point Change Dollar Amount Dollar Change Percent Change (Dollars in Thousands) +400 $ 96,022 $ (69,547) (42.0) % 8.20 % (427) $ 40,140 $ (7,122) (15.1) % +300 $ 110,946 $ (54,623) (33.0) % 9.20 % (327) $ 42,149 $ (5,113) (10.8) % +200 127,232 (38,337) (23.2) 10.24 (223) 44,182 (3,080) (6.5) +100 146,058 (19,511) (11.8) 11.38 (109) 46,149 (1,113) (2.4) Flat 165,569 — — 12.47 — 47,262 — — -100 184,213 18,644 11.3 13.39 92 47,491 229 0.5 -200 215,870 50,301 30.4 14.97 250 46,514 (748) (1.6) -300 249,488 83,919 50.7 16.49 402 44,756 (2,506) (5.3) -400 247,643 82,074 49.6 16.01 354 42,744 (4,518) (9.6) Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement.
Biggest changeEVE EVE as a Percent of Portfolio Value of Assets Net Interest Income at Risk Change in Interest Rates in Basis Points Dollar Amount Dollar Change Percent Change NPV Ratio Basis Point Change Dollar Amount Dollar Change Percent Change (Dollars in Thousands) +400 $ 146,021 $ (39,715) (21.4) % 11.69 % (179) $ 52,306 $ 2,974 6.0 % +300 $ 154,756 $ (30,980) (16.7) % 12.11 % (137) $ 51,501 $ 2,169 4.4 % +200 165,195 (20,541) (11.1) 12.61 (87) 50,788 1,456 3.0 +100 175,901 (9,835) (5.3) 13.09 (39) 50,093 761 1.5 Flat 185,736 — — 13.48 — 49,332 — — -100 193,970 8,234 4.4 13.71 23 47,854 (1,478) (3.0) -200 198,490 12,754 6.9 13.69 21 46,039 (3,293) (6.7) -300 198,613 12,877 6.9 13.38 (10) 44,067 (5,265) (10.7) -400 193,490 7,754 4.2 12.76 (72) 42,267 (7,065) (14.3) Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement.
The table below sets forth, as of December 31, 2022, the estimated changes in EVE and net interest income at risk that would result from the designated instantaneous changes in market interest rates.
The table below sets forth, as of December 31, 2023, the estimated changes in EVE and net interest income at risk that would result from the designated instantaneous changes in market interest rates.
The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates such as that experienced in the current rate environment at December 31, 2022.
The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates.

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