UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March 31,~~September 30, 2022

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

For the transition period from _________________ to _________________

ENB Financial Corp

(Exact name of registrant as specified in its charter)

Pennsylvania	000-53297	51-0661129
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No)

31 E. Main St., Ephrata, PA		17522-0457
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (717)733-4181

Former name, former address, and former fiscal year, if changed since last report Not Applicable

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
~~None.~~None.		N/A		N/A

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 every Interactive Data File required to be submitted 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller 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 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of

~~May~~November 1, 2022, the registrant had ~~5,595,152~~5,625,145 shares of $0.10 (par) Common Stock outstanding.

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

~~March 31,~~September 30, 2022


Part I – FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Balance Sheets at ~~March 31,~~September 30, 2022 and 2021, and December 31, 2021 (Unaudited)	3
Consolidated Statements of Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2022 and 2021 (Unaudited)	4
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended ~~March 31,~~September 30, 2022 and 2021 ~~(Unaudited)~~(unaudited)	5
Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended ~~March 31, 2022~~ September 30, 2022 and 2021 (Unaudited)	6
Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2022 and 2021 (Unaudited)	7
Notes to the Unaudited Consolidated Interim Financial Statements	~~8-27~~8-30

Table of Contents

ENB FINANCIAL CORP

Part I - Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

	March 31,			December 31,			March 31,			September 30,			December 31,			September 30,
	2022			2021			2021			2022			2021			2021
	$			$			$			$			$			$
ASSETS
Cash and due from banks		21,123			19,930			19,366			27,623			19,930			16,100
Interest-bearing deposits in other banks		58,031			138,519			69,248			22,953			138,519			62,720
Total cash and cash equivalents		79,154			158,449			88,614			50,576			158,449			78,820
Securities available for sale (at fair value)		589,493			558,093			531,600			559,646			558,093			561,587
Equity securities (at fair value)		8,994			8,982			7,217			8,951			8,982			8,844
Loans held for sale		2,223			3,194			2,018			5,131			3,194			3,174
Loans (net of unearned income)		950,571			920,904			841,934			1,114,504			920,904			880,261
Less: Allowance for loan losses		12,979			12,931			12,690			14,150			12,931			12,454
Net loans		937,592			907,973			829,244			1,100,354			907,973			867,807
Premises and equipment		24,385			24,476			24,742			24,598			24,476			24,507
Regulatory stock		5,406			5,380			6,160			5,897			5,380			5,635
Bank owned life insurance		35,574			35,414			29,833			35,995			35,414			35,200
Other assets		22,327			15,269			12,461			33,156			15,269			12,478
Total assets		1,705,148			1,717,230			1,531,889			1,824,304			1,717,230			1,598,052

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing		675,519			686,278			580,003			670,563			686,278			591,333
Interest-bearing		842,438			825,935			745,384			961,286			825,935			800,169
Total deposits		1,517,957			1,512,213			1,325,387			1,631,849			1,512,213			1,391,502
Short-term borrowings											15,000			-			-
Long-term debt		44,206			44,206			52,792			44,206			44,206			46,706
Subordinated debt		19,700			19,680			19,620			39,356			19,680			19,660
Other liabilities		7,246			3,843			5,269			7,738			3,843			3,967
Total liabilities		1,589,109			1,579,942			1,403,068			1,738,149			1,579,942			1,461,835
Stockholders' equity:
Common stock, par value $0.10
Common stock, par value $0.10
Shares: Authorized 24,000,000
Issued 5,739,114 and Outstanding 5,595,152 as of 3/31/22, 5,583,956 as of 12/31/21, and 5,566,566 as of 3/31/21		574			574			574
Issued 5,739,114 and Outstanding 5,625,146 as of 9/30/22, 5,583,956 as of 12/31/21, and 5,575,452 as of 9/30/21											574			574			574
Capital surplus		4,544			4,520			4,460			4,475			4,520			4,498
Retained earnings		134,098			131,856			124,285			138,760			131,856			130,082
Accumulated other comprehensive (loss) income		(20,298	)		3,441			2,924			(55,381	)		3,441			4,326
Less: Treasury stock cost on 143,962 shares as of 3/31/22, 155,158 as of 12/31/21, and 172,548 as of 3/31/21		(2,879	)		(3,103	)		(3,422	)
Less: Treasury stock cost on 113,969 shares as of 9/30/22, 155,158 as of 12/31/21, and 163,663 as of 9/30/21											(2,273	)		(3,103	)		(3,263	)
Total stockholders' equity		116,039			137,288			128,821			86,155			137,288			136,217

Total liabilities and stockholders' equity		1,705,148			1,717,230			1,531,889			1,824,304			1,717,230			1,598,052

	Three Months ended March 31,					Three Months ended September 30,					Nine Months ended September 30,
	2022			2021		2022		2021			2022			2021
	$			$		$		$			$			$
Interest and dividend income:
Interest and fees on loans		8,815			8,385		11,022		8,986			29,357			25,541
Interest on securities available for sale
Taxable		1,429			1,079		2,654		1,301			6,090			3,611
Tax-exempt		1,029			952		1,074		1,015			3,182			2,977
Interest on deposits at other banks		37			22		55		17			139			59
Dividend income		94			92		167		98			367			295

Total interest and dividend income		11,404			10,530		14,972		11,417			39,135			32,483

Interest expense:
Interest on deposits		252			314		608		278			1,168			877
Interest on borrowings		431			537		775		511			1,683			1,569

Total interest expense		683			851		1,383		789			2,851			2,446

Net interest income		10,721			9,679		13,589		10,628			36,284			30,037

Provision for loan losses		100			375
Provision (credit) for loan losses							550		(250	)		1,300			125

Net interest income after provision for loan losses		10,621			9,304
Net interest income after provision (credit) for loan losses							13,039		10,878			34,984			29,912

Other income:
Trust and investment services income		671			670		680		540			1,979			1,746
Service fees		588			614		791		618			2,063			1,917
Commissions		869			864		941		945			2,762			2,761
Gains on the sale of debt securities, net		139			87		-		350			139			711
(Losses) gains on equity securities, net		(8	)		248
Gains (losses) on equity securities, net							9		32			(129	)		256
Gains on sale of mortgages		735			1,930		186		1,206			1,249			4,381
Earnings on bank-owned life insurance		190			216		242		218			667			636
Other income		492			689		331		230			1,145			1,126

Total other income		3,676			5,318		3,180		4,139			9,875			13,534

Operating expenses:
Salaries and employee benefits		6,512			5,699		6,607		6,142			19,826			17,800
Occupancy		718			683		713		654			2,125			1,972
Equipment		265			267		312		255			913			806
Advertising & marketing		279			190		259		282			833			717
Computer software & data processing		1,138			1,098		1,727		1,097			4,251			3,297
Shares tax		351			280		351		322			1,053			876
Professional services		630			439		720		535			1,983			1,572
Other expense		715			531		824		831			2,614			1,961

Total operating expenses		10,608			9,187		11,513		10,118			33,598			29,001

Income before income taxes		3,689			5,435		4,706		4,899			11,261			14,445

Provision for federal income taxes		498			931		697		760			1,503			2,251

Net income		3,191			4,504		4,009		4,139			9,758			12,194

Earnings per share of common stock		0.57			0.81		0.71		0.74			1.74			2.19

Cash dividends paid per share		0.17			0.17		0.17		0.17			0.51			0.50

Weighted average shares outstanding		5,584,603			5,561,603		5,611,279		5,570,416			5,597,301			5,565,777

	Three Months ended March 31,						Three Months ended September 30,						Nine Months ended September 30,
	2022			2021			2022			2021			2022			2021
	$			$			$			$			$			$

Net income		3,191			4,504			4,009			4,139			9,758			12,194

Other comprehensive loss, net of tax:
Securities available for sale not other-than-temporarily impaired:

Unrealized losses arising during the period		(29,909	)		(6,285	)		(23,500	)		(3,492	)		(74,319	)		(3,884	)
Income tax effect		6,280			1,320			4,935			733			15,607			814
		(23,629	)		(4,965	)		(18,565	)		(2,759	)		(58,712	)		(3,070	)

Gains recognized in earnings		(139	)		(87	)		-			(350	)		(139	)		(711	)
Income tax effect		29			18			-			73			29			149
		(110	)		(69	)		-			(277	)		(110	)		(562	)

Other comprehensive loss, net of tax		(23,739	)		(5,034	)		(18,565	)		(3,036	)		(58,822	)		(3,632	)

Comprehensive Loss		(20,548	)		(530	)
Comprehensive (Loss) Income								(14,556	)		1,103			(49,064	)		8,562

								Accumulated																	Accumulated
								Other						Total											Other						Total
	Common		Capital		Retained			Comprehensive			Treasury			Stockholders'			Common		Capital			Retained			Comprehensive			Treasury			Stockholders'
	Stock		Surplus		Earnings			Income (Loss)			Stock			Equity			Stock		Surplus			Earnings			Income (Loss)			Stock			Equity
	$		$		$			$			$			$			$		$			$			$			$			$

Balances, December 31, 2020		574		4,444		120,670			7,958			(3,430	)		130,216			574		4,444			120,670			7,958			(3,430	)		130,216
Net income		—		—		4,504			—			—			4,504			-		-			4,504			-			-			4,504
Other comprehensive loss net of tax		—		—		—			(5,034	)		—			(5,034	)		-		-			-			(5,034	)		-			(5,034	)
Treasury stock purchased - 7,600 shares		—		—		—			—			(149	)		(149	)		-		-			-			-			(149	)		(149	)
Treasury stock issued - 7,936 shares		—		16		—			—			157			173			-		16			-			-			157			173
Cash dividends paid, $0.16 per share		—		—		(889	)		—			—			(889	)
Cash dividends paid, $0.16 per share																		-		-			(889	)		-			-			(889	)
Balances, March 31, 2021		574		4,460		124,285			2,924			(3,422	)		128,821			574		4,460			124,285			2,924			(3,422	)		128,821
Net income																		-		-			3,551			-			-			3,551
Other comprehensive income net of tax																		-		-			-			4,438			-			4,438
Treasury stock purchased - 7,200 shares																		-		-			-			-			(155	)		(155	)
Treasury stock issued - 10,611 shares																		-		20			-			-			211			231
Cash dividends paid, $0.17 per share																		-		-			(945	)		-			-			(945	)
Balances, June 30, 2021																		574		4,480			126,891			7,362			(3,366	)		135,941
Net income																		-		-			4,139			-			-			4,139
Other comprehensive loss net of tax																		-		-			-			(3,036	)		-			(3,036	)
Treasury stock purchased - 3,100 shares																		-		-			-			-			(68	)		(68	)
Treasury stock issued - 8,574 shares																		-		18			-			-			171			189
Cash dividends paid, $0.17 per share																		-		-			(948	)		-			-			(948	)
Balances, September 30, 2021																		574		4,498			130,082			4,326			(3,263	)		136,217


Balances, December 31, 2021		574		4,520		131,856			3,441			(3,103	)		137,288			574		4,520			131,856			3,441			(3,103	)		137,288
Net income		—		—		3,191			—			—			3,191			-		-			3,191			-			-			3,191
Other comprehensive loss net of tax		—		—		—			(23,739	)		—			(23,739	)		-		-			-			(23,739	)		-			(23,739	)
Treasury stock issued - 11,196 shares		—		24		—			—			224			248			-		24			-			-			224			248
Cash dividends paid, $0.17 per share		—		—		(949	)		—			—			(949	)
Cash dividends paid, $0.17 per share																		-		-			(949	)		-			-			(949	)
Balances, March 31, 2022		574		4,544		134,098			(20,298	)		(2,879	)		116,039			574		4,544			134,098			(20,298	)		(2,879	)		116,039
Net income																		-		-			2,558			-			-			2,558
Other comprehensive loss net of tax																		-		-			-			(16,518	)		-			(16,518	)
Treasury stock purchased - 3,000shares																		-		-			-			-			(53	)		(53	)
Treasury stock issued - 18,418 shares																		-		(42	)		-			-			368			326
Cash dividends paid, $0.17 per share																		-		-			(951	)		-			-			(951	)
Balances, June 30, 2022																		574		4,502			135,705			(36,816	)		(2,564	)		101,401
Net income																		-		-			4,009			-			-			4,009
Other comprehensive loss net of tax																		-		-			-			(18,565	)		-			(18,565	)
Treasury stock issued - 14,575 shares																		-		(27	)		-			-			291			264
Cash dividends paid, $0.17 per share																		-		-			(954	)		-			-			(954	)
Balances, September 30, 2022																		574		4,475			138,760			(55,381	)		(2,273	)		86,155

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)	Three Months Ended March 31,						Nine Months Ended September 30,
	2022			2021			2022			2021
	$			$			$			$
Cash flows from operating activities:
Net income		3,191			4,504			9,758			12,194
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities premiums and discounts and loan fees		1,196			771			3,854			2,851
Amortization of operating leases right-of-use assets		64			45			132			60
Increase in interest receivable		(542	)		(565	)		(1,254	)		(958	)
Decrease in interest payable		189			176
Increase in interest payable								526			146
Provision for loan losses		100			375			1,300			125
Gains on the sale of debt securities, net		(139	)		(87	)		(139	)		(711	)
Losses (gains) on equity securities, net		8			(248	)		129			(256	)
Gains on sale of mortgages		(735	)		(1,930	)		(1,249	)		(4,381	)
Loans originated for sale		(14,483	)		(29,884	)		(28,164	)		(71,607	)
Proceeds from sales of loans		16,189			32,825			27,476			75,843
Earnings on bank-owned life insurance		(190	)		(216	)		(667	)		(636	)
Depreciation of premises and equipment and amortization of software		388			376			1,207			1,164
Deferred income tax		0-			(30	)		(83	)		164
Amortization of deferred fees on subordinated debt		20			19			76			59
Other assets and other liabilities, net		2,904			(999	)		2,327			(2,292	)
Net cash provided by operating activities		8,160			5,132			15,229			11,765

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments		13,344			20,943			35,605			58,837
Proceeds from sales		8,575			50,341			8,575			77,259
Purchases		(84,513	)		(133,849	)		(123,852	)		(228,981	)
Equity securities
Proceeds from sales		150			428			151			460
Purchases		(170	)		(292	)		(249	)		(1,945	)
Purchase of regulatory bank stock		(128	)		(400	)		(974	)		(524	)
Redemptions of regulatory bank stock		102			347			457			996
Purchase of bank-owned life insurance								-			(4,918	)
Net increase in loans		(29,629	)		(18,238	)		(193,735	)		(55,899	)
Purchases of premises and equipment, net		(229	)		(311	)		(1,106	)		(745	)
Purchase of computer software		0-			(139	)		(141	)		(471	)
Net cash used for investing activities		(92,498	)		(81,170	)		(275,269	)		(155,930	)

Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts		5,536			72,511			123,598			141,428
Net increase in time deposits		208			65
Net decrease in time deposits								(3,962	)		(2,737	)
Net increase in short-term borrowings								15,000			-
Repayments of long-term debt		0-			(1,998	)		-			(8,084	)
Proceeds from issuance of subordinated debt								19,600			-
Dividends paid		(949	)		(889	)		(2,854	)		(2,782	)
Proceeds from sale of treasury stock		248			173			838			593
Treasury stock purchased		0-			(149	)		(53	)		(372	)
Net cash provided by financing activities		5,043			69,713			152,167			128,046
Decrease in cash and cash equivalents		(79,295	)		(6,325	)		(107,873	)		(16,119	)
Cash and cash equivalents at beginning of period		158,449			94,939			158,449			94,939
Cash and cash equivalents at end of period		79,154			88,614			50,576			78,820

Supplemental disclosures of cash flow information:
Interest paid		494			675			2,325			2,300
Income taxes paid		450			0-			1,200			2,200
Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale		(30,048	)		(6,369	)		(74,458	)		4,595
Recognition of lease operating right-of-use assets		1,647			0-			2,811			80
Recognition of operating lease liabilities		1,647			0-			2,811			80

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and to general practices within the banking industry. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all significant adjustments considered necessary for fair presentation have been included. Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity.

ENB Financial Corp (“the Corporation”) is the bank holding company for its wholly-owned subsidiary Ephrata National Bank (the “Bank”). Ephrata National Bank has one wholly-owned subsidiary, ENB Insurance, LLC which is consolidated into its financial statements. This Form 10-Q, for the ~~first~~third quarter of 2022, is reporting on the results of operations and financial condition of ENB Financial Corp on a consolidated basis.

Operating results for the ~~three~~nine months ended ~~March 31,~~September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in ENB Financial Corp’s Annual Report on Form 10-K for the year ended December 31, 2021.

The Company records revenue from contracts with customers in accordance with Accounting Standards Topic 606, Revenue from Contracts with Customers (Topic 606). Under Topic 606, the Corporation must identify contracts with customers, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when the Corporation satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

The Corporation’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Corporation has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Corporation generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

The amortized cost, gross unrealized gains and losses, and fair value of securities held at ~~March 31,~~September 30, 2022, and December 31, 2021, are as follows:

			Gross		Gross							Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	$		$		$			$		$		$		$			$
March 31, 2022
September 30, 2022
U.S. treasuries		35,683		0—		(1,392	)		34,291		35,719		-		(3,287	)		32,432
U.S. government agencies		27,609		2		(1,720	)		25,891		27,606		1		(2,972	)		24,635
U.S. agency mortgage-backed securities		56,150		50		(2,123	)		54,077		51,655		-		(5,354	)		46,301
U.S. agency collateralized mortgage obligations		35,640		15		(1,207	)		34,448		32,309		-		(2,855	)		29,454
Non-agency MBS/CMO		23,307		0—		(275	)		23,032		55,370		-		(3,496	)		51,874
Asset-backed securities		91,795		96		(1,098	)		90,793		84,110		-		(2,362	)		81,748
Corporate bonds		81,973		56		(3,244	)		78,785		81,829		6		(7,479	)		74,356
Obligations of states and political subdivisions		263,028		698		(15,550	)		248,176		261,150		1		(42,305	)		218,846
Total securities available for sale		615,185		917		(26,609	)		589,493		629,748		8		(70,110	)		559,646

December 31, 2021
U.S. Treasuries		14,821		14		(22	)		14,813		14,821		14		(22	)		14,813
U.S. government agencies		29,613		50		(642	)		29,021		29,613		50		(642	)		29,021
U.S. agency mortgage-backed securities		51,964		502		(478	)		51,988		51,964		502		(478	)		51,988
U.S. agency collateralized mortgage obligations		30,917		241		(81	)		31,077		30,917		241		(81	)		31,077
Asset-backed securities		100,998		605		(384	)		101,219		100,998		605		(384	)		101,219
Corporate bonds		82,617		420		(528	)		82,509		82,617		420		(528	)		82,509
Obligations of states and political subdivisions		242,807		5,848		(1,189	)		247,466		242,807		5,848		(1,189	)		247,466
Total securities available for sale		553,737		7,680		(3,324	)		558,093		553,737		7,680		(3,324	)		558,093

The amortized cost and fair value of securities available for sale at ~~March 31,~~September 30, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to certain call or prepayment provisions.

	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
	$		$		$		$
Due in one year or less		29,664		29,220		11,209		11,201
Due after one year through five years		127,954		124,750		106,611		98,455
Due after five years through ten years		151,046		143,953		112,689		98,684
Due after ten years		306,521		291,570		399,239		351,306
Total debt securities		615,185		589,493		629,748		559,646

Securities available for sale with a par value of ~~$88,591,000~~$108,799,000 and ~~$94,283,000~~$94,283,000 at ~~March 31,~~September 30, 2022, and December 31, 2021, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was ~~$86,576,000~~$99,284,000 at ~~March 31,~~September 30, 2022, and ~~$96,521,000~~$96,521,000 at December 31, 2021.

Proceeds from active sales of securities available for sale, along with the associated gross realized gains and gross realized losses, are shown below. Realized gains and losses are computed on the basis of specific identification.

	Three Months Ended March 31,					Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021			2022		2021			2022		2021
	$		$			$		$			$		$
Proceeds from sales		8,575		50,341			-		17,957			8,575		77,259
Gross realized gains		139		141			-		369			139		791
Gross realized losses		0—		(54	)		-		(19	)		-		(80	)

Management evaluates all of the Corporation’s securities for other-than-temporary impairment (OTTI) on a periodic basis. ~~NaN~~No securities in the portfolio had other-than-temporary impairment recorded in the first ~~three~~nine months of 2022 or 2021.

Information pertaining to securities with gross unrealized losses at ~~March 31,~~September 30, 2022, and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

Less than 12 months
More than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
$
$
$
$
$
$
As of March 31, 2022
U.S. Treasuries
34,291
(1,392
)
0—
0—
34,291
(1,392
)
U.S. government agencies
2,001
(9
)
22,689
(1,711
)
24,690
(1,720
)
U.S. agency mortgage-backed securities
32,444
(1,122
)
12,274
(1,001
)
44,718
(2,123
)
U.S. agency collateralized mortgage obligations
28,325
(1,193
)
2,884
(14
)
31,209
(1,207
)
Non-Agency MBS/CMO
9,275
(275
)
0—
0—
9,275
(275
)
Asset-backed securities
73,552
(1,005
)
5,973
(93
)
79,525
(1,098
)
Corporate bonds
54,102
(3,244
)
0—
0—
54,102
(3,244
)
Obligations of states & political subdivisions
188,073
(14,222
)
9,645
(1,328
)
197,718
(15,550
)

Total temporarily impaired securities
422,063
(22,462
)
53,465
(4,147
)
475,528
(26,609
)

As of December 31, 2021
U.S. Treasuries
4,959
(22
)
0—
0—
4,959
(22
)
U.S. government agencies
16,386
(519
)
7,375
(123
)
23,761
(642
)
U.S. agency mortgage-backed securities
24,090
(468
)
2,458
(10
)
26,548
(478
)
U.S. agency collateralized mortgage obligations
14,206
(66
)
2,965
(15
)
17,171
(81
)
Asset-backed securities
50,466
(338
)
2,826
(46
)
53,292
(384
)
Corporate bonds
44,907
(528
)
0—
0—
44,907
(528
)
Obligations of states & political subdivisions
70,021
(1,043
)
6,023
(146
)
76,044
(1,189
)

Total temporarily impaired securities
225,035
(2,984
)
21,647
(340
)
246,682
(3,324
)

In the debt security portfolio there were 289 positions that were carrying unrealized losses as of March 31, 2022. There were no instruments considered to be other-than-temporarily impaired at March 31, 2022.


	Less than 12 months					More than 12 months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	$		$			$		$			$		$
As of September 30, 2022
U.S. Treasuries		28,119		(2,616	)		4,313		(671	)		32,432		(3,287	)
U.S. government agencies		1,954		(53	)		21,480		(2,919	)		23,434		(2,972	)
U.S. agency mortgage-backed securities		26,500		(2,248	)		19,801		(3,106	)		46,301		(5,354	)
U.S. agency collateralized mortgage obligations		18,841		(1,433	)		10,553		(1,422	)		29,394		(2,855	)
Non-Agency MBS/CMO		51,874		(3,496	)		-		-			51,874		(3,496	)
Asset-backed securities		55,024		(1,414	)		26,724		(948	)		81,748		(2,362	)
Corporate bonds		39,611		(2,961	)		28,734		(4,518	)		68,345		(7,479	)
Obligations of states & political subdivisions		161,641		(25,872	)		56,674		(16,433	)		218,315		(42,305	)

Total temporarily impaired securities		383,564		(40,093	)		168,279		(30,017	)		551,843		(70,110	)


As of December 31, 2021
U.S. Treasuries		4,959		(22	)		-		-			4,959		(22	)
U.S. government agencies		16,386		(519	)		7,375		(123	)		23,761		(642	)
U.S. agency mortgage-backed securities		24,090		(468	)		2,458		(10	)		26,548		(478	)
U.S. agency collateralized mortgage obligations		14,206		(66	)		2,965		(15	)		17,171		(81	)
Asset-backed securities		50,466		(338	)		2,826		(46	)		53,292		(384	)
Corporate bonds		44,907		(528	)		-		-			44,907		(528	)
Obligations of states & political subdivisions		70,021		(1,043	)		6,023		(146	)		76,044		(1,189	)

Total temporarily impaired securities		225,035		(2,984	)		21,647		(340	)		246,682		(3,324	)

In the debt security portfolio there were 396 positions carrying unrealized losses as of September 30, 2022. There were no instruments considered to be other-than-temporarily impaired at September 30, 2022.

The Corporation evaluates fixed maturity positions for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant such evaluation. U.S. generally accepted accounting principles provide for the bifurcation of OTTI into two categories: (a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the debt security (the credit loss), which is recognized in earnings, and (b) the amount of total OTTI related to all other factors, which is recognized, net of taxes, as a component of accumulated other comprehensive income.

The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of equity securities held at ~~March 31,~~September 30, 2022 and December 31, 2021.

			Gross		Gross							Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	$		$		$			$		$		$		$			$
March 31, 2022
September 30, 2022
CRA-qualified mutual funds		7,258		0—		0—			7,258		7,299		-		-			7,299
Bank stocks		1,623		120		(7	)		1,736		1,660		73		(81	)		1,652
Total equity securities		8,881		120		(7	)		8,994		8,959		73		(81	)		8,951

			Gross		Gross							Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	$		$		$			$		$		$		$			$
December 31, 2021
CRA-qualified mutual funds		7,240		—		—			7,240		7,240		-		-			7,240
Bank stocks		1,570		184		(12	)		1,742		1,570		184		(12	)		1,742
Total equity securities		8,810		184		(12	)		8,982		8,810		184		(12	)		8,982

The following table presents the net gains and losses on the Corporation’s equity investments recognized in earnings during the three and nine months ended ~~March 31,~~September 30, 2022 and 2021, and the portion of unrealized gains and losses for the period that relates to equity investments held as of ~~March 31,~~September 30, 2022 and 2021.

	Three Months Ended March 31,					Three Months Ended September 30,				Nine Months Ended September 30,
	2022			2021		2022		2021		2022			2021
	$			$		$		$		$			$

Net (losses) gains recognized in equity securities during the period		(8	)		248		9		32		(129	)		256

Less: Net gains realized on the sale of equity securities during the period		51			95		-		3		51			99

Unrealized gains (losses) recognized in equity securities held at reporting date		(59	)		153		9		29		(180	)		157

The following table presents the Corporation’s loan portfolio by category of loans as of ~~March 31,~~September 30, 2022, and December 31, 2021:

	March 31,			December 31,			September 30,			December 31,
	2022			2021			2022			2021
	$			$			$			$
Commercial real estate
Commercial mortgages		180,792			177,396			207,480			177,396
Agriculture mortgages		200,406			203,725			212,351			203,725
Construction		56,934			19,639			80,008			19,639
Total commercial real estate		438,132			400,760			499,839			400,760

Consumer real estate (a)
1-4 family residential mortgages		303,409			317,037			366,534			317,037
Home equity loans		11,819			11,181			13,268			11,181
Home equity lines of credit		77,499			75,698			93,704			75,698
Total consumer real estate		392,727			403,916			473,506			403,916

Commercial and industrial
Commercial and industrial		67,146			65,615			80,964			65,615
Tax-free loans		23,295			23,009			26,398			23,009
Agriculture loans		22,151			20,717			25,520			20,717
Total commercial and industrial		112,592			109,341			132,882			109,341

Consumer		5,141			5,132			5,755			5,132

Gross loans prior to deferred fees		948,592			919,149			1,111,982			919,149

Deferred loan costs, net		1,979			1,755			2,522			1,755
Allowance for credit losses		(12,979	)		(12,931	)		(14,150	)		(12,931	)
Total net loans		937,592			907,973			1,100,354			907,973

~~(a) Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $304,290,000 and $289,263,000 as of March 31, 2022 and December 31, 2021, respectively.~~

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of ~~March 31,~~September 30, 2022 and December 31, 2021. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.

The Corporation's internally assigned grades for commercial credits are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem, if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

							Commercial														Commercial
	Commercial		Agriculture				and		Tax-free		Agriculture				Commercial		Agriculture				and		Tax-free		Agriculture
March 31, 2022	Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
September 30, 2022															Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Grade:
Pass		177,935		187,837		50,429		57,449		23,295		21,698		518,643		205,221		202,861		76,962		72,960		26,398		25,222		609,624
Special Mention		521		4,537		6,505		6,380		0—		71		18,014		-		4,576		3,046		5,328		-		43		12,993
Substandard		2,336		8,032		0—		3,317		0—		382		14,067		2,259		4,914		-		2,676		-		255		10,104
Doubtful		0—		0—		0—		0—		0—		0—		0—		-		-		-		-		-		-		-
Loss		0—		0—		0—		0—		0—		0—		0—		-		-		-		-		-		-		-

Total		180,792		200,406		56,934		67,146		23,295		22,151		550,724		207,480		212,351		80,008		80,964		26,398		25,520		632,721

							Commercial														Commercial
	Commercial		Agriculture				and		Tax-free		Agriculture				Commercial		Agriculture				and		Tax-free		Agriculture
December 31, 2021	Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total		Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Grade:
Pass		172,540		192,943		13,544		57,214		23,009		19,980		479,230		172,540		192,943		13,544		57,214		23,009		19,980		479,230
Special Mention		2,443		2,542		6,095		4,657		0—		90		15,827		2,443		2,542		6,095		4,657		-		90		15,827
Substandard		2,413		8,240		0—		3,744		0—		647		15,044		2,413		8,240		-		3,744		-		647		15,044
Doubtful		0—		0—		0—		0—		0—		0—		0—		-		-		-		-		-		-		-
Loss		0—		0—		0—		0—		0—		0—		0—		-		-		-		-		-		-		-

Total		177,396		203,725		19,639		65,615		23,009		20,717		510,101		177,396		203,725		19,639		65,615		23,009		20,717		510,101

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of ~~March 31,~~September 30, 2022 and December 31, ~~2021~~2021:

	1-4 Family				Home Equity						1-4 Family				Home Equity
	Residential		Home Equity		Lines of						Residential		Home Equity		Lines of
March 31, 2022	Mortgages		Loans		Credit		Consumer		Total
September 30, 2022											Mortgages		Loans		Credit		Consumer		Total
Payment performance:	$		$		$		$		$		$		$		$		$		$

Performing		303,372		11,447		77,460		5,132		397,411		366,363		12,918		93,704		5,747		478,732
Non-performing		37		372		38		9		456		-		-		-		8		8

Total		303,409		11,819		77,498		5,141		397,867		366,363		12,918		93,704		5,755		478,740

	1-4 Family				Home Equity						1-4 Family				Home Equity
	Residential		Home Equity		Lines of						Residential		Home Equity		Lines of
December 31, 2021	Mortgages		Loans		Credit		Consumer		Total		Mortgages		Loans		Credit		Consumer		Total
Payment performance:	$		$		$		$		$		$		$		$		$		$

Performing		316,722		11,181		75,659		5,132		408,694		316,722		11,181		75,659		5,132		408,694
Non-performing		315		0—		39		0—		354		315		-		39		-		354

Total		317,037		11,181		75,698		5,132		409,048		317,037		11,181		75,698		5,132		409,048

The following tables present an age analysis of the Corporation’s past due loans, segregated by loan portfolio class, as of ~~March 31,~~September 30, 2022 and December 31, 2021:


													Loans														Loans
													Receivable >						Greater								Receivable > 90 Days
	30-59 Days		60-89 Days		Greater than 90		Total Past				Total Loans		90 Days and		30-59 Days		60-89 Days		than 90		Total Past				Total Loans		and
March 31, 2022	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
September 30, 2022															Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		0—		0—		171		171		180,621		180,792		0—		-		-		1,087		1,087		206,914		208,001		140
Agriculture mortgages		0—		0—		2,744		2,744		197,662		200,406		0—		-		22		3,355		3,377		208,974		212,351		-
Construction		0—		0—		0—		0—		56,934		56,934		0—		-		-		-		-		80,008		80,008		-
Consumer real estate
1-4 family residential mortgages		1,050		283		37		1,370		302,039		303,409		0—		502		-		-		502		365,861		366,363		-
Home equity loans		18		0—		372		390		11,429		11,819		0—		17		12		-		29		12,889		12,918		-
Home equity lines of credit		8		17		38		63		77,436		77,499		38		73		-		-		73		93,631		93,704		-
Commercial and industrial
Commercial and industrial		3		32		249		284		66,862		67,146		39		7		6		203		216		80,748		80,964		-
Tax-free loans		0—		0—		0—		0—		23,295		23,295		0—		-		-		-		-		26,398		26,398		-
Agriculture loans		0—		0—		19		19		22,132		22,151		0—		-		-		-		-		25,520		25,520		-
Consumer		0—		1		9		10		5,131		5,141		9		29		1		8		38		5,717		5,755		8
Total		1,079		333		3,639		5,051		943,541		948,592		86		628		41		4,653		5,322		1,106,660		1,111,982		148


													Loans														Loans
													Receivable >														Receivable
	30-59 Days		60-89 Days		Greater than 90		Total Past				Total Loans		90 Days and						Greater								> 90 Days
December 31, 2020	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
															30-59 Days		60-89 Days		than 90		Total Past				Total Loans		and
December 31, 2021															Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		22		0—		184		206		177,190		177,396		0—		22		-		184		206		177,190		177,396		-
Agriculture mortgages		232		0—		1,838		2,070		201,655		203,725		0—		232		-		1,838		2,070		201,655		203,725		-
Construction		0—		0—		0—		0—		19,639		19,639		0—		-		-		-		-		19,639		19,639		-
Consumer real estate
1-4 family residential mortgages		1,464		68		315		1,847		315,190		317,037		276		1,464		68		315		1,847		315,190		317,037		276
Home equity loans		19		0—		0—		19		11,162		11,181		0—		19		-		-		19		11,162		11,181		-
Home equity lines of credit		0—		0—		39		39		75,659		75,698		39		-		-		39		39		75,659		75,698		39
Commercial and industrial
Commercial and industrial		43		0—		395		438		65,177		65,615		10		43		-		395		438		65,177		65,615		10
Tax-free loans		0—		0—		0—		0—		23,009		23,009		0—		-		-		-		-		23,009		23,009		-
Agriculture loans		0—		9		110		119		20,598		20,717		0—		-		9		110		119		20,598		20,717		-
Consumer		22		0—		0—		22		5,110		5,132		0—		22		-		-		22		5,110		5,132		-
Total		1,802		77		2,881		4,760		914,389		919,149		325		1,802		77		2,881		4,760		914,389		919,149		325

The following table presents nonaccrual loans by classes of the loan portfolio as of ~~March 31,~~September 30, 2022 and December 31, 2021:

	March 31,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
	$		$		$		$

Commercial real estate
Commercial mortgages		171		184		948		184
Agriculture mortgages		2,744		1,838		3,355		1,838
Construction		0—		0—		-		-
Consumer real estate
1-4 family residential mortgages		37		39		-		39
Home equity loans		372		0—		-		-
Home equity lines of credit		0—		0—		-		-
Commercial and industrial
Commercial and industrial		210		385		203		385
Tax-free loans		0—		0—		-		-
Agriculture loans		19		110		-		110
Consumer		0—		0—		-		-
Total		3,553		2,556		4,506		2,556

As of ~~March 31,~~September 30, 2022 and December 31, 2021, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and nine months ended ~~March 31,~~September 30, 2022 and ~~March 31,~~September 30, 2021, is as follows:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2022		2021
	$		$		$		$		$		$

Average recorded balance of impaired loans		2,878		5,739		5,028		2,012		4,012		4,392
Interest income recognized on impaired loans		8		66		5		38		19		176

No loan modifications were made during the first ~~three~~nine months of ~~2021~~2022 or ~~2022~~2021 that would be considered a troubled debt restructuring (TDR). A modification of the payment terms to a loan customer are considered a TDR if a concession was made to a borrower that is experiencing financial difficulty. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments. Included in the impaired loan portfolio is one loan to a commercial borrower that is being reported as a TDR. The balance of this TDR loan was ~~$483,000~~$456,000 as of ~~March 31,~~September 30, 2022. This TDR is not non-accrual.

The following tables summarize information regarding impaired loans by loan portfolio class as of ~~March 31,~~September 30, 2022 and December 31, 2021:

			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
March 31, 2022	Investment		Balance		Allowance
September 30, 2022							Investment		Balance		Allowance
	$		$		$		$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		579		619		0—		948		1,006		-
Agriculture mortgages		2,690		2,720		0—		3,811		3,923		-
Construction		0—		0—		0—		-		-		-
Total commercial real estate		3,269		3,339		0—		4,759		4,929		-

Commercial and industrial
Commercial and industrial		0—		0—		0—		194		199		-
Tax-free loans		0—		0—		0—		-		-		-
Agriculture loans		0—		0—		0—		-		-		-
Total commercial and industrial		0—		0—		0—		194		199		-

Total with no related allowance		3,269		3,339		0—		4,953		5,128		-

With an allowance recorded:
Commercial real estate
Commercial mortgages		0—		0—		0—		-		-		-
Agriculture mortgages		537		550		23		-		-		-
Construction		0—		0—		0—		-		-		-
Total commercial real estate		537		550		23		-		-		-

Commercial and industrial
Commercial and industrial		210		210		209		9		9		9
Tax-free loans		0—		0—		0—		-		-		-
Agriculture loans		19		20		19		-		-		-
Total commercial and industrial		229		230		228		9		9		9

Total with a related allowance		766		780		251		9		9		9

Total by loan class:
Commercial real estate
Commercial mortgages		579		619		0—		948		1,006		-
Agriculture mortgages		3,227		3,270		23		3,811		3,923		-
Construction		0—		0—		0—		-		-		-
Total commercial real estate		3,806		3,889		23		4,759		4,929		-

Commercial and industrial
Commercial and industrial		210		210		209		203		208		9
Tax-free loans		0—		0—		0—		-		-		-
Agriculture loans		19		20		19		-		-		-
Total commercial and industrial		229		230		228		203		208		9

Total		4,035		4,119		251		4,962		5,137		9

			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
December 31, 2021	Investment		Balance		Allowance		Investment		Balance		Allowance
	$		$		$		$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		223		263		0—		223		263		-
Agriculture mortgages		2,055		2,066		0—		2,055		2,066		-
Construction		0—		0—		0—		-		-		-
Total commercial real estate		2,278		2,329		0—		2,278		2,329		-

Commercial and industrial
Commercial and industrial		385		438		0—		385		438		-
Tax-free loans		0—		0—		0—		-		-		-
Agriculture loans		0—		0—		0—		-		-		-
Total commercial and industrial		385		438		0—		385		438		-

Total with no related allowance		2,663		2,767		0—		2,663		2,767		-

With an allowance recorded:
Commercial real estate
Commercial mortgages		0—		0—		0—		-		-		-
Agriculture mortgages		551		559		37		551		559		37
Construction		0—		0—		0—		-		-		-
Total commercial real estate		551		559		37		551		559		37

Commercial and industrial
Commercial and industrial		0—		0—		0—		-		-		-
Tax-free loans		0—		0—		0—		-		-		-
Agriculture loans		110		111		110		110		111		110
Total commercial and industrial		110		111		110		110		111		110

Total with a related allowance		661		670		147		661		670		147

Total by loan class:
Commercial real estate
Commercial mortgages		223		263		0—		223		263		-
Agriculture mortgages		2,606		2,625		37		2,606		2,625		37
Construction		0—		0—		0—		-		-		-
Total commercial real estate		2,829		2,888		37		2,829		2,888		37

Commercial and industrial
Commercial and industrial		385		438		0—		385		438		-
Tax-free loans		0—		0—		0—		-		-		-
Agriculture loans		110		111		110		110		111		110
Total commercial and industrial		495		549		110		495		549		110

Total		3,324		3,437		147		3,324		3,437		147

The following table details activity in the allowance for credit losses by portfolio segment for the ~~three~~nine months ended ~~March 31,~~September 30, 2022:


	Commercial			Consumer		Commercial											Commercial			Consumer		Commercial
	Real Estate			Real Estate		and Industrial		Consumer			Unallocated			Total			Real Estate			Real Estate		and Industrial			Consumer			Unallocated			Total
	$			$		$		$			$			$			$			$		$			$			$			$
Allowance for credit losses:
Beginning balance - December 31, 2021		6,263			3,834		2,112		87			635			12,931			6,263			3,834		2,112			87			635			12,931

Charge-offs		(65	)		0—		0—		(1	)		0—			(66	)		(65	)		-		-			(1	)		-			(66	)
Recoveries		0—			3		10		1			0—			14			-			3		10			1			-			14
Provision		(90	)		41		193		(16	)		(28	)		100			(90	)		41		193			(16	)		(28	)		100

Balance - March 31, 2022		6,108			3,878		2,315		71			607			12,979			6,108			3,878		2,315			71			607			12,979

Charge-offs																		-			-		(41	)		-			-			(41	)
Recoveries																		2			3		12			1			-			18
Provision																		(239	)		834		255			(28	)		(172	)		650

Balance - June 30, 2022																		5,871			4,715		2,541			44			435			13,606

Charge-offs																		-			-		(18	)		(15	)		-			(33	)
Recoveries																		10			3		13			1			-			27
Provision																		529			108		(109	)		34			(12	)		550

Balance - September 30, 2022																		6,410			4,826		2,427			64			423			14,150

During the ~~three~~nine months ended ~~March 31,~~September 30, 2022, management charged off ~~$66,000~~$140,000 in loans while recovering ~~$14,000~~$59,000 and added ~~$100,000~~$1,300,000 to the provision. The unallocated portion of the allowance decreased from ~~4.9%~~4.9% of total reserves as of December 31, 2021, to ~~4.7%~~3.0% as of ~~March 31,~~September 30, 2022. ~~Management monitors the unallocated portion of the allowance with a desire to maintain it at approximately 5% over the long term, with a requirement of it not to exceed 10%.~~

During the ~~three~~nine months ended ~~March 31,~~September 30, 2022, net provision expense was recorded for all sectors except the consumer sector where a small credit provision was recorded. The provision expense for the commercial real estate, consumer real estate, and commercial and industrial sectors was primarily related to growth in those sectors of the loan portfolio through September 30, 2022, while the ~~commercial real estate and~~credit provision in the consumer ~~sectors recorded a credit~~sector was primarily related to declining qualitative factors in ~~provision. All of these amounts were minimal as total provision expense for the first quarter of 2022 was only $100,000 due to improved economic conditions as well as lower levels of classified loans.~~several areas since September 30, 2021.

Management continues to utilize nine qualitative factors to continually refine the potential credit risks across the Corporation’s various loan types. In addition, the loan portfolio is sectored out into nine different categories to evaluate these qualitative factors. A total score of the qualitative factors for each loan sector is calculated to utilize in the allowance for loan loss calculation.

~~The following table details activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2021:~~

Commercial
Consumer
Commercial
Real Estate
Real Estate
and Industrial
Consumer
Unallocated
Total
$
$
$
$
$
$
Allowance for credit losses:
Beginning balance - December 31, 2020
6,329
3,449
1,972
52
525
12,327

Charge-offs
0—
0—
0—
(14
)
0—
(14
)
Recoveries
0—
0—
1
1
0—
2
Provision
173
(41
)
(15
)
20
238
375

Balance - March 31, 2021
6,502
3,408
1,958
59
763
12,690

During the three months ended March 31, 2021, management charged off $14,000 in loans while recovering $2,000 and added $375,000 to the provision. The unallocated portion of the allowance increased from 4.3% of total reserves as of December 31, 2020, to 6.0% as of March 31, 2021. Management monitors the unallocated portion of the allowance with a desire to maintain it at approximately 5% over the long term, with a requirement of it not to exceed 10%.

The following table details activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2021:


	Commercial			Consumer			Commercial
	Real Estate			Real Estate			and Industrial			Consumer			Unallocated			Total
	$			$			$			$			$			$
Allowance for credit losses:
Beginning balance - December 31, 2020		6,329			3,449			1,972			52			525			12,327

Charge-offs		-			-			-			(14	)		-			(14	)
Recoveries		-			-			1			1			-			2
Provision		173			(41	)		(15	)		20			238			375

Balance - March 31, 2021		6,502			3,408			1,958			59			763			12,690

Charge-offs		-			-			-			(9	)		-			(9	)
Recoveries		-			-			16			6			-			22
Provision		48			83			19			10			(160	)		-

Balance - June 30, 2021		6,550			3,491			1,993			66			603			12,703

Charge-offs		-			-			-			(7	)		-			(7	)
Recoveries		-			-			2			6			-			8
Provision		(909	)		216			81			(3	)		365			(250	)

Balance - September 30, 2021		5,641			3,707			2,076			62			968			12,454

During the ~~three~~nine months ended ~~March~~September 30, 2021, management charged off $30,000 in loans while recovering $32,000 and added $125,000 to the provision. The unallocated portion of the allowance increased from 4.3% of total reserves as of December 31, ~~2021, net~~2020, to 7.8% as of September 30, 2021. Net provision expense was recorded for ~~the commercial real estate sector as well as the consumer sector with credit provisions recorded for the consumer real estate and commercial and industrial~~all loan sectors. The higher provision in the commercial real estate sector was due to growth in this portfolio of loans since December 31, 2020, as well as an increase in the qualitative factor related to the trends in the nature and volume of this sector. There were minimal charge-offs and recoveries recorded during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, so the provision expense was primarily related to an increase in loan balances as well as slightly higher unallocated portion of the allowance.

The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of ~~March 31,~~September 30, 2022 and December 31, 2021:


	Commercial		Consumer		Commercial								Commercial		Consumer		Commercial
As of March 31, 2022:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
As of September 30, 2022:													Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$		$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated for impairment		23		0—		228		0—		0—		251		-		-		9		-		-		9
Ending balance: collectively evaluated for impairment		6,085		3,878		2,087		71		607		12,728		6,410		4,826		2,418		64		423		14,141

Loans receivable:
Ending balance		438,132		392,727		112,592		5,141				948,592		499,839		473,506		132,882		5,755				1,111,982
Ending balance: individually evaluated for impairment		3,806		0—		229		0—				4,035		4,759		-		203		-				4,962
Ending balance: collectively evaluated for impairment		434,326		392,727		112,363		5,141				944,557		495,080		473,506		132,679		5,755				1,107,020


	Commercial		Consumer		Commercial								Commercial		Consumer		Commercial
As of December 31, 2021:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total		Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$		$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated for impairment		37		0—		110		0—		0—		147		37		-		110		-		-		147
Ending balance: collectively evaluated for impairment		6,226		3,834		2,002		87		635		12,784		6,226		3,834		2,002		87		635		12,784

Loans receivable:
Ending balance		400,760		403,916		109,341		5,132				919,149		400,760		403,916		109,341		5,132				919,149
Ending balance: individually evaluated for impairment		2,829		0—		495		0—				3,324		2,829		-		495		-				3,324
Ending balance: collectively evaluated for impairment		397,931		403,916		108,846		5,132				915,825		397,931		403,916		108,846		5,132				915,825

U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

The following tables provide the fair market value for assets required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets as of ~~March 31,~~September 30, 2022, and December 31, 2021, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	March 31, 2022								September 30, 2022
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	$		$		$		$		$		$		$		$

U.S. treasuries		0—		34,291		0—		34,291		32,432		-		-		32,432
U.S. government agencies		0—		25,891		0—		25,891		-		24,635		-		24,635
U.S. agency mortgage-backed securities		0—		54,077		0—		54,077		-		46,301		-		46,301
U.S. agency collateralized mortgage obligations		0—		34,448		0—		34,448		-		29,454		-		29,454
Non-agency MBS/CMO		0—		23,032		0—		23,032		-		51,874		-		51,874
Asset-backed securities		0—		90,793		0—		90,793		-		81,748		-		81,748
Corporate bonds		0—		78,785		0—		78,785		-		74,356		-		74,356
Obligations of states & political subdivisions		0—		248,176		0—		248,176		-		218,846		-		218,846
Equity securities		8,994		0—		0—		8,994		8,951		-		-		8,951

Total securities		8,994		589,493		0—		598,487		41,383		527,214		-		568,597

On ~~March 31,~~September 30, 2022, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments excluding U. S. Treasuries were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s U.S. Treasuries, CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of ~~March 31,~~September 30, 2022, the CRA fund investments had a ~~$7,258,000~~$7,299,000 book and fair market value and the bank stock portfolio had a book value of ~~$1,623,000,~~$1,660,000, and fair market value of ~~$1,736,000.~~$1,652,000.

Financial instruments are considered level III when their values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

	December 31, 2021								December 31, 2021
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	$		$		$		$		$		$		$		$

U.S. Treasuries		0—		14,813		0—		14,813		14,813		-				14,813
U.S. government agencies		0—		29,021		0—		29,021		-		29,021		-		29,021
U.S. agency mortgage-backed securities		0—		51,988		0—		51,988		-		51,988		-		51,988
U.S. agency collateralized mortgage obligations		0—		31,077		0—		31,077		-		31,077		-		31,077
Asset-backed securities		0—		101,219		0—		101,219		-		101,219		-		101,219
Corporate bonds		0—		82,509		0—		82,509		-		82,509		-		82,509
Obligations of states & political subdivisions		0—		247,466		0—		247,466		-		247,466		-		247,466
Equity securities		8,982		0—		0—		8,982		8,982		-		-		8,982

Total securities		8,982		558,093		0—		567,075		23,795		543,280		-		567,075

On December 31, 2021, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued excluding U.S. Treasuries using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s U.S. Treasuries, CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of December 31, 2021, the CRA fund investments had a ~~$7,240,000~~$7,240,000 book and market value and the bank stocks had a book value of ~~$1,570,000~~$1,570,000 and a market value of ~~$1,742,000.~~$1,742,000.

The following tables provide the fair value for each class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of ~~March 31,~~September 30, 2022 and December 31, 2021, by level within the fair value hierarchy:

	March 31, 2022								September 30, 2022
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	$		$		$		$		$		$		$		$
Assets:
Impaired Loans	$	0—	$	0—	$	3,784	$	3,784	$	-	$	-	$	4,953	$	4,953
Total	$	0—	$	0—	$	3,784	$	3,784	$	-	$	-	$	4,953	$	4,953

	December 31, 2021								December 31, 2021
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	$		$		$		$		$		$		$		$
Assets:
Impaired Loans	$	0—	$	0—	$	3,177	$	3,177	$	-	$	-	$	3,177	$	3,177
Total	$	0—	$	0—	$	3,177	$	3,177	$	-	$	-	$	3,177	$	3,177

The Corporation had a total of ~~$4,035,000~~$4,962,000 of impaired loans as of ~~March 31,~~September 30, 2022, with ~~$251,000~~$9,000 of specific allocation against these loans and ~~$3,324,000~~$3,324,000 of impaired loans as of December 31, 2021, with ~~$147,000~~$147,000 of specific allocation against these loans. The value of impaired loans is generally determined through independent appraisals of the underlying collateral.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Corporation has utilized level III inputs to determine fair value:

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

	September 30, 2022
					Quoted Prices in Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		50,576		50,576		50,576		-		-
Regulatory stock		5,897		5,897		5,897		-		-
Loans held for sale		5,131		5,131		5,131		-		-
Loans, net of allowance		1,100,354		1,040,658		-		-		1,040,658
Mortgage servicing assets		2,043		2,828		-		-		2,828
Accrued interest receivable		6,407		6,407		6,407		-		-
Bank owned life insurance		35,995		35,995		35,995		-		-

Financial Liabilities:
Demand deposits		670,563		670,563		670,563		-		-
Interest-bearing demand deposits		81,855		81,855		81,855		-		-
NOW accounts		129,390		129,390		129,390		-		-
Money market deposit accounts		260,141		260,141		260,141		-		-
Savings accounts		369,230		369,230		369,230		-		-
Time deposits		120,670		116,598		-		-		116,598
Total deposits		1,631,849		1,627,777		1,511,179		-		116,598

Long-term debt		44,206		44,206		-		-		44,206
Short-term borrowings		15,000		15,000
Subordinated debt		39,356		36,745		-		-		36,745
Accrued interest payable		781		781		781		-		-

The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021:

	March 31, 2022										December 31, 2021
					Quoted Prices in Active Markets		Significant Other		Significant						Quoted Prices in Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable						for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs		Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level I)		(Level II)		(Level III)		Amount		Fair Value		(Level 1)		(Level II)		(Level III)
	$		$		$		$		$		$		$		$		$		$
Financial Assets:
Cash and cash equivalents		79,154		79,154		79,154		0—		0—		158,449		158,449		158,449		-		-
Regulatory stock		5,406		5,406		5,406		0—		0—		5,380		5,380		5,380		-		-
Loans held for sale		2,223		2,223		2,223		0—		0—		3,194		3,194		3,194		-		-
Loans, net of allowance		937,592		933,932		0—		0—		933,932		907,973		914,251		-		-		914,251
Mortgage servicing assets		1,958		2,737		0—		0—		2,737		1,768		2,129		-		-		2,129
Accrued interest receivable		5,694		5,694		5,694		0—		0—		5,152		5,152		5,152		-		-
Bank owned life insurance		35,574		35,574		35,574		0—		0—		35,414		35,414		35,414		-		-

Financial Liabilities:
Demand deposits		675,519		675,519		675,519		0—		0—		686,278		686,278		686,278		-		-
Interest-bearing demand deposits		66,083		66,083		66,083		0—		0—		63,015		63,015		63,015		-		-
NOW accounts		134,018		134,018		134,018		0—		0—		139,366		139,366		139,366		-		-
Money market deposit accounts		164,893		164,893		164,893		0—		0—		168,327		168,327		168,327		-		-
Savings accounts		363,300		363,300		363,300		0—		0—		341,291		341,291		341,291		-		-
Time deposits		114,144		112,113		0—		0—		112,113		113,936		113,919		-		-		113,919
Total deposits		1,517,957		1,515,926		1,403,813		0—		112,113		1,512,213		1,512,196		1,398,277		-		113,919

Long-term debt		44,206		44,042		0—		0—		44,042		44,206		43,060		-		-		43,060
Subordinated debt		19,700		18,675		0—		0—		18,675		19,680		19,088		-		-		19,680
Accrued interest payable		444		444		444		0—		0—		255		255		255		-		-

December 31, 2021
Quoted Prices in
Active Markets
Significant Other
Significant
for Identical
Observable
Unobservable
Carrying
Assets
Inputs
Inputs
Amount
Fair Value
(Level I)
(Level II)
(Level III)
$
$
$
$
$
Financial Assets:
Cash and cash equivalents
158,449
158,449
158,449
0—
0—
Regulatory stock
5,380
5,380
5,380
0—
0—
Loans held for sale
3,194
3,194
3,194
0—
0—
Loans, net of allowance
907,973
914,251
0—
0—
914,251
Mortgage servicing assets
1,768
2,129
0—
0—
2,129
Accrued interest receivable
5,152
5,152
5,152
0—
0—
Bank owned life insurance
35,414
35,414
35,414
0—
0—

Financial Liabilities:
Demand deposits
686,278
686,278
686,278
0—
0—
Interest-bearing demand deposits
63,015
63,015
63,015
0—
0—
NOW accounts
139,366
139,366
139,366
0—
0—
Money market deposit accounts
168,327
168,327
168,327
0—
0—
Savings accounts
341,291
341,291
341,291
0—
0—
Time deposits
113,936
113,919
0—
0—
113,919
Total deposits
1,512,213
1,512,196
1,398,277
0—
113,919

Long-term debt
44,206
43,060
0—
0—
43,060
Subordinated debt
19,680
19,088
0—
0—
19,680
Accrued interest payable
255
255
255
0—
0—

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of ~~March 31,~~September 30, 2022, firm loan commitments were ~~$100.5~~$98.1 million, unused lines of credit were ~~$390.9~~$449.5 million, and open letters of credit were ~~$12.1~~$10.4 million. The total of these commitments was ~~$503.5~~$558.0 million, which represents the Corporation’s exposure to credit loss in the event of nonperformance by its customers with respect to these financial instruments. The actual credit losses that may arise from these commitments are expected to compare favorably with the Corporation’s loan loss experience on its loan portfolio taken as a whole. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for balance sheet financial instruments.

The activity in accumulated other comprehensive income (loss) for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021 is as follows:

(1) All amounts are net of tax. Related income tax expense or benefit is calculated using a Federal income tax rate of 21%.

	Amount Reclassified from							Amount Reclassified from
	Accumulated Other Comprehensive							Accumulated Other Comprehensive
	Income (Loss)							Income (Loss)
	For the Three Months							For the Three Months
	Ended March 31,							Ended September 30,
	2022			2021			Affected Line Item in the	2022		2021			Affected Line Item in the
	$			$			Consolidated Statements of Income	$		$			Consolidated Statements of Income
Securities available-for-sale:
Net securities gains, reclassified into earnings		139			87		Gains on the sale of debt securities, net		-		350		Gains on the sale of debt securities, net
Related income tax expense		(29	)		(18	)	Provision for federal income taxes		-		(73	)	Provision for federal income taxes
Net effect on accumulated other comprehensive income (loss) for the period		110			69				-		277

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative-effect adjustment to the allowance for credit losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments ‒ Credit Losses,which, in addition to addressing other matters, ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. The effective date and transition requirements for ASU 2018-19 are the same as those in ASU 2016-13. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326), which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted the credit losses standard, the ASU is effective when they implement the credit losses standard. For entities that already have adopted the credit losses standard, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Corporation qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Corporation qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In March 2020, the FASB issued ASU 2020-03,Codification Improvements to Financial Instruments.This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial position or results of operations.

In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material impact on the Corporation’s financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (ASC 815): Fair Value Hedging - Portfolio Layer Method. ASC 815 currently permits only prepayable financial assets and one or more beneficial interests secured by a portfolio of prepayable financial instruments to be included in a last-of-layer closed portfolio. The amendments in this Update allow non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby allowing consistent accounting for similar hedges. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In March 2022, the FASB issued ASU 2022-02,Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. This Update is not expected to have a significant impact on the Corporation’s financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis represents management’s view of the financial condition and results of operations of the Corporation. This discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this quarterly report, and in conjunction with the 2021 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

The U.S. Private Securities Litigation Reform Act of 1995 provides safe harbor in regards to the inclusion of forward-looking statements in this document and documents incorporated by reference. Forward-looking statements pertain to possible or assumed future results that are made using current information. These forward-looking statements are generally identified when terms such as: “believe,” “estimate,” “anticipate,” “expect,” “project,” “forecast,” and other similar wordings are used. The readers of this report should take into consideration that these forward-looking statements represent management’s expectations as to future forecasts of financial performance, or the likelihood that certain events will or will not occur. Due to the very nature of estimates or predications, these forward-looking statements should not be construed to be indicative of actual future results. Additionally, management may change estimates of future performance, or the likelihood of future events, as additional information is obtained. This document may also address targets, guidelines, or strategic goals that management is striving to reach but may not be indicative of actual results.

Readers should note that many factors affect this forward-looking information, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference into this document. These factors include, but are not limited to, the following:

Readers should be aware if any of the above factors change significantly, the statements regarding future performance could also change materially. The safe harbor provision provides that the Corporation is not required to publicly update or revise forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should review any changes in risk factors in documents filed by the Corporation periodically with the Securities and Exchange Commission, including Item 1A of Part II of this Quarterly Report on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K.

The ~~three~~first nine months ~~ended March 31,~~of 2022 were positively impacted by a number of items resulting in solid financial results, but in comparison to the prior year, the results were not as strong due to a number of non-recurring income items in the first ~~quarter~~nine months of 2021. The prior year was positively impacted by ~~high~~greater amounts of ~~PPP~~Paycheck Protection Program (PPP) fees on forgiven loans as well as record mortgage gains due to increased refinance activity stemming from the low interest rate environment. The first ~~quarter~~nine months of 2022 experienced a sharp increase in market interest rates, ~~a slower balance sheet growth rate, and~~ less income earned from PPP fees, and a slowing of mortgage gains.

The Corporation recorded net income of ~~$3,191,000~~$4,009,000 for the three-month period ended ~~March 31,~~September 30, 2022, a ~~$1,313,000,~~$130,000, or ~~29.2%~~3.1% decrease from ~~the $4,504,000 earned during~~ the three months ended ~~March 31,~~September 30, 2021. Net income for the nine-month period was $9,758,000, a $2,436,000, or 20.0% decrease from earnings in the nine-month period ended September 30, 2021. The earnings per share, basic and diluted, were ~~$0.57~~$0.71 for the ~~first quarter of~~three months ended September 30, 2022, compared to ~~$0.81~~$0.74 for the same period in 2021, ~~a 29.6% decrease. The decrease~~and for the year-to-date period, earnings per share were $1.74 compared to $2.19 in the Corporation’s 2022 earnings was caused primarily by declines in other income and increases in operating expenses, partially offset by increases in net interest income and a lower provision for loan losses.2021.

The Corporation’s net interest income (NII) increased by ~~$1,042,000,~~$2,961,000, or ~~10.8%~~27.9%, and $6,247,000, or 20.8%, for the three and nine months ended ~~March 31,~~September 30, 2022, compared to the same ~~period~~periods in 2021. The increase in NII primarily resulted from an increase in ~~the balance of interest-earning assets which caused~~ interest and fees on loans ~~to increase by $430,000,~~of $2,036,000, or ~~5.1%~~22.7%, and $3,816,000, or 14.9%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. Additionally, interest on securities available for sale increased by $1,412,000, or 61.0%, for the three-month period ended September 30, 2022, and $2,684,000, or 40.7%, for the nine-month period ended September 30, 2022, compared to ~~increase by $427,000, or 21.0%.~~the three and nine months ended September 30, 2021. In addition, interest expense on deposits and borrowings ~~decreased~~increased by ~~$168,000,~~$594,000, or ~~19.7%~~75.3%, and $405,000, or 16.6%, for the three and nine months ended ~~March 31,~~September 30, 2022, compared to the same ~~period~~periods in the prior year. The low interest rate environment has caused a rapid decline in asset yield, but also has resulted in a decline in the cost of funds. This decline in the cost of funds has resulted in these lower levels of interest expense.

The Corporation recorded a ~~$100,000~~$550,000 provision for loan losses in the ~~first~~third quarter of 2022, and $1,300,000 for the year-to-date period, compared to ~~$375,000 for~~a credit provision of $250,000 in the ~~first~~third quarter of 2021, and a year-to-date provision of $125,000 through September 30, 2021. The ~~lower~~higher provision in 2022 was primarily caused by a significantly greater amount of loan growth.

Other income was lower ~~non-performing and classified loans as well as slight decreases~~in 2022 compared to ~~several qualitative factors~~the prior year primarily as a result of ~~improved economic conditions.~~lower levels of mortgage and security gains. The gains from the sale of mortgages were $186,000 for the three months ended September 30, 2022, compared to gains of $1,206,000 for the three months ended September 30, 2021, a decrease of $1,020,000, or 84.6%. For the nine-month period, gains were $1,249,000, compared to $4,381,000 for the nine months ended September 30, 2021, a decrease of $3,132,000, or 71.5%. The decrease in mortgage gains can be primarily attributed to the rapid rise in mortgage rates during the first nine months of 2022 which has caused customer activity to shift from fixed-rate mortgages that were sold on the secondary market, to adjustable rate mortgages held on the Corporation’s balance sheet. Similarly, gains on securities in total decreased by $373,000, or 97.6%, for the three months ended September 30, 2022, and $957,000, or 99.0%, for the nine months ended September 30, 2022, compared to the same periods in the prior year. Outside of mortgage and security gains, other non-interest income increased by $434,000, or 17.0%, and $430,000, or 5.3%, for the three and nine months ended September 30, 2022. Operating expenses increased by $1,395,000, or 13.8%, and $4,597,000, or 15.9%, for the three and nine months ended September 30, 2022, compared to the same periods in the prior year. This increase can be primarily attributed to the rising cost of salaries and employee benefits as well as higher computer software and data processing expenses.

The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized. The ~~latter measurement typically receives more attention from shareholders. The~~ ROA ~~and ROE~~ decreased for the ~~three months~~quarter-to-date and year-to-date periods ended ~~March 31,~~September 30, 2022, compared to the same ~~period~~periods in the prior year, due to lower earnings in 2022 and higher average assets in 2022. The ROE increased for the quarter-to-quarter period due to the decline in average equity as a result of the fair value adjustment on debt securities. The ROE for the year-to-date period declined slightly due to lower income in 2022.

Key Ratios	Three Months Ended						Three Months Ended				Nine Months Ended
	March 31,						September 30,				September 30,
	2022			2021			2022		2021		2022		2021

Return on Average Assets		0.76	%		1.24	%		0.89%		1.03%		0.75%		1.06%
Return on Average Equity		9.82	%		14.03	%		15.63%		11.91%		11.49%		12.25%

The results of the Corporation’s operations are best explained by addressing, in further detail, the five major sections of the income statement, which are as follows:

NII represents the largest portion of the Corporation’s operating income. InDuring the ~~first three~~nine months ofended September 30, 2022, NII generated ~~74.5%~~78.6% of the Corporation’s revenue stream, which consists of NII and non-interest income, compared to ~~64.5%~~68.8% in the first ~~three~~nine months of 2021. This increase is a result of higher levels of NII in the first ~~three~~nine months of 2022 as well as lower non-interest income compared to 2021. The overall performance of the Corporation is highly dependent on the changes in NII since it comprises such a significant portion of operating income.

The following table shows a summary analysis of NII on a fully taxable equivalent (FTE) basis. For analytical purposes and throughout this discussion, yields, rates, and measurements such as NII, net interest spread, and net yield on interest earning assets are presented on an FTE basis. The FTE NII shown in both tables below will exceed the NII reported on the consolidated statements of income, which is not shown on an FTE basis. The amount of FTE adjustment totaled ~~$304,000~~$314,000 for the three months ended ~~March 31,~~September 30, 2022, and $934,000 for the nine months ended September 30, 2022, compared to ~~$268,000~~$291,000 and $848,000 for the same ~~period~~periods in 2021.

NII is the difference between interest income earned on assets and interest expense incurred on liabilities. Accordingly, two factors affect NII:

NII is impacted by yields earned on assets and rates paid on liabilities. During 2021, longer-term U.S. Treasury rates increased adding some slope to the yield curve, but asset yields were still constrained. In the first ~~quarter~~nine months of 2022, interest rates increased much more dramatically in anticipation of athe first Federal Reserve rate movement which happened in mid-March. The ~~two~~Fed subsequently increased rates four additional times through ~~five~~September 30, 2022. The overnight rate started the year Treasury rates increased the most, with the longer rates increasing less. Management believes that although higher market rates higher market rates should help the net interest margin (NIM) moving forward, the first quarter still saw a decline due to the low asset yields for the majorityat 0.25% and stood at 3.25% as of ~~the quarter.~~September 30, 2022.

As a result of a larger balance sheet in the first ~~quarter~~nine months of 2022, even with low asset yields, the Corporation’s NII on a tax equivalent basis increased ~~while~~and the Corporation’s margin ~~decreased~~increased to ~~2.73%~~3.19% for the quarter and 2.96% for the nine months ended ~~March 31,~~September 30, 2022, compared to ~~2.86%~~2.89% in the ~~first~~third quarter of 2021 and 2.82% for the year-to-date period ended September 30, 2021. The Corporation’s NII for the three and nine months ended ~~March 31,~~September 30, 2022, increased over the same ~~period~~periods in 2021 by ~~$1,078,000,~~$2,985,000, or ~~10.8%.~~27.3% and $6,333,000, or 20.5%, respectively. Management’s asset liability sensitivity shows a ~~small benefit~~decline to both margin and NII given Federal Reserve rate increases. Actual results over the past two years have ~~confirmed~~shown higher NII with interest rate increases, but the ~~asset sensitivity~~current cost of funds would increase dramatically should the ~~Corporation’s balance sheet, however there was some decline in this asset~~

~~sensitivity throughout 2021 and through~~Federal Reserve rate increases continue at the ~~first quarter of 2022.~~same levels. In a down-rate environment, the margin and NII would also suffer unless balance sheet growth is enough to offset lower asset yields.

Security yields will generally fluctuate more rapidly than loan yields based on changes to the U.S. Treasury rates and yield curve. With lower Treasury rates in 2021, security reinvestment had generally been occurring at lower yields. With higher Treasury rates in 2022, variable-rate security yields have increased and ~~have~~the increase in balances has helped to increase NII during the first ~~quarter~~nine months of 2022.

The Corporation’s overall cost of funds, including non-interest bearing funds, remained stable through the first three months of 2022 at 17 basis points. Core deposit interest rates are at historic lows and time deposit rates are not much higher than core deposit rates resulting in maturing time deposits repricing at lower levels or moving into core deposit products. The average balance of borrowings was slightly lower in the first three months of 2022 than 2021, and interest rates were also lower, resulting in the total cost of borrowings decreasing by $106,000.

The following table provides an analysis of year-to-date changes in NII on a FTE basis by distinguishing what changes were a result of average balance increases or decreases and what changes were a result of interest rate increases or decreases.

	Three Months Ended March 31,									Three Months Ended March 31,									Three Months Ended September 30,									Nine Months Ended September 30,
	2022 vs. 2021									2021 vs. 2020									2022 vs. 2021									2022 vs. 2021
	Increase (Decrease)									Increase (Decrease)									Increase (Decrease)									Increase (Decrease)
	Due To Change In									Due To Change In									Due To Change In									Due To Change In
							Net									Net									Net									Net
	Average			Interest			Increase			Average			Interest			Increase			Average			Interest			Increase			Average			Interest			Increase
	Balances			Rates			(Decrease)			Balances			Rates			(Decrease)			Balances			Rates			(Decrease)			Balances			Rates			(Decrease)
	$			$			$			$			$			$			$			$			$			$			$			$
INTEREST INCOME

Interest on deposits at other banks		14			1			15			48			(86	)		(38	)		(18	)		56			38			(7	)		87			80

Securities available for sale:
Taxable		268			92			360			399			(552	)		(153	)		190			1,197			1,387			670			1,859			2,529
Tax-exempt		161			(61	)		100			606			(117	)		489			90			(23	)		67			374			(119	)		255
Total securities		429			31			460			1,005			(669	)		336			280			1,174			1,454			1,044			1,740			2,784

Loans		892			(450	)		442			837			(912	)		(75	)		2,044			7			2,051			4,226			(374	)		3,852
Regulatory stock		(7	)		—			(7	)		(24	)		(54	)		(78	)		2			34			36			(8	)		30			22

Total interest income		1,328			(418	)		910			1,866			(1,721	)		145			2,308			1,271			3,579			5,255			1,483			6,738

INTEREST EXPENSE

Deposits:
Demand deposits		6			5			11			55			(322	)		(267	)		12			364			376			25			441			466
Savings deposits		4			—			4			6			(15	)		(9	)		3			—			3			9			—			9
Time deposits		(11	)		(66	)		(77	)		(47	)		(172	)		(219	)		(9	)		(40	)		(49	)		(28	)		(156	)		(184	)
Total deposits		(1	)		(61	)		(62	)		14			(509	)		(495	)		6			324			330			6			285			291

Borrowings:
Total borrowings		(72	)		(34	)		(106	)		(41	)		116			75			246			18			264			170			(56	)		114

Total interest expense		(73	)		(95	)		(168	)		(27	)		(393	)		(420	)		252			342			594			176			229			405

NET INTEREST INCOME		1,401			(323	)		1,078			1,893			(1,328	)		565			2,056			929			2,985			5,079			1,254			6,333

The following tables show a more detailed analysis of NII on ana FTE basis with all the major elements of the Corporation’s balance sheet, which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities.

	For the Three Months Ended March 31,												For the Three Months Ended September 30,
	2022						2021						2022						2021
					(c)						(c)						(c)						(c)
	Average				Annualized		Average				Annualized		Average				Annualized		Average				Annualized
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	$		$		%		$		$		%		$		$		%		$		$		%
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks		94,688		37		0.16		57,975		22		0.15		15,294		55		1.42		44,259		17		0.15

Securities available for sale:
Taxable		391,931		1,464		1.49		318,921		1,104		1.38		434,872		2,720		2.50		385,330		1,333		1.38
Tax-exempt		197,160		1,289		2.62		172,768		1,189		2.75		206,493		1,336		2.59		192,614		1,269		2.64
Total securities (d)		589,091		2,753		1.87		491,689		2,293		1.87		641,365		4,056		2.53		577,944		2,602		1.80

Loans (a)		931,158		8,858		3.82		838,954		8,416		4.03		1,078,955		11,074		4.10		879,836		9,023		4.09

Regulatory stock		5,410		60		4.42		6,033		67		4.45		6,032		101		6.71		5,807		65		4.45

Total interest earning assets		1,620,347		11,708		2.90		1,394,651		10,798		3.11		1,741,646		15,286		3.51		1,507,846		11,707		3.10

Non-interest earning assets (d)		80,048						79,897						52,736						86,494

Total assets		1,700,395						1,474,548						1,794,382						1,594,340

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		371,516		49		0.05		324,277		38		0.05		431,947		420		0.39		352,448		44		0.05
Savings deposits		354,773		18		0.02		286,793		14		0.02		371,063		19		0.02		325,018		16		0.02
Time deposits		113,904		185		0.66		119,309		262		0.89		112,188		169		0.60		117,041		218		0.74
Borrowed funds		63,877		431		2.74		74,411		537		2.93		101,450		775		3.03		69,247		511		2.93
Total interest bearing liabilities		904,070		683		0.31		804,790		851		0.43		1,016,648		1,383		0.54		863,754		789		0.39

Non-interest bearing liabilities:

Demand deposits		659,028						534,503						668,287						588,125
Other		5,478						5,028						7,690						4,616

Total liabilities		1,568,576						1,344,321						1,692,625						1,456,495

Stockholders' equity		131,819						130,227						101,757						137,845

Total liabilities & stockholders' equity		1,700,395						1,474,548						1,794,382						1,594,340

Net interest income (FTE)				11,025						9,947						13,903						10,918

Net interest spread (b)						2.59						2.68						2.97						2.71
Effect of non-interest
bearing deposits						0.14						0.18						0.22						0.18
Net yield on interest earning assets (c)						2.73						2.86						3.19						2.89

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The quarter-to-date average balances include net deferred loan costs of ~~$1,832,000~~$2,360,000 as of ~~March 31,~~September 30, 2022, and ~~$1,199,000~~$872,000 as of ~~March 31,~~September 30, 2021. Such fees and costs recognized through income and included in the interest amounts totaled ~~$90,000~~ $92,000 in 2022, and ~~$338,000~~$617,000 in 2021.

(b) Net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by dividing NII (FTE) by total interest earning assets.

(d) Securities recorded at amortized cost. Unrealized holding gains and losses are included in non-interest earning assets.

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The year-to-date average balances include net deferred loan costs of $2,238,000 as of September 30, 2022, and $834,000 as of September 30, 2021. Such fees and costs recognized through income and included in the interest amounts totaled $54,000 in 2022, and $990,000 in 2021.

(b) Net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by dividing net interest income (FTE) by total interest earning assets.

(d) Securities recorded at amortized cost. Unrealized holding gains and losses are included in non-interest earning assets.

The Corporation’s average ~~balance~~balances on securities increased by ~~$97.4~~$63.4 million, or ~~19.8%~~11.0%, for the three months ended ~~March 31,~~September 30, 2022, and $77.3 million, or 14.2%, for the nine months ended September 30, 2022, compared to the same ~~period~~periods in 2021. The tax equivalent yield on investments ~~remained~~increased by 73 basis points for the ~~same at 1.87%~~quarter-to-date period and 37 basis points for the year-to-date period when comparing both ~~the three months ended March 31, 2022, and 2021, respectively.~~years. Interest income on securities increased due to ~~the~~this yield increase as well as volume growth which was caused by an excess of liquidity in 2021 and early 2022 as a result of the low-rate environment that caused a large influx of deposits.

Average balances on loans increased by ~~$92.2~~$199.1 million, or ~~11.0%~~22.6%, for the three months ended ~~March 31,~~September 30, 2022, and $143.5 million, or 16.7%, for the nine months ended September 30, 2022, compared to the same ~~period~~periods in the prior year. This loan growth was primarily driven by a strategic desire to increase earning assets with a renewed focus on internal sales culture. Loan yields increased by one basis point for the quarter, but declined by 21five basis points for the ~~quarter but~~year-to-date period and loan interest income increased ~~$442,000, or 5.3%, as a result of~~for both time frames due to the increase in loan balances. The quarter-to-date increase in loan interest income was $2,051,000, or 22.7%, and the year-to-date increase was $3,852,000, or 15.0%.

The average balance of interest-bearing deposit accounts increased by ~~$109.8~~$120.7 million, or ~~15.0%~~15.2%, and $110.9 million, or 14.5%, for the three and nine months ended ~~March 31,~~September 30, 2022, respectively, compared to the same ~~period~~periods in the prior year. While the average balance of time deposits did decrease for both the quarter and year-to-date time periods, the average balance on ~~interest-bearing~~ demand and savings accounts increased significantly and more than offset the decline in time deposits. The interest rate paid on demand deposits ~~decreased~~increased for ~~this~~both of these time ~~period as well. This~~periods, while the interest rate on savings accounts remained the same and the rate on time deposits declined. The combination of these changes resulted in ~~a decrease~~an increase in interest expense ~~on deposits~~ of ~~$62,000,~~$330,000, or ~~19.7%~~118.7%, for the three months ended ~~March 31,~~September 30, 2022, and an increase in interest expense of $291,000, or 33.2%, for the nine months ended September 30, 2022, compared to the same ~~period~~periods in 2021.

The Corporation’s average balance on borrowed funds ~~decreased~~increased by ~~$10.5~~$32.2 million, or ~~14.2%~~46.5%, for the three months ended ~~March 31,~~September 30, 2022, and $8.0 million, or 11.1%, for the nine months ended September 30, 2022, compared to the same ~~period~~periods in 2021. The Corporation’s borrowed funds consist of ~~FHLB~~Federal Home Loan Bank (FHLB) advances and subordinated debt issued in December of 2020 and July 2022, which iswas used to support capital growth for the Bank. The ~~decrease~~increase in borrowed funds for the quarter-to-date period is ~~a result of paying off FHLB advances during 2021. The Corporation paid off $10.6~~due to $20.0 million of ~~FHLB~~short-term advances ~~in 2021, resulting~~initiated in the ~~decrease~~second quarter of 2022 to support loan growth. Additionally, the Corporation issued $20.0 million of subordinated debt in ~~average balance.~~July of 2022. The rate paid on borrowed funds ~~decreased~~increased by 1910 basis points for the three months ended ~~March 31,~~September 30, 2022, and decreased 10 basis points for the nine months ended September 30, 2022, compared to the same ~~period~~periods in the prior ~~year~~year. This increase in rate can be attributed to the ~~payoff~~new issuance of ~~FHLB advances.~~subordinated debt.

For the three months ended ~~March 31,~~September 30, 2022, the net interest spread ~~decreased~~increased by ~~nine~~twenty-six basis points to ~~2.59%~~2.97%, compared to ~~2.68%~~2.71% for the three months ended ~~March 31,~~September 30, 2021. For the nine months ended September 30, 2022, the net interest spread increased by 16 basis points to 2.79%, compared to 2.63% for the nine months ended September 30, 2022. The effect of non-interest bearing funds ~~decreased~~increased to 1422 basis points from 18 basis points for the three months ended September 30, 2022, and decreased to 17 basis points from 19 basis points for the nine months ended September 30, 2022, compared to the same periods in ~~the prior year.~~2021. The effect of non-interest bearing funds refers to the benefit gained from deposits on which the Corporation does not pay interest. As rates go higher, the benefit of non-interest bearing deposits increases because there is more difference between non-interest bearing funds and interest bearing liabilities. The Corporation’s ~~NIM~~net interest margin (NIM) for the ~~first~~third quarter of 2022 was ~~2.73%~~3.19%, compared to ~~2.86%~~2.89% for the ~~first~~third quarter of 2021. For the year-to-date period, the Corporation’s NIM was 2.96%, compared to 2.82% for the same period in 2021.

The Asset Liability Committee (ALCO) carefully monitors the NIM because it indicates trends in NII, the Corporation’s largest source of revenue. For more information on the plans and strategies in place to protect the NIM and moderate the impact of changes in rates, refer to Item 7A: Quantitative and Qualitative Disclosures about Market Risk.

The allowance for credit losses (ACL) provides for losses inherent in the loan portfolio as determined by a quarterly analysis and calculation of various factors related to the loan portfolio. The amount of the provision reflects the adjustment management determines necessary to ensure the ACL is adequate to cover any losses inherent in the loan portfolio. The Corporation recorded a provision expense of ~~$100,000~~$550,000 for the ~~first~~third quarter of 2022, compared to ~~$375,000~~a $250,000 credit provision recorded for the ~~three months ended March 31,~~third quarter of 2021. For the year-to-date period, the Corporation recorded provision expense of $1,300,000 compared to $125,000 in 2021. The provision expense was ~~lower~~higher in ~~the first quarter of 2022~~both time periods due to loan growth partially offset by a lower balance of classified ~~loans as well as a small decrease in some qualititative factors related to collateral value stabilization and improvements in the dairy industry.~~loans. As of ~~March 31,~~September 30, 2022, the allowance as a percentage of total loans was ~~1.37%~~1.27%, compared to ~~1.51%~~1.41% at ~~March 31,~~September 30, 2021. More detail is provided under Allowance for Credit Losses in the Financial Condition section that follows.

Other income for the first quarter of 2022 was $3,676,000, a decrease of $1,642,000, or 30.9%, compared to the $5,318,000 earned during the first quarter of 2021. The following table details the categories that comprise other income.

Other income for the third quarter of 2022 was $3,180,000, a decrease of $959,000, or 23.2%, compared to the $4,139,000 earned during the third quarter of 2021. For the year-to-date period ended September 30, 2022, other income totaled $9,875,000, a decrease of $3,659,000, or 27.0%, compared to the same period in 2021. The following tables detail the categories that comprise other income.

Trust and investment services income increased for both time periods primarily as a result of higher fees on trust accounts partially offset by lower income related to the investment services area. Service charges on deposit accounts increased by ~~18.1%~~28.0% for the quarter and 27.2% for the year-to-date period, primarily as a result of higher overdraft charges and higher excess transaction charges in ~~the first quarter of 2022.~~both time periods. Other fees increased by 28.0% for the quarter and decreased by ~~19.4%, driven by lower loan-related fees.~~5.7% for the year-to-date period. Gains and losses on debt and equity securities were lower in 2022 driven by higher interest rates which has resulted in fewer opportunities to sell investment securities at gains. Mortgage gains declined by ~~$1,195,000,~~$1,020,000, or ~~61.9%~~84.6%, and $3,132,000, or 71.5%, in the ~~first~~third quarter ofand for the nine months ended September 30, 2022, compared to the ~~first quarter of 2021.~~same periods in the prior year. This was ~~primarly~~primarily a result of the rapid increase in interest rates during 2022 that resulted in very low margins on mortgages ~~sold.~~sold and fewer mortgages sold on the secondary market as customers turned to adjustable rate mortgages in 2022. Earnings on bank-owned life insurance ~~decreased by 12.0%~~increased as a result of ~~a decrease in value~~the purchase of ~~an old~~additional BOLI ~~policy where expenses exceed the income on the policy.~~policies. The miscellaneous income category was ~~lower~~higher for the quarter and for the year-to-date period in 2022 ~~by 28.6%~~primarily as a result of ~~non-recurring income items that impacted the first quarter~~higher mortgage servicing income.

Operating expenses for the ~~first~~third quarter of 2022 were ~~$10,608,000,~~$11,513,000, an increase of ~~$1,421,000,~~$1,395,000, or ~~15.5%~~13.8%, compared to the ~~$9,187,000~~$10,118,000 for the ~~first~~third quarter of 2021. For the year-to-date period ended September 30, 2022, operating expenses totaled $33,598,000, an increase of $4,597,000, or 15.9%, compared to the same period in 2021. The following ~~table provides~~tables provide details of the Corporation’s operating expenses for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2022, compared to the same ~~period~~periods in 2021.

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

	Three Months Ended March 31,										Nine Months Ended September 30,
	2022		2021		Increase (Decrease)						2022		2021		Increase (Decrease)
	$		$		$			%			$		$		$		%
Salaries and employee benefits		6,512		5,699		813			14.3			19,826		17,800		2,026		11.4
Occupancy expenses		718		683		35			5.1			2,125		1,972		153		7.8
Equipment expenses		265		267		(2	)		(0.7	)		913		806		107		13.3
Advertising & marketing expenses		279		190		89			46.8			833		717		116		16.2
Computer software & data processing expenses		1,138		1,098		40			3.6			4,251		3,297		954		28.9
Shares tax		351		280		71			25.4
Bank shares tax												1,053		876		177		20.2
Professional services		630		439		191			43.5			1,983		1,572		411		26.1
Other operating expenses		715		531		184			34.7			2,614		1,961		653		33.3
Total Operating Expenses		10,608		9,187		1,421			15.5			33,598		29,001		4,597		15.9

Salaries and employee benefits are the largest category of operating expenses. For the ~~first quarter of~~three months ended September 30, 2022, salaries and benefits increased ~~$813,000,~~$465,000, or ~~14.3%~~7.6%, compared to 2021. For the nine months ended September 30, 2022, salaries and benefits increased $2,026,000, or 11.4%, from the year-to-date period in the prior year. This was primarily due to ~~merit and cost of living increases,~~ higher costs to replace employees who retired or left the organization due to nationwide, regional, and local staffing challenges, a realignment of salaries company-wide with market norms, and an accrual for the Corporation’s bank-wide incentive program. Occupancy and equipment expenses ~~in total did not change significantly from~~are higher than the prior ~~year.~~year primarily due to the addition of a community lending office as well as a full service branch office. Advertising and marketing expenses increased by ~~46.8%~~16.2%, for the year-to-date period, due to promoting new market areas as well as new products and services. Computer software and data processing expenses increased ~~marginally,~~ as a result of higher technology costs as new systems are implemented to support the ongoing growth and efficiency of the Corporation and increased volumes due to a larger customer base. Shares tax expense is based on the Corporation’s level of ~~shareholders’~~stockholders’ equity and has grown substantially, commensurate with the growth in ~~shareholders’~~stockholders’ equity. Professional services expenses increased ~~by 43.5%~~ in the ~~first~~

~~quarter of~~the nine months ended September 30, 2022, compared to the prior year driven by higher legal fees and other outside services. Other operating expenses increased ~~by 34.7% quarter-over-quarter~~over the prior year primarily as a result of higher FDIC and OCC assessment costs, higher fraud-related charges-offs, higher travel costs, and miscellaneous other operating costs that are increasing to a lesser degree.

Federal income tax expense was ~~$498,000~~$697,000 for the ~~first~~third quarter of 2022 compared to ~~$931,000~~$760,000 for the same period in 2021. For the nine months ended September 30, 2022, the Corporation recorded Federal income tax expense of $1,503,000, compared to $2,251,000 for the nine months ended September 30, 2021. The effective tax rate for the Corporation was ~~13.5%~~13.3% for the ~~three~~nine months ended ~~March 31,~~September 30, 2022, and ~~17.1%~~15.6% for the ~~three~~nine months ended ~~March 31,~~September 30, 2021. Certain items of income are not subject to Federal income tax, such as tax-exempt interest income on loans and securities, and Bank Owned Life Insurance (BOLI) income; therefore, the effective income tax rate for the Corporation is lower than the stated tax rate and the effective tax rate for the first ~~quarter~~nine months of 2022 was lower than the prior year due to an increased level of tax-free assets.

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair value. As of ~~March 31,~~September 30, 2022, the Corporation had ~~$589.5~~$560 million of securities available for sale, which accounted for ~~34.6%~~30.7% of assets, compared to 32.5% as of December 31, 2021, and ~~34.7%~~35.1% as of ~~March 31,~~September 30, 2021. Based on ending balances, the securities portfolio ~~increased 10.9%~~decreased 0.3% from ~~March 31,~~September 30, 2021, and ~~5.6%~~increased 0.3% from December 31, 2021.

The debt securities portfolio was showing a net unrealized loss of ~~$25,692,000~~$70,102,000 as of ~~March 31,~~September 30, 2022, compared to an unrealized gain of $4,356,000 as of December 31, 2021, and $5,477,000 as of September 30, 2021. The valuation of the Corporation’s debt securities portfolio ~~predominately debt securities,~~ is impacted by both the U.S. Treasury rates and the perceived forward direction of interest rates. With the dramatic increase in rates during the nine months ended September 30, 2022, the valuation of the bond portfolio decreased rapidly. Because the bonds are recorded at market value on the Corporation’s balance sheet, the unrealized losses, net of deferred taxes, are recorded as accumulated other comprehensive loss in the stockholders’ equity section of the balance sheet. Earnings, net of dividends paid, positively impacted the Corporation’s stockholders’ equity levels through September 30, 2022, but the accumulated other comprehensive loss on the bond portfolio had a negative impact.

The table below summarizes the Corporation’s amortized cost, unrealized gain or loss position, and fair value for each sector of the securities portfolio for the periods ended ~~March 31,~~September 30, 2022, ~~and~~ December 31, 2021 and September 30, 2021.

Each quarter, management sets portfolio allocation guidelines and adjusts the security portfolio strategy generally based on the following factors:

The investment policy of the Corporation establishes guidelines to promote diversification within the portfolio. The diversity specifications provide opportunities to shorten or lengthen duration, maximize yield, and mitigate credit risk.

The ~~Corporation purchased $19.5~~Corporation’s U.S. Treasury sector increased $17.6 million ~~of U.S. Treasuries~~ during the first ~~quarter~~nine months of 2022, ~~and held $14.8 million at the end of 2021,~~ resulting in a ~~131.5%~~119.0% increase in this sector. This sector represents a safe credit at a market-appropriate yield which added some diversity to the portfolio. The Corporation’s U.S. government agency sector decreased by ~~$3.1~~$4.4 million, or ~~10.8%~~15.1%, since December 31, 2021. Management has purchased Non-agency ~~MBS~~mortgage backed securities (MBS) and ~~CMO~~collateralized mortgage obligation (CMO) securities since December 31, 2021 ~~totaling $23.0~~which has brought the portfolio to $51.9 million as of September 30, 2022, or ~~3.8%~~9.1% of the total portfolio. This sector will better structure the portfolio to achieve higher yields and shorten the duration while also protecting in a rates-up environment.

The Corporation’s U.S. agency MBS and CMO sectors have ~~increased slightly~~decreased since December 31, 2021, with MBS ~~increasing $2.1~~decreasing $5.7 million, or ~~4.0%~~10.9%, and CMOs ~~increasing $3.4~~decreasing $1.6 million, or ~~10.8%~~5.2%. These two security types both consist of mortgage instruments that pay monthly interest and principal, however the behavior of the two types vary according to the structure of the mortgage pool or CMO instrument. Management desires to maintain a substantial amount of MBS and CMOs in order to assist in adding to and maintaining a stable five-year ladder of cash flows, which is important in providing stable liquidity and interest rate risk positions. U.S. agency MBS and CMO securities pay contractual monthly principal and interest, but are also subject to additional prepayment of principal. ~~The combined effect of all of these instruments paying monthly principal and interest provides the Corporation with a reasonably stable base cash flow of approximately $2.0 - $3.0 million per month.~~ Cash flows coming off of MBS and CMOs do slow down and speed up as interest rates increase or decrease, which has an impact on the portfolio’s length and yield.

The Corporation’s asset-backed securities declined by ~~$10.4~~$19.5 million, or ~~10.3%~~19.2%, from December 31, 2021, to ~~March 31,~~September 30, 2022. Many of the bonds in this sector receive regular monthly principal payments which caused the value to decline.

Additionally, some asset-backed securities were sold at gains in the first quarter of 2022 to support the Corporation’s earnings and liquidity position.

The combined effect of all of the amortizing bonds paying monthly principal and interest provides the Corporation with a reasonably stable base cash flow of approximately $2.0 - $3.0 million per month.

As of ~~March 31,~~September 30, 2022, the fair value of the Corporation’s corporate bonds decreased by ~~$3.7~~$8.2 million, or ~~4.5%~~9.9%, from balances at December 31, 2021. Like any security, corporate bonds have both positive and negative qualities and management must evaluate these securities on a risk versus reward basis. Corporate bonds add diversity to the portfolio and provide strong yields for short maturities; however, by their very nature, corporate bonds carry a high level of credit risk should the entity experience financial difficulties. As a result of the higher level of credit risk taken by purchasing a corporate bond, management has in place procedures to closely analyze the financial health of the company as well as policy guidelines. The guidelines include both maximum investment by issuer and minimal credit ratings that must be met in order for management to purchase a corporate bond. Financial analysis is conducted prior to every corporate bond purchase with ongoing monitoring performed on all securities held.

Obligations of states and political subdivisions, or municipal bonds, consist of both tax-free and taxable securities. They carry the longest duration on average of any instrument in the securities portfolio. Municipal tax-equivalent yields generally start well above other taxable bonds. These instruments also experience significant fair market value gains and losses when interest rates decrease and increase. Municipal securities were purchased throughout 2020 and 2021 due to market conditions that led to favorable yields on some instruments. Municipal bonds represented ~~41.5%~~38.5% of the securities portfolio as of ~~March 31,~~September 30, 2022, compared to 43.6% as of December 31, 2021.

Net loans outstanding increased by ~~13.1%~~26.8%, to ~~$937.6~~$1.1 billion at September 30, 2022, from $867.8 million at ~~March 31, 2022, from $829.2 million at March 31,~~September 30, 2021. Net loans increased by ~~3.3%~~21.2%, an annualized rate of ~~13.0%~~28.3%, from $908.0 million at December 31, 2021. The following table shows the composition of the loan portfolio as of ~~March 31,~~September 30, 2022, December 31, 2021, and ~~March 31,~~September 30, 2021.

~~(DOLLARS IN THOUSANDS)~~(a) Residential real estate loans do not include mortgage loans serviced for others which totaled $304,479,000 as of September 30, 2022, $289,263,000 as of December 31, 2021, and $274,892,000 as of September 30, 2021.

There was ~~moderate~~significant growth in the loan portfolio since September 30, 2021 and December 31, ~~2021, and March 31,~~ 2021. ~~Most~~This loan growth was primarily driven by a strategic desire to increase earning assets with a renewed focus on internal sales culture. All major loan categories showed an increase in balances from both time ~~periods with the exception~~periods.

The commercial real estate category represents the largest group of loans for the Corporation. Commercial real estate makes up ~~46.2%~~44.9% of total loans as of ~~March 31,~~September 30, 2022, compared to ~~40.9%~~42.5% of total loans as of ~~March 31,~~September 30, 2021. Within the commercial real estate segment, the increase has primarily been construction loans which was a direct result of reclassification from 1-4 family residential loans in the first ~~quarter~~nine months of 2022. The Corporation’s commercial construction loan balances increased by ~~$35.6~~$61.2 million, or ~~167.1%~~325.9%, from ~~March 31,~~September 30, 2021 to ~~March 31,~~September 30, 2022. Commercial construction loans were ~~6.0%~~7.2% of the total loan portfolio as of ~~March 31,~~September 30, 2022, and ~~2.5%~~2.1% as of ~~March 31,~~September 30, 2021.

Commercial mortgages increased ~~$35.9~~$40.7 million, or ~~24.7%~~24.4%, from balances at ~~March 31,~~September 30, 2021. Commercial mortgages as a percentage of the total loan portfolio ~~increased~~decreased to ~~19.1%~~18.6% as of ~~March 31,~~September 30, 2022, compared to ~~17.2%~~19.0% at ~~March 31,~~September 30, 2021. Agricultural mortgages increased by ~~$22.3~~$23.9 million, or ~~12.5%~~12.7%, from ~~$178.1~~$188.5 million as of ~~March 31,~~September 30, 2021, to ~~$200.4~~$212.4 million as of ~~March 31,~~September 30, 2022. Agricultural mortgages were ~~21.1%~~19.1% of the portfolio as of ~~March 31,~~September 30, 2022, compared to ~~21.2%~~21.4% as of ~~March 31,~~September 30, 2021.

The consumer residential real estate category of total loans increased from ~~$346.6~~$389.5 million on ~~March 31,~~September 30, 2021, to ~~$392.7~~$473.5 million on ~~March 31,~~September 30, 2022, a ~~13.3%~~21.6% increase. This category includes closed-end fixed rate or adjustable-rate residential real estate loans secured by 1-4 family residential properties, including first and junior liens, and floating rate home equity loans. The 1-4 family residential mortgages account for the vast majority of residential real estate loans with fixed and floating home equity loans making up the remainder. Historically, the entire consumer residential real estate component of the loan portfolio has averaged close to 40% of total loans. As of ~~March 31,~~September 30, 2021, this percentage was ~~41.2%~~44.3%, and as of ~~March 31,~~September 30, 2022, it ~~increased~~decreased to ~~41.4%~~42.6%. Although economic conditions for consumers had deteriorated with the COVID-19 pandemic, increased unemployment, and decreased consumer spending, the mortgage market ~~continued to remain~~was relatively strong as consumers refinanced existing debt to lower ~~rates.~~rates throughout 2021. During the first nine months of 2022, mortgage activity remained strong with the majority of consumers choosing adjustable rate mortgages which remain in the Corporation’s loan portfolio as opposed to the 30-year fixed rate mortgages that were being generated in the past couple of years and sold on the secondary market.

The first lien 1-4 family mortgages increased by ~~$38.3~~$63.9 million, or ~~14.4%~~21.1%, from ~~March 31,~~September 30, 2021, to ~~March 31,~~September 30, 2022. These first lien 1-4 family loans made up ~~76.5%~~77.7% of the residential real estate total as of ~~March 31,~~September 30, 2021, and ~~77.3%~~77.4% as of ~~March 31,~~September 30, 2022. The vast majority of the first lien 1-4 family closed end loans consist of single family personal first lien residential mortgages and home equity loans, with the remainder consisting of 1-4 family residential non-owner-occupied mortgages. In the ~~first~~third quarter of 2022, mortgage production decreased ~~16%~~11% from the previous quarter and was down 3%7% from the ~~first~~third quarter of 2021. Purchase money origination constituted ~~76%~~87% of the Corporation’s mortgage originations for the quarter, with construction-only and construction-permanent loans making up ~~65%~~41% of that mix. ~~With a higher volume of new construction business in combination with a rising interest rate environment, the~~The percentage of mortgage originations being added into the Corporation’s held-for-investment mortgage portfolio increased ~~quarter-over-quarter.~~quarter-over-quarter driven primarily by the continued increase in agency-eligible secondary market fixed mortgage rates. In the ~~first~~third quarter of 2022, ~~75%~~90% of all mortgage originations were held in the mortgage portfolio, ~~47%~~82% of which were adjustable rate mortgages. As of ~~March 31,~~September 30, 2022, ARM balances were ~~$142.6~~$187.1 million, representing ~~47.0%~~53.5% of the 1-4 family residential loan portfolio of the Corporation. With a continued decline in dollar volume of loans being delivered into the secondary market ~~and an unprecedented~~along with a continued increase in mortgage rates, the gains on the sale of mortgages declined quarter-over-quarter.

As of ~~March 31,~~September 30, 2022, the remainder of the residential real estate loans consisted of ~~$11.8~~$13.3 million of fixed rate junior lien home equity loans, and ~~$77.5~~$93.7 million of variable rate home equity lines of credit (HELOCs). This compares to ~~$10.6~~$11.9 million of fixed rate junior lien home equity loans, and ~~$70.9~~$74.9 million of HELOCs as of ~~March 31,~~September 30, 2021. Therefore, combined, these two types of home equity loans increased from ~~$81.5~~$86.8 million to ~~$89.3~~$107.0 million, an increase of ~~9.6%~~23.3%.

The other area of commercial lending is non-real estate secured commercial lending, referred to as commercial and industrial lending. Commercial and industrial loans not secured by real estate accounted for ~~11.9%~~12.0% of total loans as of ~~March 31,~~September 30, 2022, a decline from the ~~17.3%~~12.6% at ~~March 31,~~September 30, 2021. The balance of total commercial and industrial loans ~~decreased~~increased by $22.7 million, or 20.6%, from ~~$145.7 million at March 31,~~September 30, 2021 to ~~$112.6 million at March 31, 2022, a 29.4% decrease.~~September 30, 2022. This category of loans generally includes unsecured lines of credit, truck, equipment, and receivable and inventory loans, in addition to tax-free loans to municipalities. The balance at ~~March 31,~~September 30, 2022 and ~~March 31,~~September 30, 2021, also includes the PPP

loans, which have declined rapidly as these loans are forgiven by the SBA after businesses prove they used the funds for qualified expenses. The total balance of PPP loans declined by ~~$53.4~~$22.7 million, or ~~91.8%~~97.9% from ~~March 31,~~September 30, 2021, to ~~March 31,~~September 30, 2022 and represents balances of only $486,000 as of September 30, 2022.

The consumer loan portfolio increased slightly from ~~$4.8~~$5.2 million at ~~March 31,~~September 30, 2021, to ~~$5.1~~$5.8 million at ~~March 31,~~September 30, 2022, ~~a 6.3%~~an 11.5% increase. The consumer loan portfolio represents 0.5% of total loans. The long-term trend over the past decade has seen homeowners turning to the equity in their homes to finance cars and education rather than traditional consumer loans that are generally unsecured. Demand for unsecured credit is being matched by principal payments on existing loans resulting in stable balances.

NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
	March 31,		December 31,		March 31,		September 30		December 31,		September 30
	2022		2021		2021		2022		2021		2021
	$		$		$		$		$		$

Nonaccrual loans		3,553		2,556		681		4,505		2,556		2,236
Loans past due 90 days or more and still accruing		86		325		152		147		325		183
Troubled debt restructurings, non-performing		—		—		—		—		—		—
Total non-performing loans		3,639		2,881		833		4,652		2,881		2,419

Other real estate owned		—		—		—		—		—		—

Total non-performing assets		3,639		2,881		833		4,652		2,881		2,419

Non-performing assets to net loans		0.39%		0.31%		0.10%		0.42%		0.31%		0.28%

The total balance of non-performing assets increased by ~~$2.8~~$2.2 million, or ~~336.9%~~92.3% from balances at ~~March 31,~~September 30, 2021, and increased by ~~$0.8~~$1.8 million, or ~~26.3%~~61.5%, from balances at December 31, 2021. There were no non-performing ~~TDR~~troubled debt restructuring (TDR) loans in any of the periods presented. A TDR is a loan where management has granted a concession to the borrower from the original terms. A concession is generally granted in order to improve the financial position of the borrower and improve the likelihood of full collection by the lender. Non-accrual loans increased by ~~$2.9~~$2.3 million, or ~~421.6%~~101.5%, since ~~March 31,~~September 30, 2021, and increased ~~$1.0~~$1.9 million, or ~~39.0%~~76.3% since December 31, 2021. The increase that occurred ~~between December 31, 2021 and March 31, 2022~~for both time periods was primarily due to ~~one~~three agricultural ~~relationship that was~~relationships, a business loan, a commercial real estate loan, and a business mortgage to unrelated borrowers which all added to non-accrual loans in the first ~~quarter~~nine months of ~~2022 in the amount of $963,000.~~2022. Loans past due 90 days or more and still accruing were down ~~$66,000~~$36,000 from the prior year period, and ~~down by $239,000, or 73.5%~~$178,000, since December 31, 2021.

There was no other real estate owned (OREO) as of ~~March 31,~~September 30, 2022, December 31, 2021, or ~~March 31,~~September 30, 2021.

The allowance for credit losses is established to cover any losses inherent in the loan portfolio. Management reviews the adequacy of the allowance each quarter based upon a detailed analysis and calculation of the allowance for credit losses. This calculation is based upon a systematic methodology for determining the allowance for credit losses in accordance with generally accepted accounting principles. The calculation includes estimates and is based upon losses inherent in the loan portfolio. The allowance calculation includes specific provisions for under-performing loans and general allocations to cover anticipated losses on all loan types based on historical losses. The calculation is also influenced by nine qualitative factors that are adjusted on a quarterly basis as needed. Based on the quarterly credit

loss calculation, management will adjust the allowance for credit losses through the provision as necessary. Changes to the allowance for credit losses during the year are primarily affected by five main factors:

Strong credit and collateral policies have been instrumental in producing a favorable history of loan losses for the Corporation. The Net Charge-Off table below shows the net charge-offs as a percentage of average loans outstanding for each segment of the Corporation’s loan portfolio as of ~~March 31,~~September 30, 2022 and 2021.

Net Charge-Offs
(DOLLARS IN THOUSANDS)
	March 31,			March 31,
	2022			2021			2022			2021
	$			$			$			$

Loans charged-off:
Commercial real estate		65			—			65			—
Consumer real estate		—			—			—			—
Commercial and industrial		—			—			59			—
Consumer		1			14			16			30
Total loans charged-off		66			14			140			30

Recoveries of loans previously charged-off
Commercial real estate		—			—			12			—
Consumer real estate		3			—			9			—
Commercial and industrial		10			1			35			19
Consumer		1			1			3			13
Total recoveries		14			2			59			32

Net charge-offs (recoveries)
Commercial real estate		65			—			53			—
Consumer real estate		(3	)		—			(9	)		—
Commercial and industrial		(10	)		(1	)		24			(19	)
Consumer		—			13			13			17
Total net charge-offs (recoveries)		52			12			81			(2	)

Average loans outstanding
Commercial real estate		401,076			342,913			422,933			351,320
Consumer real estate		359,981			308,943			395,182			320,275
Commercial and industrial		164,553			181,591			178,664			182,016
Consumer		5,548			5,507			5,834			5,531
Total average loans outstanding		931,158			838,954			1,002,613			859,142

Net charge-offs (recoveries) as a % of average loans outstanding
Commercial real estate		0.02%			0.00%			0.01%			0.00%
Consumer real estate		0.00%			0.00%			0.00%			0.00%
Commercial and industrial		(0.01)%			0.00%			0.01%			-0.01%
Consumer		0.00%			0.24%			0.22%			0.31%
Total net charge-offs (recoveries) as a % of average loans outstanding		0.01%			0.00%			0.01%			0.00%

The net charge-offs as a percentage of average total loans outstanding indicates the percentage of the Corporation’s total loan portfolio that has been charged off during the period. The Corporation has historically experienced very low net charge-off percentages due to conservative credit practices. As of ~~March 31,~~September 30, 2022, net charge-offs were ~~$52,000,~~

$81,000, representing a net charge off position of 0.01% of average loans outstanding as reflected above. As of ~~March 31,~~September 30, 2021, net ~~charge-offs~~recoveries were ~~very low at $12,000,~~$2,000, resulting in a net charge-off as a percentage of average loans of 0.00% for the ~~quarter.~~year-to-date period.

The Corporation’s level of classified loans was ~~$17.0~~$12.9 million on ~~March 31,~~September 30, 2022, compared to ~~$21.9~~$17.9 million on ~~March 31,~~September 30, 2021. Total classified loans have decreased from the prior year. Having more loans in a classified status could result in a larger allowance as higher amounts of projected historical losses and qualitative factors are attached to these loans. In addition to this impact, management performs a specific allocation test on these classified loans. There was ~~$251,000~~$9,000 of specifically allocated allowance against the classified loans as of ~~March 31,~~September 30, 2022, $147,000 of specific allocation as of December 31, 2021, and ~~$1.1~~$0.2 million of specific allocation as of ~~March 31,~~September 30, 2021. The higher specific allocation at March 31, 2021, was related to a commercial customer with ongoing business concerns. This loan paid off during the third quarter of 2021, resulting in a decline in the provision for loan losses.

The allowance as a percentage of total loans was ~~1.37%~~1.27% as of ~~March 31,~~September 30, 2022, and ~~1.51%~~1.41% as of ~~March 31,~~September 30, 2021. It is typical for the allowance for credit losses to contain a small amount of excess reserves. ~~Over the long term, management targets an excess reserve at approximately 5%-10% knowing that the reserve can fluctuate. The excess reserve stood at 4.7% as of March 31, 2022.~~

Premises and equipment, net of accumulated depreciation, ~~decreased~~increased by ~~$0.4~~$0.1 million, or ~~1.4%~~0.4%, to ~~$24.4~~$24.6 million as of ~~March 31,~~September 30, 2022, from ~~$24.7~~$24.5 million as of ~~March 31,~~September 30, 2021. As of ~~March 31,~~September 30, 2022, ~~$137,000~~$664,000 was classified as construction in process compared to ~~$89,000~~$261,000 as of ~~March 31,~~September 30, 2021. ~~Fixed assets declined as a result of depreciation outpacing new purchases year over year.~~

The Corporation owns multiple forms of regulatory stock that is required in order to be a member of the Federal Reserve Bank (FRB) and members of banks such as the ~~Federal Home Loan Bank (FHLB)~~FHLB of Pittsburgh and Atlantic Community Bankers Bank (ACBB). The Corporation’s ~~$5.4~~$5.9 million of regulatory stock holdings as of ~~March 31,~~September 30, 2022, consisted of ~~$4.7~~$5.2 million of FHLB of Pittsburgh stock, $631,000 of FRB stock, and $37,000 of Atlantic Community Bancshares, Inc. stock, the Bank Holding Company of ACBB. All of these stocks are valued at a stable dollar price, which is the price used to purchase or liquidate shares; therefore, the investment is carried at book value and there is no fair market value adjustment.

The Corporation’s investment in FHLB stock is required for membership in the organization. The amount of stock required is dependent upon the relative size of outstanding FHLB borrowings and mortgage activity. Excess stock is typically repurchased from the Corporation at par if the borrowings decline to a predetermined level. The Corporation’s FHLB stock position was $4.7 million on March 31, 2022, $4.7 million on December 31, 2021, and $5.6 million on March 31, 2021, with no excess capital stock position. Any future stock repurchases would be the result of lower borrowing balances. Stock repurchases by the FHLB occur every quarter.

The Corporation’s total ending deposits at ~~March 31,~~September 30, 2022, increased by ~~$5.7~~$119.6 million, or ~~0.4%~~7.9%, and by ~~$192.6~~$240.3 million, or ~~14.5%~~17.3%, from December 31, 2021, and ~~March 31,~~September 30, 2021, respectively. Customer deposits are the Corporation’s primary source of funding for loans and securities. In the past few years, the economic concerns and volatility of the equity markets continued to lead customers to banks for safe places to invest money, despite historically low interest rates. The mix of the Corporation’s deposit categories has changed moderately since ~~March 31,~~September 30, 2021, with the changes being a ~~$95.5~~$79.2 million, or ~~16.5%~~13.4% increase in non-interest bearing demand deposit accounts, a ~~$19.6~~$23.4 million, or ~~42.1%~~40.1% increase in interest bearing demand balances, a ~~$8.9~~$4.1 million, or ~~7.1% increase~~3.0% decrease in NOW balances, a ~~$13.6~~

$98.1 million, or ~~9.0%~~60.5% increase in money market account balances, a ~~$60.0~~$39.3 million, or ~~19.8%~~11.9% increase in savings account balances, and a ~~$5.0~~$4.3 million, or ~~4.2% decrease~~3.7% increase in time deposit balances.

The growth across most categories of core deposit accounts is a direct result of the PPP funding, government stimulus payments, and the change in customer’s spending habits during the uncertain economic conditions brought on by COVID-19. Customers view demand deposit, money market and savings accounts as the safest, most convenient place to maintain funds for maximum flexibility.

The Deposits by Major Classification table, shown below, provides the balances of each category for ~~March 31,~~September 30, 2022, December 31, 2021, and ~~March 31,~~September 30, 2021.

Time deposits are typically a more rate-sensitive product, making them a source of funding that is prone to balance variations depending on the interest rate environment and how the Corporation’s time deposit rates compare with the local market rates. Time deposits fluctuate as consumers search for the best rates in the market, with less allegiance to any particular financial institution. ~~As of March 31, 2022, time deposit balances had decreased $5.0 million, or 4.2%, from March 31, 2021, and increased $0.2 million, or 0.2% from December 31, 2021.~~ The Corporation has experienced a slow and steady shift in deposit trends over the past five years as customers have moved money from time deposits into core checking and savings ~~accounts. With~~accounts although with increased rates in the ~~Federal Reserve rate decreases in 2020,~~2^nd half of 2022, there is ~~minimal differences between shorter term CD rates and interest bearing non-maturity~~a shift back into time deposits ~~influencing customers to accumulate their funds in a liquid account that can be accessed at any time. This has resulted in declining time deposit balances and more significant growth~~resulting in the ~~core deposit areas.~~increase in balances since September 30, 2021, and December 31, 2021.

Total borrowings were ~~$63.9~~$98.6 million, $63.9 million, and ~~$72.4~~$66.4 million as of ~~March 31,~~September 30, 2022, December 31, 2021, and ~~March 31,~~September 30, 2021, respectively. There ~~were~~was $15.0 million of short-term funds outstanding at September 30, 2022, and no short-term funds outstanding at ~~the end of any time period.~~December 31, 2021, or September 30, 2021. Short-term funds are used for immediate liquidity needs and are not typically part of an ongoing liquidity or interest rate risk strategy; therefore, they fluctuate more rapidly. When short-term funds are used, they are purchased through correspondent and member bank relationships as overnight borrowings or through the FHLB for terms less than one year. The $15.0 million of short-term borrowings at September 30, 2022, consisted entirely of short-term FHLB advances.

Total long-term borrowings, borrowings initiated for terms longer than one year, were $44.2 million as of ~~March 31,~~September 30, 2022, $44.2 million as of December 31, 2021, and ~~$52.8~~$46.7 million as of ~~March 31,~~September 30, 2021. The long-term borrowings for the Corporation were made up entirely of FHLB long-term advances. FHLB advances are used as a secondary source of funding and to mitigate interest rate risk. These long-term funding instruments are typically a more effective funding instrument in terms of selecting the exact amount, rate, and term of funding rather than trying to source the same through deposits. In this manner, management can efficiently meet known liquidity and interest rate risk needs. The decrease in long-term FHLB borrowings since ~~March 31,~~September 30, 2021, can be attributed to management taking advantage of declining rates in 2021 by prepaying FHLB advances and incurring penalties in order to save on interest expense in future years.

The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently ~~$528.7~~$529.8 million. The Corporation’s internal policy limits are far more restrictive than the FHLB MBC, which is calculated and set quarterly by FHLB.

In addition to the long-term advances funded through the FHLB, on December 30, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $20.0 million of subordinated debt notes with a maturity date of December 30, 2030. These notes are non-callable for 5 years and carry a fixed interest rate of 4%4.00% per year for 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. As of ~~March 31,~~September 30, 2022, $16.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

On July 22, 2022, the Corporation completed the sale of an additional subordinated debt note offering. The Corporation sold $20.0 million of subordinated debt notes with a maturity date of September 30, 2032. These notes are all non-callable for 5 years and carry a fixed interest rate of 5.75% per year for the 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. As of September 30, 2022, $15.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

Federal regulatory authorities require banks to meet minimum capital levels. The Corporation, as well as the Bank, as the solely owned subsidiary of the Corporation, maintains capital ratios well above those minimum levels. The risk-weighted capital ratios are calculated by dividing capital by total risk-weighted assets. Regulatory guidelines determine the risk-weighted assets by assigning assets to specific risk-weighted categories. The calculation of tier I capital to risk-weighted average assets does not include an add-back to capital for the amount of the allowance for credit losses, thereby making this ratio lower than the total capital to risk-weighted assets ratio.

The consolidated asset limit on small bank holding companies is $3 billion and a company with assets under that limit is not subject to the consolidated capital rules but may disclose capital amounts and ratios. The Corporation has elected to disclose those amounts and ratios.

The following tables reflect the capital ratios for the Corporation and Bank compared to the regulatory capital requirements.

As of ~~March 31,~~September 30, 2022 the Bank’s Tier 1 Leverage Ratio stood at ~~8.9%~~9.3% while the Corporation’s Tier 1 Leverage Ratio was ~~8.0%~~7.7%. Tier 1 Capital levels at the Corporation level were not impacted by the subordinated debt issue since subordinated debt only qualifies as Tier 2 Capital at the corporate level. As such, in terms of the Corporation’s regulatory capital ratios, only the Total Capital to Risk-Weighted Assets ratio was enhanced as a result of the ~~$20~~$40 million subordinated debt ~~issue. Most~~issues. In 2022, the Corporation’s earnings, net of dividends paid, positively impacted the level of stockholders’ equity, but a devaluation of the ~~marked improvement~~investment portfolio, resulted in ~~capital ratios occurred at the Bank level.~~a higher level of unrealized losses, and a negative impact.

In the normal course of business, the Corporation typically has off-balance sheet arrangements related to loan funding commitments. These arrangements may impact the Corporation’s financial condition and liquidity if they were to be exercised within a short period of time. As discussed in the following liquidity section, the Corporation has in place sufficient liquidity alternatives to meet these obligations. The following table presents information on the commitments by the Corporation as of ~~March 31,~~September 30, 2022.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law. Dodd-Frank is intended to affect a fundamental restructuring of federal banking regulation. Among other things, Dodd-Frank creates a new Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. Dodd-Frank additionally creates a new independent federal regulator to administer federal consumer protection laws. Among the provisions that have already or are likely to affect the Corporation are the following:

Dodd-Frank requires the Federal Reserve to apply consolidated capital requirements to bank holding companies that are no less stringent than those currently applied to depository institutions. Under these standards, trust preferred securities will be excluded from tier I capital unless such securities were issued prior to May 19, 2010, by a bank holding company with less than $15 billion in assets. Dodd-Frank additionally requires that bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, are consistent with safety and soundness.

Dodd-Frank permanently increased the maximum deposit insurance amount for banks, savings institutions, and credit unions to $250,000 per depositor. Additionally, on February 7, 2011, the Board of Directors of the FDIC approved a final rule based on the Dodd-Frank Act that revises the assessment base from one based on domestic deposits to one based on assets. This change, which was effective in April 2011, saved the Corporation a significant amount of FDIC insurance premiums from the significantly higher FDIC insurance premiums placed into effect after the financial crisis.

Dodd-Frank requires publicly traded companies to give stockholders a non-binding vote on executive compensation at least every three years, a non-binding vote regarding the frequency of the vote on executive compensation at least every six years, and a non-binding vote on “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. The SEC has finalized the rules implementing these requirements which took effect on January 21, 2011. The Corporation was exempt from these requirements until January 21, 2013, due to its status as a smaller reporting company.

Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy Provisions of the Gramm-Leach-Bliley Act, and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions will be subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB will have authority to prevent unfair, deceptive, or abusive practices in connection with the offering of consumer financial products. Dodd-Frank authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, Dodd-Frank will allow borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

Dodd-Frank authorizes national and state banks to establish branches in other states to the same extent as a bank chartered by that state would be permitted. Previously, banks could only establish branches in other states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks will be able to enter new markets more freely.

Dodd-Frank precludes a bank holding company from engaging in an interstate acquisition – the acquisition of a bank outside its home state – unless the bank holding company is both well capitalized and well managed. Furthermore, a bank may not engage in an interstate merger with another bank headquartered in another state unless the surviving institution will be well capitalized and well managed. The previous standard in both cases was adequately capitalized and adequately managed.

The Board of Directors has established an Asset Liability Management Committee (ALCO) to measure, monitor, and manage these primary market risks. The Asset Liability Policy has instituted guidelines for all of these primary risks, as well as other financial performance measurements with target ranges. The Asset Liability goals and guidelines are consistent with the Strategic Plan goals related to financial performance.

For discussion on credit risk refer to the sections in Item 2. Management’s Discussion and Analysis, on securities, non-performing assets, and allowance for credit losses.

Liquidity refers to having an adequate supply of cash available to meet business needs. Financial institutions must ensure that there is adequate liquidity to meet a variety of funding needs, at a minimal cost. Funding new loans and covering deposit withdrawals are the primary liquidity needs of the Corporation. The Corporation uses a variety of funding sources to meet liquidity needs, such as deposits, loan repayments, cash flows from securities, borrowings, and current earnings.

As noted in the discussion on deposits, customers have historically provided the Corporation with a reliable and steadily increasing source of funds liquidity. The Corporation also has in place relationships with other banking institutions for the purpose of buying and selling Federal funds. The lines of credit with these institutions provide immediate sources of additional liquidity. The Corporation currently has unsecured lines of credit totaling $32 million. This does not include amounts available from member banks such as the Federal Reserve Discount Window or the FHLB of Pittsburgh.

~~Management uses~~The Corporation regularly reviews its liquidity position by measuring its projected net cash flows at a ~~cumulative maturity gap analysis~~30 and 90-day interval. The Bank stresses the measurements by assuming a level of deposit out-flows that have not historically been realized. In addition to ~~measure~~this forecast, other funding sources are reviewed as a method to provide emergency funding if necessary. The objective of this measurement is to identify the amount of assets maturing within various periods versus liabilities maturing in those same periods. A gap ratio of 100% represents an equal amount of assets and liabilities maturing in the same stated period. Management monitors six-month, one-year, three-year, and five-year cumulative gaps to assist in determining liquidity risk. As of March 31, 2022, all maturity gap ratios were higher than corporate policy guidelines, due to a larger amount of loans, securities, and cash balances now maturing in less than five years. The six-month gap ratio was 193.3%, compared to an upper policy guideline of 155%; the one-year gap ratio was 175.6%, compared to an upper policy guideline of 140%; the three-year gap ratio was 167.5%, compared to an upper guideline of 125%; and the five-year gap ratio was 167.8%, compared to an upper policy guideline of 115%. In a rising interest rate cycle higher gap ratios wouldthat could be more beneficial to the Corporation. Even though the Corporation shows asset sensitivity above policy guidelines for the longer-term gap measurements, it is likely we would be back in a higher rising rate environment for those longer three and five-year periods and having asset sensitivity would be beneficial in that case. The current asset sensitivity of the Corporation’s balance sheet positively impacts future performance in the current rates-up interest rate scenario as there are more assets repricing to higher rates than liabilities. Management will continue to monitor and manage the length of the balance sheet in order to sustain reasonable asset yields in the current rising rate environment.

The size and length of the Corporation’s core deposit liabilities provide the most extension in terms of lengthening the liabilities on the balance sheet. The length of the core deposits is significantly longer than the Corporation’s longest term time deposits and wholesale borrowings. The mix of the Corporation’s liabilities alone would be sufficient to offset the Corporation’s longer assets and to maintain gap ratios within management’s guidelines.

Management desires to show improvements to asset yields and improve the loan-to-deposit ratio and does have a large securities portfolio to draw liquidity from in the event deposit growth slows or reverses. With gap ratios that are already sufficiently high, management can put more of the available cash to work earning higher returns than overnight cash.

Management may desire to have higher gap ratios when factoring in future loan growth or other funding changes to the balance sheet. Management has been actively working to increase the Corporation’s loan-to-deposit ratio. As

the loan-to-deposit ratio increases and more loans go on to the Corporation’s balance sheet, the asset mix will generally lengthen and the gap ratios will decline. In the past two years, the Corporation’s deposits have experienced very strong growth attributable to the very low interest rates and a desire by consumers to safeguard more cash during uncertain times. This has caused the loan-to-deposit ratio to decline during 2021 and 2022 even with steady loan growth. As of March 31, 2022, the loan-to-deposit ratio was 62.6%, compared to 60.9%, at December 31, 2021, and 63.5% at March 31, 2021.

~~The risk of liabilities repricing at higher interest rates is low in the present environment as the Corporation does not foresee~~raised quickly without the need to ~~raise~~liquidate assets. The Bank also stresses its liquidity position utilizing different longer-term scenarios. The varying degrees of stress create pressure on deposit ~~interest rates~~flows in its local market, reduce access to ~~the same degree as the overnight Federal Funds rate. The Corporation’s average cost~~wholesale funding and limit access of funds ~~was 13 basis points as of March 31, 2022, which is low from an historic perspective. The average cost of funds includes the benefit of non-interest bearing demand~~available through brokered deposit ~~accounts.~~

Deposits had not been very rate sensitive for a number of years as a result of the limited desirable rates available to deposit customers. With low deposit rates throughout 2021 and into 2022, deposit growth has been strong with customers choosing to keep their funds in banks as opposed to investing in other instruments that are more susceptible to market fluctuations.

Management’s future asset liability decisions will be dependent upon improvements in asset yield as well as the expected timing of further short-term rate increases or decreases. Management expects that the gap ratios will decline from current levels as 2022 progresses.

It is important to stress that the gap ratios are a static measurement of the Corporation’s asset liability position. It is only one of many asset liability analysis tools management utilizes to measure, monitor, and manage both liquidity and interest rate risk. The deficiencies with the gap analysis are that it makes no provision for changes to the balance sheet out into the future and would not factor in changes that management would very likely make to mitigate future interest rate risk.

channels. In addition to stressing cash flow, specific liquidity risk indicators are monitored to help identify risk areas. This analysis helps identify and quantify the ~~cumulative maturity gap analysis discussed above, management utilizes~~potential cash surplus/deficit over a ~~number~~variety of time horizons to ensure the Bank has adequate funding resources. Assumptions used for liquidity ~~measurements~~stress testing are subjective. Should an evolving liquidity situation or business cycle present new data, potential assumption changes will be considered. The Corporation believes it can meet all anticipated liquidity demands.

Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan sales, deposit growth and its ability to access existing lines of credit. All investment securities are classified as available for sale; therefore, securities that ~~management believes has advantages over~~are unencumbered can be used as collateral for borrowings and ~~gives better clarity to the Corporation’s present and projected liquidity than the static gap analysis offers.~~are an additional source of readily available liquidity.

The Corporation analyzes the following additional liquidity measurements in an effort to monitor and mitigate liquidity risk:

These measurements are designed to prevent undue reliance on outside sources of funding and to ensure a steady stream of liquidity is available should events occur that would cause a sudden decrease in deposits or large increase in loans or both, which would in turn draw significantly from the Corporation’s available liquidity sources. As of ~~March 31,~~September 30, 2022, the Corporation was within guidelines for all of the above measurements except for securities portfolio liquidity as a percentage of total assets and as a percentage of the portfolio. These ratios were 1.9% and 5.3%, respectively, compared to a policy range of 4% - 8% and 10% - 20%. This was primarily due to a much higher balance sheet at March 31, 2022. Investment liquidity is moderate in the current rate environment but has decreased as a percentage of the portfolio because of the rapid growth in investment balances.measurements.

The Corporation’s liquidity measurements are tracked and reported quarterly by management to both observe trends and ensure the measurements stay within desired ranges. Management is confident that a sufficient amount of internal and external liquidity exists to provide for significant unanticipated liquidity needs.

Financial modeling is used to forecast net interest income and earnings, as well as net portfolio value, also referred to as fair value. The modeling is generally conducted under seven different interest rate scenarios that can vary according to the present level of interest rates. The scenarios consist of a projection of net interest income if rates remain flat, increase 100, 200, 300, or ~~300~~400 basis points, or decrease ~~25, 50,~~100 or 75200 basis points.

The results obtained through the use of forecasting models are based on a variety of factors. Both the net interest income and fair value forecasts make use of the maturity and repricing schedules to determine the changes to the balance sheet over the course of time. Additionally, there are many assumptions that factor into the results. These assumptions include, but are not limited to, the following:

For the interest rate sensitivity analysis and net portfolio value analysis discussed below, results are based on a static balance sheet reflecting no projected growth from balances as of March 31, 2022. While it is unlikely that the balance sheet will not grow at all, management considers a static analysis to be the most conservative and most accurate means to evaluate fair value and future interest rate risk.

As a result of the many assumptions, this information should not be relied upon to predict future results. Additionally, both of the analyses discussed below do not consider any action that management could take to minimize or offset the negative effect of changes in interest rates. These tools are used to assist management in identifying possible areas of risk in order to address them before a greater risk is posed. Personnel perform an in-depth annual validation and a quarterly review of the settings and assumptions used in the model to ensure reliability of the forecast results. In addition to the annual validation review, management also engages a third party every three years to obtain a complete external review of the model. That review was completed in the third quarter of 2020. The purpose was to conduct a comprehensive evaluation of the model input, assumptions, and output and this study concluded that the model is managed appropriately and generating acceptable results. Back testing of the model is completed to compare actual results ~~is performed quarterly~~to projections to ensure the validity of the assumptions in the model. The ~~internal and external validations as well as the~~ back testing analyses indicate that the model assumptions are reliable.

The change in net interest income measures the amount of net interest income fluctuation that would be experienced over one year, assuming interest rates change immediately and remain the same for one year. This is considered to be a short-term view of interest rate risk. The analysis of changes in net interest income due to changes in interest rates is commonly referred to as interest rate sensitivity. The Corporation’s interest rate sensitivity analysis indicates that if interest rates were to go up immediately, the Corporation would realize ~~more~~less net interest income in all up and down rate scenarios. In past quarters, the Corporation was generally showing asset sensitivity meaning in a rates-up environment, assets would reprice faster than liabilities resulting in higher net interest income. ~~This is due to the ability~~As of the Corporation to immediately achieve higher interest earnings on interest-earning assets while having the ability to limit the amount of increase in interest-bearing liabilities based on the timing of deposit rate changes. This results in anthird quarter 2022, this increase in net interest income ~~in the rising rate scenarios, but~~shifted to a decline ~~in net~~primarily due to the increased impact from a higher cost of funds as rates continue to rise. While the Corporation would recognize higher interest income on its variable-rate assets, it would also now be repricing liabilities at a much faster pace resulting in increased interest expense that would offset the ~~declining rate scenarios.~~rise in interest income.

The ~~first~~third quarter of 2022 analysis projects net interest income expected in the seven rate scenarios over a one-year time horizon. As of ~~March 31,~~September 30, 2022, the Corporation was within guidelines for the maximum amount of net interest income change in all rate scenarios. ~~The up-300 rate scenario shows a positive impact to net interest income. The~~

increase in net interest income in the up-300 rate scenario is largely due to the variable rate securities and loans held on the Corporation’s balance sheet. On the liability side, when interest rates do increase, it is typical for management to react more slowly in increasing deposit rates so deposit rates move at a fraction of the full overnight rate movement. Loans that are Prime-based will increase by the full amount of the market rate movement while deposit rates will only increase at a fraction of the market rate increase. Additionally, deposit rates may level off more when market rates increase by 200 or 300 basis points where variable loan rates will still increase by the same amount as the Prime rate.

For the rates-up 100 basis point scenario, net interest income decreases by 0.4% compared to the rates unchanged scenario. The higher interest rates go, the greater the likelihood that the proportionality of the Corporation’s deposit rate changes decreases as a percentage of the Federal Reserve’s action. For the rates-up 200 and 300 basis point scenarios, net interest income decreases by 0.6% and increases by 0.7%, respectively, compared to the rates unchanged scenario. Management’s maximum permitted net interest income declines by policy are -5%, -10%, and -15%, for the rates-up 100, 200, and 300 basis point scenarios, respectively.

The positive impact of higher rates is slightly less than it was in previous quarters due partially to the assumption that deposit rates will need to be moved up proportionately as the Fed moves the overnight rate up. Additionally, the Corporation has a fairly long investment portfolio and a longer loan portfolio than in previous time periods due to the increase in residential mortgages as well as longer commercial loans. However, net interest income should increase as rates rise due to the favorable impact of all of the Corporation’s variable rate loans repricing by the full amount of the Federal rate change, assisted by the component of the loans and securities portfolios that reprice in less than one year. This more than offsets the increase in interest expense caused by repricing deposits, where they are only repricing by a fraction of the rate change. The more aggressive rates-up 300 basis point scenario also benefits from known historical experience of deposit rate increases lagging and a slowing in the pace of the actual rate increase as interest rates continue to rise. The change in net interest income in the up-rate scenarios has declined since prior quarters due to the lengthening of the Corporation’s assets and the lower yields on these assets. The model still shows a benefit in the up 300 rate environment, although less of a benefit than prior timeframes.

As of March 31, 2022, in the down scenarios of -25, -50, and -75 basis points, net interest income decreases by 0.7%, 1.4%, and 2.1%, respectively, compared to policy guidelines of -1.25%, -2.5% and -3.75%. Management does not expect the Corporation’s exposure to interest rate changes to increase or change significantly during the remainder of 2022.

The assumptions and analysis of interest rate risk are based on historical experience during varied economic cycles. Management believes these assumptions to be appropriate; however, actual results could vary significantly. Management uses this analysis to identify trends in interest rate sensitivity and determine if action is necessary to mitigate asset liability risk.

The change in net portfolio value is considered a tool to measure long-term interest rate risk. The analysis measures the exposure of the balance sheet to valuation changes due to changes in interest rates. The calculation of net portfolio value discounts future cash flows to the present value based on current market rates. The change in net portfolio value estimates the gain or loss in value that would occur on market sensitive instruments given an interest rate increase or decrease in the same seven scenarios mentioned above. As of ~~March 31,~~September 30, 2022, the Corporation was within guidelines for all rate ~~scenarios.~~scenarios except the down-200 basis point scenario. The Corporation shows a favorable benefit to net portfolio value in the rising rate scenarios, due primarily to the ~~elevated~~large amount of core deposits on the Corporation’s balance ~~sheet as of March 31, 2022.~~sheet. The non-interest bearing demand deposit accounts and low-interest bearing checking, NOW, and money market accounts provide more benefit to the Corporation when interest rates are higher and the difference between the overnight funding costs compared to the average interest bearing core deposit rates are greater. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts increases, causing a lower net present value for these interest-bearing deposits. This improves the modeling of the Corporation’s fair value risk to higher interest rates as the liability amounts decrease causing a higher net portfolio value of the Corporation’s balance sheet. However, as interest rates decrease, the discount rate used to value the Corporation’s interest bearing accounts decreases, causing a higher net present value for these interest-bearing deposits.

The results as of March 31, 2022, indicate that the Corporation’s net portfolio value would experience valuation gains of 3.9%, 3.7%, and 4.9% in the rates-up 100, 200, and 300 basis point scenarios. Management’s maximum permitted declines in net portfolio value by policy are -5% for rates-up 100 basis points, graduating up to -15% for rates-up 300 basis points. A valuation loss would indicate that the value of the Corporation’s assets is declining at a faster pace than the decrease in the value of the Corporation’s liabilities. The analysis ~~does show~~shows a valuation loss in the down ~~25, 50, and 75~~rate scenarios. Policy allows for a valuation decline of 25% for the down-200 basis point ~~scenarios~~scenario and actual projected results show a valuation decline of ~~-3.0%, -6.6%, and -10.6%, respectively, compared to~~30%. While this loss is outside of policy guidelines, ~~of -3.75%, -7.5%, and -11.25%. The Corporation’s expected valuation loss was within guidelines for all down-rate scenarios. The~~the Federal Reserve has signaled that their preferred course of action is to have several additional rate hikes in 2022. The ~~behavior of the Corporation’s deposits~~Corporation will continue to ~~have an impact on the Corporation’s net portfolio value. With the large balances~~monitor these measurements in the ~~Corporation’s core deposits, management is very well situated in an increasing rate environment~~down-rate scenarios and adjust balance sheet structure as necessary to ~~maintain a low cost of funds, as core deposits become more valuable.~~prepare for future potential lower rates.

The weakness with the net portfolio value analysis is that it assumes liquidation of the Corporation rather than as a going concern. For that reason, it is considered a secondary measurement of interest rate risk to “Changes in Net Interest Income” discussed above. However, the net portfolio value analysis is a more important tool to measure the impact of interest rate changes to capital. In the current regulatory climate, the focus is on ensuring adequate asset liability modeling is being done to project the impact of very large interest rate increases on capital. The asset liability modeling currently in place measures the impact of such a rate change on the valuation of the Corporation’s loans, securities, deposits, and borrowings, and the resulting impact to capital. Management continues to analyze additional scenario testing to model “worst case” scenarios to adequately plan for the possible severe impact of such events.

Management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer (Principal Executive Officer) and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~March 31,~~September 30, 2022, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer (Principal Executive Officer) along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure controls and procedures as of ~~March 31,~~September 30, 2022, are effective 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.

There have been no changes in the Corporation’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Management is not aware of any litigation that would have a material adverse effect on the consolidated financial position or results of operations of the Corporation or its subsidiaries taken as a whole. There are no proceedings pending other than ordinary routine litigation incident to the business of the Corporation. In addition, no material proceedings are pending, are known to be threatened, or contemplated against the Corporation by governmental authorities.

The Corporation continually monitors the risks related to the Corporation’s business, other events, the Corporation’s Common Stock, and the Corporation’s industry. Management has not identified any new risk factors since the December 31, 2021 Form 10-K filing.

The following table details the Corporation’s purchase of its own common stock during the three months ended ~~March 31,~~September 30, 2022.

* On October 21, 2020, the Board of Directors of the Corporation approved a plan to repurchase, in open market and privately negotiated transactions, up to 200,000 shares of its outstanding common stock. The first purchase of common stock under this plan occurred on October 28, 2020. By ~~March 31,~~September 30, 2022, a total of ~~32,900~~35,900 shares were repurchased at a total cost of ~~$669,000~~$723,000 for an average cost per share of ~~$20.33.~~$20.14.

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~28-47~~31-52

Item 3.Quantitative and Qualitative Disclosures about Market Risk	~~49-52~~53-55

Item 4. Controls and Procedures	5456



Part II – OTHER INFORMATION	5557

Item 1.Legal Proceedings	5557

Item 1A.Risk Factors	5557

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	5557

Item 3.Defaults upon Senior Securities	5557

Item 4.Mine Safety Disclosures	5557

Item 5.Other Information	5557

Item 6.Exhibits	5658


SIGNATURE PAGE	5759

Level II:		Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III:		Assets and liabilities that have little to no observable pricing as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

	~~March 31,~~September 30, 2022
	Fair Value		Valuation		Unobservable		Range
	Estimate		Techniques		Input		(Weighted Avg)

Impaired loans	$	~~3,784~~4,953		Appraisal of collateral ~~collateral~~ (1)		Appraisal adjustments (2)		~~-20% (-20%~~0% to -20% (-20%)
						Liquidation expenses (2)		~~-10% (-10%~~0% to -10% (-10%)

	December 31, 2021
	Fair Value		Valuation		Unobservable		Range
	Estimate		Techniques		Input		(Weighted Avg)

Impaired loans	$	3,177		Appraisal of collateral (1) ~~collateral (1)~~		Appraisal adjustments (2)		0%0% to ~~-20%~~-20% (-20%) ~~(-20%)~~
						Liquidation expenses (2)		0%0% to ~~-10% (-10%~~-10% (-10%)

	Unrealized
	Gains (Losses)
	on Securities
	Available-for-Sale
	$
Balance at December 31, 2021		3,441
Other comprehensive loss before reclassifications		(23,629	)
Amount reclassified from accumulated other comprehensive income (loss)		(110	)
Period change		(23,739	)

Balance at March 31, 2022		(20,298	)

Other comprehensive loss before reclassifications		(16,518	)
Amount reclassified from accumulated other comprehensive income (loss)		-
Period change		(16,518	)

Balance at June 30, 2022		(36,816	)

Other comprehensive loss before reclassifications		(18,565	)
Amount reclassified from accumulated other comprehensive income (loss)		-
Period change		(18,565	)

Balance at September 30, 2022		(55,381	)

Balance at December 31, 2020		7,958
Other comprehensive loss before reclassifications		(~~4,965~~4,964	)
Amount reclassified from accumulated other comprehensive income (loss)		(6970	)
Period change		(5,034	)

Balance at March 31, 2021		2,924

Other comprehensive loss before reclassifications		4,654
Amount reclassified from accumulated other comprehensive income (loss)		(216	)
Period change		4,438

Balance at June 30, 2021		7,362

Other comprehensive loss before reclassifications		(2,759	)
Amount reclassified from accumulated other comprehensive income (loss)		(277	)
Period change		(3,036	)

Balance at September 30, 2021		4,326


(a)	Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $304,479,000 and $289,263,000 as of September 30, 2022 and December 31, 2021, respectively.

Level I:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

	·	~~Interest rate and monetary policies of the Federal Reserve Board~~
	·	~~Inflation and monetary fluctuations and volatility~~

	For the Nine Months Ended September 30,
	2022						2021
					(c)						(c)
	Average				Annualized		Average				Annualized
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	$		$		%		$		$		%
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks		45,260		139		0.41		50,598		59		0.16

Securities available for sale:
Taxable		417,802		6,225		1.98		359,530		3,696		1.38
Tax-exempt		203,711		3,975		2.60		184,663		3,720		2.69
Total securities (d)		621,513		10,200		2.19		544,193		7,416		1.82

Loans (a)		1,002,612		29,498		3.93		859,141		25,646		3.98

Regulatory stock		5,742		232		5.38		5,964		210		4.69

Total interest earning assets		1,675,127		40,069		3.19		1,459,896		33,331		3.02

Non-interest earning assets (d)		64,565						82,233

Total assets		1,739,692						1,542,129

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		397,487		586		0.20		338,365		120		0.05
Savings deposits		364,704		55		0.02		308,245		46		0.02
Time deposits		113,366		527		0.62		118,071		711		0.81
Borrowed funds		79,923		1,683		2.82		71,945		1,569		2.92
Total interest bearing liabilities		955,480		2,851		0.40		836,626		2,446		0.39

Non-interest bearing liabilities:

Demand deposits		663,950						567,408
Other		6,705						5,006

Total liabilities		1,626,135						1,409,040

Stockholders' equity		113,557						133,089

Total liabilities & stockholders' equity		1,739,692						1,542,129

Net interest income (FTE)				37,218						30,885

Net interest spread (b)						2.79						2.63
Effect of non-interest
bearing deposits						0.17						0.19
Net yield on interest earning assets (c)						2.96						2.82

AMORTIZED COST AND FAIR VALUE OF SECURITIES HELD
(DOLLARS IN THOUSANDS)
			Net
	Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value
	$		$			$
September 30, 2022
U.S. treasuries		35,719		(3,287	)		32,432
U.S. government agencies		27,606		(2,971	)		24,635
U.S. agency mortgage-backed securities		51,655		(5,354	)		46,301
U.S. agency collateralized mortgage obligations		32,309		(2,855	)		29,454
Non-agency MBS/CMO		55,370		(3,496	)		51,874
Asset-backed securities		84,110		(2,362	)		81,748
Corporate bonds		81,829		(7,473	)		74,356
Obligations of states and political subdivisions		261,150		(42,304	)		218,846
Total debt securities, available for sale		629,748		(70,102	)		559,646
Equity securities		8,959		(8	)		8,951
Total securities		638,707		(70,110	)		568,597

December 31, 2021
U.S. Treasuries		14,821		(8	)		14,813
U.S. government agencies		29,613		(592	)		29,021
U.S. agency mortgage-backed securities		51,964		24			51,988
U.S. agency collateralized mortgage obligations		30,917		160			31,077
Asset-backed securities		100,998		221			101,219
Corporate bonds		82,617		(108	)		82,509
Obligations of states and political subdivisions		242,807		4,659			247,466
Total debt securities		553,737		4,356			558,093
Equity securities		8,810		172			8,982
Total securities		562,547		4,528			567,075

LOANS BY MAJOR CATEGORY
(DOLLARS IN THOUSANDS)
	September 30,					December 31,					September 30,
	2022					2021					2021
	$			%		$			%		$			%

Commercial real estate
Commercial mortgages		207,480			18.6		177,396			19.3		166,741			19.0
Agriculture mortgages		212,351			19.1		203,725			22.2		188,455			21.4
Construction		80,008			7.2		19,639			2.1		18,786			2.1
Total commercial real estate		499,839			44.9		400,760			43.6		373,982			42.5

Consumer real estate (a)
1-4 family residential mortgages		366,534			33.0		317,037			34.5		302,670			34.4
Home equity loans		13,268			1.2		11,181			1.2		11,889			1.4
Home equity lines of credit		93,704			8.4		75,698			8.2		74,919			8.5
Total consumer real estate		473,506			42.6		403,916			43.9		389,478			44.3

Commercial and industrial
Commercial and industrial		80,964			7.3		65,615			7.1		73,695			8.4
Tax-free loans		26,398			2.4		23,009			2.5		17,279			2.0
Agriculture loans		25,520			2.3		20,717			2.3		19,180			2.2
Total commercial and industrial		132,882			12.0		109,341			11.9		110,154			12.6

Consumer		5,755			0.5		5,132			0.6		5,211			0.6

Total loans		1,111,982			100.0		919,149			100.0		878,825			100.0
Less:
Deferred loan costs (fees), net		2,522					1,755					(1,436	)
Allowance for credit losses		(14,150	)				(12,931	)				12,454
Total net loans		1,100,354					907,973					867,807

DEPOSITS BY MAJOR CLASSIFICATION
(DOLLARS IN THOUSANDS)

	September 30,		December 31,		September 30,
	2022		2021		2021
	$		$		$

Non-interest bearing demand		670,563		686,278		591,333
Interest bearing demand		81,855		63,015		58,425
NOW accounts		129,390		139,366		133,443
Money market deposit accounts		260,141		168,327		162,050
Savings accounts		369,229		341,291		329,900
Time deposits		120,671		113,936		116,351
Total deposits		1,631,849		1,512,213		1,391,502

REGULATORY CAPITAL RATIOS:
			Regulatory Requirements
			Adequately	Well
As of September 30, 2022		Capital Ratios	Capitalized	Capitalized
Total Capital to Risk-Weighted Assets
	Consolidated	15.1%	N/A	N/A
	Bank	14.4%	8.0%	10.0%

Tier 1 Capital to Risk-Weighted Assets
	Consolidated	10.9%	N/A	N/A
	Bank	13.2%	6.0%	8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
	Consolidated	10.9%	N/A	N/A
	Bank	13.2%	4.5%	6.5%

Tier 1 Capital to Average Assets
	Consolidated	7.7%	N/A	N/A
	Bank	9.3%	4.0%	5.0%

As of December 31, 2021
Total Capital to Risk-Weighted Assets
	Consolidated	15.6%	N/A	N/A
	Bank	14.9%	8.0%	10.0%

Tier I Capital to Risk-Weighted Assets
	Consolidated	12.5%	N/A	N/A
	Bank	13.6%	6.0%	8.0%

Common Equity Tier I Capital to Risk-Weighted Assets
	Consolidated	12.5%	N/A	N/A
	Bank	13.6%	4.5%	6.5%

Tier I Capital to Average Assets
	Consolidated	8.2%	N/A	N/A
	Bank	9.1%	4.0%	5.0%


As of September 30, 2021
Total Capital to Risk-Weighted Assets
	Consolidated	15.9%	N/A	N/A
	Bank	15.4%	8.0%	10.0%

Tier 1 Capital to Risk-Weighted Assets
	Consolidated	12.8%	N/A	N/A
	Bank	14.1%	6.0%	8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
	Consolidated	12.8%	N/A	N/A
	Bank	14.1%	4.5%	6.5%

Tier 1 Capital to Average Assets
	Consolidated	8.3%	N/A	N/A
	Bank	9.2%	4.0%	5.0%

OFF-BALANCE SHEET ARRANGEMENTS
(DOLLARS IN THOUSANDS)
	~~March 31,~~
	September 30,
	2022
	$
Commitments to extend credit:
Revolving home equity		~~163,135~~187,371
Construction loans		~~49,847~~46,585
Real estate loans		~~88,950~~92,296
Business loans		~~182,622~~214,489
Consumer loans		~~1,452~~1,250
Other		~~5,384~~5,657
Standby letters of credit		~~12,125~~10,411

Total		~~503,515~~558,059

Exhibit No.	Description
3(i)	Articles of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on June 7, 2019)
3 (ii)	By-Laws of the Registrant, as amended. (Incorporated herein by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on July 21, 2021.)
10.1	Form of Deferred Income Agreement. (Incorporated herein by reference to Exhibit 10.1 of the Corporation’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2008.)
10.2	~~2020 Nonqualified~~2022 Employee Stock Purchase Plan (Incorporated herein by reference to ~~Exhibit 99.1 of~~Appendix A to the Corporation’s ~~Form S-8,~~Definitive Proxy Statement filed with the SEC on ~~October 1, 2020.~~April 4, 2022.)
10.3	2020 Non-Employee Directors’ Stock Plan. (Incorporated herein by reference to Exhibit 99.1 of the Corporation’s Form S-8 filed with the SEC on June 3, 2020.)
31.1	Section 302 Chief Executive Officer Certification (Required by Rule 13a-14(a)).
31.2	Section 302 Principal Financial Officer Certification (Required by Rule 13a-14(a)).
32.1	Section 1350 Chief Executive Officer Certification (Required by Rule 13a-14(b)).
32.2	Section 1350 Principal Financial Officer Certification (Required by Rule 13a-14(b)).

	ENB Financial Corp
	(Registrant)


Dated: ~~May 12,~~November 14, 2022	By:	/s/ Jeffrey S. Stauffer
		Jeffrey S. Stauffer
		Chairman of the Board
		Chief Executive Officer and President
		Principal Executive Officer


Dated: ~~May 12,~~November 14, 2022	By:	/s/ Rachel G. Bitner
		Rachel G. Bitner
		Treasurer
		Principal Financial Officer