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 June 30, 2022

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, 5,981,361 shares as of August 3, 2022.

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)	June 30,		December 31,
	2022		2021
ASSETS
Cash and due from banks	$	9,441	$	9,600
Interest-bearing deposits in other banks		783		51,738
Total cash and cash equivalents		10,224		61,338
Time deposits with other banks		—		247
Debt securities available-for-sale, at fair value		410,260		437,916
Marketable equity securities, at fair value		1,661		1,962
Restricted investment in bank stocks, at cost		5,753		1,919
Loans		804,055		746,835
Loans held for sale		765		6,006
Allowance for loan losses		(9,160)		(8,680)
Net loans		795,660		744,161
Premises and equipment, net		17,960		18,158
Operating lease right-of-use assets		1,013		1,025
Accrued interest receivable		4,473		4,361
Cash surrender value of bank owned life insurance		25,088		24,792
Investments in low-income housing partnerships		2,055		1,530
Goodwill		19,133		19,133
Deferred income taxes		6,844		—
Other assets		4,458		3,808
TOTAL ASSETS	$	1,304,582	$	1,320,350
LIABILITIES
Deposits:
Non-interest bearing	$	230,513	$	249,040
Interest bearing		763,095		828,929
Total deposits		993,608		1,077,969
Short-term borrowings		129,723		27,377
Long-term borrowings		25,000		35,000
Subordinated debentures		25,000		25,000
Operating lease liabilities		1,495		1,499
Accrued interest payable		273		251
Deferred income taxes		—		631
Other liabilities		4,104		4,068
TOTAL LIABILITIES		1,179,203		1,171,795
STOCKHOLDERS’ EQUITY
Preferred stock, par value $2.00 per share; authorized 1,000,000 shares as of June 30, 2022 and December 31, 2021; issued 0 as of June 30, 2022 and December 31, 2021		—		—
Common stock, par value $2.00 per share; authorized 20,000,000 shares as of June 30, 2022 and December 31, 2021; issued 6,212,972 as of June 30, 2022 and 6,178,835 as of December 31, 2021; outstanding 5,981,361 as of June 30, 2022 and 5,947,223 as of December 31, 2021		12,426		12,358
Surplus		41,691		40,940
Retained earnings		97,409		93,378
Accumulated other comprehensive (loss) income		(20,438)		7,588
Treasury stock, at cost, 231,611 shares as of June 30, 2022 and 231,612 shares as of December 31, 2021		(5,709)		(5,709)
TOTAL STOCKHOLDERS’ EQUITY		125,379		148,555
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,304,582	$	1,320,350

See accompanying notes to consolidated financial statements.

2

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

(Dollars in thousands, except per share data)	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
INTEREST INCOME
Interest and fees on loans	$	8,486	$	7,989	$	16,662	$	16,143
Interest and dividend income on securities:
Taxable		1,716		1,360		3,287		2,600
Tax-exempt		849		862		1,685		1,702
Dividends		11		12		24		24
Dividend income on restricted investment in bank stocks		49		27		70		53
Interest on interest-bearing deposits in other banks		—		9		12		12
Total interest income		11,111		10,259		21,740		20,534
INTEREST EXPENSE
Interest on deposits		706		783		1,391		1,578
Interest on short-term borrowings		182		20		210		40
Interest on long-term borrowings		168		211		358		428
Interest on subordinated debt		274		274		544		547
Total interest expense		1,330		1,288		2,503		2,593
Net interest income		9,781		8,971		19,237		17,941
Provision for loan losses		218		135		437		270
Net interest income after provision for loan losses		9,563		8,836		18,800		17,671
NON-INTEREST INCOME
Trust department		268		265		518		518
Service charges and fees		549		481		1,058		856
Increase in cash surrender value of life insurance		148		150		296		299
ATM fees and debit card income		558		568		1,067		1,084
Net (losses) gains on sales of mortgage loans		—		308		(34)		662
Net securities (losses) gains		(68)		28		(131)		143
Other		59		65		129		178
Total non-interest income		1,514		1,865		2,903		3,740
NON-INTEREST EXPENSE
Salaries and employee benefits		3,462		3,461		7,016		6,761
Occupancy, net		478		483		970		980
Furniture and equipment expense		147		142		302		280
Computer expense		358		315		728		585
Professional services		370		273		668		532
Pennsylvania shares tax		324		313		648		626
FDIC insurance, net		120		120		257		207
ATM and debit card fees		242		283		370		483
Data processing fees		251		323		509		617
Foreclosed assets held for resale expense, net		—		—		—		3
Advertising		118		109		190		181
Other		725		725		1,453		1,489
Total non-interest expense		6,595		6,547		13,111		12,744
Income before income tax expense		4,482		4,154		8,592		8,667
Income tax expense		660		549		1,227		1,184
NET INCOME	$	3,822	$	3,605	$	7,365	$	7,483
PER SHARE DATA
Net income per share:
Basic	$	0.64	$	0.61	$	1.24	$	1.27
Diluted		0.64		0.61		1.24		1.27
Dividends per share		0.28		0.27		0.56		0.55

See accompanying notes to consolidated financial statements.

3

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

(Dollars in thousands)	Three Months Ended
	June 30,
	2022		2021
Net Income	$	3,822	$	3,605
Other comprehensive (loss) income:
Unrealized net holding (losses) gains on debt securities available-for-sale arising during the period, net of income taxes of $(2,850) and $583, respectively		(10,723)		2,198
Less reclassification adjustment for net gains included in net income, net of income taxes of $(6) and $(0), respectively (a) (b)		(21)		—
Total other comprehensive (loss) income		(10,744)		2,198
Total Comprehensive (Loss) Income	$	(6,922)	$	5,803

(Dollars in thousands)	Six Months Ended
	June 30,
	2022		2021
Net Income	$	7,365	$	7,483
Other comprehensive loss:
Unrealized net holding losses on debt securities available-for-sale arising during the period, net of income taxes of $(7,445) and $(459), respectively		(28,006)		(1,725)
Less reclassification adjustment for net gains included in net income, net of income taxes of $(6) and $(0), respectively (a) (b)		(21)		—
Total other comprehensive loss		(28,027)		(1,725)
Total Comprehensive (Loss) Income	$	(20,662)	$	5,758

______________________________

(a) Gross amounts are included in net securities (losses) gains 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

SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

								Accumulated
(Dollars in thousands, except								Other				Total
per share data)	Common Stock					Retained		Comprehensive		Treasury		Stockholders’
	Shares	Amount		Surplus		Earnings		(Loss) Income		Stock		Equity
Balance at January 1, 2022	6,178,835	$	12,358	$	40,940	$	93,378	$	7,588	$	(5,709)	$	148,555
Net Income							3,543						3,543
Other comprehensive loss, net of taxes									(17,282)				(17,282)
Issuance of common stock under dividend reinvestment plan	16,297		32		372								404
Dividends - $0.28 per share							(1,665)						(1,665)
Balance at March 31, 2022	6,195,132	$	12,390	$	41,312	$	95,256	$	(9,694)	$	(5,709)	$	133,555
Net Income							3,822						3,822
Other comprehensive loss, net of taxes									(10,744)				(10,744)
Issuance of common stock under dividend reinvestment plan	17,840		36		379								415
Dividends - $0.28 per share							(1,669)						(1,669)
Balance at June 30, 2022	6,212,972	$	12,426	$	41,691	$	97,409	$	(20,438)	$	(5,709)	$	125,379

								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

See accompanying notes to consolidated financial statements.

5

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

(Dollars in thousands)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,365	$	7,483
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		437		270
Depreciation and amortization		528		514
Net premium amortization on securities		1,633		1,366
Deferred income tax expense benefit		(25)		(150)
Net losses (gains) on sales of mortgage loans		34		(662)
Proceeds from sales of mortgage loans originated for sale		4,429		21,427
Originations of mortgage loans originated for sale		(6,068)		(20,490)
Net securities losses (gains)		131		(143)
(Increase) decrease in accrued interest receivable		(112)		170
Increase in cash surrender value of bank owned life insurance		(296)		(299)
Net losses on disposals of premises and equipment		10		1
Increase in other assets		(639)		(1,116)
Amortization of investment in low-income housing partnerships		120		185
Increase (decrease) in accrued interest payable		22		(121)
Increase in other liabilities		37		241
NET CASH PROVIDED BY OPERATING ACTIVITIES		7,606		8,676
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equity securities and debt securities available-for-sale		170		—
Proceeds from maturities and redemptions of debt securities available-for-sale		28,871		30,836
Purchases of debt securities available-for-sale		(38,324)		(65,305)
Net decrease in time deposits with other banks		247		—
Net change in restricted investment in bank stocks		(3,834)		(359)
Net increase in loans		(50,331)		(21,649)
Purchase of premises and equipment		(325)		(131)
Purchase of investment in real estate venture		(645)		—
Proceeds from sales of foreclosed assets held for resale		—		28
NET CASH USED IN INVESTING ACTIVITIES		(64,171)		(56,580)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits		(84,361)		125,859
Net increase in short-term borrowings		102,346		7,005
Repayment of finance lease obligations		(5)		(5)
Repayment of long-term borrowings		(10,000)		(10,000)
Common stock issued		805		729
Dividends paid		(3,334)		(3,240)
NET CASH PROVIDED BY FINANCING ACTIVITIES		5,451		120,348
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(51,114)		72,444
CASH AND CASH EQUIVALENTS, BEGINNING		61,338		24,180
CASH AND CASH EQUIVALENTS, ENDING	$	10,224	$	96,624
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	2,481	$	2,714
Income taxes paid		949		1,401
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Purchased securities settling after quarter end		—		5,783
Loans transferred from held for sale portfolio		(6,652)		—
Common stock subscription receivable		14		13
Right-of-use assets obtained in exchange for lease liabilities		35		33

See accompanying notes to consolidated financial statements.

6

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 six months ended June 30, 2022, are not necessarily indicative of the results for the year ending December 31, 2022. 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, 2021.

Subsequent Events

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of June 30, 2022 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:

There were no ASUs adopted during the first two quarters of 2022.

Pending ASUs:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 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 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. It is currently unclear how the adoption of this standard will impact the Company’s consolidated financial statements, but the Company is currently evaluating the provisions of ASU 2016-13 to determine the potential impact that the adoption of the standard may have on the Company. The Company 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.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance on troubled debt restructurings (“TDRs”) by creditors that have adopted the current expected credit losses (“CECL”) model and enhances disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial

7

difficulty. The ASU also amends the guidance on “vintage disclosures” to require disclosure of current-period gross charge-offs by year of origination. For entities that have not yet adopted ASU 2016-13, the amendments in ASU 2022-02 are effective upon adoption of ASU 2016-13. Entities may elect to apply the guidance on TDR recognition and measurement by using a modified retrospective transition method, which would result in a cumulative-effect adjustment to retained earnings, or to adopt the amendments prospectively. If an entity elects to adopt the updated guidance on TDR recognition and measurement prospectively, the guidance should be applied to modifications occurring after the date of adoption. The amendments on TDR disclosures and vintage disclosures should be adopted prospectively. The Company plans to adopt ASU 2022-02 upon the adoption of ASU 2016-13 and is currently evaluating the provisions of ASU 2022-02 and ASU 2016-13 to determine the potential impact the new standard will have on the Company’s consolidated financial statements.

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 (loss) 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 June 30, 2022 and December 31, 2021:

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2022:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	20,228	$	—	$	(1,270)	$	18,958
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		113,450		14		(9,219)		104,245
Other		5,988		4		(53)		5,939
Other mortgage backed securities		40,815		—		(2,259)		38,556
Obligations of state and political subdivisions		175,292		1,011		(11,767)		164,536
Asset backed securities		32,365		—		(1,005)		31,360
Corporate debt securities		47,994		156		(1,484)		46,666
Total	$	436,132	$	1,185	$	(27,057)	$	410,260

8

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2021:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	7,825	$	—	$	(96)	$	7,729
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		116,039		560		(1,688)		114,911
Other		7,636		5		(65)		7,576
Other mortgage backed securities		39,881		99		(430)		39,550
Obligations of state and political subdivisions		175,021		11,709		(554)		186,176
Asset backed securities		36,555		143		(156)		36,542
Corporate debt securities		45,354		448		(370)		45,432
Total	$	428,311	$	12,964	$	(3,359)	$	437,916

Securities Available-for-Sale with an aggregate fair value of $288,785,000 at June 30, 2022 and $401,861,000 at December 31, 2021, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $236,643,000 at June 30, 2022 and $318,074,000 at December 31, 2021.

The amortized cost and estimated fair value of debt securities, by contractual maturity, are shown below at June 30, 2022. 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.

			June 30, 2022
			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	$	—		$	—	$	—	$	2,553	$	—	$	1,536
Fair value		—			—		—		2,554		—		1,534
1 - 5 Years:
Amortized cost		12,389			323		7,941		21,300		33		13,212
Fair value		11,902			321		7,748		21,056		33		13,246
5 - 10 Years:
Amortized cost		7,839			13,904		2,713		30,191		—		33,246
Fair value		7,056			13,834		2,615		29,294		—		31,886
After 10 Years:
Amortized cost		—			105,211		30,161		121,248		32,332		—
Fair value		—			96,029		28,193		111,632		31,327		—
Total:
Amortized cost	$	20,228		$	119,438	$	40,815	$	175,292	$	32,365	$	47,994
Fair value		18,958			110,184		38,556		164,536		31,360		46,666

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 June 30, 2022. The quality rating of the obligations of state and political subdivisions are generally investment grade, as rated by Moody’s,

9

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.

There were no proceeds from sales of investments in Debt Securities Available-For-Sale for the three months ended June 30, 2022 and 2021. Therefore, there were no gains or losses realized during these periods. There were no impairment losses realized on Debt Securities Available-For-Sale during the three months ended June 30, 2022 or 2021.

There were no proceeds from sales of investments in Debt Securities Available-For-Sale for the six months ended June 30, 2022 and 2021. Therefore , there were no gains or losses realized during these periods. There were no impairment losses realized on Debt Securities Available-For-Sale during the six months ended June 30, 2022 or 2021.

At June 30, 2022 and December 31, 2021, the Company had $1,661,000 and $1,962,000, 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 six months ended June 30, 2022 and 2021:

(Dollars in thousands)	Six months ended		Six months ended
	June 30, 2022		June 30, 2021
Net (losses) and gains recognized during the period on equity securities	$	(158)	$	143
Less: Net gains recognized during the period on equity securities sold during the period		27		—
Net (losses) and gains recognized during the reporting period on equity securities still held at the reporting date	$	(131)	$	143

There were no proceeds from sales of investments in Held-to-Maturity debt securities during the six months ended June 30, 2022 or 2021. 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 (loss) income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the security.

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 June 30, 2022 or December 31, 2021.

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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 June 30, 2022 and December 31, 2021:

June 30, 2022

(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	$	18,958	$	(1,270)	$	—	$	—	$	18,958	$	(1,270)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		83,061		(6,799)		18,270		(2,420)		101,331		(9,219)
Other		201		(1)		5,463		(52)		5,664		(53)
Other mortgage-backed debt securities		31,323		(1,646)		7,234		(613)		38,557		(2,259)
Obligations of state and political subdivisions		100,845		(9,382)		9,718		(2,385)		110,563		(11,767)
Asset backed securities		24,945		(445)		6,415		(560)		31,360		(1,005)
Corporate debt securities		31,256		(1,324)		5,590		(160)		36,846		(1,484)
Total	$	290,589	$	(20,867)	$	52,690	$	(6,190)	$	343,279	$	(27,057)

December 31, 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	$	7,729	$	(96)	$	—	$	—	$	7,729	$	(96)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		66,195		(1,271)		11,697		(417)		77,892		(1,688)
Other		—		—		6,687		(65)		6,687		(65)
Other mortgage-backed debt securities		11,036		(225)		7,362		(205)		18,398		(430)
Obligations of state and political subdivisions		25,867		(362)		3,931		(192)		29,798		(554)
Asset backed securities		11,232		(49)		6,315		(107)		17,547		(156)
Corporate debt securities		19,485		(315)		3,445		(55)		22,930		(370)
Total	$	141,544	$	(2,318)	$	39,437	$	(1,041)	$	180,981	$	(3,359)

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 153 debt securities with a less than one year unrealized loss position, or any of their 31 debt securities with a one year or greater unrealized loss position as of June 30, 2022, 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 June 30, 2022.

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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 principally 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 14 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 June 30, 2022, the Company's balance of GGLs was $5,267,000, compared to $3,829,000 at December 31, 2021.

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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 principally 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 $765,000 and $6,006,000 at June 30, 2022 and December 31, 2021, respectively.

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Consumer Lending

The Company offers a variety of secured and unsecured consumer loans, including vehicle loans, stock secured 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 June 30, 2022, the Company held 3 PPP loans in its Commercial and Industrial portfolio which carried a balance of $146,000, of which 2 loans carrying an aggregate balance of $137,000 were granted during the first round of PPP issuance and 1 loan carrying a balance of $9,000 was granted during the second round of PPP issuance. At December 31, 2021, the Company held 122 PPP loans in its Commercial and Industrial portfolio, which carried an aggregate balance of $4,894,000, of which 2 loans carrying an aggregate balance of $160,000 were granted during the first round of PPP issuance and 120 loans carrying an aggregate balance of $4,734,000 were granted during the second 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 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 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 were granted in compliance with Section 4013 of the CARES Act, there were no loan modifications still actively on deferral as of June 30, 2022, compared to December 31, 2021 when there was 1 loan modification still actively on deferral carrying a balance of $9,423,000. See page 24 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.

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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 TDR is considered to be a collateral dependent loan, the loan may be reported at the net realizable value of the collateral. For TDRs 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.

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 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 June 30, 2022 and December 31, 2021, the amount of the reserve for unfunded lending commitments was $117,000 and $177,000, 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.

16

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 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 24 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.

17

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.

18

The following table presents the classes of the loan portfolio summarized by risk rating as of June 30, 2022 and December 31, 2021:

	Commercial and
(Dollars in thousands)	Industrial				Commercial Real Estate
	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Grade:
1-6 Pass	$	81,317	$	81,561	$	547,062	$	498,565
7    Special Mention		—		—		1,019		1,098
8    Substandard		755		796		19,294		21,248
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		467		169		883		743
Total loans	$	82,539	$	82,526	$	568,258	$	521,654

	Residential Real Estate
	Including Home Equity				Consumer
	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Grade:
1-6 Pass	$	147,874	$	141,983	$	5,277	$	5,210
7    Special Mention		—		570		61		—
8    Substandard		912		1,020		—		5
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(165)		(190)		64		63
Total loans	$	148,621	$	143,383	$	5,402	$	5,278

	Total Loans
	June 30,		December 31,
	2022		2021
Grade:
1-6 Pass	$	781,530	$	727,319
7 Special Mention		1,080		1,668
8 Substandard		20,961		23,069
9 Doubtful		—		—
Add (deduct):  Unearned discount and		—		—
Net deferred loan fees and costs		1,249		785
Total loans	$	804,820	$	752,841

Commercial and Industrial and Commercial Real Estate include loans categorized as tax-free in the amounts of $23,897,000 and $1,583,000 at June 30, 2022 and $24,647,000 and $1,671,000 at December 31, 2021. Commercial and Industrial loans also included $5,267,000 and $3,829,000 of Government Guaranteed Loans and $146,000 and $4,894,000 of Paycheck Protection Program loans as of June 30, 2022 and December 31, 2021, respectively. Loans held for sale amounted to $765,000 at June 30, 2022 and $6,006,000 at December 31, 2021.

19

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 June 30, 2022:
Allowance for Loan Losses:
Beginning balance	$	665	$	5,759	$	1,538	$	78	$	897	$	8,937
Charge-offs		(9)		—		—		(4)		—		(13)
Recoveries		1		—		13		4		—		18
Provision (credit)		18		195		58		1		(54)		218
Ending Balance	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the six months ended June 30, 2022:
Allowance for Loan Losses:
Beginning balance	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Charge-offs		(9)		—		—		(6)		—		(15)
Recoveries		2		38		14		4		—		58
Provision (credit)		1		508		56		(3)		(125)		437
Ending Balance	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160
Loans Receivable:
Ending Balance	$	82,539	$	568,258	$	148,621	$	5,402	$	—	$	804,820
Ending balance: individually
evaluated for impairment	$	991	$	10,448	$	845	$	—	$	—	$	12,284
Ending balance: collectively
evaluated for impairment	$	81,548	$	557,810	$	147,776	$	5,402	$	—	$	792,536

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended June 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	790	$	4,786	$	1,606	$	93	$	772	$	8,047
Charge-offs		—		(29)		(55)		(10)		—		(94)
Recoveries		—		30		1		5		—		36
Provision (credit)		61		143		(13)		7		(63)		135
Ending Balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124

20

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the six months ended June 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(55)		(20)		—		(117)
Recoveries		—		30		1		7		—		38
Provision (credit)		77		167		(50)		14		62		270
Ending Balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124
Ending balance: individually
evaluated for impairment	$	—	$	1	$	—	$	—	$	—	$	1
Ending balance: collectively
evaluated for impairment	$	851	$	4,929	$	1,539	$	95	$	709	$	8,123
Loans Receivable:
Ending Balance	$	103,894	$	486,825	$	145,965	$	5,221	$	—	$	741,905
Ending balance: individually
evaluated for impairment	$	1,047	$	13,861	$	1,185	$	—	$	—	$	16,093
Ending balance: collectively
evaluated for impairment	$	102,847	$	472,964	$	144,780	$	5,221	$	—	$	725,812

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(80)		(36)		—		(158)
Recoveries		—		30		4		11		—		45
Credit (provision)		(93)		645		(28)		15		321		860
Ending Balance	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Loans Receivable:
Ending Balance	$	82,526	$	521,654	$	143,383	$	5,278	$	—	$	752,841
Ending balance: individually
evaluated for impairment	$	1,017	$	11,803	$	853	$	—	$	—	$	13,673
Ending balance: collectively
evaluated for impairment	$	81,509	$	509,851	$	142,530	$	5,278	$	—	$	739,168

The outstanding recorded investment of TDRs as of June 30, 2022 and December 31, 2021 was $7,669,000 and $8,020,000, respectively. The decrease in TDRs at June 30, 2022 as compared to December 31, 2021 is mainly attributable to regular principal payments and paydowns on existing TDRs that were completed during the six months ended June 30, 2022. There were no unfunded commitments on TDRs at June 30, 2022 and December 31, 2021.

21

During the three months ended June 30, 2022, one loan with a post modification balance of $372,000 was modified as a TDR. No loans were modified as TDRs during the first three months of 2022. During the six months ended June 30, 2021, three loans with a combined post modification balance of $301,000 were modified as TDRs. No loans were modified as TDRs during the three months ended June 30, 2021. The loan modifications for the six months ended June 30, 2022 consisted of one payment modification, compared to the loan modifications for the six months ended June 30, 2021 which consisted of two term modifications and one payment modification.

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

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Non-accrual TDRs	$	1,355	$	1,413
Accruing TDRs		6,314		6,607
Total	$	7,669	$	8,020

At June 30, 2022, three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $682,000, six Commercial Real Estate loans classified as TDRs with a combined recorded investment of $318,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $12,000 were not in compliance with the terms of their restructure, compared to June 30, 2021 when three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $736,000, seven Commercial Real Estate loans classified as TDRs with a combined recorded investment of $479,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $17,000 were not in compliance with the terms of their restructure.

Of the loans that were modified as TDRs within the twelve months preceding June 30, 2022, no loans experienced payment defaults during the three months ended June 30, 2022. One Commercial Real Estate loan that was modified as a TDR within the twelve months preceding June 30, 2022 experienced a payment default during the six months ended June 30, 2022, but the loan was subsequently paid off during the first quarter of 2022. Of the loans that were modified as TDRs during the twelve months preceding June 30, 2021, three Commercial Real Estate loans totaling $300,000 experienced payment defaults during the three months ended June 30, 2021. No loans that were modified as TDRs during the twelve months preceding June 30, 2021 experienced payment defaults during the first three months of 2021.

The following table presents information regarding the loan modifications categorized as TDRs during the three and six months ended June 30, 2022 and the six months ended June 30, 2021. No loans were modified as TDRs during the three months ended June 30, 2021.

(Dollars in thousands)	For the Three Months Ended June 30, 2022
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	347	$	372	$	372
Total	1	$	347	$	372	$	372
(Dollars in thousands)	For the Six Months Ended June 30, 2022
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	347	$	372	$	372
Total	1	$	347	$	372	$	372

22

(Dollars in thousands)	For the Six Months Ended June 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	3	$	301	$	301	$	301
Total	3	$	301	$	301	$	301

The following table provides detail regarding the types of loan modifications made for loans categorized as TDRs during the three and six months ended June 30, 2022 and the six months ended June 30, 2021 with the total number of each type of modification performed. No loans were modified as TDRs during the three months ended June 30, 2021.

	For the Three Months Ended June 30, 2022
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Six Months Ended June 30, 2022
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Six Months Ended June 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	2	1	3
Total	—	2	1	3

23

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 six months ended June 30, 2022:

(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, 2021	—	$	—	1	$	9,423	—	$	—	—	$	—	1	$	9,423
Additional modifications granted for the three months ended March 31, 2022	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended March 31, 2022 (a)	—		—	(1)		(9,423)	—		—	—		—	(1)		(9,423)
Principal payments net of draws on active deferred loans for the three months ended March 31, 2022 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at March 31, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Additional modifications granted for the three months ended June 30, 2022	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended June 30, 2022 (a)	—		—	—		—	—		—	—		—	—		—
Principal payments net of draws on active deferred loans for the three months ended June 30, 2022 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at June 30, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Percent of Total Section 4013 CARES Act Modifications as of June 30, 2022			0.00%			0.00%			0.00%			0.00%			0.00%
Percent of Total Section 4013 CARES Act Modifications to Total Loans as of June 30, 2022			0.00%			0.00%			0.00%			0.00%			0.00%
Subsequent modifications granted during the three months ended June 30, 2022 for active deferred loans outstanding as of June 30, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—

(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.

24

The recorded investment, unpaid principal balance, and the related allowance of the Company’s impaired loans are summarized below at June 30, 2022 and December 31, 2021.

(Dollars in thousands)	June 30, 2022						December 31, 2021
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial and Industrial	$	991	$	991	$	—	$	1,017	$	1,017	$	—
Commercial Real Estate		10,448		13,381		—		11,803		14,735		—
Residential Real Estate		845		877		—		853		885		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—		—		—
Commercial Real Estate		—		—		—		—		—		—
Residential Real Estate		—		—		—		—		—		—
Total	$	12,284	$	15,249	$	—	$	13,673	$	16,637	$	—
Total consists of:
Commercial and Industrial	$	991	$	991	$	—	$	1,017	$	1,017	$	—
Commercial Real Estate	$	10,448	$	13,381	$	—	$	11,803	$	14,735	$	—
Residential Real Estate	$	845	$	877	$	—	$	853	$	885	$	—

At June 30, 2022 and December 31, 2021, $7,669,000 and $8,020,000 of loans classified as TDRs were included in impaired loans with a total allocated allowance of $0 at both June 30, 2022 and December 31, 2021. 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 six months ended June 30, 2022 and 2021.

(Dollars in thousands)	For the Three Months Ended				For the Three Months Ended
	June 30, 2022				June 30, 2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	998	$	3	$	1,057	$	2
Commercial Real Estate		10,801		70		12,750		95
Residential Real Estate		847		—		1,233		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		483		—
Residential Real Estate		—		—		—		—
Total	$	12,646	$	73	$	15,523	$	98
Total consists of:
Commercial and Industrial	$	998	$	3	$	1,057	$	2
Commercial Real Estate	$	10,801	$	70	$	13,233	$	95
Residential Real Estate	$	847	$	—	$	1,233	$	1

Of the $73,000 and $98,000 in interest income recognized on impaired loans for the three months ended June 30, 2022 and 2021 respectively, $0 and $3,000 in interest income was recognized with respect to non-accrual loans for each respective period.

25

(Dollars in thousands)	For the Six Months Ended				For the Six Months Ended
	June 30, 2022				June 30, 2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,004	$	5	$	1,071	$	5
Commercial Real Estate		11,247		142		12,564		188
Residential Real Estate		849		—		1,142		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		484		—
Residential Real Estate		—		—		—		—
Total	$	13,100	$	147	$	15,261	$	194
Total consists of:
Commercial and Industrial	$	1,004	$	5	$	1,071	$	5
Commercial Real Estate	$	11,247	$	142	$	13,048	$	188
Residential Real Estate	$	849	$	—	$	1,142	$	1

Of the $147,000 and $194,000 in interest income recognized on impaired loans for the six months ended June 30, 2022 and 2021 respectively, $0 and $3,000 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 June 30, 2022 and December 31, 2021 were as follows:

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Commercial and Industrial	$	683	$	708
Commercial Real Estate		4,454		5,519
Residential Real Estate		833		839
Total non-accrual loans		5,970		7,066
Foreclosed assets held for resale		—		—
Loans past-due 90 days or more and still accruing interest		166		—
Total non-performing assets	$	6,136	$	7,066

There were no foreclosed assets held for resale at June 30, 2022 or December 31, 2021. 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 June 30, 2022 and December 31, 2021. These balances were not included in foreclosed assets held for resale at June 30, 2022 or December 31, 2021.

26

The following tables present the classes of the loan portfolio, including non-accrual loans and TDRs, summarized by past-due status at June 30, 2022 and December 31, 2021:

(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
June 30, 2022:
Commercial and Industrial	$	150	$	—	$	656	$	806	$	81,733	$	82,539	$	—
Commercial Real Estate		474		—		3,783		4,257		564,001		568,258		—
Residential Real Estate		150		117		999		1,266		147,355		148,621		166
Consumer		—		9		—		9		5,393		5,402		—
Total	$	774	$	126	$	5,438	$	6,338	$	798,482	$	804,820	$	166

(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, 2021:
Commercial and Industrial	$	47	$	—	$	678	$	725	$	81,801	$	82,526	$	—
Commercial Real Estate		116		189		4,891		5,196		516,458		521,654		—
Residential Real Estate		553		191		839		1,583		141,800		143,383		—
Consumer		14		—		—		14		5,264		5,278		—
Total	$	730	$	380	$	6,408	$	7,518	$	745,323	$	752,841	$	—

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

At June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021 consisted of:

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Non-interest bearing demand	$	230,513	$	249,040
Interest bearing demand		325,624		395,033
Savings		276,599		260,804
Time certificates of deposits less than $250,000		147,603		158,914
Time certificates of deposits $250,000 or greater		11,699		13,030
Other time		1,570		1,148
Total deposits	$	993,608	$	1,077,969

Total deposits decreased $84,361,000 to $993,608,000 as of June 30, 2022 due to decreases in non-interest bearing, interest bearing demand and time deposits. The decrease in deposits was mainly the result of a $95,504,000 decrease in highly rate sensitive deposits and other normal fluctuations in deposits during the six months ended June 30, 2022.

27

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 June 30, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)	June 30, 2022				December 31, 2021
			Average				Average
	Amount		Rate		Amount		Rate
Federal funds purchased	$	—	—	%	$	—	0.36	%
Securities sold under agreements to repurchase		25,311	0.36	%		27,377	0.35	%
Federal Discount Window		—	0.70	%		—	0.36	%
Federal Home Loan Bank of Pittsburgh		104,412	1.16	%		—	0.34	%
Total	$	129,723	0.77	%	$	27,377	0.35	%

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 June 30, 2022 and December 31, 2021.

(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
June 30, 2022
Repurchase agreements (a)	$	25,311	$	—	$	25,311	$	(25,311)	$	—	$	—
December 31, 2021
Repurchase agreements (a)	$	27,377	$	—	$	27,377	$	(27,377)	$	—	$	—

(a) As of June 30, 2022 and December 31, 2021, the fair value of securities pledged in connection with repurchase agreements was $30,603,000 and $37,735,000 , respectively.

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The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of June 30, 2022:

(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
June 30, 2022:
Repurchase agreements and repurchase-to-maturity transactions:
U.S. Treasury and/or agency securities	$	25,311	$	—	$	—	$	—	$	25,311
Total	$	25,311	$	—	$	—	$	—	$	25,311

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. There were no irrevocable standby letters of credit which could be drawn on through FHLB’s close of business on June 30, 2022. Any irrevocable standby letters of credit are issued 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 June 30, 2022, loans of $641,482,000 were pledged to FHLB which resulted in a FHLB maximum borrowing capacity of $458,318,000. As of June 30, 2022, no 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 utilized 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 four branch banking facilities and one parcel of land under operating leases. At June 30, 2022, right-of-use assets and lease liabilities were recorded related to these operating leases totaling $1,013,000 and $1,495,000, respectively. At December 31, 2021, right-of-use assets and lease liabilities stood at $1,025,000 and $1,499,000, respectively. Further options to extend or terminate the lease are not applicable for any of the five 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 six months ended June 30, 2022 and 2021 of $90,000 and $89,000, respectively. Operating lease costs are included in occupancy, net in the accompanying statements of income. Cash payments totaled $83,000 and $77,000, respectively, for the six months ended June 30, 2022 and 2021.

The Bank currently has one finance lease for equipment. At June 30, 2022, right-of-use assets and lease liabilities were recorded related to the finance lease totaling $34,000 and $11,000, respectively. At December 31, 2021, right-of-use assets and lease liabilities stood at $34,000 and $16,000, 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 six months ended June 30, 2022 and 2021 were immaterial. Cash payments totaled $5,000 for the six months ended June 30, 2022 and 2021.

The following table displays the weighted-average term and discount rates for operating and finance leases outstanding as of June 30, 2022 and December 31, 2021.

	June 30,	December 31,	June 30,	December 31,
	2022	2021	2022	2021
	Operating	Operating	Finance	Finance
Weighted-average term (years)	24.20	24.51	1.17	1.67
Weighted-average discount rate	3.91%	3.89%	0.68%	0.68%

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)	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Minimum Lease Payments due:	Operating		Operating		Finance		Finance
Within one year	$	100	$	120	$	10	$	10
After one but within two years		68		68		2		7
After two but within three years		68		68		—		—
After three but within four years		68		68		—		—
After four but within five years		75		68		—		—
After five years		2,149		2,190		—		—
Total undiscounted cash flows		2,528		2,582		12		17
Discount on cash flows		(1,033)		(1,083)		(1)		(1)
Total lease liability	$	1,495	$	1,499	$	11	$	16

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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 June 30, 2022 and December 31, 2021 were as follows:

(Dollars in thousands)
	June 30, 2022		December 31, 2021
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	123,931	$	142,335
Financial standby letters of credit	$	1,714	$	2,000
Performance standby letters of credit	$	3,113	$	3,727

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 June 30, 2022, the Company had $716,879,000 in loans secured by real estate, which represented 89.1% 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

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June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

(Dollars in thousands)
June 30, 2022	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	18,958	$	—	$	—	$	18,958
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		104,245		—		104,245
Other		—		5,939		—		5,939
Other mortgage backed debt securities		—		38,556		—		38,556
Obligations of state and political subdivisions		—		164,536		—		164,536
Asset backed securities		—		31,360		—		31,360
Corporate debt securities		—		46,666		—		46,666
Total debt securities available-for-sale		18,958		391,302		—		410,260
Marketable equity securities		1,661		—		—		1,661
Total recurring fair value measurements	$	20,619	$	391,302	$	—	$	411,921

(Dollars in thousands)
December 31, 2021	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	7,729	$	—	$	—	$	7,729
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		114,911		—		114,911
Other		—		7,576		—		7,576
Other mortgage backed debt securities		—		39,550		—		39,550
Obligations of state and political subdivisions		—		186,176		—		186,176
Asset backed securities		—		36,542		—		36,542
Corporate debt securities		—		45,432		—		45,432
Total debt securities available-for-sale		7,729		430,187		—		437,916
Marketable equity securities		1,962		—		—		1,962
Total recurring fair value measurements	$	9,691	$	430,187	$	—	$	439,878

The estimated fair values of equity securities and US Treasury debt securities classified as Level 1 are derived from quoted market prices in active markets; the equity securities 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 2022 or 2021.

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Financial Assets Measured at Fair Value on a Nonrecurring Basis

At June 30, 2022 and December 31, 2021, 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 June 30, 2022
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,919	$	5,919
Residential Real Estate		—		—		30		30
Total impaired loans	$	—	$	—	$	5,949	$	5,949

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2021
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,954	$	5,954
Residential Real Estate		—		—		30		30
Total impaired loans	$	—	$	—	$	5,984	$	5,984

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 2022 and 2021.

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

There were no foreclosed assets held for resale measured at fair value on a nonrecurring basis at June 30, 2022 and December 31, 2021.

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 2022 and 2021.

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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
June 30, 2022	Estimate		Valuation Technique	Unobservable Input	Range	Average
Impaired loans - collateral dependent	$	3,120	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (44%)	(15%)
Impaired loans - other	$	2,829	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
December 31, 2021
Impaired loans - collateral dependent	$	3,120	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (44%)	(15%)
Impaired loans - other	$	2,864	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)

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 June 30, 2022
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	9,441	$	9,441	$	—	$	—	$	9,441
Interest-bearing deposits in other banks		783		—		783		—		783
Time deposits with other banks		—		—		—		—		—
Restricted investment in bank stocks		5,753		—		5,753		—		5,753
Net loans		795,660		—		—		774,976		774,976
Mortgage servicing rights		349		—		—		349		349
Accrued interest receivable		4,473		—		4,473		—		4,473
FINANCIAL LIABILITIES:
Demand, savings and other deposits		832,736		—		832,736		—		832,736
Time deposits		160,872		—		156,636		—		156,636
Short-term borrowings		129,723		—		129,106		—		129,106
Long-term borrowings		25,000		—		24,598		—		24,598
Subordinated debentures		25,000		—		22,428		—		22,428
Accrued interest payable		273		—		273		—		273
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

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(Dollars in thousands)	Carrying		Fair Value Measurements at December 31, 2021
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	9,600	$	9,600	$	—	$	—	$	9,600
Interest-bearing deposits in other banks		51,738		—		51,738		—		51,738
Time deposits with other banks		247		—		247		—		247
Restricted investment in bank stocks		1,919		—		1,919		—		1,919
Net loans		744,161		—		—		762,914		762,914
Mortgage servicing rights		367		—		—		367		367
Accrued interest receivable		4,361		—		4,361		—		4,361
FINANCIAL LIABILITIES:
Demand, savings and other deposits		904,877		—		904,877		—		904,877
Time deposits		173,092		—		172,897		—		172,897
Short-term borrowings		27,377		—		27,380		—		27,380
Long-term borrowings		35,000		—		35,987		—		35,987
Subordinated debentures		25,000		—		24,384		—		24,384
Accrued interest payable		251		—		251		—		251
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

36

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 June 30, 2022 and December 31, 2021, the fair value of trust assets under management was $111,330,000 and $108,339,000, 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 June 30, 2022 and 2021, 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
	June 30,
	2022		2021
Net income	$	3,822	$	3,605
Weighted-average common shares outstanding		5,964		5,905
Basic and diluted earnings per share	$	0.64	$	0.61

(In thousands, except earnings per share)	Six Months Ended
	June 30,
	2022		2021
Net income	$	7,365	$	7,483
Weighted-average common shares outstanding		5,956		5,894
Basic and diluted earnings per share	$	1.24	$	1.27

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 June 30, 2022 and December 31, 2021.

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.

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Goodwill was evaluated for impairment at December 31, 2021, 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 June 30, 2022.

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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 2021 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, 2021.

RESULTS OF OPERATIONS

Quarter ended June 30, 2022 compared to quarter ended June 30, 2021

First Keystone Corporation realized earnings for the three months ended June 30, 2022 of $3,822,000, an increase of $217,000, or 6.0% from the second quarter of 2021. The increase in net income for the three months ended June 30, 2022 was primarily due to an increase in interest income, mainly due to increased interest rates and growth in commercial real estate loans and increased interest and dividend income earned on securities.

On a per share basis, for the three months ended June 30, 2022, net income was $0.64 versus $0.61 for the same three month period of 2021. Cash dividends amounted to $0.28 and $0.27 per share for the three months ended June 30, 2022 and 2021, 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 June 30, 2022, interest income amounted to $11,111,000, an increase of $852,000 or 8.3% from the three months ended June 30, 2021, while interest expense amounted to $1,330,000 in the three months ended June 30, 2022, an increase of $42,000 or 3.3% from the three months ended June 30, 2021. As a result, net interest income increased $810,000 or 9.0% to $9,781,000 from $8,971,000 for the same period in 2021.

The Company’s net interest margin for the three months ended June 30, 2022 was 3.36% compared to 3.23% for same period in 2021. The increase in net interest margin was primarily a result of increases in yields earned on securities and commercial loans.

PROVISION FOR LOAN LOSSES

The provision for loan losses for the three months ended June 30, 2022 and 2021 was $218,000 and $135,000, respectively. The increase 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 June 30, 2022 is also reflective of management’s assessment of the continued credit risk associated with the uncertainty surrounding geopolitical and economic concerns. Charge-off and recovery activity in the allowance for loan losses resulted in net recoveries of $5,000

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and net charge-offs of $58,000 for the the three months ended June 30, 2022 and 2021, respectively. See Allowance for Loan Losses on page 45 for further discussion.

NON-INTEREST INCOME

Total non-interest income was $1,514,000 for the three months ended June 30, 2022, as compared to $1,865,000 for the same period in 2021, a decrease of $351,000, or 18.8%.

Net securities (losses) gains decreased $96,000 to ($68,000) for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. This decrease was due to the Company recognizing $68,000 in net losses on held equity securities in the second quarter of 2022 as compared to recognizing $28,000 in net gains on held equity securities in the second quarter of 2021. Trust department income increased $3,000 or 1.1% to $268,000 for the three months ended June 30, 2022 as compared to the same period in 2021.

Service charges and fee income increased $68,000 or 14.1%. The increase was mainly due to increases in overdraft fees as compared to the same period in 2021. ATM fees and debit card income decreased $10,000 or 1.8% to $558,000 for the three months ended June 30, 2022.

Net (losses) gains on sales of mortgage loans decreased $308,000 or 100.0% to $0 due to no sales of mortgage loans in the second quarter of 2022 as the rate environment has led to many loans being sold at a loss and there have been fewer mortgages originated with intent to sell. Other non-interest income decreased $6,000 or 9.2% to $59,000 for the three months ended June 30, 2022.

NON-INTEREST EXPENSE

Total non-interest expense was $6,595,000 for the three months ended June 30, 2022, as compared to $6,547,000 for the three months ended June 30, 2021

Expenses associated with employees (salaries and employee benefits) continue to be the largest category of non-interest expense. Salaries and benefits amounted to $3,462,000 or 52.5% of total non-interest expense for the three months ended June 30, 2022, as compared to $3,461,000 or 52.9% for the three months ended June 30, 2021.

Net occupancy, furniture and equipment, and computer expense amounted to $983,000 for the three months ended June 30, 2022, an increase of $43,000 or 4.6% which was due to the implementation of several new software programs throughout 2021 and early 2022 to increase security and efficiency. Professional services increased $97,000 or 35.5% to $370,000 as of June 30, 2022. The increase was mainly the result of an increase in consulting expense as the result of strategic planning and consulting services associated with implementing new internal systems contracts along with normal increases in annual audit expenses. Pennsylvania shares tax expense amounted to $324,000 for the three months ended June 30, 2022, an increase of $11,000 or 3.5% as compared to the three months ended June 30, 2021.

Federal Deposit Insurance Corporation (“FDIC”) insurance expense amounted to $120,000 for the three months ended June 30, 2022 and 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 $242,000 for the three months ended June 30, 2022, a decrease of $41,000 or 14.5% as compared to the three months ended June 30, 2021. The decrease was the result of negotiations of new internal systems contracts resulting in vendor relationship credits that were applied to the expenses related to those systems. Data processing expenses amounted to $251,000 for the three months ended June 30, 2022 as compared to $323,000 for the same period of 2021, a decrease of $72,000 or 22.3%. This decrease was also the result of the negotiations of new systems contracts.

Advertising expense amounted to $118,000 in the second quarter of 2022, an increase of $9,000 or 8.3% as compared to the three months ended June 30, 2021. Other non-interest expense amounted to $725,000 for the three months ended June 30, 2022 and 2021.

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INCOME TAXES

Income tax expense amounted to $660,000 for the three months ended June 30, 2022, as compared to $549,000 for the three months ended June 30, 2021, an increase of $111,000. The effective total income tax rate was 14.7% for the three months ended June 30, 2022 as compared to 13.2% for the three months ended June 30, 2021. The increase in the effective tax rate was mainly due to higher overall operating income. The Company recognized $58,000 and $101,000 of tax credits from low-income housing partnerships in the three months ended June 30, 2022 and 2021, respectively.

Six months ended June 30, 2022 compared to six months ended June 30, 2021

First Keystone Corporation realized earnings for the six months ended June 30, 2022 of $7,365,000, a decrease of $118,000, or 1.6% from the same period in 2021. The decrease in net income for the six months ended June 30, 2022 was primarily due to less PPP loan fees and a decrease in non-interest income, mainly due to fewer sales of mortgage loans and net securities losses.

On a per share basis, net income was $1.24 for the six months ended June 30, 2022 versus $1.27 for the same period in 2021. Cash dividends amounted to $0.56 and $0.55 per share for the six months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022, interest income amounted to $21,740,000, an increase of $1,206,000 or 5.9% from the six months ended June 30, 2021, while interest expense amounted to $2,503,000 in the six months ended June 30, 2022, a decrease of $90,000 or 3.5% from the six months ended June 30, 2021. As a result, net interest income increased $1,296,000 or 7.2% to $19,237,000 from $17,941,000 for the same period in 2021.

The Company’s net interest margin for the six months ended June 30, 2022 was 3.28% compared to 3.30% for same period in 2021. The decrease in net interest margin was a result of a decrease in yield earned on loans plus an increase in cost of short term borrowings.

PROVISION FOR LOAN LOSSES

The provision for loan losses for the six months ended June 30, 2022 and 2021 was $437,000 and $270,000, respectively. The increase 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 six months ended June 30, 2022 is also reflective of management’s assessment of the continued credit risk associated with the uncertainty surrounding geopolitical and economic concerns. Charge-off and recovery activity in the allowance for loan losses resulted in net recoveries of $43,000 and net charge-offs of $79,000 for the six months ended June 30, 2022 and 2021, respectively. See Allowance for Loan Losses on page 45 for further discussion.

NON-INTEREST INCOME

Total non-interest income was $2,903,000 for the six months ended June 30, 2022, as compared to $3,740,000 for the same period in 2021, a decrease of $837,000, or 22.4%. The decrease was due to recognizing net losses on the sales of mortgage loans and net securities losses on held equity securities during the first half of 2022 as compared to recognizing net gains on both during the same period of 2021.

ATM fees and debit card income decreased $17,000 or 1.6% to $1,067,000 for the six months ended June 30, 2022. Service charges and fee income increased $202,000 for the six months ended June 30, 2022. The increase was mainly due to increased overdraft fees on DDA accounts. Gains on sales of mortgage loans decreased $696,000 or 105.1% due to a low number of individual loans sold in the first half of 2022 and many of the loans sold in 2022 being

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sold at a loss. These factors were due to the current rate environment and fewer loans being originated with the intent to sell in 2022.

Trust department income was $518,000 for the six months ended June 30, 2022 and 2021. Net securities (losses) gains decreased $274,000 or 191.6% to ($131,000) for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The decrease was due to the Company recognizing $131,000 in net losses on held equity securities in the first half of 2022 as compared to recognizing $143,000 in net gains on held equity securities in the same period in 2021.

NON-INTEREST EXPENSE

Total non-interest expense was $13,111,000 for the six months ended June 30, 2022, as compared to $12,744,000 for the six months ended June 30, 2021. Non-interest expense increased $367,000 or 2.9%.

Expenses associated with employees (salaries and employee benefits) continue to be the largest category of non-interest expense. Salaries and benefits amounted to $7,016,000 or 53.5% of total non-interest expense for the six months ended June 30, 2022, as compared to $6,761,000 or 53.1% for the six months ended June 30, 2021. The increase was mainly due to normal merit increases and new hires along with an increase in medical insurance costs as compared to the first half of 2021.

Net occupancy, furniture and equipment, and computer expense amounted to $2,000,000 for the six months ended June 30, 2022, an increase of $155,000 or 8.4%. The increase is the result of the implementation of several new software programs to increase security and efficiency. Professional services increased $136,000 or 25.6% to $668,000 for the six months ended June 30, 2022. The increase was mainly the result of an increase in consulting expense as the result of strategic planning and consulting services associated with implementing new internal systems contracts along with normal increases in annual audit expenses. Pennsylvania shares tax expense amounted to $648,000 for the six months ended June 30, 2022, an increase of $22,000 or 3.5% as compared to the six months ended June 30, 2021.

FDIC insurance expense increased $50,000 or 24.2% for the six months ended June 30, 2022. 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 $370,000 for the six months ended June 30, 2022, a decrease of $113,000 or 23.4% as compared to the six months ended June 30, 2021. The decrease was the result of negotiations of new internal systems contracts resulting in vendor relationship credits that were applied to the expenses related to those systems. Data processing expenses amounted to $509,000 for the six months ended June 30, 2022, a decrease of $108,000 or 17.5% as compared to the six months ended June 30, 2021. This decrease was also the result of the negotiations of new systems contracts.

Advertising expense increased $9,000 or 5.0% during the six months ended June 30, 2022. Other non-interest expense amounted to $1,453,000 for the six months ended June 30, 2022, a decrease of $36,000 or 2.4% as compared to the six months ended June 30, 2021. This decrease was mainly due to a decrease in the provision for unfunded commitments, as the result of higher line of credit usage and lower officer commitments, along with a decrease in loan collections expenses, as the result of legal and insurance reimbursements following the payoff of a non-accrual commercial real estate loan.

INCOME TAXES

Income tax expense amounted to $1,227,000 for the six months ended June 30, 2022, as compared to $1,184,000 for the six months ended June 30, 2021, an increase of $43,000. The effective total income tax rate was 14.3% for the six months ended June 30, 2022 as compared to 13.7% for the six months ended June 30, 2021. The increase in the effective tax rate was mainly due to higher overall operating income. The Company recognized $132,000 and $202,000 of tax credits from low-income housing partnerships in the six months ended June 30, 2022 and 2021, respectively.

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FINANCIAL CONDITION

SUMMARY

Total assets decreased to $1,304,582,000 as of June 30, 2022, a decrease of $15,768,000 from year-end 2021. Total assets as of December 31, 2021 amounted to $1,320,350,000.

Total debt securities available-for-sale decreased $27,656,000 or 6.3% to $410,260,000 as of June 30, 2022 from December 31, 2021.

Total loans increased $51,979,000 or 6.9% to $804,820,000 as of June 30, 2022 from December 31, 2021. Loan demand grew in the six months ended June 30, 2022 as the Bank has realized an increase in loan originations, primarily in the commercial real estate portfolio.

Total deposits decreased $84,361,000 or 7.8% to $993,608,000 as of June 30, 2022 from December 31, 2021. The decrease was mainly due to a decrease 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 six months ended June 30, 2022 by $92,346,000 to $154,723,000 from $62,377,000 as of December 31, 2021. Borrowings increased mainly due to decreased deposit balances and growth in the loan portfolio.

Total stockholders’ equity amounted to $125,379,000 at June 30, 2022, a decrease of $23,176,000 or 15.6% from December 31, 2021 due to a decrease in the market value of the securities portfolio resulting in an accumulated other comprehensive loss position.

SEGMENT REPORTING

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

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 June 30, 2022 and 94.0% at June 30, 2021. 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 $804,820,000 as of June 30, 2022, up $51,979,000, or 6.9% since year-end 2021. The loan portfolio continues to be well diversified. Non-performing assets decreased since year-end 2021, and overall asset quality has remained consistent. Total non-performing assets were $6,136,000 as of June 30, 2022, a decrease of $930,000, or 13.2% from $7,066,000 reported in non-performing assets as of December 31, 2021. Total allowance for loan losses to total non-performing assets was 149.28% as of June 30, 2022 and 122.84% at December 31, 2021. See the Non-Performing Assets section on page 47 for more information.

In addition to loans, another primary earning asset is our overall securities portfolio, which decreased in size from December 31, 2021 to June 30, 2022. Debt securities available-for-sale amounted to $410,260,000 as of June 30, 2022, a decrease of $27,656,000 from year-end 2021. The decrease in debt securities available-for-sale is mainly due to a $35,521,000 decrease in the market value of the portfolio as a result of the current interest rate environment and $22,444,000 in principal paydowns on debt securities, offset by the deployment of $38,349,000 in cash to purchase debt securities, along with other portfolio activity.

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Interest-bearing deposits in other banks decreased as of June 30, 2022, to $783,000 from $51,738,000 at year-end 2021 due to decreased cash held at the Federal Reserve Bank. Time deposits with other banks were $0 at June 30, 2022 and $247,000 at December 31, 2021 due to the maturity of the one remaining time deposit.

LOANS

Total loans increased to $804,820,000 as of June 30, 2022 as compared to $752,841,000 as of December 31, 2021. The table on page 19 provides data relating to the composition of the Company’s loan portfolio on the dates indicated. Total loans increased by $51,979,000 or 6.9%.

Steady demand for borrowing by businesses accounted for the 6.9% increase in the loan portfolio from December 31, 2021 to June 30, 2022. Overall, the Commercial and Industrial portfolio (which includes tax-free Commercial and Industrial loans) increased $13,000 or 0.02% from $82,526,000 at December 31, 2021 to $82,539,000 at June 30, 2022. The small increase in the Commercial and Industrial portfolio during the six months ended June 30, 2022 was mainly the result of a reduction of $4,748,000 in the portion of the Commercial and Industrial portfolio attributable to SBA PPP loans, the balance of which decreased from $4,894,000 at December 31, 2021 to $146,000 at June 30, 2022, as a result of loan forgiveness. The portion of the Commercial and Industrial portfolio excluding SBA PPP loans increased $4,761,000 during the six months ended June 30, 2022, mainly resulting from $7,438,000 in new loan originations for the six months ended June 30, 2022 and an increase in utilization of existing Commercial and Industrial lines of credit of $1,801,000, offset by loan payoffs of $1,587,000 and regular principal payments and other typical fluctuations in the Commercial and Industrial portfolio during the six months ended June 30, 2022. The Commercial Real Estate portfolio (which includes tax-free Commercial Real Estate loans) increased $46,604,000 or 8.9% from $521,654,000 at December 31, 2021 to $568,258,000 at June 30, 2022. The increase is mainly attributable to new loan originations of $87,507,000 for the six months ended June 30, 2022, offset by loan payoffs of $36,826,000 and a decrease in utilization of existing Commercial Real Estate lines of credit of $761,000, as well as regular principal payments and other typical amortization in the Commercial Real Estate portfolio during the six months ended June 30, 2022. Residential Real Estate loans increased $5,238,000 or 3.7% from $143,383,000 at December 31, 2021 to $148,621,000 at June 30, 2022. The increase was mainly the result of $17,062,000 in new loan originations and an increase in utilization of existing Residential Real Estate (Home Equity) lines of credit of $2,491,000, offset by net loans sold of $2,719,000, loan payoffs of $10,187,000 (of which $3,600,000 was refinanced with the Bank during the six months ended June 30,2022 with the new refinanced loan balances included in the new loan origination total), and regular principal payments and other typical amortization in the Residential Real Estate portfolio during the six months ended June 30, 2022. Net loans sold for the six months ended June 30, 2022 consisted of total loans sold during the six months ended June 30, 2022 of $4,463,000, offset with loans opened and sold in the same quarter during the first two quarters of 2022 which amounted to $1,744,000. The Company continues to originate and sell certain long-term fixed rate residential mortgage loans, which conform to secondary market requirements, when the market pricing is favorable. 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 $650,797,000 at June 30, 2022. Of total loans, $568,258,000 or 70.6% 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 $781,530,000 or 97.3% of gross loans are graded Pass; $1,080,000 or 0.1% are graded Special Mention; $20,961,000 or 2.6% 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 decreased to $22,041,000 at June 30, 2022, as compared to $24,737,000 at December 31, 2021. Commercial and Industrial non-pass grades decreased to $755,000 as of June 30, 2022 as compared to $796,000 as of December 31, 2021. Commercial Real Estate non-pass grades decreased to $20,313,000 as of

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June 30, 2022 as compared to $22,346,000 as of December 31, 2021. The Residential Real Estate and Consumer loan non-pass grades decreased to $973,000 as of June 30, 2022 as compared to $1,595,000 as of December 31, 2021.

The decrease in Commercial Real Estate non-pass grades from December 31, 2021 to June 30, 2022 is mainly the result of a payoff that was completed during the second quarter of 2022 on a Substandard non-accrual loan to a contractor specializing in modular construction that carried a balance of $1,000,000 at December 31, 2021. Four loans to the owners/operators of an indoor family entertainment complex that carried an aggregate balance of $753,000 at December 31, 2021 were also upgraded from Substandard to pass-grade status during the six months ended June 30, 2022.

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)	June 30,		December 31,
	2022		2021
Commercial and Industrial	$	82,539	$	82,526
Commercial Real Estate		568,258		521,654
Residential Real Estate		148,621		143,383
Consumer		5,402		5,278
Total Loans	$	804,820	$	752,841

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses constitutes the amount available to absorb losses within the loan portfolio. As of June 30, 2022, the allowance for loan losses was $9,160,000 as compared to $8,680,000 as of December 31, 2021. 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.

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. On a quarterly basis, management evaluates the qualitative factors utilized in the calculation of the Company’s allowance for loan losses and various adjustments are made to these factors as deemed necessary at the time of evaluation. The uncertain economic climate has played a large role in the qualitative factor adjustments that have been implemented throughout 2021 and the first half of 2022. Qualitative factors remained unchanged during the first quarter of 2021, as the economy and unemployment levels showed marked improvement over the prior quarter. 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 an artificial increase in market values in the real estate sector as individuals’ willingness to pay above-average market prices has sparked uncertainty surrounding collateral values in the real estate market.

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Qualitative factors remained unchanged during the third quarter of 2021. During the fourth quarter of 2021, the qualitative factors related to external factors/conditions were increased by one basis point across all loan segments due increased inflation rates, as well as elevated unemployment levels (although improved from 2020 and early 2021) and the uncertainty of how broad the changes implemented by the Federal Reserve would be. The qualitative factors related to collateral values were also increased by one basis point across all loan segments during the fourth quarter of 2021, as collateral values continued to artificially increase as individuals were willing to pay above-average market prices in all sectors. During the first quarter of 2022, the qualitative factors related to the local/regional economy were increased by one basis point across all loan segments due to ongoing economic uncertainty resulting from supply chain disruptions caused by the COVID-19 pandemic, conflicts in foreign countries causing inflationary pressures due to reductions/disruptions in the production of the commodities controlled by these countries, increased interest rates, and the overall inflation rate continuing to rise. During the second quarter of 2022, the qualitative factors remained unchanged. Modifications granted in compliance with Section 4013 of the CARES Act were highest in the Commercial Real Estate portfolio 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 15 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 six months ended June 30, 2022 and 2021. Net recoveries as a percentage of average loans was 0.006% for the six months ended June 30, 2022 and net charge-offs as a percentage of average loans was 0.011% for the six months ended June 30, 2021. Net recoveries amounted to $43,000 the six months ended June 30, 2022 as compared to net charge-offs of $79,000 for the six months ended June 30, 2021.

For the six months ended June 30, 2022, the provision for loan losses was $437,000 as compared to $270,000 for the six months ended June 30, 2021. The provision, net of charge-offs and recoveries, resulted in the quarter end allowance for loan losses of $9,160,000 of which 7.4% was attributed to the Commercial and Industrial component; 65.0% attributed to the Commercial Real Estate component; 17.5% attributed to the Residential Real Estate component; 0.9% attributed to the Consumer component; and 9.2% being the unallocated component (refer to the activity in Note 4 – Loans and Allowance for Loan Losses on page 12). 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 June 30, 2022.

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Analysis of Allowance for Loan Losses

(Dollars in thousands)
	June 30,			June 30,
As of and for the six months ended:	2022			2021
Beginning balance	$	8,680		$	7,933
Charge-offs:
Commercial and Industrial		9			13
Commercial Real Estate		—			29
Residential Real Estate		—			55
Consumer		6			20
		15			117
Recoveries:
Commercial and Industrial		2			—
Commercial Real Estate		38			30
Residential Real Estate		14			1
Consumer		4			7
		58			38
Net (recoveries) charge-offs		(43)			79
Additions charged to operations		437			270
Balance at end of period	$	9,160		$	8,124
Ratio of net (recoveries) charge-offs during the period to average loans outstanding during the period		(0.006)	%		0.011	%
Allowance for loan losses to average loans outstanding during the period		1.177	%		1.120	%

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 recoveries along with the additions to the reserve from the provision out of operations, the allowance for loan losses as a percentage of average loans amounted to 1.177% and 1.120% at June 30, 2022 and 2021, respectively.

NON-PERFORMING ASSETS

The table on page 50 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

47

are not considered TDRs as long as the criteria set forth in Section 4013 of the CARES Act are 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 $6,136,000 as of June 30, 2022, as compared to $7,066,000 as of December 31, 2021. The economy is very unstable. Inflation is at a four-decade high. The war between Ukraine and Russia is creating worldwide turmoil. The unemployment rate has dropped significantly compared to the beginning of the COVID-19 pandemic, but the labor force participation rate has also fallen. The need for workers has driven wages up in most sectors. Inflation is causing extreme concerns in all areas of the economy. The war abroad and its effects on various commodities are pushing inflationary concerns. Values of new and used homes and automobiles continue to climb. The Federal Reserve has indicated a plan to continue to raise interest rates at an accelerated level throughout the year. There has also been a resurgence of the COVID-19 pandemic in some areas of the country and world. These forces have had a direct effect on the Company’s non-performing assets. The Company is closely monitoring all segments of its loan portfolio because of the current uncertain economic environment. Non-accrual loans totaled $5,970,000 as of June 30, 2022, as compared to $7,066,000 as of December 31, 2021. The decrease in non-accrual loans from December 31, 2021 to June 30, 2022 was mainly the result of the payoff of one non-accrual loan to a contractor specializing in modular construction which carried a balance of $1,000,000 at December 31, 2021. There were no foreclosed assets held for resale as of June 30, 2022 and December 31, 2021. There was one loan past-due 90 days or more and still accruing interest at June 30, 2022 that carried a balance of $166,000 and was well-secured by residential real estate and in the process of collection. There were no loans past-due 90 days or more and still accruing interest as of December 31, 2021.

Non-performing assets to total loans was 0.76% at June 30, 2022 and 0.94% at December 31, 2021. Non-performing assets to total assets was 0.47% at June 30, 2022 and 0.54% at December 31, 2021. The allowance for loan losses to total non-performing assets was 149.28% as of June 30, 2022 as compared to 122.84% as of December 31, 2021. Additional detail can be found on page 50 in the Non-Performing Assets and Impaired Loans table and page 26 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 $10,416,000 at June 30, 2022, compared to $10,463,000 at December 31, 2021.

Impaired loans were $12,284,000 at June 30, 2022 and $13,673,000 at December 31, 2021. The largest impaired loan relationship at June 30, 2022 and December 31, 2021 consisted of a non-performing loan to a student housing holding company which is secured by commercial real estate. At June 30, 2022, 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, 2021 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 June 30, 2022 and December 31, 2021 consisted of one performing loan to a student housing holding company, which is classified as a TDR. The loan is secured by commercial real estate and carried a balance of $2,829,000 as of June 30, 2022, net of $943,000 that had been charged off to date, compared to December 31, 2021 when the loan carried a balance of $2,864,000, net of $943,000 that had been charged off to date. The third largest impaired loan relationship at June 30, 2022 and December 31, 2021 consisted of five non-performing loans to a plastic processing company focused on non-post-consumer recycling. Three loans are classified in the Commercial and Industrial portfolio and modified as TDRs and two loans are secured by commercial real estate. The loans carried an aggregate balance of $1,128,000 at June 30, 2022, compared to December 31, 2021 when the loans carried an aggregate balance of $1,176,000.

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 $12,284,000 in impaired loans at June 30, 2022, none were located outside of the Company’s primary market area.

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The outstanding recorded investment of TDRs as of June 30, 2022 and December 31, 2021 was $7,669,000 and $8,020,000, respectively. The decrease in TDRs at June 30, 2022 as compared to December 31, 2021 is mainly attributable to regular principal payments and paydowns on existing TDRs that were completed during the six months ended June 30, 2022. Of the twenty-nine restructured loans at June 30, 2022, four loans were classified in the Commercial and Industrial portfolio, twenty-four loans were classified in the Commercial Real Estate portfolio, and one loan was classified in the Residential Real Estate portfolio. Troubled debt restructurings at June 30, 2022 consisted of ten term modifications beyond the original stated term, three rate modifications, and fifteen 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 June 30, 2022 or December 31, 2021. There were no unfunded commitments attributable to the TDRs at June 30, 2022 and December 31, 2021.

At June 30, 2022, three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $682,000, six Commercial Real Estate loans classified as TDRs with a combined recorded investment of $318,000, and one Residential Real Estate loan classified as a TDR with a balance of $12,000 were not in compliance with the terms of their restructure, compared to June 30, 2021 when three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $736,000, seven Commercial Real Estate loans classified as TDRs with a combined recorded investment of $479,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $17,000 were not in compliance with the terms of their restructure.

Of the loans that were modified as TDRs within the twelve months preceding June 30, 2022, no loans experienced payment defaults during the three months ended June 30, 2022. One Commercial Real Estate loan that was modified as a TDR within the twelve months preceding June 30, 2022 experienced a payment default during the six months ended June 30, 2022, but the loan was subsequently paid off during the first quarter of 2022. Of the loans that were modified as TDRs during the twelve months preceding June 30, 2021, three Commercial Real Estate loans totaling $300,000 experienced payment defaults during the three months ended June 30, 2021. No loans that were modified as TDRs during the twelve months preceding June 30, 2021 experienced payment defaults during the first three months of 2021.

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, 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 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 2022. 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 remains in a very frail state. The war between Ukraine and Russia has exacerbated the difficulties in the national and state economy and experts at all levels are attempting to calculate the intermediate or long term affects. The Company may experience difficulties collecting payments on time from its borrowers, 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

49

loan losses could be required. The extent of the impact of these stressors on the Company’s operational and financial performance will depend on certain developments including inflationary controls enacted, the labor force, supply bottlenecks, the longevity of the war, and the effectiveness in controlling the lingering effects of the COVID-19 outbreak, etc. and any after-effects of these factors. These factors may not immediately impact the Company’s operational and financial performance, as the effects of these factors may lag into the future. The Company is also susceptible to the impact of economic and fiscal policy factors that may evolve in the current economic environment.

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 June 30, 2022 and December 31, 2021, 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)	June 30,			December 31,
	2022			2021
Non-performing assets
Non-accrual loans	$	5,970		$	7,066
Foreclosed assets held for resale		—			—
Loans past-due 90 days or more and still accruing interest		166			—
Total non-performing assets	$	6,136		$	7,066
Impaired loans
Non-accrual loans	$	5,970		$	7,066
Accruing TDRs		6,314			6,607
Total impaired loans		12,284			13,673
Allocated allowance for loan losses		—			—
Net investment in impaired loans	$	12,284		$	13,673
Impaired loans with a valuation allowance	$	—		$	—
Impaired loans without a valuation allowance		12,284			13,673
Total impaired loans	$	12,284		$	13,673
Allocated valuation allowance as a percent of impaired loans		—	%		—	%
Impaired loans to total loans		1.53	%		1.81	%
Non-performing assets to total loans		0.76	%		0.94	%
Non-performing assets to total assets		0.47	%		0.54	%
Allowance for loan losses to impaired loans		74.57	%		63.48	%
Allowance for loan losses to total non-performing assets		149.28	%		122.84	%

Real estate mortgages comprise 89.1% of the loan portfolio as of June 30, 2022, as compared to 88.3% as of December 31, 2021. 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.

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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 decreased $84,361,000 to $993,608,000 as of June 30, 2022 as non-interest bearing deposits decreased by $18,527,000 and interest bearing deposits decreased by $65,834,000 from year-end 2021. The decrease in deposits was the result of a $95,504,000 decrease in highly rate sensitive deposits and other normal fluctuations. Total short-term and long-term borrowings increased to $154,723,000 as of June 30, 2022, from $62,377,000 at year-end 2021, an increase of $92,346,000 or 148.0%. The increase in total borrowings was mainly the result of increased short-term borrowings as deposits decreased and cash balances were deployed into earning assets.

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 six months ended June 30, 2022, net income less dividends paid increased capital by $4,031,000. Accumulated other comprehensive (loss) income derived from net unrealized gains on debt securities available-for-sale also impacts capital. At December 31, 2021 accumulated other comprehensive income was $7,588,000. Accumulated other comprehensive loss stood at $20,438,000 at June 30, 2022, a decrease of $28,026,000. 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 231,611 and 231,612 shares of common stock as treasury stock at June 30, 2022 and December 31, 2021, respectively. This had an effect of reducing our total stockholders’ equity by $5,709,000 as of June 30, 2022 and December 31, 2021.

Total stockholders’ equity was $125,379,000 as of June 30, 2022, and $148,555,000 as of December 31, 2021.

At June 30, 2022 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 June 30, 2022 and December 31, 2021:

					To Be Well
					Capitalized
					Under Prompt
	June 30,		December 31,		Corrective Action
	2022		2021		Regulations
Tier 1 leverage ratio (to average assets)	10.77	%	10.14	%	5.00	%
Common Equity Tier 1 capital ratio (to risk-weighted assets)	15.29	%	15.52	%	6.50	%
Tier 1 risk-based capital ratio (to risk-weighted assets)	15.29	%	15.52	%	8.00	%
Total risk-based capital ratio	16.34	%	16.57	%	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

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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 June 30, 2022, 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 June 30, 2022 the Company had $458,318,000 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 $2,519,000.

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 $25,311,000 at June 30, 2022.

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 $7,606,000 and $8,676,000 at June 30, 2022 and 2021, respectively. Net income amounted to $7,365,000 for the six months ended June 30, 2022 and $7,483,000 for the six months ended June 30, 2021. During the six months ended June 30, 2022 and 2021, net premium amortization on securities amounted to $1,633,000 and $1,366,000, respectively. Net losses on sales of mortgage loans amounted to $34,000 for the six months ended June 30, 2022, compared to net gains on sales of mortgage loans of $662,000 for the six months ended June 30, 2021. Originations from sales of mortgage loans originated for resale exceeded proceeds (net of gains/losses) from sales of mortgage loans originated for resale by $1,639,000 for the six months ended June 30, 2022, and proceeds (net of gains/losses) from sales of mortgage loans originated for resale exceeded originations of mortgage loans originated for resale by $937,000 for the six months ended June 30, 2021. Net securities losses amounted to $131,000 for the six months ended June 30, 2022, compared to net securities gains of $143,000 for the six months ended June 30, 2021. Accrued interest receivable increased by $112,000 and decreased by $170,000 during the six months ended June 30, 2022 and 2021, respectively. Other assets increased by $639,000 and $1,116,000 during the six

52

months ended June 30, 2022 and 2021, respectively. Other liabilities increased by $37,000 during the six months ended June 30, 2022 and increased by $241,000 during the six months ended June 30, 2021.

Investing activities used cash of $64,171,000 and $56,580,000 during the six months ended June 30, 2022 and 2021, respectively. Net activity in the available-for-sale securities portfolio (including proceeds from sale, maturities, and redemptions, net against purchases) used cash of $9,283,000 during the six months ended June 30, 2022, compared to $34,469,000 for the six months ended June 30, 2021. Changes in restricted investment in bank stocks used cash of $3,834,000 and $359,000 during the six months ended June 30, 2022 and 2021, respectively. Net cash used to originate loans amounted to $50,331,000 for the six months ended June 30, 2022, compared to $21,649,000 for the six months ended June 30, 2021.

Financing activities provided cash of $5,451,000 and $120,348,000 during the six months ended June 30, 2022 and 2021, respectively. Deposits decreased by $84,361,000 during the six months ended June 30, 2022, compared to an increase of $125,859,000 during the six months ended June 30, 2021. Short-term borrowings increased by $102,346,000 and $7,005,000 during the six months ended June 30, 2022 and 2021, respectively. Repayment of long-term borrowings used cash of $10,000,000 at both June 30, 2022 and 2021, respectively. Dividends paid amounted to $3,334,000 for the six months ended June 30, 2022, compared to $3,240,000 for the six months ended June 30, 2021.

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.

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.

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 have and could result in further 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 rates on 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

53

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 June 30, 2022.

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 and interest-bearing liability 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 8.63%, 16.56% and 24.40% in the 100, 200 and 300 basis point increasing rate scenarios presented. In addition, the earnings simulation model projects net interest income would increase 2.41% and decrease 0.35% 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 low interest rate environment with federal funds trading in the 150 - 175 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 six months ended June 30, 2022, the cost of interest-bearing liabilities averaged 0.54%, 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 June 30, 2022, net present value is projected to decrease 1.65%, 8.10%, and 16.34% in the 100, 200, and 300 basis point immediate increase scenarios, respectively. Additionally, the 100 and 200

54

basis point immediate decrease scenarios are estimated to affect net present value with a decrease of 7.51% and 26.68%, respectively. All of these scenarios presented are within the Company’s policy limits.

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	(24.40)	%
+200 bp Shock vs. Stable Rate	(16.56)	%
+100 bp Shock vs. Stable Rate	(8.63)	%
Flat rate
‒100 bp Shock vs. Stable Rate	2.41	%
‒200 bp Shock vs. Stable Rate	(0.35)	%
Effect on Net Present Value of Balance Sheet
Static Net Present Value Change
+300 bp Shock vs. Stable Rate	(16.34)	%
+200 bp Shock vs. Stable Rate	(8.10)	%
+100 bp Shock vs. Stable Rate	(1.65)	%
Flat rate
‒100 bp Shock vs. Stable Rate	(7.51)	%
‒200 bp Shock vs. Stable Rate	(26.68)	%

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.

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 June 30, 2022.

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 June 30, 2022, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

55

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, 2021.

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
April 1 - April 30, 2022	―	―	―	120,000
May 1 - May 31, 2022	―	―	―	120,000
June 1 - June 30, 2022	―	―	―	120,000
Total	―	―	―	120,000

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.

56

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.

57

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
August 5, 2022	/s/ Elaine A. Woodland
	Elaine A. Woodland
	President and Chief Executive Officer
	(Principal Executive Officer)
August 5, 2022	/s/ Diane C.A. Rosler
	Diane C.A. Rosler
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

58

EX-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 June 30, 2022, 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: August 5, 2022

EX-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 June 30, 2022, 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: August 5, 2022

EX-3

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 June 30, 2022, 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

August 5, 2022

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-4

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 June 30, 2022, 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

August 5, 2022

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	6 Months Ended
	Jun. 30, 2022	Aug. 03, 2022
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	Jun. 30, 2022
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		5,981,361
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	2022
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2022	Dec. 31, 2021
ASSETS
Cash and due from banks	$ 9,441,000	$ 9,600,000
Interest-bearing deposits in other banks	783,000	51,738,000
Total cash and cash equivalents	10,224,000	61,338,000
Time deposits with other banks		247,000
Debt securities available-for-sale, at fair value	410,260,000	437,916,000
Marketable equity securities, at fair value	1,661,000	1,962,000
Restricted investment in bank stocks, at cost	5,753,000	1,919,000
Loans	804,055,000	746,835,000
Loans held for sale	765,000	6,006,000
Allowance for loan losses	(9,160,000)	(8,680,000)
Net loans	795,660,000	744,161,000
Premises and equipment, net	17,960,000	18,158,000
Operating lease right-of-use assets	1,013,000	1,025,000
Accrued interest receivable	4,473,000	4,361,000
Cash surrender value of bank owned life insurance	25,088,000	24,792,000
Investments in low-income housing partnerships	2,055,000	1,530,000
Goodwill	19,133,000	19,133,000
Deferred income taxes	6,844,000
Other assets	4,458,000	3,808,000
TOTAL ASSETS	1,304,582,000	1,320,350,000
LIABILITIES
Non-interest bearing	230,513,000	249,040,000
Interest bearing	763,095,000	828,929,000
Total deposits	993,608,000	1,077,969,000
Short-term borrowings	129,723,000	27,377,000
Long-term borrowings	25,000,000	35,000,000
Subordinated debentures	25,000,000	25,000,000
Operating lease liabilities	1,495,000	1,499,000
Accrued interest payable	273,000	251,000
Deferred income taxes		631,000
Other liabilities	4,104,000	4,068,000
TOTAL LIABILITIES	1,179,203,000	1,171,795,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $2.00 per share; authorized 1,000,000 shares as of June 30, 2022 and December 31, 2021; issued 0 as of June 30, 2022 and December 31, 2021	0	0
Common stock, par value $2.00 per share; authorized 20,000,000 shares as of June 30, 2022 and December 31, 2021; issued 6,212,972 as of June 30, 2022 and 6,178,835 as of December 31, 2021; outstanding 5,981,361 as of June 30, 2022 and 5,947,223 as of December 31, 2021	12,426,000	12,358,000
Surplus	41,691,000	40,940,000
Retained earnings	97,409,000	93,378,000
Accumulated other comprehensive (loss) income	(20,438,000)	7,588,000
Treasury stock, at cost, 231,611 shares as of June 30, 2022 and 231,612 shares as of December 31, 2021	(5,709,000)	(5,709,000)
TOTAL STOCKHOLDERS' EQUITY	125,379,000	148,555,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,304,582,000	$ 1,320,350,000

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2022	Dec. 31, 2021
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	6,212,972	6,178,835
Common stock, shares outstanding	5,981,361	5,947,223
Treasury stock, shares	231,611	231,612

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
INTEREST INCOME
Interest and fees on loans	$ 8,486	$ 7,989	$ 16,662	$ 16,143
Interest and dividend income on securities:
Taxable	1,716	1,360	3,287	2,600
Tax-exempt	849	862	1,685	1,702
Dividends	11	12	24	24
Dividend income on restricted investment in bank stocks	49	27	70	53
Interest on interest-bearing deposits in other banks		9	12	12
Total interest income	11,111	10,259	21,740	20,534
INTEREST EXPENSE
Interest on deposits	706	783	1,391	1,578
Interest on short-term borrowings	182	20	210	40
Interest on long-term borrowings	168	211	358	428
Interest on subordinated debt	274	274	544	547
Total interest expense	1,330	1,288	2,503	2,593
Net interest income	9,781	8,971	19,237	17,941
Provision for loan losses	218	135	437	270
Net interest income after provision for loan losses	9,563	8,836	18,800	17,671
NON-INTEREST INCOME
Trust department	268	265	518	518
Service charges and fees	549	481	1,058	856
Increase in cash surrender value of life insurance	148	150	296	299
ATM fees and debit card income	558	568	1,067	1,084
Net (losses) gains on sales of mortgage loans		308	(34)	662
Net securities (losses) gains	(68)	28	(131)	143
Other	59	65	129	178
Total non-interest income	1,514	1,865	2,903	3,740
NON-INTEREST EXPENSE
Salaries and employee benefits	3,462	3,461	7,016	6,761
Occupancy, net	478	483	970	980
Furniture and equipment expense	147	142	302	280
Computer expense	358	315	728	585
Professional services	370	273	668	532
Pennsylvania shares tax	324	313	648	626
FDIC insurance, net	120	120	257	207
ATM and debit card fees	242	283	370	483
Data processing fees	251	323	509	617
Foreclosed assets held for resale expense, net				3
Advertising	118	109	190	181
Other	725	725	1,453	1,489
Total non-interest expense	6,595	6,547	13,111	12,744
Income before income tax expense	4,482	4,154	8,592	8,667
Income tax expense	660	549	1,227	1,184
NET INCOME	$ 3,822	$ 3,605	$ 7,365	$ 7,483
Net income per share:
Basic	$ 0.64	$ 0.61	$ 1.24	$ 1.27
Diluted	0.64	0.61	1.24	1.27
Dividends per share	$ 0.28	$ 0.27	$ 0.56	$ 0.55

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net Income		$ 3,822	$ 3,605	$ 7,365	$ 7,483
Other comprehensive (loss) income:
Unrealized net holding (losses) gains on debt securities available-for-sale arising during the period, net of income taxes		(10,723)	2,198	(28,006)	(1,725)
Less reclassification adjustment for net gains included in net income, net of income taxes	[1],[2]	(21)		(21)
Total other comprehensive (loss) income		(10,744)	2,198	(28,027)	(1,725)
Total Comprehensive (Loss) Income		$ (6,922)	$ 5,803	$ (20,662)	$ 5,758

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

[2] Income tax amounts are included in income tax expense on the consolidated statements of income.

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax	$ (2,850)	$ 583	$ (7,445)	$ (459)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax	$ (6)	$ 0	$ (6)	$ 0

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Surplus	Retained Earnings	Accumulated Other Comprehensive Income	Treasury Stock	Total
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 (loss) income, 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						7,483
Other comprehensive (loss) income, net of taxes						(1,725)
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
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 (loss) income, 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
Balance at Dec. 31, 2021	$ 12,358	40,940	93,378	7,588	(5,709)	148,555
Balance (in shares) at Dec. 31, 2021	6,178,835
Net Income			3,543			3,543
Other comprehensive (loss) income, net of taxes				(17,282)		(17,282)
Issuance of common stock under dividend reinvestment plan	$ 32	372				404
Issuance of common stock under dividend reinvestment plan (in shares)	16,297
Dividends			(1,665)			(1,665)
Balance at Mar. 31, 2022	$ 12,390	41,312	95,256	(9,694)	(5,709)	133,555
Balance (in shares) at Mar. 31, 2022	6,195,132
Balance at Dec. 31, 2021	$ 12,358	40,940	93,378	7,588	(5,709)	148,555
Balance (in shares) at Dec. 31, 2021	6,178,835
Net Income						7,365
Other comprehensive (loss) income, net of taxes						(28,027)
Balance at Jun. 30, 2022	$ 12,426	41,691	97,409	(20,438)	(5,709)	125,379
Balance (in shares) at Jun. 30, 2022	6,212,972
Balance at Mar. 31, 2022	$ 12,390	41,312	95,256	(9,694)	(5,709)	133,555
Balance (in shares) at Mar. 31, 2022	6,195,132
Net Income			3,822			3,822
Other comprehensive (loss) income, net of taxes				(10,744)		(10,744)
Issuance of common stock under dividend reinvestment plan	$ 36	379				415
Issuance of common stock under dividend reinvestment plan (in shares)	17,840
Dividends			(1,669)			(1,669)
Balance at Jun. 30, 2022	$ 12,426	$ 41,691	$ 97,409	$ (20,438)	$ (5,709)	$ 125,379
Balance (in shares) at Jun. 30, 2022	6,212,972

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2021	Mar. 31, 2021
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Cash dividends, per share	$ 0.28	$ 0.28	$ 0.27	$ 0.28

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 7,365,000	$ 7,483,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	437,000	270,000
Depreciation and amortization	528,000	514,000
Net premium amortization on securities	1,633,000	1,366,000
Deferred income tax expense (benefit)	(25,000)	(150,000)
Net losses (gains) on sales of mortgage loans	34,000	(662,000)
Proceeds from sales of mortgage loans originated for sale	4,429,000	21,427,000
Originations of mortgage loans originated for sale	(6,068,000)	(20,490,000)
Net securities losses (gains)	131,000	(143,000)
(Increase) decrease in accrued interest receivable	(112,000)	170,000
Increase in cash surrender value of bank owned life insurance	(296,000)	(299,000)
Net losses on disposals of premises and equipment	10,000	1,000
Increase in other assets	(639,000)	(1,116,000)
Amortization of investment in low-income housing partnerships	120,000	185,000
Increase (decrease) in accrued interest payable	22,000	(121,000)
Increase in other liabilities	37,000	241,000
NET CASH PROVIDED BY OPERATING ACTIVITIES	7,606,000	8,676,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equity securities and debt securities available-for-sale	170,000
Proceeds from maturities and redemptions of debt securities available-for-sale	28,871,000	30,836,000
Purchases of debt securities available-for-sale	(38,324,000)	(65,305,000)
Net decrease in time deposits with other banks	247,000
Net change in restricted investment in bank stocks	(3,834,000)	(359,000)
Net increase in loans	(50,331,000)	(21,649,000)
Purchase of premises and equipment	(325,000)	(131,000)
Purchase of investment in real estate venture	(645,000)
Proceeds from sales of foreclosed assets held for resale		28,000
NET CASH USED IN INVESTING ACTIVITIES	(64,171,000)	(56,580,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits	(84,361,000)	125,859,000
Net increase in short-term borrowings	102,346,000	7,005,000
Repayment of finance lease obligations	(5,000)	(5,000)
Repayment of long-term borrowings	(10,000,000)	(10,000,000)
Common stock issued	805,000	729,000
Dividends paid	(3,334,000)	(3,240,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES	5,451,000	120,348,000
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(51,114,000)	72,444,000
CASH AND CASH EQUIVALENTS, BEGINNING	61,338,000	24,180,000
CASH AND CASH EQUIVALENTS, ENDING	10,224,000	96,624,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	2,481,000	2,714,000
Income taxes paid	949,000	1,401,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Purchased securities settling after quarter end		5,783,000
Loans transferred from held for sale portfolio	(6,652,000)
Common stock subscription receivable	14,000	13,000
Right-of-use assets obtained in exchange for lease liabilities	$ 35,000	$ 33,000

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

6 Months Ended

Jun. 30, 2022

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 six months ended June 30, 2022, are not necessarily indicative of the results for the year ending December 31, 2022. 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, 2021.

Subsequent Events

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of June 30, 2022 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")

6 Months Ended

Jun. 30, 2022

RECENT ACCOUNTING STANDARDS UPDATES ("ASU")

RECENT ACCOUNTING STANDARDS UPDATES ("ASU")

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

Recently adopted ASUs:

There were no ASUs adopted during the first two quarters of 2022.

Pending ASUs:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 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 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. It is currently unclear how the adoption of this standard will impact the Company’s consolidated financial statements, but the Company is currently evaluating the provisions of ASU 2016-13 to determine the potential impact that the adoption of the standard may have on the Company. The Company 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.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance on troubled debt restructurings (“TDRs”) by creditors that have adopted the current expected credit losses (“CECL”) model and enhances disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial

difficulty. The ASU also amends the guidance on “vintage disclosures” to require disclosure of current-period gross charge-offs by year of origination. For entities that have not yet adopted ASU 2016-13, the amendments in ASU 2022-02 are effective upon adoption of ASU 2016-13. Entities may elect to apply the guidance on TDR recognition and measurement by using a modified retrospective transition method, which would result in a cumulative-effect adjustment to retained earnings, or to adopt the amendments prospectively. If an entity elects to adopt the updated guidance on TDR recognition and measurement prospectively, the guidance should be applied to modifications occurring after the date of adoption. The amendments on TDR disclosures and vintage disclosures should be adopted prospectively. The Company plans to adopt ASU 2022-02 upon the adoption of ASU 2016-13 and is currently evaluating the provisions of ASU 2022-02 and ASU 2016-13 to determine the potential impact the new standard will have on the Company’s consolidated financial statements.

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SECURITIES

6 Months Ended

Jun. 30, 2022

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 (loss) 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 June 30, 2022 and December 31, 2021:

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2022:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	20,228	$	—	$	(1,270)	$	18,958
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		113,450		14		(9,219)		104,245
Other		5,988		4		(53)		5,939
Other mortgage backed securities		40,815		—		(2,259)		38,556
Obligations of state and political subdivisions		175,292		1,011		(11,767)		164,536
Asset backed securities		32,365		—		(1,005)		31,360
Corporate debt securities		47,994		156		(1,484)		46,666
Total	$	436,132	$	1,185	$	(27,057)	$	410,260

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2021:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	7,825	$	—	$	(96)	$	7,729
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		116,039		560		(1,688)		114,911
Other		7,636		5		(65)		7,576
Other mortgage backed securities		39,881		99		(430)		39,550
Obligations of state and political subdivisions		175,021		11,709		(554)		186,176
Asset backed securities		36,555		143		(156)		36,542
Corporate debt securities		45,354		448		(370)		45,432
Total	$	428,311	$	12,964	$	(3,359)	$	437,916

Securities Available-for-Sale with an aggregate fair value of $288,785,000 at June 30, 2022 and $401,861,000 at December 31, 2021, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $236,643,000 at June 30, 2022 and $318,074,000 at December 31, 2021.

The amortized cost and estimated fair value of debt securities, by contractual maturity, are shown below at June 30, 2022. 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.

			June 30, 2022
			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	$	—		$	—	$	—	$	2,553	$	—	$	1,536
Fair value		—			—		—		2,554		—		1,534
1 - 5 Years:
Amortized cost		12,389			323		7,941		21,300		33		13,212
Fair value		11,902			321		7,748		21,056		33		13,246
5 - 10 Years:
Amortized cost		7,839			13,904		2,713		30,191		—		33,246
Fair value		7,056			13,834		2,615		29,294		—		31,886
After 10 Years:
Amortized cost		—			105,211		30,161		121,248		32,332		—
Fair value		—			96,029		28,193		111,632		31,327		—
Total:
Amortized cost	$	20,228		$	119,438	$	40,815	$	175,292	$	32,365	$	47,994
Fair value		18,958			110,184		38,556		164,536		31,360		46,666

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 June 30, 2022. 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.

There were no proceeds from sales of investments in Debt Securities Available-For-Sale for the three months ended June 30, 2022 and 2021. Therefore, there were no gains or losses realized during these periods. There were no impairment losses realized on Debt Securities Available-For-Sale during the three months ended June 30, 2022 or 2021.

There were no proceeds from sales of investments in Debt Securities Available-For-Sale for the six months ended June 30, 2022 and 2021. Therefore , there were no gains or losses realized during these periods. There were no impairment losses realized on Debt Securities Available-For-Sale during the six months ended June 30, 2022 or 2021.

At June 30, 2022 and December 31, 2021, the Company had $1,661,000 and $1,962,000, 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 six months ended June 30, 2022 and 2021:

(Dollars in thousands)	Six months ended		Six months ended
	June 30, 2022		June 30, 2021
Net (losses) and gains recognized during the period on equity securities	$	(158)	$	143
Less: Net gains recognized during the period on equity securities sold during the period		27		—
Net (losses) and gains recognized during the reporting period on equity securities still held at the reporting date	$	(131)	$	143

There were no proceeds from sales of investments in Held-to-Maturity debt securities during the six months ended June 30, 2022 or 2021. 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 (loss) income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the security.

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 June 30, 2022 or December 31, 2021.

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 June 30, 2022 and December 31, 2021:

June 30, 2022

(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	$	18,958	$	(1,270)	$	—	$	—	$	18,958	$	(1,270)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		83,061		(6,799)		18,270		(2,420)		101,331		(9,219)
Other		201		(1)		5,463		(52)		5,664		(53)
Other mortgage-backed debt securities		31,323		(1,646)		7,234		(613)		38,557		(2,259)
Obligations of state and political subdivisions		100,845		(9,382)		9,718		(2,385)		110,563		(11,767)
Asset backed securities		24,945		(445)		6,415		(560)		31,360		(1,005)
Corporate debt securities		31,256		(1,324)		5,590		(160)		36,846		(1,484)
Total	$	290,589	$	(20,867)	$	52,690	$	(6,190)	$	343,279	$	(27,057)

December 31, 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	$	7,729	$	(96)	$	—	$	—	$	7,729	$	(96)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		66,195		(1,271)		11,697		(417)		77,892		(1,688)
Other		—		—		6,687		(65)		6,687		(65)
Other mortgage-backed debt securities		11,036		(225)		7,362		(205)		18,398		(430)
Obligations of state and political subdivisions		25,867		(362)		3,931		(192)		29,798		(554)
Asset backed securities		11,232		(49)		6,315		(107)		17,547		(156)
Corporate debt securities		19,485		(315)		3,445		(55)		22,930		(370)
Total	$	141,544	$	(2,318)	$	39,437	$	(1,041)	$	180,981	$	(3,359)

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 153 debt securities with a less than one year unrealized loss position, or any of their 31 debt securities with a one year or greater unrealized loss position as of June 30, 2022, 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 June 30, 2022.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2022

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 principally 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 14 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 June 30, 2022, the Company's balance of GGLs was $5,267,000, compared to $3,829,000 at December 31, 2021.

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 principally 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 $765,000 and $6,006,000 at June 30, 2022 and December 31, 2021, respectively.

Consumer Lending

The Company offers a variety of secured and unsecured consumer loans, including vehicle loans, stock secured 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 June 30, 2022, the Company held 3 PPP loans in its Commercial and Industrial portfolio which carried a balance of $146,000, of which 2 loans carrying an aggregate balance of $137,000 were granted during the first round of PPP issuance and 1 loan carrying a balance of $9,000 was granted during the second round of PPP issuance. At December 31, 2021, the Company held 122 PPP loans in its Commercial and Industrial portfolio, which carried an aggregate balance of $4,894,000, of which 2 loans carrying an aggregate balance of $160,000 were granted during the first round of PPP issuance and 120 loans carrying an aggregate balance of $4,734,000 were granted during the second 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 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 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 were granted in compliance with Section 4013 of the CARES Act, there were no loan modifications still actively on deferral as of June 30, 2022, compared to December 31, 2021 when there was 1 loan modification still actively on deferral carrying a balance of $9,423,000. See page 24 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 TDR is considered to be a collateral dependent loan, the loan may be reported at the net realizable value of the collateral. For TDRs 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.

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 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 June 30, 2022 and December 31, 2021, the amount of the reserve for unfunded lending commitments was $117,000 and $177,000, 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 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 24 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 June 30, 2022 and December 31, 2021:

	Commercial and
(Dollars in thousands)	Industrial				Commercial Real Estate
	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Grade:
1-6 Pass	$	81,317	$	81,561	$	547,062	$	498,565
7    Special Mention		—		—		1,019		1,098
8    Substandard		755		796		19,294		21,248
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		467		169		883		743
Total loans	$	82,539	$	82,526	$	568,258	$	521,654

	Residential Real Estate
	Including Home Equity				Consumer
	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Grade:
1-6 Pass	$	147,874	$	141,983	$	5,277	$	5,210
7    Special Mention		—		570		61		—
8    Substandard		912		1,020		—		5
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(165)		(190)		64		63
Total loans	$	148,621	$	143,383	$	5,402	$	5,278

	Total Loans
	June 30,		December 31,
	2022		2021
Grade:
1-6 Pass	$	781,530	$	727,319
7 Special Mention		1,080		1,668
8 Substandard		20,961		23,069
9 Doubtful		—		—
Add (deduct):  Unearned discount and		—		—
Net deferred loan fees and costs		1,249		785
Total loans	$	804,820	$	752,841

Commercial and Industrial and Commercial Real Estate include loans categorized as tax-free in the amounts of $23,897,000 and $1,583,000 at June 30, 2022 and $24,647,000 and $1,671,000 at December 31, 2021. Commercial and Industrial loans also included $5,267,000 and $3,829,000 of Government Guaranteed Loans and $146,000 and $4,894,000 of Paycheck Protection Program loans as of June 30, 2022 and December 31, 2021, respectively. Loans held for sale amounted to $765,000 at June 30, 2022 and $6,006,000 at December 31, 2021.

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 June 30, 2022:
Allowance for Loan Losses:
Beginning balance	$	665	$	5,759	$	1,538	$	78	$	897	$	8,937
Charge-offs		(9)		—		—		(4)		—		(13)
Recoveries		1		—		13		4		—		18
Provision (credit)		18		195		58		1		(54)		218
Ending Balance	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the six months ended June 30, 2022:
Allowance for Loan Losses:
Beginning balance	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Charge-offs		(9)		—		—		(6)		—		(15)
Recoveries		2		38		14		4		—		58
Provision (credit)		1		508		56		(3)		(125)		437
Ending Balance	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160
Loans Receivable:
Ending Balance	$	82,539	$	568,258	$	148,621	$	5,402	$	—	$	804,820
Ending balance: individually
evaluated for impairment	$	991	$	10,448	$	845	$	—	$	—	$	12,284
Ending balance: collectively
evaluated for impairment	$	81,548	$	557,810	$	147,776	$	5,402	$	—	$	792,536

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended June 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	790	$	4,786	$	1,606	$	93	$	772	$	8,047
Charge-offs		—		(29)		(55)		(10)		—		(94)
Recoveries		—		30		1		5		—		36
Provision (credit)		61		143		(13)		7		(63)		135
Ending Balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the six months ended June 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(55)		(20)		—		(117)
Recoveries		—		30		1		7		—		38
Provision (credit)		77		167		(50)		14		62		270
Ending Balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124
Ending balance: individually
evaluated for impairment	$	—	$	1	$	—	$	—	$	—	$	1
Ending balance: collectively
evaluated for impairment	$	851	$	4,929	$	1,539	$	95	$	709	$	8,123
Loans Receivable:
Ending Balance	$	103,894	$	486,825	$	145,965	$	5,221	$	—	$	741,905
Ending balance: individually
evaluated for impairment	$	1,047	$	13,861	$	1,185	$	—	$	—	$	16,093
Ending balance: collectively
evaluated for impairment	$	102,847	$	472,964	$	144,780	$	5,221	$	—	$	725,812

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(80)		(36)		—		(158)
Recoveries		—		30		4		11		—		45
Credit (provision)		(93)		645		(28)		15		321		860
Ending Balance	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Loans Receivable:
Ending Balance	$	82,526	$	521,654	$	143,383	$	5,278	$	—	$	752,841
Ending balance: individually
evaluated for impairment	$	1,017	$	11,803	$	853	$	—	$	—	$	13,673
Ending balance: collectively
evaluated for impairment	$	81,509	$	509,851	$	142,530	$	5,278	$	—	$	739,168

The outstanding recorded investment of TDRs as of June 30, 2022 and December 31, 2021 was $7,669,000 and $8,020,000, respectively. The decrease in TDRs at June 30, 2022 as compared to December 31, 2021 is mainly attributable to regular principal payments and paydowns on existing TDRs that were completed during the six months ended June 30, 2022. There were no unfunded commitments on TDRs at June 30, 2022 and December 31, 2021.

During the three months ended June 30, 2022, one loan with a post modification balance of $372,000 was modified as a TDR. No loans were modified as TDRs during the first three months of 2022. During the six months ended June 30, 2021, three loans with a combined post modification balance of $301,000 were modified as TDRs. No loans were modified as TDRs during the three months ended June 30, 2021. The loan modifications for the six months ended June 30, 2022 consisted of one payment modification, compared to the loan modifications for the six months ended June 30, 2021 which consisted of two term modifications and one payment modification.

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

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Non-accrual TDRs	$	1,355	$	1,413
Accruing TDRs		6,314		6,607
Total	$	7,669	$	8,020

At June 30, 2022, three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $682,000, six Commercial Real Estate loans classified as TDRs with a combined recorded investment of $318,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $12,000 were not in compliance with the terms of their restructure, compared to June 30, 2021 when three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $736,000, seven Commercial Real Estate loans classified as TDRs with a combined recorded investment of $479,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $17,000 were not in compliance with the terms of their restructure.

Of the loans that were modified as TDRs within the twelve months preceding June 30, 2022, no loans experienced payment defaults during the three months ended June 30, 2022. One Commercial Real Estate loan that was modified as a TDR within the twelve months preceding June 30, 2022 experienced a payment default during the six months ended June 30, 2022, but the loan was subsequently paid off during the first quarter of 2022. Of the loans that were modified as TDRs during the twelve months preceding June 30, 2021, three Commercial Real Estate loans totaling $300,000 experienced payment defaults during the three months ended June 30, 2021. No loans that were modified as TDRs during the twelve months preceding June 30, 2021 experienced payment defaults during the first three months of 2021.

The following table presents information regarding the loan modifications categorized as TDRs during the three and six months ended June 30, 2022 and the six months ended June 30, 2021. No loans were modified as TDRs during the three months ended June 30, 2021.

(Dollars in thousands)	For the Three Months Ended June 30, 2022
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	347	$	372	$	372
Total	1	$	347	$	372	$	372
(Dollars in thousands)	For the Six Months Ended June 30, 2022
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	347	$	372	$	372
Total	1	$	347	$	372	$	372

(Dollars in thousands)	For the Six Months Ended June 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	3	$	301	$	301	$	301
Total	3	$	301	$	301	$	301

The following table provides detail regarding the types of loan modifications made for loans categorized as TDRs during the three and six months ended June 30, 2022 and the six months ended June 30, 2021 with the total number of each type of modification performed. No loans were modified as TDRs during the three months ended June 30, 2021.

	For the Three Months Ended June 30, 2022
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Six Months Ended June 30, 2022
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Six Months Ended June 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	2	1	3
Total	—	2	1	3

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 six months ended June 30, 2022:

(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, 2021	—	$	—	1	$	9,423	—	$	—	—	$	—	1	$	9,423
Additional modifications granted for the three months ended March 31, 2022	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended March 31, 2022 (a)	—		—	(1)		(9,423)	—		—	—		—	(1)		(9,423)
Principal payments net of draws on active deferred loans for the three months ended March 31, 2022 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at March 31, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Additional modifications granted for the three months ended June 30, 2022	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended June 30, 2022 (a)	—		—	—		—	—		—	—		—	—		—
Principal payments net of draws on active deferred loans for the three months ended June 30, 2022 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at June 30, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Percent of Total Section 4013 CARES Act Modifications as of June 30, 2022			0.00%			0.00%			0.00%			0.00%			0.00%
Percent of Total Section 4013 CARES Act Modifications to Total Loans as of June 30, 2022			0.00%			0.00%			0.00%			0.00%			0.00%
Subsequent modifications granted during the three months ended June 30, 2022 for active deferred loans outstanding as of June 30, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—

(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 June 30, 2022 and December 31, 2021.

(Dollars in thousands)	June 30, 2022						December 31, 2021
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial and Industrial	$	991	$	991	$	—	$	1,017	$	1,017	$	—
Commercial Real Estate		10,448		13,381		—		11,803		14,735		—
Residential Real Estate		845		877		—		853		885		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—		—		—
Commercial Real Estate		—		—		—		—		—		—
Residential Real Estate		—		—		—		—		—		—
Total	$	12,284	$	15,249	$	—	$	13,673	$	16,637	$	—
Total consists of:
Commercial and Industrial	$	991	$	991	$	—	$	1,017	$	1,017	$	—
Commercial Real Estate	$	10,448	$	13,381	$	—	$	11,803	$	14,735	$	—
Residential Real Estate	$	845	$	877	$	—	$	853	$	885	$	—

At June 30, 2022 and December 31, 2021, $7,669,000 and $8,020,000 of loans classified as TDRs were included in impaired loans with a total allocated allowance of $0 at both June 30, 2022 and December 31, 2021. 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 six months ended June 30, 2022 and 2021.

(Dollars in thousands)	For the Three Months Ended				For the Three Months Ended
	June 30, 2022				June 30, 2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	998	$	3	$	1,057	$	2
Commercial Real Estate		10,801		70		12,750		95
Residential Real Estate		847		—		1,233		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		483		—
Residential Real Estate		—		—		—		—
Total	$	12,646	$	73	$	15,523	$	98
Total consists of:
Commercial and Industrial	$	998	$	3	$	1,057	$	2
Commercial Real Estate	$	10,801	$	70	$	13,233	$	95
Residential Real Estate	$	847	$	—	$	1,233	$	1

Of the $73,000 and $98,000 in interest income recognized on impaired loans for the three months ended June 30, 2022 and 2021 respectively, $0 and $3,000 in interest income was recognized with respect to non-accrual loans for each respective period.

(Dollars in thousands)	For the Six Months Ended				For the Six Months Ended
	June 30, 2022				June 30, 2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,004	$	5	$	1,071	$	5
Commercial Real Estate		11,247		142		12,564		188
Residential Real Estate		849		—		1,142		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		484		—
Residential Real Estate		—		—		—		—
Total	$	13,100	$	147	$	15,261	$	194
Total consists of:
Commercial and Industrial	$	1,004	$	5	$	1,071	$	5
Commercial Real Estate	$	11,247	$	142	$	13,048	$	188
Residential Real Estate	$	849	$	—	$	1,142	$	1

Of the $147,000 and $194,000 in interest income recognized on impaired loans for the six months ended June 30, 2022 and 2021 respectively, $0 and $3,000 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 June 30, 2022 and December 31, 2021 were as follows:

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Commercial and Industrial	$	683	$	708
Commercial Real Estate		4,454		5,519
Residential Real Estate		833		839
Total non-accrual loans		5,970		7,066
Foreclosed assets held for resale		—		—
Loans past-due 90 days or more and still accruing interest		166		—
Total non-performing assets	$	6,136	$	7,066

There were no foreclosed assets held for resale at June 30, 2022 or December 31, 2021. 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 June 30, 2022 and December 31, 2021. These balances were not included in foreclosed assets held for resale at June 30, 2022 or December 31, 2021.

The following tables present the classes of the loan portfolio, including non-accrual loans and TDRs, summarized by past-due status at June 30, 2022 and December 31, 2021:

(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
June 30, 2022:
Commercial and Industrial	$	150	$	—	$	656	$	806	$	81,733	$	82,539	$	—
Commercial Real Estate		474		—		3,783		4,257		564,001		568,258		—
Residential Real Estate		150		117		999		1,266		147,355		148,621		166
Consumer		—		9		—		9		5,393		5,402		—
Total	$	774	$	126	$	5,438	$	6,338	$	798,482	$	804,820	$	166

(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, 2021:
Commercial and Industrial	$	47	$	—	$	678	$	725	$	81,801	$	82,526	$	—
Commercial Real Estate		116		189		4,891		5,196		516,458		521,654		—
Residential Real Estate		553		191		839		1,583		141,800		143,383		—
Consumer		14		—		—		14		5,264		5,278		—
Total	$	730	$	380	$	6,408	$	7,518	$	745,323	$	752,841	$	—

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

At June 30, 2022 and December 31, 2021, 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

6 Months Ended

Jun. 30, 2022

DEPOSITS

DEPOSITS

NOTE 5 — DEPOSITS

Major classifications of deposits at June 30, 2022 and December 31, 2021 consisted of:

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Non-interest bearing demand	$	230,513	$	249,040
Interest bearing demand		325,624		395,033
Savings		276,599		260,804
Time certificates of deposits less than $250,000		147,603		158,914
Time certificates of deposits $250,000 or greater		11,699		13,030
Other time		1,570		1,148
Total deposits	$	993,608	$	1,077,969

Total deposits decreased $84,361,000 to $993,608,000 as of June 30, 2022 due to decreases in non-interest bearing, interest bearing demand and time deposits. The decrease in deposits was mainly the result of a $95,504,000 decrease in highly rate sensitive deposits and other normal fluctuations in deposits during the six months ended June 30, 2022.

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BORROWINGS

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)	June 30, 2022				December 31, 2021
			Average				Average
	Amount		Rate		Amount		Rate
Federal funds purchased	$	—	—	%	$	—	0.36	%
Securities sold under agreements to repurchase		25,311	0.36	%		27,377	0.35	%
Federal Discount Window		—	0.70	%		—	0.36	%
Federal Home Loan Bank of Pittsburgh		104,412	1.16	%		—	0.34	%
Total	$	129,723	0.77	%	$	27,377	0.35	%

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 June 30, 2022 and December 31, 2021.

(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
June 30, 2022
Repurchase agreements (a)	$	25,311	$	—	$	25,311	$	(25,311)	$	—	$	—
December 31, 2021
Repurchase agreements (a)	$	27,377	$	—	$	27,377	$	(27,377)	$	—	$	—

(a) As of June 30, 2022 and December 31, 2021, the fair value of securities pledged in connection with repurchase agreements was $30,603,000 and $37,735,000 , respectively.

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of June 30, 2022:

(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
June 30, 2022:
Repurchase agreements and repurchase-to-maturity transactions:
U.S. Treasury and/or agency securities	$	25,311	$	—	$	—	$	—	$	25,311
Total	$	25,311	$	—	$	—	$	—	$	25,311

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. There were no irrevocable standby letters of credit which could be drawn on through FHLB’s close of business on June 30, 2022. Any irrevocable standby letters of credit are issued 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 June 30, 2022, loans of $641,482,000 were pledged to FHLB which resulted in a FHLB maximum borrowing capacity of $458,318,000. As of June 30, 2022, no securities were pledged as collateral to FHLB to secure FHLB loans and letters of credit.

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SUBORDINATED DEBT

6 Months Ended

Jun. 30, 2022

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 utilized 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

6 Months Ended

Jun. 30, 2022

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 four branch banking facilities and one parcel of land under operating leases. At June 30, 2022, right-of-use assets and lease liabilities were recorded related to these operating leases totaling $1,013,000 and $1,495,000, respectively. At December 31, 2021, right-of-use assets and lease liabilities stood at $1,025,000 and $1,499,000, respectively. Further options to extend or terminate the lease are not applicable for any of the five 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 six months ended June 30, 2022 and 2021 of $90,000 and $89,000, respectively. Operating lease costs are included in occupancy, net in the accompanying statements of income. Cash payments totaled $83,000 and $77,000, respectively, for the six months ended June 30, 2022 and 2021.

The Bank currently has one finance lease for equipment. At June 30, 2022, right-of-use assets and lease liabilities were recorded related to the finance lease totaling $34,000 and $11,000, respectively. At December 31, 2021, right-of-use assets and lease liabilities stood at $34,000 and $16,000, 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 six months ended June 30, 2022 and 2021 were immaterial. Cash payments totaled $5,000 for the six months ended June 30, 2022 and 2021.

The following table displays the weighted-average term and discount rates for operating and finance leases outstanding as of June 30, 2022 and December 31, 2021.

	June 30,	December 31,	June 30,	December 31,
	2022	2021	2022	2021
	Operating	Operating	Finance	Finance
Weighted-average term (years)	24.20	24.51	1.17	1.67
Weighted-average discount rate	3.91%	3.89%	0.68%	0.68%

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)	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Minimum Lease Payments due:	Operating		Operating		Finance		Finance
Within one year	$	100	$	120	$	10	$	10
After one but within two years		68		68		2		7
After two but within three years		68		68		—		—
After three but within four years		68		68		—		—
After four but within five years		75		68		—		—
After five years		2,149		2,190		—		—
Total undiscounted cash flows		2,528		2,582		12		17
Discount on cash flows		(1,033)		(1,083)		(1)		(1)
Total lease liability	$	1,495	$	1,499	$	11	$	16

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

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021 were as follows:

(Dollars in thousands)
	June 30, 2022		December 31, 2021
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	123,931	$	142,335
Financial standby letters of credit	$	1,714	$	2,000
Performance standby letters of credit	$	3,113	$	3,727

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 June 30, 2022, the Company had $716,879,000 in loans secured by real estate, which represented 89.1% 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

June 30, 2022 and December 31, 2021, 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

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

(Dollars in thousands)
June 30, 2022	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	18,958	$	—	$	—	$	18,958
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		104,245		—		104,245
Other		—		5,939		—		5,939
Other mortgage backed debt securities		—		38,556		—		38,556
Obligations of state and political subdivisions		—		164,536		—		164,536
Asset backed securities		—		31,360		—		31,360
Corporate debt securities		—		46,666		—		46,666
Total debt securities available-for-sale		18,958		391,302		—		410,260
Marketable equity securities		1,661		—		—		1,661
Total recurring fair value measurements	$	20,619	$	391,302	$	—	$	411,921

(Dollars in thousands)
December 31, 2021	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	7,729	$	—	$	—	$	7,729
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		114,911		—		114,911
Other		—		7,576		—		7,576
Other mortgage backed debt securities		—		39,550		—		39,550
Obligations of state and political subdivisions		—		186,176		—		186,176
Asset backed securities		—		36,542		—		36,542
Corporate debt securities		—		45,432		—		45,432
Total debt securities available-for-sale		7,729		430,187		—		437,916
Marketable equity securities		1,962		—		—		1,962
Total recurring fair value measurements	$	9,691	$	430,187	$	—	$	439,878

The estimated fair values of equity securities and US Treasury debt securities classified as Level 1 are derived from quoted market prices in active markets; the equity securities 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 2022 or 2021.

Financial Assets Measured at Fair Value on a Nonrecurring Basis

At June 30, 2022 and December 31, 2021, 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 June 30, 2022
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,919	$	5,919
Residential Real Estate		—		—		30		30
Total impaired loans	$	—	$	—	$	5,949	$	5,949

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2021
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,954	$	5,954
Residential Real Estate		—		—		30		30
Total impaired loans	$	—	$	—	$	5,984	$	5,984

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 2022 and 2021.

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

There were no foreclosed assets held for resale measured at fair value on a nonrecurring basis at June 30, 2022 and December 31, 2021.

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 2022 and 2021.

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
June 30, 2022	Estimate		Valuation Technique	Unobservable Input	Range	Average
Impaired loans - collateral dependent	$	3,120	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (44%)	(15%)
Impaired loans - other	$	2,829	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
December 31, 2021
Impaired loans - collateral dependent	$	3,120	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (44%)	(15%)
Impaired loans - other	$	2,864	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)

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 June 30, 2022
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	9,441	$	9,441	$	—	$	—	$	9,441
Interest-bearing deposits in other banks		783		—		783		—		783
Time deposits with other banks		—		—		—		—		—
Restricted investment in bank stocks		5,753		—		5,753		—		5,753
Net loans		795,660		—		—		774,976		774,976
Mortgage servicing rights		349		—		—		349		349
Accrued interest receivable		4,473		—		4,473		—		4,473
FINANCIAL LIABILITIES:
Demand, savings and other deposits		832,736		—		832,736		—		832,736
Time deposits		160,872		—		156,636		—		156,636
Short-term borrowings		129,723		—		129,106		—		129,106
Long-term borrowings		25,000		—		24,598		—		24,598
Subordinated debentures		25,000		—		22,428		—		22,428
Accrued interest payable		273		—		273		—		273
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

(Dollars in thousands)	Carrying		Fair Value Measurements at December 31, 2021
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	9,600	$	9,600	$	—	$	—	$	9,600
Interest-bearing deposits in other banks		51,738		—		51,738		—		51,738
Time deposits with other banks		247		—		247		—		247
Restricted investment in bank stocks		1,919		—		1,919		—		1,919
Net loans		744,161		—		—		762,914		762,914
Mortgage servicing rights		367		—		—		367		367
Accrued interest receivable		4,361		—		4,361		—		4,361
FINANCIAL LIABILITIES:
Demand, savings and other deposits		904,877		—		904,877		—		904,877
Time deposits		173,092		—		172,897		—		172,897
Short-term borrowings		27,377		—		27,380		—		27,380
Long-term borrowings		35,000		—		35,987		—		35,987
Subordinated debentures		25,000		—		24,384		—		24,384
Accrued interest payable		251		—		251		—		251
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

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REVENUE RECOGNITION

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021, the fair value of trust assets under management was $111,330,000 and $108,339,000, 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

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and 2021, 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
	June 30,
	2022		2021
Net income	$	3,822	$	3,605
Weighted-average common shares outstanding		5,964		5,905
Basic and diluted earnings per share	$	0.64	$	0.61

(In thousands, except earnings per share)	Six Months Ended
	June 30,
	2022		2021
Net income	$	7,365	$	7,483
Weighted-average common shares outstanding		5,956		5,894
Basic and diluted earnings per share	$	1.24	$	1.27

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GOODWILL

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021.

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.

Goodwill was evaluated for impairment at December 31, 2021, 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 June 30, 2022.

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SECURITIES (Tables)

6 Months Ended

Jun. 30, 2022

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
June 30, 2022:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	20,228	$	—	$	(1,270)	$	18,958
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		113,450		14		(9,219)		104,245
Other		5,988		4		(53)		5,939
Other mortgage backed securities		40,815		—		(2,259)		38,556
Obligations of state and political subdivisions		175,292		1,011		(11,767)		164,536
Asset backed securities		32,365		—		(1,005)		31,360
Corporate debt securities		47,994		156		(1,484)		46,666
Total	$	436,132	$	1,185	$	(27,057)	$	410,260

	Debt Securities Available-for-Sale
(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2021:	Cost		Gains		Losses		Value
U.S. Treasury securities	$	7,825	$	—	$	(96)	$	7,729
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		116,039		560		(1,688)		114,911
Other		7,636		5		(65)		7,576
Other mortgage backed securities		39,881		99		(430)		39,550
Obligations of state and political subdivisions		175,021		11,709		(554)		186,176
Asset backed securities		36,555		143		(156)		36,542
Corporate debt securities		45,354		448		(370)		45,432
Total	$	428,311	$	12,964	$	(3,359)	$	437,916

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

			June 30, 2022
			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	$	—		$	—	$	—	$	2,553	$	—	$	1,536
Fair value		—			—		—		2,554		—		1,534
1 - 5 Years:
Amortized cost		12,389			323		7,941		21,300		33		13,212
Fair value		11,902			321		7,748		21,056		33		13,246
5 - 10 Years:
Amortized cost		7,839			13,904		2,713		30,191		—		33,246
Fair value		7,056			13,834		2,615		29,294		—		31,886
After 10 Years:
Amortized cost		—			105,211		30,161		121,248		32,332		—
Fair value		—			96,029		28,193		111,632		31,327		—
Total:
Amortized cost	$	20,228		$	119,438	$	40,815	$	175,292	$	32,365	$	47,994
Fair value		18,958			110,184		38,556		164,536		31,360		46,666

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)	Six months ended		Six months ended
	June 30, 2022		June 30, 2021
Net (losses) and gains recognized during the period on equity securities	$	(158)	$	143
Less: Net gains recognized during the period on equity securities sold during the period		27		—
Net (losses) and gains recognized during the reporting period on equity securities still held at the reporting date	$	(131)	$	143

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

June 30, 2022

(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	$	18,958	$	(1,270)	$	—	$	—	$	18,958	$	(1,270)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		83,061		(6,799)		18,270		(2,420)		101,331		(9,219)
Other		201		(1)		5,463		(52)		5,664		(53)
Other mortgage-backed debt securities		31,323		(1,646)		7,234		(613)		38,557		(2,259)
Obligations of state and political subdivisions		100,845		(9,382)		9,718		(2,385)		110,563		(11,767)
Asset backed securities		24,945		(445)		6,415		(560)		31,360		(1,005)
Corporate debt securities		31,256		(1,324)		5,590		(160)		36,846		(1,484)
Total	$	290,589	$	(20,867)	$	52,690	$	(6,190)	$	343,279	$	(27,057)

December 31, 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	$	7,729	$	(96)	$	—	$	—	$	7,729	$	(96)
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgage-backed		66,195		(1,271)		11,697		(417)		77,892		(1,688)
Other		—		—		6,687		(65)		6,687		(65)
Other mortgage-backed debt securities		11,036		(225)		7,362		(205)		18,398		(430)
Obligations of state and political subdivisions		25,867		(362)		3,931		(192)		29,798		(554)
Asset backed securities		11,232		(49)		6,315		(107)		17,547		(156)
Corporate debt securities		19,485		(315)		3,445		(55)		22,930		(370)
Total	$	141,544	$	(2,318)	$	39,437	$	(1,041)	$	180,981	$	(3,359)

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

6 Months Ended

Jun. 30, 2022

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
	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Grade:
1-6 Pass	$	81,317	$	81,561	$	547,062	$	498,565
7    Special Mention		—		—		1,019		1,098
8    Substandard		755		796		19,294		21,248
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		467		169		883		743
Total loans	$	82,539	$	82,526	$	568,258	$	521,654

	Residential Real Estate
	Including Home Equity				Consumer
	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Grade:
1-6 Pass	$	147,874	$	141,983	$	5,277	$	5,210
7    Special Mention		—		570		61		—
8    Substandard		912		1,020		—		5
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(165)		(190)		64		63
Total loans	$	148,621	$	143,383	$	5,402	$	5,278

	Total Loans
	June 30,		December 31,
	2022		2021
Grade:
1-6 Pass	$	781,530	$	727,319
7 Special Mention		1,080		1,668
8 Substandard		20,961		23,069
9 Doubtful		—		—
Add (deduct):  Unearned discount and		—		—
Net deferred loan fees and costs		1,249		785
Total loans	$	804,820	$	752,841

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 June 30, 2022:
Allowance for Loan Losses:
Beginning balance	$	665	$	5,759	$	1,538	$	78	$	897	$	8,937
Charge-offs		(9)		—		—		(4)		—		(13)
Recoveries		1		—		13		4		—		18
Provision (credit)		18		195		58		1		(54)		218
Ending Balance	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the six months ended June 30, 2022:
Allowance for Loan Losses:
Beginning balance	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Charge-offs		(9)		—		—		(6)		—		(15)
Recoveries		2		38		14		4		—		58
Provision (credit)		1		508		56		(3)		(125)		437
Ending Balance	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	675	$	5,954	$	1,609	$	79	$	843	$	9,160
Loans Receivable:
Ending Balance	$	82,539	$	568,258	$	148,621	$	5,402	$	—	$	804,820
Ending balance: individually
evaluated for impairment	$	991	$	10,448	$	845	$	—	$	—	$	12,284
Ending balance: collectively
evaluated for impairment	$	81,548	$	557,810	$	147,776	$	5,402	$	—	$	792,536

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the three months ended June 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	790	$	4,786	$	1,606	$	93	$	772	$	8,047
Charge-offs		—		(29)		(55)		(10)		—		(94)
Recoveries		—		30		1		5		—		36
Provision (credit)		61		143		(13)		7		(63)		135
Ending Balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the six months ended June 30, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(55)		(20)		—		(117)
Recoveries		—		30		1		7		—		38
Provision (credit)		77		167		(50)		14		62		270
Ending Balance	$	851	$	4,930	$	1,539	$	95	$	709	$	8,124
Ending balance: individually
evaluated for impairment	$	—	$	1	$	—	$	—	$	—	$	1
Ending balance: collectively
evaluated for impairment	$	851	$	4,929	$	1,539	$	95	$	709	$	8,123
Loans Receivable:
Ending Balance	$	103,894	$	486,825	$	145,965	$	5,221	$	—	$	741,905
Ending balance: individually
evaluated for impairment	$	1,047	$	13,861	$	1,185	$	—	$	—	$	16,093
Ending balance: collectively
evaluated for impairment	$	102,847	$	472,964	$	144,780	$	5,221	$	—	$	725,812

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(80)		(36)		—		(158)
Recoveries		—		30		4		11		—		45
Credit (provision)		(93)		645		(28)		15		321		860
Ending Balance	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Loans Receivable:
Ending Balance	$	82,526	$	521,654	$	143,383	$	5,278	$	—	$	752,841
Ending balance: individually
evaluated for impairment	$	1,017	$	11,803	$	853	$	—	$	—	$	13,673
Ending balance: collectively
evaluated for impairment	$	81,509	$	509,851	$	142,530	$	5,278	$	—	$	739,168

Schedule of the outstanding recorded investment of TDRs

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Non-accrual TDRs	$	1,355	$	1,413
Accruing TDRs		6,314		6,607
Total	$	7,669	$	8,020

Schedule of the loan modifications categorized as TDRs

(Dollars in thousands)	For the Three Months Ended June 30, 2022
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	347	$	372	$	372
Total	1	$	347	$	372	$	372
(Dollars in thousands)	For the Six Months Ended June 30, 2022
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	1	$	347	$	372	$	372
Total	1	$	347	$	372	$	372

(Dollars in thousands)	For the Six Months Ended June 30, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	3	$	301	$	301	$	301
Total	3	$	301	$	301	$	301

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 six months ended June 30, 2022 and the six months ended June 30, 2021 with the total number of each type of modification performed. No loans were modified as TDRs during the three months ended June 30, 2021.

	For the Three Months Ended June 30, 2022
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Six Months Ended June 30, 2022
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	1	1
Total	—	—	1	1
	For the Six Months Ended June 30, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	2	1	3
Total	—	2	1	3

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, 2021	—	$	—	1	$	9,423	—	$	—	—	$	—	1	$	9,423
Additional modifications granted for the three months ended March 31, 2022	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended March 31, 2022 (a)	—		—	(1)		(9,423)	—		—	—		—	(1)		(9,423)
Principal payments net of draws on active deferred loans for the three months ended March 31, 2022 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at March 31, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Additional modifications granted for the three months ended June 30, 2022	—		—	—		—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended June 30, 2022 (a)	—		—	—		—	—		—	—		—	—		—
Principal payments net of draws on active deferred loans for the three months ended June 30, 2022 (b)	N/A		—	N/A		—	N/A		—	N/A		—	N/A		—
Balance at June 30, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Percent of Total Section 4013 CARES Act Modifications as of June 30, 2022			0.00%			0.00%			0.00%			0.00%			0.00%
Percent of Total Section 4013 CARES Act Modifications to Total Loans as of June 30, 2022			0.00%			0.00%			0.00%			0.00%			0.00%
Subsequent modifications granted during the three months ended June 30, 2022 for active deferred loans outstanding as of June 30, 2022	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—

(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)	June 30, 2022						December 31, 2021
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial and Industrial	$	991	$	991	$	—	$	1,017	$	1,017	$	—
Commercial Real Estate		10,448		13,381		—		11,803		14,735		—
Residential Real Estate		845		877		—		853		885		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—		—		—
Commercial Real Estate		—		—		—		—		—		—
Residential Real Estate		—		—		—		—		—		—
Total	$	12,284	$	15,249	$	—	$	13,673	$	16,637	$	—
Total consists of:
Commercial and Industrial	$	991	$	991	$	—	$	1,017	$	1,017	$	—
Commercial Real Estate	$	10,448	$	13,381	$	—	$	11,803	$	14,735	$	—
Residential Real Estate	$	845	$	877	$	—	$	853	$	885	$	—

(Dollars in thousands)	For the Three Months Ended				For the Three Months Ended
	June 30, 2022				June 30, 2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	998	$	3	$	1,057	$	2
Commercial Real Estate		10,801		70		12,750		95
Residential Real Estate		847		—		1,233		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		483		—
Residential Real Estate		—		—		—		—
Total	$	12,646	$	73	$	15,523	$	98
Total consists of:
Commercial and Industrial	$	998	$	3	$	1,057	$	2
Commercial Real Estate	$	10,801	$	70	$	13,233	$	95
Residential Real Estate	$	847	$	—	$	1,233	$	1

(Dollars in thousands)	For the Six Months Ended				For the Six Months Ended
	June 30, 2022				June 30, 2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,004	$	5	$	1,071	$	5
Commercial Real Estate		11,247		142		12,564		188
Residential Real Estate		849		—		1,142		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		—		—		484		—
Residential Real Estate		—		—		—		—
Total	$	13,100	$	147	$	15,261	$	194
Total consists of:
Commercial and Industrial	$	1,004	$	5	$	1,071	$	5
Commercial Real Estate	$	11,247	$	142	$	13,048	$	188
Residential Real Estate	$	849	$	—	$	1,142	$	1

Schedule of total non-performing assets

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Commercial and Industrial	$	683	$	708
Commercial Real Estate		4,454		5,519
Residential Real Estate		833		839
Total non-accrual loans		5,970		7,066
Foreclosed assets held for resale		—		—
Loans past-due 90 days or more and still accruing interest		166		—
Total non-performing assets	$	6,136	$	7,066

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
June 30, 2022:
Commercial and Industrial	$	150	$	—	$	656	$	806	$	81,733	$	82,539	$	—
Commercial Real Estate		474		—		3,783		4,257		564,001		568,258		—
Residential Real Estate		150		117		999		1,266		147,355		148,621		166
Consumer		—		9		—		9		5,393		5,402		—
Total	$	774	$	126	$	5,438	$	6,338	$	798,482	$	804,820	$	166

(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, 2021:
Commercial and Industrial	$	47	$	—	$	678	$	725	$	81,801	$	82,526	$	—
Commercial Real Estate		116		189		4,891		5,196		516,458		521,654		—
Residential Real Estate		553		191		839		1,583		141,800		143,383		—
Consumer		14		—		—		14		5,264		5,278		—
Total	$	730	$	380	$	6,408	$	7,518	$	745,323	$	752,841	$	—

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DEPOSITS (Tables)

6 Months Ended

Jun. 30, 2022

DEPOSITS

Schedule of major classifications of deposits

Major classifications of deposits at June 30, 2022 and December 31, 2021 consisted of:

(Dollars in thousands)	June 30,		December 31,
	2022		2021
Non-interest bearing demand	$	230,513	$	249,040
Interest bearing demand		325,624		395,033
Savings		276,599		260,804
Time certificates of deposits less than $250,000		147,603		158,914
Time certificates of deposits $250,000 or greater		11,699		13,030
Other time		1,570		1,148
Total deposits	$	993,608	$	1,077,969

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BORROWINGS (Tables)

6 Months Ended

Jun. 30, 2022

BORROWINGS

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

Short-term borrowings and weighted–average interest rates at June 30, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)	June 30, 2022				December 31, 2021
			Average				Average
	Amount		Rate		Amount		Rate
Federal funds purchased	$	—	—	%	$	—	0.36	%
Securities sold under agreements to repurchase		25,311	0.36	%		27,377	0.35	%
Federal Discount Window		—	0.70	%		—	0.36	%
Federal Home Loan Bank of Pittsburgh		104,412	1.16	%		—	0.34	%
Total	$	129,723	0.77	%	$	27,377	0.35	%

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 June 30, 2022 and December 31, 2021.

(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
June 30, 2022
Repurchase agreements (a)	$	25,311	$	—	$	25,311	$	(25,311)	$	—	$	—
December 31, 2021
Repurchase agreements (a)	$	27,377	$	—	$	27,377	$	(27,377)	$	—	$	—

(a) As of June 30, 2022 and December 31, 2021, the fair value of securities pledged in connection with repurchase agreements was $30,603,000 and $37,735,000 , 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 June 30, 2022:

(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
June 30, 2022:
Repurchase agreements and repurchase-to-maturity transactions:
U.S. Treasury and/or agency securities	$	25,311	$	—	$	—	$	—	$	25,311
Total	$	25,311	$	—	$	—	$	—	$	25,311

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COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021.

	June 30,	December 31,	June 30,	December 31,
	2022	2021	2022	2021
	Operating	Operating	Finance	Finance
Weighted-average term (years)	24.20	24.51	1.17	1.67
Weighted-average discount rate	3.91%	3.89%	0.68%	0.68%

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

(Dollars in thousands)	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Minimum Lease Payments due:	Operating		Operating		Finance		Finance
Within one year	$	100	$	120	$	10	$	10
After one but within two years		68		68		2		7
After two but within three years		68		68		—		—
After three but within four years		68		68		—		—
After four but within five years		75		68		—		—
After five years		2,149		2,190		—		—
Total undiscounted cash flows		2,528		2,582		12		17
Discount on cash flows		(1,033)		(1,083)		(1)		(1)
Total lease liability	$	1,495	$	1,499	$	11	$	16

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)	June 30,		December 31,		June 30,		December 31,
	2022		2021		2022		2021
Minimum Lease Payments due:	Operating		Operating		Finance		Finance
Within one year	$	100	$	120	$	10	$	10
After one but within two years		68		68		2		7
After two but within three years		68		68		—		—
After three but within four years		68		68		—		—
After four but within five years		75		68		—		—
After five years		2,149		2,190		—		—
Total undiscounted cash flows		2,528		2,582		12		17
Discount on cash flows		(1,033)		(1,083)		(1)		(1)
Total lease liability	$	1,495	$	1,499	$	11	$	16

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

6 Months Ended

Jun. 30, 2022

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

Schedule of Financial instruments whose contract amounts representing credit risk

(Dollars in thousands)
	June 30, 2022		December 31, 2021
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	123,931	$	142,335
Financial standby letters of credit	$	1,714	$	2,000
Performance standby letters of credit	$	3,113	$	3,727

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2022

FAIR VALUE MEASUREMENTS

Schedule of securities measured at fair value on a recurring basis

At June 30, 2022 and December 31, 2021, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

(Dollars in thousands)
June 30, 2022	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	18,958	$	—	$	—	$	18,958
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		104,245		—		104,245
Other		—		5,939		—		5,939
Other mortgage backed debt securities		—		38,556		—		38,556
Obligations of state and political subdivisions		—		164,536		—		164,536
Asset backed securities		—		31,360		—		31,360
Corporate debt securities		—		46,666		—		46,666
Total debt securities available-for-sale		18,958		391,302		—		410,260
Marketable equity securities		1,661		—		—		1,661
Total recurring fair value measurements	$	20,619	$	391,302	$	—	$	411,921

(Dollars in thousands)
December 31, 2021	Level 1		Level 2		Level 3		Total
Debt Securities Available-for-Sale:
U.S. Treasury securities	$	7,729	$	—	$	—	$	7,729
Obligations of U.S. Government Agencies and Sponsored Agencies:
Mortgaged-backed		—		114,911		—		114,911
Other		—		7,576		—		7,576
Other mortgage backed debt securities		—		39,550		—		39,550
Obligations of state and political subdivisions		—		186,176		—		186,176
Asset backed securities		—		36,542		—		36,542
Corporate debt securities		—		45,432		—		45,432
Total debt securities available-for-sale		7,729		430,187		—		437,916
Marketable equity securities		1,962		—		—		1,962
Total recurring fair value measurements	$	9,691	$	430,187	$	—	$	439,878

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

At June 30, 2022 and December 31, 2021, 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 June 30, 2022
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,919	$	5,919
Residential Real Estate		—		—		30		30
Total impaired loans	$	—	$	—	$	5,949	$	5,949

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2021
Impaired loans:
Commercial Real Estate	$	—	$	—	$	5,954	$	5,954
Residential Real Estate		—		—		30		30
Total impaired loans	$	—	$	—	$	5,984	$	5,984

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

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
June 30, 2022	Estimate		Valuation Technique	Unobservable Input	Range	Average
Impaired loans - collateral dependent	$	3,120	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (44%)	(15%)
Impaired loans - other	$	2,829	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)
December 31, 2021
Impaired loans - collateral dependent	$	3,120	Appraisal of collateral1,3 Certificate of Inspection1,3	Appraisal adjustments2 Qualitative Adjustments4	(15%) – (44%)	(15%)
Impaired loans - other	$	2,864	Discounted cash flow	Discount rate	(7%) – (7%)	(7%)

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 June 30, 2022
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	9,441	$	9,441	$	—	$	—	$	9,441
Interest-bearing deposits in other banks		783		—		783		—		783
Time deposits with other banks		—		—		—		—		—
Restricted investment in bank stocks		5,753		—		5,753		—		5,753
Net loans		795,660		—		—		774,976		774,976
Mortgage servicing rights		349		—		—		349		349
Accrued interest receivable		4,473		—		4,473		—		4,473
FINANCIAL LIABILITIES:
Demand, savings and other deposits		832,736		—		832,736		—		832,736
Time deposits		160,872		—		156,636		—		156,636
Short-term borrowings		129,723		—		129,106		—		129,106
Long-term borrowings		25,000		—		24,598		—		24,598
Subordinated debentures		25,000		—		22,428		—		22,428
Accrued interest payable		273		—		273		—		273
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

(Dollars in thousands)	Carrying		Fair Value Measurements at December 31, 2021
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Cash and due from banks	$	9,600	$	9,600	$	—	$	—	$	9,600
Interest-bearing deposits in other banks		51,738		—		51,738		—		51,738
Time deposits with other banks		247		—		247		—		247
Restricted investment in bank stocks		1,919		—		1,919		—		1,919
Net loans		744,161		—		—		762,914		762,914
Mortgage servicing rights		367		—		—		367		367
Accrued interest receivable		4,361		—		4,361		—		4,361
FINANCIAL LIABILITIES:
Demand, savings and other deposits		904,877		—		904,877		—		904,877
Time deposits		173,092		—		172,897		—		172,897
Short-term borrowings		27,377		—		27,380		—		27,380
Long-term borrowings		35,000		—		35,987		—		35,987
Subordinated debentures		25,000		—		24,384		—		24,384
Accrued interest payable		251		—		251		—		251
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS		—		—		—		—		—

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2022

EARNINGS PER SHARE

Schedule of basic and diluted earnings per share

(In thousands, except earnings per share)	Three Months Ended
	June 30,
	2022		2021
Net income	$	3,822	$	3,605
Weighted-average common shares outstanding		5,964		5,905
Basic and diluted earnings per share	$	0.64	$	0.61

(In thousands, except earnings per share)	Six Months Ended
	June 30,
	2022		2021
Net income	$	7,365	$	7,483
Weighted-average common shares outstanding		5,956		5,894
Basic and diluted earnings per share	$	1.24	$	1.27

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SECURITIES - Amortized cost, related estimated fair value, and unrealized gains and losses (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Available-for-Sale Securities
Amortized Cost	$ 436,132	$ 428,311
Gross Unrealized Gains	1,185	12,964
Gross Unrealized Losses	(27,057)	(3,359)
Total	410,260	437,916
Other mortgage backed debt securities [Member]
Available-for-Sale Securities
Amortized Cost	40,815	39,881
Gross Unrealized Gains		99
Gross Unrealized Losses	(2,259)	(430)
Total	38,556	39,550
U.S. Treasury and/or agency securities [Member]
Available-for-Sale Securities
Amortized Cost	20,228	7,825
Gross Unrealized Losses	(1,270)	(96)
Total	18,958	7,729
Obligations of U.S. Government Agencies and Sponsored Agencies Mortgage-Backed [Member]
Available-for-Sale Securities
Amortized Cost	113,450	116,039
Gross Unrealized Gains	14	560
Gross Unrealized Losses	(9,219)	(1,688)
Total	104,245	114,911
Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Available-for-Sale Securities
Amortized Cost	5,988	7,636
Gross Unrealized Gains	4	5
Gross Unrealized Losses	(53)	(65)
Total	5,939	7,576
Obligations of state and political subdivisions [Member]
Available-for-Sale Securities
Amortized Cost	175,292	175,021
Gross Unrealized Gains	1,011	11,709
Gross Unrealized Losses	(11,767)	(554)
Total	164,536	186,176
Asset-backed Securities [Member]
Available-for-Sale Securities
Amortized Cost	32,365	36,555
Gross Unrealized Gains		143
Gross Unrealized Losses	(1,005)	(156)
Total	31,360	36,542
Corporate debt securities [Member]
Available-for-Sale Securities
Amortized Cost	47,994	45,354
Gross Unrealized Gains	156	448
Gross Unrealized Losses	(1,484)	(370)
Total	$ 46,666	$ 45,432

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SECURITIES - Amortized cost and fair value of debt securities (Details) $ in Thousands	Jun. 30, 2022 USD ($)
Other mortgage backed debt securities [Member]
Available-For-Sale - Amortized cost
1 - 5 Years	$ 7,941
5 - 10 Years	2,713
After 10 Years	30,161
Total	40,815
Available-For-Sale - Estimated fair value
1 - 5 Years	7,748
5 - 10 Years	2,615
After 10 Years	28,193
Total	38,556
U.S. Treasury and/or agency securities [Member]
Available-For-Sale - Amortized cost
1 - 5 Years	12,389
5 - 10 Years	7,839
Total	20,228
Available-For-Sale - Estimated fair value
1 - 5 Years	11,902
5 - 10 Years	7,056
Total	18,958
US Government Corporations & Agencies Obligations [Member]
Available-For-Sale - Amortized cost
1 - 5 Years	323
5 - 10 Years	13,904
After 10 Years	105,211
Total	119,438
Available-For-Sale - Estimated fair value
1 - 5 Years	321
5 - 10 Years	13,834
After 10 Years	96,029
Total	110,184
Obligations of state and political subdivisions [Member]
Available-For-Sale - Amortized cost
Within 1 Year	2,553
1 - 5 Years	21,300
5 - 10 Years	30,191
After 10 Years	121,248
Total	175,292
Available-For-Sale - Estimated fair value
Within 1 Year	2,554
1 - 5 Years	21,056
5 - 10 Years	29,294
After 10 Years	111,632
Total	164,536
Asset-backed Securities [Member]
Available-For-Sale - Amortized cost
1 - 5 Years	33
After 10 Years	32,332
Total	32,365
Available-For-Sale - Estimated fair value
1 - 5 Years	33
After 10 Years	31,327
Total	31,360
Corporate debt securities [Member]
Available-For-Sale - Amortized cost
Within 1 Year	1,536
1 - 5 Years	13,212
5 - 10 Years	33,246
Total	47,994
Available-For-Sale - Estimated fair value
Within 1 Year	1,534
1 - 5 Years	13,246
5 - 10 Years	31,886
Total	$ 46,666

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SECURITIES - Unrealized and realized gains (losses) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
SECURITIES
Net (losses) and gains recognized during the period on equity securities	$ (158)	$ 143
Less: Net gains recognized during the period on equity securities sold during the period	27
Net (losses) and gains recognized during the reporting period on equity securities still held at the reporting date	$ (131)	$ 143

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SECURITIES - Continuous unrealized loss position (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Less Than 12 Months
Fair Value	$ 290,589	$ 141,544
Unrealized Loss	(20,867)	(2,318)
12 Months or More
Fair Value	52,690	39,437
Unrealized Loss	(6,190)	(1,041)
Total
Fair Value	343,279	180,981
Unrealized Loss	(27,057)	(3,359)
Other mortgage backed debt securities [Member]
Less Than 12 Months
Fair Value	31,323	11,036
Unrealized Loss	(1,646)	(225)
12 Months or More
Fair Value	7,234	7,362
Unrealized Loss	(613)	(205)
Total
Fair Value	38,557	18,398
Unrealized Loss	(2,259)	(430)
U.S. Treasury and/or agency securities [Member]
Less Than 12 Months
Fair Value	18,958	7,729
Unrealized Loss	(1,270)	(96)
Total
Fair Value	18,958	7,729
Unrealized Loss	(1,270)	(96)
Obligations of U.S. Government Agencies and Sponsored Agencies Mortgage-Backed [Member]
Less Than 12 Months
Fair Value	83,061	66,195
Unrealized Loss	(6,799)	(1,271)
12 Months or More
Fair Value	18,270	11,697
Unrealized Loss	(2,420)	(417)
Total
Fair Value	101,331	77,892
Unrealized Loss	(9,219)	(1,688)
Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Less Than 12 Months
Fair Value	201
Unrealized Loss	(1)
12 Months or More
Fair Value	5,463	6,687
Unrealized Loss	(52)	(65)
Total
Fair Value	5,664	6,687
Unrealized Loss	(53)	(65)
Obligations of state and political subdivisions [Member]
Less Than 12 Months
Fair Value	100,845	25,867
Unrealized Loss	(9,382)	(362)
12 Months or More
Fair Value	9,718	3,931
Unrealized Loss	(2,385)	(192)
Total
Fair Value	110,563	29,798
Unrealized Loss	(11,767)	(554)
Asset-backed Securities [Member]
Less Than 12 Months
Fair Value	24,945	11,232
Unrealized Loss	(445)	(49)
12 Months or More
Fair Value	6,415	6,315
Unrealized Loss	(560)	(107)
Total
Fair Value	31,360	17,547
Unrealized Loss	(1,005)	(156)
Corporate debt securities [Member]
Less Than 12 Months
Fair Value	31,256	19,485
Unrealized Loss	(1,324)	(315)
12 Months or More
Fair Value	5,590	3,445
Unrealized Loss	(160)	(55)
Total
Fair Value	36,846	22,930
Unrealized Loss	$ (1,484)	$ (370)

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SECURITIES - Additional Information (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2022 USD ($) item	Jun. 30, 2021 USD ($)	Jun. 30, 2022 USD ($) item	Jun. 30, 2021 USD ($)	Dec. 31, 2021 USD ($)
Total	$ 410,260,000		$ 410,260,000		$ 437,916,000
Aggregate carrying value	236,643,000		236,643,000		318,074,000
Proceeds from sales of debt securities available-for-sale	0	$ 0	0	$ 0
Impairment losses realized on available-for-sale debt securities	0	0	0	0
Marketable equity securities, at fair value	1,661,000		1,661,000		1,962,000
Accumulated other comprehensive income (loss)	(20,438,000)		(20,438,000)		7,588,000
Proceeds from sale of securities held-to-maturity			0	0
Realized gain (loss) on held to maturity securities sold			0	0
Net gains and losses on debt securities	$ 0	$ 0	$ 0	$ 0
Available For Sale Securities In Unrealized Loss Positions Qualitative Disclosure Number Of Positions Less Than Or Equal To One Year | item	153		153
Available For Sale Securities In Unrealized Loss Positions Qualitative Disclosure Number Of Positions Greater Than One Year | item	31		31
Asset Pledged as Collateral
Total	$ 288,785,000		$ 288,785,000		401,861,000
Marketable Equity Securities
Marketable equity securities, at fair value	$ 1,661,000		$ 1,661,000		$ 1,962,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details) - USD ($)	Jun. 30, 2022	Dec. 31, 2021	Jun. 30, 2021
Financing Receivable, Recorded Investment [Line Items]
Add (deduct): Unearned discount	$ 0	$ 0
Net deferred loan fees and costs	1,249,000	785,000
Total loans	804,820,000	752,841,000	$ 741,905,000
Government Guaranteed Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	5,267,000	3,829,000
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	781,530,000	727,319,000
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,080,000	1,668,000
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	20,961,000	23,069,000
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	467,000	169,000
Total loans	82,539,000	82,526,000	103,894,000
Commercial and Industrial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	81,317,000	81,561,000
Commercial and Industrial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	755,000	796,000
Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Net deferred loan fees and costs	883,000	743,000
Total loans	568,258,000	521,654,000	486,825,000
Commercial Real Estate | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	547,062,000	498,565,000
Commercial Real Estate | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,019,000	1,098,000
Commercial Real Estate | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	19,294,000	21,248,000
Residential Real Estate
Financing Receivable, Recorded Investment [Line Items]
Net deferred loan fees and costs	(165,000)	(190,000)
Total loans	148,621,000	143,383,000	145,965,000
Residential Real Estate | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	147,874,000	141,983,000
Residential Real Estate | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans		570,000
Residential Real Estate | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	912,000	1,020,000
Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Net deferred loan fees and costs	64,000	63,000
Total loans	5,402,000	5,278,000	$ 5,221,000
Consumer [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,277,000	5,210,000
Consumer [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 61,000
Consumer [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans		$ 5,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Activity in allowance for loan losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Beginning balance	$ 8,937	$ 8,047	$ 8,680	$ 7,933	$ 7,933
Charge-offs	(13)	(94)	(15)	(117)	(158)
Recoveries	18	36	58	38	45
Provision (credit)	218	135	437	270	860
Ending Balance	9,160	8,124	9,160	8,124	8,680
Ending balance: individually evaluated for impairment		1		1	0
Ending balance: collectively evaluated for impairment	9,160	8,123	9,160	8,123	8,680
Ending Balance	804,820	741,905	804,820	741,905	752,841
Ending balance: individually evaluated for impairment	12,284	16,093	12,284	16,093	13,673
Ending balance: collectively evaluated for impairment	792,536	725,812	792,536	725,812	739,168
Commercial and Industrial [Member]
Beginning balance	665	790	681	787	787
Charge-offs	(9)		(9)	(13)	(13)
Recoveries	1		2		0
Provision (credit)	18	61	1	77	(93)
Ending Balance	675	851	675	851	681
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	675	851	675	851	681
Ending Balance	82,539	103,894	82,539	103,894	82,526
Ending balance: individually evaluated for impairment	991	1,047	991	1,047	1,017
Ending balance: collectively evaluated for impairment	81,548	102,847	81,548	102,847	81,509
Commercial Real Estate
Beginning balance	5,759	4,786	5,408	4,762	4,762
Charge-offs		(29)		(29)	(29)
Recoveries		30	38	30	30
Provision (credit)	195	143	508	167	645
Ending Balance	5,954	4,930	5,954	4,930	5,408
Ending balance: individually evaluated for impairment		1		1	0
Ending balance: collectively evaluated for impairment	5,954	4,929	5,954	4,929	5,408
Ending Balance	568,258	486,825	568,258	486,825	521,654
Ending balance: individually evaluated for impairment	10,448	13,861	10,448	13,861	11,803
Ending balance: collectively evaluated for impairment	557,810	472,964	557,810	472,964	509,851
Residential Real Estate
Beginning balance	1,538	1,606	1,539	1,643	1,643
Charge-offs		(55)		(55)	(80)
Recoveries	13	1	14	1	4
Provision (credit)	58	(13)	56	(50)	(28)
Ending Balance	1,609	1,539	1,609	1,539	1,539
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	1,609	1,539	1,609	1,539	1,539
Ending Balance	148,621	145,965	148,621	145,965	143,383
Ending balance: individually evaluated for impairment	845	1,185	845	1,185	853
Ending balance: collectively evaluated for impairment	147,776	144,780	147,776	144,780	142,530
Consumer [Member]
Beginning balance	78	93	84	94	94
Charge-offs	(4)	(10)	(6)	(20)	(36)
Recoveries	4	5	4	7	11
Provision (credit)	1	7	(3)	14	15
Ending Balance	79	95	79	95	84
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	79	95	79	95	84
Ending Balance	5,402	5,221	5,402	5,221	5,278
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	5,402	5,221	5,402	5,221	5,278
Unallocated Financing Receivables [Member]
Beginning balance	897	772	968	647	647
Charge-offs					0
Recoveries					0
Provision (credit)	(54)	(63)	(125)	62	321
Ending Balance	843	709	843	709	968
Ending balance: individually evaluated for impairment					0
Ending balance: collectively evaluated for impairment	$ 843	$ 709	$ 843	$ 709	968
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 ($)	Jun. 30, 2022	Dec. 31, 2021
Financing Receivable, Modifications, Recorded Investment	$ 7,669,000	$ 8,020,000
Non-accrual TDRs [Member]
Financing Receivable, Modifications, Recorded Investment	1,355,000	1,413,000
Accruing TDRs [Member]
Financing Receivable, Modifications, Recorded Investment	$ 6,314,000	$ 6,607,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Loan modifications categorized as TDRs (Details)	3 Months Ended						6 Months Ended
	Jun. 30, 2022 contract	Jun. 30, 2022 USD ($)	Jun. 30, 2022 loan	Mar. 31, 2022 contract	Jun. 30, 2021 contract	Jun. 30, 2021 loan	Jun. 30, 2022 USD ($) loan	Jun. 30, 2021 contract	Jun. 30, 2021 USD ($)	Jun. 30, 2021 loan
Number of contracts	1		1	0	0	0	1	3		3
Pre-Modification Outstanding Recorded Investment		$ 347,000					$ 347,000		$ 301,000
Post-Modification Outstanding Recorded Investment		372,000					372,000		301,000
Recorded Investment		372,000					$ 372,000		301,000
Commercial Real Estate
Number of contracts | loan			1				1			3
Pre-Modification Outstanding Recorded Investment		347,000					$ 347,000		301,000
Post-Modification Outstanding Recorded Investment		372,000					372,000		301,000
Recorded Investment		$ 372,000					$ 372,000		$ 301,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Types of loan modifications (Details)	3 Months Ended					6 Months Ended
	Jun. 30, 2022 contract	Jun. 30, 2022 loan	Mar. 31, 2022 contract	Jun. 30, 2021 contract	Jun. 30, 2021 loan	Jun. 30, 2022 loan contract	Jun. 30, 2021 contract	Jun. 30, 2021 loan
Financing Receivable, Modifications, Number of Contracts	1	1	0	0	0	1	3	3
Term Modification
Financing Receivable, Modifications, Number of Contracts						1	2	2
Payment Modification
Financing Receivable, Modifications, Number of Contracts		1				1	1	1
Commercial Real Estate
Financing Receivable, Modifications, Number of Contracts		1				1		3
Commercial Real Estate | Term Modification
Financing Receivable, Modifications, Number of Contracts								2
Commercial Real Estate | Payment Modification
Financing Receivable, Modifications, Number of Contracts		1				1		1

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Loan modifications (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2022 USD ($) loan	Jun. 30, 2022
Loan Restructuring Modification [Member]
Beginning Balance | loan	1
Beginning Balance | $	$ 9,423
CARES Act Section 4013 Program For Loan Modifications [Member] | Commercial and Industrial [Member]
Percent of Total Section 4013 CARES Act modifications		0.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans		0.00%
CARES Act Section 4013 Program For Loan Modifications [Member] | Commercial Real Estate
Beginning Balance | loan	1
Section 4013 CARES Act modifications returned to normal payment status (a) | loan	(1)
Beginning Balance | $	$ 9,423
Section 4013 CARES Act modifications returned to normal payment status (a) | $	$ (9,423)
Percent of Total Section 4013 CARES Act modifications		0.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans		0.00%
CARES Act Section 4013 Program For Loan Modifications [Member] | Residential Real Estate
Percent of Total Section 4013 CARES Act modifications		0.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans		0.00%
CARES Act Section 4013 Program For Loan Modifications [Member] | Consumer [Member]
Percent of Total Section 4013 CARES Act modifications		0.00%
Percent of Total Section 4013 CARES Act modifications to Total Loans		0.00%
CARES Act Section 4013 Program For Loan Modifications [Member] | Total Loans[Member]
Beginning Balance | loan	1
Section 4013 CARES Act modifications returned to normal payment status (a) | loan	(1)
Beginning Balance | $	$ 9,423
Section 4013 CARES Act modifications returned to normal payment status (a) | $	$ (9,423)
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		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
Recorded Investment
Total	$ 12,284,000		$ 12,284,000		$ 13,673,000
Unpaid Principal Balance
Total	15,249,000		15,249,000		16,637,000
Related Allowance
Total					0
Average Recorded Investment
Total	12,646,000	$ 15,523,000	13,100,000	$ 15,261,000
Interest Income Recognized
Total	73,000	98,000	147,000	194,000
Commercial and Industrial [Member]
Recorded Investment
With no related allowance recorded	991,000		991,000		1,017,000
With an allowance recorded	0		0		0
Total	991,000		991,000		1,017,000
Unpaid Principal Balance
With no related allowance recorded	991,000		991,000		1,017,000
With an allowance recorded	0		0		0
Total	991,000		991,000		1,017,000
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	998,000	1,057,000	1,004,000	1,071,000
With an allowance recorded	0	0
Total	998,000	1,057,000	1,004,000	1,071,000
Interest Income Recognized
With no related allowance recorded	3,000	2,000	5,000	5,000
With an allowance recorded	0	0
Total	3,000	2,000	5,000	5,000
Commercial Real Estate
Recorded Investment
With no related allowance recorded	10,448,000		10,448,000		11,803,000
Total	10,448,000		10,448,000		11,803,000
Unpaid Principal Balance
With no related allowance recorded	13,381,000		13,381,000		14,735,000
Total	13,381,000		13,381,000		14,735,000
Related Allowance
With no related allowance recorded	0		0		0
With an allowance recorded					0
Total					0
Average Recorded Investment
With no related allowance recorded	10,801,000	12,750,000	11,247,000	12,564,000
With an allowance recorded	0	483,000		484,000
Total	10,801,000	13,233,000	11,247,000	13,048,000
Interest Income Recognized
With no related allowance recorded	70,000	95,000	142,000	188,000
With an allowance recorded	0	0
Total	70,000	95,000	142,000	188,000
Residential Real Estate
Recorded Investment
With no related allowance recorded	845,000		845,000		853,000
With an allowance recorded	0		0		0
Total	845,000		845,000		853,000
Unpaid Principal Balance
With no related allowance recorded	877,000		877,000		885,000
With an allowance recorded	0		0		0
Total	877,000		877,000		885,000
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	847,000	1,233,000	849,000	1,142,000
With an allowance recorded	0	0
Total	847,000	1,233,000	$ 849,000	1,142,000
Interest Income Recognized
With no related allowance recorded	0	1,000		1,000
With an allowance recorded	0	0
Total	$ 0	$ 1,000		$ 1,000

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Non-performing assets (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Total non-accrual loans	$ 5,970	$ 7,066
Loans past-due 90 days or more and still accruing interest	166
Total non-performing assets	6,136	7,066
Commercial and Industrial [Member]
Total non-accrual loans	683	708
Loans past-due 90 days or more and still accruing interest	0
Commercial Real Estate
Total non-accrual loans	4,454	5,519
Loans past-due 90 days or more and still accruing interest	0
Residential Real Estate
Total non-accrual loans	833	$ 839
Loans past-due 90 days or more and still accruing interest	$ 166

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Past due (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021	Jun. 30, 2021
Current - 29 Days Past Due	$ 798,482	$ 745,323
Total Loans	804,820	752,841	$ 741,905
90 Days or Greater Past Due and Still Accruing Interest	166
Financial Asset, Past Due, Equal to or Greater Than 30 Days [Member]
Past Due	6,338	7,518
Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	774	730
Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due	126	380
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past Due	5,438	6,408
Commercial and Industrial [Member]
Current - 29 Days Past Due	81,733	81,801
Total Loans	82,539	82,526	103,894
90 Days or Greater Past Due and Still Accruing Interest	0
Commercial and Industrial [Member] | Financial Asset, Past Due, Equal to or Greater Than 30 Days [Member]
Past Due	806	725
Commercial and Industrial [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	150	47
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	656	678
Commercial Real Estate
Current - 29 Days Past Due	564,001	516,458
Total Loans	568,258	521,654	486,825
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	4,257	5,196
Commercial Real Estate | Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	474	116
Commercial Real Estate | Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due		189
Commercial Real Estate | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past Due	3,783	4,891
Residential Real Estate
Current - 29 Days Past Due	147,355	141,800
Total Loans	148,621	143,383	145,965
90 Days or Greater Past Due and Still Accruing Interest	166
Residential Real Estate | Financial Asset, Past Due, Equal to or Greater Than 30 Days [Member]
Past Due	1,266	1,583
Residential Real Estate | Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	150	553
Residential Real Estate | Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due	117	191
Residential Real Estate | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past Due	999	839
Consumer [Member]
Current - 29 Days Past Due	5,393	5,264
Total Loans	5,402	5,278	$ 5,221
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	9	14
Consumer [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	0	14
Consumer [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past Due	9	0
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								6 Months Ended				12 Months Ended
	Jun. 30, 2022 USD ($) loan contract	Jun. 30, 2022 USD ($) loan contract	Jun. 30, 2022 USD ($) loan contract	Mar. 31, 2022 contract	Jun. 30, 2021 USD ($) contract	Jun. 30, 2021 loan contract	Jun. 30, 2021 contract	Mar. 31, 2021 loan	Jun. 30, 2022 USD ($) loan contract	Jun. 30, 2021 USD ($) contract	Jun. 30, 2021 loan contract	Jun. 30, 2021 contract	Dec. 31, 2021 USD ($) loan
Loans Receivable Held-for-sale, Amount	$ 765,000	$ 765,000	$ 765,000						$ 765,000				$ 6,006,000
Interest rate									1.00%
Maximum loan to value ratio with PMI	95.00%	95.00%	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
Foreclosed Assets Held For Resale	$ 0	$ 0	$ 0						$ 0				0
Consumer Mortgage Loans Secured by Residential Real Estate in Process of Foreclosure	41,000	41,000	41,000						41,000				41,000
Financing Receivable, Modifications, Recorded Investment	7,669,000	$ 7,669,000	$ 7,669,000						7,669,000				8,020,000
Financing Receivable, Modifications, Unfunded Commitments									0				0
Modified value of TDR	372,000								$ 372,000	$ 301,000
Number of contracts		1	1	0		0	0		1		3	3
Impaired Financing Receivable Related Allowance Attributable to TDR									$ 0				0
Impaired Financing Receivable, Interest Income, Accrual Method	73,000				$ 98,000				147,000	194,000
Impaired Financing Receivable Interest Income Non-accrual Method									0	3,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	372,000								372,000	301,000
Number of loans modified as troubled debt restructuring within previous 12 months, with subsequent payment default | loan		0						0
Government Guaranteed Loans
Loans	5,267,000	$ 5,267,000	$ 5,267,000						$ 5,267,000				3,829,000
Minimum
Term of loan									2 years
Maximum
Term of loan									5 years
Commercial Real Estate [Member] | Maximum
Term of loan offering									20 years
Maximum loan to value ratio									80.00%
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				1,249,000
Unfunded Loan Commitment [Member]
Reserve For Unfunded Lending Commitments	$ 117,000	$ 117,000	$ 117,000						$ 117,000				$ 177,000
Loan Restructuring Modification [Member]
Count | loan	0	0	0						0				1
Investment													$ 9,423,000
Term Modification
Number of contracts									1		2	2
Payment Modification
Number of contracts		1							1		1	1
Commercial and Industrial [Member]
Tax free loans	$ 23,897,000	$ 23,897,000	$ 23,897,000						$ 23,897,000				24,647,000
Financing Receivable Modification Not In Compliance Of Terms									$ 682,000	$ 736,000
Number of loans not in compliance with restructure | contract	3	3	3		3	3	3		3	3	3	3
Impaired Financing Receivable, Interest Income, Accrual Method	$ 3,000				$ 2,000				$ 5,000	$ 5,000
Government Guaranteed Loans.	$ 5,267,000	$ 5,267,000	$ 5,267,000						$ 5,267,000				$ 3,829,000
Commercial and Industrial [Member] | First Round of Paycheck Protection Program Loans Issuance
Number of loans funded | loan	2	2	2						2
Loan funded under paycheck protection program	$ 137,000	$ 137,000	$ 137,000						$ 137,000
Commercial and Industrial [Member] | Second Round of Paycheck Protection Program Loans Issuance
Number of loans funded | loan	1	1	1						1
Loan funded under paycheck protection program	$ 9,000	$ 9,000	$ 9,000						$ 9,000
Commercial and Industrial [Member] | Paycheck Protection Program Loans
Number of loans funded | loan	3	3	3						3				122
Loan funded under paycheck protection program	$ 146,000	$ 146,000	$ 146,000						$ 146,000				$ 4,894,000
Commercial and Industrial [Member] | Paycheck Protection Program Loans | First Round of Paycheck Protection Program Loans Issuance
Number of loans funded | loan													2
Loan funded under paycheck protection program													$ 160,000
Commercial and Industrial [Member] | Paycheck Protection Program Loans | Second Round of Paycheck Protection Program Loans Issuance
Number of loans funded | loan													120
Loan funded under paycheck protection program													$ 4,734,000
Commercial Real Estate
Tax free loans	1,583,000	$ 1,583,000	$ 1,583,000						1,583,000				$ 1,671,000
Modified value of TDR	$ 372,000								$ 372,000	301,000
Number of contracts | loan		1							1		3
Financing Receivable Modification Not In Compliance Of Terms									$ 318,000	$ 479,000
Number of loans not in compliance with restructure | contract	6	6	6		7	7	7		6	7	7	7
Financing Receivable Modification Experienced Payment Defaults					$ 300,000
Impaired Financing Receivable, Interest Income, Accrual Method	$ 70,000				$ 95,000				$ 142,000	$ 188,000
Financing Receivable, Modifications, Post-Modification Recorded Investment	$ 372,000								$ 372,000	301,000
Number of loans modified as troubled debt restructuring within previous 12 months, with subsequent payment default | loan						3			1
Commercial Real Estate | Term Modification
Number of contracts | loan											2
Commercial Real Estate | Payment Modification
Number of contracts | loan		1							1		1
Residential Real Estate
Financing Receivable Modification Not In Compliance Of Terms									$ 12,000	$ 17,000
Number of loans not in compliance with restructure | contract	1	1	1		1	1	1		1	1	1	1
Impaired Financing Receivable, Interest Income, Accrual Method	$ 0				$ 1,000					$ 1,000
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	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

XML

DEPOSITS (Details) - USD ($)	Jun. 30, 2022	Dec. 31, 2021
DEPOSITS
Non-interest bearing demand	$ 230,513,000	$ 249,040,000
Interest bearing demand	325,624,000	395,033,000
Savings	276,599,000	260,804,000
Time certificates of deposits less than $250,000	147,603,000	158,914,000
Time certificates of deposits $250,000 or greater	11,699,000	13,030,000
Other time	1,570,000	1,148,000
Total deposits	$ 993,608,000	$ 1,077,969,000

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DEPOSITS - Additional Information (Details) - USD ($)	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Dec. 31, 2021
DEPOSITS
Increase (Decrease) in Deposits	$ (84,361,000)	$ 125,859,000
Deposits.	993,608,000		$ 1,077,969,000
Increase (decrease) in highly rate sensitive deposits	$ (95,504,000)

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BORROWINGS (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Short-term Debt	$ 129,723	$ 27,377
Debt Instrument, Interest Rate During Period	0.77%	0.35%
Federal Funds Purchased [Member]
Short-term Debt	$ 0	$ 0
Debt Instrument, Interest Rate During Period	0.00%	0.36%
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt	$ 25,311	$ 27,377
Debt Instrument, Interest Rate During Period	0.36%	0.35%
Federal Discount Window [Member]
Short-term Debt	$ 0	$ 0
Debt Instrument, Interest Rate During Period	0.70%	0.36%
Federal Home Loan Bank [Member]
Short-term Debt	$ 104,412	$ 0
Debt Instrument, Interest Rate During Period	1.16%	0.34%

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BORROWINGS - Repurchase agreements (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Repurchase agreements
Gross Amounts of Recognized Liabilities	$ 25,311	$ 27,377
Gross Amounts Offset in the Consolidated Balance Sheet	0	0
Net Amounts of Liabilities Presented in the Consolidated Balance Sheet	25,311	27,377
Financial Instruments	(25,311)	(27,377)
Cash Collateral Pledge	0	0
Net Amount	$ 0	$ 0

XML

BORROWINGS - Remaining contractual maturity of the repurchase agreements (Details) $ in Thousands	Jun. 30, 2022 USD ($)
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	$ 25,311
U.S. Treasury and/or agency securities [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	25,311
Overnight and Continuous [Member]
Repurchase agreements and repurchase-to-maturity transactions:
Remaining Contractual Maturity of the Agreements	25,311
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	25,311
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 ($)	6 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Short-term Debt [Line Items]
Fair value of securities pledged	$ 30,603,000	$ 37,735,000
Advance from FHLB	25,000,000	35,000,000
Net loans	795,660,000	$ 744,161,000
Maximum borrowing capacity	458,318,000
Investment securities pledged as collateral to FHLB	0
Irrevocable Standby Letter of Credit
Short-term Debt [Line Items]
Advance from FHLB	0
Asset Pledged as Collateral
Short-term Debt [Line Items]
Net loans	$ 641,482,000
Maximum
Short-term Debt [Line Items]
Federal funds purchased, securities sold under agreements to repurchase and Federal Home Loan Bank advances, maturity	30 days

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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)	Jun. 30, 2022	Dec. 31, 2021
COMMITMENTS AND CONTINGENCIES
Operating Lease, Weighted-average term (years)	24 years 2 months 12 days	24 years 6 months 3 days
Operating Lease, Weighted-average discount rate	3.91%	3.89%
Finance Lease, Weighted-average term (years)	1 year 2 months 1 day	1 year 8 months 1 day
Finance Lease, Weighted-average discount rate	0.68%	0.68%

XML

COMMITMENTS AND CONTINGENCIES - Maturity analysis of operating lease liabilities (Details) - USD ($)	Jun. 30, 2022	Dec. 31, 2021
COMMITMENTS AND CONTINGENCIES
Within one year	$ 100,000	$ 120,000
After one but within two years	68,000	68,000
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	75,000	68,000
After five years	2,149,000	2,190,000
Total undiscounted cash flows	2,528,000	2,582,000
Discount on cash flows	(1,033,000)	(1,083,000)
Total lease liability	1,495,000	1,499,000
Finance Lease, Minimum Lease Payments due:
Within one year	10,000	10,000
After one but within two years	2,000	7,000
Total undiscounted cash flows	12,000	17,000
Discount on cash flows	(1,000)	(1,000)
Total lease liability	$ 11,000	$ 16,000

XML

COMMITMENTS AND CONTINGENCIES - Additional Information (Details)	6 Months Ended
	Jun. 30, 2022 USD ($) lease	Jun. 30, 2021 USD ($)	Dec. 31, 2021 USD ($)
Lessee, Lease, Description [Line Items]
Number of Operating Leases | lease	5
Operating Lease, Right-of-Use Asset	$ 1,013,000		$ 1,025,000
Operating Lease, Liability	1,495,000		1,499,000
Operating Lease, Cost	90,000	$ 89,000
Operating Lease, Payments	$ 83,000	77,000
Number of finance leases | lease	1
Finance lease, Right-of-Use Asset	$ 34,000		$ 34,000
Finance lease, Right-of-Use Asset, Balance sheet location	Premises and equipment, net		Premises and equipment, net
Finance Lease, Liability	$ 11,000		$ 16,000
Finance Lease Liability, Balance sheet location	Other Liabilities		Other Liabilities
Finance lease principal payments	$ 5,000	$ 5,000
Banking Facilities [Member]
Lessee, Lease, Description [Line Items]
Number of Operating Leases | lease	4
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	Jun. 30, 2022	Dec. 31, 2021
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	$ 123,931	$ 142,335
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	1,714	2,000
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	$ 3,113	$ 3,727

XML

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK - Additional Information (Details) - Credit Concentration Risk [Member]	Jun. 30, 2022 USD ($)
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loans Receivable, Secure by Commercial and Residential Real Estate	$ 716,879,000
Loans Receivable, Percentage of Loans Secure by Commercial and Residential Real Estate	89.10%

XML

FAIR VALUE MEASUREMENTS (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	$ 410,260,000	$ 437,916,000
Marketable equity securities	1,661,000	1,962,000
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:	18,958,000	7,729,000
Obligations of U.S. Government Agencies and Sponsored Agencies Other [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	5,939,000	7,576,000
Asset-backed Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	31,360,000	36,542,000
Corporate debt securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	46,666,000	45,432,000
Marketable Equity Securities
Available-for-Sale Securities:
Marketable equity securities	1,661,000	1,962,000
Fair Value, Measurements, Recurring [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	410,260,000	437,916,000
Total recurring fair value measurements	411,921,000	439,878,000
Fair Value, Measurements, Recurring [Member] | U.S. Treasury and/or agency securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	18,958,000	7,729,000
Fair Value, Measurements, Recurring [Member] | Mortgage Backed Obligations Of Us Government Corporations And Agencies [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	104,245,000	114,911,000
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:	5,939,000	7,576,000
Fair Value, Measurements, Recurring [Member] | Other Mortgage Backed Debt Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	38,556,000	39,550,000
Fair Value, Measurements, Recurring [Member] | Obligations of state and political subdivision [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	164,536,000	186,176,000
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	31,360,000	36,542,000
Fair Value, Measurements, Recurring [Member] | Corporate debt securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	46,666,000	45,432,000
Fair Value, Measurements, Recurring [Member] | Marketable Equity Securities
Available-for-Sale Securities:
Marketable equity securities	1,661,000	1,962,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	18,958,000	7,729,000
Total recurring fair value measurements	20,619,000	9,691,000
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:	18,958,000	7,729,000
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	1,661,000	1,962,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	391,302,000	430,187,000
Total recurring fair value measurements	391,302,000	430,187,000
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:	0	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:	104,245,000	114,911,000
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:	5,939,000	7,576,000
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:	38,556,000	39,550,000
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:	164,536,000	186,176,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Asset-backed Securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	31,360,000	36,542,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate debt securities [Member]
Available-for-Sale Securities:
Debt Securities Available-for-Sale:	46,666,000	45,432,000
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

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FAIR VALUE MEASUREMENTS - Impaired loans measured at FV (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 5,949	$ 5,984
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	5,949	5,984
Commercial Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	5,919	5,954
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	5,919	5,954
Residential Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	30	30
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	$ 30	$ 30

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FAIR VALUE MEASUREMENTS - Quantitative information about Level 3 FV measurements (Details) - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
Impaired loans - collateral dependent | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Estimate	$ 3,120	$ 3,120
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 | Appraisal Of Collateral, Certificate of Inspection [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Comparability Adjustments	(15.00%)	(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	(44.00%)	(44.00%)
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	(15.00%)	(15.00%)
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	$ 2,829	$ 2,864
Impaired loans - other | Minimum | 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%)

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FAIR VALUE MEASUREMENTS - FV of Financial instruments (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2022	Dec. 31, 2021
FINANCIAL ASSETS: (Carrying Amount)
Cash and due from banks	$ 9,441	$ 9,600
Interest-bearing deposits in other banks	783	51,738
Time deposits with other banks		247
Restricted investment in bank stocks	5,753	1,919
Net loans	795,660	744,161
Accrued interest receivable	4,473	4,361
FINANCIAL LIABILITIES: (Carrying Amount)
Short-term borrowings	129,723	27,377
Long-term borrowings	25,000	35,000
Subordinated debentures	25,000	25,000
Accrued interest payable	273	251
Fair Value, Measurements, Nonrecurring [Member]
FINANCIAL ASSETS: (Carrying Amount)
Cash and due from banks	9,441	9,600
Interest-bearing deposits in other banks	783	51,738
Time deposits with other banks	0	247
Restricted investment in bank stocks	5,753	1,919
Net loans	795,660	744,161
Mortgage servicing rights	349	367
Accrued interest receivable	4,473	4,361
FINANCIAL LIABILITIES: (Carrying Amount)
Core deposits	832,736	904,877
Time deposits	160,872	173,092
Short-term borrowings	129,723	27,377
Long-term borrowings	25,000	35,000
Subordinated debentures	25,000	25,000
Accrued interest payable	273	251
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (Carrying Amount)	0
FINANCIAL ASSETS: (Fair Value)
Cash and due from banks	9,441	9,600
Interest-bearing deposits in other banks	783	51,738
Time deposits with other banks	0	247
Restricted investment in bank stocks	5,753	1,919
Net loans	774,976	762,914
Mortgage servicing rights	349	367
Accrued interest receivable	4,473	4,361
FINANCIAL LIABILITIES: (Fair Value)
Demand, savings and other deposits	832,736	904,877
Time deposits	156,636	172,897
Short-term borrowings	129,106	27,380
Long-term borrowings	24,598	35,987
Subordinated debentures	22,428	24,384
Accrued interest payable	273	251
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	9,441	9,600
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	22,428
FINANCIAL ASSETS: (Fair Value)
Cash and due from banks	0	0
Interest-bearing deposits in other banks	783	51,738
Time deposits with other banks	0	247
Restricted investment in bank stocks	5,753	1,919
Net loans	0	0
Mortgage servicing rights	0	0
Accrued interest receivable	4,473	4,361
FINANCIAL LIABILITIES: (Fair Value)
Demand, savings and other deposits	832,736	904,877
Time deposits	156,636	172,897
Short-term borrowings	129,106	27,380
Long-term borrowings	24,598	35,987
Subordinated debentures		24,384
Accrued interest payable	273	251
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	774,976	762,914
Mortgage servicing rights	349	367
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)	Jun. 30, 2022 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 ($)	Jun. 30, 2022	Dec. 31, 2021
REVENUE RECOGNITION
Fair value of trust assets	$ 111,330,000	$ 108,339,000

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
EARNINGS PER SHARE
Net income	$ 3,822	$ 3,605	$ 7,365	$ 7,483
Weighted-average common shares outstanding, basic	5,964,000	5,905,000	5,956,000	5,894,000
Weighted-average common shares outstanding, diluted	5,964,000	5,905,000	5,956,000	5,894,000
Basic earnings per share	$ 0.64	$ 0.61	$ 1.24	$ 1.27
Diluted earnings per share	$ 0.64	$ 0.61	$ 1.24	$ 1.27
Potential common shares outstanding			0	0

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GOODWILL (Details) - USD ($) $ in Thousands	Jun. 30, 2022	Dec. 31, 2021
GOODWILL.
Goodwill	$ 19,133	$ 19,133