10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 000-21344

FIRST KEYSTONE CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2249083
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

111 West Front Street, Berwick, PA	18603
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (570) 752-3671

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒     No    ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒       No    ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐     No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common stock	FKYS	OTC: Pink

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

Common Stock, $2 Par Value, 5,930,463 shares as of November 3, 2021.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
(Dollars in thousands, except share and per share data)	September 30,		December 31,
	2021		2020
ASSETS
Cash and due from banks	$	10,343	$	8,833
Interest-bearing deposits in other banks		121,705		15,347
Total cash and cash equivalents		132,048		24,180
Time deposits with other banks		247		247
Debt securities available-for-sale, at fair value		432,834		366,711
Marketable equity securities, at fair value		1,805		1,646
Restricted investment in bank stocks, at cost		2,304		2,247
Loans		738,565		703,310
Loans held for sale		18,220		17,300
Allowance for loan losses		(8,288)		(7,933)
Net loans		748,497		712,677
Premises and equipment, net		18,244		18,678
Operating lease right-of-use assets		1,050		1,061
Accrued interest receivable		4,283		4,544
Cash surrender value of bank owned life insurance		24,642		24,194
Investments in low-income housing partnerships		1,188		1,466
Goodwill		19,133		19,133
Foreclosed assets held for resale		—		28
Other assets		3,664		2,235
TOTAL ASSETS	$	1,389,939	$	1,179,047
LIABILITIES
Deposits:
Non-interest bearing	$	244,602	$	198,499
Interest bearing		900,902		738,989
Total deposits		1,145,504		937,488
Short-term borrowings		29,853		19,494
Long-term borrowings		35,000		45,000
Subordinated debentures		25,000		25,000
Operating lease liabilities		1,518		1,513
Accrued interest payable		540		405
Deferred income taxes		932		2,146
Other liabilities		3,804		3,759
TOTAL LIABILITIES		1,242,151		1,034,805
STOCKHOLDERS’ EQUITY
Preferred stock, par value $2.00 per share; authorized 1,000,000 shares as of September 30, 2021 and December 31, 2020; issued 0 as of September 30, 2021 and December 31, 2020		—		—
Common stock, par value $2.00 per share; authorized 20,000,000 shares as of September 30, 2021 and December 31, 2020; issued 6,162,075 as of September 30, 2021 and 6,115,281 as of December 31, 2020; outstanding 5,930,463 as of September 30, 2021 and 5,883,669 as of December 31, 2020		12,324		12,231
Surplus		40,575		39,543
Retained earnings		91,916		85,307
Accumulated other comprehensive income		8,682		12,870
Treasury stock, at cost, 231,612 shares as of September 30, 2021 and December 31, 2020		(5,709)		(5,709)
TOTAL STOCKHOLDERS’ EQUITY		147,788		144,242
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,389,939	$	1,179,047

See accompanying notes to consolidated financial statements.

2

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

(Dollars in thousands, except per share data)	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Interest and fees on loans	$	8,331	$	7,948	$	24,474	$	23,302
Interest and dividend income on securities:
Taxable		1,455		1,059		4,055		3,509
Tax-exempt		854		793		2,556		2,220
Dividends		25		11		49		34
Dividend income on restricted investment in bank stocks		20		39		73		180
Interest on interest-bearing deposits in other banks		31		2		43		6
Total interest income		10,716		9,852		31,250		29,251
INTEREST EXPENSE
Interest on deposits		790		967		2,368		4,038
Interest on short-term borrowings		25		30		65		340
Interest on long-term borrowings		195		234		623		758
Interest on subordinated debt		273		—		820		—
Total interest expense		1,283		1,231		3,876		5,136
Net interest income		9,433		8,621		27,374		24,115
Provision for loan losses		185		294		455		682
Net interest income after provision for loan losses		9,248		8,327		26,919		23,433
NON-INTEREST INCOME
Trust department		243		222		761		677
Service charges and fees		496		409		1,352		1,250
Increase in cash surrender value of life insurance		149		152		448		458
ATM fees and debit card income		555		501		1,639		1,364
Gains on sales of mortgage loans		139		174		801		471
Net securities gains (losses)		22		(9)		165		(312)
Other		93		66		271		211
Total non-interest income		1,697		1,515		5,437		4,119
NON-INTEREST EXPENSE
Salaries and employee benefits		3,303		3,554		10,064		9,732
Occupancy, net		448		512		1,428		1,534
Furniture and equipment expense		150		147		430		435
Computer expense		315		248		900		753
Professional services		244		220		776		685
Pennsylvania shares tax		309		231		935		680
FDIC insurance, net		103		73		310		94
ATM and debit card fees		281		253		764		676
Data processing fees		295		283		912		884
Foreclosed assets held for resale expense, net		—		30		3		44
Advertising		101		82		282		245
Other		718		623		2,207		2,064
Total non-interest expense		6,267		6,256		19,011		17,826
Income before income tax expense		4,678		3,586		13,345		9,726
Income tax expense		655		449		1,839		1,155
NET INCOME	$	4,023	$	3,137	$	11,506	$	8,571
PER SHARE DATA
Net income per share:
Basic	$	0.68	$	0.54	$	1.95	$	1.47
Diluted		0.68		0.54		1.95		1.47
Dividends per share		0.28		0.27		0.83		0.81

See accompanying notes to consolidated financial statements.

3

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

(Dollars in thousands)	Three Months Ended
	September 30,
	2021		2020
Net Income	$	4,023	$	3,137
Other comprehensive (loss) income:
Unrealized net holding (losses) gains on debt securities available-for-sale arising during the period, net of income taxes of $(654) and $290, respectively		(2,460)		1,092
Less reclassification adjustment for net gains included in net income, net of income taxes of $(1) and $(13), respectively (a) (b)		(3)		(48)
Total other comprehensive (loss) income		(2,463)		1,044
Total Comprehensive Income	$	1,560	$	4,181

(Dollars in thousands)	Nine Months Ended
	September 30,
	2021		2020
Net Income	$	11,506	$	8,571
Other comprehensive (loss) income:
Unrealized net holding (losses) gains on debt securities available-for-sale arising during the period, net of income taxes of $(1,113) and $1,880, respectively		(4,185)		7,074
Less reclassification adjustment for net gains included in net income, net of income taxes of $(1) and $(48), respectively (a) (b)		(3)		(180)
Total other comprehensive (loss) income		(4,188)		6,894
Total Comprehensive Income	$	7,318	$	15,465

(a) Gross amounts are included in net securities gains (losses) on the consolidated statements of income in non-interest income.

(b) Income tax amounts are included in income tax expense on the consolidated statements of income.

See accompanying notes to consolidated financial statements.

4

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

								Accumulated
(Dollars in thousands, except								Other				Total
per share data)	Common Stock					Retained		Comprehensive		Treasury		Stockholders’
	Shares	Amount		Surplus		Earnings		Income		Stock		Equity
Balance at January 1, 2021	6,115,281	$	12,231	$	39,543	$	85,307	$	12,870	$	(5,709)	$	144,242
Net Income							3,878						3,878
Other comprehensive loss, net of taxes									(3,923)				(3,923)
Issuance of common stock under dividend reinvestment plan	16,304		32		351								383
Dividends - $0.28 per share							(1,647)						(1,647)
Balance at March 31, 2021	6,131,585		12,263		39,894		87,538		8,947		(5,709)		142,933
Net Income							3,605						3,605
Other comprehensive income, net of taxes									2,198				2,198
Issuance of common stock under dividend reinvestment plan	14,976		30		329								359
Dividends - $0.27 per share							(1,593)						(1,593)
Balance at June 30, 2021	6,146,561	$	12,293	$	40,223	$	89,550	$	11,145	$	(5,709)	$	147,502
Net Income							4,023						4,023
Other comprehensive loss, net of taxes									(2,463)				(2,463)
Issuance of common stock under dividend reinvestment plan	15,514		31		352								383
Dividends - $0.28 per share							(1,657)						(1,657)
Balance at September 30, 2021	6,162,075	$	12,324	$	40,575	$	91,916	$	8,682	$	(5,709)	$	147,788

5

								Accumulated
(Dollars in thousands, except								Other				Total
per share data)	Common Stock					Retained		Comprehensive		Treasury		Stockholders’
	Shares	Amount		Surplus		Earnings		Income		Stock		Equity
Balance at January 1, 2020	6,048,506	$	12,097	$	38,365	$	79,778	$	4,221	$	(5,709)	$	128,752
Net Income							2,053						2,053
Other comprehensive income, net of taxes									605				605
Issuance of common stock under dividend reinvestment plan	15,213		30		280								310
Dividends - $0.27 per share							(1,570)						(1,570)
Balance at March 31, 2020	6,063,719		12,127		38,645		80,261		4,826		(5,709)	$	130,150
Net Income							3,381						3,381
Other comprehensive income, net of taxes									5,245				5,245
Issuance of common stock under dividend reinvestment plan	16,135		33		298								331
Dividends - $0.27 per share							(1,575)						(1,575)
Balance at June 30, 2020	6,079,854	$	12,160	$	38,943	$	82,067	$	10,071	$	(5,709)	$	137,532
Net Income							3,137						3,137
Other comprehensive income, net of taxes									1,044				1,044
Issuance of common stock under dividend reinvestment plan	17,665		35		300								335
Dividends - $0.27 per share							(1,579)						(1,579)
Balance at September 30, 2020	6,097,519	$	12,195	$	39,243	$	83,625	$	11,115	$	(5,709)	$	140,469

See accompanying notes to consolidated financial statements.

6

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

(Dollars in thousands)	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	11,506	$	8,571
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		455		682
Depreciation and amortization		775		868
Net premium amortization on securities		2,124		1,484
Deferred income tax benefit		(101)		(581)
Gains on sales of mortgage loans		(801)		(471)
Proceeds from sales of mortgage loans originated for sale		24,820		12,433
Originations of mortgage loans originated for sale		(26,203)		(22,147)
Net securities (gains) losses		(165)		312
Net losses on sales of foreclosed real estate held for resale, including write-downs		—		21
Decrease (increase) in accrued interest receivable		261		(1,325)
Increase in cash surrender value of bank owned life insurance		(448)		(458)
Net losses on disposals of premises and equipment		3		1
(Increase) decrease in other assets		(1,422)		388
Amortization of investment in low-income housing partnerships		278		272
Increase (decrease) in accrued interest payable		135		(208)
Increase (decrease) in other liabilities		44		(1,310)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		11,261		(1,468)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equity securities and debt securities available-for-sale		6		21,692
Proceeds from maturities and redemptions of debt securities available-for-sale		42,974		30,354
Purchases of debt securities available-for-sale		(116,522)		(83,168)
Net change in restricted investment in bank stocks		(57)		1,977
Net increase in loans		(34,091)		(46,218)
Purchase of premises and equipment		(308)		(264)
Proceeds from sales of foreclosed assets held for resale		28		60
NET CASH USED IN INVESTING ACTIVITIES		(107,970)		(75,567)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		208,016		157,591
Net increase (decrease) in short-term borrowings		10,359		(31,540)
Repayment of finance lease obligations		(7)		—
Repayment of long-term borrowings		(10,000)		(10,000)
Common stock issued		1,106		960
Dividends paid		(4,897)		(4,724)
NET CASH PROVIDED BY FINANCING ACTIVITIES		204,577		112,287
INCREASE IN CASH AND CASH EQUIVALENTS		107,868		35,252
CASH AND CASH EQUIVALENTS, BEGINNING		24,180		10,724
CASH AND CASH EQUIVALENTS, ENDING	$	132,048	$	45,976
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	3,741	$	5,344
Income taxes paid		1,949		161
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Loans transferred to foreclosed assets held for resale		—		50
Loans transferred from held for sale portfolio		—		(149)
Common stock subscription receivable		19		16
Right-of-use assets obtained in exchange for lease liabilities		33		—

See accompanying notes to consolidated financial statements.

7

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 ― BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUBSEQUENT EVENTS

The consolidated financial statements include the accounts of First Keystone Corporation (the “Corporation”) and its wholly owned subsidiary First Keystone Community Bank (the “Bank”) (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results for the year ending December 31, 2021. For further information, refer to the consolidated financial statements and notes thereto included in First Keystone Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.

Subsequent Events

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2021 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

NOTE 2 ― RECENT ACCOUNTING STANDARDS UPDATES (“ASU”)

Recently adopted ASUs:

In January 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of Topic 848, Reference Rate Reform, and clarifies some of its guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities. The ASU provides certain optional expedients and exceptions when applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”), or by another reference rate that is expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The Company has evaluated the provisions of ASU 2021-01 on our financial condition, results of operations and cash flows, and determined that there is no material impact on the consolidated financial statements and related disclosures.

Pending ASUs:

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), to delay the effective date for smaller reporting companies to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. While the Company (a smaller reporting company) is currently evaluating the provisions of ASU 2016-13 to determine the potential impact of the new standard will have on the Company's consolidated financial statements, it has taken steps to prepare for the implementation when it becomes effective, such

8

as: forming an internal committee, gathering pertinent data, consulting with outside professionals, subscribing to a new software system, and running existing and new methodologies concurrently through the period of implementation.

NOTE 3 — SECURITIES

The Company classifies its securities as either “Held-to-Maturity” or “Available-for-Sale” at the time of purchase. Securities are accounted for on a trade date basis. Debt securities are classified as Held-to-Maturity when the Company has the ability and positive intent to hold the securities to maturity. Securities classified as Held-to-Maturity are carried at cost adjusted for amortization of premium and accretion of discount to maturity.

Debt securities not classified as Held-to-Maturity are included in the Available-for-Sale category and are carried at fair value. The amount of any unrealized gain or loss, net of the effect of deferred income taxes, is reported as accumulated other comprehensive income (AOCI) in the consolidated balance sheets and consolidated statements of changes in stockholders’ equity. Management’s decision to sell Available-for-Sale securities is based on changes in economic conditions, controlling the sources and applications of funds, terms, availability of and yield of alternative investments, interest rate risk and the need for liquidity.

Equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income. Equity securities without readily determinable fair values are recorded at cost less impairment, if any.

The cost of debt securities classified as Held-to-Maturity or Available-for-Sale is adjusted for amortization of premiums to the earliest call date and accretion of discounts to expected maturity. Such amortization and accretion, as well as interest and dividends, are included in interest and dividend income from securities. Realized gains and losses are included in net securities gains and losses. The cost of securities sold, redeemed or matured is based on the specific identification method.

The amortized cost, related estimated fair value, and unrealized gains and losses for debt securities classified as “Available-For-Sale” were as follows at September 30, 2021 and December 31, 2020:

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2021:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	4,959	$	—	$	(60)	$	4,899
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		118,705		776		(1,076)		118,405
Other		8,254		5		(60)		8,199
Other mortgage backed securities		43,052		245		(161)		43,136
Obligations of state and political subdivisions		167,039		11,400		(622)		177,817
Asset backed securities		38,326		273		(48)		38,551
Corporate debt securities		41,510		518		(201)		41,827
Total	$	421,845	$	13,217	$	(2,228)	$	432,834

9

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		76,270		1,628		(325)		77,573
Other		10,534		2		(106)		10,430
Other mortgage backed securities		39,420		470		(46)		39,844
Obligations of state and political subdivisions		150,922		14,193		(14)		165,101
Asset backed securities		44,751		158		(88)		44,821
Corporate debt securities		28,523		481		(62)		28,942
Total	$	350,420	$	16,932	$	(641)	$	366,711

Securities Available-for-Sale with an aggregate fair value of $406,792,000 at September 30, 2021 and $315,146,000 at December 31, 2020, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $335,068,000 at September 30, 2021 and $231,750,000 at December 31, 2020.

The amortized cost and estimated fair value of debt securities, by contractual maturity, are shown below at September 30, 2021. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

			September 30, 2021
			Debt Securities Available-For-Sale
(Dollars in thousands)				U.S. Government		Other		Obligations
				Agency &		Mortgage		of State		Asset		Corporate
	U.S. Treasury			Sponsored Agency		Backed Debt		& Political		Backed		Debt
	Securities			Obligations1		Securities1		Subdivisions		Securities		Securities
Within 1 Year:
Amortized cost	$	—		$	—	$	—	$	4,635	$	—	$	—
Fair value		—			—		—		4,690		—		—
1 - 5 Years:
Amortized cost		—			765		9,658		21,237		1,066		15,460
Fair value		—			769		9,674		22,373		1,075		15,786
5 - 10 Years:
Amortized cost		4,959			17,749		3,530		20,175		—		26,050
Fair value		4,899			17,754		3,529		21,630		—		26,041
After 10 Years:
Amortized cost		—			108,445		29,864		120,992		37,260		—
Fair value		—			108,081		29,933		129,124		37,476		—
Total:
Amortized cost	$	4,959		$	126,959	$	43,052	$	167,039	$	38,326	$	41,510
Fair value		4,899			126,604		43,136		177,817		38,551		41,827

¹ Mortgage-backed securities are allocated for maturity reporting at their original maturity date.

There were no aggregate securities with a single issuer (excluding the U.S. Government and U.S. Government Agencies and Corporations) which exceeded ten percent of consolidated stockholders’ equity at September 30, 2021. The quality rating of the obligations of state and political subdivisions are generally investment grade, as rated by

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Moody’s, Standard and Poor’s or Fitch. The typical exceptions are local issues which are not rated, but are secured by the full faith and credit obligations of the communities that issued these securities.

Proceeds from sales of investments in Debt Securities Available-For-Sale for the three months ended September 30, 2021 and 2020 were $0 and $8,140,000, respectively. Gross gains realized on these sales were $0 and $142,000, respectively. Gross losses realized on these sales were $0 and $81,000, respectively. There were no impairment losses realized on Debt Securities Available-For-Sale during the three months ended September 30, 2021 or 2020.

Proceeds from sales of investments in Debt Securities Available-For-Sale for the nine months ended September 30, 2021 and 2020 were $0 and $21,692,000, respectively. Gross gains realized on these sales were $0 and $414,000, respectively. Gross losses realized on these sales were $0 and $186,000, respectively. There were no impairment losses realized on Debt Securities Available-For-Sale during the nine months ended September 30, 2021 or 2020.

At September 30, 2021 and December 31, 2020, the Company had $1,805,000 and $1,646,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the nine months ended September 30, 2021 and 2020:

(Dollars in thousands)	Nine months ended		Nine months ended
	September 30, 2021		September 30, 2020
Net gains and (losses) recognized during the period on equity securities	$	165	$	(540)
Less: Net gains recognized during the period on equity securities sold during the period		4		—
Net gains and (losses) recognized during the reporting period on equity securities still held at the reporting date	$	161	$	(540)

There were no proceeds from sales of investments in Held-to-Maturity debt securities during the nine months ended September 30, 2021 or 2020. Therefore, there were no gains or losses realized during these periods.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Securities classified as Available-for-Sale or Held-to-Maturity are generally evaluated for OTTI under FASB ASC 320, Investments - Debt and Equity Securities. In determining OTTI under the FASB ASC 320 model, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs on debt securities, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected, and the realized loss is recognized as impairment charges on securities on the consolidated statements of income. The amount of the total OTTI related to the other factors shall be recognized in other comprehensive income (loss), net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

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The Company and its investment advisors monitor the entire portfolio monthly with particular attention given to securities in a continuous loss position of at least ten percent for over twelve months. Based on the factors described above, management did not consider any securities to be other-than-temporarily impaired at September 30, 2021 or December 31, 2020.

The summary below shows the gross unrealized losses and fair value of the Company’s debt securities. Totals are aggregated by investment category where individual securities have been in a continuous loss position for less than 12 months or 12 months or more as of September 30, 2021 and December 31, 2020:

September 30, 2021

(Dollars in thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale:	Value		Loss		Value		Loss		Value		Loss
U.S. Treasury securities	$	4,899	$	(60)	$	—	$	—	$	4,899	$	(60)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		69,838		(977)		4,653		(99)		74,491		(1,076)
Other		—		—		7,243		(60)		7,243		(60)
Other mortgage backed debt securities		9,199		(104)		4,210		(57)		13,409		(161)
Obligations of state and political subdivisions		29,552		(622)		—		—		29,552		(622)
Asset backed securities		10,245		(47)		1,978		(1)		12,223		(48)
Corporate debt securities		14,904		(146)		3,445		(55)		18,349		(201)
Total	$	138,637	$	(1,956)	$	21,529	$	(272)	$	160,166	$	(2,228)

December 31, 2020

(Dollars in thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale:	Value		Loss		Value		Loss		Value		Loss
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		13,859		(302)		5,729		(23)		19,588		(325)
Other		2,497		(32)		6,709		(74)		9,206		(106)
Other mortgage backed debt securities		8,290		(46)		—		—		8,290		(46)
Obligations of state and political subdivisions		4,122		(14)		—		—		4,122		(14)
Asset backed securities		6,827		(8)		11,018		(80)		17,845		(88)
Corporate debt securities		5,489		(11)		1,949		(51)		7,438		(62)
Total	$	41,084	$	(413)	$	25,405	$	(228)	$	66,489	$	(641)

The Company invests in various forms of agency debt including residential and commercial mortgage-backed securities and callable debt. The mortgage-backed agency securities are issued by Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”) or Small Business Administration (“SBA”). The other mortgage-backed securities consist of private (non-agency) residential and commercial mortgage backed securities. The municipal securities consist of general obligations and revenue bonds. Asset backed securities consist of bonds backed by consumer loans. Corporate debt securities consist of senior debt and subordinated debt holdings.

The fair market value of the above securities is influenced by market interest rates, prepayment speeds on mortgage securities, bid-offer spreads in the market place and credit premiums for various types of agency debt. These factors change continuously and therefore the market value of these securities may be higher or lower than the Company’s carrying value at any measurement date. Management does not believe any of their 47 debt securities with a

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less than one year unrealized loss position, or any of their 16 debt securities with a one year or greater unrealized loss position as of September 30, 2021, represent an other-than-temporary impairment, as the unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company expects to collect all principal and interest payments defined under the original terms as all contracted payments on securities in the portfolio are current as of September 30, 2021.

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans

Net loans are stated at their outstanding recorded investment, net of deferred fees and costs, unearned income and the allowance for loan losses. Interest on loans is recognized as income over the term of each loan, generally, by the accrual method. Loan origination fees and certain direct loan origination costs have been deferred with the net amount amortized using the straight line method or the interest method over the contractual life of the related loans as an interest yield adjustment.

The loans receivable portfolio is segmented into commercial, residential and consumer loans. Commercial loans consist of the following classes: Commercial and Industrial, and Commercial Real Estate.

Commercial and Industrial Lending

The Company originates commercial and industrial loans primarily to businesses located in its primary market area and surrounding areas. These loans are used for various business purposes, which include short-term loans and lines of credit to finance machinery and equipment, inventory and accounts receivable. Generally, the maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Most business lines of credit are written on demand and are reviewed annually.

Commercial and industrial loans are generally secured with short-term assets; however, in many cases, additional collateral such as real estate is provided as additional security for the loan. Loan-to-value maximum thresholds have been established by the Company and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, business financial statements, collateral appraisals or internal evaluations, etc. Commercial and industrial loans are typically supported by personal guarantees of the borrower.

In underwriting commercial and industrial loans, an analysis is performed to evaluate the borrower’s character and capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as the conditions affecting the borrower. Evaluation of the borrower’s past, present and future cash flows is also an important aspect of the Company’s analysis of the borrower’s ability to repay. SBA Paycheck Protection Program (“PPP”) loans that have been issued by the Company as a result of the enactment of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) in response to the economic impact of the COVID-19 pandemic are included in the Company’s Commercial and Industrial portfolio and are underwritten according to all terms and conditions pursuant to the PPP as administered by the SBA under the CARES Act. See the Coronavirus Pandemic Impact on the Loan Portfolio section on page 15 for more information regarding the Company’s underwriting of these loans.

Commercial and industrial loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions. Commercial and industrial loans are typically made on the basis of the borrower’s ability to make repayment from cash flows from the borrower’s primary business activities. As a result, the availability of funds for the repayment of commercial and industrial loans is dependent on the success of the business itself, which in turn, is likely to be dependent upon the general economic environment.

As an addition to the commercial loans receivable portfolio, the Company may purchase the guaranteed portion of loans secured by the U.S. Government. The originating bank retains the unguaranteed portion of the loan. The loans are sponsored by one of the various government agencies including the SBA, United States Department of Agriculture (“USDA”), and the Farm Service Agency (“FSA”). Government Guaranteed Loans ("GGLs") carry no credit risk due to

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an unconditional and irrevocable guarantee (which is supported by the full faith and credit of the U.S. Government) on all principal and the balance of interest accruing through ninety days beyond the date that demand is made to the originating bank for repurchase of the loan. As of September 30, 2021, the Company's balance of GGLs amounted to $4,897,000, compared to $5,128,000 at December 31, 2020.

Commercial Real Estate Lending

The Company engages in commercial real estate lending in its primary market area and surrounding areas. The Company’s commercial real estate portfolio is secured primarily by commercial retail space, commercial office buildings, residential housing and hotels. Generally, commercial real estate loans have terms that do not exceed twenty years, have loan-to-value ratios of up to eighty percent of the value of the collateral property, and are typically supported by personal guarantees of the borrowers.

In underwriting these loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. The value of the property is determined by either independent appraisers or internal evaluations performed by Bank officers.

Commercial real estate loans generally present a higher level of risk than residential real estate secured loans. Repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project and/or the effect of the general economic conditions on income producing properties.

Residential Real Estate Lending (Including Home Equity)

The Company’s residential real estate portfolio is comprised of one-to-four family residential mortgage loan originations, home equity term loans and home equity lines of credit. These loans are generated by the Company’s marketing efforts, its present customers, walk-in customers and referrals. These loans originate primarily within or with customers from the Company’s market area.

The Company’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas. The Company offers fixed-rate mortgage loans with terms up to a maximum of thirty years for both permanent structures and those under construction. Loans with terms of thirty years are normally held for sale and sold without recourse; most of the residential mortgages held in the Company’s residential real estate portfolio have maximum terms of twenty years. Generally, the majority of the Company’s residential mortgage loans originate with a loan-to-value of eighty percent or less, or those with primary mortgage insurance at ninety-five percent or less. Home equity term loans are secured by the borrower’s primary residence and typically have a maximum loan-to-value of eighty percent and a maximum term of fifteen years. In general, home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of eighty percent and a maximum term of twenty years.

In underwriting one-to-four family residential mortgage loans, the Company evaluates the borrower’s ability to make monthly payments, the borrower’s prior loan repayment history and the value of the property securing the loan. The ability and willingness to repay is assessed based upon the borrower’s employment history, current financial conditions and credit background. A majority of the properties securing residential real estate loans made by the Company are appraised by independent appraisers. The Company generally requires mortgage loan borrowers to obtain an attorney’s title opinion or title insurance and fire and property insurance, including flood insurance, if applicable.

Residential mortgage loans, home equity term loans and home equity lines of credit generally present a lower level of risk than consumer loans because they are secured by the borrower’s primary residence. Risk is increased when the Company is in a subordinate position, especially to another lender, for the loan collateral.

Residential mortgage loans held for sale are carried at the lower of cost or market on an aggregate basis determined by independent pricing from appropriate federal or state agency investors. These loans are sold without

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recourse. Loans held for sale amounted to $18,220,000 and $17,300,000 at September 30, 2021 and December 31, 2020, respectively.

Consumer Lending

The Company offers a variety of secured and unsecured consumer loans, including vehicle loans, stock loans and loans secured by financial institution deposits. These loans originate primarily within or with customers from the Company’s market area.

Consumer loan terms vary according to the type and value of collateral and creditworthiness of the borrower. In underwriting personal loans, a thorough analysis is performed regarding the borrower’s willingness and financial ability to repay the loan as agreed. The ability and willingness to repay is assessed based upon the borrower’s employment history, current financial condition and credit background.

Consumer loans may entail greater credit risk than residential real estate loans, particularly in the case of personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, repossessed collateral for a defaulted personal loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, personal loan collections are dependent on the borrower’s continuing financial stability and therefore, are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Coronavirus Pandemic Impact on the Loan Portfolio

As a result of the economic impact of the COVID-19 coronavirus pandemic, the CARES Act was enacted in the United States on March 27, 2020. The Company is approved by the SBA to fund loans under the SBA’s Paycheck Protection Program created as part of the CARES Act. The PPP loans have 1.00% interest rates, lender fees, two or five-year terms (depending on date of origination), and may qualify for forgiveness. These loans funded by the Company are subject to the terms and conditions applicable to all loans made pursuant to the PPP, as administered by the SBA under the CARES Act. The PPP calls for these loans to be fully guaranteed by the SBA. PPP loan origination fees and certain loan origination costs have been deferred with the net amount accreted using the straight line method over the contractual life of the related loans as an interest yield adjustment. If a loan is forgiven pursuant to the terms and conditions applicable to the PPP, the remaining origination fees and costs are recognized at the time of forgiveness. All PPP loans are carried in the Company’s Commercial and Industrial loan portfolio. As of September 30, 2021, the Company held 240 PPP loans in its Commercial and Industrial portfolio which carried a balance of $12,648,000, of which 2 loans carrying an aggregate balance of $165,000 were granted during the first round of PPP issuance and 238 loans carrying an aggregate balance of $12,483,000 were granted during the second round of PPP issuance. At December 31, 2020, the Company held 441 PPP loans in its Commercial and Industrial portfolio which carried a balance of $22,976,000, all of which were granted during the first round of PPP issuance.

An additional provision of the CARES Act, Section 4013 provides financial institutions the option to suspend requirements to categorize certain loan modifications as troubled debt restructurings (“TDRs”), as long as specific criteria are met. To qualify, the loan modifications must be made on a good-faith basis in response to the COVID-19 pandemic, must occur between March 1, 2020 and the earlier of September 30, 2021 or the termination date of the national emergency related to the COVID-19 pandemic as declared by the President of the United States, and the loans must have been paid current (less than 30 days past due prior to any relief) as of December 31, 2019. In compliance with Section 4013 of the CARES Act, the Company has granted modification requests to defer principal and/or interest payments or modify interest rates on various loans across all portfolio segments. Of the loan modifications that have been granted in compliance with Section 4013 of the CARES Act, there was 1 loan modification still actively on deferral carrying a balance of $9,423,000 as of September 30, 2021, compared to December 31, 2020 when there were 44 loan modifications still actively on deferral carrying an aggregate balance of $16,541,000. See page 25 for additional information regarding the Section 4013 CARES Act modifications.

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Delinquent Loans

Generally, a loan is considered to be past-due when scheduled loan payments are in arrears 10 days or more. Delinquent notices are generated automatically when a loan is 10 or 15 days past-due, depending on loan type. Collection efforts continue on past-due loans that have not been brought current, when it is believed that some chance exists for improvement in the status of the loan. Past-due loans are continually evaluated with the determination for charge-off being made when no reasonable chance remains that the status of the loan can be improved.

Commercial and Industrial and Commercial Real Estate loans are charged off in whole or in part when they become sufficiently delinquent based upon the terms of the underlying loan contract and when a collateral deficiency exists. Because all or part of the contractual cash flows are not expected to be collected, the loan is considered to be impaired, and the Company estimates the impairment based on its analysis of the cash flows or collateral estimated at fair value less cost to sell. Should a GGL default, demand is made to the originating bank for repurchase of the loan. If the originating bank does not repurchase the loan, demand for repurchase is then made to the appropriate government agency which has provided the guarantee for the loan.

Residential Real Estate and Consumer loans are charged off when they become sufficiently delinquent based upon the terms of the underlying loan contract and when the value of the underlying collateral is not sufficient to support the loan balance and a loss is expected. At that time, the amount of estimated collateral deficiency, if any, is charged off for loans secured by collateral, and all other loans are charged off in full. Loans with collateral are written down to the estimated fair value of the collateral less cost to sell.

Existing loans in which the borrower has declared bankruptcy are considered on a case by case basis to determine whether repayment is likely to occur (eg. reaffirmation by the borrower with demonstrated repayment ability). Otherwise, loans are charged off in full or written down to the estimated fair value of collateral less cost to sell.

Generally, a loan is classified as non-accrual and the accrual of interest on such a loan is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest. A loan may remain on accrual status if it is well secured (or supported by a strong guarantee) and in the process of collection. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against interest income. Certain non-accrual loans may continue to perform; that is, payments are still being received. Generally, the payments are applied to principal. These loans remain under constant scrutiny, and if performance continues, interest income may be recorded on a cash basis based on management's judgment regarding the collectability of principal.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level estimated by management to be adequate to absorb potential loan losses. Management’s periodic evaluation of the adequacy of the allowance for loan losses is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are individually classified as impaired. Select loans are not aggregated for collective impairment evaluation, as such; all loans are subject to individual impairment evaluation should the facts and circumstances pertinent to a particular loan suggest that such evaluation is necessary. Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that

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experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is impaired, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from collateral. TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s contractual rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan may be reported at the net realizable value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers all other loans not identified as impaired (aside from GGLs, which do not require an allowance) and is based on historical losses and qualitative factors. The historical loss component of the allowance is determined by losses recognized by portfolio segment over an eight quarter lookback period that management has determined best represents the current credit cycle. Qualitative factors impacting each portfolio segment may include: delinquency trends, loan volume trends, Bank policy changes, management processes and oversight, economic trends (including change in consumer and business disposable incomes, unemployment and under-employment levels, and other conditions), concentrations by industry or product, internal and external loan review processes, collateral value and market conditions, and external factors including regulatory issues and competition.

In response to the COVID-19 pandemic and its impact on the current economy, the qualitative factors related to the local/regional economy were increased by two basis points across all loan segments during the first quarter of 2020 and increased by an additional basis point across all loan segments during the second quarter of 2020. The qualitative factor relating to the impact of external factors/conditions for the Commercial Real Estate portfolio segment was increased by an additional basis point during the third quarter of 2020. The qualitative factors relating to the impact of external factors/conditions were increased by two additional basis points across all loan segments during the fourth quarter of 2020. Qualitative factors remained unchanged during the first quarter of 2021. During the second quarter of 2021, the qualitative factors related to the local/regional economy were decreased by one basis point across all loan segments, as the economy and job growth in the Company’s market areas demonstrated marked improvement over the prior quarter, and the qualitative factor related to collateral values was increased by one basis point for both the Commercial Real Estate and Residential Real Estate portfolio segments due to increasing market values in the real estate sector. Qualitative factors remained unchanged during the third quarter of 2021. Modifications granted in compliance with Section 4013 of the CARES Act were highest in the Commercial Real Estate portfiolio segment, the long-term effects of which are still very unclear, as there is still economic uncertainty related to the COVID-19 pandemic, especially in relation to this segment of the Company’s loan portfolio.

GGLs do not require an associated allowance for loan losses due to the underlying irrevocable and unconditional guarantee, which is supported by the full faith and credit of the U.S. Government. Should a GGL default, the loan will be repurchased by the originating bank or the appropriate government agency that has provided the guarantee for the loan.

Although PPP loans do not require an associated allowance for loan losses due to the program’s call for a full guarantee by the SBA, the Company has taken the conservative approach and has calculated a qualitative allocation for the PPP loans under the general component of the allowance for the Commercial and Industrial portfolio.

The unallocated component of the allowance is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A reserve for unfunded lending commitments is provided for possible credit losses on off-balance sheet credit exposures. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and, if necessary, is recorded in other liabilities on the consolidated balance sheets. As of

17

September 30, 2021 and December 31, 2020, the amount of the reserve for unfunded lending commitments was $92,000 and $129,000, respectively.

The Company is subject to periodic examination by its federal and state examiners, and may be required by such regulators to recognize additions to the allowance for loan losses based on their assessment of credit information available to them at the time of their examinations.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the existing loan agreement. Under current accounting standards, the allowance for loan losses related to impaired loans is based on discounted cash flows using the loan’s contractual interest rate at inception or the net realizable value of the collateral for certain collateral dependent loans.

From time to time, the Bank may agree to modify/restructure the contractual terms of a borrower's loan. The restructuring of a loan is considered a TDR if both the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the Company has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, and (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan. A less common concession is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower were a concession not granted. Similarly, the determination of whether a concession has been granted is very subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.

Loans modified in a troubled debt restructuring are considered impaired and may or may not be placed on non-accrual status until the Company determines the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrates a period of performance according to the restructured terms of six months. Any loan modifications made in response to the COVID-19 pandemic are not considered TDRs as long as the criteria set forth in Section 4013 of the CARES Act are met. See page 25 for further discussion of the Section 4013 CARES Act modifications.

The Company utilizes a risk grading matrix as a tool for managing credit risk in the loan portfolio and assigns an asset quality rating (risk grade) to all Commercial and Industrial, Commercial Real Estate, Residential Real Estate and Consumer borrowings. An asset quality rating is assigned using the guidance provided in the Company’s loan policy. Primary responsibility for assigning the asset quality rating rests with the credit department. The asset quality rating is validated periodically by both an internal and external loan review process.

The commercial loan grading system focuses on a borrower’s financial strength and performance, experience and depth of management, primary and secondary sources of repayment, the nature of the business and the outlook for the particular industry. Primary emphasis is placed on financial condition and trends. The grade also reflects current economic and industry conditions; as well as other variables such as liquidity, cash flow, revenue/earnings trends, management strengths or weaknesses, quality of financial information, and credit history.

The loan grading system for Residential Real Estate and Consumer loans focuses on the borrower’s credit score and credit history, debt-to-income ratio and income sources, collateral position and loan-to-value ratio.

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Risk grade characteristics are as follows:

Risk Grade 1 – MINIMAL RISK through Risk Grade 6 – MANAGEMENT ATTENTION (Pass Grade Categories)

Risk is evaluated via examination of several attributes including but not limited to financial trends, strengths and weaknesses, likelihood of repayment when considering both cash flow and collateral, sources of repayment, leverage position, management expertise, and repayment history.

At the low-risk end of the rating scale, a risk grade of 1 – Minimal Risk is the grade reserved for loans with exceptional credit fundamentals and virtually no risk of default or loss. Loan grades then progress through escalating ratings of 2 through 6 based upon risk. Risk Grade 2 – Modest Risk are loans with sufficient cash flows; Risk Grade 3 – Average Risk are loans with key balance sheet ratios slightly above the borrower’s peers; Risk Grade 4 – Acceptable Risk are loans with key balance sheet ratios usually near the borrower’s peers, but one or more ratios may be higher; and Risk Grade 5 – Marginally Acceptable are loans with strained cash flow, increasing leverage and/or weakening markets. Risk Grade 6 – Management Attention are loans with weaknesses resulting from declining performance trends and the borrower’s cash flows may be temporarily strained. Loans in this category are performing according to terms, but present some type of potential concern.

Risk Grade 7 − SPECIAL MENTION (Non-Pass Category)

Assets in this category are adequately collateralized but have potential weakness which may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date. The loans may constitute increased credit risk, but not to the point of justifying a classification of substandard. No loss of principal or interest is envisioned, but risk is increasing beyond that at which the loan originally would have been granted. Historically, cash flows are inconsistent; financial trends show some deterioration. Liquidity and leverage are above industry averages. Financial information could be incomplete or inadequate. A Special Mention asset has potential weaknesses that deserve management’s close attention.

Risk Grade 8 − SUBSTANDARD (Non-Pass Category)

Generally, these assets are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have “well-defined” weaknesses that jeopardize the full liquidation of the debt.

These loans are characterized by the distinct possibility that the Company will sustain some loss if the aggregate amount of substandard assets is not fully covered by the liquidation of the collateral used as security. Substandard loans have a high probability of payment default and require more intensive supervision by Company management.

Risk Grade 9 − DOUBTFUL (Non-Pass Category)

Generally, loans graded doubtful have all the weaknesses inherent in a substandard loan with the added factor that the weaknesses are pronounced to a point whereby the basis of current information, conditions, and values, collection or liquidation in full is deemed to be highly improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to strengthen the asset, its classification is deferred until, for example, a proposed merger, acquisition, liquidation procedure, capital injection, perfection of liens on additional collateral and/or refinancing plan is completed. Loans are graded doubtful if they contain weaknesses so serious that collection or liquidation in full is questionable.

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The following table presents the classes of the loan portfolio summarized by risk rating as of September 30, 2021 and December 31, 2020:

	Commercial and
(Dollars in thousands)	Industrial				Commercial Real Estate
	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Grade:
1-6 Pass	$	94,031	$	90,906	$	489,650	$	444,119
7    Special Mention		—		—		756		814
8    Substandard		822		919		21,853		20,975
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(62)		50		742		820
Total loans	$	94,791	$	91,875	$	513,001	$	466,728

	Residential Real Estate
	Including Home Equity				Consumer
	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Grade:
1-6 Pass	$	142,066	$	155,698	$	5,163	$	4,934
7    Special Mention		573		225		—		—
8    Substandard		1,272		1,186		19		18
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(164)		(126)		64		72
Total loans	$	143,747	$	156,983	$	5,246	$	5,024

	Total Loans
	September 30,		December 31,
	2021		2020
Grade:
1-6 Pass	$	730,910	$	695,657
7 Special Mention		1,329		1,039
8 Substandard		23,966		23,098
9 Doubtful		—		—
Add (deduct):  Unearned discount and		—		—
Net deferred loan fees and costs		580		816
Total loans	$	756,785	$	720,610

Commercial and Industrial and Commercial Real Estate include loans categorized as tax-free in the amounts of $25,483,000 and $1,715,000 at September 30, 2021 and $9,337,000 and $1,843,000 at December 31, 2020. Commercial and Industrial loans also included $4,897,000 and $5,128,000 of Government Guaranteed Loans and $12,648,000 and $22,976,000 of Paycheck Protection Program loans as of September 30, 2021 and December 31, 2020, respectively. Loans held for sale amounted to $18,220,000 at September 30, 2021 and $17,300,000 at December 31, 2020.

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The activity in the allowance for loan losses, by loan class, is summarized below for the periods indicated.

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended September 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124
Charge-offs		—		—		(10)		(13)		—		(23)
Recoveries		—		—		1		1		—		2
Provision (credit)		(84)		280		(16)		11		(6)		185
Ending Balance	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the nine months ended September 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(65)		(33)		—		(140)
Recoveries		—		30		2		8		—		40
Provision (credit)		(7)		447		(66)		25		56		455
Ending Balance	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288
Loans Receivable:
Ending Balance	$	94,791	$	513,001	$	143,747	$	5,246	$	—	$	756,785
Ending balance: individually
evaluated for impairment	$	1,035	$	12,685	$	1,169	$	—	$	—	$	14,889
Ending balance: collectively
evaluated for impairment	$	93,756	$	500,316	$	142,578	$	5,246	$	—	$	741,896

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended September 30, 2020:
Allowance for Loan Losses:
Beginning balance	$	823	$	4,215	$	1,608	$	106	$	582	$	7,334
Charge-offs		(15)		(16)		(13)		(13)		—		(57)
Recoveries		4		—		—		4		—		8
Provision (credit)		22		266		37		4		(35)		294
Ending Balance	$	834	$	4,465	$	1,632	$	101	$	547	$	7,579

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(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the nine months ended September 30, 2020:
Allowance for Loan Losses:
Beginning balance	$	634	$	4,116	$	1,665	$	114	$	476	$	7,005
Charge-offs		(39)		(31)		(13)		(35)		—		(118)
Recoveries		4		—		—		6		—		10
Provision (credit)		235		380		(20)		16		71		682
Ending Balance	$	834	$	4,465	$	1,632	$	101	$	547	$	7,579
Ending balance: individually
evaluated for impairment	$	—	$	1	$	1	$	—	$	—	$	2
Ending balance: collectively
evaluated for impairment	$	834	$	4,464	$	1,631	$	101	$	547	$	7,577
Loans Receivable:
Ending Balance	$	100,297	$	441,095	$	157,539	$	5,109	$	—	$	704,040
Ending balance: individually
evaluated for impairment	$	1,101	$	11,775	$	1,096	$	—	$	—	$	13,972
Ending balance: collectively
evaluated for impairment	$	99,196	$	429,320	$	156,443	$	5,109	$	—	$	690,068

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2020:
Allowance for Loan Losses:
Beginning balance	$	634	$	4,116	$	1,665	$	114	$	476	$	7,005
Charge-offs		(90)		(141)		(33)		(37)		—		(301)
Recoveries		14		—		8		7		—		29
Provision (credit)		229		787		3		10		171		1,200
Ending Balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Ending balance: individually
evaluated for impairment	$	—	$	8	$	—	$	—	$	—	$	8
Ending balance: collectively
evaluated for impairment	$	787	$	4,754	$	1,643	$	94	$	647	$	7,925
Loans Receivable:
Ending Balance	$	91,875	$	466,728	$	156,983	$	5,024	$	—	$	720,610
Ending balance: individually
evaluated for impairment	$	1,095	$	12,923	$	1,036	$	—	$	—	$	15,054
Ending balance: collectively
evaluated for impairment	$	90,780	$	453,805	$	155,947	$	5,024	$	—	$	705,556

The outstanding recorded investment of TDRs as of September 30, 2021 and December 31, 2020 was $8,414,000 and $9,563,000, respectively. The decrease in TDRs at September 30, 2021 as compared to December 31, 2020 is mainly attributable to the payoff of a Commercial Real Estate TDR to a real estate holding company which was completed during the third quarter of 2021 in the amount of $1,010,000, as well as regular principal payments made on existing TDRs during the nine months ended September 30, 2021. There were no unfunded commitments on TDRs at September 30, 2021 and December 31, 2020.

During the three months ended September 30, 2021, one loan with a post modification balance of $59,000 was modified as a TDR, compared to the three months ended September 30, 2020 when four loans with a combined post modification balance of $366,000 were modified as TDRs. During the nine months ended September 30, 2021, four

22

loans with a combined post modification balance of $360,000 were modified as TDRs, compared to the nine months ended September 30, 2020 when seven loans with a combined post modification balance of $525,000 were modified as TDRs. The loan modifications for the nine months ended September 30, 2021 consisted of two term modifications and two payment modifications, compared to the loan modifications for the nine months ended September 30, 2020 which consisted of one term modification and six payment modifications.

The following table presents the outstanding recorded investment of TDRs at the dates indicated:

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Non-accrual TDRs	$	1,448	$	1,587
Accruing TDRs		6,966		7,976
Total	$	8,414	$	9,563

At September 30, 2021, eight Commercial Real Estate loans classified as TDRs with a combined recorded investment of $541,000, three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $724,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $15,000 were not in compliance with the terms of their restructure, compared to September 30, 2020 when nine Commercial Real Estate loans classified as TDRs with a combined recorded investment of $1,288,000 and three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $751,000 were not in compliance with the terms of their restructure.

Three Commercial Real Estate loans totaling $291,000 that were modified as a TDRs within the twelve months preceding September 30, 2021 experienced payment defaults during the nine months ended September 30, 2021. No loans that were modified as TDRs during the twelve months preceding September 30, 2021 experienced payment defaults during the three months ended September 30, 2021. Of the loans that were modified as TDRs during the twelve months preceding September 30, 2020, two Commercial Real Estate loans totaling $62,000 experienced payment defaults during the nine months ended September 30, 2020. No loans that were modified as TDRs during the twelve months preceding September 30, 2020 experienced payment defaults during the three months ended September 30, 2020.

The following table presents information regarding the loan modifications categorized as TDRs during the three and nine months ended September 30, 2021 and 2020.

(Dollars in thousands)	For the Three Months Ended September 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	59	$	59	$	59
Total	1	$	59	$	59	$	59
(Dollars in thousands)	For the Nine Months Ended September 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	4	$	360	$	360	$	350
Total	4	$	360	$	360	$	350

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(Dollars in thousands)	For the Three Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial and Industrial	2	$	42	$	42	$	42
Commercial Real Estate	2		324		324		324
Total	4	$	366	$	366	$	366
(Dollars in thousands)	For the Nine Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial and Industrial	2	$	42	$	42	$	42
Commercial Real Estate	5		483		483		483
Total	7	$	525	$	525	$	525

The following table provides detail regarding the types of loan modifications made for loans categorized as TDRs during the three and nine months ended September 30, 2021 and 2020 with the total number of each type of modification performed.

	For the Three Months Ended September 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Nine Months Ended September 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	2	2	4
Total	—	2	2	4
	For the Three Months Ended September 30, 2020
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial and Industrial	—	1	1	2
Commercial Real Estate	—	—	2	2
Total	—	1	3	4
	For the Nine Months Ended September 30, 2020
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial and Industrial	—	1	1	2
Commercial Real Estate	—	—	5	5
Total	—	1	6	7

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In the wake of the COVID-19 pandemic, during the second quarter of 2020, the Company began granting loan modification requests to defer principal and/or interest payments or modify interest rates. These loans are not classified as TDRs according to Section 4013 of the CARES Act, as long as the specific criteria set forth in the Act are met. The table below presents information related to loan modifications made in compliance with Section 4013 of the CARES Act for the nine months ended September 30, 2021.

(Dollars in thousands)	Commercial and			Commercial			Residential
	Industrial			Real Estate			Real Estate			Consumer			Total
		Recorded			Recorded			Recorded			Recorded			Recorded
	Count	Investment		Count	Investment		Count	Investment		Count	Investment		Count	Investment
Balance at December 31, 2020	7	$	1,012	35	$	15,260	2	$	269	—	$	—	44	$	16,541
Additional modifications granted for the three months ended March 31, 2021	2		190	2		10,414	1		16	1		2	6	$	10,622
Section 4013 CARES Act modifications returned to normal payment status during the three months ended March 31, 2021 (a)	(2)		(612)	(29)		(12,780)	(2)		(130)	—		—	(33)	$	(13,522)
Principal payments net of draws on active deferred loans for the three months ended March 31, 2021 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at March 31, 2021	7	$	590	8	$	12,894	1	$	155	1	$	2	17	$	13,641
Additional modifications granted for the three months ended June 30, 2021	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended June 30, 2021 (a)	(1)		(143)	(6)		(2,480)	(1)		(155)	(1)		(2)	(9)		(2,780)
Principal payments net of draws on active deferred loans for the three months ended June 30, 2021 (b)	N/A		—	N/A		(293)	N/A		—	N/A		—	N/A		(293)
Balance at June 30, 2021	6	$	447	2	$	10,121	—	$	—	—	$	—	8	$	10,568
Additional modifications granted for the three months ended September 30, 2021	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended September 30, 2021 (a)	(6)		(447)	(1)		(698)	—		—	—		—	(7)		(1,145)
Principal payments net of draws on active deferred loans for the three months ended Setpember 30, 2021 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at September 30, 2021	—	$	—	1	$	9,423	—	$	—	—	$	—	1	$	9,423
Percent of Total Section 4013 CARES Act Modifications as of September 30, 2021			0.00%			100.00%			0.00%			0.00%			100.00%
Percent of Total Section 4013 CARES Act Modifications to Total Loans as of September 30, 2021			0.00%			1.25%			0.00%			0.00%			1.25%
Subsequent modifications granted during the three months ended September 30, 2021 for active deferred loans outstanding as of September 30, 2021	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—

(a) Includes payments made prior to return to normal payment status during the three month period

(b) Draws include those made on lines of credit and other loans contractually allowing draws of principal. No construction loans have experienced a Section 4013 CARES Act modification at the dates indicated.

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The recorded investment, unpaid principal balance, and the related allowance of the Company’s impaired loans are summarized below at September 30, 2021 and December 31, 2020.

(Dollars in thousands)	September 30, 2021						December 31, 2020
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial and Industrial	$	1,035	$	1,035	$	—	$	1,095	$	1,095	$	—
Commercial Real Estate		12,685		15,618		—		12,438		15,400		—
Residential Real Estate		1,169		1,245		—		1,036		1,120		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—		—		—
Commercial Real Estate		—		—		—		485		485		8
Residential Real Estate		—		—		—		—		—		—
Total	$	14,889	$	17,898	$	—	$	15,054	$	18,100	$	8
Total consists of:
Commercial and Industrial	$	1,035	$	1,035	$	—	$	1,095	$	1,095	$	—
Commercial Real Estate	$	12,685	$	15,618	$	—	$	12,923	$	15,885	$	8
Residential Real Estate	$	1,169	$	1,245	$	—	$	1,036	$	1,120	$	—

At September 30, 2021 and December 31, 2020, $8,414,000 and $9,563,000 of loans classified as TDRs were included in impaired loans with a total allocated allowance of $0 at both September 30, 2021 and December 31, 2020. The recorded investment represents the loan balance reflected on the consolidated balance sheets net of any charge-offs. The unpaid balance is equal to the gross amount due on the loan.

The average recorded investment and interest income recognized for the Company’s impaired loans are summarized below for the three and nine months ended September 30, 2021 and 2020.

(Dollars in thousands)	For the Three Months Ended				For the Three Months Ended
	September 30, 2021				September 30, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,042	$	2	$	1,080	$	4
Commercial Real Estate		12,890		82		11,640		93
Residential Real Estate		1,181		—		1,076		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		29		—
Residential Real Estate		—		—		25		—
Total	$	15,113	$	84	$	13,850	$	97
Total consists of:
Commercial and Industrial	$	1,042	$	2	$	1,080	$	4
Commercial Real Estate	$	12,890	$	82	$	11,669	$	93
Residential Real Estate	$	1,181	$	—	$	1,101	$	—

Of the $84,000 and $97,000 in interest income recognized on impaired loans for the three months ended September 30, 2021 and 2020 respectively, $0 in interest income was recognized with respect to non-accrual loans for each respective period.

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(Dollars in thousands)	For the Nine Months Ended				For the Nine Months Ended
	September 30, 2021				September 30, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,061	$	7	$	1,076	$	12
Commercial Real Estate		12,673		270		11,361		243
Residential Real Estate		1,155		1		1,015		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		322		—		119		5
Residential Real Estate		—		—		22		1
Total	$	15,211	$	278	$	13,593	$	262
Total consists of:
Commercial and Industrial	$	1,061	$	7	$	1,076	$	12
Commercial Real Estate	$	12,995	$	270	$	11,480	$	248
Residential Real Estate	$	1,155	$	1	$	1,037	$	2

Of the $278,000 and $262,000 in interest income recognized on impaired loans for the nine months ended September 30, 2021 and 2020 respectively, $3,000 and $5,000 in interest income was recognized with respect to non-accrual loans for each respective period.

Total non-performing assets (which includes loans receivable on non-accrual status, foreclosed assets held for resale and loans past-due 90 days or more and still accruing interest) as of September 30, 2021 and December 31, 2020 were as follows:

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Commercial and Industrial	$	724	$	745
Commercial Real Estate		6,046		5,315
Residential Real Estate		1,153		1,018
Total non-accrual loans		7,923		7,078
Foreclosed assets held for resale		—		28
Loans past-due 90 days or more and still accruing interest		75		13
Total non-performing assets	$	7,998	$	7,119

There were no foreclosed assets held for resale at September 30, 2021. The $28,000 in foreclosed assets held for resale at December 31, 2020 was represented by land. At December 31, 2020, all foreclosed assets were held as the result of obtaining physical possession. Consumer mortgage loans secured by residential real estate for which the Company has entered into formal foreclosure proceedings but for which physical possession has yet to be obtained amounted to $41,000 at both September 30, 2021 and December 31, 2020. These balances were not included in foreclosed assets held for resale at September 30, 2021 or December 31, 2020.

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The following tables present the classes of the loan portfolio, including non-accrual loans and TDRs, summarized by past-due status at September 30, 2021 and December 31, 2020:

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
September 30, 2021:
Commercial and Industrial	$	—	$	—	$	768	$	768	$	94,023	$	94,791	$	75
Commercial Real Estate		901		636		5,317		6,854		506,147		513,001		—
Residential Real Estate		552		147		1,088		1,787		141,960		143,747		—
Consumer		13		—		—		13		5,233		5,246		—
Total	$	1,466	$	783	$	7,173	$	9,422	$	747,363	$	756,785	$	75

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
December 31, 2020:
Commercial and Industrial	$	—	$	—	$	745	$	745	$	91,130	$	91,875	$	—
Commercial Real Estate		1,879		968		4,552		7,399		459,329		466,728		—
Residential Real Estate		628		74		1,031		1,733		155,250		156,983		13
Consumer		19		6		—		25		4,999		5,024		—
Total	$	2,526	$	1,048	$	6,328	$	9,902	$	710,708	$	720,610	$	13

At this time, there have been no material fluctuations in past-due loans as a result of the COVID-19 pandemic.

At September 30, 2021 and December 31, 2020, commitments to lend additional funds with respect to impaired loans consisted of one irrevocable letter of credit totaling $1,249,000 that was associated with a loan to a developer of a residential sub-division.

NOTE 5 — DEPOSITS

Major classifications of deposits at September 30, 2021 and December 31, 2020 consisted of:

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Non-interest bearing demand	$	244,602	$	198,499
Interest bearing demand		469,641		330,253
Savings		256,027		214,908
Time certificates of deposits less than $250,000		160,123		177,652
Time certificates of deposits $250,000 or greater		13,317		15,029
Other time		1,794		1,147
Total deposits	$	1,145,504	$	937,488

Total deposits increased $208,016,000 to $1,145,504,000 as of September 30, 2021 due to increases in non-interest bearing, interest bearing demand and savings deposits. The increase in deposits was the result of government stimulus funds, PPP loan proceeds, a $128,271,000 increase in highly rate sensitive deposits and other normal fluctuations in deposits during the nine months ended September 30, 2021.

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NOTE 6 — BORROWINGS

Short-Term Borrowings

Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, the Federal Discount Window, and Federal Home Loan Bank of Pittsburgh (“FHLB”) advances, which generally represent overnight or less than 30-day borrowings. Short-term borrowings and weighted–average interest rates at September 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)	September 30, 2021				December 31, 2020
			Average				Average
	Amount		Rate		Amount		Rate
Federal funds purchased	$	—	0.37	%	$	—	0.37	%
Securities sold under agreements to repurchase		29,853	0.34	%		19,494	0.58	%
Federal Discount Window		—	0.37	%		—	0.37	%
Federal Home Loan Bank of Pittsburgh		—	0.34	%		—	1.00	%
Total	$	29,853	0.34	%	$	19,494	0.82	%

Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)

The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets.

As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability on the Company’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is not offsetting or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Company does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.

The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Company be in default (e.g., fails to make an interest payment to the counterparty). The collateral is held by a correspondent bank in the counterparty’s custodial account. The counterparty has the right to sell or repledge the investment securities.

The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreements as of September 30, 2021 and December 31, 2020.

(Dollars in thousands)			Gross		Net Amounts
			Amounts		of Liabilities
			Offset		Presented
	Gross		in the		in the
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral		Net
	Liabilities		Sheet		Sheet		Instruments		Pledge		Amount
September 30, 2021
Repurchase agreements (a)	$	29,853	$	—	$	29,853	$	(29,853)	$	—	$	—
December 31, 2020
Repurchase agreements (a)	$	19,494	$	—	$	19,494	$	(19,494)	$	—	$	—

(a) As of September 30, 2021 and December 31, 2020, the fair value of securities pledged in connection with repurchase agreements was $34,552,000 and $23,695,000, respectively.

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The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of September 30, 2021:

(Dollars in thousands)	Remaining Contractual Maturity of the Agreements
	Overnight				Greater		Greater
	and		Up to		30 -90		than
	Continuous		30 days		Days		90 Days		Total
September 30, 2021:
Repurchase agreements and repurchase-to-maturity transactions:
U.S. Treasury and/or agency securities	$	29,853	$	—	$	—	$	—	$	29,853
Total	$	29,853	$	—	$	—	$	—	$	29,853

Long-Term Borrowings and Letters of Credit

Long-term borrowings are comprised of advances from the FHLB.

Irrevocable standby letters of credit may be issued to a customer/beneficiary by the FHLB on the Company’s behalf in order to secure public/municipal unit deposits, provide credit enhancement to certain transaction types, or to support payment obligations to third parties. These irrevocable standby letters of credit are supported by an irrevocable and independent guarantee by the FHLB for the Company’s pledging obligation to secure public/municipal unit deposits which eliminates the need for the Company to pledge collateral in the amount necessary to secure these funds. The Company began utilizing this service offered by the FHLB during the second quarter of 2021. FHLB has issued active irrevocable standby letters of credit for $51,400,000 which could be drawn on through FHLB’s close of business on September 30, 2021 and will be renewed as necessary in an amount appropriate to secure specific public/municipal unit deposits.

Under terms of a blanket agreement, collateral for the FHLB loans and letters of credit consists of certain qualifying assets of the Corporation’s banking subsidiary. Principal qualifying assets are certain real estate mortgages and investment securities. As of September 30, 2021, loans of $582,085,000 were pledged to FHLB which resulted in a FHLB maximum borrowing capacity of $416,371,000. As of September 30, 2021, no investment securities were pledged as collateral to FHLB to secure FHLB loans and letters of credit.

NOTE 7 — SUBORDINATED DEBT

On December 10, 2020, the Corporation issued $25,000,000 aggregate principal amount of Subordinated Notes due 2030 (the “2020 Notes”) to accredited investors. The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The Company intends to use the net proceeds it received from the sale of the 2020 Notes to support organic growth and for general corporate purposes.

The 2020 Notes bear a fixed interest rate of 4.375% per year for the first five years and then float based on a benchmark rate (as defined). Interest is payable semi-annually in arrears on June 30 and December 31 of each year, which began on June 30, 2021, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 31, June 30, September 30 and December 31. The 2020 Notes will mature on December 31, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 31, 2025 and prior to December 31, 2030. Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 capital, the Corporation may redeem, in whole and not in part, at any time upon giving not less than ten days’ notice, an amount equal to one hundred percent (100%) of the principal amount outstanding plus accrued but unpaid interest to but excluding the date fixed for redemption.

Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar law of the Corporation or the Bank.

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NOTE 8 — COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are various pending legal actions and proceedings that are not reflected in the consolidated financial statements. Management does not believe the outcome of these actions and proceedings will have a material effect on the consolidated financial position or results of operations of the Company.

The Bank currently leases three branch banking facilities and one parcel of land under operating leases. At September 30, 2021, right-of-use assets and lease liabilities were recorded related to these operating leases totaling $1,050,000 and $1,518,000, respectively. At December 31, 2020, right-of-use assets and lease liabilities stood at $1,061,000 and $1,513,000, respectively. Further options to extend or terminate the lease are not applicable for any of the four leases. No significant assumptions or judgements were made in determining whether a contract contained a lease or in the consideration of lease versus non-lease components. None of the leases contained an implicit rate; therefore, our incremental borrowing rate was used for each of the leases.

The Bank recognized total operating lease costs for the nine months ended September 30, 2021 and 2020 of $133,000 and $332,000, respectively. Cash payments totaled $116,000 for the nine months ended September 30, 2021 and 2020.

The Bank currently has one finance lease for equipment. At September 30, 2021, right-of-use assets and lease liabilities were recorded related to the finance lease totaling $34,000 and $19,000, respectively. At December 31, 2020, right-of-use assets and lease liabilities stood at $94,000 and $84,000, respectively. Amounts recognized as right-of-use assets and lease liabilities related to finance leases are included in Premises and equipment, net and Other liabilities, respectively, in the accompanying balance sheet. Further options to extend or terminate the lease are not applicable for the lease. No significant assumptions or judgements were made in determining whether a contract contained a lease or in the consideration of lease versus non-lease components. The lease did not contain an implicit rate; therefore, our incremental borrowing rate was used.

Total finance lease costs that were recognized by the Bank for the nine months ended September 30, 2021 were immaterial. Cash payments as of September 30, 2021 totaled $7,000.

The following table displays the weighted-average term and discount rates for operating and finance leases outstanding as of September 30, 2021 and December 31, 2020.

	September 30,	December 31,	September 30,	December 31,
	2021	2020	2021	2020
	Operating	Operating	Finance	Finance
Weighted-average term (years)	24.90	25.09	1.92	5.55
Weighted-average discount rate	3.91%	3.86%	0.68%	0.88%

A maturity analysis of operating and finance lease liabilities and reconciliation of the undiscounted cash flows to the total operating or finance lease liability is as follows:

(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Minimum Lease Payments due:	Operating		Operating		Finance		Finance
Within one year	$	102	$	140	$	10	$	19
After one but within two years		68		86		9		19
After two but within three years		68		68		—		15
After three but within four years		68		68		—		9
After four but within five years		68		68		—		9
After five years		2,207		2,258		—		16
Total undiscounted cash flows		2,581		2,688		19		87
Discount on cash flows		(1,063)		(1,175)		—		(3)
Total lease liability	$	1,518	$	1,513	$	19	$	84

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NOTE 9 — FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company does not engage in trading activities with respect to any of its financial instruments with off-balance sheet risk.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.

The contract or notional amounts at September 30, 2021 and December 31, 2020 were as follows:

(Dollars in thousands)
	September 30, 2021		December 31, 2020
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	108,941	$	114,836
Financial standby letters of credit	$	1,439	$	1,175
Performance standby letters of credit	$	3,727	$	3,448

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses that may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, owner-occupied income-producing commercial properties, and residential real estate.

Standby letters of credit are conditional commitments issued by the Company to guarantee payment to a third party when a customer either fails to repay an obligation or fails to perform some non-financial obligation. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company may hold collateral (similar to the items held as collateral for commitments to extend credit) to support standby letters of credit for which collateral is deemed necessary.

Financial Instruments with Concentrations of Credit Risk

The Company originates primarily commercial and residential real estate loans to customers in northeastern Pennsylvania. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy and real estate market in this area. At September 30, 2021, the Company had $656,748,000 in loans secured by real estate, which represented 86.8% of total loans. The real estate loan portfolio is largely secured by lessors of residential buildings and dwellings, lessors of non-residential buildings, and lessors of hotels/motels. As of

32

September 30, 2021 and December 31, 2020, management is of the opinion that there were no concentrations exceeding 10% of total loans with regard to loans to borrowers who were engaged in similar activities that were similarly impacted by economic or other conditions.

As all financial instruments are subject to some level of credit risk, the Company requires collateral and/or guarantees for all loans. Collateral may include, but is not limited to property, plant, and equipment, commercial and/or residential real estate property, land, and pledge of securities. In the event of a borrower’s default, the collateral supporting the loan may be seized in order to recoup losses associated with the loan. The Company also establishes an allowance for loan losses that constitutes the amount available to absorb losses within the loan portfolio that may exist due to deficiencies in collateral values.

NOTE 10 — FAIR VALUE MEASUREMENTS

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance provides additional information on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes information on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the fair value measurement and disclosure guidance.

This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own belief about the assumptions market participants would use in pricing the asset or liability based upon the best information available. Fair value measurement and disclosure guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs:     Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Inputs:     Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 Inputs:     Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth as follows.

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Financial Assets Measured at Fair Value on a Recurring Basis

At September 30, 2021 and December 31, 2020, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

(Dollars in thousands)
September 30, 2021	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	—	$	4,899	$	—	$	4,899
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		118,405		—		118,405
Other		—		8,199		—		8,199
Other mortgage backed debt securities		—		43,136		—		43,136
Obligations of state and political subdivisions		—		177,817		—		177,817
Asset backed securities		—		38,551		—		38,551
Corporate debt securities		—		41,827		—		41,827
Total debt securities available-for-sale		—		432,834		—		432,834
Marketable equity securities		1,805		—		—		1,805
Total recurring fair value measurements	$	1,805	$	432,834	$	—	$	434,639

(Dollars in thousands)
December 31, 2020	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		77,573		—		77,573
Other		—		10,430		—		10,430
Other mortgage backed debt securities		—		39,844		—		39,844
Obligations of state and political subdivisions		—		165,101		—		165,101
Asset backed securities		—		44,821		—		44,821
Corporate debt securities		—		28,942		—		28,942
Total debt securities available-for-sale		—		366,711		—		366,711
Marketable equity securities		1,646		—		—		1,646
Total recurring fair value measurements	$	1,646	$	366,711	$	—	$	368,357

The estimated fair values of equity securities classified as Level 1 are derived from quoted market prices in active markets; these assets consist mainly of stocks held in other banks. The estimated fair values of all debt securities classified as Level 2 are obtained from nationally-recognized third-party pricing agencies. The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (observable inputs), and are therefore classified as Level 2 within the fair value hierarchy. The Company does not have any Level 3 inputs for securities. There were no transfers between Level 1 and Level 2 during 2021 or 2020.

34

Financial Assets Measured at Fair Value on a Nonrecurring Basis

At September 30, 2021 and December 31, 2020, impaired loans measured at fair value on a nonrecurring basis are as follows:

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at September 30, 2021
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,970	$	5,970
Residential Real Estate		—		—		45		45
Total impaired loans	$	—	$	—	$	6,015	$	6,015

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2020
Impaired loans:
Commercial Real Estate	$	—	$	—	$	6,497	$	6,497
Residential Real Estate		—		—		111		111
Total impaired loans	$	—	$	—	$	6,608	$	6,608

The Company’s impaired loan valuation procedure for any loans greater than $250,000 requires an appraisal to be obtained and reviewed annually at year end unless the Board of Directors waives such requirement for a specific loan, in favor of obtaining a Certificate of Inspection instead, defined as an internal evaluation completed by the Company. A quarterly collateral evaluation is performed which may include a site visit, property pictures and discussions with realtors and other similar business professionals to ascertain current values. For impaired loans less than $250,000 upon classification and annually at year end, the Company completes a Certificate of Inspection, which includes an onsite inspection, and considers value indicators such as insured values, tax assessed values, recent sales comparisons and a review of the previous evaluations.These assets are included as Level 3 fair values, based upon the lowest level that is significant to the fair value measurements. The fair value consists of the impaired loan balances less the valuation allowance and/or charge-offs. There were no transfers between valuation levels in 2021 and 2020.

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

At September 30, 2021 and December 31, 2020, foreclosed assets held for resale measured at fair value on a nonrecurring basis are as follows:

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at September 30, 2021
Foreclosed assets held for resale:
Commercial Real Estate	$	—	$	—	$	—	$	—
Total foreclosed assets held for resale	$	—	$	—	$	—	$	—

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2020
Foreclosed assets held for resale:
Commercial Real Estate	$	—	$	—	$	28	$	28
Total foreclosed assets held for resale	$	—	$	—	$	28	$	28

The Company’s foreclosed asset valuation procedure requires an appraisal or a Certificate of Inspection, which considers the sales prices of similar properties in the proximate vicinity, to be completed periodically with the exception of those cases in which the Bank has obtained a sales agreement. These assets are included as Level 3 fair values, based upon the lowest level that is significant to the fair value measurements. There were no transfers between valuation levels in 2021 and 2020.

35

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine the fair value:

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value					Weighted
September 30, 2021	Estimate		Valuation Technique	Unobservable Input	Range	Average
Impaired loans - collateral dependent	$	3,135	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(5%) – (73%)	(7%)
Impaired loans - other	$	2,880	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
Foreclosed assets held for resale	$	—	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(0%) –(0%)	(0%)
December 31, 2020
Impaired loans - collateral dependent	$	3,679	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (73%)	(17%)
Impaired loans - other	$	2,929	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
Foreclosed assets held for resale	$	28	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(28%) – (28%)	(28%)

1. Fair value is generally determined through independent appraisals or Certificates of Inspection of the underlying collateral, as defined by Bank regulators.

2. Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The typical range of appraisal adjustments are presented as a percent of the appraisal value.

3. Includes qualitative adjustments by management and estimated liquidation expenses.

4. Collateral values may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses.

Fair Value of Financial Instruments Measured on a Nonrecurring Basis

(Dollars in thousands)	Carrying		Fair Value Measurements at September 30, 2021
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	10,343	$	10,343	$	—	$	—	$	10,343
Interest-bearing deposits in other banks		121,705		—		121,705		—		121,705
Time deposits with other banks		247		—		249		—		249
Restricted investment in bank stocks		2,304		—		2,304		—		2,304
Net loans		748,497		—		—		773,041		773,041
Mortgage servicing rights		352		—		—		352		352
Accrued interest receivable		4,283		—		4,283		—		4,283
FINANCIAL LIABILITIES:
Demand, savings and other deposits		970,270		—		970,270		—		970,270
Time deposits		175,234		—		176,120		—		176,120
Short-term borrowings		29,853		—		29,859		—		29,859
Long-term borrowings		35,000		—		36,446		—		36,446
Subordinated debentures		25,000		—		24,704		—		24,704
Accrued interest payable		540		—		540		—		540
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

36

(Dollars in thousands)	Carrying		Fair Value Measurements at December 31, 2020
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	8,833	$	8,833	$	—	$	—	$	8,833
Interest-bearing deposits in other banks		15,347		—		15,347		—		15,347
Time deposits with other banks		247		—		253		—		253
Restricted investment in bank stocks		2,247		—		2,247		—		2,247
Net loans		712,677		—		—		741,934		741,934
Mortgage servicing rights		262		—		—		262		262
Accrued interest receivable		4,544		—		4,544		—		4,544
FINANCIAL LIABILITIES:
Demand, savings and other deposits		743,660		—		743,660		—		743,660
Time deposits		193,828		—		196,200		—		196,200
Short-term borrowings		19,494		—		19,498		—		19,498
Long-term borrowings		45,000		—		47,237		—		47,237
Subordinated debentures		25,000		—		25,378		—		25,378
Accrued interest payable		405		—		405		—		405
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

NOTE 11 — REVENUE RECOGNITION

In accordance with ASU 2014-09 Revenue from Contracts with Customers – Topic 606, and all subsequent ASUs that modified ASC 606, the main types of revenue contracts included in non-interest income within the consolidated statements of income are as follows:

Deposits related fees and service charges

Service charges and fees on deposits, which are included as liabilities in the consolidated balance sheets, consist of fees related to monthly fees for various retail and business checking accounts, automated teller machine (“ATM”) fees (charged for withdrawals by our deposit customers from other bank ATMs) and insufficient funds fees (“NSF”) (which are charged when customers overdraw their accounts beyond available funds). All deposit liabilities are considered to have one-day terms and therefore related fees are recognized in income at the time when the services are provided to the customers. The Company elected to adopt practical expedient related to incremental costs of obtaining deposit contracts. As such, any costs associated with acquiring the deposits, except for time deposits with maturities in excess of one year, are recognized as an expense within non-interest expense in the consolidated statements of income when incurred as the amortization period of the deposit liabilities that otherwise would have been recognized is one year or less.

Wealth/Asset/Trust Management Fees

Wealth management services are delivered to individuals, corporations and retirement funds located primarily within our geographic markets. The Trust Department of the Company conducts the wealth management operations, which provides a broad range of personal and corporate fiduciary services, including the administration of estates.

Assets held in a fiduciary capacity by the Trust Department are not assets of the Company and, therefore, are not included in our consolidated financial statements. Wealth management fees, which are contractually agreed with each customer, are earned each month and recognized on a cash basis based on average fair value of the trust assets under management. The services provided under such a contract are considered a single performance obligation under ASC 606 because they embody a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Wealth management fees charged by the Trust Department follow a tiered structure based on the type and size of the assets under management. Wealth management fees are included within non-interest income in the consolidated statements of income. As of September 30, 2021 and December 31, 2020, the fair value of

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trust assets under management was $105,733,000 and $107,336,000, respectively. The costs of acquiring asset management customers are incremental and recognized within non-interest expense in the consolidated statements of income.

Interchange Fees and Surcharges

Interchange fees are related to the acceptance and settlement of debit card transactions, both point-of-sale and ATM, to cover operating costs and risks associated with the approval and settlement of the transactions. Interchange fees vary by type of transaction and each merchant sector. Net income recognized from interchange fees is included in non-interest income on the consolidated statements of income. A surcharge is assessed for use of the Company’s ATMs by non-customers. All interchange fees and surcharges are recognized as received on a daily basis for the prior business day’s transactions. All expenses related to the settlement of debit card transactions (both point-of-sale and ATM) are recognized on a monthly basis and included in non-interest expense on the consolidated statements of income.

NOTE 12 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. At September 30, 2021 and 2020, there were no potential common shares outstanding. The following table sets forth the computation of basic and diluted earnings per share.

(In thousands, except earnings per share)	Three Months Ended
	September 30,
	2021		2020
Net income	$	4,023	$	3,137
Weighted-average common shares outstanding		5,915		5,848
Basic and diluted earnings per share	$	0.68	$	0.54

(In thousands, except earnings per share)	Nine Months Ended
	September 30,
	2021		2020
Net income	$	11,506	$	8,571
Weighted-average common shares outstanding		5,890		5,833
Basic and diluted earnings per share	$	1.95	$	1.47

NOTE 13 — GOODWILL

Goodwill resulted from the acquisition of the Pocono Community Bank in November 2007 and of certain fixed and operating assets acquired and deposit liabilities assumed of the branch of another financial institution in Danville, Pennsylvania, in January 2004. Such goodwill represents the excess cost of the acquired assets relative to the assets’ fair value at the dates of acquisition. In accordance with current accounting standards, goodwill is not amortized. Goodwill totaled $19,133,000 at September 30, 2021 and December 31, 2020.

Impairment testing is performed on an annual basis, using either a qualitative or quantitative approach. The assumptions used in the impairment test of goodwill are susceptible to change based on changes in economic conditions and other factors, including our stock price. Any change in the assumptions utilized to determine the carrying value of goodwill could adversely affect our results of operations. Management notes that the emergence of COVID-19 as a global pandemic in 2020 resulted in significant deterioration in general economic conditions and the environment in which the Company operates. This uncertainty in 2020 resulted in significant decreases in the market prices for the stock of institutions in the financial services industry, including the Company, however, many stock prices recovered through the end of 2020 and into 2021.

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Goodwill was evaluated for impairment at December 31, 2020, and it was determined that goodwill was not impaired. Management evaluated the need for an interim goodwill impairment analysis and determined that there were no triggering events or negative factors affecting goodwill since the previous test that would indicate goodwill was impaired as of September 30, 2021.

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Item 2.  First Keystone Corporation Management’s Discussion and Analysis of Financial Condition and Results of Operation

This quarterly report contains certain forward-looking statements, which are included pursuant to the “safeharbor” provisions of the Private Securities Litigation Reform Act of 1995, and reflect management’s beliefs and expectations based on information currently available. These forward-looking statements are inherently subject to significant risks and uncertainties, including changes in general economic and financial market conditions, the Company’s ability to effectively carry out its business plans and changes in regulatory or legislative requirements. Other factors that could cause or contribute to such differences are changes in competitive conditions, and pending or threatened litigation. Although management believes the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially.

CRITICAL ACCOUNTING ESTIMATES

The Company has chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and the Company applies those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 to the consolidated financial statements included in the 2020 Annual Report on Form 10-K. There have been no changes to the Critical Accounting Estimates since the Company filed its Annual Report on Form 10-K for the year ended December 31, 2020.

RESULTS OF OPERATIONS

Quarter ended September 30, 2021 compared to quarter ended September 30, 2020

First Keystone Corporation realized earnings for the third quarter of 2021 of $4,023,000, an increase of $886,000, or 28.2% from the third quarter of 2020. The increase in net income for the three months ended September 30, 2021 was primarily due to increases in net interest income, ATM and debit card fees, and service charges and fees, offset by a decrease in salaries and employee benefits.

On a per share basis, for the three months ended September 30, 2021, net income was $0.68 versus $0.54 for the same three month period of 2020. Cash dividends amounted to $0.28 and $0.27 per share for the three months ended September 30, 2021 and 2020, respectively.

NET INTEREST INCOME

The major source of operating income for the Company is net interest income, defined as interest income less interest expense. In the three months ended September 30, 2021, interest income amounted to $10,716,000, an increase of $864,000 or 8.8% from the three months ended September 30, 2020, while interest expense amounted to $1,283,000 in the three months ended September 30, 2021, an increase of $52,000 or 4.2% from the three months ended September 30, 2020. As a result, net interest income increased $812,000 or 9.4% to $9,433,000 from $8,621,000 for the same period in 2020.

The Company’s net interest margin for the three months ended September 30, 2021 was 3.18% compared to 3.59% for same period in 2020. The decrease in net interest margin was primarily a result of decreases in yields earned on loans and securities.

PROVISION FOR LOAN LOSSES

The provision for loan losses for the three months ended September 30, 2021 and 2020 was $185,000 and $294,000, respectively. The decrease in the provision for loan losses resulted from the Company’s analysis of the current loan portfolio, including historic losses, past-due trends, current economic conditions, loan portfolio growth, and other relevant factors. The provision for loan losses for the three months ended September 30, 2021 is also reflective of management’s assessment of the continued credit risk associated with the economic uncertainty surrounding the COVID-19 pandemic. Charge-off and recovery activity in the allowance for loan losses resulted in net charge-offs of

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$21,000 and $49,000 for the the three months ended September 30, 2021 and 2020, respectively. See Allowance for Loan Losses on page 46 for further discussion.

NON-INTEREST INCOME

Total non-interest income was $1,697,000 for the three months ended September 30, 2021, as compared to $1,515,000 for the same period in 2020, an increase of $182,000, or 12.0%. The increase was due to increased service charges and fee income, increased ATM fees and debit card income and an increase in gains on held equity securities.

Net securities gains increased $31,000 to $22,000 for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. This increase was due to the Company taking $18,000 in gains on held equity securities in the third quarter of 2021 as compared to taking $70,000 in losses on held equity securities and $61,000 in net gains on the sale of debt securities in the third quarter of 2020. Trust department income increased $21,000 or 9.5% to $243,000 for the three months ended September 30, 2021 as compared to the same period in 2020 due to increased income on IRA accounts.

Service charges and fee income increased $87,000 or 21.3%. The increase was mainly due to an increase in overdraft fees as compared to the same period in 2020. ATM fees and debit card income increased $54,000 or 10.8% to $555,000 for the three months ended September 30, 2021 due to increased debit card interchange fees as the result of increased transaction volume in the second quarter of 2021. Gains on sales of mortgage loans decreased $35,000 or 20.1% to $139,000 due to lower average gains on individual sold loans in the third quarter of 2021 as compared to the third quarter of 2020.

NON-INTEREST EXPENSE

Total non-interest expense was $6,267,000 for the three months ended September 30, 2021, as compared to $6,256,000 for the three months ended September 30, 2020.

Expenses associated with employees (salaries and employee benefits) continue to be the largest category of non-interest expense. Salaries and benefits amounted to $3,303,000 or 52.7% of total non-interest expense for the three months ended September 30, 2021, as compared to $3,554,000 or 56.8% for the three months ended September 30, 2020. The decrease was due to lower expense associated with health insurance.

Net occupancy, furniture and equipment, and computer expense amounted to $913,000 for the three months ended September 30, 2021, an increase of $6,000 or 0.7% which was due to the implementation of several new software programs offset by a decrease in rent expense. Professional services increased $24,000 or 10.9% to $244,000 as of September 30, 2021. The increase was mainly the result of an increase in consulting expense due to broker fees resulting from the Company’s subordinated debt issuance. Pennsylvania shares tax expense amounted to $309,000 for the three months ended September 30, 2021, an increase of $78,000 or 33.8% as compared to the three months ended September 30, 2020. The increase was the result of increases in total equity.

Federal Deposit Insurance Corporation (“FDIC”) insurance expense increased $30,000 for the three months ended September 30, 2021. FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.

ATM and debit card fees expense amounted to $281,000 for the three months ended September 30, 2021, an increase of $28,000 or 11.1% as compared to the three months ended September 30, 2020. The increase was due to increased electronic funds transfer fees as the result of increased customer transaction volume. Data processing expenses amounted to $295,000 for the three months ended September 30, 2020 as compared to $283,000 for the same period of 2020, an increase of $12,000 or 4.2%.

Foreclosed assets held for resale expense decreased $30,000 for the three months ended September 30, 2021. As of September 30, 2021 the Company did not own any foreclosed properties. Advertising expense increased $19,000 or 23.2% during the three months ended September 30, 2021. This increase was mainly due to an increase in digital and

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social media and civic advertising as compared to the same period in 2020. In 2020, civic advertising was affected by the COVID-19 pandemic as many events that the Bank would normally sponsor were canceled. In addition, newspaper advertising is down due to utilizing more digitally focused advertising mediums.

Other non-interest expense amounted to $718,000 for the three months ended September 30, 2021, an increase of $95,000 or 15.2% as compared to the three months ended September 30, 2020. This increase was mainly due to an increase in the provision for unfunded commitments due to an increase in commercial real estate commitments in the third quarter of 2021 as compared to the same period in 2020.

INCOME TAXES

Income tax expense amounted to $655,000 for the three months ended September 30, 2021, as compared to $449,000 for the three months ended September 30, 2020, an increase of $206,000. The effective total income tax rate was 14.0% for the three months ended September 30, 2021 as compared to 12.5% for the three months ended September 30, 2020. The increase in the effective tax rate was mainly due to higher overall operating income. The Company recognized $101,000 of tax credits from low-income housing partnerships in the three months ended September 30, 2021.

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

First Keystone Corporation realized earnings for the nine months ended September 30, 2021 of $11,506,000, an increase of $2,935,000, or 34.2% from the same period in 2020. The increase in net income for the nine months ended September 30, 2021 was primarily due to an increase in net interest income, net securities gains, and gains on sales of mortgage loans.

On a per share basis, net income was $1.95 for the nine months ended September 30, 2021 versus $1.47 for the same period in 2020. Cash dividends amounted to $0.81 and $0.83 per share for the nine months ended September 30, 2021 and 2020, respectively.

NET INTEREST INCOME

The major source of operating income for the Company is net interest income, defined as interest income less interest expense. For the nine months ended September 30, 2021, interest income amounted to $31,250,000, an increase of $1,999,000 or 6.8% from the nine months ended September 30, 2020, while interest expense amounted to $3,876,000 in the nine months ended September 30, 2021, a decrease of $1,260,000 or 24.5% from the nine months ended September 30, 2020. As a result, net interest income increased $3,259,000 or 13.5% to $27,374,000 from $24,115,000 for the same period in 2020.

The Company’s net interest margin for the nine months ended September 30, 2021 was 3.25% compared to 3.45% for same period in 2020. The decrease in net interest margin was a result of decreases in yields earned on loans and securities.

PROVISION FOR LOAN LOSSES

The provision for loan losses for the nine months ended September 30, 2021 and 2020 was $455,000 and $682,000, respectively. The decrease in the provision for loan losses resulted from the Company’s analysis of the current loan portfolio, including historic losses, past-due trends, current economic conditions, loan portfolio growth, and other relevant factors. The provision for loan losses for the nine months ended September 30, 2021 is also reflective of management’s assessment of the continued credit risk associated with the economic uncertainty surrounding the COVID-19 pandemic. Charge-off and recovery activity in the allowance for loan losses resulted in net charge-offs of $100,000 and $108,000 for the nine months ended September 30, 2021 and 2020, respectively. See Allowance for Loan Losses on page 46 for further discussion.

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NON-INTEREST INCOME

Total non-interest income was $5,437,000 for the nine months ended September 30, 2021, as compared to $4,119,000 for the same period in 2020, an increase of $1,318,000, or 32.0%. The increase was due to an increase in net gains on securities, an increase in gains on sold loans and an increase in ATM fees and debit card income during the nine months ended September 30, 2021.

ATM fees and debit card income increased $275,000 or 20.2% to $1,639,000 for the nine months ended September 30, 2021 due to increased debit card interchange fees as the result of increased transaction volume in 2021. Service charges and fee income increased $102,000 for the nine months ended September 30, 2021. The increase was due to increased prepayment penalties earned on commercial loan payoffs and an increase in service charges and overdraft fees on DDA accounts. In the prior year, there were lower fees earned on deposit accounts as overdraft fees and several other deposit account service charges were waived due to the COVID-19 pandemic. Gains on sales of mortgage loans increased $330,000 or 70.1% due to a higher volume of sold loans in 2021 as compared to 2020.

Trust department income increased $84,000 or 12.4% to $761,000 for the nine months ended September 30, 2021 as compared to the same period in 2020. The increase was the result of higher income earned from estate fees and IRA accounts during the nine months ended September 30, 2021. Net securities gains increased $477,000 or 152.9% to $165,000 for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase was due to the Company recognizing $540,000 in net losses on held equity securities offset by $228,000 in net gains on sold debt securities during the nine months ended September 30, 2020 as compared to realizing $161,000 in net gains on held equity securities in the same period in 2021.

NON-INTEREST EXPENSE

Total non-interest expense was $19,011,000 for the nine months ended September 30, 2021, as compared to $17,826,000 for the nine months ended September 30, 2020. Non-interest expense increased $1,185,000 or 6.6%.

Expenses associated with employees (salaries and employee benefits) continue to be the largest category of non-interest expense. Salaries and benefits amounted to $10,064,000 or 52.9% of total non-interest expense for the nine months ended September 30, 2021, as compared to $9,732,000 or 54.6% for the nine months ended September 30, 2020. The increase was due to normal merit increases, new position hires, the filling of vacant positions and an increase in profit sharing expense.

Net occupancy, furniture and equipment, and computer expense amounted to $2,758,000 for the nine months ended September 30, 2021, an increase of $36,000 or 1.3%. The increase is the result of the implementation of several new software programs offset by a decrease in rent expense. Professional services increased $91,000 or 13.3% to $776,000 for the nine months ended September 30, 2021. This increase was mainly due to an increase in consulting expense due to goodwill impairment testing and broker fees resulting from the Company’s subordinated debt issuance. Pennsylvania shares tax expense amounted to $935,000 for the nine months ended September 30, 2021, an increase of $255,000 or 37.5% as compared to the nine months ended September 30, 2020. The increase was the result of an increase in total equity.

FDIC insurance expense increased $216,000 or 229.8% for the nine months ended September 30, 2021. This increase was mainly due to small bank assessment credits received from the FDIC effectively reducing the expense in 2020, coupled with growth in total assets in 2021. FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.

ATM and debit card fees expense amounted to $764,000 for the nine months ended September 30, 2021, an increase of $88,000 or 13.0% as compared to the nine months ended September 30, 2020. The increase was due to increased electronic funds transfer fees as the result of increased customer transaction volume. Data processing expenses amounted to $912,000 for the nine months ended September 30, 2021, an increase of $28,000 or 3.2% as compared to the nine months ended September 30, 2020.

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Foreclosed assets held for resale expense decreased $41,000 for the nine months ended September 30, 2021. As of September 30, 2021, the Company did not own any foreclosed properties. Advertising expense increased $37,000 or 15.1% during the nine months ended September 30, 2021. The increase was mainly due to an increase in digital and social media, business development, radio, billboard and television advertising as compared to 2020. In addition, newspaper advertising is down due to utilizing more digitally focused advertising mediums.

Other non-interest expense amounted to $2,207,000 for the nine months ended September 30, 2021, an increase of $143,000 or 6.9% as compared to the nine months ended September 30, 2020. This increase was due to the Company pledging a $50,000 donation to a local community organization along with fraud losses due to an isolated incident.

INCOME TAXES

Income tax expense amounted to $1,839,000 for the nine months ended September 30, 2021, as compared to $1,155,000 for the nine months ended September 30, 2020, an increase of $684,000. The effective total income tax rate was 13.8% for the nine months ended September 30, 2021 as compared to 11.9% for the nine months ended September 30, 2020. The increase in the effective tax rate was mainly due to higher overall operating income. The Company recognized $303,000 of tax credits from low-income housing partnerships in the nine months ended September 30, 2021.

FINANCIAL CONDITION

SUMMARY

Total assets increased to $1,389,939,000 as of September 30, 2021, an increase of $210,892,000 from year-end 2020. Total assets as of December 31, 2020 amounted to $1,179,047,000.

Total debt securities available-for-sale increased $66,123,000 or 18.0% to $432,834,000 as of September 30, 2021 from December 31, 2020.

Total loans increased $36,175,000 or 5.0% to $756,785,000 as of September 30, 2021 from December 31, 2020. Loan demand grew in the nine months ended September 30, 2021 as the Bank has realized an increase in loan originations, primarily in the commercial real estate portfolio.

Total deposits increased $208,016,000 or 22.2% to $1,145,504,000 as of September 30, 2021 from December 31, 2020. The increase was mainly due to the deposit of government stimulus funds, PPP loan proceeds, a $128,271,000 increase in highly rate sensitive deposits and other normal fluctuations.

The Company continues to maintain and manage its asset growth. The Company’s strong equity capital position provides an opportunity to further leverage its asset growth. Total borrowings increased in the nine months ended September 30, 2021 by $359,000 to $64,853,000 from $64,494,000 as of December 31, 2020. Borrowings increased mainly due to an increase in the balance of repurchase agreements offset by the maturity of two long-term notes.

Total stockholders’ equity increased to $147,788,000 at September 30, 2021, an increase of $3,546,000 or 2.5% from December 31, 2020 due to an increase in retained earnings offset by a decrease in accumulated other comprehensive income.

SEGMENT REPORTING

Currently, management measures the performance and allocates the resources of the Company as a single segment.

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EARNING ASSETS

Earning assets are defined as those assets that produce interest income. By maintaining a healthy asset utilization rate, i.e., the volume of earning assets as a percentage of total assets, the Company maximizes income. The earning asset ratio (average interest earning assets divided by average total assets) equaled 94.1% at September 30, 2021 and 93.0% at September 30, 2020. This indicates that the management of earning assets is a priority and non-earning assets, primarily cash and due from banks, fixed assets and other assets, are maintained at minimal levels. The primary earning assets are loans and securities.

Our primary earning asset, total loans, increased to $756,785,000 as of September 30, 2021, up $36,175,000, or 5.0% since year-end 2020. The loan portfolio continues to be well diversified. Non-performing assets increased since year-end 2020, but overall asset quality has remained consistent. Total non-performing assets were $7,998,000 as of September 30, 2021, an increase of $879,000, or 12.3% from $7,119,000 reported in non-performing assets as of December 31, 2020. The increase in non-performing assets during the nine months ended September 30, 2021 was mainly due to one loan that was moved to non-accrual status during the quarter ended June 30, 2021. Total allowance for loan losses to total non-performing assets was 103.63% as of September 30, 2021 and 111.43% at December 31, 2020. See the Non-Performing Assets section on page 48 for more information.

In addition to loans, another primary earning asset is our overall securities portfolio, which increased in size from December 31, 2020 to September 30, 2021. Debt securities available-for-sale amounted to $432,834,000 as of September 30, 2021, an increase of $66,123,000 from year-end 2020.

Interest-bearing deposits in other banks increased as of September 30, 2021, to $121,705,000 from $15,347,000 at year-end 2020 due to increased cash held at the Federal Reserve Bank. Time deposits with other banks were $247,000 at September 30, 2021 and December 31, 2020.

LOANS

Total loans increased to $756,785,000 as of September 30, 2021 as compared to $720,610,000 as of December 31, 2020. The table on page 20 provides data relating to the composition of the Company’s loan portfolio on the dates indicated. Total loans increased by $36,175,000 or 5.0%.

Steady demand for borrowing by businesses accounted for the 5.0% increase in the loan portfolio from December 31, 2020 to September 30, 2021. Overall, the Commercial and Industrial portfolio (which includes tax-free Commercial and Industrial loans) increased $2,916,000 or 3.2% to $94,791,000 at September 30, 2021 compared to $91,875,000 at December 31, 2020. The increase in the Commercial and Industrial portfolio during the nine months ended September 30, 2021 was mainly attributable to a $17,388,000 increase in the portion of the Commercial and Industrial portfolio excluding Paycheck Protection Program loans. The increase was mainly attributable to $21,176,000 in new loan originations and an increase in utilization of existing Commercial and Industrial lines of credit of $860,000, offset with loan payoffs of $4,648,000, as well as regular principal payments and other typical fluctuations in the Commercial and Industrial portfolio. The portion of the Commercial and Industrial portfolio attributable to the PPP loans decreased by $10,328,000 during the nine months ended September 30, 2021 as a result of $12,483,000 in new PPP loans originated during the nine months ended September 30, 2021 which were offset by $22,811,000 in PPP loans paid off/forgiven during the same nine-month period. The Commercial Real Estate portfolio (which includes tax-free Commercial Real Estate loans) increased $46,273,000 or 9.9% to $513,001,000 at September 30, 2021 compared to $466,728,000 at December 31, 2020. The increase was mainly the result of $100,528,000 in new loan originations and a $9,360,000 increase in utilization of existing Commercial Real Estate lines of credit, offset by $41,394,000 in loan payoffs, in addition to regular principal payments and other typical amortization in the Commercial Real Estate portfolio. Residential Real Estate loans decreased $13,236,000 or 8.4% to $143,747,000 at September 30, 2021 compared to $156,983,000 at December 31, 2020. The decrease was the result of $22,653,000 in new loan originations and an increase in utilization of existing Residential Real Estate (Home Equity) lines of credit of $170,000, offset by loan payoffs of $23,775,000, net loans sold of $11,529,000, and regular principal payments and other typical amortization in the Residential Real Estate portfolio. Net loans sold for the nine months ended September 30, 2021 consisted of total loans sold during the nine months ended September 30, 2021 of $24,019,000, offset with loans opened

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and sold in the same quarter during the first three quarters of 2021 which amounted to $12,490,000. The Company continues to originate and sell certain long-term fixed rate residential mortgage loans which conform to secondary market requirements. The Company derives ongoing income from the servicing of mortgages sold in the secondary market. The Company continues its efforts to lend to creditworthy borrowers.

Management believes that the loan portfolio is well diversified. The total commercial portfolio was $607,792,000 at September 30, 2021. Of total loans, $513,001,000 or 67.8% were secured by commercial real estate, primarily lessors of residential buildings and dwellings and lessors of non-residential buildings. The Company continues to monitor these portfolios.

Overall, the portfolio risk profile as measured by loan grade is considered low risk, as $730,910,000 or 96.7% of gross loans are graded Pass; $1,329,000 are graded Special Mention; $23,966,000 or 3.2% are graded Substandard; and $0 are graded Doubtful. The rating is intended to represent the best assessment of risk available at a given point in time, based upon a review of the borrower’s financial statements, credit analysis, payment history with the Bank, credit history and lender knowledge of the borrower. See Note 4 — Loans and Allowance for Loan Losses for risk grading tables.

Overall, non-pass grades increased to $25,295,000 at September 30, 2021, as compared to $24,137,000 at December 31, 2020. Commercial and Industrial non-pass grades decreased to $822,000 as of September 30, 2021 as compared to $919,000 as of December 31, 2020. Commercial Real Estate non-pass grades increased to $22,609,000 as of September 30, 2021 as compared to $21,789,000 as of December 31, 2020. The Residential Real Estate and Consumer loan non-pass grades increased to $1,864,000 as of September 30, 2021 as compared to $1,429,000 as of December 31, 2020.

The increase in Commercial Real Estate non-pass grades during the nine months ended September 30, 2021 is mainly due to the downgrade of one loan to a contractor specializing in modular construction in the amount of $1,000,000. The loan was downgraded to substandard and placed on non-accrual status during the second quarter of 2021 as a result of the borrower’s inability to make payments as scheduled, as the business has ceased operations and has entered into bankruptcy proceedings.

The Company continues to internally underwrite each of its loans to comply with prescribed policies and approval levels established by its Board of Directors.

Total Loans

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Commercial and Industrial	$	94,791	$	91,875
Commercial Real Estate		513,001		466,728
Residential Real Estate		143,747		156,983
Consumer		5,246		5,024
Total Loans	$	756,785	$	720,610

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses constitutes the amount available to absorb losses within the loan portfolio. As of September 30, 2021, the allowance for loan losses was $8,288,000 as compared to $7,933,000 as of December 31, 2020. The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for possible loan losses when management believes that the collectability of the principal is unlikely. The risk characteristics of the loan portfolio are managed through various control processes, including credit evaluations of individual borrowers, periodic reviews, and diversification by industry. Risk is further mitigated through the application of lending procedures such as the holding of adequate collateral and the establishment of contractual guarantees.

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Management performs a quarterly analysis to determine the adequacy of the allowance for loan losses. The methodology in determining adequacy incorporates specific and general allocations together with a risk/loss analysis on various segments of the portfolio according to an internal loan review process. This assessment results in an allocated allowance. Management maintains its loan review and loan classification standards consistent with those of its regulatory supervisory authority.

Management considers, based upon its methodology, that the allowance for loan losses is adequate to cover foreseeable future losses. However, there can be no assurance that the allowance for loan losses will be adequate to cover significant losses, if any, that might be incurred in the future. In response to the COVID-19 pandemic and its impact on the current economy, the qualitative factors related to the local/regional economy were increased by two basis points across all loan segments during the first quarter of 2020 and increased by an additional basis point across all loan segments during the second quarter of 2020. The qualitative factor relating to the impact of external factors/conditions for the Commercial Real Estate portfolio segment was increased by an additional basis point during the third quarter of 2020. The qualitative factors relating to the impact of external factors/conditions were increased by two additional basis points across all loan segments during the fourth quarter of 2020. Qualitative factors remained unchanged during the first quarter of 2021. During the second quarter of 2021, the qualitative factors related to the local/regional economy were decreased by one basis point across all loan segments, as the economy and job growth in the Company’s market areas demonstrated marked improvement over the prior quarter, and the qualitative factor related to collateral values was increased by one basis point for both the Commercial Real Estate and Residential Real Estate portfolio segments due to increasing market values in the real estate sector. Qualitative factors remained unchanged during the third quarter of 2021. Modifications granted in compliance with Section 4013 of the CARES Act were highest in the Commercial Real Estate portfiolio segment, the long-term effects of which are still very unclear, as there is still economic uncertainty related to the COVID-19 pandemic, especially in relation to this segment of the Company’s loan portfolio. See Allowance for Loan Losses on page 16 for further discussion.

The Analysis of Allowance for Loan Losses table contains an analysis of the allowance for loan losses indicating charge-offs and recoveries for the nine months ended September 30, 2021 and 2020. Net charge-offs as a percentage of average loans was 0.01. Net charge-offs amounted to $100,000 the nine months ended September 30, 2021 as compared to $108,000 for the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, the provision for loan losses was $455,000 as compared to $682,000 for the nine months ended September 30, 2020. The provision, net of charge-offs and recoveries, resulted in the quarter end allowance for loan losses of $8,288,000 of which 9.2% was attributed to the Commercial and Industrial component; 62.9% attributed to the Commercial Real Estate component; 18.3% attributed to the Residential Real Estate component; 1.1% attributed to the Consumer component; and 8.5% being the unallocated component (refer to the activity in Note 4 – Loans and Allowance for Loan Losses on page 16). The Company determined that the provision for loan losses made during the current quarter was sufficient to maintain the allowance for loan losses at a level necessary for the probable losses inherent in the loan portfolio as of September 30, 2021.

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Analysis of Allowance for Loan Losses

(Dollars in thousands)	September 30,			September 30,
	2021			2020
Balance at beginning of period	$	7,933		$	7,005
Charge-offs:
Commercial and Industrial		13			39
Commercial Real Estate		29			31
Residential Real Estate		65			13
Consumer		33			35
		140			118
Recoveries:
Commercial and Industrial		—			4
Commercial Real Estate		30			—
Residential Real Estate		2			—
Consumer		8			6
		40			10
Net charge-offs		100			108
Additions charged to operations		455			682
Balance at end of period	$	8,288		$	7,579
Ratio of net charge-offs during the period to average loans outstanding during the period		0.01	%		0.02	%
Allowance for loan losses to average loans outstanding during the period		1.13	%		1.13	%

It is the policy of management and the Company’s Board of Directors to make a provision for both identified and unidentified losses inherent in its loan portfolio. A provision for loan losses is charged to operations based upon an evaluation of the potential losses in the loan portfolio. This evaluation takes into account such factors as portfolio concentrations, delinquency trends, trends of non-accrual and classified loans, economic conditions, and other relevant factors.

The loan review process, which is conducted quarterly, is an integral part of the Bank’s evaluation of the loan portfolio. A detailed quarterly analysis to determine the adequacy of the Company’s allowance for loan losses is reviewed by the Board of Directors.

With the Bank’s manageable level of net charge-offs and the additions to the reserve from the provision out of operations, the allowance for loan losses as a percentage of average loans amounted to 1.13% at September 30, 2021 and 2020, respectively.

NON-PERFORMING ASSETS

The table on page 51 details the Company’s non-performing assets and impaired loans as of the dates indicated. Generally, a loan is classified as non-accrual and the accrual of interest on such a loan is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against current period income. A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession that the Company would not otherwise consider. Modifications to loans classified as TDRs generally include reductions in contractual interest rates, principal deferments and extensions of maturity dates at a stated interest rate lower than the current market for a new loan with similar risk characteristics. While unusual, there may be instances of loan principal forgiveness. Any loan modifications made in response to the COVID-19 pandemic are not considered troubled debt restructurings as long as the criteria set forth in Section 4013 of the CARES Act are

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met. Foreclosed assets held for resale represent property acquired through foreclosure, or considered to be an in-substance foreclosure.

Total non-performing assets amounted to $7,998,000 as of September 30, 2021, as compared to $7,119,000 as of December 31, 2020. The economy is still in flux. Businesses have reopened to find customers wanting to return, but employees, in many cases, wanting to continue to work from home or remain unemployed. The work force has dwindled, inflationary pressures have caused prices to increase, the vaccination debate continues, and political unrest has reached an unprecedented level. These forces have had a direct effect on the Company’s non-performing assets. The Company is closely monitoring its Commercial Real Estate portfolio because of the current uncertain economic environment. Non-accrual loans totaled $7,923,000 as of September 30, 2021, as compared to $7,078,000 as of December 31, 2020. The increase in non-accrual loans at September 30, 2021 compared to December 31, 2020 is mainly due to one loan in the amount of $1,000,000 to a contractor specializing in modular construction that was moved to non-accrual status during the second quarter of 2021 due to the borrower’s inability to make payments as scheduled, as the business has ceased operations and has entered into bankruptcy proceedings. There were no foreclosed assets held for resale as of September 30, 2021, compared to $28,000 in foreclosed assets held for resale as of December 31, 2020. There were $75,000 in loans past-due 90 days or more and still accruing interest at September 30, 2021, as compared to $13,000 in loans past-due 90 days or more and still accruing interest as of December 31, 2020

Non-performing assets to total loans was 1.06% at September 30, 2021 and 0.99% at December 31, 2020. Non-performing assets to total assets was 0.58% at September 30, 2021 and December 31, 2020. The allowance for loan losses to total non-performing assets was 103.63% as of September 30, 2021 as compared to 111.43% as of December 31, 2020. Additional detail can be found on page 51 in the Non-Performing Assets and Impaired Loans table and page 27 in the Non-Performing Assets table. Asset quality is a priority and the Company retains a full-time loan review officer to closely track and monitor overall loan quality, along with a full-time loan workout department to manage collection and liquidation efforts.

Performing substandard loans which are not deemed to be impaired have characteristics that cause management to have doubts regarding the ability of the borrower to perform under present loan repayment terms and which may result in reporting these loans as non-performing loans in the future. Performing substandard loans not deemed to be impaired amounted to $10,291,000 at September 30, 2021, compared to $9,992,000 at December 31, 2020.

Impaired loans were $14,889,000 at September 30, 2021 and $15,054,000 at December 31, 2020. The largest impaired loan relationship at September 30, 2021 and December 31, 2020 consisted of a non-performing loan to a student housing holding company which was secured by commercial real estate. At September 30, 2021, the loan carried a balance of $3,090,000, net of $1,989,000 that had been charged off to date, compared to December 31, 2020 when the loan carried a balance of $3,090,000, net of $1,989,000 that had been charged off to date. The second largest impaired loan relationship at September 30, 2021 and December 31, 2020 consisted of one performing loan to a student housing holding company, which was classified as a TDR. The loan was secured by commercial real estate and carried a balance of $2,880,000 as of September 30, 2021, net of $943,000 that had been charged off to date, compared to December 31, 2020 when the loan carried a balance of $2,929,000, net of $943,000 that had been charged off to date. The third largest impaired loan relationship at September 30, 2021 and December 31, 2020 consisted of a substandard performing loan to a developer of a residential sub-division. The loan was secured by commercial real estate and classified as a TDR. The loan carried a balance of $1,232,000 at September 30, 2021 compared to $1,326,000 at December 31, 2020.

The Company estimates impairment based on its analysis of the cash flows or collateral estimated at fair value less cost to sell. For collateral dependent loans, the estimated appraisal or other qualitative adjustments and cost to sell percentages are determined based on the market area in which the real estate securing the loan is located, among other factors, and therefore, can differ from one loan to another. Of the $14,889,000 in impaired loans at September 30, 2021, none were located outside of the Company’s primary market area.

The outstanding recorded investment of TDRs as of September 30, 2021 and December 31, 2020 was $8,414,000 and $9,563,000, respectively. The decrease in TDRs at September 30, 2021 as compared to December 31, 2020 is mainly attributable to the payoff of a Commercial Real Estate TDR to a real estate holding company which was completed during the third quarter of 2021 in the amount of $1,010,000, as well as regular principal payments made on

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existing TDRs during the nine months ended September 30, 2021. Of the thirty-three restructured loans at September 30, 2021, six loans were classified in the Commercial and Industrial portfolio, twenty-six loans were classified in the Commercial Real Estate portfolio, and one loan was classified in the Residential Real Estate portfolio. Troubled debt restructurings at September 30, 2021 consisted of thirteen term modifications beyond the original stated term, three rate modifications, and sixteen payment modifications. There was also one troubled debt restructuring that experienced all three types of modifications—payment, rate, and term. TDRs are separately evaluated for payment disclosures, and if necessary, a specific allocation is established. There were no specific allocations attributable to the TDRs at September 30, 2021 or December 31, 2020. There were no unfunded commitments attributable to the TDRs at September 30, 2021 and December 31, 2020.

At September 30, 2021, eight Commercial Real Estate loans classified as TDRs with a combined recorded investment of $541,000, three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $724,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $15,000 were not in compliance with the terms of their restructure, compared to September 30, 2020 when nine Commercial Real Estate loans classified as TDRs with a combined recorded investment of $1,288,000 and three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $751,000 were not in compliance with the terms of their restructure.

Three Commercial Real Estate loans totaling $291,000 that were modified as TDRs within the twelve months preceding September 30, 2021 experienced payment defaults during the nine months ended September 30, 2021. No loans that were modified as TDRs during the twelve months preceding September 30, 2021 experienced payment defaults during the three months ended September 30, 2021. Of the loans that were modified as TDRs during the twelve months preceding September 30, 2020, two Commercial Real Estate loans totaling $62,000 experienced payment defaults during the nine months ended September 30, 2020. No loans that were modified as TDRs during the twelve months preceding September 30, 2020 experienced payment defaults during the three months ended September 30, 2020.

The Company’s non-accrual loan valuation procedure for any loans greater than $250,000 requires an appraisal to be obtained and reviewed annually at year end, unless the Board of Directors waives such requirement for a specific loan, in favor of obtaining a Certificate of Inspection instead. A quarterly collateral evaluation is performed which may include a site visit, property pictures and discussions with realtors and other similar business professionals to ascertain current values.

For non-accrual loans less than $250,000 upon classification and typically at year end, the Company completes a Certificate of Inspection, which includes the results of an onsite inspection, and may consider value indicators such as insured values, tax assessed values, recent sales comparisons and a review of the previous evaluations.

Improving loan quality is a priority. The Company actively works with borrowers to resolve credit problems and will continue its close monitoring efforts in 2021. Excluding the assets disclosed in the Non-Performing Assets and Impaired Loans tables below and the Troubled Debt Restructurings section in Note 4 — Loans and Allowance for Loan Losses, management is not aware of any information about borrowers’ possible credit problems which cause serious doubt as to their ability to comply with present loan repayment terms.

In addition, regulatory authorities, as an integral part of their examinations, periodically review the allowance for possible loan losses. They may require additions to allowances based upon their judgments about information available to them at the time of examination.

The economic climate is in flux at this time. The COVID-19 pandemic has caused much upheaval and uncertainty in the national and state economy. Experts at all levels are attempting to calculate the intermediate or long term affects that may arise. The Company may experience difficulties collecting payments on time from its borrowers, property values may decline, and certain types of loans may need to be modified, which could cause a rise in the level of impaired loans, non-performing assets, charge-offs, and delinquencies. Should such metrics increase, additions to the balance of the Company’s allowance for loan losses could be required. The extent of the impact of the COVID-19

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pandemic on the Company’s operational and financial performance will depend on certain developments including inflationary pressures, the labor force, and the effectiveness in controlling the spread of the outbreak, etc.

A concentration of credit exists when the total amount of loans to borrowers, who are engaged in similar activities that are similarly impacted by economic or other conditions, exceed 10% of total loans. As of September 30, 2021 and December 31, 2020, management is of the opinion that there were no loan concentrations exceeding 10% of total loans.

Non-Performing Assets and Impaired Loans

(Dollars in thousands)	September 30,			December 31,
	2021			2020
Non-performing assets
Non-accrual loans	$	7,923		$	7,078
Foreclosed assets held for resale		—			28
Loans past-due 90 days or more and still accruing interest		75			13
Total non-performing assets	$	7,998		$	7,119
Impaired loans
Non-accrual loans	$	7,923		$	7,078
Accruing TDRs		6,966			7,976
Total impaired loans		14,889			15,054
Allocated allowance for loan losses		—			(8)
Net investment in impaired loans	$	14,889		$	15,046
Impaired loans with a valuation allowance	$	—		$	486
Impaired loans without a valuation allowance		14,889			14,568
Total impaired loans	$	14,889		$	15,054
Allocated valuation allowance as a percent of impaired loans		0.00	%		0.05	%
Impaired loans to total loans		1.97	%		2.09	%
Non-performing assets to total loans		1.06	%		0.99	%
Non-performing assets to total assets		0.58	%		0.60	%
Allowance for loan losses to impaired loans		55.67	%		52.70	%
Allowance for loan losses to total non-performing assets		103.63	%		111.43	%

Real estate mortgages comprise 86.8% of the loan portfolio as of September 30, 2021, as compared to 86.6% as of December 31, 2020. Real estate mortgages consist of both residential and commercial real estate loans. The real estate loan portfolio is well diversified in terms of borrowers, collateral, interest rates, and maturities. Also, the residential real estate loan portfolio is largely comprised of fixed rate mortgages. The real estate loans are concentrated primarily in the Company’s market area and are subject to risks associated with the local economy. The commercial real estate loans typically reprice approximately every three to five years and are also concentrated in the Company’s market area. The Company’s loss exposure on its impaired loans continues to be mitigated by collateral positions on these loans. The allocated allowance for loan losses associated with impaired loans is generally computed based upon the related collateral value of the loans. The collateral values are determined by recent appraisals or Certificates of Inspection, but are generally discounted by management based on historical dispositions, changes in market conditions since the last valuation and management’s expertise and knowledge of the borrower and the borrower’s business.

GOODWILL

The Company performs an annual evaluation for impairment. Any impairment of goodwill results in a charge to income. The assumptions used in the impairment test of goodwill are susceptible to change based on changes in

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economic conditions and other factors, including our stock price. Any change in the assumptions which we utilize to determine the carrying value of goodwill could adversely impact our results of operations.

The Company periodically assesses whether events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. Management notes that the emergence of COVID-19 as a global pandemic during 2020 resulted in significant deterioration in general economic conditions and the environment in which the Company operates. This uncertainty in 2020 resulted in significant decreases in the market prices for the stock of institutions in the financial services industry, including the Company, however, many stock prices recovered through the end of 2020 and into 2021, and the Company’s core income has remained strong due to SBA lender fees, lending activity and steady net interest income.

Goodwill was evaluated for impairment at December 31, 2020, and it was determined that goodwill was not impaired. Management evaluated the need for an interim goodwill impairment analysis and determined that there were no triggering events or negative factors affecting goodwill since the previous test that would indicate goodwill was impaired as of September 30, 2021.

DEPOSITS, OTHER BORROWED FUNDS AND SUBORDINATED DEBT

Consumer and commercial retail deposits are attracted primarily by the Bank’s eighteen full service office locations, one loan production office and through its internet banking presence. The Bank offers a broad selection of deposit products and continually evaluates its interest rates and fees on deposit products. The Bank regularly reviews competing financial institutions’ interest rates, especially when establishing interest rates on certificates of deposit.

Total deposits increased $208,016,000 to $1,145,504,000 as of September 30, 2021 as non-interest bearing deposits increased by $46,103,000 and interest bearing deposits increased by $161,913,000 from year-end 2020. The increase in deposits was the result of government stimulus funds, PPP loan proceeds, a $128,271,000 increase in highly rate sensitive deposits and other normal fluctuations. Total short-term and long-term borrowings increased to $64,853,000 as of September 30, 2021, from $64,494,000 at year-end 2020, an increase of $359,000 or 0.6%. The increase in total borrowings was mainly the result of an increase in the balance of repurchase agreements offset by the maturity of two long-term notes.

On December 10, 2020, the Corporation issued $25,000,000 aggregate principal amount of Subordinated Notes due December 31, 2030 (the “2020 Notes”). The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The 2020 Notes bear a fixed interest rate of 4.375% per year for the first five years and then float based on a benchmark rate (as defined).

CAPITAL STRENGTH

Normal increases in capital are generated by net income, less dividends paid out. During the nine months ended September 30, 2021, net income less dividends paid increased capital by $6,609,000. Accumulated other comprehensive income (loss) derived from net unrealized gains on debt securities available-for-sale also impacts capital. At December 31, 2020 accumulated other comprehensive income was $12,870,000. Accumulated other comprehensive income stood at $8,682,000 at September 30, 2021, a decrease of $4,188,000. Fluctuations in interest rates have regularly impacted the gain/loss position in the Bank’s securities portfolio, as well as its decision to sell securities at a gain or loss. The fluctuations from net unrealized gains on debt securities available-for-sale do not affect regulatory capital, as the Bank elected to opt-out of the inclusion of this item with the filing of the March 31, 2015 Call Report.

The Company held 231,612 shares of common stock as treasury stock at September 30, 2021 and December 31, 2020. This had an effect of reducing our total stockholders’ equity by $5,709,000 as of September 30, 2021 and December 31, 2020.

Total stockholders’ equity was $147,788,000 as of September 30, 2021, and $144,242,000 as of December 31, 2020.

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At September 30, 2021 the Bank met the definition of a “well-capitalized” institution under the regulatory framework for prompt corrective action and the minimum capital requirements under Basel III. The following table presents the Bank’s capital ratios as of September 30, 2021 and December 31, 2020:

					To Be Well
					Capitalized
					Under Prompt
	September 30,		December 31,		Corrective Action
	2021		2020		Regulations
Tier 1 leverage ratio (to average assets)	10.24	%	10.81	%	5.00	%
Common Equity Tier 1 capital ratio (to risk-weighted assets)	15.48	%	15.99	%	6.50	%
Tier 1 risk-based capital ratio (to risk-weighted assets)	15.48	%	15.99	%	8.00	%
Total risk-based capital ratio	16.31	%	17.05	%	10.00	%

Under the final capital rules that became effective on January 1, 2015, there was a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement was phased in over three years beginning in 2016. The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5% on a fully phased-in basis as of January 1, 2019. As of September 30, 2021, the Bank meets all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

The Corporation’s capital ratios are not materially different than those of the Bank.

LIQUIDITY

The Company’s objective is to maintain adequate liquidity to meet funding needs at a reasonable cost and provide contingency plans to meet unanticipated funding needs or a loss of funding sources, while minimizing interest rate risk. Adequate liquidity is needed to provide the funding requirements of depositors’ withdrawals, loan growth, and other operational needs.

Sources of liquidity are as follows:

● Growth in the core deposit base;

● Proceeds from sales or maturities of securities;

● Payments received on loans and mortgage-backed securities;

● Overnight correspondent bank borrowings on various credit lines, notes, etc., with various levels of capacity;

● Securities sold under agreements to repurchase; and

● Brokered CDs.

At September 30, 2021, the Company had $416,371,000 in maximum borrowing capacity at FHLB (inclusive of the outstanding balances of FHLB long-term notes, FHLB short-term borrowings, and irrevocable standby letters of credit issued by FHLB); the maximum borrowing capacity at ACBB was $15,000,000 and the maximum borrowing capacity of the Federal Discount Window was $3,313,000.

The Company enters into “Repurchase Agreements” in which it agrees to sell securities subject to an obligation to repurchase the same or similar securities. Because the agreement both entitles and obligates the Company to repurchase the assets, the Company may transfer legal control of the securities while still retaining effective control. As a result, the repurchase agreements are accounted for as collateralized financing agreements (secured borrowings) and act as an additional source of liquidity. Securities sold under agreements to repurchase were $29,853,000 at September 30, 2021.

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Asset liquidity is provided by securities maturing in one year or less, other short-term investments, federal funds sold, and cash and due from banks. The liquidity is augmented by repayment of loans and cash flows from mortgage-backed and asset-backed securities. Liability liquidity is accomplished primarily by maintaining a core deposit base, acquired by attracting new deposits and retaining maturing deposits. Also, short-term borrowings provide funds to meet liquidity needs.

Net cash flows provided by operating activities were $11,261,000 as of September 30, 2021, compared to cash used in operating activities of $1,468,000 as of September 30, 2020. Net income amounted to $11,506,000 for the nine months ended September 30, 2021 and $8,571,000 for the nine months ended September 30, 2020. During the nine months ended September 30, 2021 and 2020, net premium amortization on investment securities amounted to $2,124,000 and $1,484,000, respectively. Gains on sales of mortgage loans were $801,000 as of September 30, 2021, compared to $471,000 as of September 30, 2020. Originations of mortgage loans originated for resale exceeded proceeds (including gains) from sales of mortgage loans originated for resale by $1,383,000 and $9,714,000 for the nine months ended September 30, 2021 and 2020. Net securities gains were $165,000 for the nine months ended September 30, 2021, compared to net securities losses of $312,000 for the nine months ended September 30, 2020. Accrued interest receivable decreased by $261,000 for the nine months ended September 30, 2021 and increased by $1,325,000 for the nine months ended September 30, 2020. Other assets increased by $1,422,000 during the nine months ended September 30, 2021 and decreased by $388,000 during the nine months ended September 30, 2020. Other liabilities increased by $44,000 during the nine months ended September 30, 2021 and decreased by $1,310,000 during the nine months ended September 30, 2020.

Investing activities used cash of $107,970,000 and $75,567,000 during the nine months ended September 30, 2021 and 2020, respectively. Net activity in the available-for-sale securities portfolio (including proceeds from sale, maturities, and redemptions net against purchases) used cash of $73,542,000 during the nine months ended September 30, 2021, compared to $31,122,000 during the nine months ended September 30, 2020. Net cash used to originate loans amounted to $34,091,000 and $46,218,000 during the nine months ended September 30, 2021 and 2020, respectively.

Financing activities provided cash of $204,577,000 and $112,287,000 during the nine months ended September 30, 2021 and 2020, respectively. Deposits increased by $208,016,000 and $157,591,000 during the nine months ended September 30, 2021 and 2020, respectively. Short-term borrowings increased by $10,359,000 during the nine months ended September 30, 2021 and decreased by $31,540,000 during the nine months ended September 30, 2020. Repayment of long-term borrowings amounted to $10,000,000 for both the nine months ended September 30, 2021 and 2020, respectively. Dividends paid amounted to $4,897,000 and $4,724,000 for the nine months ended September 30, 2021 and 2020, respectively.

Managing liquidity remains an important segment of asset/liability management. The overall liquidity position of the Company is maintained by an active asset/liability management committee. The Company believes that its core deposit base is stable even in periods of changing interest rates. Liquidity and funds management are governed by policies and are measured on a monthly basis. These measurements indicate that liquidity generally remains stable and exceeds the Company’s minimum defined levels of adequacy. Other than the trends of continued competitive pressures and volatile interest rates, there are no known demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way. Given our financial strength, we expect to be able to maintain adequate liquidity as we manage through the current environment, utilizing current funding options and possibly utilizing new options, such as the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”).

MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. The Company’s market risk is composed primarily of interest rate risk. The Company’s interest rate risk results from timing differences in the repricing of assets, liabilities, off-balance sheet instruments, and changes in relationships between rate indices and the potential exercise of explicit or embedded options.

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Increases in the level of interest rates also may adversely affect the fair value of the Company’s securities and other earning assets. Generally, the fair value of fixed-rate instruments fluctuates inversely with changes in interest rates. As a result, increases in interest rates could result in decreases in the fair value of the Company’s interest-earning assets, which could adversely affect the Company’s results of operations if sold, or, in the case of interest-earning assets classified as available-for-sale, the Company’s stockholders’ equity, if retained. Under FASB ASC 320-10, Investments – Debt Securities, changes in the unrealized gains and losses, net of taxes, on debt securities classified as available-for-sale are reflected in the Company’s stockholders’ equity. The Company does not own any trading assets.

Asset/Liability Management

The principal objective of asset/liability management is to manage the sensitivity of the net interest margin to potential movements in interest rates and to enhance profitability through returns from managed levels of interest rate risk. The Company actively manages the interest rate sensitivity of its assets and liabilities. Several techniques are used for measuring interest rate sensitivity. Interest rate risk arises from the mismatches in the repricing of assets and liabilities within a given time period, referred to as a rate sensitivity gap. If more assets than liabilities mature or reprice within the time frame, the Company is asset sensitive. This position would contribute positively to net interest income in a rising rate environment. Conversely, if more liabilities mature or reprice, the Company is liability sensitive. This position would contribute positively to net interest income in a falling rate environment. The Company’s cumulative gap at one year indicates the Company is liability sensitive at September 30, 2021.

Earnings at Risk

The Bank’s Asset/Liability Committee (“ALCO”) is responsible for reviewing the interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. The guidelines established by ALCO are reviewed by the Company’s Board of Directors. The Company recognizes that more sophisticated tools exist for measuring the interest rate risk in the balance sheet beyond interest rate sensitivity gap. Although the Company continues to measure its interest rate sensitivity gap, the Company utilizes additional modeling for interest rate risk in the overall balance sheet. Earnings at risk and economic values at risk are analyzed.

Earnings simulation modeling addresses earnings at risk and net present value estimation addresses economic value at risk. While each of these interest rate risk measurements has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk to the Company.

Earnings Simulation Modeling

The Company’s net income is affected by changes in the level of interest rates. Net income is also subject to changes in the shape of the yield curve. For example, a flattening of the yield curve would result in a decline in earnings due to the compression of earning asset yields and increased liability rates, while a steepening would result in increased earnings as earning asset yields widen.

Earnings simulation modeling is the primary mechanism used in assessing the impact of changes in interest rates on net interest income. The model reflects management’s assumptions related to asset yields and rates paid on liabilities, deposit sensitivity, size and composition of the balance sheet. The assumptions are based on what management believes at that time to be the most likely interest rate environment. Earnings at risk is the change in net interest income from a base case scenario under various scenarios of rate shock increases and decreases in the interest rate earnings simulation model.

The table on the next page presents an analysis of the changes in net interest income and net present value of the balance sheet resulting from various increases or decreases in the level of interest rates, such as two percentage points (200 basis points) in the level of interest rates. The calculated estimates of change in net interest income and net present value of the balance sheet are compared to current limits approved by ALCO and the Board of Directors. The earnings simulation model projects net interest income would decrease 4.32%, 8.65% and 12.90% in the 100, 200 and 300 basis point increasing rate scenarios presented. In addition, the earnings simulation model projects net interest

55

income would decrease 2.09% and 7.95% in the 100 and 200 basis point decreasing rate scenarios presented. All of these forecasts are within the Company’s one year policy guidelines.

The analysis and model used to quantify the sensitivity of net interest income becomes less reliable in a decreasing rate scenario given the current unprecedented low interest rate environment with federal funds trading in the 0 – 25 basis point range. Results of the decreasing basis point declining scenarios are affected by the fact that many of the Company’s interest-bearing liabilities are at rates below 1% and therefore likely may not decline 100 or more basis points. However, the Company’s interest-sensitive assets are able to decline by these amounts. For the nine months ended September 30, 2021, the cost of interest-bearing liabilities averaged 0.59%, and the yield on interest-earning assets, on a fully taxable equivalent basis, averaged 3.68%.

Net Present Value Estimation

The net present value measures economic value at risk and is used for helping to determine levels of risk at a point in time present in the balance sheet that might not be taken into account in the earnings simulation model. The net present value of the balance sheet is defined as the discounted present value of asset cash flows minus the discounted present value of liability cash flows. At September 30, 2021, the 100 and 200 basis point immediate decreases in rates are estimated to affect net present value with decreases of 33.18% and 91.91%, respectively. Additionally, net present value is projected to increase 15.61%, 21.47%, and 20.45% in the 100, 200, and 300 basis point immediate increase scenarios, respectively. These scenarios presented are within the Company’s policy limits, aside from the 100 basis point immediate decrease scenario at (33.18)% vs. a policy limit of (20)% and the 200 basis point immediate decrease scenario at (91.91)% vs. a policy limit of (30.0)%.

The computation of the effects of hypothetical interest rate changes are based on many assumptions. They should not be relied upon solely as being indicative of actual results, since the computations do not account for actions management could undertake in response to changes in interest rates.

Effect of Change in Interest Rates

	Projected Change
Effect on Net Interest Income
1-Year Net Income Simulation Projection
+300 bp Shock vs. Stable Rate	(12.90)	%
+200 bp Shock vs. Stable Rate	(8.65)	%
+100 bp Shock vs. Stable Rate	(4.32)	%
Flat rate
‒100 bp Shock vs. Stable Rate	(2.09)	%
‒200 bp Shock vs. Stable Rate	(7.95)	%
Effect on Net Present Value of Balance Sheet
Static Net Present Value Change
+300 bp Shock vs. Stable Rate	20.45	%
+200 bp Shock vs. Stable Rate	21.47	%
+100 bp Shock vs. Stable Rate	15.61	%
Flat rate
‒100 bp Shock vs. Stable Rate	(33.18)	%
‒200 bp Shock vs. Stable Rate	(91.91)	%

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Information with respect to quantitative and qualitative disclosures about market risk is included in the information under Management’s Discussion and Analysis in Item 2.

56

Item 4.  Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures. First Keystone Corporation maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those disclosure controls and procedures performed as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2021.

b) Changes in internal control over financial reporting. There were no other changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

Although the Company is subject to various claims and legal actions that occur from time to time in the ordinary course of business, the Company is not party to any pending legal proceedings that management believes could have a material adverse effect on its business, results of operations, financial condition or cash flows.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A “Risk Factors” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 — July 31, 2021	―	―	―	120,000
August 1 — August 31, 2021	―	―	―	120,000
September 1 — September 30, 2021	―	―	―	120,000
Total	―	―	―	120,000

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.

57

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits required by Item 601 Regulation S-K

Exhibit Number	Description of Exhibit
3.1	Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to the Registrant’s Report on Form 8-K dated August 28, 2018).
3.2	By-Laws, as amended and restated (Incorporated by reference to Exhibit 3.2 to the Registrant’s Report on Form 8-K dated January 26, 2021).
10.1(a)	Supplemental Employee Retirement Plan – J. Gerald Bazewicz (Incorporated by reference to Exhibit 10 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).*
10.1(b)	Supplemental Employee Retirement Plan – David R. Saracino (Incorporated by reference to Exhibit 10 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).*
10.1(d)	Supplemental Employee Retirement Plan – Elaine Woodland (Incorporated by reference to Exhibit 10 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).*
10.2	Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018).*
14	First Keystone Corporation Directors and Senior Management Code of Ethics (Incorporated by reference to Exhibit 99.1 to Registrant’s Report on Form 8-K dated August 27, 2013).
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.**
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.**
32.1	Section 1350 Certification of Chief Executive Officer.**
32.2	Section 1350 Certification of Chief Financial Officer.**
101.INS	Inline XBRL Instance Document.**
101.SCH	Inline XBRL Taxonomy Extension Schema Document.**
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.**
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.**
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.**
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.**
104	Cover Page Interactive Data File (Formatted as Inline XBRL and Contained in Exhibit 101)

*   Denotes a compensatory plan.

** Filed herewith.

The Company will provide a copy of any exhibit upon receipt of a written request for the particular exhibit or exhibits desired. All requests should be addressed to the Company’s principal executive offices.

58

FIRST KEYSTONE CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly cause this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST KEYSTONE CORPORATION
	Registrant
November 5, 2021	/s/ Elaine A. Woodland
	Elaine A. Woodland
	President and Chief Executive Officer
	(Principal Executive Officer)
November 5, 2021	/s/ Diane C.A. Rosler
	Diane C.A. Rosler
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

59

EX-31.1

EXHIBIT 31.1

FIRST KEYSTONE CORPORATION

CERTIFICATION

I, Elaine A. Woodland, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2021, of First Keystone Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Elaine A. Woodland

Elaine A. Woodland

President and Chief Executive Officer

Date: November 5, 2021

EX-31.2

EXHIBIT 31.2

FIRST KEYSTONE CORPORATION

CERTIFICATION

I, Diane C.A. Rosler, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2021, of First Keystone Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Diane C.A. Rosler

Diane C.A. Rosler

Senior Vice President and Chief Financial Officer

Date: November 5, 2021

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of First Keystone Corporation (the “Corporation”) for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elaine A. Woodland, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of and for the period covered by the Report.

/s/ Elaine A. Woodland

Elaine A. Woodland

President and Chief Executive Officer

November 5, 2021

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to First Keystone Corporation and will be retained by First Keystone Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of First Keystone Corporation (the “Corporation”) for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Diane C.A. Rosler, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of and for the period covered by the Report.

/s/ Diane C.A. Rosler

Diane C.A. Rosler

Senior Vice President and
Chief Financial Officer

November 5, 2021

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to First Keystone Corporation and will be retained by First Keystone Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2021	Nov. 03, 2021
Document And Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	000-21344
Document Period End Date	Sep. 30, 2021
Entity Registrant Name	FIRST KEYSTONE CORPORATION
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	23-2249083
Entity Address, Address Line One	111 West Front Street
Entity Address, City or Town	Berwick
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	18603
City Area Code	570
Local Phone Number	752-3671
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Title of 12(b) Security	Common stock
Trading Symbol	FKYS
Entity Common Stock, Shares Outstanding		5,930,463
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Central Index Key	0000737875
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2021	Dec. 31, 2020
ASSETS
Cash and due from banks	$ 10,343,000	$ 8,833,000
Interest-bearing deposits in other banks	121,705,000	15,347,000
Total cash and cash equivalents	132,048,000	24,180,000
Time deposits with other banks	247,000	247,000
Debt securities available-for-sale, at fair value	432,834,000	366,711,000
Marketable equity securities, at fair value	1,805,000	1,646,000
Restricted investment in bank stocks, at cost	2,304,000	2,247,000
Loans	738,565,000	703,310,000
Loans held for sale	18,220,000	17,300,000
Allowance for loan losses	(8,288,000)	(7,933,000)
Net loans	748,497,000	712,677,000
Premises and equipment, net	18,244,000	18,678,000
Operating lease right-of-use assets	1,050,000	1,061,000
Accrued interest receivable	4,283,000	4,544,000
Cash surrender value of bank owned life insurance	24,642,000	24,194,000
Investments in low-income housing partnerships	1,188,000	1,466,000
Goodwill	19,133,000	19,133,000
Foreclosed assets held for resale		28,000
Other assets	3,664,000	2,235,000
TOTAL ASSETS	1,389,939,000	1,179,047,000
LIABILITIES
Non-interest bearing	244,602,000	198,499,000
Interest bearing	900,902,000	738,989,000
Total deposits	1,145,504,000	937,488,000
Short-term borrowings	29,853,000	19,494,000
Long-term borrowings	35,000,000	45,000,000
Subordinated debentures	25,000,000	25,000,000
Operating lease liabilities	1,518,000	1,513,000
Accrued interest payable	540,000	405,000
Deferred income taxes	932,000	2,146,000
Other liabilities	3,804,000	3,759,000
TOTAL LIABILITIES	1,242,151,000	1,034,805,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $2.00 per share; authorized 1,000,000 shares as of September 30, 2021 and December 31, 2020; issued 0 as of September 30, 2021 and December 31, 2020	0	0
Common stock, par value $2.00 per share; authorized 20,000,000 shares as of September 30, 2021 and December 31, 2020; issued 6,162,075 as of September 30, 2021 and 6,115,281 as of December 31, 2020; outstanding 5,930,463 as of September 30, 2021 and 5,883,669 as of December 31, 2020	12,324,000	12,231,000
Surplus	40,575,000	39,543,000
Retained earnings	91,916,000	85,307,000
Accumulated other comprehensive income	8,682,000	12,870,000
Treasury stock, at cost, 231,612 shares as of September 30, 2021 and December 31, 2020	(5,709,000)	(5,709,000)
TOTAL STOCKHOLDERS' EQUITY	147,788,000	144,242,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,389,939,000	$ 1,179,047,000

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2021	Dec. 31, 2020
CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 2.00	$ 2.00
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Common stock, par value (in dollars per share)	$ 2.00	$ 2.00
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	6,162,075	6,115,281
Common stock, shares outstanding	5,930,463	5,883,669
Treasury stock, shares	231,612	231,612

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
INTEREST INCOME
Interest and fees on loans	$ 8,331	$ 7,948	$ 24,474	$ 23,302
Interest and dividend income on securities:
Taxable	1,455	1,059	4,055	3,509
Tax-exempt	854	793	2,556	2,220
Dividends	25	11	49	34
Dividend income on restricted investment in bank stocks	20	39	73	180
Interest on interest-bearing deposits in other banks	31	2	43	6
Total interest income	10,716	9,852	31,250	29,251
INTEREST EXPENSE
Interest on deposits	790	967	2,368	4,038
Interest on short-term borrowings	25	30	65	340
Interest on long-term borrowings	195	234	623	758
Interest on subordinated debt	273		820
Total interest expense	1,283	1,231	3,876	5,136
Net interest income	9,433	8,621	27,374	24,115
Provision for loan losses	185	294	455	682
Net interest income after provision for loan losses	9,248	8,327	26,919	23,433
NON-INTEREST INCOME
Trust department	243	222	761	677
Service charges and fees	496	409	1,352	1,250
Increase in cash surrender value of life insurance	149	152	448	458
ATM fees and debit card income	555	501	1,639	1,364
Gains on sales of mortgage loans	139	174	801	471
Net securities gains (losses)	22	(9)	165	(312)
Other	93	66	271	211
Total non-interest income	1,697	1,515	5,437	4,119
NON-INTEREST EXPENSE
Salaries and employee benefits	3,303	3,554	10,064	9,732
Occupancy, net	448	512	1,428	1,534
Furniture and equipment expense	150	147	430	435
Computer expense	315	248	900	753
Professional services	244	220	776	685
Pennsylvania shares tax	309	231	935	680
FDIC insurance, net	103	73	310	94
ATM and debit card fees	281	253	764	676
Data processing fees	295	283	912	884
Foreclosed assets held for resale expense, net		30	3	44
Advertising	101	82	282	245
Other	718	623	2,207	2,064
Total non-interest expense	6,267	6,256	19,011	17,826
Income before income tax expense	4,678	3,586	13,345	9,726
Income tax expense	655	449	1,839	1,155
NET INCOME	$ 4,023	$ 3,137	$ 11,506	$ 8,571
Net income per share:
Basic	$ 0.68	$ 0.54	$ 1.95	$ 1.47
Diluted	0.68	0.54	1.95	1.47
Dividends per share	$ 0.28	$ 0.27	$ 0.83	$ 0.81

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net Income	$ 4,023	$ 3,137	$ 11,506	$ 8,571
Other comprehensive (loss) income:
Unrealized net holding (losses) gains on debt securities available-for-sale arising during the period, net of income taxes	(2,460)	1,092	(4,185)	7,074
Less reclassification adjustment for net gains included in net income, net of income taxes	(3)	(48)	(3)	(180)
Total other comprehensive (loss) income	(2,463)	1,044	(4,188)	6,894
Total Comprehensive Income	$ 1,560	$ 4,181	$ 7,318	$ 15,465

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax	$ (654)	$ 290	$ (1,113)	$ 1,880
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax	$ (1)	$ (13)	$ (1)	$ (48)

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Surplus	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Total
Balance at Dec. 31, 2019	$ 12,097	$ 38,365	$ 79,778	$ 4,221	$ (5,709)	$ 128,752
Balance (in shares) at Dec. 31, 2019	6,048,506
Net Income			2,053			2,053
Other comprehensive income (loss), net of taxes				605		605
Issuance of common stock under dividend reinvestment plan	$ 30	280				310
Issuance of common stock under dividend reinvestment plan (in shares)	15,213
Dividends			(1,570)			(1,570)
Balance at Mar. 31, 2020	$ 12,127	38,645	80,261	4,826	(5,709)	130,150
Balance (in shares) at Mar. 31, 2020	6,063,719
Balance at Dec. 31, 2019	$ 12,097	38,365	79,778	4,221	(5,709)	128,752
Balance (in shares) at Dec. 31, 2019	6,048,506
Net Income						8,571
Other comprehensive income (loss), net of taxes						6,894
Balance at Sep. 30, 2020	$ 12,195	39,243	83,625	11,115	(5,709)	140,469
Balance (in shares) at Sep. 30, 2020	6,097,519
Balance at Mar. 31, 2020	$ 12,127	38,645	80,261	4,826	(5,709)	130,150
Balance (in shares) at Mar. 31, 2020	6,063,719
Net Income			3,381			3,381
Other comprehensive income (loss), net of taxes				5,245		5,245
Issuance of common stock under dividend reinvestment plan	$ 33	298				331
Issuance of common stock under dividend reinvestment plan (in shares)	16,135
Dividends			(1,575)			(1,575)
Balance at Jun. 30, 2020	$ 12,160	38,943	82,067	10,071	(5,709)	137,532
Balance (in shares) at Jun. 30, 2020	6,079,854
Net Income			3,137			3,137
Other comprehensive income (loss), net of taxes				1,044		1,044
Issuance of common stock under dividend reinvestment plan	$ 35	300				335
Issuance of common stock under dividend reinvestment plan (in shares)	17,665
Dividends			(1,579)			(1,579)
Balance at Sep. 30, 2020	$ 12,195	39,243	83,625	11,115	(5,709)	140,469
Balance (in shares) at Sep. 30, 2020	6,097,519
Balance at Dec. 31, 2020	$ 12,231	39,543	85,307	12,870	(5,709)	144,242
Balance (in shares) at Dec. 31, 2020	6,115,281
Net Income			3,878			3,878
Other comprehensive income (loss), net of taxes				(3,923)		(3,923)
Issuance of common stock under dividend reinvestment plan	$ 32	351				383
Issuance of common stock under dividend reinvestment plan (in shares)	16,304
Dividends			(1,647)			(1,647)
Balance at Mar. 31, 2021	$ 12,263	39,894	87,538	8,947	(5,709)	142,933
Balance (in shares) at Mar. 31, 2021	6,131,585
Balance at Dec. 31, 2020	$ 12,231	39,543	85,307	12,870	(5,709)	144,242
Balance (in shares) at Dec. 31, 2020	6,115,281
Net Income						11,506
Other comprehensive income (loss), net of taxes						(4,188)
Balance at Sep. 30, 2021	$ 12,324	40,575	91,916	8,682	(5,709)	147,788
Balance (in shares) at Sep. 30, 2021	6,162,075
Balance at Mar. 31, 2021	$ 12,263	39,894	87,538	8,947	(5,709)	142,933
Balance (in shares) at Mar. 31, 2021	6,131,585
Net Income			3,605			3,605
Other comprehensive income (loss), net of taxes				2,198		2,198
Issuance of common stock under dividend reinvestment plan	$ 30	329				359
Issuance of common stock under dividend reinvestment plan (in shares)	14,976
Dividends			(1,593)			(1,593)
Balance at Jun. 30, 2021	$ 12,293	40,223	89,550	11,145	(5,709)	147,502
Balance (in shares) at Jun. 30, 2021	6,146,561
Net Income			4,023			4,023
Other comprehensive income (loss), net of taxes				(2,463)		(2,463)
Issuance of common stock under dividend reinvestment plan	$ 31	352				383
Issuance of common stock under dividend reinvestment plan (in shares)	15,514
Dividends			(1,657)			(1,657)
Balance at Sep. 30, 2021	$ 12,324	$ 40,575	$ 91,916	$ 8,682	$ (5,709)	$ 147,788
Balance (in shares) at Sep. 30, 2021	6,162,075

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Cash dividends, per share	$ 0.28	$ 0.27	$ 0.28	$ 0.27	$ 0.27	$ 0.27

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 11,506,000	$ 8,571,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	455,000	682,000
Depreciation and amortization	775,000	868,000
Net premium amortization on securities	2,124,000	1,484,000
Deferred income tax benefit	(101,000)	(581,000)
Gains on sales of mortgage loans	(801,000)	(471,000)
Proceeds from sales of mortgage loans originated for sale	24,820,000	12,433,000
Originations of mortgage loans originated for sale	(26,203,000)	(22,147,000)
Net securities (gains) losses	(165,000)	312,000
Net losses on sales of foreclosed real estate held for resale, including write-downs		21,000
Decrease (increase) in accrued interest receivable	261,000	(1,325,000)
Increase in cash surrender value of bank owned life insurance	(448,000)	(458,000)
Net losses on disposals of premises and equipment	3,000	1,000
(Increase) decrease in other assets	(1,422,000)	388,000
Amortization of investment in low-income housing partnerships	278,000	272,000
Increase (decrease) in accrued interest payable	135,000	(208,000)
Increase (decrease) in other liabilities	44,000	(1,310,000)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	11,261,000	(1,468,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equity securities and debt securities available-for-sale	6,000	21,692,000
Proceeds from maturities and redemptions of debt securities available-for-sale	42,974,000	30,354,000
Purchases of debt securities available-for-sale	(116,522,000)	(83,168,000)
Net change in restricted investment in bank stocks	(57,000)	1,977,000
Net increase in loans	(34,091,000)	(46,218,000)
Purchase of premises and equipment	(308,000)	(264,000)
Proceeds from sales of foreclosed assets held for resale	28,000	60,000
NET CASH USED IN INVESTING ACTIVITIES	(107,970,000)	(75,567,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	208,016,000	157,591,000
Net increase (decrease) in short-term borrowings	10,359,000	(31,540,000)
Repayment of finance lease obligations	(7,000)
Repayment of long-term borrowings	(10,000,000)	(10,000,000)
Common stock issued	1,106,000	960,000
Dividends paid	(4,897,000)	(4,724,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES	204,577,000	112,287,000
INCREASE IN CASH AND CASH EQUIVALENTS	107,868,000	35,252,000
CASH AND CASH EQUIVALENTS, BEGINNING	24,180,000	10,724,000
CASH AND CASH EQUIVALENTS, ENDING	132,048,000	45,976,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	3,741,000	5,344,000
Income taxes paid	1,949,000	161,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Loans transferred to foreclosed assets held for resale		50,000
Loans transferred from held for sale portfolio		(149,000)
Common stock subscription receivable	19,000	$ 16,000
Right-of-use assets obtained in exchange for lease liabilities	$ 33,000

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BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2021

BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUBSEQUENT EVENTS

BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUBSEQUENT EVENTS

NOTE 1 ― BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SUBSEQUENT EVENTS

The consolidated financial statements include the accounts of First Keystone Corporation (the “Corporation”) and its wholly owned subsidiary First Keystone Community Bank (the “Bank”) (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results for the year ending December 31, 2021. For further information, refer to the consolidated financial statements and notes thereto included in First Keystone Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.

Subsequent Events

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2021 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

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RECENT ACCOUNTING STANDARDS UPDATES ("ASU")

9 Months Ended

Sep. 30, 2021

RECENT ACCOUNTING STANDARDS UPDATES ("ASU")

RECENT ACCOUNTING STANDARDS UPDATES ("ASU")

NOTE 2 ― RECENT ACCOUNTING STANDARDS UPDATES (“ASU”)

Recently adopted ASUs:

In January 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of Topic 848, Reference Rate Reform, and clarifies some of its guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities. The ASU provides certain optional expedients and exceptions when applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”), or by another reference rate that is expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The Company has evaluated the provisions of ASU 2021-01 on our financial condition, results of operations and cash flows, and determined that there is no material impact on the consolidated financial statements and related disclosures.

Pending ASUs:

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), to delay the effective date for smaller reporting companies to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. While the Company (a smaller reporting company) is currently evaluating the provisions of ASU 2016-13 to determine the potential impact of the new standard will have on the Company's consolidated financial statements, it has taken steps to prepare for the implementation when it becomes effective, such

as: forming an internal committee, gathering pertinent data, consulting with outside professionals, subscribing to a new software system, and running existing and new methodologies concurrently through the period of implementation.

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SECURITIES

9 Months Ended

Sep. 30, 2021

SECURITIES

SECURITIES

NOTE 3 — SECURITIES

The Company classifies its securities as either “Held-to-Maturity” or “Available-for-Sale” at the time of purchase. Securities are accounted for on a trade date basis. Debt securities are classified as Held-to-Maturity when the Company has the ability and positive intent to hold the securities to maturity. Securities classified as Held-to-Maturity are carried at cost adjusted for amortization of premium and accretion of discount to maturity.

Debt securities not classified as Held-to-Maturity are included in the Available-for-Sale category and are carried at fair value. The amount of any unrealized gain or loss, net of the effect of deferred income taxes, is reported as accumulated other comprehensive income (AOCI) in the consolidated balance sheets and consolidated statements of changes in stockholders’ equity. Management’s decision to sell Available-for-Sale securities is based on changes in economic conditions, controlling the sources and applications of funds, terms, availability of and yield of alternative investments, interest rate risk and the need for liquidity.

Equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income. Equity securities without readily determinable fair values are recorded at cost less impairment, if any.

The cost of debt securities classified as Held-to-Maturity or Available-for-Sale is adjusted for amortization of premiums to the earliest call date and accretion of discounts to expected maturity. Such amortization and accretion, as well as interest and dividends, are included in interest and dividend income from securities. Realized gains and losses are included in net securities gains and losses. The cost of securities sold, redeemed or matured is based on the specific identification method.

The amortized cost, related estimated fair value, and unrealized gains and losses for debt securities classified as “Available-For-Sale” were as follows at September 30, 2021 and December 31, 2020:

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2021:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	4,959	$	—	$	(60)	$	4,899
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		118,705		776		(1,076)		118,405
Other		8,254		5		(60)		8,199
Other mortgage backed securities		43,052		245		(161)		43,136
Obligations of state and political subdivisions		167,039		11,400		(622)		177,817
Asset backed securities		38,326		273		(48)		38,551
Corporate debt securities		41,510		518		(201)		41,827
Total	$	421,845	$	13,217	$	(2,228)	$	432,834

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		76,270		1,628		(325)		77,573
Other		10,534		2		(106)		10,430
Other mortgage backed securities		39,420		470		(46)		39,844
Obligations of state and political subdivisions		150,922		14,193		(14)		165,101
Asset backed securities		44,751		158		(88)		44,821
Corporate debt securities		28,523		481		(62)		28,942
Total	$	350,420	$	16,932	$	(641)	$	366,711

Securities Available-for-Sale with an aggregate fair value of $406,792,000 at September 30, 2021 and $315,146,000 at December 31, 2020, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $335,068,000 at September 30, 2021 and $231,750,000 at December 31, 2020.

The amortized cost and estimated fair value of debt securities, by contractual maturity, are shown below at September 30, 2021. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

			September 30, 2021
			Debt Securities Available-For-Sale
(Dollars in thousands)				U.S. Government		Other		Obligations
				Agency &		Mortgage		of State		Asset		Corporate
	U.S. Treasury			Sponsored Agency		Backed Debt		& Political		Backed		Debt
	Securities			Obligations1		Securities1		Subdivisions		Securities		Securities
Within 1 Year:
Amortized cost	$	—		$	—	$	—	$	4,635	$	—	$	—
Fair value		—			—		—		4,690		—		—
1 - 5 Years:
Amortized cost		—			765		9,658		21,237		1,066		15,460
Fair value		—			769		9,674		22,373		1,075		15,786
5 - 10 Years:
Amortized cost		4,959			17,749		3,530		20,175		—		26,050
Fair value		4,899			17,754		3,529		21,630		—		26,041
After 10 Years:
Amortized cost		—			108,445		29,864		120,992		37,260		—
Fair value		—			108,081		29,933		129,124		37,476		—
Total:
Amortized cost	$	4,959		$	126,959	$	43,052	$	167,039	$	38,326	$	41,510
Fair value		4,899			126,604		43,136		177,817		38,551		41,827

¹ Mortgage-backed securities are allocated for maturity reporting at their original maturity date.

There were no aggregate securities with a single issuer (excluding the U.S. Government and U.S. Government Agencies and Corporations) which exceeded ten percent of consolidated stockholders’ equity at September 30, 2021. The quality rating of the obligations of state and political subdivisions are generally investment grade, as rated by

Moody’s, Standard and Poor’s or Fitch. The typical exceptions are local issues which are not rated, but are secured by the full faith and credit obligations of the communities that issued these securities.

Proceeds from sales of investments in Debt Securities Available-For-Sale for the three months ended September 30, 2021 and 2020 were $0 and $8,140,000, respectively. Gross gains realized on these sales were $0 and $142,000, respectively. Gross losses realized on these sales were $0 and $81,000, respectively. There were no impairment losses realized on Debt Securities Available-For-Sale during the three months ended September 30, 2021 or 2020.

Proceeds from sales of investments in Debt Securities Available-For-Sale for the nine months ended September 30, 2021 and 2020 were $0 and $21,692,000, respectively. Gross gains realized on these sales were $0 and $414,000, respectively. Gross losses realized on these sales were $0 and $186,000, respectively. There were no impairment losses realized on Debt Securities Available-For-Sale during the nine months ended September 30, 2021 or 2020.

At September 30, 2021 and December 31, 2020, the Company had $1,805,000 and $1,646,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the nine months ended September 30, 2021 and 2020:

(Dollars in thousands)	Nine months ended		Nine months ended
	September 30, 2021		September 30, 2020
Net gains and (losses) recognized during the period on equity securities	$	165	$	(540)
Less: Net gains recognized during the period on equity securities sold during the period		4		—
Net gains and (losses) recognized during the reporting period on equity securities still held at the reporting date	$	161	$	(540)

There were no proceeds from sales of investments in Held-to-Maturity debt securities during the nine months ended September 30, 2021 or 2020. Therefore, there were no gains or losses realized during these periods.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Securities classified as Available-for-Sale or Held-to-Maturity are generally evaluated for OTTI under FASB ASC 320, Investments - Debt and Equity Securities. In determining OTTI under the FASB ASC 320 model, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs on debt securities, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected, and the realized loss is recognized as impairment charges on securities on the consolidated statements of income. The amount of the total OTTI related to the other factors shall be recognized in other comprehensive income (loss), net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

The Company and its investment advisors monitor the entire portfolio monthly with particular attention given to securities in a continuous loss position of at least ten percent for over twelve months. Based on the factors described above, management did not consider any securities to be other-than-temporarily impaired at September 30, 2021 or December 31, 2020.

The summary below shows the gross unrealized losses and fair value of the Company’s debt securities. Totals are aggregated by investment category where individual securities have been in a continuous loss position for less than 12 months or 12 months or more as of September 30, 2021 and December 31, 2020:

September 30, 2021

(Dollars in thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale:	Value		Loss		Value		Loss		Value		Loss
U.S. Treasury securities	$	4,899	$	(60)	$	—	$	—	$	4,899	$	(60)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		69,838		(977)		4,653		(99)		74,491		(1,076)
Other		—		—		7,243		(60)		7,243		(60)
Other mortgage backed debt securities		9,199		(104)		4,210		(57)		13,409		(161)
Obligations of state and political subdivisions		29,552		(622)		—		—		29,552		(622)
Asset backed securities		10,245		(47)		1,978		(1)		12,223		(48)
Corporate debt securities		14,904		(146)		3,445		(55)		18,349		(201)
Total	$	138,637	$	(1,956)	$	21,529	$	(272)	$	160,166	$	(2,228)

December 31, 2020

(Dollars in thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale:	Value		Loss		Value		Loss		Value		Loss
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		13,859		(302)		5,729		(23)		19,588		(325)
Other		2,497		(32)		6,709		(74)		9,206		(106)
Other mortgage backed debt securities		8,290		(46)		—		—		8,290		(46)
Obligations of state and political subdivisions		4,122		(14)		—		—		4,122		(14)
Asset backed securities		6,827		(8)		11,018		(80)		17,845		(88)
Corporate debt securities		5,489		(11)		1,949		(51)		7,438		(62)
Total	$	41,084	$	(413)	$	25,405	$	(228)	$	66,489	$	(641)

The Company invests in various forms of agency debt including residential and commercial mortgage-backed securities and callable debt. The mortgage-backed agency securities are issued by Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”) or Small Business Administration (“SBA”). The other mortgage-backed securities consist of private (non-agency) residential and commercial mortgage backed securities. The municipal securities consist of general obligations and revenue bonds. Asset backed securities consist of bonds backed by consumer loans. Corporate debt securities consist of senior debt and subordinated debt holdings.

The fair market value of the above securities is influenced by market interest rates, prepayment speeds on mortgage securities, bid-offer spreads in the market place and credit premiums for various types of agency debt. These factors change continuously and therefore the market value of these securities may be higher or lower than the Company’s carrying value at any measurement date. Management does not believe any of their 47 debt securities with a

less than one year unrealized loss position, or any of their 16 debt securities with a one year or greater unrealized loss position as of September 30, 2021, represent an other-than-temporary impairment, as the unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company expects to collect all principal and interest payments defined under the original terms as all contracted payments on securities in the portfolio are current as of September 30, 2021.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2021

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans

Net loans are stated at their outstanding recorded investment, net of deferred fees and costs, unearned income and the allowance for loan losses. Interest on loans is recognized as income over the term of each loan, generally, by the accrual method. Loan origination fees and certain direct loan origination costs have been deferred with the net amount amortized using the straight line method or the interest method over the contractual life of the related loans as an interest yield adjustment.

The loans receivable portfolio is segmented into commercial, residential and consumer loans. Commercial loans consist of the following classes: Commercial and Industrial, and Commercial Real Estate.

Commercial and Industrial Lending

The Company originates commercial and industrial loans primarily to businesses located in its primary market area and surrounding areas. These loans are used for various business purposes, which include short-term loans and lines of credit to finance machinery and equipment, inventory and accounts receivable. Generally, the maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Most business lines of credit are written on demand and are reviewed annually.

Commercial and industrial loans are generally secured with short-term assets; however, in many cases, additional collateral such as real estate is provided as additional security for the loan. Loan-to-value maximum thresholds have been established by the Company and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, business financial statements, collateral appraisals or internal evaluations, etc. Commercial and industrial loans are typically supported by personal guarantees of the borrower.

In underwriting commercial and industrial loans, an analysis is performed to evaluate the borrower’s character and capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as the conditions affecting the borrower. Evaluation of the borrower’s past, present and future cash flows is also an important aspect of the Company’s analysis of the borrower’s ability to repay. SBA Paycheck Protection Program (“PPP”) loans that have been issued by the Company as a result of the enactment of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) in response to the economic impact of the COVID-19 pandemic are included in the Company’s Commercial and Industrial portfolio and are underwritten according to all terms and conditions pursuant to the PPP as administered by the SBA under the CARES Act. See the Coronavirus Pandemic Impact on the Loan Portfolio section on page 15 for more information regarding the Company’s underwriting of these loans.

Commercial and industrial loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions. Commercial and industrial loans are typically made on the basis of the borrower’s ability to make repayment from cash flows from the borrower’s primary business activities. As a result, the availability of funds for the repayment of commercial and industrial loans is dependent on the success of the business itself, which in turn, is likely to be dependent upon the general economic environment.

As an addition to the commercial loans receivable portfolio, the Company may purchase the guaranteed portion of loans secured by the U.S. Government. The originating bank retains the unguaranteed portion of the loan. The loans are sponsored by one of the various government agencies including the SBA, United States Department of Agriculture (“USDA”), and the Farm Service Agency (“FSA”). Government Guaranteed Loans ("GGLs") carry no credit risk due to

an unconditional and irrevocable guarantee (which is supported by the full faith and credit of the U.S. Government) on all principal and the balance of interest accruing through ninety days beyond the date that demand is made to the originating bank for repurchase of the loan. As of September 30, 2021, the Company's balance of GGLs amounted to $4,897,000, compared to $5,128,000 at December 31, 2020.

Commercial Real Estate Lending

The Company engages in commercial real estate lending in its primary market area and surrounding areas. The Company’s commercial real estate portfolio is secured primarily by commercial retail space, commercial office buildings, residential housing and hotels. Generally, commercial real estate loans have terms that do not exceed twenty years, have loan-to-value ratios of up to eighty percent of the value of the collateral property, and are typically supported by personal guarantees of the borrowers.

In underwriting these loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. The value of the property is determined by either independent appraisers or internal evaluations performed by Bank officers.

Commercial real estate loans generally present a higher level of risk than residential real estate secured loans. Repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project and/or the effect of the general economic conditions on income producing properties.

Residential Real Estate Lending (Including Home Equity)

The Company’s residential real estate portfolio is comprised of one-to-four family residential mortgage loan originations, home equity term loans and home equity lines of credit. These loans are generated by the Company’s marketing efforts, its present customers, walk-in customers and referrals. These loans originate primarily within or with customers from the Company’s market area.

The Company’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas. The Company offers fixed-rate mortgage loans with terms up to a maximum of thirty years for both permanent structures and those under construction. Loans with terms of thirty years are normally held for sale and sold without recourse; most of the residential mortgages held in the Company’s residential real estate portfolio have maximum terms of twenty years. Generally, the majority of the Company’s residential mortgage loans originate with a loan-to-value of eighty percent or less, or those with primary mortgage insurance at ninety-five percent or less. Home equity term loans are secured by the borrower’s primary residence and typically have a maximum loan-to-value of eighty percent and a maximum term of fifteen years. In general, home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of eighty percent and a maximum term of twenty years.

In underwriting one-to-four family residential mortgage loans, the Company evaluates the borrower’s ability to make monthly payments, the borrower’s prior loan repayment history and the value of the property securing the loan. The ability and willingness to repay is assessed based upon the borrower’s employment history, current financial conditions and credit background. A majority of the properties securing residential real estate loans made by the Company are appraised by independent appraisers. The Company generally requires mortgage loan borrowers to obtain an attorney’s title opinion or title insurance and fire and property insurance, including flood insurance, if applicable.

Residential mortgage loans, home equity term loans and home equity lines of credit generally present a lower level of risk than consumer loans because they are secured by the borrower’s primary residence. Risk is increased when the Company is in a subordinate position, especially to another lender, for the loan collateral.

Residential mortgage loans held for sale are carried at the lower of cost or market on an aggregate basis determined by independent pricing from appropriate federal or state agency investors. These loans are sold without

recourse. Loans held for sale amounted to $18,220,000 and $17,300,000 at September 30, 2021 and December 31, 2020, respectively.

Consumer Lending

The Company offers a variety of secured and unsecured consumer loans, including vehicle loans, stock loans and loans secured by financial institution deposits. These loans originate primarily within or with customers from the Company’s market area.

Consumer loan terms vary according to the type and value of collateral and creditworthiness of the borrower. In underwriting personal loans, a thorough analysis is performed regarding the borrower’s willingness and financial ability to repay the loan as agreed. The ability and willingness to repay is assessed based upon the borrower’s employment history, current financial condition and credit background.

Consumer loans may entail greater credit risk than residential real estate loans, particularly in the case of personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, repossessed collateral for a defaulted personal loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, personal loan collections are dependent on the borrower’s continuing financial stability and therefore, are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Coronavirus Pandemic Impact on the Loan Portfolio

As a result of the economic impact of the COVID-19 coronavirus pandemic, the CARES Act was enacted in the United States on March 27, 2020. The Company is approved by the SBA to fund loans under the SBA’s Paycheck Protection Program created as part of the CARES Act. The PPP loans have 1.00% interest rates, lender fees, two or five-year terms (depending on date of origination), and may qualify for forgiveness. These loans funded by the Company are subject to the terms and conditions applicable to all loans made pursuant to the PPP, as administered by the SBA under the CARES Act. The PPP calls for these loans to be fully guaranteed by the SBA. PPP loan origination fees and certain loan origination costs have been deferred with the net amount accreted using the straight line method over the contractual life of the related loans as an interest yield adjustment. If a loan is forgiven pursuant to the terms and conditions applicable to the PPP, the remaining origination fees and costs are recognized at the time of forgiveness. All PPP loans are carried in the Company’s Commercial and Industrial loan portfolio. As of September 30, 2021, the Company held 240 PPP loans in its Commercial and Industrial portfolio which carried a balance of $12,648,000, of which 2 loans carrying an aggregate balance of $165,000 were granted during the first round of PPP issuance and 238 loans carrying an aggregate balance of $12,483,000 were granted during the second round of PPP issuance. At December 31, 2020, the Company held 441 PPP loans in its Commercial and Industrial portfolio which carried a balance of $22,976,000, all of which were granted during the first round of PPP issuance.

An additional provision of the CARES Act, Section 4013 provides financial institutions the option to suspend requirements to categorize certain loan modifications as troubled debt restructurings (“TDRs”), as long as specific criteria are met. To qualify, the loan modifications must be made on a good-faith basis in response to the COVID-19 pandemic, must occur between March 1, 2020 and the earlier of September 30, 2021 or the termination date of the national emergency related to the COVID-19 pandemic as declared by the President of the United States, and the loans must have been paid current (less than 30 days past due prior to any relief) as of December 31, 2019. In compliance with Section 4013 of the CARES Act, the Company has granted modification requests to defer principal and/or interest payments or modify interest rates on various loans across all portfolio segments. Of the loan modifications that have been granted in compliance with Section 4013 of the CARES Act, there was 1 loan modification still actively on deferral carrying a balance of $9,423,000 as of September 30, 2021, compared to December 31, 2020 when there were 44 loan modifications still actively on deferral carrying an aggregate balance of $16,541,000. See page 25 for additional information regarding the Section 4013 CARES Act modifications.

Delinquent Loans

Generally, a loan is considered to be past-due when scheduled loan payments are in arrears 10 days or more. Delinquent notices are generated automatically when a loan is 10 or 15 days past-due, depending on loan type. Collection efforts continue on past-due loans that have not been brought current, when it is believed that some chance exists for improvement in the status of the loan. Past-due loans are continually evaluated with the determination for charge-off being made when no reasonable chance remains that the status of the loan can be improved.

Commercial and Industrial and Commercial Real Estate loans are charged off in whole or in part when they become sufficiently delinquent based upon the terms of the underlying loan contract and when a collateral deficiency exists. Because all or part of the contractual cash flows are not expected to be collected, the loan is considered to be impaired, and the Company estimates the impairment based on its analysis of the cash flows or collateral estimated at fair value less cost to sell. Should a GGL default, demand is made to the originating bank for repurchase of the loan. If the originating bank does not repurchase the loan, demand for repurchase is then made to the appropriate government agency which has provided the guarantee for the loan.

Residential Real Estate and Consumer loans are charged off when they become sufficiently delinquent based upon the terms of the underlying loan contract and when the value of the underlying collateral is not sufficient to support the loan balance and a loss is expected. At that time, the amount of estimated collateral deficiency, if any, is charged off for loans secured by collateral, and all other loans are charged off in full. Loans with collateral are written down to the estimated fair value of the collateral less cost to sell.

Existing loans in which the borrower has declared bankruptcy are considered on a case by case basis to determine whether repayment is likely to occur (eg. reaffirmation by the borrower with demonstrated repayment ability). Otherwise, loans are charged off in full or written down to the estimated fair value of collateral less cost to sell.

Generally, a loan is classified as non-accrual and the accrual of interest on such a loan is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest. A loan may remain on accrual status if it is well secured (or supported by a strong guarantee) and in the process of collection. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against interest income. Certain non-accrual loans may continue to perform; that is, payments are still being received. Generally, the payments are applied to principal. These loans remain under constant scrutiny, and if performance continues, interest income may be recorded on a cash basis based on management's judgment regarding the collectability of principal.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level estimated by management to be adequate to absorb potential loan losses. Management’s periodic evaluation of the adequacy of the allowance for loan losses is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are individually classified as impaired. Select loans are not aggregated for collective impairment evaluation, as such; all loans are subject to individual impairment evaluation should the facts and circumstances pertinent to a particular loan suggest that such evaluation is necessary. Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that

experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is impaired, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from collateral. TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s contractual rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan may be reported at the net realizable value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers all other loans not identified as impaired (aside from GGLs, which do not require an allowance) and is based on historical losses and qualitative factors. The historical loss component of the allowance is determined by losses recognized by portfolio segment over an eight quarter lookback period that management has determined best represents the current credit cycle. Qualitative factors impacting each portfolio segment may include: delinquency trends, loan volume trends, Bank policy changes, management processes and oversight, economic trends (including change in consumer and business disposable incomes, unemployment and under-employment levels, and other conditions), concentrations by industry or product, internal and external loan review processes, collateral value and market conditions, and external factors including regulatory issues and competition.

In response to the COVID-19 pandemic and its impact on the current economy, the qualitative factors related to the local/regional economy were increased by two basis points across all loan segments during the first quarter of 2020 and increased by an additional basis point across all loan segments during the second quarter of 2020. The qualitative factor relating to the impact of external factors/conditions for the Commercial Real Estate portfolio segment was increased by an additional basis point during the third quarter of 2020. The qualitative factors relating to the impact of external factors/conditions were increased by two additional basis points across all loan segments during the fourth quarter of 2020. Qualitative factors remained unchanged during the first quarter of 2021. During the second quarter of 2021, the qualitative factors related to the local/regional economy were decreased by one basis point across all loan segments, as the economy and job growth in the Company’s market areas demonstrated marked improvement over the prior quarter, and the qualitative factor related to collateral values was increased by one basis point for both the Commercial Real Estate and Residential Real Estate portfolio segments due to increasing market values in the real estate sector. Qualitative factors remained unchanged during the third quarter of 2021. Modifications granted in compliance with Section 4013 of the CARES Act were highest in the Commercial Real Estate portfiolio segment, the long-term effects of which are still very unclear, as there is still economic uncertainty related to the COVID-19 pandemic, especially in relation to this segment of the Company’s loan portfolio.

GGLs do not require an associated allowance for loan losses due to the underlying irrevocable and unconditional guarantee, which is supported by the full faith and credit of the U.S. Government. Should a GGL default, the loan will be repurchased by the originating bank or the appropriate government agency that has provided the guarantee for the loan.

Although PPP loans do not require an associated allowance for loan losses due to the program’s call for a full guarantee by the SBA, the Company has taken the conservative approach and has calculated a qualitative allocation for the PPP loans under the general component of the allowance for the Commercial and Industrial portfolio.

The unallocated component of the allowance is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A reserve for unfunded lending commitments is provided for possible credit losses on off-balance sheet credit exposures. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and, if necessary, is recorded in other liabilities on the consolidated balance sheets. As of

September 30, 2021 and December 31, 2020, the amount of the reserve for unfunded lending commitments was $92,000 and $129,000, respectively.

The Company is subject to periodic examination by its federal and state examiners, and may be required by such regulators to recognize additions to the allowance for loan losses based on their assessment of credit information available to them at the time of their examinations.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the existing loan agreement. Under current accounting standards, the allowance for loan losses related to impaired loans is based on discounted cash flows using the loan’s contractual interest rate at inception or the net realizable value of the collateral for certain collateral dependent loans.

From time to time, the Bank may agree to modify/restructure the contractual terms of a borrower's loan. The restructuring of a loan is considered a TDR if both the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the Company has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, and (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan. A less common concession is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower were a concession not granted. Similarly, the determination of whether a concession has been granted is very subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.

Loans modified in a troubled debt restructuring are considered impaired and may or may not be placed on non-accrual status until the Company determines the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrates a period of performance according to the restructured terms of six months. Any loan modifications made in response to the COVID-19 pandemic are not considered TDRs as long as the criteria set forth in Section 4013 of the CARES Act are met. See page 25 for further discussion of the Section 4013 CARES Act modifications.

The Company utilizes a risk grading matrix as a tool for managing credit risk in the loan portfolio and assigns an asset quality rating (risk grade) to all Commercial and Industrial, Commercial Real Estate, Residential Real Estate and Consumer borrowings. An asset quality rating is assigned using the guidance provided in the Company’s loan policy. Primary responsibility for assigning the asset quality rating rests with the credit department. The asset quality rating is validated periodically by both an internal and external loan review process.

The commercial loan grading system focuses on a borrower’s financial strength and performance, experience and depth of management, primary and secondary sources of repayment, the nature of the business and the outlook for the particular industry. Primary emphasis is placed on financial condition and trends. The grade also reflects current economic and industry conditions; as well as other variables such as liquidity, cash flow, revenue/earnings trends, management strengths or weaknesses, quality of financial information, and credit history.

The loan grading system for Residential Real Estate and Consumer loans focuses on the borrower’s credit score and credit history, debt-to-income ratio and income sources, collateral position and loan-to-value ratio.

Risk grade characteristics are as follows:

Risk Grade 1 – MINIMAL RISK through Risk Grade 6 – MANAGEMENT ATTENTION (Pass Grade Categories)

Risk is evaluated via examination of several attributes including but not limited to financial trends, strengths and weaknesses, likelihood of repayment when considering both cash flow and collateral, sources of repayment, leverage position, management expertise, and repayment history.

At the low-risk end of the rating scale, a risk grade of 1 – Minimal Risk is the grade reserved for loans with exceptional credit fundamentals and virtually no risk of default or loss. Loan grades then progress through escalating ratings of 2 through 6 based upon risk. Risk Grade 2 – Modest Risk are loans with sufficient cash flows; Risk Grade 3 – Average Risk are loans with key balance sheet ratios slightly above the borrower’s peers; Risk Grade 4 – Acceptable Risk are loans with key balance sheet ratios usually near the borrower’s peers, but one or more ratios may be higher; and Risk Grade 5 – Marginally Acceptable are loans with strained cash flow, increasing leverage and/or weakening markets. Risk Grade 6 – Management Attention are loans with weaknesses resulting from declining performance trends and the borrower’s cash flows may be temporarily strained. Loans in this category are performing according to terms, but present some type of potential concern.

Risk Grade 7 − SPECIAL MENTION (Non-Pass Category)

Assets in this category are adequately collateralized but have potential weakness which may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date. The loans may constitute increased credit risk, but not to the point of justifying a classification of substandard. No loss of principal or interest is envisioned, but risk is increasing beyond that at which the loan originally would have been granted. Historically, cash flows are inconsistent; financial trends show some deterioration. Liquidity and leverage are above industry averages. Financial information could be incomplete or inadequate. A Special Mention asset has potential weaknesses that deserve management’s close attention.

Risk Grade 8 − SUBSTANDARD (Non-Pass Category)

Generally, these assets are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have “well-defined” weaknesses that jeopardize the full liquidation of the debt.

These loans are characterized by the distinct possibility that the Company will sustain some loss if the aggregate amount of substandard assets is not fully covered by the liquidation of the collateral used as security. Substandard loans have a high probability of payment default and require more intensive supervision by Company management.

Risk Grade 9 − DOUBTFUL (Non-Pass Category)

Generally, loans graded doubtful have all the weaknesses inherent in a substandard loan with the added factor that the weaknesses are pronounced to a point whereby the basis of current information, conditions, and values, collection or liquidation in full is deemed to be highly improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to strengthen the asset, its classification is deferred until, for example, a proposed merger, acquisition, liquidation procedure, capital injection, perfection of liens on additional collateral and/or refinancing plan is completed. Loans are graded doubtful if they contain weaknesses so serious that collection or liquidation in full is questionable.

The following table presents the classes of the loan portfolio summarized by risk rating as of September 30, 2021 and December 31, 2020:

	Commercial and
(Dollars in thousands)	Industrial				Commercial Real Estate
	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Grade:
1-6 Pass	$	94,031	$	90,906	$	489,650	$	444,119
7    Special Mention		—		—		756		814
8    Substandard		822		919		21,853		20,975
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(62)		50		742		820
Total loans	$	94,791	$	91,875	$	513,001	$	466,728

	Residential Real Estate
	Including Home Equity				Consumer
	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Grade:
1-6 Pass	$	142,066	$	155,698	$	5,163	$	4,934
7    Special Mention		573		225		—		—
8    Substandard		1,272		1,186		19		18
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(164)		(126)		64		72
Total loans	$	143,747	$	156,983	$	5,246	$	5,024

	Total Loans
	September 30,		December 31,
	2021		2020
Grade:
1-6 Pass	$	730,910	$	695,657
7 Special Mention		1,329		1,039
8 Substandard		23,966		23,098
9 Doubtful		—		—
Add (deduct):  Unearned discount and		—		—
Net deferred loan fees and costs		580		816
Total loans	$	756,785	$	720,610

Commercial and Industrial and Commercial Real Estate include loans categorized as tax-free in the amounts of $25,483,000 and $1,715,000 at September 30, 2021 and $9,337,000 and $1,843,000 at December 31, 2020. Commercial and Industrial loans also included $4,897,000 and $5,128,000 of Government Guaranteed Loans and $12,648,000 and $22,976,000 of Paycheck Protection Program loans as of September 30, 2021 and December 31, 2020, respectively. Loans held for sale amounted to $18,220,000 at September 30, 2021 and $17,300,000 at December 31, 2020.

The activity in the allowance for loan losses, by loan class, is summarized below for the periods indicated.

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended September 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124
Charge-offs		—		—		(10)		(13)		—		(23)
Recoveries		—		—		1		1		—		2
Provision (credit)		(84)		280		(16)		11		(6)		185
Ending Balance	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the nine months ended September 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(65)		(33)		—		(140)
Recoveries		—		30		2		8		—		40
Provision (credit)		(7)		447		(66)		25		56		455
Ending Balance	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288
Loans Receivable:
Ending Balance	$	94,791	$	513,001	$	143,747	$	5,246	$	—	$	756,785
Ending balance: individually
evaluated for impairment	$	1,035	$	12,685	$	1,169	$	—	$	—	$	14,889
Ending balance: collectively
evaluated for impairment	$	93,756	$	500,316	$	142,578	$	5,246	$	—	$	741,896

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended September 30, 2020:
Allowance for Loan Losses:
Beginning balance	$	823	$	4,215	$	1,608	$	106	$	582	$	7,334
Charge-offs		(15)		(16)		(13)		(13)		—		(57)
Recoveries		4		—		—		4		—		8
Provision (credit)		22		266		37		4		(35)		294
Ending Balance	$	834	$	4,465	$	1,632	$	101	$	547	$	7,579

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the nine months ended September 30, 2020:
Allowance for Loan Losses:
Beginning balance	$	634	$	4,116	$	1,665	$	114	$	476	$	7,005
Charge-offs		(39)		(31)		(13)		(35)		—		(118)
Recoveries		4		—		—		6		—		10
Provision (credit)		235		380		(20)		16		71		682
Ending Balance	$	834	$	4,465	$	1,632	$	101	$	547	$	7,579
Ending balance: individually
evaluated for impairment	$	—	$	1	$	1	$	—	$	—	$	2
Ending balance: collectively
evaluated for impairment	$	834	$	4,464	$	1,631	$	101	$	547	$	7,577
Loans Receivable:
Ending Balance	$	100,297	$	441,095	$	157,539	$	5,109	$	—	$	704,040
Ending balance: individually
evaluated for impairment	$	1,101	$	11,775	$	1,096	$	—	$	—	$	13,972
Ending balance: collectively
evaluated for impairment	$	99,196	$	429,320	$	156,443	$	5,109	$	—	$	690,068

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2020:
Allowance for Loan Losses:
Beginning balance	$	634	$	4,116	$	1,665	$	114	$	476	$	7,005
Charge-offs		(90)		(141)		(33)		(37)		—		(301)
Recoveries		14		—		8		7		—		29
Provision (credit)		229		787		3		10		171		1,200
Ending Balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Ending balance: individually
evaluated for impairment	$	—	$	8	$	—	$	—	$	—	$	8
Ending balance: collectively
evaluated for impairment	$	787	$	4,754	$	1,643	$	94	$	647	$	7,925
Loans Receivable:
Ending Balance	$	91,875	$	466,728	$	156,983	$	5,024	$	—	$	720,610
Ending balance: individually
evaluated for impairment	$	1,095	$	12,923	$	1,036	$	—	$	—	$	15,054
Ending balance: collectively
evaluated for impairment	$	90,780	$	453,805	$	155,947	$	5,024	$	—	$	705,556

The outstanding recorded investment of TDRs as of September 30, 2021 and December 31, 2020 was $8,414,000 and $9,563,000, respectively. The decrease in TDRs at September 30, 2021 as compared to December 31, 2020 is mainly attributable to the payoff of a Commercial Real Estate TDR to a real estate holding company which was completed during the third quarter of 2021 in the amount of $1,010,000, as well as regular principal payments made on existing TDRs during the nine months ended September 30, 2021. There were no unfunded commitments on TDRs at September 30, 2021 and December 31, 2020.

During the three months ended September 30, 2021, one loan with a post modification balance of $59,000 was modified as a TDR, compared to the three months ended September 30, 2020 when four loans with a combined post modification balance of $366,000 were modified as TDRs. During the nine months ended September 30, 2021, four

loans with a combined post modification balance of $360,000 were modified as TDRs, compared to the nine months ended September 30, 2020 when seven loans with a combined post modification balance of $525,000 were modified as TDRs. The loan modifications for the nine months ended September 30, 2021 consisted of two term modifications and two payment modifications, compared to the loan modifications for the nine months ended September 30, 2020 which consisted of one term modification and six payment modifications.

The following table presents the outstanding recorded investment of TDRs at the dates indicated:

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Non-accrual TDRs	$	1,448	$	1,587
Accruing TDRs		6,966		7,976
Total	$	8,414	$	9,563

At September 30, 2021, eight Commercial Real Estate loans classified as TDRs with a combined recorded investment of $541,000, three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $724,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $15,000 were not in compliance with the terms of their restructure, compared to September 30, 2020 when nine Commercial Real Estate loans classified as TDRs with a combined recorded investment of $1,288,000 and three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $751,000 were not in compliance with the terms of their restructure.

Three Commercial Real Estate loans totaling $291,000 that were modified as a TDRs within the twelve months preceding September 30, 2021 experienced payment defaults during the nine months ended September 30, 2021. No loans that were modified as TDRs during the twelve months preceding September 30, 2021 experienced payment defaults during the three months ended September 30, 2021. Of the loans that were modified as TDRs during the twelve months preceding September 30, 2020, two Commercial Real Estate loans totaling $62,000 experienced payment defaults during the nine months ended September 30, 2020. No loans that were modified as TDRs during the twelve months preceding September 30, 2020 experienced payment defaults during the three months ended September 30, 2020.

The following table presents information regarding the loan modifications categorized as TDRs during the three and nine months ended September 30, 2021 and 2020.

(Dollars in thousands)	For the Three Months Ended September 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	59	$	59	$	59
Total	1	$	59	$	59	$	59
(Dollars in thousands)	For the Nine Months Ended September 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	4	$	360	$	360	$	350
Total	4	$	360	$	360	$	350

(Dollars in thousands)	For the Three Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial and Industrial	2	$	42	$	42	$	42
Commercial Real Estate	2		324		324		324
Total	4	$	366	$	366	$	366
(Dollars in thousands)	For the Nine Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial and Industrial	2	$	42	$	42	$	42
Commercial Real Estate	5		483		483		483
Total	7	$	525	$	525	$	525

The following table provides detail regarding the types of loan modifications made for loans categorized as TDRs during the three and nine months ended September 30, 2021 and 2020 with the total number of each type of modification performed.

	For the Three Months Ended September 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Nine Months Ended September 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	2	2	4
Total	—	2	2	4
	For the Three Months Ended September 30, 2020
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial and Industrial	—	1	1	2
Commercial Real Estate	—	—	2	2
Total	—	1	3	4
	For the Nine Months Ended September 30, 2020
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial and Industrial	—	1	1	2
Commercial Real Estate	—	—	5	5
Total	—	1	6	7

In the wake of the COVID-19 pandemic, during the second quarter of 2020, the Company began granting loan modification requests to defer principal and/or interest payments or modify interest rates. These loans are not classified as TDRs according to Section 4013 of the CARES Act, as long as the specific criteria set forth in the Act are met. The table below presents information related to loan modifications made in compliance with Section 4013 of the CARES Act for the nine months ended September 30, 2021.

(Dollars in thousands)	Commercial and			Commercial			Residential
	Industrial			Real Estate			Real Estate			Consumer			Total
		Recorded			Recorded			Recorded			Recorded			Recorded
	Count	Investment		Count	Investment		Count	Investment		Count	Investment		Count	Investment
Balance at December 31, 2020	7	$	1,012	35	$	15,260	2	$	269	—	$	—	44	$	16,541
Additional modifications granted for the three months ended March 31, 2021	2		190	2		10,414	1		16	1		2	6	$	10,622
Section 4013 CARES Act modifications returned to normal payment status during the three months ended March 31, 2021 (a)	(2)		(612)	(29)		(12,780)	(2)		(130)	—		—	(33)	$	(13,522)
Principal payments net of draws on active deferred loans for the three months ended March 31, 2021 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at March 31, 2021	7	$	590	8	$	12,894	1	$	155	1	$	2	17	$	13,641
Additional modifications granted for the three months ended June 30, 2021	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended June 30, 2021 (a)	(1)		(143)	(6)		(2,480)	(1)		(155)	(1)		(2)	(9)		(2,780)
Principal payments net of draws on active deferred loans for the three months ended June 30, 2021 (b)	N/A		—	N/A		(293)	N/A		—	N/A		—	N/A		(293)
Balance at June 30, 2021	6	$	447	2	$	10,121	—	$	—	—	$	—	8	$	10,568
Additional modifications granted for the three months ended September 30, 2021	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended September 30, 2021 (a)	(6)		(447)	(1)		(698)	—		—	—		—	(7)		(1,145)
Principal payments net of draws on active deferred loans for the three months ended Setpember 30, 2021 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at September 30, 2021	—	$	—	1	$	9,423	—	$	—	—	$	—	1	$	9,423
Percent of Total Section 4013 CARES Act Modifications as of September 30, 2021			0.00%			100.00%			0.00%			0.00%			100.00%
Percent of Total Section 4013 CARES Act Modifications to Total Loans as of September 30, 2021			0.00%			1.25%			0.00%			0.00%			1.25%
Subsequent modifications granted during the three months ended September 30, 2021 for active deferred loans outstanding as of September 30, 2021	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—

(a) Includes payments made prior to return to normal payment status during the three month period

(b) Draws include those made on lines of credit and other loans contractually allowing draws of principal. No construction loans have experienced a Section 4013 CARES Act modification at the dates indicated.

The recorded investment, unpaid principal balance, and the related allowance of the Company’s impaired loans are summarized below at September 30, 2021 and December 31, 2020.

(Dollars in thousands)	September 30, 2021						December 31, 2020
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial and Industrial	$	1,035	$	1,035	$	—	$	1,095	$	1,095	$	—
Commercial Real Estate		12,685		15,618		—		12,438		15,400		—
Residential Real Estate		1,169		1,245		—		1,036		1,120		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—		—		—
Commercial Real Estate		—		—		—		485		485		8
Residential Real Estate		—		—		—		—		—		—
Total	$	14,889	$	17,898	$	—	$	15,054	$	18,100	$	8
Total consists of:
Commercial and Industrial	$	1,035	$	1,035	$	—	$	1,095	$	1,095	$	—
Commercial Real Estate	$	12,685	$	15,618	$	—	$	12,923	$	15,885	$	8
Residential Real Estate	$	1,169	$	1,245	$	—	$	1,036	$	1,120	$	—

At September 30, 2021 and December 31, 2020, $8,414,000 and $9,563,000 of loans classified as TDRs were included in impaired loans with a total allocated allowance of $0 at both September 30, 2021 and December 31, 2020. The recorded investment represents the loan balance reflected on the consolidated balance sheets net of any charge-offs. The unpaid balance is equal to the gross amount due on the loan.

The average recorded investment and interest income recognized for the Company’s impaired loans are summarized below for the three and nine months ended September 30, 2021 and 2020.

(Dollars in thousands)	For the Three Months Ended				For the Three Months Ended
	September 30, 2021				September 30, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,042	$	2	$	1,080	$	4
Commercial Real Estate		12,890		82		11,640		93
Residential Real Estate		1,181		—		1,076		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		29		—
Residential Real Estate		—		—		25		—
Total	$	15,113	$	84	$	13,850	$	97
Total consists of:
Commercial and Industrial	$	1,042	$	2	$	1,080	$	4
Commercial Real Estate	$	12,890	$	82	$	11,669	$	93
Residential Real Estate	$	1,181	$	—	$	1,101	$	—

Of the $84,000 and $97,000 in interest income recognized on impaired loans for the three months ended September 30, 2021 and 2020 respectively, $0 in interest income was recognized with respect to non-accrual loans for each respective period.

(Dollars in thousands)	For the Nine Months Ended				For the Nine Months Ended
	September 30, 2021				September 30, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,061	$	7	$	1,076	$	12
Commercial Real Estate		12,673		270		11,361		243
Residential Real Estate		1,155		1		1,015		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		322		—		119		5
Residential Real Estate		—		—		22		1
Total	$	15,211	$	278	$	13,593	$	262
Total consists of:
Commercial and Industrial	$	1,061	$	7	$	1,076	$	12
Commercial Real Estate	$	12,995	$	270	$	11,480	$	248
Residential Real Estate	$	1,155	$	1	$	1,037	$	2

Of the $278,000 and $262,000 in interest income recognized on impaired loans for the nine months ended September 30, 2021 and 2020 respectively, $3,000 and $5,000 in interest income was recognized with respect to non-accrual loans for each respective period.

Total non-performing assets (which includes loans receivable on non-accrual status, foreclosed assets held for resale and loans past-due 90 days or more and still accruing interest) as of September 30, 2021 and December 31, 2020 were as follows:

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Commercial and Industrial	$	724	$	745
Commercial Real Estate		6,046		5,315
Residential Real Estate		1,153		1,018
Total non-accrual loans		7,923		7,078
Foreclosed assets held for resale		—		28
Loans past-due 90 days or more and still accruing interest		75		13
Total non-performing assets	$	7,998	$	7,119

There were no foreclosed assets held for resale at September 30, 2021. The $28,000 in foreclosed assets held for resale at December 31, 2020 was represented by land. At December 31, 2020, all foreclosed assets were held as the result of obtaining physical possession. Consumer mortgage loans secured by residential real estate for which the Company has entered into formal foreclosure proceedings but for which physical possession has yet to be obtained amounted to $41,000 at both September 30, 2021 and December 31, 2020. These balances were not included in foreclosed assets held for resale at September 30, 2021 or December 31, 2020.

The following tables present the classes of the loan portfolio, including non-accrual loans and TDRs, summarized by past-due status at September 30, 2021 and December 31, 2020:

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
September 30, 2021:
Commercial and Industrial	$	—	$	—	$	768	$	768	$	94,023	$	94,791	$	75
Commercial Real Estate		901		636		5,317		6,854		506,147		513,001		—
Residential Real Estate		552		147		1,088		1,787		141,960		143,747		—
Consumer		13		—		—		13		5,233		5,246		—
Total	$	1,466	$	783	$	7,173	$	9,422	$	747,363	$	756,785	$	75

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
December 31, 2020:
Commercial and Industrial	$	—	$	—	$	745	$	745	$	91,130	$	91,875	$	—
Commercial Real Estate		1,879		968		4,552		7,399		459,329		466,728		—
Residential Real Estate		628		74		1,031		1,733		155,250		156,983		13
Consumer		19		6		—		25		4,999		5,024		—
Total	$	2,526	$	1,048	$	6,328	$	9,902	$	710,708	$	720,610	$	13

At this time, there have been no material fluctuations in past-due loans as a result of the COVID-19 pandemic.

At September 30, 2021 and December 31, 2020, commitments to lend additional funds with respect to impaired loans consisted of one irrevocable letter of credit totaling $1,249,000 that was associated with a loan to a developer of a residential sub-division.

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DEPOSITS

9 Months Ended

Sep. 30, 2021

DEPOSITS

DEPOSITS

NOTE 5 — DEPOSITS

Major classifications of deposits at September 30, 2021 and December 31, 2020 consisted of:

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Non-interest bearing demand	$	244,602	$	198,499
Interest bearing demand		469,641		330,253
Savings		256,027		214,908
Time certificates of deposits less than $250,000		160,123		177,652
Time certificates of deposits $250,000 or greater		13,317		15,029
Other time		1,794		1,147
Total deposits	$	1,145,504	$	937,488

Total deposits increased $208,016,000 to $1,145,504,000 as of September 30, 2021 due to increases in non-interest bearing, interest bearing demand and savings deposits. The increase in deposits was the result of government stimulus funds, PPP loan proceeds, a $128,271,000 increase in highly rate sensitive deposits and other normal fluctuations in deposits during the nine months ended September 30, 2021.

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BORROWINGS

9 Months Ended

Sep. 30, 2021

BORROWINGS

BORROWINGS

NOTE 6 — BORROWINGS

Short-Term Borrowings

Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, the Federal Discount Window, and Federal Home Loan Bank of Pittsburgh (“FHLB”) advances, which generally represent overnight or less than 30-day borrowings. Short-term borrowings and weighted–average interest rates at September 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)	September 30, 2021				December 31, 2020
			Average				Average
	Amount		Rate		Amount		Rate
Federal funds purchased	$	—	0.37	%	$	—	0.37	%
Securities sold under agreements to repurchase		29,853	0.34	%		19,494	0.58	%
Federal Discount Window		—	0.37	%		—	0.37	%
Federal Home Loan Bank of Pittsburgh		—	0.34	%		—	1.00	%
Total	$	29,853	0.34	%	$	19,494	0.82	%

Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)

The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets.

As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability on the Company’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is not offsetting or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Company does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.

The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Company be in default (e.g., fails to make an interest payment to the counterparty). The collateral is held by a correspondent bank in the counterparty’s custodial account. The counterparty has the right to sell or repledge the investment securities.

The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreements as of September 30, 2021 and December 31, 2020.

(Dollars in thousands)			Gross		Net Amounts
			Amounts		of Liabilities
			Offset		Presented
	Gross		in the		in the
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral		Net
	Liabilities		Sheet		Sheet		Instruments		Pledge		Amount
September 30, 2021
Repurchase agreements (a)	$	29,853	$	—	$	29,853	$	(29,853)	$	—	$	—
December 31, 2020
Repurchase agreements (a)	$	19,494	$	—	$	19,494	$	(19,494)	$	—	$	—

(a) As of September 30, 2021 and December 31, 2020, the fair value of securities pledged in connection with repurchase agreements was $34,552,000 and $23,695,000, respectively.

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of September 30, 2021:

(Dollars in thousands)	Remaining Contractual Maturity of the Agreements
	Overnight				Greater		Greater
	and		Up to		30 -90		than
	Continuous		30 days		Days		90 Days		Total
September 30, 2021:
Repurchase agreements and repurchase-to-maturity transactions:
U.S. Treasury and/or agency securities	$	29,853	$	—	$	—	$	—	$	29,853
Total	$	29,853	$	—	$	—	$	—	$	29,853

Long-Term Borrowings and Letters of Credit

Long-term borrowings are comprised of advances from the FHLB.

Irrevocable standby letters of credit may be issued to a customer/beneficiary by the FHLB on the Company’s behalf in order to secure public/municipal unit deposits, provide credit enhancement to certain transaction types, or to support payment obligations to third parties. These irrevocable standby letters of credit are supported by an irrevocable and independent guarantee by the FHLB for the Company’s pledging obligation to secure public/municipal unit deposits which eliminates the need for the Company to pledge collateral in the amount necessary to secure these funds. The Company began utilizing this service offered by the FHLB during the second quarter of 2021. FHLB has issued active irrevocable standby letters of credit for $51,400,000 which could be drawn on through FHLB’s close of business on September 30, 2021 and will be renewed as necessary in an amount appropriate to secure specific public/municipal unit deposits.

Under terms of a blanket agreement, collateral for the FHLB loans and letters of credit consists of certain qualifying assets of the Corporation’s banking subsidiary. Principal qualifying assets are certain real estate mortgages and investment securities. As of September 30, 2021, loans of $582,085,000 were pledged to FHLB which resulted in a FHLB maximum borrowing capacity of $416,371,000. As of September 30, 2021, no investment securities were pledged as collateral to FHLB to secure FHLB loans and letters of credit.

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SUBORDINATED DEBT

9 Months Ended

Sep. 30, 2021

SUBORDINATED DEBT.

SUBORDINATED DEBT

NOTE 7 — SUBORDINATED DEBT

On December 10, 2020, the Corporation issued $25,000,000 aggregate principal amount of Subordinated Notes due 2030 (the “2020 Notes”) to accredited investors. The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The Company intends to use the net proceeds it received from the sale of the 2020 Notes to support organic growth and for general corporate purposes.

The 2020 Notes bear a fixed interest rate of 4.375% per year for the first five years and then float based on a benchmark rate (as defined). Interest is payable semi-annually in arrears on June 30 and December 31 of each year, which began on June 30, 2021, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 31, June 30, September 30 and December 31. The 2020 Notes will mature on December 31, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 31, 2025 and prior to December 31, 2030. Additionally, if all or any portion of the 2020 Notes cease to be deemed Tier 2 capital, the Corporation may redeem, in whole and not in part, at any time upon giving not less than ten days’ notice, an amount equal to one hundred percent (100%) of the principal amount outstanding plus accrued but unpaid interest to but excluding the date fixed for redemption.

Holders of the 2020 Notes may not accelerate the maturity of the 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar law of the Corporation or the Bank.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2021

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 8 — COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are various pending legal actions and proceedings that are not reflected in the consolidated financial statements. Management does not believe the outcome of these actions and proceedings will have a material effect on the consolidated financial position or results of operations of the Company.

The Bank currently leases three branch banking facilities and one parcel of land under operating leases. At September 30, 2021, right-of-use assets and lease liabilities were recorded related to these operating leases totaling $1,050,000 and $1,518,000, respectively. At December 31, 2020, right-of-use assets and lease liabilities stood at $1,061,000 and $1,513,000, respectively. Further options to extend or terminate the lease are not applicable for any of the four leases. No significant assumptions or judgements were made in determining whether a contract contained a lease or in the consideration of lease versus non-lease components. None of the leases contained an implicit rate; therefore, our incremental borrowing rate was used for each of the leases.

The Bank recognized total operating lease costs for the nine months ended September 30, 2021 and 2020 of $133,000 and $332,000, respectively. Cash payments totaled $116,000 for the nine months ended September 30, 2021 and 2020.

The Bank currently has one finance lease for equipment. At September 30, 2021, right-of-use assets and lease liabilities were recorded related to the finance lease totaling $34,000 and $19,000, respectively. At December 31, 2020, right-of-use assets and lease liabilities stood at $94,000 and $84,000, respectively. Amounts recognized as right-of-use assets and lease liabilities related to finance leases are included in Premises and equipment, net and Other liabilities, respectively, in the accompanying balance sheet. Further options to extend or terminate the lease are not applicable for the lease. No significant assumptions or judgements were made in determining whether a contract contained a lease or in the consideration of lease versus non-lease components. The lease did not contain an implicit rate; therefore, our incremental borrowing rate was used.

Total finance lease costs that were recognized by the Bank for the nine months ended September 30, 2021 were immaterial. Cash payments as of September 30, 2021 totaled $7,000.

The following table displays the weighted-average term and discount rates for operating and finance leases outstanding as of September 30, 2021 and December 31, 2020.

	September 30,	December 31,	September 30,	December 31,
	2021	2020	2021	2020
	Operating	Operating	Finance	Finance
Weighted-average term (years)	24.90	25.09	1.92	5.55
Weighted-average discount rate	3.91%	3.86%	0.68%	0.88%

A maturity analysis of operating and finance lease liabilities and reconciliation of the undiscounted cash flows to the total operating or finance lease liability is as follows:

(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Minimum Lease Payments due:	Operating		Operating		Finance		Finance
Within one year	$	102	$	140	$	10	$	19
After one but within two years		68		86		9		19
After two but within three years		68		68		—		15
After three but within four years		68		68		—		9
After four but within five years		68		68		—		9
After five years		2,207		2,258		—		16
Total undiscounted cash flows		2,581		2,688		19		87
Discount on cash flows		(1,063)		(1,175)		—		(3)
Total lease liability	$	1,518	$	1,513	$	19	$	84

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

9 Months Ended

Sep. 30, 2021

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

NOTE 9 — FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company does not engage in trading activities with respect to any of its financial instruments with off-balance sheet risk.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.

The contract or notional amounts at September 30, 2021 and December 31, 2020 were as follows:

(Dollars in thousands)
	September 30, 2021		December 31, 2020
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	108,941	$	114,836
Financial standby letters of credit	$	1,439	$	1,175
Performance standby letters of credit	$	3,727	$	3,448

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses that may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, owner-occupied income-producing commercial properties, and residential real estate.

Standby letters of credit are conditional commitments issued by the Company to guarantee payment to a third party when a customer either fails to repay an obligation or fails to perform some non-financial obligation. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company may hold collateral (similar to the items held as collateral for commitments to extend credit) to support standby letters of credit for which collateral is deemed necessary.

Financial Instruments with Concentrations of Credit Risk

The Company originates primarily commercial and residential real estate loans to customers in northeastern Pennsylvania. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy and real estate market in this area. At September 30, 2021, the Company had $656,748,000 in loans secured by real estate, which represented 86.8% of total loans. The real estate loan portfolio is largely secured by lessors of residential buildings and dwellings, lessors of non-residential buildings, and lessors of hotels/motels. As of

September 30, 2021 and December 31, 2020, management is of the opinion that there were no concentrations exceeding 10% of total loans with regard to loans to borrowers who were engaged in similar activities that were similarly impacted by economic or other conditions.

As all financial instruments are subject to some level of credit risk, the Company requires collateral and/or guarantees for all loans. Collateral may include, but is not limited to property, plant, and equipment, commercial and/or residential real estate property, land, and pledge of securities. In the event of a borrower’s default, the collateral supporting the loan may be seized in order to recoup losses associated with the loan. The Company also establishes an allowance for loan losses that constitutes the amount available to absorb losses within the loan portfolio that may exist due to deficiencies in collateral values.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2021

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 10 — FAIR VALUE MEASUREMENTS

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance provides additional information on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes information on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the fair value measurement and disclosure guidance.

This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own belief about the assumptions market participants would use in pricing the asset or liability based upon the best information available. Fair value measurement and disclosure guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs:     Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Inputs:     Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 Inputs:     Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth as follows.

Financial Assets Measured at Fair Value on a Recurring Basis

At September 30, 2021 and December 31, 2020, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

(Dollars in thousands)
September 30, 2021	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	—	$	4,899	$	—	$	4,899
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		118,405		—		118,405
Other		—		8,199		—		8,199
Other mortgage backed debt securities		—		43,136		—		43,136
Obligations of state and political subdivisions		—		177,817		—		177,817
Asset backed securities		—		38,551		—		38,551
Corporate debt securities		—		41,827		—		41,827
Total debt securities available-for-sale		—		432,834		—		432,834
Marketable equity securities		1,805		—		—		1,805
Total recurring fair value measurements	$	1,805	$	432,834	$	—	$	434,639

(Dollars in thousands)
December 31, 2020	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		77,573		—		77,573
Other		—		10,430		—		10,430
Other mortgage backed debt securities		—		39,844		—		39,844
Obligations of state and political subdivisions		—		165,101		—		165,101
Asset backed securities		—		44,821		—		44,821
Corporate debt securities		—		28,942		—		28,942
Total debt securities available-for-sale		—		366,711		—		366,711
Marketable equity securities		1,646		—		—		1,646
Total recurring fair value measurements	$	1,646	$	366,711	$	—	$	368,357

The estimated fair values of equity securities classified as Level 1 are derived from quoted market prices in active markets; these assets consist mainly of stocks held in other banks. The estimated fair values of all debt securities classified as Level 2 are obtained from nationally-recognized third-party pricing agencies. The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (observable inputs), and are therefore classified as Level 2 within the fair value hierarchy. The Company does not have any Level 3 inputs for securities. There were no transfers between Level 1 and Level 2 during 2021 or 2020.

Financial Assets Measured at Fair Value on a Nonrecurring Basis

At September 30, 2021 and December 31, 2020, impaired loans measured at fair value on a nonrecurring basis are as follows:

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at September 30, 2021
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,970	$	5,970
Residential Real Estate		—		—		45		45
Total impaired loans	$	—	$	—	$	6,015	$	6,015

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2020
Impaired loans:
Commercial Real Estate	$	—	$	—	$	6,497	$	6,497
Residential Real Estate		—		—		111		111
Total impaired loans	$	—	$	—	$	6,608	$	6,608

The Company’s impaired loan valuation procedure for any loans greater than $250,000 requires an appraisal to be obtained and reviewed annually at year end unless the Board of Directors waives such requirement for a specific loan, in favor of obtaining a Certificate of Inspection instead, defined as an internal evaluation completed by the Company. A quarterly collateral evaluation is performed which may include a site visit, property pictures and discussions with realtors and other similar business professionals to ascertain current values. For impaired loans less than $250,000 upon classification and annually at year end, the Company completes a Certificate of Inspection, which includes an onsite inspection, and considers value indicators such as insured values, tax assessed values, recent sales comparisons and a review of the previous evaluations.These assets are included as Level 3 fair values, based upon the lowest level that is significant to the fair value measurements. The fair value consists of the impaired loan balances less the valuation allowance and/or charge-offs. There were no transfers between valuation levels in 2021 and 2020.

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

At September 30, 2021 and December 31, 2020, foreclosed assets held for resale measured at fair value on a nonrecurring basis are as follows:

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at September 30, 2021
Foreclosed assets held for resale:
Commercial Real Estate	$	—	$	—	$	—	$	—
Total foreclosed assets held for resale	$	—	$	—	$	—	$	—

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2020
Foreclosed assets held for resale:
Commercial Real Estate	$	—	$	—	$	28	$	28
Total foreclosed assets held for resale	$	—	$	—	$	28	$	28

The Company’s foreclosed asset valuation procedure requires an appraisal or a Certificate of Inspection, which considers the sales prices of similar properties in the proximate vicinity, to be completed periodically with the exception of those cases in which the Bank has obtained a sales agreement. These assets are included as Level 3 fair values, based upon the lowest level that is significant to the fair value measurements. There were no transfers between valuation levels in 2021 and 2020.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine the fair value:

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value					Weighted
September 30, 2021	Estimate		Valuation Technique	Unobservable Input	Range	Average
Impaired loans - collateral dependent	$	3,135	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(5%) – (73%)	(7%)
Impaired loans - other	$	2,880	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
Foreclosed assets held for resale	$	—	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(0%) –(0%)	(0%)
December 31, 2020
Impaired loans - collateral dependent	$	3,679	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (73%)	(17%)
Impaired loans - other	$	2,929	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
Foreclosed assets held for resale	$	28	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(28%) – (28%)	(28%)

1. Fair value is generally determined through independent appraisals or Certificates of Inspection of the underlying collateral, as defined by Bank regulators.

2. Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The typical range of appraisal adjustments are presented as a percent of the appraisal value.

3. Includes qualitative adjustments by management and estimated liquidation expenses.

4. Collateral values may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses.

Fair Value of Financial Instruments Measured on a Nonrecurring Basis

(Dollars in thousands)	Carrying		Fair Value Measurements at September 30, 2021
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	10,343	$	10,343	$	—	$	—	$	10,343
Interest-bearing deposits in other banks		121,705		—		121,705		—		121,705
Time deposits with other banks		247		—		249		—		249
Restricted investment in bank stocks		2,304		—		2,304		—		2,304
Net loans		748,497		—		—		773,041		773,041
Mortgage servicing rights		352		—		—		352		352
Accrued interest receivable		4,283		—		4,283		—		4,283
FINANCIAL LIABILITIES:
Demand, savings and other deposits		970,270		—		970,270		—		970,270
Time deposits		175,234		—		176,120		—		176,120
Short-term borrowings		29,853		—		29,859		—		29,859
Long-term borrowings		35,000		—		36,446		—		36,446
Subordinated debentures		25,000		—		24,704		—		24,704
Accrued interest payable		540		—		540		—		540
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

(Dollars in thousands)	Carrying		Fair Value Measurements at December 31, 2020
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	8,833	$	8,833	$	—	$	—	$	8,833
Interest-bearing deposits in other banks		15,347		—		15,347		—		15,347
Time deposits with other banks		247		—		253		—		253
Restricted investment in bank stocks		2,247		—		2,247		—		2,247
Net loans		712,677		—		—		741,934		741,934
Mortgage servicing rights		262		—		—		262		262
Accrued interest receivable		4,544		—		4,544		—		4,544
FINANCIAL LIABILITIES:
Demand, savings and other deposits		743,660		—		743,660		—		743,660
Time deposits		193,828		—		196,200		—		196,200
Short-term borrowings		19,494		—		19,498		—		19,498
Long-term borrowings		45,000		—		47,237		—		47,237
Subordinated debentures		25,000		—		25,378		—		25,378
Accrued interest payable		405		—		405		—		405
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

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REVENUE RECOGNITION

9 Months Ended

Sep. 30, 2021

REVENUE RECOGNITION

REVENUE RECOGNITION

NOTE 11 — REVENUE RECOGNITION

In accordance with ASU 2014-09 Revenue from Contracts with Customers – Topic 606, and all subsequent ASUs that modified ASC 606, the main types of revenue contracts included in non-interest income within the consolidated statements of income are as follows:

Deposits related fees and service charges

Service charges and fees on deposits, which are included as liabilities in the consolidated balance sheets, consist of fees related to monthly fees for various retail and business checking accounts, automated teller machine (“ATM”) fees (charged for withdrawals by our deposit customers from other bank ATMs) and insufficient funds fees (“NSF”) (which are charged when customers overdraw their accounts beyond available funds). All deposit liabilities are considered to have one-day terms and therefore related fees are recognized in income at the time when the services are provided to the customers. The Company elected to adopt practical expedient related to incremental costs of obtaining deposit contracts. As such, any costs associated with acquiring the deposits, except for time deposits with maturities in excess of one year, are recognized as an expense within non-interest expense in the consolidated statements of income when incurred as the amortization period of the deposit liabilities that otherwise would have been recognized is one year or less.

Wealth/Asset/Trust Management Fees

Wealth management services are delivered to individuals, corporations and retirement funds located primarily within our geographic markets. The Trust Department of the Company conducts the wealth management operations, which provides a broad range of personal and corporate fiduciary services, including the administration of estates.

Assets held in a fiduciary capacity by the Trust Department are not assets of the Company and, therefore, are not included in our consolidated financial statements. Wealth management fees, which are contractually agreed with each customer, are earned each month and recognized on a cash basis based on average fair value of the trust assets under management. The services provided under such a contract are considered a single performance obligation under ASC 606 because they embody a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Wealth management fees charged by the Trust Department follow a tiered structure based on the type and size of the assets under management. Wealth management fees are included within non-interest income in the consolidated statements of income. As of September 30, 2021 and December 31, 2020, the fair value of

trust assets under management was $105,733,000 and $107,336,000, respectively. The costs of acquiring asset management customers are incremental and recognized within non-interest expense in the consolidated statements of income.

Interchange Fees and Surcharges

Interchange fees are related to the acceptance and settlement of debit card transactions, both point-of-sale and ATM, to cover operating costs and risks associated with the approval and settlement of the transactions. Interchange fees vary by type of transaction and each merchant sector. Net income recognized from interchange fees is included in non-interest income on the consolidated statements of income. A surcharge is assessed for use of the Company’s ATMs by non-customers. All interchange fees and surcharges are recognized as received on a daily basis for the prior business day’s transactions. All expenses related to the settlement of debit card transactions (both point-of-sale and ATM) are recognized on a monthly basis and included in non-interest expense on the consolidated statements of income.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2021

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 12 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. At September 30, 2021 and 2020, there were no potential common shares outstanding. The following table sets forth the computation of basic and diluted earnings per share.

(In thousands, except earnings per share)	Three Months Ended
	September 30,
	2021		2020
Net income	$	4,023	$	3,137
Weighted-average common shares outstanding		5,915		5,848
Basic and diluted earnings per share	$	0.68	$	0.54

(In thousands, except earnings per share)	Nine Months Ended
	September 30,
	2021		2020
Net income	$	11,506	$	8,571
Weighted-average common shares outstanding		5,890		5,833
Basic and diluted earnings per share	$	1.95	$	1.47

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GOODWILL

9 Months Ended

Sep. 30, 2021

GOODWILL.

GOODWILL

NOTE 13 — GOODWILL

Goodwill resulted from the acquisition of the Pocono Community Bank in November 2007 and of certain fixed and operating assets acquired and deposit liabilities assumed of the branch of another financial institution in Danville, Pennsylvania, in January 2004. Such goodwill represents the excess cost of the acquired assets relative to the assets’ fair value at the dates of acquisition. In accordance with current accounting standards, goodwill is not amortized. Goodwill totaled $19,133,000 at September 30, 2021 and December 31, 2020.

Impairment testing is performed on an annual basis, using either a qualitative or quantitative approach. The assumptions used in the impairment test of goodwill are susceptible to change based on changes in economic conditions and other factors, including our stock price. Any change in the assumptions utilized to determine the carrying value of goodwill could adversely affect our results of operations. Management notes that the emergence of COVID-19 as a global pandemic in 2020 resulted in significant deterioration in general economic conditions and the environment in which the Company operates. This uncertainty in 2020 resulted in significant decreases in the market prices for the stock of institutions in the financial services industry, including the Company, however, many stock prices recovered through the end of 2020 and into 2021.

Goodwill was evaluated for impairment at December 31, 2020, and it was determined that goodwill was not impaired. Management evaluated the need for an interim goodwill impairment analysis and determined that there were no triggering events or negative factors affecting goodwill since the previous test that would indicate goodwill was impaired as of September 30, 2021.

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2021

SECURITIES

Schedule of amortized cost, related estimated fair value, and unrealized gains and losses for debt securities classified as Available-For-Sale

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2021:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	4,959	$	—	$	(60)	$	4,899
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		118,705		776		(1,076)		118,405
Other		8,254		5		(60)		8,199
Other mortgage backed securities		43,052		245		(161)		43,136
Obligations of state and political subdivisions		167,039		11,400		(622)		177,817
Asset backed securities		38,326		273		(48)		38,551
Corporate debt securities		41,510		518		(201)		41,827
Total	$	421,845	$	13,217	$	(2,228)	$	432,834

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		76,270		1,628		(325)		77,573
Other		10,534		2		(106)		10,430
Other mortgage backed securities		39,420		470		(46)		39,844
Obligations of state and political subdivisions		150,922		14,193		(14)		165,101
Asset backed securities		44,751		158		(88)		44,821
Corporate debt securities		28,523		481		(62)		28,942
Total	$	350,420	$	16,932	$	(641)	$	366,711

Schedule of amortized cost and estimated fair value of debt securities, by contractual maturity

			September 30, 2021
			Debt Securities Available-For-Sale
(Dollars in thousands)				U.S. Government		Other		Obligations
				Agency &		Mortgage		of State		Asset		Corporate
	U.S. Treasury			Sponsored Agency		Backed Debt		& Political		Backed		Debt
	Securities			Obligations1		Securities1		Subdivisions		Securities		Securities
Within 1 Year:
Amortized cost	$	—		$	—	$	—	$	4,635	$	—	$	—
Fair value		—			—		—		4,690		—		—
1 - 5 Years:
Amortized cost		—			765		9,658		21,237		1,066		15,460
Fair value		—			769		9,674		22,373		1,075		15,786
5 - 10 Years:
Amortized cost		4,959			17,749		3,530		20,175		—		26,050
Fair value		4,899			17,754		3,529		21,630		—		26,041
After 10 Years:
Amortized cost		—			108,445		29,864		120,992		37,260		—
Fair value		—			108,081		29,933		129,124		37,476		—
Total:
Amortized cost	$	4,959		$	126,959	$	43,052	$	167,039	$	38,326	$	41,510
Fair value		4,899			126,604		43,136		177,817		38,551		41,827

¹ Mortgage-backed securities are allocated for maturity reporting at their original maturity date.

Schedule of unrealized and realized gains and losses recognized in net income on equity securities

(Dollars in thousands)	Nine months ended		Nine months ended
	September 30, 2021		September 30, 2020
Net gains and (losses) recognized during the period on equity securities	$	165	$	(540)
Less: Net gains recognized during the period on equity securities sold during the period		4		—
Net gains and (losses) recognized during the reporting period on equity securities still held at the reporting date	$	161	$	(540)

Schedule of gross unrealized losses and fair value of the corporations debt securities

September 30, 2021

(Dollars in thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale:	Value		Loss		Value		Loss		Value		Loss
U.S. Treasury securities	$	4,899	$	(60)	$	—	$	—	$	4,899	$	(60)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		69,838		(977)		4,653		(99)		74,491		(1,076)
Other		—		—		7,243		(60)		7,243		(60)
Other mortgage backed debt securities		9,199		(104)		4,210		(57)		13,409		(161)
Obligations of state and political subdivisions		29,552		(622)		—		—		29,552		(622)
Asset backed securities		10,245		(47)		1,978		(1)		12,223		(48)
Corporate debt securities		14,904		(146)		3,445		(55)		18,349		(201)
Total	$	138,637	$	(1,956)	$	21,529	$	(272)	$	160,166	$	(2,228)

December 31, 2020

(Dollars in thousands)	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale:	Value		Loss		Value		Loss		Value		Loss
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		13,859		(302)		5,729		(23)		19,588		(325)
Other		2,497		(32)		6,709		(74)		9,206		(106)
Other mortgage backed debt securities		8,290		(46)		—		—		8,290		(46)
Obligations of state and political subdivisions		4,122		(14)		—		—		4,122		(14)
Asset backed securities		6,827		(8)		11,018		(80)		17,845		(88)
Corporate debt securities		5,489		(11)		1,949		(51)		7,438		(62)
Total	$	41,084	$	(413)	$	25,405	$	(228)	$	66,489	$	(641)

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2021

LOANS AND ALLOWANCE FOR LOAN LOSSES

Schedule of classes of the loan portfolio summarized by risk rating

	Commercial and
(Dollars in thousands)	Industrial				Commercial Real Estate
	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Grade:
1-6 Pass	$	94,031	$	90,906	$	489,650	$	444,119
7    Special Mention		—		—		756		814
8    Substandard		822		919		21,853		20,975
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(62)		50		742		820
Total loans	$	94,791	$	91,875	$	513,001	$	466,728

	Residential Real Estate
	Including Home Equity				Consumer
	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Grade:
1-6 Pass	$	142,066	$	155,698	$	5,163	$	4,934
7    Special Mention		573		225		—		—
8    Substandard		1,272		1,186		19		18
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(164)		(126)		64		72
Total loans	$	143,747	$	156,983	$	5,246	$	5,024

	Total Loans
	September 30,		December 31,
	2021		2020
Grade:
1-6 Pass	$	730,910	$	695,657
7 Special Mention		1,329		1,039
8 Substandard		23,966		23,098
9 Doubtful		—		—
Add (deduct):  Unearned discount and		—		—
Net deferred loan fees and costs		580		816
Total loans	$	756,785	$	720,610

Schedule of the allowance for loan losses, by loan class

The activity in the allowance for loan losses, by loan class, is summarized below for the periods indicated.

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended September 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124
Charge-offs		—		—		(10)		(13)		—		(23)
Recoveries		—		—		1		1		—		2
Provision (credit)		(84)		280		(16)		11		(6)		185
Ending Balance	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the nine months ended September 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(65)		(33)		—		(140)
Recoveries		—		30		2		8		—		40
Provision (credit)		(7)		447		(66)		25		56		455
Ending Balance	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	767	$	5,210	$	1,514	$	94	$	703	$	8,288
Loans Receivable:
Ending Balance	$	94,791	$	513,001	$	143,747	$	5,246	$	—	$	756,785
Ending balance: individually
evaluated for impairment	$	1,035	$	12,685	$	1,169	$	—	$	—	$	14,889
Ending balance: collectively
evaluated for impairment	$	93,756	$	500,316	$	142,578	$	5,246	$	—	$	741,896

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended September 30, 2020:
Allowance for Loan Losses:
Beginning balance	$	823	$	4,215	$	1,608	$	106	$	582	$	7,334
Charge-offs		(15)		(16)		(13)		(13)		—		(57)
Recoveries		4		—		—		4		—		8
Provision (credit)		22		266		37		4		(35)		294
Ending Balance	$	834	$	4,465	$	1,632	$	101	$	547	$	7,579

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the nine months ended September 30, 2020:
Allowance for Loan Losses:
Beginning balance	$	634	$	4,116	$	1,665	$	114	$	476	$	7,005
Charge-offs		(39)		(31)		(13)		(35)		—		(118)
Recoveries		4		—		—		6		—		10
Provision (credit)		235		380		(20)		16		71		682
Ending Balance	$	834	$	4,465	$	1,632	$	101	$	547	$	7,579
Ending balance: individually
evaluated for impairment	$	—	$	1	$	1	$	—	$	—	$	2
Ending balance: collectively
evaluated for impairment	$	834	$	4,464	$	1,631	$	101	$	547	$	7,577
Loans Receivable:
Ending Balance	$	100,297	$	441,095	$	157,539	$	5,109	$	—	$	704,040
Ending balance: individually
evaluated for impairment	$	1,101	$	11,775	$	1,096	$	—	$	—	$	13,972
Ending balance: collectively
evaluated for impairment	$	99,196	$	429,320	$	156,443	$	5,109	$	—	$	690,068

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2020:
Allowance for Loan Losses:
Beginning balance	$	634	$	4,116	$	1,665	$	114	$	476	$	7,005
Charge-offs		(90)		(141)		(33)		(37)		—		(301)
Recoveries		14		—		8		7		—		29
Provision (credit)		229		787		3		10		171		1,200
Ending Balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Ending balance: individually
evaluated for impairment	$	—	$	8	$	—	$	—	$	—	$	8
Ending balance: collectively
evaluated for impairment	$	787	$	4,754	$	1,643	$	94	$	647	$	7,925
Loans Receivable:
Ending Balance	$	91,875	$	466,728	$	156,983	$	5,024	$	—	$	720,610
Ending balance: individually
evaluated for impairment	$	1,095	$	12,923	$	1,036	$	—	$	—	$	15,054
Ending balance: collectively
evaluated for impairment	$	90,780	$	453,805	$	155,947	$	5,024	$	—	$	705,556

Schedule of the outstanding recorded investment of TDRs

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Non-accrual TDRs	$	1,448	$	1,587
Accruing TDRs		6,966		7,976
Total	$	8,414	$	9,563

Schedule of the loan modifications categorized as TDRs

The following table presents information regarding the loan modifications categorized as TDRs during the three and nine months ended September 30, 2021 and 2020.

(Dollars in thousands)	For the Three Months Ended September 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	59	$	59	$	59
Total	1	$	59	$	59	$	59
(Dollars in thousands)	For the Nine Months Ended September 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	4	$	360	$	360	$	350
Total	4	$	360	$	360	$	350

(Dollars in thousands)	For the Three Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial and Industrial	2	$	42	$	42	$	42
Commercial Real Estate	2		324		324		324
Total	4	$	366	$	366	$	366
(Dollars in thousands)	For the Nine Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial and Industrial	2	$	42	$	42	$	42
Commercial Real Estate	5		483		483		483
Total	7	$	525	$	525	$	525

Schedule of loan modifications made for loans categorized as TDRs

The following table provides detail regarding the types of loan modifications made for loans categorized as TDRs during the three and nine months ended September 30, 2021 and 2020 with the total number of each type of modification performed.

	For the Three Months Ended September 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Nine Months Ended September 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	2	2	4
Total	—	2	2	4
	For the Three Months Ended September 30, 2020
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial and Industrial	—	1	1	2
Commercial Real Estate	—	—	2	2
Total	—	1	3	4
	For the Nine Months Ended September 30, 2020
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial and Industrial	—	1	1	2
Commercial Real Estate	—	—	5	5
Total	—	1	6	7

Schedule of information related to loan modifications

(Dollars in thousands)	Commercial and			Commercial			Residential
	Industrial			Real Estate			Real Estate			Consumer			Total
		Recorded			Recorded			Recorded			Recorded			Recorded
	Count	Investment		Count	Investment		Count	Investment		Count	Investment		Count	Investment
Balance at December 31, 2020	7	$	1,012	35	$	15,260	2	$	269	—	$	—	44	$	16,541
Additional modifications granted for the three months ended March 31, 2021	2		190	2		10,414	1		16	1		2	6	$	10,622
Section 4013 CARES Act modifications returned to normal payment status during the three months ended March 31, 2021 (a)	(2)		(612)	(29)		(12,780)	(2)		(130)	—		—	(33)	$	(13,522)
Principal payments net of draws on active deferred loans for the three months ended March 31, 2021 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at March 31, 2021	7	$	590	8	$	12,894	1	$	155	1	$	2	17	$	13,641
Additional modifications granted for the three months ended June 30, 2021	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended June 30, 2021 (a)	(1)		(143)	(6)		(2,480)	(1)		(155)	(1)		(2)	(9)		(2,780)
Principal payments net of draws on active deferred loans for the three months ended June 30, 2021 (b)	N/A		—	N/A		(293)	N/A		—	N/A		—	N/A		(293)
Balance at June 30, 2021	6	$	447	2	$	10,121	—	$	—	—	$	—	8	$	10,568
Additional modifications granted for the three months ended September 30, 2021	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended September 30, 2021 (a)	(6)		(447)	(1)		(698)	—		—	—		—	(7)		(1,145)
Principal payments net of draws on active deferred loans for the three months ended Setpember 30, 2021 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at September 30, 2021	—	$	—	1	$	9,423	—	$	—	—	$	—	1	$	9,423
Percent of Total Section 4013 CARES Act Modifications as of September 30, 2021			0.00%			100.00%			0.00%			0.00%			100.00%
Percent of Total Section 4013 CARES Act Modifications to Total Loans as of September 30, 2021			0.00%			1.25%			0.00%			0.00%			1.25%
Subsequent modifications granted during the three months ended September 30, 2021 for active deferred loans outstanding as of September 30, 2021	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—

(a) Includes payments made prior to return to normal payment status during the three month period

(b) Draws include those made on lines of credit and other loans contractually allowing draws of principal. No construction loans have experienced a Section 4013 CARES Act modification at the dates indicated.

Schedule of recorded investment, unpaid principal balance, related allowance, average recorded investment, and interest income recognized with respect to the Corporation's impaired loans

(Dollars in thousands)	September 30, 2021						December 31, 2020
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial and Industrial	$	1,035	$	1,035	$	—	$	1,095	$	1,095	$	—
Commercial Real Estate		12,685		15,618		—		12,438		15,400		—
Residential Real Estate		1,169		1,245		—		1,036		1,120		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—		—		—
Commercial Real Estate		—		—		—		485		485		8
Residential Real Estate		—		—		—		—		—		—
Total	$	14,889	$	17,898	$	—	$	15,054	$	18,100	$	8
Total consists of:
Commercial and Industrial	$	1,035	$	1,035	$	—	$	1,095	$	1,095	$	—
Commercial Real Estate	$	12,685	$	15,618	$	—	$	12,923	$	15,885	$	8
Residential Real Estate	$	1,169	$	1,245	$	—	$	1,036	$	1,120	$	—

(Dollars in thousands)	For the Three Months Ended				For the Three Months Ended
	September 30, 2021				September 30, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,042	$	2	$	1,080	$	4
Commercial Real Estate		12,890		82		11,640		93
Residential Real Estate		1,181		—		1,076		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		29		—
Residential Real Estate		—		—		25		—
Total	$	15,113	$	84	$	13,850	$	97
Total consists of:
Commercial and Industrial	$	1,042	$	2	$	1,080	$	4
Commercial Real Estate	$	12,890	$	82	$	11,669	$	93
Residential Real Estate	$	1,181	$	—	$	1,101	$	—

(Dollars in thousands)	For the Nine Months Ended				For the Nine Months Ended
	September 30, 2021				September 30, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,061	$	7	$	1,076	$	12
Commercial Real Estate		12,673		270		11,361		243
Residential Real Estate		1,155		1		1,015		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		322		—		119		5
Residential Real Estate		—		—		22		1
Total	$	15,211	$	278	$	13,593	$	262
Total consists of:
Commercial and Industrial	$	1,061	$	7	$	1,076	$	12
Commercial Real Estate	$	12,995	$	270	$	11,480	$	248
Residential Real Estate	$	1,155	$	1	$	1,037	$	2

Schedule of total non-performing assets

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Commercial and Industrial	$	724	$	745
Commercial Real Estate		6,046		5,315
Residential Real Estate		1,153		1,018
Total non-accrual loans		7,923		7,078
Foreclosed assets held for resale		—		28
Loans past-due 90 days or more and still accruing interest		75		13
Total non-performing assets	$	7,998	$	7,119

Schedule of the classes of the loan portfolio, including non-accrual loans and TDRs, summarized by past-due status

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
September 30, 2021:
Commercial and Industrial	$	—	$	—	$	768	$	768	$	94,023	$	94,791	$	75
Commercial Real Estate		901		636		5,317		6,854		506,147		513,001		—
Residential Real Estate		552		147		1,088		1,787		141,960		143,747		—
Consumer		13		—		—		13		5,233		5,246		—
Total	$	1,466	$	783	$	7,173	$	9,422	$	747,363	$	756,785	$	75

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
December 31, 2020:
Commercial and Industrial	$	—	$	—	$	745	$	745	$	91,130	$	91,875	$	—
Commercial Real Estate		1,879		968		4,552		7,399		459,329		466,728		—
Residential Real Estate		628		74		1,031		1,733		155,250		156,983		13
Consumer		19		6		—		25		4,999		5,024		—
Total	$	2,526	$	1,048	$	6,328	$	9,902	$	710,708	$	720,610	$	13

XML

DEPOSITS (Tables)

9 Months Ended

Sep. 30, 2021

DEPOSITS

Schedule of major classifications of deposits

Major classifications of deposits at September 30, 2021 and December 31, 2020 consisted of:

(Dollars in thousands)	September 30,		December 31,
	2021		2020
Non-interest bearing demand	$	244,602	$	198,499
Interest bearing demand		469,641		330,253
Savings		256,027		214,908
Time certificates of deposits less than $250,000		160,123		177,652
Time certificates of deposits $250,000 or greater		13,317		15,029
Other time		1,794		1,147
Total deposits	$	1,145,504	$	937,488

XML

BORROWINGS (Tables)

9 Months Ended

Sep. 30, 2021

BORROWINGS

Schedule of short-term borrowings and weighted-average interest rates

Short-term borrowings and weighted–average interest rates at September 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)	September 30, 2021				December 31, 2020
			Average				Average
	Amount		Rate		Amount		Rate
Federal funds purchased	$	—	0.37	%	$	—	0.37	%
Securities sold under agreements to repurchase		29,853	0.34	%		19,494	0.58	%
Federal Discount Window		—	0.37	%		—	0.37	%
Federal Home Loan Bank of Pittsburgh		—	0.34	%		—	1.00	%
Total	$	29,853	0.34	%	$	19,494	0.82	%

Schedule of short-term borrowings subject to an enforceable master netting arrangement or repurchase agreements

The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreements as of September 30, 2021 and December 31, 2020.

(Dollars in thousands)			Gross		Net Amounts
			Amounts		of Liabilities
			Offset		Presented
	Gross		in the		in the
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral		Net
	Liabilities		Sheet		Sheet		Instruments		Pledge		Amount
September 30, 2021
Repurchase agreements (a)	$	29,853	$	—	$	29,853	$	(29,853)	$	—	$	—
December 31, 2020
Repurchase agreements (a)	$	19,494	$	—	$	19,494	$	(19,494)	$	—	$	—

(a) As of September 30, 2021 and December 31, 2020, the fair value of securities pledged in connection with repurchase agreements was $34,552,000 and $23,695,000, respectively.

Schedule of the remaining contractual maturity of the master netting arrangement or repurchase agreements

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of September 30, 2021:

(Dollars in thousands)	Remaining Contractual Maturity of the Agreements
	Overnight				Greater		Greater
	and		Up to		30 -90		than
	Continuous		30 days		Days		90 Days		Total
September 30, 2021:
Repurchase agreements and repurchase-to-maturity transactions:
U.S. Treasury and/or agency securities	$	29,853	$	—	$	—	$	—	$	29,853
Total	$	29,853	$	—	$	—	$	—	$	29,853

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2021

COMMITMENTS AND CONTINGENCIES

Schedule of weighted-average term and discount rates for operating and finance leases

The following table displays the weighted-average term and discount rates for operating and finance leases outstanding as of September 30, 2021 and December 31, 2020.

	September 30,	December 31,	September 30,	December 31,
	2021	2020	2021	2020
	Operating	Operating	Finance	Finance
Weighted-average term (years)	24.90	25.09	1.92	5.55
Weighted-average discount rate	3.91%	3.86%	0.68%	0.88%

Schedule of maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows

(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Minimum Lease Payments due:	Operating		Operating		Finance		Finance
Within one year	$	102	$	140	$	10	$	19
After one but within two years		68		86		9		19
After two but within three years		68		68		—		15
After three but within four years		68		68		—		9
After four but within five years		68		68		—		9
After five years		2,207		2,258		—		16
Total undiscounted cash flows		2,581		2,688		19		87
Discount on cash flows		(1,063)		(1,175)		—		(3)
Total lease liability	$	1,518	$	1,513	$	19	$	84

Schedule of maturity analysis of finance lease liabilities and reconciliation of the undiscounted cash flows

A maturity analysis of operating and finance lease liabilities and reconciliation of the undiscounted cash flows to the total operating or finance lease liability is as follows:

(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Minimum Lease Payments due:	Operating		Operating		Finance		Finance
Within one year	$	102	$	140	$	10	$	19
After one but within two years		68		86		9		19
After two but within three years		68		68		—		15
After three but within four years		68		68		—		9
After four but within five years		68		68		—		9
After five years		2,207		2,258		—		16
Total undiscounted cash flows		2,581		2,688		19		87
Discount on cash flows		(1,063)		(1,175)		—		(3)
Total lease liability	$	1,518	$	1,513	$	19	$	84

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK (Tables)

9 Months Ended

Sep. 30, 2021

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

Schedule of Financial instruments whose contract amounts representing credit risk

The contract or notional amounts at September 30, 2021 and December 31, 2020 were as follows:

(Dollars in thousands)
	September 30, 2021		December 31, 2020
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	108,941	$	114,836
Financial standby letters of credit	$	1,439	$	1,175
Performance standby letters of credit	$	3,727	$	3,448

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2021

FAIR VALUE MEASUREMENTS

Schedule of securities measured at fair value on a recurring basis

At September 30, 2021 and December 31, 2020, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

(Dollars in thousands)
September 30, 2021	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	—	$	4,899	$	—	$	4,899
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		118,405		—		118,405
Other		—		8,199		—		8,199
Other mortgage backed debt securities		—		43,136		—		43,136
Obligations of state and political subdivisions		—		177,817		—		177,817
Asset backed securities		—		38,551		—		38,551
Corporate debt securities		—		41,827		—		41,827
Total debt securities available-for-sale		—		432,834		—		432,834
Marketable equity securities		1,805		—		—		1,805
Total recurring fair value measurements	$	1,805	$	432,834	$	—	$	434,639

(Dollars in thousands)
December 31, 2020	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	—	$	—	$	—	$	—
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		77,573		—		77,573
Other		—		10,430		—		10,430
Other mortgage backed debt securities		—		39,844		—		39,844
Obligations of state and political subdivisions		—		165,101		—		165,101
Asset backed securities		—		44,821		—		44,821
Corporate debt securities		—		28,942		—		28,942
Total debt securities available-for-sale		—		366,711		—		366,711
Marketable equity securities		1,646		—		—		1,646
Total recurring fair value measurements	$	1,646	$	366,711	$	—	$	368,357

Schedule of impaired loans measured at fair value on a nonrecurring basis

At September 30, 2021 and December 31, 2020, impaired loans measured at fair value on a nonrecurring basis are as follows:

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at September 30, 2021
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,970	$	5,970
Residential Real Estate		—		—		45		45
Total impaired loans	$	—	$	—	$	6,015	$	6,015

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2020
Impaired loans:
Commercial Real Estate	$	—	$	—	$	6,497	$	6,497
Residential Real Estate		—		—		111		111
Total impaired loans	$	—	$	—	$	6,608	$	6,608

Schedule of foreclosed assets held for resale measured at fair value on a nonrecurring basis

At September 30, 2021 and December 31, 2020, foreclosed assets held for resale measured at fair value on a nonrecurring basis are as follows:

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at September 30, 2021
Foreclosed assets held for resale:
Commercial Real Estate	$	—	$	—	$	—	$	—
Total foreclosed assets held for resale	$	—	$	—	$	—	$	—

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2020
Foreclosed assets held for resale:
Commercial Real Estate	$	—	$	—	$	28	$	28
Total foreclosed assets held for resale	$	—	$	—	$	28	$	28

Schedule of fair value measurement inputs and valuation techniques

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine the fair value:

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value					Weighted
September 30, 2021	Estimate		Valuation Technique	Unobservable Input	Range	Average
Impaired loans - collateral dependent	$	3,135	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(5%) – (73%)	(7%)
Impaired loans - other	$	2,880	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
Foreclosed assets held for resale	$	—	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(0%) –(0%)	(0%)
December 31, 2020
Impaired loans - collateral dependent	$	3,679	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (73%)	(17%)
Impaired loans - other	$	2,929	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
Foreclosed assets held for resale	$	28	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(28%) – (28%)	(28%)

1. Fair value is generally determined through independent appraisals or Certificates of Inspection of the underlying collateral, as defined by Bank regulators.

2. Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The typical range of appraisal adjustments are presented as a percent of the appraisal value.

3. Includes qualitative adjustments by management and estimated liquidation expenses.

4. Collateral values may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses.

Schedule of fair value of financial instruments, including financial assets and financial liabilities

(Dollars in thousands)	Carrying		Fair Value Measurements at September 30, 2021
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	10,343	$	10,343	$	—	$	—	$	10,343
Interest-bearing deposits in other banks		121,705		—		121,705		—		121,705
Time deposits with other banks		247		—		249		—		249
Restricted investment in bank stocks		2,304		—		2,304		—		2,304
Net loans		748,497		—		—		773,041		773,041
Mortgage servicing rights		352		—		—		352		352
Accrued interest receivable		4,283		—		4,283		—		4,283
FINANCIAL LIABILITIES:
Demand, savings and other deposits		970,270		—		970,270		—		970,270
Time deposits		175,234		—		176,120		—		176,120
Short-term borrowings		29,853		—		29,859		—		29,859
Long-term borrowings		35,000		—		36,446		—		36,446
Subordinated debentures		25,000		—		24,704		—		24,704
Accrued interest payable		540		—		540		—		540
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

(Dollars in thousands)	Carrying		Fair Value Measurements at December 31, 2020
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	8,833	$	8,833	$	—	$	—	$	8,833
Interest-bearing deposits in other banks		15,347		—		15,347		—		15,347
Time deposits with other banks		247		—		253		—		253
Restricted investment in bank stocks		2,247		—		2,247		—		2,247
Net loans		712,677		—		—		741,934		741,934
Mortgage servicing rights		262		—		—		262		262
Accrued interest receivable		4,544		—		4,544		—		4,544
FINANCIAL LIABILITIES:
Demand, savings and other deposits		743,660		—		743,660		—		743,660
Time deposits		193,828		—		196,200		—		196,200
Short-term borrowings		19,494		—		19,498		—		19,498
Long-term borrowings		45,000		—		47,237		—		47,237
Subordinated debentures		25,000		—		25,378		—		25,378
Accrued interest payable		405		—		405		—		405
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2021

EARNINGS PER SHARE

Schedule of basic and diluted earnings per share

(In thousands, except earnings per share)	Three Months Ended
	September 30,
	2021		2020
Net income	$	4,023	$	3,137
Weighted-average common shares outstanding		5,915		5,848
Basic and diluted earnings per share	$	0.68	$	0.54

(In thousands, except earnings per share)	Nine Months Ended
	September 30,
	2021		2020
Net income	$	11,506	$	8,571
Weighted-average common shares outstanding		5,890		5,833
Basic and diluted earnings per share	$	1.95	$	1.47

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SECURITIES - Amortized cost, related estimated fair value, and unrealized gains and losses (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Available-for-Sale Securities
Amortized Cost	$ 421,845	$ 350,420
Gross Unrealized Gains	13,217	16,932
Gross Unrealized Losses	(2,228)	(641)
Total	432,834	366,711
Other mortgage backed debt securities [Member]
Available-for-Sale Securities
Amortized Cost	43,052	39,420
Gross Unrealized Gains	245	470
Gross Unrealized Losses	(161)	(46)
Total	43,136	39,844
U.S. Treasury and/or agency securities [Member]
Available-for-Sale Securities
Amortized Cost	4,959
Gross Unrealized Losses	(60)
Total	4,899
Obligations of U.S. Government Agencies and Sponsored Agencies Mortgage-Backed [Member]
Available-for-Sale Securities
Amortized Cost	118,705	76,270
Gross Unrealized Gains	776	1,628
Gross Unrealized Losses	(1,076)	(325)
Total	118,405	77,573
Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Available-for-Sale Securities
Amortized Cost	8,254	10,534
Gross Unrealized Gains	5	2
Gross Unrealized Losses	(60)	(106)
Total	8,199	10,430
Obligations of state and political subdivisions [Member]
Available-for-Sale Securities
Amortized Cost	167,039	150,922
Gross Unrealized Gains	11,400	14,193
Gross Unrealized Losses	(622)	(14)
Total	177,817	165,101
Asset-backed Securities [Member]
Available-for-Sale Securities
Amortized Cost	38,326	44,751
Gross Unrealized Gains	273	158
Gross Unrealized Losses	(48)	(88)
Total	38,551	44,821
Corporate debt securities [Member]
Available-for-Sale Securities
Amortized Cost	41,510	28,523
Gross Unrealized Gains	518	481
Gross Unrealized Losses	(201)	(62)
Total	$ 41,827	$ 28,942

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SECURITIES - Amortized cost and fair value of debt securities (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Other mortgage backed debt securities [Member]
Available-For-Sale - Amortized cost
1 - 5 Years	$ 9,658
5 - 10 Years	3,530
After 10 Years	29,864
Total	43,052
Available-For-Sale - Estimated fair value
1 - 5 Years	9,674
5 - 10 Years	3,529
After 10 Years	29,933
Total	43,136
U.S. Treasury and/or agency securities [Member]
Available-For-Sale - Amortized cost
5 - 10 Years	4,959
Total	4,959
Available-For-Sale - Estimated fair value
5 - 10 Years	4,899
Total	4,899
US Government Corporations & Agencies Obligations [Member]
Available-For-Sale - Amortized cost
1 - 5 Years	765
5 - 10 Years	17,749
After 10 Years	108,445
Total	126,959
Available-For-Sale - Estimated fair value
1 - 5 Years	769
5 - 10 Years	17,754
After 10 Years	108,081
Total	126,604
Obligations of state and political subdivisions [Member]
Available-For-Sale - Amortized cost
Within 1 Year	4,635
1 - 5 Years	21,237
5 - 10 Years	20,175
After 10 Years	120,992
Total	167,039
Available-For-Sale - Estimated fair value
Within 1 Year	4,690
1 - 5 Years	22,373
5 - 10 Years	21,630
After 10 Years	129,124
Total	177,817
Asset-backed Securities [Member]
Available-For-Sale - Amortized cost
1 - 5 Years	1,066
After 10 Years	37,260
Total	38,326
Available-For-Sale - Estimated fair value
1 - 5 Years	1,075
After 10 Years	37,476
Total	38,551
Corporate debt securities [Member]
Available-For-Sale - Amortized cost
1 - 5 Years	15,460
5 - 10 Years	26,050
Total	41,510
Available-For-Sale - Estimated fair value
1 - 5 Years	15,786
5 - 10 Years	26,041
Total	$ 41,827

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SECURITIES - Unrealized and realized gains (losses) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
SECURITIES
Net gains and (losses) recognized during the period on equity securities	$ 165	$ (540)
Less: Net gains recognized during the period on equity securities sold during the period	4
Net (losses) and gains recognized during the reporting period on equity securities still held at the reporting date	$ 161	$ (540)

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SECURITIES - Continuous unrealized loss position (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Less Than 12 Months
Fair Value	$ 138,637	$ 41,084
Unrealized Loss	(1,956)	(413)
12 Months or More
Fair Value	21,529	25,405
Unrealized Loss	(272)	(228)
Total
Fair Value	160,166	66,489
Unrealized Loss	(2,228)	(641)
Other mortgage backed debt securities [Member]
Less Than 12 Months
Fair Value	9,199	8,290
Unrealized Loss	(104)	(46)
12 Months or More
Fair Value	4,210
Unrealized Loss	(57)
Total
Fair Value	13,409	8,290
Unrealized Loss	(161)	(46)
U.S. Treasury and/or agency securities [Member]
Less Than 12 Months
Fair Value	4,899
Unrealized Loss	(60)
Total
Fair Value	4,899
Unrealized Loss	(60)
Obligations of U.S. Government Agencies and Sponsored Agencies Mortgage-Backed [Member]
Less Than 12 Months
Fair Value	69,838	13,859
Unrealized Loss	(977)	(302)
12 Months or More
Fair Value	4,653	5,729
Unrealized Loss	(99)	(23)
Total
Fair Value	74,491	19,588
Unrealized Loss	(1,076)	(325)
Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Less Than 12 Months
Fair Value		2,497
Unrealized Loss		(32)
12 Months or More
Fair Value	7,243	6,709
Unrealized Loss	(60)	(74)
Total
Fair Value	7,243	9,206
Unrealized Loss	(60)	(106)
Obligations of state and political subdivisions [Member]
Less Than 12 Months
Fair Value	29,552	4,122
Unrealized Loss	(622)	(14)
Total
Fair Value	29,552	4,122
Unrealized Loss	(622)	(14)
Asset-backed Securities [Member]
Less Than 12 Months
Fair Value	10,245	6,827
Unrealized Loss	(47)	(8)
12 Months or More
Fair Value	1,978	11,018
Unrealized Loss	(1)	(80)
Total
Fair Value	12,223	17,845
Unrealized Loss	(48)	(88)
Corporate debt securities [Member]
Less Than 12 Months
Fair Value	14,904	5,489
Unrealized Loss	(146)	(11)
12 Months or More
Fair Value	3,445	1,949
Unrealized Loss	(55)	(51)
Total
Fair Value	18,349	7,438
Unrealized Loss	$ (201)	$ (62)

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SECURITIES - Additional Information (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($) item	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($) item	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Total	$ 432,834,000		$ 432,834,000		$ 366,711,000
Aggregate carrying value	335,068,000		335,068,000		231,750,000
Proceeds from sales of debt securities available-for-sale	0	$ 8,140,000	0	$ 21,692,000
Impairment losses realized on available-for-sale debt securities	0	0	0	0
Marketable equity securities, at fair value	1,805,000		1,805,000		1,646,000
Accumulated other comprehensive income (loss)	8,682,000		8,682,000		12,870,000
Proceeds from sale of securities held-to-maturity			0	0
Realized gain (loss) on held to maturity securities sold			0	0
Gain on debt securities	0	142,000	0	414,000
Loss on debt securities	$ 0	$ 81,000	$ 0	$ 186,000
Available For Sale Securities In Unrealized Loss Positions Qualitative Disclosure Number Of Positions Less Than Or Equal To One Year | item	47		47
Available For Sale Securities In Unrealized Loss Positions Qualitative Disclosure Number Of Positions Greater Than One Year | item	16		16
Asset Pledged as Collateral [Member]
Total	$ 406,792,000		$ 406,792,000		315,146,000
Marketable Equity Securities
Marketable equity securities, at fair value	$ 1,805,000		$ 1,805,000		$ 1,646,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020	Sep. 30, 2020
Financing Receivable, Recorded Investment [Line Items]
Add (deduct): Unearned discount	$ 0	$ 0
Net deferred loan fees and costs	580,000	816,000
Total loans	756,785,000	720,610,000	$ 704,040,000
Government Guaranteed Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	4,897,000	5,128,000
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	730,910,000	695,657,000
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,329,000	1,039,000
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	23,966,000	23,098,000
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Net deferred loan fees and costs	(62,000)	50,000
Total loans	94,791,000	91,875,000	100,297,000
Commercial and Industrial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	94,031,000	90,906,000
Commercial and Industrial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	822,000	919,000
Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Net deferred loan fees and costs	742,000	820,000
Total loans	513,001,000	466,728,000	441,095,000
Commercial Real Estate | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	489,650,000	444,119,000
Commercial Real Estate | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	756,000	814,000
Commercial Real Estate | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	21,853,000	20,975,000
Residential Real Estate
Financing Receivable, Recorded Investment [Line Items]
Net deferred loan fees and costs	(164,000)	(126,000)
Total loans	143,747,000	156,983,000	157,539,000
Residential Real Estate | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	142,066,000	155,698,000
Residential Real Estate | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	573,000	225,000
Residential Real Estate | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,272,000	1,186,000
Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Net deferred loan fees and costs	64,000	72,000
Total loans	5,246,000	5,024,000	$ 5,109,000
Consumer [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,163,000	4,934,000
Consumer [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 19,000	$ 18,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Activity in allowance for loan losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Beginning balance	$ 8,124	$ 7,334	$ 7,933	$ 7,005	$ 7,005
Charge-offs	(23)	(57)	(140)	(118)	(301)
Recoveries	2	8	40	10	29
Provision (credit)	185	294	455	682	1,200
Ending Balance	8,288	7,579	8,288	7,579	7,933
Ending balance: individually evaluated for impairment		2		2	8
Ending balance: collectively evaluated for impairment	8,288	7,577	8,288	7,577	7,925
Ending Balance	756,785	704,040	756,785	704,040	720,610
Ending balance: individually evaluated for impairment	14,889	13,972	14,889	13,972	15,054
Ending balance: collectively evaluated for impairment	741,896	690,068	741,896	690,068	705,556
Commercial and Industrial [Member]
Beginning balance	851	823	787	634	634
Charge-offs		(15)	(13)	(39)	(90)
Recoveries		4		4	14
Provision (credit)	(84)	22	(7)	235	229
Ending Balance	767	834	767	834	787
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	767	834	767	834	787
Ending Balance	94,791	100,297	94,791	100,297	91,875
Ending balance: individually evaluated for impairment	1,035	1,101	1,035	1,101	1,095
Ending balance: collectively evaluated for impairment	93,756	99,196	93,756	99,196	90,780
Commercial Real Estate
Beginning balance	4,930	4,215	4,762	4,116	4,116
Charge-offs		(16)	(29)	(31)	(141)
Recoveries			30		0
Provision (credit)	280	266	447	380	787
Ending Balance	5,210	4,465	5,210	4,465	4,762
Ending balance: individually evaluated for impairment		1		1	8
Ending balance: collectively evaluated for impairment	5,210	4,464	5,210	4,464	4,754
Ending Balance	513,001	441,095	513,001	441,095	466,728
Ending balance: individually evaluated for impairment	12,685	11,775	12,685	11,775	12,923
Ending balance: collectively evaluated for impairment	500,316	429,320	500,316	429,320	453,805
Residential Real Estate
Beginning balance	1,539	1,608	1,643	1,665	1,665
Charge-offs	(10)	(13)	(65)	(13)	(33)
Recoveries	1		2		8
Provision (credit)	(16)	37	(66)	(20)	3
Ending Balance	1,514	1,632	1,514	1,632	1,643
Ending balance: individually evaluated for impairment		1		1	0
Ending balance: collectively evaluated for impairment	1,514	1,631	1,514	1,631	1,643
Ending Balance	143,747	157,539	143,747	157,539	156,983
Ending balance: individually evaluated for impairment	1,169	1,096	1,169	1,096	1,036
Ending balance: collectively evaluated for impairment	142,578	156,443	142,578	156,443	155,947
Consumer [Member]
Beginning balance	95	106	94	114	114
Charge-offs	(13)	(13)	(33)	(35)	(37)
Recoveries	1	4	8	6	7
Provision (credit)	11	4	25	16	10
Ending Balance	94	101	94	101	94
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	94	101	94	101	94
Ending Balance	5,246	5,109	5,246	5,109	5,024
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	5,246	5,109	5,246	5,109	5,024
Unallocated Financing Receivables [Member]
Beginning balance	709	582	647	476	476
Charge-offs					0
Recoveries					0
Provision (credit)	(6)	(35)	56	71	171
Ending Balance	703	547	703	547	647
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	$ 703	$ 547	$ 703	$ 547	647
Ending Balance					0
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment					$ 0

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Outstanding recorded investment of TDRs (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Financing Receivable, Modifications, Recorded Investment	$ 8,414,000	$ 9,563,000
Non-accrual TDRs [Member]
Financing Receivable, Modifications, Recorded Investment	1,448,000	1,587,000
Accruing TDRs [Member]
Financing Receivable, Modifications, Recorded Investment	$ 6,966,000	$ 7,976,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Loan modifications categorized as TDRs (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($) loan	Sep. 30, 2020 USD ($) loan	Sep. 30, 2021 USD ($) loan	Sep. 30, 2020 USD ($) loan
Number of contracts | loan	1	4	4	7
Pre-Modification Outstanding Recorded Investment	$ 59,000	$ 366,000	$ 360,000	$ 525,000
Post-Modification Outstanding Recorded Investment	59,000	366,000	360,000	525,000
Recorded Investment	$ 59,000	$ 366,000	$ 350,000	$ 525,000
Commercial Real Estate
Number of contracts | loan	1	2	4	5
Pre-Modification Outstanding Recorded Investment	$ 59,000	$ 324,000	$ 360,000	$ 483,000
Post-Modification Outstanding Recorded Investment	59,000	324,000	360,000	483,000
Recorded Investment	$ 59,000	$ 324,000	$ 350,000	$ 483,000
Commercial and Industrial [Member]
Number of contracts | loan		2		2
Pre-Modification Outstanding Recorded Investment		$ 42,000		$ 42,000
Post-Modification Outstanding Recorded Investment		42,000		42,000
Recorded Investment		$ 42,000		$ 42,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Types of loan modifications (Details) - loan	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Financing Receivable, Modifications, Number of Contracts	1	4	4	7
Term Modification
Financing Receivable, Modifications, Number of Contracts		1	2	1
Payment Modification
Financing Receivable, Modifications, Number of Contracts	1	3	2	6
Commercial and Industrial [Member]
Financing Receivable, Modifications, Number of Contracts		2		2
Commercial and Industrial [Member] | Term Modification
Financing Receivable, Modifications, Number of Contracts		1		1
Commercial and Industrial [Member] | Payment Modification
Financing Receivable, Modifications, Number of Contracts		1		1
Commercial Real Estate
Financing Receivable, Modifications, Number of Contracts	1	2	4	5
Commercial Real Estate | Term Modification
Financing Receivable, Modifications, Number of Contracts			2
Commercial Real Estate | Payment Modification
Financing Receivable, Modifications, Number of Contracts	1	2	2	5

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Loan modifications (Details) - Loan Restructuring Modification [Member]	3 Months Ended
	Sep. 30, 2021 USD ($) loan	Jun. 30, 2021 USD ($) loan	Mar. 31, 2021 USD ($) loan
Beginning Balance | loan	8	17	44
Additional modifications granted | loan			6
Section 4013 CARES Act modifications returned to normal payment status (a) | loan	(7)	(9)	(33)
Ending Balance | loan	1	8	17
Beginning Balance	$ 10,568,000	$ 13,641,000	$ 16,541,000
Additional modifications granted			10,622,000
Section 4013 CARES Act modifications returned to normal payment status (a)	(1,145,000)	(2,780,000)	(13,522,000)
Principal payments net of draws on active deferred loans		(293,000)
Ending Balance	$ 9,423,000	$ 10,568,000	$ 13,641,000
Percent of Total Section 4013 CARES Act modifications	100.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans	1.25%
Commercial and Industrial [Member]
Beginning Balance | loan	6	7	7
Additional modifications granted | loan			2
Section 4013 CARES Act modifications returned to normal payment status (a) | loan	(6)	(1)	(2)
Ending Balance | loan		6	7
Beginning Balance	$ 447,000	$ 590,000	$ 1,012,000
Additional modifications granted			190,000
Section 4013 CARES Act modifications returned to normal payment status (a)	$ (447,000)	(143,000)	(612,000)
Ending Balance		$ 447,000	$ 590,000
Percent of Total Section 4013 CARES Act modifications	0.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans	0.00%
Commercial Real Estate
Beginning Balance | loan	2	8	35
Additional modifications granted | loan			2
Section 4013 CARES Act modifications returned to normal payment status (a) | loan	(1)	(6)	(29)
Ending Balance | loan	1	2	8
Beginning Balance	$ 10,121,000	$ 12,894,000	$ 15,260,000
Additional modifications granted			10,414,000
Section 4013 CARES Act modifications returned to normal payment status (a)	(698,000)	(2,480,000)	(12,780,000)
Principal payments net of draws on active deferred loans		(293,000)
Ending Balance	$ 9,423,000	$ 10,121,000	$ 12,894,000
Percent of Total Section 4013 CARES Act modifications	100.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans	1.25%
Residential Real Estate
Beginning Balance | loan		1	2
Additional modifications granted | loan			1
Section 4013 CARES Act modifications returned to normal payment status (a) | loan		(1)	(2)
Ending Balance | loan			1
Beginning Balance		$ 155,000	$ 269,000
Additional modifications granted			16,000
Section 4013 CARES Act modifications returned to normal payment status (a)		$ (155,000)	(130,000)
Ending Balance			$ 155,000
Percent of Total Section 4013 CARES Act modifications	0.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans	0.00%
Consumer [Member]
Beginning Balance | loan		1
Additional modifications granted | loan			1
Section 4013 CARES Act modifications returned to normal payment status (a) | loan		(1)
Ending Balance | loan			1
Beginning Balance		$ 2,000
Additional modifications granted			$ 2,000
Section 4013 CARES Act modifications returned to normal payment status (a)		$ (2,000)
Ending Balance			$ 2,000
Percent of Total Section 4013 CARES Act modifications	0.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans	0.00%

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Impaired loans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Recorded Investment
Total	$ 14,889,000		$ 14,889,000		$ 15,054,000
Unpaid Principal Balance
Total	17,898,000		17,898,000		18,100,000
Related Allowance
Total					8,000
Average Recorded Investment
Total	15,113,000	$ 13,850,000	15,211,000	$ 13,593,000
Interest Income Recognized
Total	84,000	97,000	278,000	262,000
Commercial and Industrial [Member]
Recorded Investment
With no related allowance recorded	1,035,000		1,035,000		1,095,000
With an allowance recorded	0		0		0
Total	1,035,000		1,035,000		1,095,000
Unpaid Principal Balance
With no related allowance recorded	1,035,000		1,035,000		1,095,000
With an allowance recorded	0		0		0
Total	1,035,000		1,035,000		1,095,000
Related Allowance
With no related allowance recorded	0		0		0
With an allowance recorded	0		0		0
Total	0		0		0
Average Recorded Investment
With no related allowance recorded	1,042,000	1,080,000	1,061,000	1,076,000
With an allowance recorded	0	0
Total	1,042,000	1,080,000	1,061,000	1,076,000
Interest Income Recognized
With no related allowance recorded	2,000	4,000	7,000	12,000
With an allowance recorded	0	0
Total	2,000	4,000	7,000	12,000
Commercial Real Estate
Recorded Investment
With no related allowance recorded	12,685,000		12,685,000		12,438,000
With an allowance recorded					485,000
Total	12,685,000		12,685,000		12,923,000
Unpaid Principal Balance
With no related allowance recorded	15,618,000		15,618,000		15,400,000
With an allowance recorded					485,000
Total	15,618,000		15,618,000		15,885,000
Related Allowance
With no related allowance recorded	0		0		0
With an allowance recorded					8,000
Total					8,000
Average Recorded Investment
With no related allowance recorded	12,890,000	11,640,000	12,673,000	11,361,000
With an allowance recorded	0	29,000	322,000	119,000
Total	12,890,000	11,669,000	12,995,000	11,480,000
Interest Income Recognized
With no related allowance recorded	82,000	93,000	270,000	243,000
With an allowance recorded	0	0		5,000
Total	82,000	93,000	270,000	248,000
Residential Real Estate
Recorded Investment
With no related allowance recorded	1,169,000		1,169,000		1,036,000
With an allowance recorded	0		0		0
Total	1,169,000		1,169,000		1,036,000
Unpaid Principal Balance
With no related allowance recorded	1,245,000		1,245,000		1,120,000
With an allowance recorded	0		0		0
Total	1,245,000		1,245,000		1,120,000
Related Allowance
With no related allowance recorded	0		0		0
With an allowance recorded	0		0		0
Total					$ 0
Average Recorded Investment
With no related allowance recorded	1,181,000	1,076,000	1,155,000	1,015,000
With an allowance recorded	0	25,000		22,000
Total	1,181,000	1,101,000	1,155,000	1,037,000
Interest Income Recognized
With no related allowance recorded	0	0	1,000	1,000
With an allowance recorded	0	0		1,000
Total	$ 0	$ 0	$ 1,000	$ 2,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Non-performing assets (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Total non-accrual loans	$ 7,923	$ 7,078
Foreclosed assets held for resale		28
Loans past-due 90 days or more and still accruing interest	75	13
Total non-performing assets	7,998	7,119
Commercial and Industrial [Member]
Total non-accrual loans	724	745
Loans past-due 90 days or more and still accruing interest	75
Commercial Real Estate
Total non-accrual loans	6,046	5,315
Loans past-due 90 days or more and still accruing interest	0
Residential Real Estate
Total non-accrual loans	1,153	1,018
Loans past-due 90 days or more and still accruing interest	$ 0	$ 13

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Past due (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020	Sep. 30, 2020
Current - 29 Days Past Due	$ 747,363	$ 710,708
Total Loans	756,785	720,610	$ 704,040
90 Days or Greater Past Due and Still Accruing Interest	75	13
Financial Asset, Past Due, Equal to or Greater Than 30 Days [Member]
Past Due	9,422	9,902
Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	1,466	2,526
Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due	783	1,048
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past Due	7,173	6,328
Commercial and Industrial [Member]
Current - 29 Days Past Due	94,023	91,130
Total Loans	94,791	91,875	100,297
90 Days or Greater Past Due and Still Accruing Interest	75
Commercial and Industrial [Member] | Financial Asset, Past Due, Equal to or Greater Than 30 Days [Member]
Past Due	768	745
Commercial and Industrial [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	0
Commercial and Industrial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due		0
Commercial and Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past Due	768	745
Commercial Real Estate
Current - 29 Days Past Due	506,147	459,329
Total Loans	513,001	466,728	441,095
90 Days or Greater Past Due and Still Accruing Interest	0
Commercial Real Estate | Financial Asset, Past Due, Equal to or Greater Than 30 Days [Member]
Past Due	6,854	7,399
Commercial Real Estate | Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	901	1,879
Commercial Real Estate | Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due	636	968
Commercial Real Estate | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past Due	5,317	4,552
Residential Real Estate
Current - 29 Days Past Due	141,960	155,250
Total Loans	143,747	156,983	157,539
90 Days or Greater Past Due and Still Accruing Interest	0	13
Residential Real Estate | Financial Asset, Past Due, Equal to or Greater Than 30 Days [Member]
Past Due	1,787	1,733
Residential Real Estate | Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	552	628
Residential Real Estate | Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due	147	74
Residential Real Estate | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past Due	1,088	1,031
Consumer [Member]
Current - 29 Days Past Due	5,233	4,999
Total Loans	5,246	5,024	$ 5,109
90 Days or Greater Past Due and Still Accruing Interest	0
Consumer [Member] | Financial Asset, Past Due, Equal to or Greater Than 30 Days [Member]
Past Due	13	25
Consumer [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	13	19
Consumer [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due		6
Consumer [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past Due	$ 0	$ 0

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Additional Information (Details)	3 Months Ended					9 Months Ended		12 Months Ended
	Sep. 30, 2021 USD ($) loan	Jun. 30, 2021 USD ($) loan	Dec. 31, 2020 USD ($) loan	Sep. 30, 2020 USD ($) loan	Mar. 31, 2020	Sep. 30, 2021 USD ($) loan	Sep. 30, 2020 USD ($) loan	Dec. 31, 2020 USD ($) loan	Mar. 31, 2021 USD ($) loan
Loans Receivable Held-for-sale, Amount	$ 18,220,000		$ 17,300,000			$ 18,220,000		$ 17,300,000
Interest rate						1.00%
Maximum loan to value ratio with PMI	95.00%					95.00%
Loan Payments, Delinquency Period, Beyond Which Loans are Considered Past Due						10 days
Loan Payments, Delinquency Period, at which time Delinquency Notice is Automatically Generated						10 or 15 days
Loan Payments, Delinquency Period, Beyond Which Loans are Considered Non-Accrual						90 days
Increase (decrease) in qualitative factors by basis points		0.01%	0.02%		0.02%
Foreclosed Assets Held For Resale	$ 0					$ 0
Foreclosed Assets Held for Resale Represented by Land			$ 28,000					28,000
Consumer Mortgage Loans Secured by Residential Real Estate in Process of Foreclosure	41,000		41,000			41,000		41,000
Financing Receivable, Modifications, Recorded Investment	8,414,000		9,563,000			8,414,000		9,563,000
Financing Receivable, Modifications, Unfunded Commitments						0		0
Modified value of TDR	$ 59,000			$ 366,000		$ 360,000	$ 525,000
Number of contracts | loan	1			4		4	7
Impaired Financing Receivable Related Allowance Attributable to TDR						$ 0		0
Impaired Financing Receivable, Interest Income, Accrual Method	$ 84,000			$ 97,000		278,000	$ 262,000
Impaired Financing Receivable Interest Income Non-accrual Method	0			0		3,000	5,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	59,000			$ 366,000		360,000	$ 525,000
TDR Pay off	1,010,000
Government Guaranteed Loans
Loans	4,897,000		5,128,000			$ 4,897,000		5,128,000
Minimum [Member]
Term of loan						2 years
Maximum
Term of loan						5 years
Commercial Real Estate [Member]
Increase (decrease) in qualitative factors by basis points		0.01%
Commercial Real Estate [Member] | Maximum
Term of loan offering						20 years
Maximum loan to value ratio						80.00%
Residential Real Estate
Increase (decrease) in qualitative factors by basis points		0.01%
Irrevocable Letter of credit [Member] | Developer of a Residential Sub-Division [Member]
Loans and Leases Receivable, Impaired, Commitment to Lend	1,249,000		1,249,000			$ 1,249,000		1,249,000
Unfunded Loan Commitment [Member]
Reserve For Unfunded Lending Commitments	$ 92,000		$ 129,000			$ 92,000		$ 129,000
Loan Restructuring Modification [Member]
Count | loan	1	8	44			1		44	17
Investment	$ 9,423,000	$ 10,568,000	$ 16,541,000			$ 9,423,000		$ 16,541,000	$ 13,641,000
Term Modification
Number of contracts | loan				1		2	1
Payment Modification
Number of contracts | loan	1			3		2	6
Commercial and Industrial [Member]
Tax free loans	$ 25,483,000		9,337,000			$ 25,483,000		9,337,000
Modified value of TDR				$ 42,000			$ 42,000
Number of contracts | loan				2			2
Financing Receivable Modification Not In Compliance Of Terms						$ 724,000	$ 751,000
Number of loans not in compliance with restructure | loan	3			3		3	3
Impaired Financing Receivable, Interest Income, Accrual Method	$ 2,000			$ 4,000		$ 7,000	$ 12,000
Government Guaranteed Loans.	$ 4,897,000		$ 5,128,000			$ 4,897,000		$ 5,128,000
Financing Receivable, Modifications, Post-Modification Recorded Investment				$ 42,000			$ 42,000
Commercial and Industrial [Member] | First Round of Paycheck Protection Program Loans Issuance
Number of loans funded | loan	2		441			2		441
Loan funded under paycheck protection program	$ 165,000		$ 22,976,000			$ 165,000		$ 22,976,000
Commercial and Industrial [Member] | Second Round of Paycheck Protection Program Loans Issuance
Number of loans funded | loan	238					238
Loan funded under paycheck protection program	$ 12,483,000					$ 12,483,000
Commercial and Industrial [Member] | Paycheck Protection Program Loans
Number of loans funded | loan	240					240
Loan funded under paycheck protection program	$ 12,648,000		$ 22,976,000			$ 12,648,000		$ 22,976,000
Commercial and Industrial [Member] | Loan Restructuring Modification [Member]
Count | loan		6	7					7	7
Investment		$ 447,000	$ 1,012,000					$ 1,012,000	$ 590,000
Commercial and Industrial [Member] | Term Modification
Number of contracts | loan				1			1
Commercial and Industrial [Member] | Payment Modification
Number of contracts | loan				1			1
Commercial Real Estate
Tax free loans	1,715,000		$ 1,843,000			1,715,000		$ 1,843,000
Modified value of TDR	$ 59,000			$ 324,000		$ 360,000	$ 483,000
Number of contracts | loan	1			2		4	5
Financing Receivable Modification Not In Compliance Of Terms						$ 541,000	$ 1,288,000
Number of loans not in compliance with restructure | loan	8			9		8	9
Number of loans modified as TDRs during the past twelve months | loan	0			0
Financing Receivable Modification Experienced Payment Defaults	$ 291,000			$ 62,000
Impaired Financing Receivable, Interest Income, Accrual Method	82,000			93,000		$ 270,000	$ 248,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	$ 59,000			$ 324,000		$ 360,000	$ 483,000
Commercial Real Estate | TDRs [Member]
Number of loans modified as TDRs during the past twelve months | loan				2		3
Commercial Real Estate | Loan Restructuring Modification [Member]
Count | loan	1	2	35			1		35	8
Investment	$ 9,423,000	$ 10,121,000	$ 15,260,000			$ 9,423,000		$ 15,260,000	$ 12,894,000
Commercial Real Estate | Term Modification
Number of contracts | loan						2
Commercial Real Estate | Payment Modification
Number of contracts | loan	1			2		2	5
Residential Real Estate
Financing Receivable Modification Not In Compliance Of Terms						$ 15,000
Number of loans not in compliance with restructure | loan	1					1
Impaired Financing Receivable, Interest Income, Accrual Method	$ 0			$ 0		$ 1,000	$ 2,000
Residential Real Estate | Maximum
Term of loan offering						20 years
Residential Real Estate | Home Equity Term Loans [Member] | Maximum
Term of loan offering						15 years
Residential Real Estate | Residential Mortgage [Member] | Originated For Resale [Member]
Loans held for sale term	30 years					30 years
Residential Real Estate | Residential Mortgage [Member] | Originated For Resale [Member] | Maximum
Term of loan offering						30 years
Maximum loan to value ratio						80.00%
Residential Real Estate | Home Equity Loan [Member] | Maximum
Maximum loan to value ratio						80.00%
Residential Real Estate | Home Equity Line of Credit [Member] | Maximum
Maximum loan to value ratio						80.00%
Residential Real Estate | Home Equity Line of Credit [Member] | Home Equity Term Loans [Member] | Maximum
Term of loan offering						20 years
Residential Real Estate | Loan Restructuring Modification [Member]
Count | loan			2					2	1
Investment			$ 269,000					$ 269,000	$ 155,000
Consumer [Member] | Loan Restructuring Modification [Member]
Count | loan									1
Investment									$ 2,000

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DEPOSITS (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
DEPOSITS
Non-interest bearing demand	$ 244,602,000	$ 198,499,000
Interest bearing demand	469,641,000	330,253,000
Savings	256,027,000	214,908,000
Time certificates of deposits less than $250,000	160,123,000	177,652,000
Time certificates of deposits $250,000 or greater	13,317,000	15,029,000
Other time deposits	1,794,000	1,147,000
Total deposits	$ 1,145,504,000	$ 937,488,000

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DEPOSITS - Additional Information (Details) - USD ($)	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
DEPOSITS
Increase (Decrease) in Deposits	$ 208,016,000	$ 157,591,000
Deposits.	1,145,504,000		$ 937,488,000
Increase in highly rate sensitive deposits	$ 128,271,000

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BORROWINGS (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Short-term Debt	$ 29,853	$ 19,494
Debt Instrument, Interest Rate During Period	0.34%	0.82%
Federal Funds Purchased [Member]
Short-term Debt	$ 0	$ 0
Debt Instrument, Interest Rate During Period	0.37%	0.37%
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt	$ 29,853	$ 19,494
Debt Instrument, Interest Rate During Period	0.34%	0.58%
Federal Discount Window [Member]
Short-term Debt	$ 0	$ 0
Debt Instrument, Interest Rate During Period	0.37%	0.37%
Federal Home Loan Bank [Member]
Short-term Debt	$ 0	$ 0
Debt Instrument, Interest Rate During Period	0.34%	1.00%

XML

BORROWINGS - Repurchase agreements (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Repurchase agreements
Gross Amounts of Recognized Liabilities	$ 29,853	$ 19,494
Gross Amounts Offset in the Consolidated Balance Sheet	0	0
Net Amounts of Liabilities Presented in the Consolidated Balance Sheet	29,853	19,494
Financial Instruments	(29,853)	(19,494)
Cash Collateral Pledge	0	0
Net Amount	$ 0	$ 0

XML

BORROWINGS - Remaining contractual maturity of the repurchase agreements (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	$ 29,853
U.S. Treasury and/or agency securities [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	29,853
Overnight and Continuous [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	29,853
Overnight and Continuous [Member] | U.S. Treasury and/or agency securities [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	29,853
Upto 30 Days [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	0
Upto 30 Days [Member] | U.S. Treasury and/or agency securities [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	0
30 to 90 Days [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	0
30 to 90 Days [Member] | U.S. Treasury and/or agency securities [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	0
Greater than 90 Days [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	0
Greater than 90 Days [Member] | U.S. Treasury and/or agency securities [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	$ 0

XML

BORROWINGS - Additional Information (Details) - USD ($)	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Short-term Debt [Line Items]
Fair value of securities pledged	$ 34,552,000	$ 23,695,000
Advance from FHLB	35,000,000	$ 45,000,000
Loans pledged to FHLB	582,085,000
Maximum borrowing capacity	416,371,000
Investment securities pledged as collateral to FHLB	0
Irrevocable Standby Letter of Credit
Short-term Debt [Line Items]
Advance from FHLB	$ 51,400,000
Maximum
Short-term Debt [Line Items]
Federal funds purchased, securities sold under agreements to repurchase and Federal Home Loan Bank advances, maturity	30 days

XML

SUBORDINATED DEBT (Details) - Subordinated Debt [Member]	Dec. 10, 2020 USD ($)
Subordinated debt
Aggregate principal amount	$ 25,000,000
Stated interest rate for first five years	4.375%
Period of time for fixed interest rate and semi-annual payments (in years)	5 years
Minimum period of time for notice of redemption	10 days
Redemption price as a percent of principle amount	100.00%

XML

COMMITMENTS AND CONTINGENCIES - Weighted average term and discount rates (Details)	Sep. 30, 2021	Dec. 31, 2020
COMMITMENTS AND CONTINGENCIES
Operating Lease, Weighted-average term (years)	24 years 10 months 24 days	25 years 1 month 2 days
Operating Lease, Weighted-average discount rate	3.91%	3.86%
Finance Lease, Weighted-average term (years)	1 year 11 months 1 day	5 years 6 months 18 days
Finance Lease, Weighted-average discount rate	0.68%	0.88%

XML

COMMITMENTS AND CONTINGENCIES - Maturity analysis of operating lease liabilities (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
COMMITMENTS AND CONTINGENCIES
Within one year	$ 102,000	$ 140,000
After one but within two years	68,000	86,000
After two but within three years	68,000	68,000
After three but within four years	68,000	68,000
After four but within five years	68,000	68,000
After five years	2,207,000	2,258,000
Total undiscounted cash flows	2,581,000	2,688,000
Discount on cash flows	(1,063,000)	(1,175,000)
Total lease liability	1,518,000	1,513,000
Finance Lease, Minimum Lease Payments due:
Within one year	10,000	19,000
After one but within two years	9,000	19,000
After two but within three years		15,000
After three but within four years		9,000
After four but within five years		9,000
After five years		16,000
Total undiscounted cash flows	19,000	87,000
Discount on cash flows		(3,000)
Total lease liability	$ 19,000	$ 84,000

XML

COMMITMENTS AND CONTINGENCIES - Additional Information (Details)	9 Months Ended
	Sep. 30, 2021 USD ($) lease	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Lessee, Lease, Description [Line Items]
Number of Operating Leases | lease	4
Operating Lease, Right-of-Use Asset	$ 1,050,000		$ 1,061,000
Operating Lease, Liability	1,518,000		1,513,000
Operating Lease, Cost	133,000	$ 332,000
Operating Lease, Payments	$ 116,000	$ 116,000
Number of finance leases | lease	1
Finance lease, Right-of-Use Asset	$ 34,000		$ 94,000
Finance lease, Right-of-Use Asset, Balance sheet location	Premises and equipment, net		Premises and equipment, net
Finance Lease, Liability	$ 19,000		$ 84,000
Finance Lease Liability, Balance sheet location	Other Liabilities		Other Liabilities
Finance lease principal payments	$ 7,000
Banking Facilities [Member]
Lessee, Lease, Description [Line Items]
Number of Operating Leases | lease	3
Land [Member]
Lessee, Lease, Description [Line Items]
Number of Operating Leases | lease	1

XML

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Commitments to Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Concentration Risk, Credit Risk, Financial Instrument, Off-Balance Sheet Risk	$ 108,941	$ 114,836
Financial Standby Letter of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Concentration Risk, Credit Risk, Financial Instrument, Off-Balance Sheet Risk	1,439	1,175
Performance Standby Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Concentration Risk, Credit Risk, Financial Instrument, Off-Balance Sheet Risk	$ 3,727	$ 3,448

XML

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK - Additional Information (Details) - Credit Concentration Risk [Member]	Sep. 30, 2021 USD ($)
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans Receivable, Secure by Commercial and Residential Real Estate	$ 656,748,000
Loans Receivable, Percentage of Loans Secure by Commercial and Residential Real Estate	86.80%

XML

FAIR VALUE MEASUREMENTS (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	$ 432,834,000	$ 366,711,000
Marketable equity securities	1,805,000	1,646,000
Assets transferred from Level 1 to Level 2	0	0
Transfer in or out of Level 3	0	0
U.S. Treasury and/or agency securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	4,899,000
Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	8,199,000	10,430,000
Asset-backed Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	38,551,000	44,821,000
Corporate debt securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	41,827,000	28,942,000
Marketable Equity Securities
Available-for-Sale Securities:
Marketable equity securities	1,805,000	1,646,000
Fair Value, Measurements, Recurring [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	432,834,000	366,711,000
Total recurring fair value measurements	434,639,000	368,357,000
Fair Value, Measurements, Recurring [Member] | U.S. Treasury and/or agency securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	4,899,000
Fair Value, Measurements, Recurring [Member] | Mortgage Backed Obligations Of Us Government Corporations And Agencies [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	118,405,000	77,573,000
Fair Value, Measurements, Recurring [Member] | Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	8,199,000	10,430,000
Fair Value, Measurements, Recurring [Member] | Other Mortgage Backed Debt Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	43,136,000	39,844,000
Fair Value, Measurements, Recurring [Member] | Obligations of state and political subdivision [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	177,817,000	165,101,000
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	38,551,000	44,821,000
Fair Value, Measurements, Recurring [Member] | Corporate debt securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	41,827,000	28,942,000
Fair Value, Measurements, Recurring [Member] | Marketable Equity Securities
Available-for-Sale Securities:
Marketable equity securities	1,805,000	1,646,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Total recurring fair value measurements	1,805,000	1,646,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | U.S. Treasury and/or agency securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage Backed Obligations Of Us Government Corporations And Agencies [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Other Mortgage Backed Debt Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Obligations of state and political subdivision [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Asset-backed Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Corporate debt securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Marketable Equity Securities
Available-for-Sale Securities:
Marketable equity securities	1,805,000	1,646,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	432,834,000	366,711,000
Total recurring fair value measurements	432,834,000	366,711,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | U.S. Treasury and/or agency securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	4,899,000	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage Backed Obligations Of Us Government Corporations And Agencies [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	118,405,000	77,573,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	8,199,000	10,430,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Other Mortgage Backed Debt Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	43,136,000	39,844,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Obligations of state and political subdivision [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	177,817,000	165,101,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Asset-backed Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	38,551,000	44,821,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate debt securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	41,827,000	28,942,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Marketable Equity Securities
Available-for-Sale Securities:
Marketable equity securities	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Total recurring fair value measurements	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | U.S. Treasury and/or agency securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage Backed Obligations Of Us Government Corporations And Agencies [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Other Mortgage Backed Debt Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Obligations of state and political subdivision [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Asset-backed Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Corporate debt securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Marketable Equity Securities
Available-for-Sale Securities:
Marketable equity securities	$ 0	$ 0

XML

FAIR VALUE MEASUREMENTS - Impaired loans measured at FV (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 6,015	$ 6,608
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	6,015	6,608
Commercial Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	5,970	6,497
Commercial Real Estate [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Commercial Real Estate [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Commercial Real Estate [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	5,970	6,497
Residential Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	45	111
Residential Real Estate [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Residential Real Estate [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Residential Real Estate [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 45	$ 111

XML

FAIR VALUE MEASUREMENTS - Non financial assets measured at FV (Details) - Fair Value, Measurements, Nonrecurring [Member] - Foreclosed assets held for resale [Member] - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 0	$ 28
Fair Value, Inputs, Level 1 [Member]
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	0	0
Fair Value, Inputs, Level 3 [Member]
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	0	28
Commercial Real Estate [Member]
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	0	28
Commercial Real Estate [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	0	0
Commercial Real Estate [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	0	0
Commercial Real Estate [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 0	$ 28

XML

FAIR VALUE MEASUREMENTS - Quantitative information about Level 3 FV measurements (Details) - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Impaired loans - collateral dependent | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Estimate	$ 3,135	$ 3,679
Valuation Technique	Appraisal of collateral1,3Certificate of Inspection1,3	Appraisal of collateral1,3Certificate of Inspection1,3
Unobservable Input	Appraisal adjustments2Qualitative Adjustments4	Appraisal adjustments2Qualitative Adjustments4
Impaired loans - collateral dependent | Minimum [Member] | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	(5.00%)	(15.00%)
Impaired loans - collateral dependent | Maximum | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	(73.00%)	(73.00%)
Impaired loans - collateral dependent | Weighted Average [Member] | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	(7.00%)	(17.00%)
Impaired Loans Receivable Discounted Cash Flow [Member] | Discounted Cash Flow [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Valuation Technique	Discounted cash flow	Discounted cash flow
Unobservable Input	Discount rate	Discount rate
Impaired loans - other | Discounted Cash Flow [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Estimate	$ 2,880	$ 2,929
Impaired loans - other | Minimum [Member] | Discounted Cash Flow [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	(7.00%)	(7.00%)
Impaired loans - other | Maximum | Discounted Cash Flow [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	(7.00%)	(7.00%)
Impaired loans - other | Weighted Average [Member] | Discounted Cash Flow [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	(7.00%)	(7.00%)
Foreclosed assets held for resale [Member] | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Estimate		$ 28
Valuation Technique	Appraisal of collateral1,3Certificate of Inspection1,3	Appraisal of collateral1,3Certificate of Inspection1,3
Unobservable Input	Appraisal adjustments2Qualitative Adjustments4	Appraisal adjustments2Qualitative Adjustments4
Foreclosed assets held for resale [Member] | Minimum [Member] | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	0.00%	(28.00%)
Foreclosed assets held for resale [Member] | Maximum | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	0.00%	(28.00%)
Foreclosed assets held for resale [Member] | Weighted Average [Member] | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	0.00%	(28.00%)

XML

FAIR VALUE MEASUREMENTS - FV of Financial instruments (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
FINANCIAL ASSETS: (Carrying Amount)
Cash and due from banks	$ 10,343	$ 8,833
Interest-bearing deposits in other banks	121,705	15,347
Time deposits with other banks	247	247
Restricted investment in bank stocks	2,304	2,247
Net loans	748,497	712,677
Accrued interest receivable	4,283	4,544
FINANCIAL LIABILITIES: (Carrying Amount)
Short-term borrowings	29,853	19,494
Long-term borrowings	35,000	45,000
Subordinated debentures	25,000	25,000
Accrued interest payable	540	405
Fair Value, Measurements, Nonrecurring [Member]
FINANCIAL ASSETS: (Carrying Amount)
Cash and due from banks	10,343	8,833
Interest-bearing deposits in other banks	121,705	15,347
Time deposits with other banks	247	247
Restricted investment in bank stocks	2,304	2,247
Net loans	748,497	712,677
Mortgage servicing rights	352	262
Accrued interest receivable	4,283	4,544
FINANCIAL LIABILITIES: (Carrying Amount)
Core deposits	970,270	743,660
Time deposits	175,234	193,828
Short-term borrowings	29,853	19,494
Long-term borrowings	35,000	45,000
Subordinated debentures	25,000	25,000
Accrued interest payable	540	405
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (Carrying Amount)	0
FINANCIAL ASSETS: (Fair Value)
Cash and due from banks	10,343	8,833
Interest-bearing deposits in other banks	121,705	15,347
Time deposits with other banks	249	253
Restricted investment in bank stocks	2,304	2,247
Net loans	773,041	741,934
Mortgage servicing rights	352	262
Accrued interest receivable	4,283	4,544
FINANCIAL LIABILITIES: (Fair Value)
Demand, savings and other deposits	970,270	743,660
Time deposits	176,120	196,200
Short-term borrowings	29,859	19,498
Long-term borrowings	36,446	47,237
Subordinated debentures	24,704	25,378
Accrued interest payable	540	405
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (Fair Value)	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
FINANCIAL LIABILITIES: (Carrying Amount)
Subordinated debentures	0
FINANCIAL ASSETS: (Fair Value)
Cash and due from banks	10,343	8,833
Interest-bearing deposits in other banks	0	0
Time deposits with other banks	0	0
Restricted investment in bank stocks	0	0
Net loans	0	0
Mortgage servicing rights	0	0
Accrued interest receivable	0	0
FINANCIAL LIABILITIES: (Fair Value)
Demand, savings and other deposits	0	0
Time deposits	0	0
Short-term borrowings	0	0
Long-term borrowings	0	0
Subordinated debentures		0
Accrued interest payable	0	0
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (Fair Value)	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
FINANCIAL LIABILITIES: (Carrying Amount)
Subordinated debentures	24,704
FINANCIAL ASSETS: (Fair Value)
Cash and due from banks	0	0
Interest-bearing deposits in other banks	121,705	15,347
Time deposits with other banks	249	253
Restricted investment in bank stocks	2,304	2,247
Net loans	0	0
Mortgage servicing rights	0	0
Accrued interest receivable	4,283	4,544
FINANCIAL LIABILITIES: (Fair Value)
Demand, savings and other deposits	970,270	743,660
Time deposits	176,120	196,200
Short-term borrowings	29,859	19,498
Long-term borrowings	36,446	47,237
Subordinated debentures		25,378
Accrued interest payable	540	405
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (Fair Value)	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
FINANCIAL LIABILITIES: (Carrying Amount)
Subordinated debentures	0
FINANCIAL ASSETS: (Fair Value)
Cash and due from banks	0	0
Interest-bearing deposits in other banks	0	0
Time deposits with other banks	0	0
Restricted investment in bank stocks	0	0
Net loans	773,041	741,934
Mortgage servicing rights	352	262
Accrued interest receivable	0	0
FINANCIAL LIABILITIES: (Fair Value)
Demand, savings and other deposits	0	0
Time deposits	0	0
Short-term borrowings	0	0
Long-term borrowings	0	0
Subordinated debentures		0
Accrued interest payable	0	0
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (Fair Value)	$ 0	$ 0

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FAIR VALUE MEASUREMENTS - Additional Information (Details)	Sep. 30, 2021 USD ($)
FAIR VALUE MEASUREMENTS
Minimum impaired loan balance that requires an appraisal or certificate of inspection to be obtained and reviewed annually for impaired loan valuation procedure	$ 250,000
Maximum impaired loan balance for which the bank completes a Certificate of Inspection	$ 250,000

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REVENUE RECOGNITION (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
REVENUE RECOGNITION
Trust Assets, Fair Value Disclosure	$ 105,733,000	$ 107,336,000

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
EARNINGS PER SHARE
Net income	$ 4,023	$ 3,137
Weighted-average common shares outstanding	5,915,000	5,848,000
Basic earnings per share	$ 0.68	$ 0.54	$ 1.95	$ 1.47
Diluted earnings per share	$ 0.68	$ 0.54	$ 1.95	$ 1.47
Potential common shares outstanding			0	0

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GOODWILL (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
GOODWILL.
Goodwill	$ 19,133	$ 19,133