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 ~~September 30, 2020~~March 31, 2021


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

For the transition period from __________ to __________

Commission file number: 001-36706


			CB FINANCIAL SERVICES, INC.
			(Exact name of registrant as specified in its charter)


Pennsylvania						51-0534721
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


100 N. Market Street, Carmichaels, PA						15320
(Address of principal executive offices)						(Zip Code)


			(724) 966-5041
			(Registrant’s telephone number, including area code)


			N/A
			(Former name, former address and former fiscal year, if changed since last report)

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

Common stock, par value $0.4167 per share

CBFV

The Nasdaq Stock Market, LLC

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See 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 ☒

As of ~~November 9, 2020,~~May 10, 2021, the number of shares outstanding of the Registrant’s Common Stock was ~~5,397,892.~~5,434,374.

Table of Contents

FORM 10-Q

INDEX


			Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			1
Consolidated Statement s of Financial Condition			1
Consolidated Statement s of ~~(Loss)~~ Income			2
Consolidated Statement s of Comprehensive ~~(Loss)~~ Income			3
Consolidated Statements of Changes In Stockholders’ Equity			4
Consolidated Statement s of Cash Flows			65
Notes to the Consolidated Financial Statements (Unaudited)			87
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			3530
Item 3. Quantitative and Qualitative Disclosure about Market Risk.			5241
Item 4. Controls and Procedures.			5342
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.			5443
Item 1A. Risk Factors.			5443
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			5443
Item 3. Defaults Upon Senior Securities.			5443
Item 4. Mine Safety Disclosures.			5443
Item 5. Other Information.			5443
Item 6. Exhibits			5443
SIGNATURES			5544

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF FINANCIAL CONDITION


		(Unaudited) September 30, 2020		December 31, 2019			(Unaudited) March 31, 2021		December 31, 2020
(Dollars in thousands, except per share and share data)	(Dollars in thousands, except per share and share data)					(Dollars in thousands, except per share and share data)

ASSETS	ASSETS					ASSETS
Cash and Due From Banks:	Cash and Due From Banks:					Cash and Due From Banks:
Interest Bearing	Interest Bearing	$	102,400	$	68,798	Interest Bearing	$	216,753	$	145,636
Non-Interest Bearing	Non-Interest Bearing	9,769		11,419		Non-Interest Bearing	13,247		15,275
Total Cash and Due From Banks	Total Cash and Due From Banks	112,169		80,217		Total Cash and Due From Banks	230,000		160,911

Investment Securities:
Available-for-Sale		158,956		197,385
Loans, Net of Allowance for Loan Losses of $13,780 and $9,867 at September 30, 2020 and December 31, 2019, Respectively		1,037,105		942,629
Securities:						Securities:
Available-for-Sale Debt Securities, at Fair Value						Available-for-Sale Debt Securities, at Fair Value	139,406		142,897
Equity Securities, at Fair Value						Equity Securities, at Fair Value	2,750		2,503
Total Securities						Total Securities	142,156		145,400
Loans, Net of Allowance for Loan Losses of $12,725 and $12,771 at March 31, 2021 and December 31, 2020, Respectively						Loans, Net of Allowance for Loan Losses of $12,725 and $12,771 at March 31, 2021 and December 31, 2020, Respectively	1,028,972		1,031,982
Premises and Equipment, Net	Premises and Equipment, Net	20,439		22,282		Premises and Equipment, Net	20,240		20,302
Bank-Owned Life Insurance	Bank-Owned Life Insurance	24,639		24,222		Bank-Owned Life Insurance	24,916		24,779
Goodwill	Goodwill	9,732		28,425		Goodwill	9,732		9,732
Intangible Assets, Net	Intangible Assets, Net	8,931		10,527		Intangible Assets, Net	7,867		8,399
Accrued Interest and Other Assets		20,905		15,850
Accrued Interest Receivable and Other Assets						Accrued Interest Receivable and Other Assets	12,938		15,215
TOTAL ASSETS	TOTAL ASSETS	$	1,392,876	$	1,321,537	TOTAL ASSETS	$	1,476,821	$	1,416,720

LIABILITIES	LIABILITIES					LIABILITIES
Deposits:	Deposits:					Deposits:
Non-Interest Bearing Demand Deposits	Non-Interest Bearing Demand Deposits	$	335,287	$	267,152	Non-Interest Bearing Demand Deposits	$	377,137	$	340,569
NOW Accounts	NOW Accounts	245,850		232,099		NOW Accounts	280,929		259,870
Money Market Accounts	Money Market Accounts	188,958		182,428		Money Market Accounts	198,975		199,029
Savings Accounts	Savings Accounts	232,691		216,924		Savings Accounts	246,725		235,088
Time Deposits	Time Deposits	196,250		219,756		Time Deposits	180,697		190,013
Total Deposits	Total Deposits	1,199,036		1,118,359		Total Deposits	1,284,463		1,224,569

Short-Term Borrowings	Short-Term Borrowings	42,061		30,571		Short-Term Borrowings	45,352		41,055
Other Borrowings	Other Borrowings	11,000		14,000		Other Borrowings	6,000		8,000
Accrued Interest and Other Liabilities		7,480		7,510
Accrued Interest Payable and Other Liabilities						Accrued Interest Payable and Other Liabilities	7,230		8,566
TOTAL LIABILITIES	TOTAL LIABILITIES	1,259,577		1,170,440		TOTAL LIABILITIES	1,343,045		1,282,190

STOCKHOLDERS' EQUITY	STOCKHOLDERS' EQUITY					STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized	Preferred Stock, No Par Value; 5,000,000 Shares Authorized	0		0		Preferred Stock, No Par Value; 5,000,000 Shares Authorized	0		0
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,398,712 and 5,463,828 Shares Outstanding at September 30, 2020 and December 31, 2019, Respectively		2,367		2,367
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,434,374 and 5,434,374 Shares Outstanding at March 31, 2021 and December 31, 2020, Respectively						Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,434,374 and 5,434,374 Shares Outstanding at March 31, 2021 and December 31, 2020, Respectively	2,367		2,367
Capital Surplus	Capital Surplus	83,338		82,971		Capital Surplus	82,844		82,723
Retained Earnings	Retained Earnings	49,348		66,955		Retained Earnings	52,673		51,132
Treasury Stock, at Cost (282,281 and 217,165 Shares at September 30, 2020 and December 31, 2019, Respectively)		(5,825)		(3,842)
Treasury Stock, at Cost (246,619 and 246,619 Shares at March 31, 2021 and December 31, 2020, Respectively)						Treasury Stock, at Cost (246,619 and 246,619 Shares at March 31, 2021 and December 31, 2020, Respectively)	(5,094)		(5,094)
Accumulated Other Comprehensive Income	Accumulated Other Comprehensive Income	4,071		2,646		Accumulated Other Comprehensive Income	986		3,402
TOTAL STOCKHOLDERS' EQUITY	TOTAL STOCKHOLDERS' EQUITY	133,299		151,097		TOTAL STOCKHOLDERS' EQUITY	133,776		134,530
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,392,876	$	1,321,537	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,476,821	$	1,416,720

The accompanying notes are an integral part of these consolidated financial statements


1

Table of Contents

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~(LOSS)~~ INCOME (UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
(Dollars in thousands, except share and per share data)	(Dollars in thousands, except share and per share data)									(Dollars in thousands, except share and per share data)

INTEREST AND DIVIDEND INCOME	INTEREST AND DIVIDEND INCOME									INTEREST AND DIVIDEND INCOME
Loans, Including Fees	Loans, Including Fees	$	10,709	$	10,984	$	32,050	$	32,090	Loans, Including Fees	$	10,146	$	10,764
Investment Securities:	Investment Securities:									Investment Securities:
Taxable	Taxable	753		1,558		2,894		4,317		Taxable	646		1,201
Tax-Exempt	Tax-Exempt	79		131		291		499		Tax-Exempt	78		106
Dividends	Dividends	19		20		59		60		Dividends	20		20
Other Interest and Dividend Income	Other Interest and Dividend Income	96		405		418		1,097		Other Interest and Dividend Income	98		238
TOTAL INTEREST AND DIVIDEND INCOME	TOTAL INTEREST AND DIVIDEND INCOME	11,656		13,098		35,712		38,063		TOTAL INTEREST AND DIVIDEND INCOME	10,988		12,329

INTEREST EXPENSE	INTEREST EXPENSE									INTEREST EXPENSE
Deposits	Deposits	1,150		1,864		4,136		5,407		Deposits	947		1,681
Short-Term Borrowings	Short-Term Borrowings	28		47		112		143		Short-Term Borrowings	23		45
Other Borrowings	Other Borrowings	62		91		194		278		Other Borrowings	41		70
TOTAL INTEREST EXPENSE	TOTAL INTEREST EXPENSE	1,240		2,002		4,442		5,828		TOTAL INTEREST EXPENSE	1,011		1,796

NET INTEREST AND DIVIDEND INCOME	NET INTEREST AND DIVIDEND INCOME	10,416		11,096		31,270		32,235		NET INTEREST AND DIVIDEND INCOME	9,977		10,533
Provision For Loan Losses	Provision For Loan Losses	1,200		175		4,000		550		Provision For Loan Losses	0		2,500
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	9,216		10,921		27,270		31,685		NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	9,977		8,033

NONINTEREST INCOME	NONINTEREST INCOME									NONINTEREST INCOME
Service Fees	Service Fees	554		639		1,646		1,849		Service Fees	546		605
Insurance Commissions	Insurance Commissions	1,079		985		3,475		3,219		Insurance Commissions	1,595		1,283
Other Commissions	Other Commissions	76		98		374		293		Other Commissions	165		110
Net Gain on Sales of Loans	Net Gain on Sales of Loans	435		48		1,003		190		Net Gain on Sales of Loans	86		127
Net Gain (Loss) on Sales of Investment Securities		0		3		489		(50)
Change in Fair Value of Marketable Equity Securities		(59)		(25)		(469)		104
Net Gain (Loss) on Securities										Net Gain (Loss) on Securities	447		(438)
Net Gain on Purchased Tax Credits	Net Gain on Purchased Tax Credits	15		9		46		27		Net Gain on Purchased Tax Credits	18		15
Net (Loss) Gain on Disposal of Fixed Assets		(65)		0		(48)		2
Net Gain on Disposal of Fixed Assets										Net Gain on Disposal of Fixed Assets	0		17
Income from Bank-Owned Life Insurance	Income from Bank-Owned Life Insurance	140		142		417		408		Income from Bank-Owned Life Insurance	137		139
Other (Loss) Income		(2)		67		(240)		203
Other Income										Other Income	180		14
TOTAL NONINTEREST INCOME	TOTAL NONINTEREST INCOME	2,173		1,966		6,693		6,245		TOTAL NONINTEREST INCOME	3,174		1,872

NONINTEREST EXPENSE	NONINTEREST EXPENSE									NONINTEREST EXPENSE
Salaries and Employee Benefits	Salaries and Employee Benefits	5,124		4,628		14,683		14,273		Salaries and Employee Benefits	4,894		4,731
Occupancy	Occupancy	759		597		2,191		2,019		Occupancy	710		733
Equipment	Equipment	220		266		701		847		Equipment	266		257
Data Processing	Data Processing	482		370		1,367		1,158		Data Processing	518		425
FDIC Assessment	FDIC Assessment	172		5		493		368		FDIC Assessment	250		158
PA Shares Tax	PA Shares Tax	355		226		963		743		PA Shares Tax	265		275
Contracted Services	Contracted Services	531		312		1,471		945		Contracted Services	687		378
Legal and Professional Fees	Legal and Professional Fees	161		117		567		458		Legal and Professional Fees	189		235
Advertising	Advertising	148		208		486		545		Advertising	140		183
Other Real Estate Owned (Income)		(12)		13		(30)		(81)
Other Real Estate Owned Income										Other Real Estate Owned Income	(38)		(17)
Amortization of Intangible Assets	Amortization of Intangible Assets	532		531		1,596		1,595		Amortization of Intangible Assets	532		532
Goodwill Impairment		18,693		0		18,693		0
Writedown of Fixed Assets		884		0		884		0
Other		919		984		2,977		3,064

Other Expense										Other Expense	982		1,113
TOTAL NONINTEREST EXPENSE	TOTAL NONINTEREST EXPENSE	28,968		8,257		47,042		25,934		TOTAL NONINTEREST EXPENSE	9,395		9,003
(Loss) Income Before Income Tax (Benefit) Expense		(17,579)		4,630		(13,079)		11,996
Income Tax (Benefit) Expense		(184)		884		640		2,346
NET (LOSS) INCOME		$	(17,395)	$	3,746	$	(13,719)	$	9,650
Income Before Income Tax Expense										Income Before Income Tax Expense	3,756		902
Income Tax Expense										Income Tax Expense	911		129
NET INCOME										NET INCOME	$	2,845	$	773

(LOSS) EARNINGS PER SHARE
EARNINGS PER SHARE										EARNINGS PER SHARE
Basic	Basic	$	(3.22)	$	0.69	$	(2.54)	$	1.78	Basic	$	0.52	$	0.14
Diluted	Diluted	(3.22)		0.69		(2.54)		1.77		Diluted	0.52		0.14
WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING									WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	Basic	5,395,342		5,433,289		5,406,710		5,433,296		Basic	5,434,374		5,431,199
Diluted	Diluted	5,395,342		5,458,723		5,406,710		5,451,705		Diluted	5,436,881		5,456,867

The accompanying notes are an integral part of these consolidated financial statements


2

Table of Contents

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF COMPREHENSIVE ~~(LOSS)~~ INCOME (UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Net (Loss) Income		$	(17,395)	$	3,746	$	(13,719)	$	9,650
Net Income										Net Income	$	2,845	$	773

Other Comprehensive (Loss) Income:	Other Comprehensive (Loss) Income:									Other Comprehensive (Loss) Income:
Change in Unrealized (Loss) Gain on Investment Securities Available-for-Sale	Change in Unrealized (Loss) Gain on Investment Securities Available-for-Sale	(653)		121		2,292		5,652		Change in Unrealized (Loss) Gain on Investment Securities Available-for-Sale	(2,851)		3,518
Income Tax Effect	Income Tax Effect	137		(47)		(481)		(1,209)		Income Tax Effect	612		(739)

Reclassification Adjustment for (Gain) Loss on Sale of Investment Securities Included in Net (Loss) Income (1)		0		(3)		(489)		50
Reclassification Adjustment for Gain on Sale of Debt Securities Included in Net Income (1)										Reclassification Adjustment for Gain on Sale of Debt Securities Included in Net Income (1)	(225)		0
Income Tax Effect ~~(1)~~(2)	Income Tax Effect ~~(1)~~(2)	0		1		103		(11)		Income Tax Effect ~~(1)~~(2)	48		0
Other Comprehensive (Loss) Income, Net of Income Tax Expense (Benefit)		(516)		72		1,425		4,482
Total Comprehensive (Loss) Income		$	(17,911)	$	3,818	$	(12,294)	$	14,132
Other Comprehensive (Loss) Income, Net of Income Tax Effect										Other Comprehensive (Loss) Income, Net of Income Tax Effect	(2,416)		2,779
Total Comprehensive Income										Total Comprehensive Income	$	429	$	3,552

(1) ~~The gross amount of gain (loss) on sales of investment securities is reported as~~Reported in Net Gain (Loss) on ~~Sales of Investments~~ Securities on the Consolidated ~~Statement~~Statements of ~~(Loss)~~ Income. ~~The income tax effect (benefit) is included~~

(2) Reported in Income Tax Expense on the Consolidated ~~Statement~~Statements of ~~(Loss)~~ Income.

The accompanying notes are an integral part of these consolidated financial statements


3

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other
Comprehensive Income (Loss) Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
June 30, 2020 5,680,993 $ 2,367 $ 83,327 $ 68,039 $ (5,928) $ 4,587 $ 152,392
Comprehensive Loss:
Net Loss — — — (17,395) — — (17,395)
Other Comprehensive Loss — — — — — (516) (516)
Restricted Stock Awards Granted — — (103) — 103 — 0
Stock-Based Compensation Expense — — 114 — — — 114
Dividends Paid ($0.24 Per Share) — — — (1,296) — — (1,296)
September 30, 2020 5,680,993 $ 2,367 $ 83,338 $ 49,348 $ (5,825) $ 4,071 $ 133,299


	Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
(Dollars in thousands, except share and per share data)

December 31, 2020	5,680,993	$	2,367	$	82,723	$	51,132	$	(5,094)	$	3,402	$	134,530
Comprehensive Income:
Net Income	—	—		—		2,845		—		—		2,845
Other Comprehensive Loss	—	—		—		—		—		(2,416)		(2,416)


Stock-Based Compensation Expense	—	—		121		—		—		—		121


Dividends Paid ($0.24 Per Share)	—	—		—		(1,304)		—		—		(1,304)
March 31, 2021	5,680,993	$	2,367	$	82,844	$	52,673	$	(5,094)	$	986	$	133,776


		Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income		Total Stockholders' Equity			Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income		Total Stockholders' Equity
(Dollars in thousands, except share and per share data)	(Dollars in thousands, except share and per share data)														(Dollars in thousands, except share and per share data)

June 30, 2019		5,680,993	$	2,367	$	83,380	$	61,140	$	(4,350)	$	2,970	$	145,507
December 31, 2019															December 31, 2019	5,680,993	$	2,367	$	82,971	$	66,955	$	(3,842)	$	2,646	$	151,097
Comprehensive Income:	Comprehensive Income:														Comprehensive Income:
Net Income	Net Income	—	—		—		3,746		—		—		3,746		Net Income	—	—		—		773		—		—		773
Other Comprehensive Income	Other Comprehensive Income	—	—		—		—		—		72		72		Other Comprehensive Income	—	—		—		—		—		2,779		2,779

Restricted Stock Awards Forfeited															Restricted Stock Awards Forfeited	—	—		96		—		(96)		—		0

Stock-Based Compensation Expense	Stock-Based Compensation Expense	—	—		77		—		—		—		77		Stock-Based Compensation Expense	—	—		145		—		—		—		145

Exercise of Stock Options															Exercise of Stock Options	—	—		4		—		(68)		—		(64)
Treasury Stock Purchased, at cost (67,816 shares)															Treasury Stock Purchased, at cost (67,816 shares)	—	��		—		—		(1,908)		—		(1,908)
Dividends Paid ($0.24 Per Share)	Dividends Paid ($0.24 Per Share)	—	—		—		(1,304)		—		—		(1,304)		Dividends Paid ($0.24 Per Share)	—	—		—		(1,297)		—		—		(1,297)
September 30, 2019		5,680,993	$	2,367	$	83,457	$	63,582	$	(4,350)	$	3,042	$	148,098
March 31, 2020															March 31, 2020	5,680,993	$	2,367	$	83,216	$	66,431	$	(5,914)	$	5,425	$	151,525

The accompanying notes are an integral part of these consolidated financial statements


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Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock
Accumulated Other
Comprehensive Income
Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2019 5,680,993 $ 2,367 $ 82,971 $ 66,955 $ (3,842) $ 2,646 $ 151,097
Comprehensive (Loss) Income:
Net Loss — — — (13,719) — — (13,719)
Other Comprehensive Income — — — — — 1,425 1,425
Restricted Stock Awards Granted — — (103) — 103 — 0
Restricted Stock Awards Forfeited — — 96 — (96) — 0
Stock-Based Compensation Expense — — 370 — — — 370
Exercise of Stock Options — — 4 — (82) — (78)
Treasury stock purchased, at cost (67,816 shares) — — — — (1,908) — (1,908)
Dividends Paid ($0.72 Per Share) — — — (3,888) — — (3,888)
September 30, 2020 5,680,993 $ 2,367 $ 83,338 $ 49,348 $ (5,825) $ 4,071 $ 133,299
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other
Comprehensive Income (Loss) Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2018 5,680,993 $ 2,367 $ 83,225 $ 57,843 $ (4,370) $ (1,440) $ 137,625
Comprehensive Income:
Net Income — — — 9,650 — — 9,650
Other Comprehensive Income — — — — — 4,482 4,482
Restricted Stock Awards Forfeited — — 8 — (8) — 0
Restricted Stock Awards Granted — — (11) — 11 — 0
Stock-Based Compensation Expense — — 230 — — — 230
Exercise of Stock Options — — 5 — 17 — 22
Dividends Paid ($0.72 Per Share) — — — (3,911) — — (3,911)
September 30, 2019 5,680,993 $ 2,367 $ 83,457 $ 63,582 $ (4,350) $ 3,042 $ 148,098


Three Months Ended March 31,	2021		2020
(Dollars in thousands)

OPERATING ACTIVITIES
Net Income	$	2,845	$	773
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities
Amortization (Accretion) on Securities	31		(70)
Depreciation and Amortization	562		941
Provision for Loan Losses	0		2,500


(Gain) Loss on Securities	(447)		438
Gain on Purchased Tax Credits	(18)		(15)
Income from Bank-Owned Life Insurance	(137)		(139)
Proceeds From Mortgage Loans Sold	2,251		4,771
Originations of Mortgage Loans for Sale	(2,165)		(4,644)
Gain on Sale of Loans	(86)		(127)
Gain on Sale of Other Real Estate Owned and Repossessed Assets	0		(4)
Noncash Expense for Stock-Based Compensation	121		145
Decrease in Accrued Interest Receivable	134		23
Net Gain on Disposal of Fixed Assets	0		(17)
Increase (Decrease) in Taxes Payable	893		(1,165)
Payments on Operating Leases	(88)		(110)
Decrease in Accrued Interest Payable	(141)		(124)
Refund of Federal and State Income Taxes	1,311		0
Other, Net	(597)		414
NET CASH PROVIDED BY OPERATING ACTIVITIES	4,469		3,590
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities	10,953		46,498
Purchases of Securities	(22,299)		(19,824)
Proceeds from Sale of Securities	11,930		0
Net Decrease (Increase) in Loans	3,148		(18,861)
Purchase of Premises and Equipment	(199)		(17)


Proceeds From Sale of Other Real Estate Owned	0		22
Decrease in Restricted Equity Securities	200		66

NET CASH PROVIDED BY INVESTING ACTIVITIES	3,733		7,884
FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits	59,894		(11,719)
Net Increase in Short-Term Borrowings	4,297		4,396
Principal Payments on Other Borrowed Funds	(2,000)		(3,000)
Cash Dividends Paid	(1,304)		(1,297)
Treasury Stock, Purchases at Cost	0		(1,908)
Exercise of Stock Options	0		(64)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	60,887		(13,592)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	69,089		(2,118)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR	160,911		80,217
CASH AND DUE FROM BANKS AT END OF PERIOD	$	230,000	$	78,099

The accompanying notes are an integral part of these consolidated financial statements


5

Table of Contents

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2020 2019
(Dollars in thousands)
OPERATING ACTIVITIES
Net (Loss) Income $ (13,719) $ 9,650
Αdjustmеnts to Rеconcilе Net (Loss) Income to Net Cash Provided By Operating Activities:
Net Accretion on Investments (9) (145)
Depreciation and Amortization 2,578 2,730
Provision for Loan Losses 4,000 550
Goodwill impairment 18,693 0
Writedown on Fixed Assets 884 0
Change in Fair Value of Marketable Equity Securities 469 (104)
Net Gain on Purchased Tax Credits (46) (27)
Income from Bank-Owned Life Insurance (417) (408)
Proceeds From Mortgage Loans Sold 24,317 7,378
Originations of Mortgage Loans for Sale (23,314) (7,188)
Net Gain on Sales of Loans (1,003) (190)
Net (Gain) Loss on Sales of Investment Securities (489) 50
Net Loss on Sales of Other Real Estate Owned and Repossessed Assets 26 6
Noncash Expense for Stock-Based Compensation 370 230
(Increase) Decrease in Accrued Interest Receivable (944) 33
Net Loss (Gain) on Disposal of Fixed Assets 48 (2)
(Decrease) Increase in Taxes Payable (253) 259
Payments on Operating Leases (412) (312)
(Decrease) Increase in Accrued Interest Payable (252) 331
Other, Net (1,329) (136)
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,198 12,705
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities 91,219 34,490
Purchases of Debt and Marketable Equity Securities (68,851) (50,185)
Proceeds from Sales of Securities 17,893 29,460
Net Increase in Loans (100,436) (21,531)
Purchase of Premises and Equipment (184) (66)
Proceeds from Disposal of of Premises and Equipment 26 0
Asset Acquisition of a Customer List 0 (900)
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets 99 1,123
(Increase) Decrease in Restricted Equity Securities (305) 214
Acquisition of Bank Owned Life Insurance 0 (750)
NET CASH USED IN INVESTING ACTIVITIES (60,539) (8,145)
FINANCING ACTIVITIES
Net Increase in Deposits 80,677 39,250
Net Increase (Decrease) in Short-Term Borrowings 11,490 (1,861)
Principal Payments on Other Borrowed Funds (3,000) (3,000)
Cash Dividends Paid (3,888) (3,911)
Treasury Stock, Purchases at Cost (1,908) 0
Exercise of Stock Options (78) 22
NET CASH PROVIDED BY FINANCING ACTIVITIES 83,293 30,500
INCREASE IN CASH AND CASH EQUIVALENTS 31,952 35,060
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 80,217 53,353
CASH AND DUE FROM BANKS AT END OF PERIOD $ 112,169 $ 88,413


Three Months Ended March 31, 2021	2021		2020
(Dollars in thousands)

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid For:
Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $1,084 and $1,799, Respectively)	$	1,153	$	1,920

SUPPLEMENTAL NONCASH DISCLOSURE:
Other Real Estate Acquired in Settlement of Loans	0		76
Securities Sold Not Settled	0		2,450


Right of Use Asset Recognized	0		23
Lease Liability Recognized	0		23

The accompanying notes are an integral part of these consolidated financial statements


6

~~Table of Contents~~

~~CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)~~

Nine Months Ended September 30, 2020 2020 2019
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $4,382 and $5,070, respectively) $ 4,694 $ 5,497
Income taxes 1,785 2,260
SUPPLEMENTAL NONCASH DISCLOSURE:
Real estate acquired in settlement of loans 115 427
Income tax refund receivable 1,002 0
Loan payoff receivable 5,628 1,644
Right of use asset recognized 329 1,706
Lease liability recognized 329 1,712

~~The accompanying notes are an integral part of these consolidated financial statements~~


7

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters” or “EU”). CB Financial, ~~and~~ the Bank and Exchange Underwriters are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, evaluation of securities for other-than-temporary impairment including related cash flow projections, goodwill and intangible assets impairment, and the valuation of deferred tax assets.

In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations at the dates and for the periods presented. All these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Interim results are not necessarily indicative of results for a full year.

The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events, to be recognizable events.

Branch Optimization and Operational Efficiency Update

As previously disclosed by the Company on February 23, 2021, the Company announced the implementation of strategic initiatives to improve the Bank’s financial performance and to position the Bank for continued profitable growth. The Bank intends to optimize its current branch network through the consolidation of six branches and the possible divestiture of others, while expanding technology and infrastructure investments in its remaining locations. The decision was the result of a comprehensive internal study that measured branch performance by comparing financial and non-financial indicators to growth opportunities, while evolving changes in consumer preferences, largely driven by the global pandemic, led to an acceleration of branch optimization efforts. The branch optimization, which is expected to be completed in 2021, will result in the Company incurring restructuring related expenses predominantly from branch consolidations, lease termination and severance costs.

Nature of Operations

The Company derives substantially all its income from banking and bank-related services which include interest earnings on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest earnings on investment securities and fees generated from deposit services to its customers. The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank. The Bank operates 15 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, 6 offices in Brooke, Marshall, Ohio, Upshur and Wetzel Counties in West Virginia, and 1 office in Belmont County in Ohio. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, a full-service, independent insurance agency.

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Reclassifications

Certain comparative amounts for the prior year have been reclassified to conform to the current year presentation. Such reclassifications did not affect net ~~(loss)~~ income or stockholders’ equity.

Recent Accounting Standards

In March 2020, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The optional

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expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt). The ASU is intended to help stakeholders during the global market-wide reference rate transition period. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. While the LIBOR reform may require extensive changes to the contracts that govern LIBOR based products, as well as our systems and processes, we cannot yet determine whether the Company will be able to use the optional expedient for the changes to contract terms that may be required by LIBOR reform and therefore, the Company cannot yet determine the magnitude of the impact or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

In ~~August 2018, the~~December 2019, FASB issued ASU ~~2018-15~~2019-12, ~~, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)~~Income taxes (Topic 740); Simplifying the Accounting for Income Taxes. ASU ~~2018-15 was issued~~2019-12 provides amendments intended to ~~help entities evaluate~~reduce the cost and complexity in accounting for ~~fees paid by~~income taxes while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 removes the following exceptions from ASC 740, Income Taxes: (i) exceptions to the incremental approach for intraperiod tax allocation; (ii) exceptions to accounting for basis differences when a ~~customer~~foreign subsidiary becomes an equity method investment or a foreign equity method investment become a subsidiary; and (iii) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 provides the following amendments that simplify and improve guidance with Topic 740: (i) franchise taxes that are based partially on income; (ii) transactions that result in a ~~cloud computing arrangement (hosting arrangement) by providing guidance~~step up in the tax basis of goodwill; (iii) separate financial statements of legal entities that are not subject to tax; (iv) enacted changes in tax laws in interim periods; and (v) employee stock ownership plans and investments in qualified affordable housing projects accounted for ~~determining when~~using the ~~arrangement includes a software license. The~~equity method. For public business entities, the amendments ~~align the requirements for capitalizing implementation costs incurred~~ in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments. This guidance becameASU 2019-12 are effective for ~~the Company~~fiscal years, and interim periods within those fiscal years, beginning ~~in the first quarter 2020 and the adoption of this ASU did not have a material impact on the Company's consolidated statement of financial condition or results of operations.~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820)~~. ASU 2018-13 modifies disclosure requirements on fair value measurements. This ASU removes requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. ASU 2018-13 clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date. ASU 2018-13 adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU were effective for the Company beginning in the first quarterafter December 15, 2020. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented. The adoption of this ASU did not have a material impact on the Company's consolidated ~~statement~~statements of financial condition or results of ~~operations.~~

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the second step of the goodwill impairment test. Instead, an entity applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. ASU 2017-04 is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted, and is to be applied on a prospective basis. The Company elected to early adopt the provisions of ASU 2017-04 effective October 31, 2019 and the adoption did not have a material impact on the Company's consolidated statement of financial condition or results of operations.operation.

In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP; and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 was originally effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting in a required implementation date for the Company of January 1, 2023. Early adoption will continue to be permitted. The Company is evaluating the impact of this ASU and expects to recognize a one-time adjustment to the allowance for loan losses upon adoption, but we cannot yet determine the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

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Note 2. ~~(Loss)~~ Earnings Per Share

There are 0 convertible securities which would affect the numerator in calculating basic and diluted ~~(loss)~~ earnings per share; therefore, net ~~(loss)~~ income as presented on the Consolidated ~~Statement~~Statements of ~~(Loss)~~ Income is used as the numerator.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
(Dollars in thousands, except share and per share data)	(Dollars in thousands, except share and per share data)									(Dollars in thousands, except share and per share data)

Net (Loss) Income		$	(17,395)	$	3,746	$	(13,719)	$	9,650
Net Income										Net Income	$	2,845	$	773

Weighted-Average Basic Common Shares Outstanding	Weighted-Average Basic Common Shares Outstanding	5,395,342		5,433,289		5,406,710		5,433,296		Weighted-Average Basic Common Shares Outstanding	5,434,374		5,431,199
Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)	Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)	0		25,434		0		18,409		Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)	2,507		25,668
Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding	Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding	5,395,342		5,458,723		5,406,710		5,451,705		Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding	5,436,881		5,456,867

(Loss) Earnings Per Share:
Earnings Per Share:										Earnings Per Share:
Basic	Basic	$	(3.22)	$	0.69	$	(2.54)	$	1.78	Basic	$	0.52	$	0.14
Diluted	Diluted	(3.22)		0.69		(2.54)		1.77		Diluted	0.52		0.14

The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents for the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effects would be anti-dilutive.


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended March 31,
		2020	2019	2020	2019		2021	2020
Stock Options	Stock Options	220,271	88,253	220,271	88,253	Stock Options	201,662	78,545
Restricted Stock	Restricted Stock	49,130	0	49,130	600	Restricted Stock	33,610	30,250

When there is a net loss for the period, the exercise or conversion of any potential shares increases the number of shares in the denominator and results in a lower loss per share. In that situation, the potential shares are antidilutive and not included in the Company's loss per share calculation. Therefore, if there is a net loss, diluted loss per share is the same as basic loss per share.

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Note 3. Securities

The following table presents the amortized cost and fair value of securities available-for-sale at the dates indicated:


	March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(Dollars in thousands)

Available-for-Sale Debt Securities:
U.S. Government Agencies	$	50,992	$	0	$	(2,304)	$	48,688
Obligations of States and Political Subdivisions	20,664		1,063		0		21,727
Mortgage-Backed Securities - Government-Sponsored Enterprises	66,495		2,673		(177)		68,991
Total Available-for-Sale Debt Securities	138,151		3,736		(2,481)		139,406

Equity Securities:
Mutual Funds							1,001
Other							1,749
Total Equity Securities							2,750
Total Securities							$	142,156


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(Dollars in thousands)

Available-for-Sale Debt Securities:
U.S. Government Agencies	$	41,994	$	12	$	(595)	$	41,411
Obligations of States and Political Subdivisions	20,672		1,321		0		21,993
Mortgage-Backed Securities - Government-Sponsored Enterprises	75,900		3,593		0		79,493
Total Available-for-Sale Debt Securities	138,566		4,926		(595)		142,897

Equity Securities:
Mutual Funds							1,019
Other							1,484
Total Equity Securities							2,503
Total Securities							$	145,400

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~~Note 3. Investment Securities~~

~~The following table presents the amortized cost and fair value of investment securities available-for-sale at the dates indicated:~~

September 30, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
Debt Securities:
U.S. Government Agencies $ 41,994 $ 16 $ (178) $ 41,832
Obligations of States and Political Subdivisions 20,761 1,290 0 22,051
Mortgage-Backed Securities - Government-Sponsored Enterprises 88,735 4,049 0 92,784
Total Debt Securities 151,490 5,355 (178) 156,667
Marketable Equity Securities:
Mutual Funds 1,022
Other 1,267
Total Marketable Equity Securities 2,289
Total Available-for-Sale Securities $ 158,956

December 31, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
Debt Securities:
U.S. Government Agencies $ 47,993 $ 227 $ (164) $ 48,056
Obligations of States and Political Subdivisions 25,026 819 (2) 25,843
Mortgage-Backed Securities - Government-Sponsored Enterprises 118,282 2,601 (107) 120,776
Total Debt Securities 191,301 3,647 (273) 194,675
Marketable Equity Securities:
Mutual Funds 997
Other 1,713
Total Marketable Equity Securities 2,710
Total Available-for-Sale Securities $ 197,385

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The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated:


		September 30, 2020																March 31, 2021
		Less than 12 months					12 Months or Greater					Total						Less than 12 months					12 Months or Greater					Total
		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
(Dollars in thousands)	(Dollars in thousands)																(Dollars in thousands)

U.S. Government Agencies	U.S. Government Agencies	8	$	33,815	$	(178)	0	$	0	$	0	8	$	33,815	$	(178)	U.S. Government Agencies	12	$	48,688	$	(2,304)	0	$	0	$	0	12	$	48,688	$	(2,304)

Mortgage Backed Securities- Government Sponsored Enterprises																	Mortgage Backed Securities- Government Sponsored Enterprises	3	13,097		(177)		0	0		0		3	13,097		(177)
Total	Total	8	$	33,815	$	(178)	0	$	0	$	0	8	$	33,815	$	(178)	Total	15	$	61,785	$	(2,481)	0	$	0	$	0	15	$	61,785	$	(2,481)


		December 31, 2019																December 31, 2020
		Less than 12 months					12 Months or Greater					Total						Less than 12 months					12 Months or Greater					Total
		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
(Dollars in thousands)	(Dollars in thousands)																(Dollars in thousands)

U.S. Government Agencies	U.S. Government Agencies	6	$	16,116	$	(83)	6	$	13,938	$	(81)	12	$	30,054	$	(164)	U.S. Government Agencies	7	$	32,399	$	(595)	0	$	0	$	0	7	$	32,399	$	(595)
Obligations of States and Political Subdivisions		0	0		0		1	509		(2)		1	509		(2)
Mortgage Backed Securities- Government Sponsored Enterprises		7	20,003		(104)		1	1,711		(3)		8	21,714		(107)

Total	Total	13	$	36,119	$	(187)	8	$	16,158	$	(86)	21	$	52,277	$	(273)	Total	7	$	32,399	$	(595)	0	$	0	$	0	7	$	32,399	$	(595)

For debt securities, the Company does not believe that any individual unrealized loss as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019,~~2020, represents an other-than-temporary impairment. The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate an other-than-temporary impairment. The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer. The securities that are temporarily impaired at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell, orand it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

Securities available-for-sale with a fair value of $129.1 million and $119.7 million at March 31, 2021 and December 31, 2020, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law.

The following table presents the scheduled maturities of debt securities as of the date indicated:


		September 30, 2020					March 31, 2021
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
(Dollars in thousands)	(Dollars in thousands)					(Dollars in thousands)

Due in One Year or Less	Due in One Year or Less	$	0	$	0	Due in One Year or Less	$	500	$	500
Due after One Year through Five Years	Due after One Year through Five Years	4,303		4,380		Due after One Year through Five Years	4,807		4,872
Due after Five Years through Ten Years	Due after Five Years through Ten Years	55,267		56,462		Due after Five Years through Ten Years	64,948		64,085
Due after Ten Years	Due after Ten Years	91,920		95,825		Due after Ten Years	67,896		69,949
Total	Total	$	151,490	$	156,667	Total	$	138,151	$	139,406

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The following table presents the gross realized gain and loss ofon sales of ~~available-for-sale investment~~debt securities, as well as gain and loss on equity securities from both sales and market adjustments for the periods indicated.

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Debt Securities
Gross Gain $ 0 $ 50 $ 489 $ 62
Gross Loss 0 (47) 0 (112)
Net Gain (Loss) on Sales of Investment Securities $ 0 $ 3 $ 489 $ (50)

~~Marketable equity~~ All gains and losses presented in the table below are reported in net gain (loss) on securities ~~are measured at fair value with changes in fair value included in Change in Fair Value of Marketable Equity Securities~~ on the Consolidated ~~Statement~~Statements of ~~(Loss)~~ Income. Realized gains and losses on sales of marketable equity securities are included in Net Gain (Loss) on Sales of Investment Securities on the Consolidated Statement of (Loss) Income. There were 0 sales of marketable equity securities for the three and nine months ended September 30, 2020 and 2019, respectively.


	Three Months Ended March 31,
	2021		2020
(Dollars in thousands)

Debt Securities
Gross Realized Gain	$	225	$	0
Gross Realized Loss	0		0
Net Gain on Debt Securities	$	225	$	0

Equity Securities
Net Unrealized Gain (Loss) Recognized on Securities Held	$	222	$	(438)
Net Realized Gain Recognized on Securities Sold	0		0
Net Gain (Loss) on Equity Securities	$	222	$	(438)
Net Gain (Loss) on Securities	$	447	$	(438)

Note 4. Loans and Allowance for Loan Losses

The Company’s loan portfolio is segmented to enable management to monitor risk and performance. Real estate loans are further segregated into three classes. Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate. Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate. The commercial and industrial segment consists of ~~four classifications:~~loans to finance the activities of commercial customers. The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit.

Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient.

Commercial real estate loans generally present a higher level of risk than loans secured by residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.

Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. Construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion.

Commercial and industrial loans ~~consumer~~are generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk.

Consumer loans generally have higher interest rates and ~~other loans. The following table presents the classifications of loans as of the dates indicated.~~

September 30, 2020 December 31, 2019
Amount Percent Amount Percent
(Dollars in thousands)
Real Estate:
Residential $ 343,955 32.7 % $ 347,766 36.6 %
Commercial 353,904 33.7 351,360 36.9
Construction 69,178 6.6 35,605 3.7
Commercial and Industrial 144,315 13.7 85,586 9.0
Consumer 117,364 11.2 113,637 11.9
Other 22,169 2.1 18,542 1.9
Total Loans 1,050,885 100.0 % 952,496 100.0 %
Allowance for Loan Losses (13,780) (9,867)
Loans, Net $ 1,037,105 $ 942,629

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic, which included authorizing the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). On April 16, 2020, the original $349 billion funding cap was reached. On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was signed into law and included an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP. The second round of the PPP began on April 27, 2020.

~~Under the PPP, participating SBA and other qualifying lenders can originate loans to eligible businesses that are fully guaranteed by the SBA as to principal and interest, have more favorable~~shorter terms than ~~traditional SBA loans and may be forgiven if~~residential mortgage loans; however, they have additional credit risk due to the ~~proceeds are used by~~type of collateral securing the borrower for certain purposes. PPP is designed to help small businesses keep their workforce employed and cover expenses during the COVID-19 crisis. These loans have a two- or five-year loan term to maturity, an interest rate of 1% per annum and loan payments are deferred for six months. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of a PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses. The Bank receives a processing fee from the SBA ranging from 1% to 5% depending on the size of the loan, which is offset by a 0.75% third-party servicing agent fee.

As of September 30, 2020, the Bank originated 638 PPP loans totaling $71.0 million, with a median loan balance of $35,000. Among the largest sectors impacted were $15.6 million in loans for health care and social assistance, $12.6 million forloan.

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The following table presents the classifications of loans as of the dates indicated.


	March 31, 2021				December 31, 2020
	Amount		Percent		Amount		Percent
(Dollars in thousands)

Real Estate:
Residential	$	339,596	32.6	%	$	344,142	32.9	%
Commercial	370,118		35.5		373,555		35.9
Construction	77,714		7.5		72,600		6.9
Commercial and Industrial	128,931		12.4		126,813		12.1
Consumer	111,650		10.7		113,854		10.9
Other	13,688		1.3		13,789		1.3
Total Loans	1,041,697		100.0	%	1,044,753		100.0	%
Allowance for Loan Losses	(12,725)				(12,771)
Loans, Net	$	1,028,972			$	1,031,982

The Small Business Administration reopened the Payroll Protection Program ("PPP") the week of January 11, 2021 and began accepting applications for both First Draw and Second Draw PPP Loans. As of March 31, 2021, as part of this round of PPP, the Bank funded 156 PPP loans totaling $25.0 million with net deferred origination fees of $984,000. Combined with $19.7 million of loan forgiveness processed in the first quarter of 2021, total PPP loans increased $5.3 million to $60.4 million at March 31, 2021 compared to $55.1 million at December 31, 2020. At March 31, 2021, the largest sectors of PPP loans were $15.2 million for construction and specialty-trade contractors, ~~$6.1~~$10.1 million in loans for health care and social assistance, $8.2 million for professional and technical services, ~~$6.1~~$3.5 million for retail trade, ~~$5.1 million for wholesale trade, $4.6 million for manufacturing and $3.4~~$5.0 million for restaurant and food ~~services.~~services, $4.9 million for manufacturing, and $4.5 million for wholesale trade. Net ~~SBA~~unamortized PPP loan origination fees as of ~~September 30,~~March 31, 2021 and December 31, 2020 were ~~$2.2~~$1.5 million and $1.1 million, respectively. $535,000 of ~~which $274,000 was recognized~~net PPP loan origination fees were earned for the three months ended ~~September 30, 2020 and $465,000 for the nine months ended September 30, 2020.~~March 31, 2021. All PPP loans are classified as commercial and industrial loans held for investment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

Total unamortized net deferred loan fees were $2.5 million and ~~$907,000~~$2.0 million at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

The ~~increase in unamortized net deferred~~Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan ~~fees is primarily due to PPP loans.~~

~~Real estate loans serviced for others, which~~portfolio. The first four categories are not ~~included~~considered criticized and are aggregated as “pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point of justifying a substandard classification. Loans in the ~~Consolidated Statement~~substandard category have well-defined weaknesses that jeopardize the liquidation of ~~Financial Condition, totaled $106.0 million~~the debt and ~~$100.0 million at September 30, 2020~~have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and ~~December 31, 2019, respectively.~~facts, is highly improbable. Loans classified as loss are considered uncollectable and of such little value that continuance as an asset is not warranted.

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The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, there were 0 loans in the criticized category of Loss within the internal risk rating system.


		September 30, 2020											March 31, 2021
		Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
(Dollars in Thousands)	(Dollars in Thousands)											(Dollars in Thousands)

Real Estate:	Real Estate:											Real Estate:
Residential	Residential	$	340,421	$	1,045	$	2,489	$	0	$	343,955	Residential	$	336,031	$	1,090	$	2,475	$	0	$	339,596
Commercial	Commercial	311,125		29,383		13,396		0		353,904		Commercial	322,743		31,818		15,557		0		370,118
Construction	Construction	65,158		3,379		641		0		69,178		Construction	72,969		2,145		2,600		0		77,714
Commercial and Industrial	Commercial and Industrial	137,871		4,197		1,614		633		144,315		Commercial and Industrial	114,911		7,943		5,493		584		128,931
Consumer	Consumer	117,315		0		49		0		117,364		Consumer	111,598		0		52		0		111,650
Other	Other	22,089		80		0		0		22,169		Other	13,612		76		0		0		13,688
Total Loans	Total Loans	$	993,979	$	38,084	$	18,189	$	633	$	1,050,885	Total Loans	$	971,864	$	43,072	$	26,177	$	584	$	1,041,697

December 31, 2019
Pass
Special
Mention
Substandard Doubtful Total
(Dollars in Thousands)
Real Estate:
Residential $ 343,851 $ 1,997 $ 1,918 $ 0 $ 347,766
Commercial 335,436 12,260 3,664 0 351,360
Construction 33,342 2,263 0 0 35,605
Commercial and Industrial 75,201 7,975 1,691 719 85,586
Consumer 113,527 0 110 0 113,637
Other 18,452 90 0 0 18,542
Total Loans $ 919,809 $ 24,585 $ 7,383 $ 719 $ 952,496

The increase of $13.5 million in the special mention loan category and $10.8 million in the substandard category as of September 30, 2020 compared to December 31, 2019 was mainly from the downgrade of the hospitality portfolio due to the economic conditions in that industry caused by the COVID-19 pandemic.

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	December 31, 2020
	Pass		Special Mention		Substandard		Doubtful		Total
(Dollars in Thousands)

Real Estate:
Residential	$	340,573	$	1,115	$	2,454	$	0	$	344,142
Commercial	320,358		37,482		15,715		0		373,555
Construction	68,343		53		4,204		0		72,600
Commercial and Industrial	113,797		7,787		4,620		609		126,813
Consumer	113,805		0		49		0		113,854
Other	13,711		78		0		0		13,789
Total Loans	$	970,587	$	46,515	$	27,042	$	609	$	1,044,753

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated.


		September 30, 2020															March 31, 2021
		Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans			Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
(Dollars in Thousands)	(Dollars in Thousands)															(Dollars in Thousands)

Real Estate:	Real Estate:															Real Estate:
Residential	Residential	$	341,775	$	281	$	22	$	0	$	303	$	1,877	$	343,955	Residential	$	336,483	$	1,253	$	0	$	0	$	1,253	$	1,860	$	339,596
Commercial	Commercial	345,772		0		0		0		0		8,132		353,904		Commercial	363,057		0		0		0		0		7,061		370,118
Construction	Construction	69,178		0		0		0		0		0		69,178		Construction	77,714		0		0		0		0		0		77,714
Commercial and Industrial	Commercial and Industrial	142,286		0		0		0		0		2,029		144,315		Commercial and Industrial	127,127		0		0		0		0		1,804		128,931
Consumer	Consumer	116,826		452		37		0		489		49		117,364		Consumer	111,346		249		3		0		252		52		111,650
Other	Other	22,169		0		0		0		0		0		22,169		Other	13,688		0		0		0		0		0		13,688
Total Loans	Total Loans	$	1,038,006	$	733	$	59	$	0	$	792	$	12,087	$	1,050,885	Total Loans	$	1,029,415	$	1,502	$	3	$	0	$	1,505	$	10,777	$	1,041,697

December 31, 2019
Loans
Current
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past Due
Non-
Accrual
Total
Loans
(Dollars in Thousands)
Real Estate:
Residential $ 342,010 $ 3,462 $ 281 $ 196 $ 3,939 $ 1,817 $ 347,766
Commercial 351,104 22 0 0 22 234 351,360
Construction 35,605 0 0 0 0 0 35,605
Commercial and Industrial 84,280 388 178 0 566 740 85,586
Consumer 112,438 923 140 26 1,089 110 113,637
Other 18,542 0 0 0 0 0 18,542
Total Loans $ 943,979 $ 4,795 $ 599 $ 222 $ 5,616 $ 2,901 $ 952,496

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~~The increase in nonaccrual commercial real estate loans is primarily~~


	December 31, 2020
	Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
(Dollars in Thousands)

Real Estate:
Residential	$	339,067	$	2,919	$	315	$	0	$	3,234	$	1,841	$	344,142
Commercial	365,712		1		740		0		741		7,102		373,555
Construction	72,600		0		0		0		0		0		72,600
Commercial and Industrial	124,916		0		0		0		0		1,897		126,813
Consumer	112,952		784		61		8		853		49		113,854
Other	13,789		0		0		0		0		0		13,789
Total Loans	$	1,029,036	$	3,704	$	1,116	$	8	$	4,828	$	10,889	$	1,044,753

Total unrecorded interest income related to ~~2 hotel~~nonaccrual loans ~~with a total principal balance of $7.9 million that were impacted by~~was $61,000 and $11,000 for the ~~pandemic~~three months ended March 31, 2021 and determined to be impaired due to insufficient cash flows and occupancy rates. The increase in nonaccrual commercial and industrial loans is primarily related to a $1.4 million relationship with collateral and income shortfalls.2020, respectively.

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The following table sets forth the amounts and categories of nonperforming assets at the dates indicated. Included in nonperforming loans and assets are troubled debt restructurings (“TDRs”), which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section. Nonperforming loans do not include loans modified under Section 4013 of the CARES Act and interagency guidance as further explained below.


		September 30, 2020			December 31, 2019				March 31, 2021			December 31, 2020
(Dollars in Thousands)	(Dollars in Thousands)							(Dollars in Thousands)

Nonaccrual Loans:	Nonaccrual Loans:							Nonaccrual Loans:
Real Estate:	Real Estate:							Real Estate:
Residential	Residential	$	1,877		$	1,817		Residential	$	1,860		$	1,841
Commercial	Commercial	8,132			234			Commercial	7,061			7,102
Commercial and Industrial	Commercial and Industrial	2,029			740			Commercial and Industrial	1,804			1,897
Consumer	Consumer	49			110			Consumer	52			49
Total Nonaccrual Loans	Total Nonaccrual Loans	12,087			2,901			Total Nonaccrual Loans	10,777			10,889

Accruing Loans Past Due 90 Days or More:	Accruing Loans Past Due 90 Days or More:							Accruing Loans Past Due 90 Days or More:
Real Estate:	Real Estate:							Real Estate:
Residential	Residential	0			196			Residential	0			0
Consumer	Consumer	0			26			Consumer	0			8
Total Accruing Loans Past Due 90 Days or More	Total Accruing Loans Past Due 90 Days or More	0			222			Total Accruing Loans Past Due 90 Days or More	0			8
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	12,087			3,123			Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	10,777			10,897

Troubled Debt Restructurings, Accruing:	Troubled Debt Restructurings, Accruing:							Troubled Debt Restructurings, Accruing:
Real Estate	Real Estate							Real Estate
Residential	Residential	660			511			Residential	641			650
Commercial	Commercial	2,162			1,648			Commercial	2,777			2,861
Commercial and Industrial	Commercial and Industrial	96			100			Commercial and Industrial	57			80
Total Troubled Debt Restructurings, Accruing	Total Troubled Debt Restructurings, Accruing	2,918			2,259			Total Troubled Debt Restructurings, Accruing	3,475			3,591

Total Nonperforming Loans	Total Nonperforming Loans	15,005			5,382			Total Nonperforming Loans	14,252			14,488

Other Real Estate Owned:	Other Real Estate Owned:							Other Real Estate Owned:
Residential	Residential	14			41			Residential	0			0
Commercial	Commercial	208			192			Commercial	208			208
Total Other Real Estate Owned	Total Other Real Estate Owned	222			233			Total Other Real Estate Owned	208			208

Total Nonperforming Assets	Total Nonperforming Assets	$	15,227		$	5,615		Total Nonperforming Assets	$	14,460		$	14,696

Nonperforming Loans to Total Loans	Nonperforming Loans to Total Loans	1.43		%	0.57		%	Nonperforming Loans to Total Loans	1.37		%	1.39		%
Nonperforming Assets to Total Assets	Nonperforming Assets to Total Assets	1.09			0.42			Nonperforming Assets to Total Assets	0.98			1.04

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was ~~$805,000~~$754,000 and ~~$1.1 million~~$806,000 at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

TDRs typically are the result of loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral. For a loan modification to be considered a TDR, the borrower must be experiencing financial difficulty and a concession must be granted, except for an insignificant delay in payment. Section 4013 of the CARES Act ~~provides~~and regulatory guidance promulgated by federal banking regulators provide temporary relief from accounting and financial reporting requirements for TDRs regarding certain short-term loan modifications related to COVID-19. Specifically, the CARES Act provides that the Bank may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and suspend any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Any modification involving

~~Table of Contents~~

a loan that was not more than 30 days past due as of December 31, 2019 and that occurs beginning on March 1, 2020 and ends on the earlier of ~~December 31, 2020~~January 1, 2022 (as extended by the

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Consolidated Appropriations Act, 2021) or the date that is 60 days after the termination date of the national emergency related to the COVID-19 outbreak qualify for this exception, including a forbearance arrangement, interest rate modification, repayment plan or any other similar arrangement that defers or delays the payment of principal or interest.

Bank regulatory agencies released an interagency statement that offers practical expedients for modifications that occur in response to the COVID-19 pandemic, but it differs with the CARES Act in certain areas. The expedients require a lender to conclude that a borrower is not experiencing financial difficulty if either short-term (e.g., six months or less) modifications are made, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented or the modification or deferral program is mandated by the federal government or a state government. The bank regulatory agencies have subsequently confirmed that their guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act. Both Section 4013 of the CARES Act and the interagency statement can be applied to a second modification that occurs after the first modification provided that the second modification does not qualify as a TDR under Section 4013 of the CARES Act or the interagency statement. In its evaluation of whether a payment deferral qualifies as short-term under the interagency statement, an entity should assess multiple payment deferrals collectively (i.e., the cumulative deferrals cannot exceed six months).

The Bank offered forbearance options for borrowers impacted by COVID-19 that provide a short-term delay in payment by primarily allowing: (a) deferral of three to six months of payments; or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months. During the forbearance period, the borrower is not considered delinquent for credit bureau reporting purposes. The Company has elected the practical expedients related to TDRs that are available in the CARES Act and interagency guidance as an entity-wide accounting policy and does not consider any of the forbearance agreements TDRs, delinquent, or nonaccrual.

The following table provides details of loans in forbearance ~~and the forbearance end dates~~ as of the dates indicated.


		September 30, 2020					June 30, 2020						March 31, 2021					December 31, 2020
		Number of Loans	Amount		% of Portfolio		Number of Loans	Amount		% of Portfolio			Number of Loans	Amount		% of Portfolio		Number of Loans	Amount		% of Portfolio
(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)

Real Estate:	Real Estate:											Real Estate:
Residential	Residential	11	1,242		0.4	%	163	23,653		6.9	%	Residential	7	1,343		0.4	%	4	749		0.2	%
Commercial	Commercial	9	13,885		3.9	%	111	105,117		30.0	%	Commercial	7	13,814		3.7	%	8	19,818		5.3	%
Construction	Construction	1	7,162		10.4	%	6	15,518		26.6	%	Construction	1	1,958		2.5	%	1	1,958		2.7	%
Commercial and Industrial	Commercial and Industrial	1	122		0.1	%	76	15,697		10.5	%	Commercial and Industrial	5	1,219		0.9	%	5	1,219		1.0	%
Consumer	Consumer	12	295		0.3	%	170	3,447		2.9	%	Consumer	5	106		0.1	%	13	356		0.3	%
Other		0	0		0	%	1	2,504		11.2	%

Total Loans in Forbearance	Total Loans in Forbearance	34	$	22,706	2.2	%	527	$	165,936	15.9	%	Total Loans in Forbearance	25	$	18,440	1.8	%	31	$	24,100	2.3	%

~~The~~Loans in deferral at March 31, 2021 include 2 commercial real estate loans ~~remaining in deferral at September 30, 2020 include 5 hotel~~totaling $4.6 million and 1 construction loan totaling $2.0 million that are all secured by hotels, 1 commercial real estate loan totaling $5.5 million secured by office space and a business relationship that rents equipment, supplies and other materials for events comprised of 3 commercial real estate loans totaling ~~$10.3~~$3.3 million, and ~~the construction loan is a retail project. The~~5 commercial and industrial loans ~~are scheduled to exit~~totaling $1.2 million. All loans will have exited their deferral ~~period in the fourth quarter.~~periods by July 2021.

The concessions granted for the TDRs in the portfolio primarily consist of, but are not limited to, modification of payment or other terms, temporary rate modification and extension of maturity date. Loans classified as TDRs consisted of ~~18 loans totaling $3.6 million at September 30, 2020 and~~ 16 loans totaling ~~$3.0~~$4.1 million at March 31, 2021 and 17 loans totaling $4.2 million at December 31, ~~2019,~~2020, respectively.

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, there ~~was~~were 0 loans that were modified that were considered a TDR and 1 residential real estate loan modified in a TDR totaling ~~$60,000~~$3,000 that paid off. During the ~~nine~~three months ended ~~September 30, 2019, 1 residential real estate loan~~March 31, 2020, there were 0 loans that were modified that were considered a TDR and 0 loans modified in a TDR ~~totaling $851,000~~that paid off. NaN TDRs subsequently defaulted during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Table of Contents

~~The following tables present information at the time of modification related to loans modified in a TDR during the three and nine months ended September 30, 2020 and 2019.~~

Three Months Ended September 30, 2020
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Related
Allowance
(Dollars in thousands)
Real Estate:
Commercial 1 $ 504 $ 519 $ 0
Commercial and Industrial 1 38 38 0
Total 2 $ 542 $ 557 $ 0

Nine Months Ended September 30, 2020
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Related
Allowance
(Dollars in thousands)
Real Estate:
Residential 1 $ 234 $ 234 $ 0
Commercial 1 504 519 0
Commercial and Industrial 1 38 38 0
Total 3 $ 776 $ 791 $ 0

Three Months Ended June 30, 2019
Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Related Allowance
(Dollars in thousands)
Real Estate:
Residential 1 $ 10 $ 10 $ 0
Total 1 $ 10 10 $ 0

~~Table of Contents~~

Nine Months Ended September 30, 2019
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Related
Allowance
(Dollars in thousands)
Real Estate:
Residential 2 $ 71 $ 71 $ 0
Commercial and Industrial 1 114 114 0
Total 3 $ 185 $ 185 $ 0

The following table presents a summary of the loans considered to be impaired as of the dates indicated.


		September 30, 2020											March 31, 2021
		Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized			Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)

With No Related Allowance Recorded:	With No Related Allowance Recorded:											With No Related Allowance Recorded:
Real Estate:	Real Estate:											Real Estate:
Residential	Residential	$	1,216	$	—	$	1,220	$	1,220	$	34	Residential	$	1,174	$	—	$	1,178	$	1,177	$	12
Commercial	Commercial	20,896		—		20,916		25,193		811		Commercial	33,497		—		33,627		33,666		361
Construction	Construction	641		—		641		766		21		Construction	2,599		—		2,599		2,599		23
Commercial and Industrial	Commercial and Industrial	881		—		1,069		936		6		Commercial and Industrial	3,703		—		3,938		3,956		28
Total With No Related Allowance Recorded	Total With No Related Allowance Recorded	$	23,634	$	—	$	23,846	$	28,115	$	872	Total With No Related Allowance Recorded	$	40,973	$	—	$	41,342	$	41,398	$	424

With A Related Allowance Recorded:	With A Related Allowance Recorded:											With A Related Allowance Recorded:
Real Estate:	Real Estate:											Real Estate:
Residential												Residential	$	0	$	0	$	0	$	0	$	0
Commercial	Commercial	$	9,498	$	2,248	$	9,528	$	9,610	$	291	Commercial	571		269		571		576		6
Construction												Construction	0		0		0		0		0
Commercial and Industrial	Commercial and Industrial	1,528		607		1,528		1,609		45		Commercial and Industrial	2,487		502		2,487		2,512		17
Total With A Related Allowance Recorded	Total With A Related Allowance Recorded	$	11,026	$	2,855	$	11,056	$	11,219	$	336	Total With A Related Allowance Recorded	$	3,058	$	771	$	3,058	$	3,088	$	23

Total Impaired Loans:	Total Impaired Loans:											Total Impaired Loans:
Real Estate:	Real Estate:											Real Estate:
Residential	Residential	$	1,216	$	0	$	1,220	$	1,220	$	34	Residential	$	1,174	$	0	$	1,178	$	1,177	$	12
Commercial	Commercial	30,394		2,248		30,444		34,803		1,102		Commercial	34,068		269		34,198		34,242		367
Construction	Construction	641		0		641		766		21		Construction	2,599		0		2,599		2,599		23
Commercial and Industrial	Commercial and Industrial	2,409		607		2,597		2,545		51		Commercial and Industrial	6,190		502		6,425		6,468		45
Total Impaired Loans	Total Impaired Loans	$	34,660	$	2,855	$	34,902	$	39,334	$	1,208	Total Impaired Loans	$	44,031	$	771	$	44,400	$	44,486	$	447

1918

Table of Contents

December 31, 2019
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
(Dollars in thousands)
With No Related Allowance Recorded:
Real Estate:
Residential $ 549 $ — $ 553 $ 494 $ 20
Commercial 3,058 — 3,077 3,335 177
Commercial and Industrial 133 — 135 156 6
Total With No Related Allowance Recorded $ 3,740 $ — $ 3,765 $ 3,985 $ 203
With A Related Allowance Recorded:
Real Estate:
Commercial $ 1,646 $ 274 $ 1,646 $ 1,702 $ 81
Commercial and Industrial 2,378 610 2,529 2,448 113
Total With A Related Allowance Recorded $ 4,024 $ 884 $ 4,175 $ 4,150 $ 194
Total Impaired Loans
Real Estate:
Residential $ 549 $ 0 $ 553 $ 494 $ 20
Commercial 4,704 274 4,723 5,037 258
Commercial and Industrial 2,511 610 2,664 2,604 119
Total Impaired Loans $ 7,764 $ 884 $ 7,940 $ 8,135 $ 397

The $26.9 million increase in recorded investment of loans evaluated for impairment, primarily in the commercial real estate category, is mainly due to evaluating the hotel portfolio for potential impairment. $16.1 million of hotel loans were evaluated for impairment and determined to not require specific reserves. NaN hotel loans with a total principal balance of $7.9 million were determined to be impaired due to insufficient cash flows and occupancy rates.


	December 31, 2020
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)

With No Related Allowance Recorded:
Real Estate:
Residential	$	1,183	$	—	$	1,187	$	1,194	$	46
Commercial	31,865		—		32,887		37,443		1,418
Construction	4,204		—		4,204		4,013		159
Commercial and Industrial	3,296		—		3,506		3,426		89
Total With No Related Allowance Recorded	$	40,548	$	—	$	41,784	$	46,076	$	1,712

With A Related Allowance Recorded:
Real Estate:
Residential	$	0	$	0	$	0	$	0	$	0
Commercial	1,524		293		1,524		1,585		72
Construction	0		0		0		0		0
Commercial and Industrial	2,069		356		2,069		2,114		57
Total With A Related Allowance Recorded	$	3,593	$	649	$	3,593	$	3,699	$	129

Total Impaired Loans
Real Estate:
Residential	$	1,183	$	0	$	1,187	$	1,194	$	46
Commercial	33,389		293		34,411		39,028		1,490
Construction	4,204		0		4,204		4,013		159
Commercial and Industrial	5,365		356		5,575		5,540		146
Total Impaired Loans	$	44,141	$	649	$	45,377	$	49,775	$	1,841

The following tables present the activity in the allowance for loan losses ~~(“ALLL”)~~ summarized by ~~major classifications~~primary segments and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated.


		Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total			Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)	(Dollars in thousands)																	(Dollars in thousands)

June 30, 2020		$	2,688	$	5,160	$	820	$	1,566	$	1,714	$	0	$	700	$	12,648
December 31, 2020																		December 31, 2020	$	2,249	$	6,010	$	889	$	1,423	$	1,283	$	0	$	917	$	12,771
Charge-offs	Charge-offs	(11)		0		0		0		(103)		0		0		(114)		Charge-offs	0		0		0		0		(95)		0		0		(95)
Recoveries	Recoveries	1		1		0		6		38		0		0		46		Recoveries	9		0		0		12		28		0		0		49
Provision	Provision	(506)		1,711		71		170		(290)		0		44		1,200		Provision	(283)		(93)		50		108		(113)		0		331		0
September 30, 2020		$	2,172	$	6,872	$	891	$	1,742	$	1,359	$	0	$	744	$	13,780
March 31, 2021																		March 31, 2021	$	1,975	$	5,917	$	939	$	1,543	$	1,103	$	0	$	1,248	$	12,725

Table of Contents


	March 31, 2021
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	0	$	269	$	0	$	502	$	0	$	0	$	0	$	771
Collectively Evaluated for Potential Impairment	$	1,975	$	5,648	$	939	$	1,041	$	1,103	$	0	$	1,248	$	11,954


	December 31, 2020
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	0	$	293	$	0	$	356	$	0	$	0	$	0	$	649
Collectively Evaluated for Potential Impairment	$	2,249	$	5,717	$	889	$	1,067	$	1,283	$	0	$	917	$	12,122


	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

December 31, 2019	$	2,023	$	3,210	$	285	$	2,412	$	1,417	$	0	$	520	$	9,867
Charge-offs	(25)		0		0		0		(99)		0		0		(124)
Recoveries	2		14		0		9		54		0		0		79
Provision	685		1,651		379		(829)		507		0		107		2,500
March 31, 2020	$	2,685	$	4,875	$	664	$	1,592	$	1,879	$	0	$	627	$	12,322


	March 31, 2020
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	0	$	392	$	0	$	259	$	0	$	0	$	0	$	651
Collectively Evaluated for Potential Impairment	$	2,685	$	4,483	$	664	$	1,333	$	1,879	$	0	$	627	$	11,671

The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated. At March 31, 2021 and December 31, 2020, commercial and industrial loans include $60.4 million and $55.1 million, respectively, of PPP loans collectively evaluated for potential

Table of Contents

Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
December 31, 2019 $ 2,023 $ 3,210 $ 285 $ 2,412 $ 1,417 $ 0 $ 520 $ 9,867
Charge-offs (36) 0 0 0 (239) 0 0 (275)
Recoveries 5 28 0 21 134 0 0 188
Provision 180 3,634 606 (691) 47 0 224 4,000
September 30, 2020 $ 2,172 $ 6,872 $ 891 $ 1,742 $ 1,359 $ 0 $ 744 $ 13,780

September 30, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
Individually Evaluated for Impairment $ 0 $ 2,248 $ 0 $ 607 $ 0 $ 0 $ 0 $ 2,855
Collectively Evaluated for Potential Impairment $ 2,172 $ 4,624 $ 891 $ 1,135 $ 1,359 $ 0 $ 744 $ 10,925

December 31, 2019
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
Individually Evaluated for Impairment $ 0 $ 274 $ 0 $ 610 $ 0 $ 0 $ 0 $ 884
Collectively Evaluated for Potential Impairment $ 2,023 $ 2,936 $ 285 $ 1,802 $ 1,417 $ 0 $ 520 $ 8,983

Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
June 30, 2019 $ 1,096 $ 3,446 $ 488 $ 2,718 $ 1,500 $ 0 $ 443 $ 9,691
Charge-offs (28) 0 0 (16) (165) 0 0 (209)
Recoveries 1 35 0 5 52 0 0 93
Provision 582 (508) 49 (278) 76 0 254 175
September 30, 2019 $ 1,651 $ 2,973 $ 537 $ 2,429 $ 1,463 $ 0 $ 697 $ 9,750

~~Table of Contents~~

Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
December 31, 2018 $ 1,050 $ 2,693 $ 395 $ 2,807 $ 2,027 $ 0 $ 586 $ 9,558
Charge-offs (71) 0 0 (16) (451) 0 0 (538)
Recoveries 10 56 0 7 107 0 0 180
Provision 662 224 142 (369) (220) 0 111 550
September 30, 2019 $ 1,651 $ 2,973 $ 537 $ 2,429 $ 1,463 $ 0 $ 697 $ 9,750

September 30, 2019
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
Individually Evaluated for Impairment $ 0 $ 300 $ 0 $ 503 $ 0 $ 0 $ 0 $ 803
Collectively Evaluated for Potential Impairment $ 1,651 $ 2,673 $ 537 $ 1,926 $ 1,463 $ 0 $ 697 $ 8,947

~~The COVID-19 pandemic has resulted in a dramatic increase in unemployment and recessionary economic conditions. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the~~impairment. No allowance for loan loss ~~analysis related~~was allocated to ~~economic trends and industry conditions, specifically because of vulnerable industries such as hospitality, oil and gas, retail and restaurants, were adjusted in~~ the current year for these circumstances. In addition, the Company has an exposure of hotel loans that have been greatly impacted by the COVID-19 pandemic and were evaluated for impairment in the current quarter. NaN hotel loans with a total principal balance of $7.9 million were determined to be impairedPPP loan portfolio due to ~~insufficient cash flows and occupancy rates. The combination of these factors primarily resulted in a $1.2 million provision for loan losses for~~ the ~~three months ended September 30, 2020 and $4.0 million provision for loan losses for~~Bank complying with the ~~nine months ended September 30, 2020.~~lender obligations that ensure SBA guarantee.

Prior to the quarter ended March 31, 2020, management determined historical loss experience for each segment of loans using a two-year rolling average of the net charge-off data within each loan segment, which was then used in combination with qualitative factors to calculate the general allowance component that covers pools of homogeneous loans that are not specifically evaluated for impairment. For the quarter ended March 31, 2020, the Company began using a five-year rolling average of the net charge-off data within each segment. This change was driven by no net charge-off experience in the commercial real estate and commercial and industrial segments in the prior two-year rolling period as of March 31, 2020, which the Company believes does not represent the inherent risks in those segments. In the first quarter of 2018, the Company incurred $1.4 million of commercial and industrial charge-offs, however this period would have been removed from the lookback period as of March 31, 2020 if continuing to use a two-year history. In addition, moving to a five-year history is expected to improve the calculation moving forward by capturing economic ebbs and flows over a longer period while also not heavily weighting one period of charge-off activity.


	March 31, 2021
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	1,174	$	34,068	$	2,599	$	6,190	$	0	$	0	$	44,031
Collectively Evaluated for Potential Impairment	338,422		336,050		75,115		122,741		111,650		13,688		997,666
Total Loans	$	339,596	$	370,118	$	77,714	$	128,931	$	111,650	$	13,688	$	1,041,697


	December 31, 2020
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	1,183	$	33,389	$	4,204	$	5,365	$	0	$	0	$	44,141
Collectively Evaluated for Potential Impairment	342,959		340,166		68,396		121,448		113,854		13,789		1,000,612
Total Loans	$	344,142	$	373,555	$	72,600	$	126,813	$	113,854	$	13,789	$	1,044,753

The following table presents changes in the accretable discount on the loans acquired at fair value at the dates indicated.


	Accretable Discount
(Dollars in Thousands)

December 31, ~~2019~~2020	$	~~1,628~~1,194
Accretable Yield	~~(293)~~(138)
~~September 30, 2020~~March 31, 2021	$	~~1,335~~1,056

~~Table of Contents~~

~~The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated.~~

September 30, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Total
(Dollars in thousands)
Individually Evaluated for Impairment $ 1,216 $ 30,394 $ 641 $ 2,409 $ 0 $ 0 $ 34,660
Collectively Evaluated for Potential Impairment 342,739 323,510 68,537 141,906 117,364 22,169 1,016,225
Total Loans $ 343,955 $ 353,904 $ 69,178 $ 144,315 $ 117,364 $ 22,169 $ 1,050,885

At September 30, 2020, commercial and industrial contains $71.0 million of PPP loans collectively evaluated for potential impairment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

December 31, 2019
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Total
(Dollars in thousands)
Individually Evaluated for Impairment $ 549 $ 4,704 $ 0 $ 2,511 $ 0 $ 0 $ 7,764
Collectively Evaluated for Potential Impairment 347,217 346,656 35,605 83,075 113,637 18,542 944,732
Total Loans $ 347,766 $ 351,360 $ 35,605 $ 85,586 $ 113,637 $ 18,542 $ 952,496

Note 5. Deposits

The following table shows the maturities of time deposits for the next five years and beyond at the date indicated.


	~~September 30,~~March 31, ~~2020~~2021
(Dollars in thousands)

One Year or Less	$	~~86,604~~79,821
Over One Through Two Years	~~36,463~~51,301
Over Two Through Three Years	~~47,161~~25,961
Over Three Through Four Years	~~9,527~~8,582
Over Four Through Five Years	~~12,183~~11,237
Over Five Years	~~4,312~~3,795
Total	$	~~196,250~~180,697

Table of Contents

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled ~~$61.6~~$53.9 million and ~~$69.3~~$59.2 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

The aggregate amount of demand deposits that are overdrawn and have been reclassified as loans was $181,000 and $231,000 as of March 31, 2021 and December 31, 2020, respectively.

~~Table of Contents~~

Note 6. Short-Term Borrowings

Borrowings with original maturities of one year or less are classified as short-term and may consist of borrowings with the Federal Home Loan Bank ("FHLB"), securities sold under agreements to repurchase or borrowings on revolving lines of credit with the Federal Reserve Bank or other correspondent banks, Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are overnight sweep accounts with next-day maturities utilized by commercial customers to earn interest on their funds. Securities are pledged as collateral under these agreements in an amount at least equal to the outstanding balance and the collateral pledging requirements are monitored on a daily basis.

The following table sets forth the components of short-term borrowings as of the dates indicated.


		September 30, 2020				December 31, 2019					March 31, 2021				December 31, 2020
		Amount		Weighted Average Rate		Amount		Weighted Average Rate			Amount		Weighted Average Rate		Amount		Weighted Average Rate
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Securities Sold Under Agreements to Repurchase:	Securities Sold Under Agreements to Repurchase:									Securities Sold Under Agreements to Repurchase:
Balance at Period End	Balance at Period End	$	42,061	0.21	%	$	30,571	0.57	%	Balance at Period End	$	45,352	0.21	%	$	41,055	0.21	%
Average Balance Outstanding During the Period	Average Balance Outstanding During the Period	35,922		0.42		29,976		0.62		Average Balance Outstanding During the Period	41,094		0.23		37,819		0.36
Maximum Amount Outstanding at any Month End	Maximum Amount Outstanding at any Month End	43,367				34,197				Maximum Amount Outstanding at any Month End	45,352				46,123

Securities Collaterizing the Agreements at Period-End:	Securities Collaterizing the Agreements at Period-End:									Securities Collaterizing the Agreements at Period-End:
Carrying Value	Carrying Value	44,601				37,584				Carrying Value	47,430				46,312
Market Value	Market Value	45,767				37,873				Market Value	46,571				47,283

Note 7. Other Borrowed Funds

Other borrowed funds consist of fixed rate advances from the ~~Federal Home Loan Bank of Pittsburgh (“FHLB”).~~FHLB. The following table sets forth the scheduled maturities of other borrowed funds at the dates indicated.


		September 30, 2020				December 31, 2019					March 31, 2021				December 31, 2020
		Amount		Weighted Average Rate		Amount		Weighted Average Rate			Amount		Weighted Average Rate		Amount		Weighted Average Rate
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Due in One Year	Due in One Year	$	5,000	2.09	%	$	6,000	1.97	%	Due in One Year	$	3,000	2.23	%	$	2,000	2.12	%
Due After One Year to Two Years	Due After One Year to Two Years	3,000		2.23		5,000		2.18		Due After One Year to Two Years	3,000		2.41		3,000		2.23
Due After Two Years to Three Years	Due After Two Years to Three Years	3,000		2.41		3,000		2.41		Due After Two Years to Three Years	0		0		3,000		2.41
Total	Total	$	11,000	2.21	%	$	14,000	2.14	%	Total	$	6,000	2.32	%	$	8,000	2.27	%

As of ~~September 30, 2020,~~March 31, 2021, the Company maintained a credit arrangement with a maximum borrowing limit of approximately ~~$430.7~~$433.0 million with the FHLB and available borrowing capacity of ~~$416.9~~$332.7 million. This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on ~~$577.1~~$580.9 million of residential and commercial mortgage loans and the Company’s investment in FHLB stock. Under this arrangement the Company had available a variable rate Line of Credit in the amount of $150.0 million as of ~~September 30, 2020,~~March 31, 2021, of which there was 0 outstanding ~~balance~~balance.

As an alternative to pledging securities, the FHLB periodically provides standby letters of credit on behalf of the Bank to secure certain public deposits in excess of the level insured by the FDIC. If the FHLB is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to the Bank. Standby letters of credit issued on our behalf by the FHLB to secure public deposits were $99.6 million and $90.3 million as of ~~September 30, 2020.~~March 31, 2021 and December 31, 2020, respectively.

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At ~~September 30, 2020,~~March 31, 2021, the Company maintained a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for ~~$95.7~~$84.4 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by ~~$145.3~~$131.7 million of commercial and industrial and consumer indirect auto loans. In addition, the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling ~~$60.0~~$50.0 million of which 0 draws had been taken.

Note 8. Fair Value Disclosure

FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.

The three levels of fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs

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include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs.

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques.

This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated ~~Statement~~Statements of Financial Condition as of the dates indicated, by level within the fair value hierarchy. The majority of the Company’s securities are included in Level 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 or year ended December 31, ~~2019.~~2020.


		Fair Value Hierarchy	September 30, 2020		December 31, 2019			Fair Value Hierarchy	March 31 2021		December 31 2020
(Dollars in thousands)	(Dollars in thousands)						(Dollars in thousands)

Available for Sales Securities:
Debt Securities:
Securities:							Securities:
Available-for-Sale Debt Securities							Available-for-Sale Debt Securities
U.S. Government Agencies	U.S. Government Agencies	Level 2	$	41,832	$	48,056	U.S. Government Agencies	Level 2	$	48,688	$	41,411
Obligations of States and Political Subdivisions	Obligations of States and Political Subdivisions	Level 2	22,051		25,843		Obligations of States and Political Subdivisions	Level 2	21,727		21,993
Mortgage-Backed Securities - Government-Sponsored Enterprises	Mortgage-Backed Securities - Government-Sponsored Enterprises	Level 2	92,784		120,776		Mortgage-Backed Securities - Government-Sponsored Enterprises	Level 2	68,991		79,493
Total Debt Securities			156,667		194,675
Total Available-for-Sale Debt Securities							Total Available-for-Sale Debt Securities		139,406		142,897

Marketable Equity Securities:
Equity Securities							Equity Securities
Mutual Funds	Mutual Funds	Level 1	1,022		997		Mutual Funds	Level 1	1,001		1,019
Other	Other	Level 1	1,267		1,713		Other	Level 1	1,749		1,484
Total Marketable Equity Securities			2,289		2,710
Total Available-for-Sale Securities			$	158,956	$	197,385
Total Equity Securities							Total Equity Securities		2,750		2,503
Total Securities							Total Securities		$	142,156	$	145,400

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The following table presents the financial assets on the Consolidated ~~Statement~~Statements of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount. The table also presents the significant unobservable inputs used in the fair value measurements.

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Financial Asset	Fair Value Hierarchy	March 31, 2021		Valuation Techniques	Significant Unobservable Inputs	Range					Weighted Average
(Dollars in thousands)

Impaired Loans Individually Assessed	Level 3	$	2,287	Appraisal of Collateral (1)	Appraisal Adjustments (2)	0	%	to	50	%	0

Mortgage Servicing Rights	Level 3	766		Discounted Cash Flow	Discount Rate	9	%	to	11	%	9.8%
					Prepayment Speed	8	%	to	23	%	13.8%


			Fair Value at
Financial Asset	Financial Asset	Fair Value Hierarchy	September 30, 2020		December 31, 2019		Valuation Techniques	Significant Unobservable Inputs	Range						Financial Asset	Fair Value Hierarchy	December 31, 2020		Valuation Techniques	Significant Unobservable Inputs	Range					Weighted Average
(Dollars in thousands)	(Dollars in thousands)														(Dollars in thousands)

Impaired Loans		Level 3	$	8,171	$	3,140	Market Comparable Properties	Marketability Discount	10	%	to	30	%	(1)
Premises and Equipment, Net		Level 3	240		0		Market Comparable Properties	Price Per Square Footage	$26.88		to	$34.79
Impaired Loans Individually Assessed															Impaired Loans Individually Assessed	Level 3	$	2,944	Appraisal of Collateral (1)	Appraisal Adjustments (2)	0	%	to	50	%	0

Mortgage Servicing Rights	Mortgage Servicing Rights	Level 3	694		930		Discounted Cash Flow	Discount Rate	9	%	to	11	%		Mortgage Servicing Rights	Level 3	656		Discounted Cash Flow	Discount Rate	9	%	to	11	%	10.0%
								Prepayment Rate	15.7	%	to	21.4	%							Prepayment Speed	12	%	to	27	%	18.7%
OREO	OREO	Level 3	34		58		Market Comparable Properties	Marketability Discount	10	%	to	30	%	(1)	OREO	Level 3	34		Appraisal of Collateral (1)	Liquidation Expenses (2)	10	%	to	30	%	0

(1)~~Range includes discounts taken since appraisal~~Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable.

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

Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair value of impaired loans consists of the loan balances of ~~$11.0~~$3.1 million and ~~$4.0~~$3.6 million, respectively, less their specific valuation allowances of ~~$2.9 million~~$771,000 and ~~$884,000,~~$649,000, respectively.

Given the change in business purpose of the Monessen branch due to closure, an appraisal was obtained to determine the property value and, as a result, the property was written down to fair value based on market comparable properties. The fair value was determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

The fair value of mortgage servicing rights ("MSRs") is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3. MSRs are reported in ~~other assets~~Other Assets in the Consolidated ~~Statement~~Statements of Financial Condition and are amortized into mortgage servicing income in Other ~~(Loss)~~ Income in the Consolidated ~~Statement~~Statements of ~~(Loss)~~ Income.

OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

For the nine months ended September 30, 2020, 1 commercial real estate OREO property with a fair value of $18,000 sold at a gain of $4,000 and 2 residential real estate OREO properties with a fair value of $108,000 sold at a loss of $30,000. In addition, 2 residential real estate loans with a fair value of $81,000 and 1 commercial real estate loan with a fair value of $34,000 transferred to OREO.

For the nine months ended September 30, 2019, 1 commercial real estate OREO property with a fair value of $697,000 was sold at a $33,000 gain and 1 residential OREO property with a fair value of $46,000 was sold at a loss of $3,000. In addition, 3 residential real estate loans with a fair value of $427,000 transferred into OREO, of which 2 properties with a fair value of $386,000 were subsequently sold at a net loss of $36,000.

Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition,

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changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.

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As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated.


			September 30, 2020				December 31, 2019						March 31, 2021				December 31, 2020
		Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value			Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
(Dollars in thousands)	(Dollars in thousands)										(Dollars in thousands)

Financial Assets:	Financial Assets:										Financial Assets:
Cash and Due From Banks:	Cash and Due From Banks:										Cash and Due From Banks:
Interest Bearing	Interest Bearing	Level 1	$	102,400	$	102,400	$	68,798	$	68,798	Interest Bearing	Level 1	$	216,753	$	216,753	$	145,636	$	145,636
Non-Interest Bearing	Non-Interest Bearing	Level 1	9,769		9,769		11,419		11,419		Non-Interest Bearing	Level 1	13,247		13,247		15,275		15,275
Investment Securities:
Available for Sale		See Above	158,956		158,956		197,385		197,385
Securities											Securities	See Above	142,156		142,156		145,400		145,400
Loans, Net	Loans, Net	Level 3	1,037,105		1,076,438		942,629		961,110		Loans, Net	Level 3	1,028,972		1,065,445		1,031,982		1,073,633
Restricted Stock	Restricted Stock	Level 2	3,961		3,961		3,656		3,656		Restricted Stock	Level 2	3,784		3,784		3,984		3,984
Bank-Owned Life Insurance		Level 2	24,639		24,639		24,222		24,222
Mortgage Servicing Rights	Mortgage Servicing Rights	Level 3	694		694		930		930		Mortgage Servicing Rights	Level 3	766		766		656		656
Accrued Interest Receivable	Accrued Interest Receivable	Level 2	4,241		4,241		3,297		3,297		Accrued Interest Receivable	Level 2	3,738		3,738		3,872		3,872

Financial Liabilities:	Financial Liabilities:										Financial Liabilities:
Deposits	Deposits	Level 2	1,199,036		1,207,246		1,118,359		1,128,078		Deposits	Level 2	1,284,463		1,287,325		1,224,569		1,231,606
Short-term Borrowings		Level 2	42,061		42,061		30,571		30,571
Short-Term Borrowings											Short-Term Borrowings	Level 2	45,352		45,352		41,055		41,055
Other Borrowed Funds	Other Borrowed Funds	Level 2	11,000		11,138		14,000		15,380		Other Borrowed Funds	Level 2	6,000		6,098		8,000		8,067
Accrued Interest Payable	Accrued Interest Payable	Level 2	735		735		987		987		Accrued Interest Payable	Level 2	626		626		767		767

Note 9. Commitments and Contingent Liabilities

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated ~~Statement~~Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments and conditional obligations are evaluated the same as on-balance-sheet instruments but do not have a corresponding reserve recorded. The Company’s opinion on not implementing a corresponding reserve for off-balance-sheet instruments is supported by historical factors of no losses recorded due to these items. The Company is continually evaluating these items for credit quality and any future need for the corresponding reserve.

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The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated.


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
(Dollars in thousands)	(Dollars in thousands)					(Dollars in thousands)

Standby Letters of Credit	Standby Letters of Credit	$	80,369	$	42,041	Standby Letters of Credit	$	110	$	120
Performance Letters of Credit	Performance Letters of Credit	2,329		2,521		Performance Letters of Credit	2,753		2,947
Construction Mortgages	Construction Mortgages	62,167		59,689		Construction Mortgages	54,628		60,312
Personal Lines of Credit	Personal Lines of Credit	6,897		6,456		Personal Lines of Credit	7,120		6,930
Overdraft Protection Lines	Overdraft Protection Lines	6,407		6,415		Overdraft Protection Lines	6,189		6,287
Home Equity Lines of Credit	Home Equity Lines of Credit	20,609		20,560		Home Equity Lines of Credit	23,160		22,110
Commercial Lines of Credit	Commercial Lines of Credit	68,685		102,422		Commercial Lines of Credit	74,272		69,738
Total Commitments	Total Commitments	$	247,463	$	240,104	Total Commitments	$	168,232	$	168,444

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

Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the letter. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets.

Note 10. Leases

The Company evaluates contracts at commencement to determine if a lease is present. The Company’s lease contracts are all classified as operating leases and create operating right-of-use (“ROU”) assets and corresponding lease liabilities on the balance sheet. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported in ~~accrued interest~~Accrued Interest Receivable and ~~other assets~~Other Assets and the related lease liabilities in ~~accrued interest~~Accrued Interest Payable and ~~other liabilities~~Other Liabilities on the Consolidated ~~Statement~~Statements of Financial Condition.

The following tables present the lease expense, ROU assets, weighted average term, discount rate and maturity analysis of lease liabilities for operating leases for the periods and dates indicated.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Operating Lease Expense	Operating Lease Expense	$	118	$	114	$	353	$	344	Operating Lease Expense	$	95	$	116
Short-Term Lease Expense										Short-Term Lease Expense	8		0
Variable Lease Expense	Variable Lease Expense	10		17		28		32		Variable Lease Expense	8		9
Total Lease Expense	Total Lease Expense	$	128	$	131	$	381	$	376	Total Lease Expense	$	111	$	125


									March 31, 2021			December 31, 2020
(Dollars in thousands)								(Dollars in thousands)
		September 30, 2020			December 31, 2019
Operating Leases:	Operating Leases:							Operating Leases:
ROU Assets	ROU Assets	$	1,202		$	1,289		ROU Assets	$	1,118		$	1,206
Weighted Average Lease Term in Years	Weighted Average Lease Term in Years	7.22			7.06			Weighted Average Lease Term in Years	7.00			6.95
Weighted Average Discount Rate	Weighted Average Discount Rate	2.55		%	2.89		%	Weighted Average Discount Rate	2.42		%	2.39		%

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	~~September 30,~~March 31, ~~2020~~2021
(Dollars in throusands)

Maturity Analysis:
Due in One Year	$	~~348~~346
Due After One Year to Two Years	~~255~~249
Due After Two Years to Three Years	~~156~~125
Due After Three Years to Four Years	~~113~~107
Due After Four to Five Years	9060
Due After Five Years	~~375~~352
Total	$	~~1,337~~1,239
Less: Present Value Discount	~~132~~118
Lease Liabilities	$	~~1,205~~1,121

Note 11. Other Noninterest Expense

The details of other noninterest expense for the Company’s Consolidated ~~Statement~~Statements of ~~(Loss)~~ Income for the ~~three and nine months ended September 30, 2020 and 2019,~~periods indicated are as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Non-Employee Compensation	Non-Employee Compensation	$	155	$	131	$	449	$	402	Non-Employee Compensation	$	148	$	147
Printing and Supplies	Printing and Supplies	125		96		365		289		Printing and Supplies	99		101
Postage	Postage	61		62		176		195		Postage	63		61
Telephone	Telephone	108		157		408		459		Telephone	188		169
Charitable Contributions	Charitable Contributions	32		53		98		146		Charitable Contributions	15		51
Dues and Subscriptions	Dues and Subscriptions	36		34		153		132		Dues and Subscriptions	50		76
Loan Expenses	Loan Expenses	149		133		420		345		Loan Expenses	92		145
Meals and Entertainment	Meals and Entertainment	0		23		74		124		Meals and Entertainment	34		40
Travel	Travel	13		50		87		147		Travel	22		54
Training	Training	10		18		24		40		Training	17		7
Bank Assessment	Bank Assessment	44		43		132		128		Bank Assessment	44		44
Insurance	Insurance	59		55		173		168		Insurance	60		56
Miscellaneous	Miscellaneous	127		129		418		489		Miscellaneous	150		162
Total Other Noninterest Expense	Total Other Noninterest Expense	$	919	$	984	$	2,977	$	3,064	Total Other Noninterest Expense	$	982	$	1,113

Note 12. Segment and Related Information

At ~~September 30, 2020,~~March 31, 2021, the Company’s business activities were comprised of 2 operating segments, which are community banking and insurance brokerage services. CB Financial is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank. Exchange Underwriters has an independent board of directors from the Company and is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products.

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The following is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated.

Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated
(Dollars in thousands)
September 30, 2020
Assets $ 1,392,537 $ 4,408 $ 133,314 $ (137,383) $ 1,392,876
Liabilities 1,264,864 1,701 15 (7,003) 1,259,577
Stockholders' equity 127,673 2,707 133,299 (130,380) 133,299
December 31, 2019
Assets $ 1,321,001 $ 4,076 $ 151,124 $ (154,664) $ 1,321,537
Liabilities 1,178,759 1,194 27 (9,540) 1,170,440
Stockholders' equity 142,242 2,882 151,097 (145,124) 151,097
Three Months Ended September 30, 2020
Interest and dividend income $ 11,639 $ 1 $ 1,310 $ (1,294) $ 11,656
Interest expense 1,240 0 0 0 1,240
Net interest and dividend income 10,399 1 1,310 (1,294) 10,416
Provision for loan losses 1,200 0 0 0 1,200
Net interest and dividend income after provision for loan losses 9,199 1 1,310 (1,294) 9,216
Noninterest income 1,208 1,024 (59) 0 2,173
Noninterest expense 28,046 919 3 0 28,968
Undistributed net income (loss) of subsidiary 73 — (18,694) 18,621 —
(Loss) income before income tax (benefit) expense (17,566) 106 (17,446) 17,327 (17,579)
Income tax (benefit) expense (166) 33 (51) 0 (184)
Net (loss) income $ (17,400) $ 73 $ (17,395) $ 17,327 $ (17,395)
Nine Months Ended September 30, 2020
Interest and dividend income $ 35,664 $ 3 $ 2,634 $ (2,589) $ 35,712
Interest expense 4,442 0 0 0 4,442
Net interest income 31,222 3 2,634 (2,589) 31,270
Provision for loan losses 4,000 0 0 0 4,000
Net interest and dividend income after provision for loan losses 27,222 3 2,634 (2,589) 27,270
Noninterest income (loss) 3,760 3,426 (493) 0 6,693
Noninterest expense 44,227 2,806 9 0 47,042
Undistributed net (loss) income of subsidiary 433 — (15,991) 15,558 —
(Loss) income before income tax expense (benefit) (12,812) 623 (13,859) 12,969 (13,079)
Income tax expense (benefit) 590 190 (140) 0 640
Net (loss) income $ (13,402) $ 433 $ (13,719) $ 12,969 $ (13,719)


	Community Bank		Exchange Underwriters, Inc.		CB Financial Services, Inc.		Net Eliminations		Consolidated
(Dollars in thousands)

March 31, 2021
Assets	$	1,477,053	$	5,207	$	133,797	$	(139,236)	$	1,476,821
Liabilities	1,349,183		1,746		21		(7,905)		1,343,045
Stockholders' Equity	127,870		3,461		133,776		(131,331)		133,776

December 31, 2020
Assets	$	1,416,132	$	5,379	$	134,546	$	(139,337)	$	1,416,720
Liabilities	1,287,148		2,325		16		(7,299)		1,282,190
Stockholders' Equity	128,984		3,054		134,530		(132,038)		134,530

Three Months Ended March 31, 2021
Interest and Dividend Income	$	10,971	$	1	$	1,320	$	(1,304)	$	10,988
Interest Expense	1,011		0		0		0		1,011
Net Interest and Dividend Income	9,960		1		1,320		(1,304)		9,977
Provision for Loan Losses	0		0		0		0		0
Net Interest and Dividend Income After Provision for Loan Losses	9,960		1		1,320		(1,304)		9,977
Noninterest Income	1,343		1,591		240		0		3,174
Noninterest Expense	8,390		1,001		4		0		9,395
Undistributed Net Income of Subsidiary	407		0		1,301		(1,708)		0
Income Before Income Tax Expense	3,320		591		2,857		(3,012)		3,756
Income Tax Expense	715		184		12		0		911
Net Income	$	2,605	$	407	$	2,845	$	(3,012)	$	2,845





Three Months Ended March 31, 2020
Interest and Dividend Income	$	12,313	$	1	$	15	$	0	$	12,329
Interest Expense	1,796		0		0		0		1,796
Net Interest and Dividend Income	10,517		1		15		0		10,533
Provision for Loan Losses	2,500		0		0		0		2,500
Net Interest and Dividend Income After Provision for Loan Losses	8,017		1		15		0		8,033
Noninterest Income (Loss)	1,046		1,281		(455)		0		1,872
Noninterest Expense	8,023		975		5		0		9,003
Undistributed Net Income of Subsidiary	213		0		1,123		(1,336)		0
Income Before Income Tax Expense (Benefit)	1,253		307		678		(1,336)		902
Income Tax Expense (Benefit)	130		94		(95)		0		129
Net Income	$	1,123	$	213	$	773	$	(1,336)	$	773

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Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated
(Dollars in thousands)
Three Months Ended September 30, 2019
Interest and dividend income $ 13,083 $ 1 $ 1,318 $ (1,304) $ 13,098
Interest expense 2,002 0 0 0 2,002
Net interest and dividend income 11,081 1 1,318 (1,304) 11,096
Provision for loan losses 175 0 0 0 175
Net interest and dividend income after provision for loan losses 10,906 1 1,318 (1,304) 10,921
Noninterest income (loss) 1,018 984 (36) 0 1,966
Noninterest expense 7,401 853 3 0 8,257
Undistributed net income of subsidiary 90 — 2,463 (2,553) —
Income before income tax expense (benefit) 4,613 132 3,742 (3,857) 4,630
Income tax expense (benefit) 846 42 (4) 0 884
Net income $ 3,767 $ 90 $ 3,746 $ (3,857) $ 3,746
Nine Months Ended September 30, 2019
Interest and dividend income $ 38,018 $ 2 $ 3,955 $ (3,912) $ 38,063
Interest expense 5,828 0 0 0 5,828
Net interest and dividend income 32,190 2 3,955 (3,912) 32,235
Provision for loan losses 550 0 0 0 550
Net interest and dividend income after provision for loan losses 31,640 2 3,955 (3,912) 31,685
Noninterest income 2,966 3,212 67 0 6,245
Noninterest expense 23,209 2,716 9 0 25,934
Undistributed net income of subsidiary 340 — 5,654 (5,994) —
Income before income tax expense 11,737 498 9,667 (9,906) 11,996
Income tax expense 2,171 158 17 0 2,346
Net income $ 9,566 $ 340 $ 9,650 $ (9,906) $ 9,650

Note 13. ~~Goodwill and~~ Intangible Assets

~~Goodwill~~

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Deemed to have an indefinite life and not subject to amortization, goodwill is instead tested for impairment at the reporting unit level at least annually on October 31 or more frequently if triggering events occur or impairment indicators exist. The Company operates 2 reporting units – Community Banking segment and Insurance Brokerage Services segment. The Company has assigned 100% of the goodwill to the Community Banking reporting unit.

In 2019, the Company adopted ASU 2017-04 whereby the Company applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a step one impairment test is unnecessary. An entity also has the option to bypass the qualitative assessment for any reporting unit and proceed directly to the first step of impairment testing.

The COVID-19 pandemic that has impacted the U.S. and most of the world along with government response to curtail the spread of the virus beginning in March 2020 has significantly impacted our market area. These restrictions have resulted in significant adverse effects on macroeconomic conditions, and stock market valuations have decreased substantially for most companies in the banking sector, including our Company. In light of the adverse circumstances resulting from COVID-19, management determined it was necessary to evaluate goodwill for impairment.

~~Table of Contents~~

~~(i.e. discounted cash flow (“DCF”) method) and the market approach (i.e. Guideline Public Company ("GPC") method) to determine the fair value.~~

In the application of the income approach, the Company determined the fair value of the reporting unit using a DCF analysis. The income approach uses valuation techniques to convert future earnings or cash flows to present value to arrive at a value that is indicated by market expectations about future amounts. The income approach relies on Level 3 inputs along with a market-derived cost of capital when measuring fair value. Fair value is determined by converting anticipated benefits into a present single value. Once the benefit or benefits are selected, an appropriate discount or capitalization rate is applied to each benefit. These rates are calculated using the appropriate measure for the size and type of company, using financial models and market data as required. The discount rate was derived based on the modified capital asset pricing model. The discount rate applied is comprised of a risk-free rate of return, an equity risk premium, a size premium and a factor covering the systemic market risk and a company specific risk premium. The values for the factors applied are determined primarily using external sources of information. The discount rate was estimated at 13.3%. Using the discount rate derived from the above components, we subtracted an expected sustainable long-term growth estimate of 3.0% given expected growth in the geographic market and the overall long-term economy to arrive at a capitalization rate of 10.3%. The DCF model also used prospective financial information. For purposes of the impairment test, the Company’s financial plans for the remainder of 2020 through 2024 were updated for the projected impact of COVID-19 on the net revenue growth and asset utilization. Estimating future earnings and capital requirements involves judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments.

The market approach uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities. The fair value measure is based on the value that those transactions indicate. Under the market approach, we utilized Level 1 and 2 inputs when measuring fair value. In the application of the market approach, the GPC method of appraisal is based on the premise that pricing multiples of publicly traded companies can be used as a tool to be applied in valuing a closely held entity. A value multiple or ratio relates a stock’s market price to the reported accounting data such as revenue, earnings, and book value. These ratios provide an objective basis for measuring the market’s perception of a stock’s fair value. Value ratios generally reflect the trends in growth, performance and stability of the financial results of operations. In this way, the business and financial risks exhibited by an industry or group of companies can be viewed in relation to market values. Value ratios also reflect the market’s outlook for the economy as a whole. Guideline companies provide a reasonable basis for comparison to the relative investment characteristics of the company being valued. Utilizing publicly traded companies located in Pennsylvania and surrounding states with assets between $1.0 billion and $2.5 billion and return on assets greater than 0.5%, we analyzed the relationships between the guideline companies' asset size, profitability, asset quality and capital ratios and applied a control premium of 34% to the selected guideline company multiples. The control premium is management's estimate of how much a market participant would be willing to pay over the fair market value in consideration of synergies and other benefits that flow from control of the entity.

We also considered the GPC method using trading activity of publicly traded companies that are most similar to the Company. While the banking industry typically has a sufficient level of mergers and acquisitions activity to rely on this method under the market approach, there have only been seven transactions involving target institutions with assets greater than $1 billion announced since March 1, 2020 (post-COVID). Of these, only two have closed. Therefore, we were unable to rely on this method in our analysis.

We then placed equal consideration on the results of the income and market approaches to determine the concluded fair value of the reporting unit. The weighting is judgmental and is based on the perceived level of appropriateness of the valuation methodology. Estimating the fair value involves the use of estimates and significant judgments that are based on a number of factors including actual operating results. If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods and require management to further evaluate goodwill for impairment.

As a result of the goodwill impairment test and in connection with the preparation of the consolidated financial statements included in this Quarterly Report on Form 10-Q, the Company concluded that goodwill was impaired. Accordingly, the Company recorded a goodwill impairment charge of $18.7 million for the three and nine months ended September 30, 2020 as our estimated fair value was less than our book value. This was a non-cash charge to earnings and had no impact on regulatory capital, cash flows or liquidity position. NaN goodwill impairment charge was recognized for the three and nine months ended September 30, 2019.

~~Table of Contents~~

~~The following table presents the changes in the Company's carrying amount of goodwill for the period indicated.~~


	~~Amount~~
~~(Dollars in thousands)~~

~~December 31, 2019~~	$	~~28,425~~
~~Goodwill Impairment~~	~~(18,693)~~
~~September 30, 2020~~	$	~~9,732~~

~~Intangible Assets~~

~~Intangible assets with definite lives are amortized over their respective estimated useful lives. The amortization expense represents the estimated decline in value of the underlying asset.~~ The following table presents a summary of intangible assets subject to amortization at the dates indicated.


		September 30, 2020						December 31, 2019							March 31, 2021						December 31, 2020
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value			Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)

Core Deposit Intangible	Core Deposit Intangible	$	14,103	$	(6,562)	$	7,541	$	14,103	$	(5,108)	$	8,995	Core Deposit Intangible	$	14,103	$	(7,532)	$	6,571	$	14,103	$	(7,047)	$	7,056
Customer List	Customer List	1,800		(410)		1,390		1,800		(268)		1,532		Customer List	1,800		(504)		1,296		1,800		(457)		1,343
Total Intangible Assets	Total Intangible Assets	$	15,903	$	(6,972)	$	8,931	$	15,903	$	(5,376)	$	10,527	Total Intangible Assets	$	15,903	$	(8,036)	$	7,867	$	15,903	$	(7,504)	$	8,399

The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in subsequent fiscal years is as follows.


		Amount			Amount
(Dollars in thousands)	(Dollars in thousands)			(Dollars in thousands)

Remaining in 2020		$	532
2021		2,128
Remaining in 2021				Remaining in 2021	$	1,596
2022	2022	2,128		2022	2,128
2023	2023	2,128		2023	2,128
2024	2024	1,430		2024	1,430
2025 and thereafter		585
2025				2025	189
2026 and Thereafter				2026 and Thereafter	396
Total Estimated Intangible Asset Amortization Expense	Total Estimated Intangible Asset Amortization Expense	$	8,931	Total Estimated Intangible Asset Amortization Expense	$	7,867

Note 14. Mortgage Servicing Rights

The following table presents MSR activity and net carrying values for the periods indicated.


	Three Months Ended March 31,
	2021		2020
(Dollars in thousands)

Mortgage Servicing Rights:
Balance, Beginning of Period	$	1,029	$	1,001
Additions	17		45
Amortization	(79)		(54)
Balance, End of Period	$	967	$	992

Valuation Allowance:
Balance, Beginning of Period	$	(373)	$	(71)

Valuation Allowance Adjustment	172		0
Balance, End of Period	$	(201)	$	(71)
Mortgage Servicing Rights, Net Carrying Value	$	766	$	921

Amortization of MSRs and the period change in the valuation allowance are reported in Other Income on the Consolidated Statements of Income.

Real estate loans serviced for others, which are not included in the Consolidated Statements of Financial Condition, totaled $101.6 million and $105.8 million at March 31, 2021 and December 31, 2020, respectively.

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~~Note 14. Stock Based Compensation~~

~~The following table presents stock option information for the periods indicated.~~

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual
Life in Years
Outstanding at December 31, 2019 245,153 $ 24.36 6.5
Granted 15,000 18.60
Exercised (20,106) 22.69
Forfeited (19,776) 26.64
Outstanding at September 30, 2020 220,271 $ 23.92 6.1
Exercisable at September 30, 2020 139,548 $ 23.67 5.6
Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years
Nonvested at September 30, 2020 80,723 $ 24.36 6.9
Summary of Significant Assumptions for Newly Issued Stock Options
Expected Term in Years 6.5
Expected Volatility 25.8 %
Expected Dividends $ 0.96
Risk Free Rate of Return 0.28 %

~~The following table presents restricted stock award information for the periods indicated~~

Number of Shares Weighted Average Grant Date Fair Value Price Weighted Average Remaining Service Period in Years
Nonvested at December 31, 2019 48,030 $ 28.83 8.1
Granted 5,000 18.60
Vested (600) 25.08
Forfeited (3,300) 29.23
Nonvested at September 30, 2020 49,130 $ 27.81 7.6

~~The Company recognizes expense over a~~ ~~five~~-year vesting period for the restricted stock awards and stock options. Stock-based compensation expense related to restricted stock awards and stock options was $114,000 and $78,000 for the three months ended September 30, 2020 and 2019, respectively and $370,000 and $232,000 for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and December 31, 2019, total unrecognized compensation expense was $195,000 and $363,000, respectively, related to stock options, and $1.1 million and $1.4 million, respectively, related to restricted stock awards.

Intrinsic value represents the amount by which the fair value of the underlying stock at September 30, 2020 and December 31, 2019 exceeds the exercise price of the stock options. The intrinsic value of stock options was $7,200 and $1.4 million at September 30, 2020 and December 31, 2019, respectively.

At September 30, 2020 and December 31, 2019, respectively, there were 18,135 and 13,359 shares available under the Plan to be issued in connection with the exercise of stock options, and 58,424 and 60,124 shares that may be issued as restricted stock awards or units. Restricted stock awards or units may be issued above this amount provided that the number of shares reserved for stock options is reduced by three shares for each restricted stock award or unit share granted.

~~Table of Contents~~

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

This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:

•General and local economic conditions;

•The scope and duration of economic contraction as a result of the COVID-19 pandemic and its effects on the Company’s business and that of the Company’s customers;

•Changes in market interest rates, deposit flows, demand for loans, real estate values and competition;

•Competitive products and pricing;

•The ability of our customers to make scheduled loan payments;

•Loan delinquency rates and trends;

•Our ability to manage the risks involved in our business;

•Our ability to integrate the operations of businesses we acquire;

•Our ability to control costs and expenses;

•Inflation, market and monetary fluctuations;

•Changes in federal and state legislation and regulation applicable to our business;

•Actions by our competitors; and

•Other factors disclosed in the Company’s periodic reports as filed with the Securities and Exchange Commission.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Given the numerous unknowns and risks that are heavily weighted to the downside due to COVID-19, our forward-looking statements are subject to the risk that conditions will be substantially different than we currently expect. If efforts to contain COVID-19 are unsuccessful and government restriction last longer than expected, the recession would be much longer and much more severe and damaging. Ineffective fiscal stimulus, or an extended delay in implementing it, are also major risks. The deeper the recession and the longer it lasts, the more it will damage consumer fundamentals and sentiment. This could both prolong the recession and make any recovery weaker. Similarly, the recession could damage business fundamentals. As a result, the outbreak and its consequences, including responsive measures to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting, possibly materially, the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.

The ability to predict the impact of the COVID-19 pandemic on the Company’s future operating results with any precision is difficult and depends on many factors beyond our control. The Company's market area was impacted by state-wide shelter-in-place orders and closing all but essential businesses. Certain government restrictions ~~remaining~~remain in effect. The far-reaching consequences of these actions and the crisis is unknown and will largely depend on the extent and length of the recession combined with how quickly the economy can re-open. For example:

•While specific actions have been taken to protect employees through work-at-home arrangements and social distancing measures for those working in our offices, outbreak among employees could result in closure of branches or back office operations for quarantine purposes and result in the unavailability of key employees and disruption of services provided to customers.

•The lack of economic activity may curtail lending opportunities, especially from a commercial perspective, and impact our customers involved in vulnerable industries such as hospitality, retail, office space, senior housing, oil and gas, and restaurants.

•Forbearance activity and any additional forbearance that may be needed could impact cash flows and liquidity.

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•Delinquencies, nonperforming loans, charge-offs and the related provision for loan losses, and foreclosures may significantly increase after forbearance period ends, if economic stimulus does not have the intended outcome, and/or if the economy does not fully re-open allowing people to return to work.

•A sustained economic downturn may result in a decrease in the Company’s value and result in potential material impairment to its intangible assets, and/or long-lived assets or additional impairment to goodwill.

•The Federal Reserve Board’s decision in March 2020 to drop the benchmark interest rate from a range of 1.5% to 1.75% ~~to start the year~~ to a range of 0% to 0.25% as part of a wide-ranging emergency action to protect the economy from the COVID-19 outbreak may result in margin compression and an influx of loan refinances that could impact the Company’s net interest income.

•The lack of economic activity may negatively impact our noninterest income through less fee activity, such as from customer debit card swipes for purchases.

•Insurance commissions may decline because workers compensation policies are mainly determined based on payroll figures, which could decrease due to job loss.

The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

General

CB Financial Services, Inc. is a bank holding company established in 2006 and headquartered in Carmichaels, Pennsylvania. CB Financial’s business activity is conducted primarily through its wholly owned bank subsidiary, Community Bank.

The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from 15 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, six offices in Brooke, Marshall, Ohio, Upshur and Wetzel Counties in West Virginia, and one office in Belmont County in Ohio. On September 30, 2020, the Bank completed the closure of the Monessen office in Westmoreland County, Pennsylvania and the Bethlehem office in Ohio County, West Virginia reducing the total number of branches to 22. The Bank also has ~~two~~a loan production ~~offices~~office in ~~Fayette and~~ Allegheny County, a corporate center in Washington County and an operations center in Greene County in Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, Inc., the Bank’s wholly owned subsidiary that is a full-service, independent insurance agency located in ~~the~~ Washington County.

Overview

The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of ~~September 30, 2020,~~March 31, 2021, compared to the financial condition as of December 31, ~~2019~~2020 and the consolidated results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the three ~~and nine month~~months ended ~~September 30, 2019.~~March 31, 2020.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, insurance commissions, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contracted services, legal and professional fees, advertising, deposit and general insurance and other expenses.

Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in southwestern Pennsylvania and Ohio Valley market areas.

~~Critical Accounting Estimates~~Branch Optimization and Operational Efficiency Update

~~Goodwill.~~ ~~Goodwill represents~~As previously disclosed by the ~~excess~~Company on February 23, 2021, the Company announced the implementation of strategic initiatives to improve the ~~cost~~Bank’s financial performance and to position the Bank for continued profitable growth. The Bank intends to optimize its current branch network through the consolidation of ~~an acquisition over~~six branches and the ~~fair value~~possible divestiture of others, while expanding technology and infrastructure investments in its remaining locations. The decision was the ~~net assets acquired. Deemed~~result of a comprehensive internal study that measured branch performance by comparing financial and non-financial indicators to have an indefinite life and not subject to amortization, goodwill is instead tested for impairment at the reporting unit level at least annually on October 31 or more frequently if triggering events occur or impairment indicators exist. The Company operates two reporting units – Community Banking segment and Insurance Brokerage Services segment. The Company has assigned 100% of the goodwill to the Community Banking reporting unit.growth

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~~In 2019,~~opportunities, while evolving changes in consumer preferences, largely driven by the global pandemic, led to an acceleration of branch optimization efforts. The branch optimization, which is expected to be completed in 2021, will result in the Company ~~adopted ASU 2017-04 whereby~~incurring restructuring related expenses predominantly from branch consolidations, lease termination and severance costs. The Company anticipates non-recurring pre-tax expenses during 2021 in line with the $6.1 million announced in February. This estimated cost excludes the impact of any premium from sale of branches, and assumes no salvage value, lease termination, severance, and other costs associated with the consolidations or sales; however, the Company ~~applies a one-step quantitative test and records the amount~~anticipates some recovery of ~~goodwill impairment as the excess of a reporting unit's carrying amount~~these costs over ~~its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.~~time. The Company ~~has the option to first assess qualitative factors to determine whether the existence~~expects an annual reduction in pre-tax operating expenses in 2021 of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a step one impairment test is unnecessary. An entity also has the option to bypass the qualitative assessment for any reporting unit and proceed directly to the first step of impairment testing.

~~The COVID-19 pandemic that has impacted the U.S. and most of the world~~approximately $1.5 million, along with ~~government response to curtail the spread~~$3.0 million of the virus beginning in March 2020 has significantly impacted our market area. These restrictions have resulted in significant adverse effects on macroeconomic conditions, and stock market valuations have decreased substantially for most companies in the banking sector, including our Company. In light of the adverse circumstances resulting from COVID-19, management determined it was necessary to evaluate goodwill for impairment.

Determining the fair value of a reporting unit under a quantitative goodwill impairment test is judgmental and involves the use of significant estimates and assumptions. The methodology used to assess impairment was a combination of the income approach (i.e. discounted cash flow (“DCF”) method) and the market approach (i.e. Guideline Public Company ("GPC") method) to determine the fair value.

In the application of the income approach, the Company determined the fair value of the reporting unit using a DCF analysis. The income approach uses valuation techniques to convert future earnings or cash flows to present value to arrive at a value that is indicated by market expectations about future amounts. The income approach relies on Level 3 inputs along with a market-derivedongoing pre-tax cost of capital when measuring fair value. Fair value is determined by converting anticipated benefits into a present single value. Once the benefit or benefits are selected, an appropriate discount or capitalization rate is applied to each benefit. These rates are calculated using the appropriate measure for the size and type of company, using financial models and market datasavings as required. The discount rate was derived based on the modified capital asset pricing model. The discount rate applied is comprised of a risk-free rate of return, an equity risk premium, a size premium and a factor covering the systemic market risk and a company specific risk premium. The values for the factors applied are determined primarily using external sources of information. The discount rate was estimated at 13.3%. Using the discount rate derived from the above components, we subtracted an expected sustainable long-term growth estimate of 3.0% given expected growth in the geographic market and the overall long-term economy to arrive at a capitalization rate of 10.3%. The DCF model also used prospective financial information. For purposes of the impairment test, the Company’s financial plans for the remainder of 2020 through 2024 were updated for the projected impact of COVID-19 on the net revenue growth and asset utilization. Estimating future earnings and capital requirements involves judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments.

~~Table of Contents~~

factors including actual operating results. If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods and require management to further evaluate goodwill for impairment.

As a result of the ~~goodwill impairment test, and in connection with the preparation~~implementation of the ~~consolidated financial statements included~~branch optimization initiatives.

The Bank also completed a comprehensive review of its branch network and operating environment to identify solutions to improve operating performance. This review prioritized profitability, efficiency, infrastructure and client experience improvements, automation in ~~this Quarterly Report on Form 10-Q, the Company concluded that goodwill was impaired. Accordingly, the Company recorded a goodwill impairment charge of $18.7 million for the three~~operations, and ~~nine months ended September 30, 2020 as our estimated fair value was less than our book value. This was a non-cash charge to earnings~~digital marketing and ~~had no impact on regulatory capital, cash flows or liquidity position. No goodwill impairment charge was recognized for the three and nine months ended September 30, 2019.~~technology investments.

Explanation of Use of Non-GAAP Financial Measures

In addition to financial measures presented in accordance with generally accepted accounting principles (“GAAP”), we present certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information in understanding our underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP financial measures or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

The interest income on interest-earning assets, net interest rate spread and net interest margin are presented on a fully tax-equivalent (“FTE”) basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory income tax rate of ~~21 percent.~~21.0%. We believe the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

The following table reconciles net interest income, net interest spread and net interest margin on a FTE basis for the periods indicated:


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,													March 31,
		2020			2019			2020			2019				2021			2020
(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)

Interest Income per Consolidated Statement of (Loss) Income (GAAP)		$	11,656		$	13,098		$	35,712		$	38,063
Interest Income per Consolidated Statements of Income (GAAP)														Interest Income per Consolidated Statements of Income (GAAP)	$	10,988		$	12,329
Adjustment to FTE Basis	Adjustment to FTE Basis	53			56			165			203			Adjustment to FTE Basis	40			53
Interest Income (FTE) (Non-GAAP)	Interest Income (FTE) (Non-GAAP)	11,709			13,154			35,877			38,266			Interest Income (FTE) (Non-GAAP)	11,028			12,382
Interest Expense per Consolidated Statement of (Loss) Income		1,240			2,002			4,442			5,828
Interest Expense per Consolidated Statements of Income														Interest Expense per Consolidated Statements of Income	1,011			1,796
Net Interest Income (FTE) (Non-GAAP)	Net Interest Income (FTE) (Non-GAAP)	$	10,469		$	11,152		$	31,435		$	32,438		Net Interest Income (FTE) (Non-GAAP)	$	10,017		$	10,586

Net Interest Rate Spread (GAAP)	Net Interest Rate Spread (GAAP)	3.03		%	3.50		%	3.15		%	3.42		%	Net Interest Rate Spread (GAAP)	2.91		%	3.34		%
Adjustment to FTE Basis	Adjustment to FTE Basis	0.02			0.02			0.02			0.03			Adjustment to FTE Basis	0.01			0.01
Net Interest Rate Spread (FTE) (Non-GAAP)	Net Interest Rate Spread (FTE) (Non-GAAP)	3.05			3.52			3.17			3.45			Net Interest Rate Spread (FTE) (Non-GAAP)	2.92			3.35

Net Interest Margin (GAAP)	Net Interest Margin (GAAP)	3.19		%	3.72		%	3.34		%	3.64		%	Net Interest Margin (GAAP)	3.04		%	3.55		%
Adjustment to FTE Basis	Adjustment to FTE Basis	0.02			0.02			0.01			0.03			Adjustment to FTE Basis	0.01			0.02
Net Interest Margin (FTE) (Non-GAAP)	Net Interest Margin (FTE) (Non-GAAP)	3.21			3.74			3.35			3.67			Net Interest Margin (FTE) (Non-GAAP)	3.05			3.57

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Allowance for loan losses to total loans, excluding PPP loans, is a non-GAAP measure that serves as a useful measurement to evaluate the allowance for loan losses without the impact of SBA guaranteed loans.


		September 30, 2020			December 31, 2019				March 31, 2021			December 31, 2020
(Dollars in thousands)	(Dollars in thousands)							(Dollars in thousands)

Allowance for Loan Losses		$	13,780		$	9,867
Allowance for Loan Losses (Numerator)								Allowance for Loan Losses (Numerator)	$	12,725		$	12,771

Total Loans	Total Loans	1,050,885			$	952,496		Total Loans	1,041,697			$	1,044,753
PPP Loans	PPP Loans	(71,028)			—			PPP Loans	(60,380)			(55,096)
Total Loans, Excluding PPP Loans (Non-GAAP)		$	979,857		$	952,496
Total Loans, Excluding PPP Loans (Non-GAAP) (Denominator)								Total Loans, Excluding PPP Loans (Non-GAAP) (Denominator)	$	981,317		$	989,657

Allowance for Loan Losses to Total Loans (GAAP)	Allowance for Loan Losses to Total Loans (GAAP)	1.31		%	1.04		%	Allowance for Loan Losses to Total Loans (GAAP)	1.22		%	1.22		%

Allowance for Loan Losses to Total Loans, Excluding PPP Loans (Non-GAAP)	Allowance for Loan Losses to Total Loans, Excluding PPP Loans (Non-GAAP)	1.41		%	1.04		%	Allowance for Loan Losses to Total Loans, Excluding PPP Loans (Non-GAAP)	1.30		%	1.29		%

Tangible book value per common share is a non-GAAP measure ~~and is~~ calculated based on tangible common equity divided by period-end common shares outstanding. We believe this non-GAAP measure serves as a useful tool to help evaluate the strength and discipline of the Company's capital management strategies and as an additional, conservative measure of the Company’s total value.


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
(Dollars in thousands, except share and per share data)	(Dollars in thousands, except share and per share data)					(Dollars in thousands, except share and per share data)

Stockholders' Equity (GAAP)	Stockholders' Equity (GAAP)	$	133,299	$	151,097	Stockholders' Equity (GAAP)	$	133,776	$	134,530
Goodwill and Other Intangible Assets, Net	Goodwill and Other Intangible Assets, Net	(18,663)		(38,952)		Goodwill and Other Intangible Assets, Net	(17,599)		(18,131)
Tangible Common Equity or Tangible Book Value (Non-GAAP)		$	114,636	$	112,145
Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator)						Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator)	$	116,177	$	116,399

Common Shares Outstanding		5,398,712		5,463,828
Common Shares Outstanding (Denominator)						Common Shares Outstanding (Denominator)	5,434,374		5,434,374

Book Value per Common Share (GAAP)	Book Value per Common Share (GAAP)	$	24.69	$	27.65	Book Value per Common Share (GAAP)	$	24.62	$	24.76

Tangible Book Value per Common Share (Non-GAAP)	Tangible Book Value per Common Share (Non-GAAP)	$	21.23	$	20.52	Tangible Book Value per Common Share (Non-GAAP)	$	21.38	$	21.42

Consolidated ~~Statement~~Statements of Financial Condition Analysis

Assets. Total assets increased ~~$71.3~~$60.1 million, or ~~5.4%~~4.2%, to ~~$1.39~~$1.48 billion at ~~September 30, 2020,~~March 31, 2021, compared to ~~$1.32~~$1.42 billion at December 31, ~~2019.~~2020.

Cash and Securities

•Cash and due from banks increased ~~$32.0~~$69.1 million, or ~~39.9%~~42.9%, to ~~$112.2~~$230.0 million at ~~September 30, 2020,~~March 31, 2021, compared to ~~$80.2~~$160.9 million at December 31, ~~2019. This~~2020. The change is primarily due to an increase in Deposits as further described below in the ~~result of investment security call and paydown activity.~~Liabilities section.

•~~Investment securities classified as available-for-sale~~Securities decreased ~~$38.4~~$3.2 million, or ~~19.5%~~2.2%, to ~~$159.0~~$142.2 million at ~~September 30, 2020,~~March 31, 2021, compared to ~~$197.4~~$145.4 million at December 31, 2019. This was primarily the result of $59.5 million of calls of U.S. government agency and municipal securities due to the market interest rate decreases that occurred in light of the COVID-19 pandemic and $31.72020. Current period activity included $11.0 million of paydowns on mortgage-backed ~~securities. In addition, there was the purchase of $68.9~~securities, $22.3 million of mortgage-backed securities and U.S. government agency securities ~~partially offset by $17.9~~purchases, and $11.9 million of mortgage-backed ~~security~~securities sales, ~~to recognize~~which resulted in the recognition of a $225,000 gain on the sale of securities. The sales recognized gains on higher-interest securities ~~that were paying down quicker than expected.~~with faster prepayment speeds. In addition, there was a ~~$1.8~~$3.1 million ~~increase~~decrease in the market value of the debt securities portfolio ~~attributed to market interest rate decreases~~ and ~~$469,000 loss~~a $222,000 gain in market value in the ~~marketable~~ equity securities portfolio, which is primarily comprised of bank stocks.

Payroll Protection Program (“PPP”) Update

•~~Total loans increased $98.4 million to $1.05 billion at September 30, 2020~~The Small Business Administration reopened the PPP the week of January 11, 2021 and ~~represented a 13.7% annualized growth. Year-to-date loan growth was primarily due to originating 638~~began accepting applications for both First Draw and Second Draw PPP Loans. As of March 31, 2021, as part of this round of PPP, the Bank funded 156 PPP loans totaling ~~$71.0~~$25.0 million ~~mainly~~with net deferred origination fees of $984,000. Combined with $19.7 million of loan forgiveness processed in the ~~second~~first quarter ~~which included $2.2~~of 2021, total PPP loans increased $5.3 million ~~in net origination fees. Excluding the impact of PPP, organic loan growth was $27.4~~to $60.4 million and represented an annualized growth rate of 3.8% as of September 30, 2020. Additional loan growth was experienced through net funding of $33.6 million in construction loans. Average loans for the three months ended September 30, 2020 increased $21.4 millionat March 31, 2021 compared to $55.1 million at December 31, 2020.

•$1.1 million of net PPP loan origination fees were unearned at December 31, 2020. Due to activity in the ~~three months ended June 30, 2020 and was primarily driven by the full~~first quarter ~~impact on average balances from~~of 2021, $1.5 million of net PPP ~~loans. In October 2020, the SBA began processing~~loan origination fees were unearned at March 31, 2021. $535,000 of net PPP loan

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~~forgiveness. $1.7 million of~~ origination fees ~~are unearned as~~were earned in the first quarter of ~~September 30, 2020~~2021 compared to $604,000 for the three months ended December 31, 2020.

Loans, Allowance for Loan Losses and ~~expected~~Credit Quality

•Total loans decreased $3.1 million to ~~be earned upon receipt~~$1.04 billion at March 31, 2021. Excluding the impact of ~~funds from~~PPP loans, organic loan growth declined $8.3 million. Residential real estate, commercial real estate and consumer loans declined $4.5 million, $3.4 million and $2.2 million, respectively. The Bank is experiencing headwinds in commercial real estate loan growth due to the ~~SBA~~pandemic's impact on overall commercial loan demand, particularly in the retail and office space sectors. These declines were offset by net loan funding of $5.1 million in construction loans. Average loans for ~~forgiveness.~~the three months ended March 31, 2021 decreased $1.1 million compared to the three months ended December 31, 2020.

•The allowance for loan losses was ~~$13.8~~$12.7 million at ~~September 30, 2020~~March 31, 2021 compared to ~~$9.9~~$12.8 million at December 31, ~~2019. This reflects a $4.0 million~~2020. There was no provision for loan ~~loss due to an increase~~losses in ~~impaired~~the first quarter. An $8.3 million decrease in net reservable loans ~~with specific reserves~~in the current period, which excludes PPP loan activity, and ~~net increase in qualitative factors related to~~improving economic and industry ~~conditions~~condition contributed to ~~account for~~ the ~~adverse economic impact~~lack of ~~COVID-19.~~provision in the current period. As a result, the allowance for loan losses to total loans ~~increased from 1.04%~~of 1.22% at March 31, 2021 was comparable to the percentage at December 31, ~~2019 to 1.31% at September 30,~~ 2020. No allowance was allocated to the PPP loan ~~portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.~~portfolio. The allowance for loan losses to total loans, excluding PPP loans, was ~~1.41%~~1.30% at ~~September 30,~~March 31, 2021 compared to 1.29% at December 31, 2020.

•Nonperforming loans ~~increased~~decreased to ~~$15.0~~$14.3 million ~~from $5.4~~at March 31, 2021 compared to $14.5 million at December 31, ~~2019~~2020 and, coupled with ~~loan growth~~a decrease in loans noted previously, resulted in the nonperforming loans to total loans ratio ~~increase~~decrease to ~~1.43%~~1.37% at ~~September 30, 2020~~March 31, 2021 compared to ~~0.57%~~1.39% at December 31, 2019. Nonaccrual loans increased primarily as a result of two hotels with a total principal balance of $7.9 million that were determined to be impaired due to insufficient cash flows and occupancy rates and one commercial and industrial relationship totaling $1.4 million downgraded to substandard.2020.

•The Bank provided borrower support and relief through short-term loan forbearance options by primarily allowing: (a) deferral of three to six months of payments; or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months. In certain circumstances, a second three-month deferral period was granted.

The following table provides details of loans in forbearance at the dates indicated.


		September 30, 2020					June 30, 2020						March 31, 2021					December 31, 2020
		Number of Loans	Amount		% of Portfolio		Number of Loans	Amount		% of Portfolio			Number of Loans	Amount		% of Portfolio		Number of Loans	Amount		% of Portfolio
(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)

Real Estate:	Real Estate:											Real Estate:
Residential	Residential	11	1,242		0.4	%	163	23,653		6.9	%	Residential	7	1,343		0.4	%	4	749		0.2	%
Commercial	Commercial	9	13,885		3.9	%	111	105,117		30.0	%	Commercial	7	13,814		3.7	%	8	19,818		5.3	%
Construction	Construction	1	7,162		10.4	%	6	15,518		26.6	%	Construction	1	1,958		2.5	%	1	1,958		2.7	%
Commercial and Industrial	Commercial and Industrial	1	122		0.1	%	76	15,697		10.5	%	Commercial and Industrial	5	1,219		0.9	%	5	1,219		1.0	%
Consumer	Consumer	12	295		0.3	%	170	3,447		2.9	%	Consumer	5	106		0.1	%	13	356		0.3	%
Other		—	—		—	%	1	2,504		11.2	%

Total Loans in Forbearance	Total Loans in Forbearance	34	$	22,706	2.2	%	527	$	165,936	15.9	%	Total Loans in Forbearance	25	$	18,440	1.8	%	31	$	24,100	2.3	%

~~The~~Loans in deferral at March 31, 2021 include two commercial real estate loans ~~remaining in deferral at September 30, 2020 include five hotel~~totaling $4.6 million and one construction loan totaling $2.0 million that are all secured by hotels, one commercial real estate loan totaling $5.5 million secured by office space and a business relationship that rents equipment, supplies and other materials for events comprised of three commercial real estate loans totaling ~~$10.3~~$3.3 million, and ~~the construction loan is a retail project. These six~~five commercial and industrial loans ~~are scheduled to exit~~totaling $1.2 million. All loans will have exited their deferral ~~period~~periods by July 2021.

Other

•Accrued Interest Receivable and Other Assets decreased $2.3 million, or 15.1%, to $12.9 million at March 31, 2021, compared to $15.2 million at December 31, 2020. This was primarily due to the receipt of a $1.3 million federal income tax refund related to the 2018 alternative minimum tax carryforward from the First West Virginia Bancorp merger. The decrease was also related to the receipt of previously locked-in profit-sharing insurance commissions and annual agency bill receivables and decline in ~~the fourth quarter. The following table sets forth details at September 30, 2020 of industries considered at higher risk to be negatively impacted by the COVID-19 pandemic:~~prepaid expenses.

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Industry Forbearance
Weighted
Average
Risk
Rating (1)
Industry
Amount As a
Percent
of Total
Risk
Based
Capital As a
Percent
of Loan
Class Number
of
Loans
Weighted
Average
Risk
Rating (1)
Forbearance
Amount As a
Percent
of
Industry
(Dollars in thousands)
Commercial Real Estate - Owner Occupied:
Retail 3.6 $ 27,109 23.0 % 7.7 % — — $ — — %
Commercial Real Estate - Nonowner Occupied:
Retail 3.7 56,185 47.6 15.9 — — — —
Hotels 5.3 24,995 21.2 7.1 5 5.4 10,327 41.3
Construction - Commercial Real Estate:
Retail 4.0 7,992 6.8 11.6 1 4.0 7,162 89.6
Hotels 4.3 5,327 4.5 7.7 — — — —
Total:
Retail 3.7 91,286 77.4 1 4.0 7,162
Hotels 5.1 30,322 25.7 5 5.4 10,327

~~(1) Loan risk rating of 1-4 is considered a pass-rated credit, 5 is special mention, 6 is substandard, 7 is doubtful and 8 is loss.~~

Liabilities. Total liabilities increased ~~$89.1~~$60.9 million, or ~~7.6%~~4.7%, to ~~$1.26~~$1.34 billion at ~~September 30, 2020~~March 31, 2021 compared to ~~$1.17~~$1.28 billion at December 31, ~~2019.~~2020.

Deposits

•Deposits ~~benefited from PPP loan origination and~~increased $59.9 million to ~~a lesser extent government stimulus payments and increased $80.7 million, or 7.2%, to $1.20~~$1.28 billion as of ~~September 30, 2020~~March 31, 2021 compared to ~~$1.12~~$1.22 billion at December 31, ~~2019.Noninterest~~2020. Noninterest bearing demand deposits, NOW accounts and savings accounts increased ~~$68.1~~$36.6 million, $21.1 million and ~~$15.8~~$11.6 million, respectively, partially offset by a decrease of ~~$23.5~~$9.3 million in time deposits.

~~The~~ IRS and stimulus-related payments totaled $29.9 million in the current quarter and the impact of the PPP loans that were originated in the current quarter and the proceeds of which were ~~subsequently~~initially deposited at the Bank was approximately ~~$54.8~~$23.4 million. Annualized deposit growth rate was ~~9.6%~~19.6% including PPP loan deposits and ~~3.1%~~2.2% without IRS and PPP loan deposits, representing organic deposit growth. Average total deposits increased $17.0 million, primarily in noninterest-bearing deposits, for the three months ended March 31, 2021 compared to the three months ended December 31, 2020.

Borrowed Funds

•Short-term borrowings increased ~~$11.5~~$4.3 million, or ~~37.6%~~10.5%, to ~~$42.1~~$45.4 million at ~~September 30, 2020,~~March 31, 2021, compared to ~~$30.6~~$41.1 million at December 31, ~~2019.~~2020. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, short-term borrowings were comprised entirely of securities sold under agreements to repurchase. The increase is related to business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase.

•Other borrowed funds decreased ~~$3.0~~$2.0 million to $6.0 million at March 31, 2021 due to a ~~FHLB~~Federal Home Loan Bank borrowing that matured in the current period.

Stockholders’ Equity. Stockholders’ equity decreased ~~$17.8 million,~~$754,000, or ~~11.8%~~0.6%, to ~~$133.3~~$133.8 million at ~~September 30, 2020,~~March 31, 2021, compared to ~~$151.1~~$134.5 million at December 31, ~~2019.~~2020.

•Net ~~loss~~income was ~~$13.7~~$2.8 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

•Accumulated other comprehensive income ~~increased $1.4~~decreased $2.4 million primarily due to the effect of market interest rate conditions in the current period on the Bank’s available-for-sale debt securities.

•The Company declared and paid ~~$3.9~~$1.3 million in dividends to common stockholders in the current ~~year.~~

•As part of the Company’s stock repurchase program, the Company repurchased 67,816 shares of common stock totaling $1.9 million in the current year. COVID-19 prompted the Company to announce on March 19, 2020 that the stock repurchase program was suspended until further notice to preserve excess capital in support of the Bank’s business of providing financial services to its customers and communities.period.

•Book value per share was ~~$24.69~~$24.62 at ~~September 30, 2020~~March 31, 2021 compared to ~~$27.65~~$24.76 at December 31, ~~2019,~~2020, a decrease of ~~$2.96 primarily due to goodwill impairment.~~$0.14. Tangible book value per share ~~increased $0.71,~~decreased $0.04, or ~~3.5%~~0.2%, to ~~$21.23~~$21.38 compared to ~~$20.52~~$21.42 at December 31, ~~2019.~~2020. Refer to Explanation of Use of Non-GAAP Financial Measures in this Report.

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~~Consolidated Results of Operations~~

~~Quarterly and year-to-date results were impacted by the following:~~

•The Company conducted a goodwill impairment analysis during the most recent quarter. The Company had goodwill of $28.4 million at December 31, 2019, which was primarily related to past bank mergers and is 100% attributable to the community banking segment. Due to the macroeconomic impacts of the pandemic and the overall industry-wide decline in value of stocks and earnings expectations in the banking sector, including the Company's stock, the Company determined its goodwill was no longer supported by its estimate of the Company’s fair value. Therefore, $18.7 million of goodwill was deemed impaired and written off for the three and nine months ended September 30, 2020, reducing goodwill to $9.7 million at September 30, 2020. This non-cash expense was deemed non-core and has no impact on tangible equity, cash flows, liquidity or regulatory capital.

•The Company incurred a non-cash impairment of fixed assets of $884,000 as a result of the previously announced Monessen branch closure. Given the change in business purpose of the bank owned location, an appraisal was obtained to determine the property value and, as a result, the property was written down to fair value. The impairment charge primarily relates to write off of the unamortized purchase accounting adjustment associated with the branch, which was the former headquarters of FedFirst Financial Corporation acquired through merger in 2014. In addition, there was a one-time $84,000 early lease termination payment from the Bethlehem branch closure. The Company expects accretive annual earnings of approximately $678,000 from the branch consolidations.

Consolidated Results of Operations for the Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

Overview. Net ~~loss~~income was ~~$17.4~~$2.8 million for the three months ended ~~September 30, 2020, a decrease~~March 31, 2021, an increase of ~~$21.1~~$2.1 million compared to net income of ~~$3.7~~$773,000 for the three months ended March 31, 2020.

Net Interest and Dividend Income. Net interest and dividend income decreased $556,000, or 5.3%, to $10.0 million for the three months ended ~~September 30, 2019. Excluding the impact of goodwill impairment and impairment of fixed assets in the current period, net income decreased $1.9 million, or 50.8%,~~March 31, 2021 compared to ~~$1.8~~$10.5 million for the three months ended ~~September 30, 2020 compared to the three months ended September 30, 2019.~~

~~Net Interest Income.~~

March 31, 2020. Net interest ~~income~~margin (FTE) (Non-GAAP) decreased ~~$680,000, or 6.1%,~~52 basis points (“bps”) to ~~$10.4 million~~3.05% for the three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$11.1 million~~3.57% the three months ended March 31, 2020. Net interest margin (GAAP) decreased to 3.04% for the three months ended ~~September 30, 2019.~~March 31, 2021 compared to 3.55% for the three months ended March 31, 2020.

Interest and Dividend Income

•Interest and dividend income decreased ~~$1.4~~$1.3 million, or ~~11.0%~~10.9%, to ~~$11.7~~$11.0 million for the three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$13.1~~$12.3 million the three months ended ~~September 30, 2019.~~March 31, 2020.

◦Interest income on loans decreased ~~$275,000,~~$618,000, or ~~2.5%~~5.7%, ~~$10.7~~to $10.1 million for the three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$11.0~~$10.8 million for the three months ended ~~September 30, 2019. Although~~March 31, 2020. While average loans increased ~~$115.4~~$81.2 million compared to the three months ended ~~September 30, 2019,~~March 31, 2020, the average yield decreased ~~62 basis points (“bps”)~~57 bps to ~~4.13%~~4.00%. The current quarter loan yield compared to the quarter ended ~~September 30, 2019~~March 31, 2020 was impacted by the declines in interest rate indices in the first quarter of 2020 at the onset of the COVID-19 ~~pandemic and the full quarter impact of Paycheck Protection Program (“PPP”)~~pandemic. PPP loans ~~which~~ decreased loan yield approximately ~~11 bps. Approximately $274,000~~5 bps but that was offset by the recognition of $535,000 of net PPP loan origination fees ~~were recognized~~ in the current quarter. In addition, the Bank continued to accrue and recognize interest income on loans in forbearance due to expectation that borrowers will resume payment at the end of forbearance and collectibility of the interest income is not in question. However, two hotel loans were placed on nonaccrual in the current quarter which resulted in reversal of $231,000 of previously accrued interest income while the loans were in deferral.period.

◦The impact of the accretion of the credit mark on acquired loan portfolios was ~~$127,000~~$138,000 for the three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$65,000~~$76,000 for the three months ended ~~September 30, 2019,~~March 31, 2020, or 56 bps in the current period compared to 3 bps in the prior period.

Table of Contents

◦Interest income on taxable investment securities decreased ~~$805,000,~~$555,000, or ~~51.7%~~46.2%, to ~~$753,000~~$646,000 for the three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$1.6~~$1.2 million for the three months ended ~~September 30, 2019~~March 31, 2020 driven by a ~~$76.1~~$35.8 million decrease in average investment ~~security balance~~securities balances and 6993 bps decrease in average yield. The Federal Reserve’s pandemic-driven decision to drop the benchmark interest rate in 2020 resulted in ~~the call~~significant calls of ~~$59.5 million in~~ U.S. government agency ~~and municipal~~ securities ~~in the current year. In addition, there were $31.7 million of~~and paydowns on mortgage-backed securities in the ~~current year. The funds~~declining interest rate environment, which were ~~partially~~replaced with lower-yielding securities or maintained in ~~cash or reinvested in lower rate securities.~~cash.

◦Other interest and dividend income, which primarily consists of interest-bearing cash, decreased ~~$309,000,~~$140,000, or ~~76.3%~~58.8% to ~~$96,000~~$98,000 for the three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$405,000~~$238,000 for the three months ended ~~September 30, 2019.~~March 31, 2020. Average other interest-earning assets increased ~~$81.3~~$97.3 million compared to the three months ended ~~September 30,~~March 31, 2020 primarily from buildup of cash as a result of ~~calls of U.S. government agency~~securities activity, and

~~Table of Contents~~

~~municipal securities~~ PPP loan funds and government stimulus payments ~~but~~deposited with the Bank, although average yield declined ~~353~~123 bps due to interest rate cuts on interest-earning cash deposits held at other financial institutions.

Interest Expense

•Interest expense decreased ~~$762,000,~~$785,000, or ~~38.1%~~43.7%, to ~~$1.2~~$1.0 million for the three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$2.0~~$1.8 million for the three months ended ~~September 30, 2019.~~March 31, 2020.

◦Interest expense on deposits decreased ~~$714,000,~~$734,000, or ~~38.3%~~43.7%, to ~~$1.2~~$947,000 for the three months ended March 31, 2021 compared to $1.7 million for the three months ended ~~September 30, 2020 compared $1.9 million for the three months ended September 30, 2019.~~March 31, 2020. While average interest-earning deposits increased ~~$13.6~~$42.2 million compared to the three months ended March 31, 2020, interest rate declines for all products driven by pandemic-related interest rate cuts ~~and efforts to control pricing~~ resulted in a 3437 bp, or 46.0%, decrease in average cost compared to the three months ended ~~September 30, 2019.~~March 31, 2020. In addition, average time deposits and the related average cost decreased $28.3 million and 41 bps, respectively.

◦Interest expense on other borrowed funds decreased $29,000, or ~~31.9%~~41.4%, to ~~$62,000~~$41,000 for the three months ended ~~September 30, 2020~~March 31, 2021 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a ~~$6.0~~$5.6 million decrease in average balance.

Table of Contents

Average Balances and Yields. The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of ~~21%~~21.0% for the periods presented. As such, amounts will not agree to income as reported in the consolidated financial statements. Average balances for loans are net of the allowance for loan losses, and include nonaccrual loans with a zero yield. Nonaccrual loans are included in average balances only. The yields and costs for the periods indicated are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods presented.


		Three Months Ended September 30,													Three Months Ended March 31,
		2020						2019							2021						2020
		Average Balance		Interest and Dividends		Yield/ Cost (4)		Average Balance		Interest and Dividends		Yield/ Cost (4)			Average Balance		Interest and Dividends		Yield/ Cost (4)		Average Balance		Interest and Dividends		Yield/ Cost (4)
(Dollars in thousands) (Unaudited)	(Dollars in thousands) (Unaudited)													(Dollars in thousands) (Unaudited)

Assets:	Assets:													Assets:
Interest-Earning Assets:	Interest-Earning Assets:													Interest-Earning Assets:
Loans, Net	Loans, Net	$	1,035,426	$	10,744	4.13	%	$	920,029	$	11,015	4.75	%	Loans, Net	$	1,031,853	$	10,168	4.00	%	$	950,661	$	10,796	4.57	%
Debt Securities	Debt Securities													Debt Securities
Taxable	Taxable	123,332		753		2.44		199,388		1,558		3.13		Taxable	122,883		646		2.10		158,655		1,201		3.03
Tax Exempt	Tax Exempt	13,054		97		2.97		19,906		156		3.13		Tax Exempt	12,943		96		2.97		16,837		127		3.02
Marketable Equity Securities	Marketable Equity Securities	2,580		19		2.95		2,538		20		3.15		Marketable Equity Securities	2,632		20		3.04		2,568		20		3.12
Other Interest-Earning Assets	Other Interest-Earning Assets	123,171		96		0.31		41,863		405		3.84		Other Interest-Earning Assets	161,871		98		0.25		64,608		238		1.48
Total Interest-Earning Assets	Total Interest-Earning Assets	1,297,563		11,709		3.59		1,183,724		13,154		4.41		Total Interest-Earning Assets	1,332,182		11,028		3.36		1,193,329		12,382		4.17
Noninterest-Earning Assets	Noninterest-Earning Assets	115,567						135,172						Noninterest-Earning Assets	92,550						114,056
Total Assets	Total Assets	$	1,413,130					$	1,318,896					Total Assets	$	1,424,732					$	1,307,385

Liabilities and Stockholders' Equity:	Liabilities and Stockholders' Equity:													Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:	Interest-Bearing Liabilities:													Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits	Interest-Bearing Demand Deposits	$	245,977	99		0.16	%	$	226,887	303		0.53	%	Interest-Bearing Demand Deposits	$	259,065	77		0.12	%	$	226,482	267		0.47	%
Savings	Savings	230,567		32		0.06		216,923		118		0.22		Savings	239,850		32		0.05		218,328		90		0.17
Money Market	Money Market	185,644		140		0.30		178,485		241		0.54		Money Market	197,395		98		0.20		180,982		249		0.55
Time Deposits	Time Deposits	198,184		879		1.76		224,483		1,202		2.12		Time Deposits	187,114		740		1.60		215,449		1,075		2.01
Total Interest-Bearing Deposits	Total Interest-Bearing Deposits	860,372		1,150		0.53		846,778		1,864		0.87		Total Interest-Bearing Deposits	883,424		947		0.43		841,241		1,681		0.80
Borrowings		53,512		90		0.67		45,066		138		1.21
Short-Term Borrowings														Short-Term Borrowings
Securities Sold Under Agreements to Repurchase														Securities Sold Under Agreements to Repurchase	41,094		23		0.23		29,541		45		0.61
Other Borrowings														Other Borrowings	7,200		41		2.31		12,780		70		2.20
Total Interest-Bearing Liabilities	Total Interest-Bearing Liabilities	913,884		1,240		0.54		891,844		2,002		0.89		Total Interest-Bearing Liabilities	931,718		1,011		0.44		883,562		1,796		0.82
Noninterest-Bearing Demand Deposits	Noninterest-Bearing Demand Deposits	337,441						269,931						Noninterest-Bearing Demand Deposits	349,108						261,504
Other Liabilities	Other Liabilities	8,477						9,949						Other Liabilities	8,869						9,797
Total Liabilities	Total Liabilities	1,259,802						1,171,724						Total Liabilities	1,289,695						1,154,863

Stockholders' Equity	Stockholders' Equity	153,328						147,172						Stockholders' Equity	135,037						152,522
Total Liabilities and Stockholders' Equity	Total Liabilities and Stockholders' Equity	$	1,413,130					$	1,318,896					Total Liabilities and Stockholders' Equity	$	1,424,732					$	1,307,385

Net Interest Income (FTE) (Non-GAAP) (5)	Net Interest Income (FTE) (Non-GAAP) (5)			$	10,469					$	11,152			Net Interest Income (FTE) (Non-GAAP) (5)			$	10,017					$	10,586
Net Interest Rate Spread (FTE) (Non-GAAP) (1)(5)	Net Interest Rate Spread (FTE) (Non-GAAP) (1)(5)					3.05	%					3.52	%	Net Interest Rate Spread (FTE) (Non-GAAP) (1)(5)					2.92	%					3.35	%
Net Interest-Earning Assets (2)	Net Interest-Earning Assets (2)	$	383,679					$	291,880					Net Interest-Earning Assets (2)	$	400,464					$	309,767
Net Interest Margin (FTE) (Non-GAAP) (3)(5)(	Net Interest Margin (FTE) (Non-GAAP) (3)(5)(					3.21						3.74		Net Interest Margin (FTE) (Non-GAAP) (3)(5)(					3.05						3.57
Return on Average Assets	Return on Average Assets					(4.90)						1.13		Return on Average Assets					0.81						0.24
Return on Average Equity (4)	Return on Average Equity (4)					(45.13)						10.10		Return on Average Equity (4)					8.54						2.04
Average Equity to Average Assets	Average Equity to Average Assets					10.85						11.16		Average Equity to Average Assets					9.48						11.67
Average Interest-Earning Assets to Average Interest-Bearing Liabilities	Average Interest-Earning Assets to Average Interest-Bearing Liabilities					141.98						132.73		Average Interest-Earning Assets to Average Interest-Bearing Liabilities					142.98						135.06

(1)Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)Net interest margin represents annualized net interest income divided by average total interest-earning assets.

(4)Annualized based on three months ended results.

(5)See section entitled "Explanation of Use of Non-GAAP Financial Measures" appearing earlier in this quarterly report.

4437

Table of Contents

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. FTE yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of ~~21%~~21.0%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.


		Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019							Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
		Increase (Decrease) Due to							Increase (Decrease) Due to
		Volume		Rate		Total			Volume		Rate		Total
(Dollars in thousands) (Unaudited)	(Dollars in thousands) (Unaudited)							(Dollars in thousands) (Unaudited)

Interest and Dividend Income:	Interest and Dividend Income:							Interest and Dividend Income:
Loans, net	Loans, net	$	1,255	$	(1,526)	$	(271)	Loans, net	$	776	$	(1,404)	$	(628)
Debt Securities:	Debt Securities:							Debt Securities:
Taxable	Taxable	(509)		(296)		(805)		Taxable	(234)		(321)		(555)
Exempt From Federal Tax	Exempt From Federal Tax	(51)		(8)		(59)		Exempt From Federal Tax	(29)		(2)		(31)
Marketable Equity Securities	Marketable Equity Securities	—		(1)		(1)		Marketable Equity Securities	1		(1)		—
Other Interest-Earning Assets	Other Interest-Earning Assets	293		(602)		(309)		Other Interest-Earning Assets	161		(301)		(140)
Total Interest-Earning Assets	Total Interest-Earning Assets	988		(2,433)		(1,445)		Total Interest-Earning Assets	675		(2,029)		(1,354)

Interest Expense:	Interest Expense:							Interest Expense:
Deposits	Deposits	22		(736)		(714)		Deposits	67		(801)		(734)
Borrowings		21		(69)		(48)
Short-Term Borrowings:								Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase								Securities Sold Under Agreements to Repurchase	$	13	$	(35)	$	(22)
Other Borrowings								Other Borrowings	$	(32)	$	3	$	(29)
Total Interest-Bearing Liabilities	Total Interest-Bearing Liabilities	43		(805)		(762)		Total Interest-Bearing Liabilities	48		(833)		(785)
Change in Net Interest Income	Change in Net Interest Income	$	945	$	(1,628)	$	(683)	Change in Net Interest Income	$	627	$	(1,196)	$	(569)

Provision for Loan Losses. ~~The~~There was no provision for loan losses ~~was $1.2~~for the three months ended March 31, 2021 compared to $2.5 million for the three months ended ~~September 30, 2020 compared to $300,000 for~~March 31, 2020. In the ~~three months ended June 30, 2020 and $175,000 for the three months ended September 30, 2019. The Company has an exposure of hotel loans that have been greatly impacted by~~prior period, the COVID-19 pandemic, which led to state-wide shelter in place orders and ~~were evaluated for impairment in the current quarter. Two hotels with a total principal balance~~mandatory closures of $7.9 million were determined to be impaired due to insufficient cash flows and occupancy rates and was a driving factor in a $2.3 million increase in specific reserves and current quarter provision. This was partially offset by a reduction in the qualitative factors related to economic trends and industry conditions due to improving macroeconomic conditions as the economy continues to reopen from the second quarter pandemic-related shutdown. In addition, $16.1 million of hotel loans excluded from homogenous loan pools were evaluated for impairment and determined to not require specific reserves.

Net charge-offs for the three months ended September 30, 2020 were $68,000, or 0.03% net charge-offs to average loans on an annualized basis. Net charge-offs were $116,000, or 0.05% to average loans on an annualized basis, for the three months ended September 30, 2019 driven by higher automobile loan charge-offs.

~~Noninterest Income~~. ~~Noninterest income increased $207,000, or 10.5%, to $2.2 million for the three months ended September 30, 2020, compared to $2.0 million for the three months ended September 30, 2019.~~

•Service fees decreased $85,000 to $554,000 for the three months ended September 30, 2020, compared to $639,000 for the three months ended September 30, 2019 due to decrease in overdraft fees and customer usage from the pandemic.

•Insurance commissions increased $94,000 to $1.1 million for the three months ended September 30, 2020 compared to $985,000 for the three months ended September 30, 2019. Insurance commissions decreased $34,000 in the current quarter.

•Net gain on sale of loans was $435,000 in the current period with robust mortgage loan production from refinances in the current quarter compared to $48,000 for the three months ended September 30, 2019.

•~~The Company recorded a $65,000 net loss on disposal of fixed assets in the current quarter primarily related to the sale of the former Exchange Underwriters headquarters.~~

~~Table of Contents~~

•~~Other (loss) income included a $71,000 increase in amortization on mortgage servicing rights in the current quarter due to increased prepayment speeds on the serviced mortgage portfolio.~~

~~Noninterest Expense.~~ Noninterest expense increased $20.7 million, or 250.8%, to $29.0 million for the three months ended September 30, 2020 compared to $8.3 million for the three months ended September 30, 2019. This was primarily impacted by goodwill impairment of $18.7 million and writedown on fixed assets of $884,000 as previously noted. Excluding the impact of these non-cash charges, noninterest expense increased $1.1 million, or 13.7%, to $9.4 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

•Salaries and employee benefits increased $496,000 to $5.1 million for the three months ended September 30, 2020 compared to $4.6 million for the three months ended September 30, 2019. The increase was primarily due to merit and promotional increases and $113,000 of one-time payments related to the transition and retention of a permanent CEO.

•Occupancy expense increased $162,000 to $759,000 for the three months ended September 30, 2020 compared to $597,000 for the three months ended September 30, 2019. The increase was primarily related to a one-time $84,000 early lease termination payment from the Bethlehem branch closure and increase in property management costs.

•Contracted services increased $219,000 to $531,000 for the three months ended September 30, 2020 compared to $312,000 for the three months ended September 30, 2019 primarily due to temporary employees hired to assist with loan processing and consultants used to assist in infrastructure improvements.

•~~Data processing increased $112,000 to $482,000 for the three months ended September 30, 2020 compared to $370,000 for the three months ended September 30, 2019 primarily due to technology investments.~~

•Federal Deposit Insurance Corporation (“FDIC”) assessment expense increased $167,000 to $172,000 for the three months ended September 30, 2020 compared to $5,000 for the three months ended September 30, 2019 due to deposit insurance fund credits approved for banks with less than $10 billion in assets in the prior period.

•Legal fees and professional fees increased $44,000 to $161,000 for the three months ended September 30, 2020 compared to $117,000 for the three months ended September 30, 2019 due to fees associated with the retention of a permanent CEO in the current period.

•Advertising decreased $60,000 to $148,000 for the three months ended September 30, 2020 compared to $208,000 for the three months ended September 30, 2019 due to reduced marketing initiatives during the pandemic.

•Other noninterest expense decreased $65,000 to $919,000 for the three months ended September 30, 2020 compared to $984,000 for the three months ended September 30, 2019 primarily due to decreases in travel-related, meals and telephone costs from employee work-at home arrangements during the pandemic.

~~Income Tax Expense.~~ Income tax benefit was $184,000 for the three months ended September 30, 2020 a decrease of $1.1 million compared to income tax expense of $884,000 for the three months ended September 30, 2019. While the goodwill impairment charge was non-tax deductible, income tax benefit for the three months ended September 30, 2020 was impacted by a $338,000 benefit related to the reversal of a deferred tax liability associated with goodwill. Due to goodwill being partially impaired, a proportional amount of the deferred tax liability was reversed.

~~Results of Operations for the Nine Months Ended September 30, 2020 and 2019~~

~~Overview.~~ Net loss was $13.7 million for the nine months ended September 30, 2020, a decrease of $23.4 million compared to net income of $9.7 million for the nine months ended September 30, 2019. Excluding the impact of goodwill impairment and impairment of fixed assets in the current period, net income decreased $4.1 million, or 42.8%, to $5.5 million for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

~~Net Interest Income.~~ ~~Net interest income decreased $965,000, or 3.0% to $31.3 million for the nine months ended September 30, 2020 compared to $32.2 million for the nine months ended September 30, 2019.~~

•~~Interest and dividend income decreased $2.4 million, or 6.2%, to $35.7 million for the nine months ended September 30, 2020 compared to $38.1 million for the nine months ended September 30, 2019.~~

◦Although average loans increased $92.0 million, primarily driven by PPP and mortgage loans, the loan yield for the nine months ended September 30, 2020 decreased 45 bps compared to the nine months ended September 30, 2019. The current period loan yield was significantly impacted by the 150 bp decline in the Wall Street Journal Prime Rate in March 2020, which resulted in immediate decrease in interest rates on adjustable rate loans linked to that index. In addition, PPP loans decreased the loan yield approximately 7 bps in the current year. Approximately $465,000 of net loan origination fees were recognized in the current period.

~~Table of Contents~~

◦The impact of the accretion of the credit mark on acquired loan portfolios was $293,000 for the nine months ended September 30, 2020 compared to $203,000 for the nine months ended September 30, 2019, or 4 bps in the current period compared to 3 bps in the prior period.

◦Interest income on taxable investment securities decreased $1.4 million, or 33.0%, to $2.9 million for the nine months ended September 30, 2020 compared to $4.3 million for the nine months ended September 30, 2019 driven by a $60.0 million decrease in average investment securities primarily from significant calls of U.S. government agency securities and paydowns on mortgage-backed securities in a declining interest rate environment, which were replaced with lower-yielding securities. Current period yield benefited from approximately $231,000 in discount accretion from U.S. government agency calls.

◦Interest from other interest-earning assets, which primarily consists of interest-earning cash, decreased $679,000, or 61.9% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 even though average balances increased $48.0 million primarily related to funds received from investment security activity. The impact on interest income was primarily due to declines on interest rates earned on deposits at other financial institutions, which resulted in a 253 bp decrease in yield.

•~~Interest expense decreased $1.4 million, or 23.8%, to $4.4 million for the nine months ended September 30, 2020 compared to $5.8 million for the nine months ended September 30, 2019.~~

◦Interest expense on deposits decreased $1.3 million, or 23.5%, to $4.1 million for the nine months ended September 30, 2020 compared to $5.4 million for the nine months ended September 30, 2019. While average interest-bearing deposits increased $15.2 million, interest rate declines for all ~~products driven by pandemic-related interest rate cuts and efforts to control pricing resulted in a 21 bp decrease in average cost compared to the nine months ended September 30, 2019.~~

◦Interest expense on other borrowed funds decreased $84,000, 30.2%, to $194,000 for the nine months ended September 30, 2020 compared to $278,000 for the nine months ended September 30, 2019 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a $6.0 million decrease in average balance.

~~Table of Contents~~

~~Average Balances and Yields.~~The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of 21% for the periods presented. As such, amounts will not agree to income as reported in the consolidated financial statements. Average balances for loans are net of the allowance for loan losses, and include nonaccrual loans with a zero yield. Nonaccrual loans are included in average balances only. The yields and costs for the periods indicated are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods presented.

Nine Months Ended September 30,
2020 2019
Average
Balance Interest
and
Dividends
Yield/
Cost (4)
Average
Balance Interest
and
Dividends
Yield/
Cost (4)
(Dollars in thousands) (Unaudited)
Assets:
Interest-Earning Assets:
Loans, Net $ 1,000,157 $ 32,152 4.29 % $ 908,198 $ 32,189 4.74 %
Debt Securities
Taxable 139,691 2,894 2.76 199,689 4,317 2.88
Tax Exempt 14,660 354 3.22 25,343 603 3.17
Marketable Equity Securities 2,575 59 3.06 2,524 60 3.17
Other Interest-Earning Assets 95,040 418 0.59 47,004 1,097 3.12
Total Interest-Earning Assets 1,252,123 35,877 3.83 1,182,758 38,266 4.33
Noninterest-Earning Assets 114,271 120,291
Total Assets $ 1,366,394 $ 1,303,049
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits $ 236,293 506 0.29 % $ 218,812 872 0.53 %
Savings 225,473 156 0.09 215,835 413 0.26
Money Market 183,103 576 0.42 180,494 778 0.58
Time Deposits 206,463 2,898 1.87 220,993 3,344 2.02
Total Interest-Bearing Deposits 851,332 4,136 0.65 836,134 5,407 0.86
Borrowings 47,514 306 0.86 47,887 421 1.18
Total Interest-Bearing Liabilities 898,846 4,442 0.66 884,021 5,828 0.88
Noninterest-Bearing Demand Deposits 305,677 266,105
Other Liabilities 9,025 9,601
Total Liabilities 1,213,548 1,159,727
Stockholders' Equity 152,846 143,322
Total Liabilities and Stockholders' Equity $ 1,366,394�� $ 1,303,049
Net Interest Income (FTE) (Non-GAAP) (5)
$ 31,435 $ 32,438
Net Interest Rate Spread (FTE) (Non-GAAP) (1)(5)(
3.17 % 3.45 %
Net Interest-Earning Assets (2)
$ 353,277 $ 298,737
Net Interest Margin (FTE) (Non-GAAP) (3)(5)
3.35 3.67
Return on Average Assets (1.34) 0.99
Return on Average Equity (11.99) 9.00
Average Equity to Average Assets 11.19 11.00
Average Interest-Earning Assets to Average Interest-Bearing Liabilities 139.30 133.79

~~(1)Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.~~

~~(2)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.~~

~~(3)Net interest margin represents annualized net interest income divided by average total interest-earning assets.~~

~~(4)Annualized based on nine months ended results.~~

~~(5)See section entitled "Explanation of Use of Non-GAAP Financial Measures" appearing earlier in this quarterly report.~~

~~Table of Contents~~

~~Rate Volume Analysis.~~ The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. FTE yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.

Nine Months Ended September 30, 2020
Compared to
Nine Months Ended September 30, 2019
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net $ 3,173 $ (3,210) $ (37)
Debt Securities:
Taxable (1,250) (173) (1,423)
Exempt From Federal Tax (259) 10 (249)
Marketable Equity Securities 1 (2) (1)
Other Interest-Earning Assets 614 (1,293) (679)
Total Interest-Earning Assets 2,279 (4,668) (2,389)
Interest Expense:
Deposits 66 (1,337) (1,271)
Borrowings (1) (114) (115)
Total Interest-Bearing Liabilities 65 (1,451) (1,386)
Change in Net Interest Income $ 2,214 $ (3,217) $ (1,003)

~~Provision for Loan Losses.~~ ~~The provision for loan losses was $4.0 million for the nine months ended September 30, 2020, compared to $550,000 for the nine months ended September 30, 2019. The pandemic~~but essential business resulted in a dramatic increase in unemployment and recessionary economic ~~conditions in the current year.~~conditions. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis ~~were increased at the onset of the pandemic, primarily~~ related to economic trends and industry conditions, specifically because of vulnerable industries such as hospitality, oil and gas, retail and restaurants, were adjusted for those circumstances and resulted in ~~a $2.1~~the $2.5 million provision ~~in the first quarter. Macroeconomic conditions have improved as the economy continues to reopen from the second quarter pandemic-related shutdown and the~~for loan losses. Those qualitative factors have been ~~further adjusted. However,~~decreased as ~~noted~~the economic impact from the pandemic has eased. An $8.3 million decrease in ~~the quarterly results, the Company has an exposure of hotel~~net reservable loans ~~that have been greatly impacted by the COVID-19 pandemic and were evaluated for impairment~~ in the current ~~quarter. Two hotels with a total principal balance~~quarter, which excludes PPP loan activity, and improving economic and industry condition contributed to the lack of ~~$7.9 million were determined to be impaired due to insufficient cash flows and occupancy rates and was a driving factor in a $2.3 million increase in specific reserves~~provision in the ~~third quarter. $16.1 million of hotel loans excluded from homogenous loan pools were evaluated for impairment and determined to not require specific reserves.~~current period.

Net charge-offs for the three months ended March 31, 2021 were ~~$87,000,~~$46,000, or ~~0.01% net charge-offs to~~0.02% of average loans on an annualized ~~basis,~~basis. Net charge-offs for the ~~nine~~three months ended ~~September 30, 2020. Net charge-offs~~March 31, 2020 were ~~$358,000,~~$45,000, or ~~0.05% net charge-offs to~~0.02% of average loans on an annualized ~~basis, for the nine months ended September 30, 2019. The increase~~basis. Net charge-offs were primarily attributable to indirect automobile loans in ~~the prior year was driven by higher automobile loan charge-offs.~~both periods.

Noninterest ~~Income.~~Income. Noninterest income increased ~~$448,000,~~$1.3 million, or ~~7.2%~~69.6%, to ~~$6.7~~$3.2 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$6.2 million~~$1.9 million for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

•Service fees decreased ~~$203,000~~$59,000 to ~~$1.6 million~~$546,000 for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$1.8 million~~$605,000 for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 due to decrease in overdraft ~~fees and customer usage from the pandemic.~~fees.

•Insurance commissions increased ~~$256,000, or 8.0%,~~$312,000 to ~~$3.5~~$1.6 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021 compared to ~~$3.2~~$1.3 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 primarily due to an increase in ~~both commercial~~contingency fees. Contingency fees are profit sharing commissions that are contingent upon several factors including, but not limited to, eligible written premiums, earned premiums, incurred losses, policy cancellations and ~~personal line polices.~~stop loss charges.

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•Net gain on ~~sales~~sale of loans was ~~$1.0 million~~$86,000 for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$190,000~~$127,000 for the ~~nine~~three months ended ~~September 30, 2019 primarily due to increased mortgage loan production from refinances, which were sold to reduce interest rate risk on lower yielding, long-term assets.~~March 31, 2020.

•Net gain on ~~sales of investment~~ securities was ~~$489,000~~$447,000 for the ~~nine~~three months ended ~~September 30, 2020 to harvest gains on higher-interest mortgage-backed securities that were paying down quicker than expected~~March 31, 2021 compared to a net loss of ~~$50,000~~$438,000 for ~~nine~~the three months ended ~~September 30, 2019.~~

•~~The Company’s marketable~~March 31, 2020. In the current quarter, the Company recognized a $225,000 net gain on sale of debt securities from sales of higher-interest securities with faster prepayment speeds combined with a $222,000 increase in fair value in the equity securities ~~which are~~portfolio, primarily comprised of bank stocks, ~~reflected~~which experienced a ~~decline~~recovery in value from pandemic-related losses. The fair value of ~~$469,000 for~~ the ~~current period primarily~~Company’s equity securities declined $438,000 in the first quarter of 2020 from the impact of COVID-19 on the ~~banking industry.~~stock market.

•~~The Company recorded~~Other income (loss) included a ~~$48,000 net loss on disposal~~$172,000 recapture of ~~fixed assets in the current year primarily related to the sale of the former Exchange Underwriters headquarters.~~

•~~There was a $443,000 decrease in other (loss) income as a result of an increase in amortization on mortgage servicing rights combined with a $269,000~~ temporary impairment on mortgage servicing rights ~~recognized~~ in the current ~~period~~quarter due to ~~a decline in the interest rate environment that caused increased prepayment speeds and resulted in a decrease~~an increase in fair value ofin the serviced mortgage ~~portfolio.~~portfolio primarily attributable to prepayment speeds.

Noninterest Expense. Noninterest expense increased ~~$21.1 million,~~$392,000, or ~~81.4%~~4.4%, to ~~$47.0~~$9.4 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$25.9~~$9.0 million for the ~~nine~~three months ended September 30, 2019. This was primarily impacted by goodwill impairment of $18.7 million and writedown on fixed assets of $884,000 as previously noted. Excluding the impact of these non-cash charges, noninterest expense increased $1.5 million, or 5.9%, to $27.5 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.March 31, 2020.

•Salaries and employee benefits increased ~~$410,000 for the nine months ended September 30, 2020 compared~~$163,000 to ~~$14.3~~$4.9 million for the ~~nine~~three months ended ~~September 30, 2019. The increase is related~~March 31, 2021 compared to $4.7 million for the ~~Community Bank Cares 10% premium pay during~~three months ended March 31, 2020. In the ~~pandemic. Additionally,~~prior period, the Company recognized approximately $388,000 of one-time payments related to the transition and retention of a permanent CEO for the nine months ended September 30, 2020 and restricted stock expense increased $91,000 in the current period related to grants in December 2019. This was partially offset by a $407,000 one-time ~~payment that reduced employee benefits~~benefit from health insurance claims exceeding our stop-loss limit for the 2019 plan year and change from a self-funded to a ~~fully insured~~fully-insured plan. Final calculation of the stop loss payment was completed 90 days after the end of the plan year. Also the Company benefited from deferred employee-related loan origination costs associated with PPP loans.

•~~Occupancy expense~~Contracted services increased ~~$172,000~~$309,000 to ~~$2.2 million~~$687,000 for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$2.0 million~~$378,000 for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020 The ~~increase was primarily related~~current period includes the engagement of a third-party workflow optimization expert to assist in implementing robotic process automations and more effective sales management designed to improve operational efficiencies in the near and long-term and engagement of a ~~one-time $84,000 early lease termination payment from the Bethlehem branch closure~~third party specialist to assist in core platform improvements and ~~increase in property management costs.~~

•Equipment expense decreased $146,000 to $701,000 for the nine months ended September 30, 2020 compared to $847,000 for the nine months ended September 30, 2019 as the result of decrease in depreciation and repairs and maintenance.efficiencies.

•Data processing increased ~~$209,000~~$93,000 to ~~$1.4 million~~$518,000 for the ~~nine~~three months ended March 31, 2021 compared to $425,000 for the three months ended March 31, 2020 primarily due to core and other technology upgrades.

•Federal Deposit Insurance Corporation (“FDIC”) assessment expense increased $92,000 to $250,000 for the three months ended March 31, 2021 compared to $158,000 for the three months ended March 31, 2020. The increase in assessment was due to the net loss recognized for the three months ended September 30, 2020 ~~compared to $1.2 million for the nine months ended September 30, 2019~~ primarily due to ~~technology investments.~~

•~~Contracted services increased $526,000 to $1.5 million for~~goodwill impairment negatively impacting the nine months ended September 30, 2020 compared to $945,000 for the nine months ended September 30, 2019, primarily due to temporary employees hired to assist with PPP loan processing and consultants used to assist in infrastructure improvements. Total consulting feesassessment rate in the current ~~period associated with the search for a permanent CEO were $177,000.~~

•FDIC assessment expense increased $125,000 to $493,000 for the nine months ended September 30, 2020 compared to $368,000 for the nine months ended September 30, 2019 due to deposit insurance fund credits approved for banks with less than $10 billion in assets in the prior period.

•Legal fees and professional fees ~~increased $109,000~~decreased $46,000 to ~~$567,000~~$189,000 for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$458,000~~$235,000 for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 due to legal fees associated with the transition of the CEO in the prior period.

•Advertising decreased $43,000 to $140,000 for the three months ended March 31, 2021 compared to $183,000 for the three months ended March 31, 2020 due to reduced marketing initiatives during the pandemic.

•Other noninterest expense decreased $131,000 to $982,000 for the three months ended March 31, 2021 compared to $1.1 million for the three months ended March 31, 2020 primarily due to decreases in loan expenses and ~~retention of a permanent CEO.~~travel-related costs from employee work-at home arrangements during the pandemic.

Income Tax Expense. Income tax expense ~~decreased $1.7 million~~increased $782,000 to ~~$640,000~~$911,000 for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$2.3 million~~$129,000 for the ~~nine~~three months ended ~~September 30, 2019. While~~March 31, 2020. This change was primarily due to an increase in pretax income in the ~~goodwill impairment charge was non-tax deductible,~~current period and an income tax expense ~~for the nine months ended September 30, 2020 was impacted by~~adjustment that resulted from amended tax returns as a ~~$338,000 benefit related to the reversal of a deferred tax liability associated with goodwill. Due to goodwill being partially impaired, a proportional amount~~result of the ~~deferred tax liability was reversed.~~CARES Act.

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Off-Balance Sheet Arrangements.

Other than loan commitments and standby and performance letters of credit, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a significant current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Refer to Note 9 in the Notes to Consolidated Financial Statements of this report for a summary of commitments outstanding as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

Liquidity and Capital Management

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are typically predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

~~The ability to predict the impact~~

Table of the COVID-19 pandemic on the Company’s liquidity with any precision is difficult and depends on many factors beyond our control. The market area was one of the first to implement state-wide shelter-in-place orders and closing all but essential businesses and certain government restriction remain in effect. The far-reaching consequences of these actions and the crisis is unknown and will largely depend on the extent and length of the recession combined with how quickly the economy can fully re-open. As of September 30, 2020, 86% of loans that were in deferral at June 30, 2020 have returned to their regular payment schedule, but any additional forbearance that may be needed could significantly impact our sources of funds from loan cash flows.Contents

The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity at ~~September 30, 2020~~March 31, 2021 to satisfy its short- and long-term liquidity needs.

The Company’s most liquid assets are cash and due from banks, which totaled ~~$112.2~~$230.0 million at ~~September 30, 2020.~~March 31, 2021. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Unpledged securities, which provide an additional source of liquidity, totaled ~~$26.6~~$13.1 million at ~~September 30, 2020.~~March 31, 2021. In addition, at ~~September 30, 2020,~~March 31, 2021, the Company had the ability to borrow up to ~~$430.7~~$433.0 million from the FHLB of Pittsburgh, of which ~~$416.9~~$332.7 million is available. The Company also has the ability to borrow up to ~~$95.7~~$84.4 million million from the FRB through its Borrower-In-Custody line of credit agreement and the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling ~~$60.0~~$50.0 million as of both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

At ~~September 30, 2020, $86.6~~March 31, 2021, $79.8 million, or ~~44.1%~~44.2% of total time deposits mature within one year. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these ~~certificates of deposit.~~time deposits. The Company believes, however, based on past experience that a significant portion of its ~~certificates of deposit~~time deposits will remain with it, either as ~~certificates of deposit~~time deposits or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered.

We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLB, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the FHLB in the future.

CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank’s ability to pay dividends to CB Financial is subject to regulatory limitations. At ~~September 30, 2020,~~March 31, 2021, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of ~~$4.7~~$5.2 million. While the Company is not currently planning to reduce or suspend quarterly dividends, if the Company incurs or is expected to incur significant reduction in earnings as a result of the COVID-19 pandemic, it may need to suspend or reduce the level of quarterly dividends. In addition, primarily due to the COVID-19 pandemic and the expected impacts on the economy, on March 19, 2020, the Company announced that its stock repurchase program was suspended until further notice to preserve excess capital in support of the Bank’s business of providing financial services to its customers and communities. The ability to pay future dividends or conduct stock repurchases may be limited under applicable banking regulations and regulatory policies due to expected losses for future periods and/or the inability to upstream funds from the Bank to the Company as a result of lower income or regulatory capital levels.

Capital Management. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary

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actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. At ~~September 30, 2020,~~March 31, 2021, the Bank's capital ratios were not affected by loans modified in accordance with Section 4013 of the CARES Act. In addition, PPP loans received a zero-percent risk weight under the regulatory capital rules regardless of whether they were pledged as collateral to the Federal Reserve Bank's PPP lending facility, but were included in the Bank's leverage ratio requirement due to the Bank not pledging the loans as collateral to the PPP lending facility.

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The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized as of the dates indicated.


		September 30, 2020				December 31, 2019					March 31, 2021				December 31, 2020
		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Common Equity Tier 1 (to risk weighted assets)	Common Equity Tier 1 (to risk weighted assets)									Common Equity Tier 1 (to risk weighted assets)
Actual	Actual	$	106,494	11.62	%	$	101,703	11.43	%	Actual	$	110,676	11.85	%	$	108,950	11.79	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	41,234		4.50		40,050		4.50		For Capital Adequacy Purposes	42,046		4.50		41,598		4.50
To Be Well Capitalized	To Be Well Capitalized	59,560		6.50		57,851		6.50		To Be Well Capitalized	60,733		6.50		60,086		6.50

Tier 1 Capital (to risk weighted assets)	Tier 1 Capital (to risk weighted assets)									Tier 1 Capital (to risk weighted assets)
Actual	Actual	106,494		11.62		101,703		11.43		Actual	110,676		11.85		108,950		11.79
For Capital Adequacy Purposes	For Capital Adequacy Purposes	54,978		6.00		53,401		6.00		For Capital Adequacy Purposes	56,061		6.00		55,464		6.00
To Be Well Capitalized	To Be Well Capitalized	73,304		8.00		71,201		8.00		To Be Well Capitalized	74,748		8.00		73,952		8.00

Total Capital (to risk weighted assets)	Total Capital (to risk weighted assets)									Total Capital (to risk weighted assets)
Actual	Actual	117,976		12.88		111,570		12.54		Actual	122,368		13.10		120,520		13.04
For Capital Adequacy Purposes	For Capital Adequacy Purposes	73,304		8.00		71,201		8.00		For Capital Adequacy Purposes	74,748		8.00		73,952		8.00
To Be Well Capitalized	To Be Well Capitalized	91,631		10.00		89,001		10.00		To Be Well Capitalized	93,435		10.00		92,440		10.00

Tier 1 Leverage (to adjusted total assets)	Tier 1 Leverage (to adjusted total assets)									Tier 1 Leverage (to adjusted total assets)
Actual	Actual	106,494		7.63		101,703		7.85		Actual	110,676		7.87		108,950		7.81
For Capital Adequacy Purposes	For Capital Adequacy Purposes	55,830		4.00		51,838		4.00		For Capital Adequacy Purposes	56,280		4.00		55,765		4.00
To Be Well Capitalized	To Be Well Capitalized	69,787		5.00		64,798		5.00		To Be Well Capitalized	70,350		5.00		69,706		5.00

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

~~General.~~Management of Interest Rate Risk. The majority of the Company’s assets and liabilities are monetary in nature. Consequently, the Company’s most significant form of market risk is interest rate risk and a principal part of its business strategy is to manage interest rate risk by reducing the exposure of net interest income to changes in market interest rates. Accordingly, the Company’s Board has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in the Company’s assets and liabilities, for determining the level of risk that is appropriate given the Company’s business strategy, operating environment, capital, liquidity and performance objectives; and for managing this risk consistent with the guidelines approved by the Board. Senior management monitors the level of interest rate risk and the Asset/Liability Management Committee meets on a quarterly basis to review its asset/liability policies and position and interest rate risk position, and to discuss and implement interest rate risk strategies.

~~Economic Value of Equity~~.The Company monitors interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of its assets and liabilities (its economic value of equity, or “EVE”) would change in the event of a range of assumed changes in market interest rates.model. The quarterly reports developed in the simulation model assist the Company

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in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within the Company’s policy guidelines. This quantitative analysis measures interest rate risk from both a capital and earnings perspective. With regard to earnings, movements in interest rates and the shape of the yield curve significantly influence the amount of net interest income that is recognized. Movements in market interest rates significantly influence the spread between the interest earned on our interest-earning assets and the interest paid on our interest-bearing liabilities. Our internal interest rate risk analysis calculates the sensitivity of our projected net interest income over a one year period utilizing a static balance sheet assumption through which incoming and outgoing asset and liability cash flows are reinvested into similar instruments. Product pricing and earning asset prepayment speeds are adjusted for each rate scenario.

With regard to capital, our internal interest rate risk analysis calculates the sensitivity of our economic value of equity (“EVE”) ratio to movements in interest rates. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. EVE attempts to quantify our economic value using a discounted cash flow methodology while the EVE ratio reflects that value as a form of capital ratio. The degree to which the EVE ratio changes for any hypothetical interest rate scenario from its base case measurement is a reflection of an institution’s sensitivity to interest rate risk.

For both net interest income and capital at risk, our interest rate risk analysis calculates a base case scenario that assumes no change in interest rates. The model then measures changes throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up and down 100, 200 and 300 basis points with additional scenarios modeled

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where appropriate. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates such as that experienced in the current rate environment at March 31, 2021

The table below sets forth, as of ~~September 30, 2020,~~March 31, 2021, the estimated changes in EVE and net interest income at risk that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

(Dollars in thousands)
Economic Value of Equity EVE as a Percent of Portfolio Value of Assets Earnings at Risk
Change in Interest Rates in Basis Points ("bp") Dollar Amount Dollar Change Percent Change NPV Ratio Change Dollar Amount Dollar Change Percent Change
+300 bp $ 143,389 $ 7,252 5.3 % 11.07 % 132 bp $ 45,995 $ 9,177 24.9 %
+200 bp 143,822 7,685 5.6 10.82 107 43,504 6,686 18.2 %
+100 bp 142,697 6,560 4.8 10.45 70 40,052 3,234 8.8 %
Flat 136,137 — — 9.75 — 36,818 — — %
-100 bp 140,703 4,566 3.4 9.97 22 34,449 (2,369) (6.4) %


	EVE						EVE as a Percent of Portfolio Value of Assets				Net Interest Earnings at Risk
Change in Interest Rates in Basis Points	Dollar Amount		Dollar Change		Percent Change		NPV Ratio		Basis Point Change		Dollar Amount		Dollar Change		Percent Change
(Dollars in thousands)

+300	$	161,400	$	14,911	10.2	%	11.80	%		184	$	48,197	$	10,750	28.7	%
+200	158,791		12,302		8.4		11.34			138	45,044		7,597		20.3
+100	153,779		7,290		5.0		10.70			74	40,959		3,512		9.4
Flat	146,489		—		—		9.96			—	37,447		—		—
-100	140,812		(5,677)		-3.9		9.42			(54)	34,405		(3,042)		-8.1

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE and net interest income require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the ~~EVE tables~~table presented ~~assume~~assumes that the composition of the Company’s interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the ~~EVE tables provide~~table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and net interest income and will differ from actual results. EVE calculations also may not reflect the fair values of financial instruments. For example, changes in market interest rates can increase the fair values of the Company’s loans, deposits and borrowings.

Item 4. Controls and Procedures.

(a)Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2020.~~March 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.

Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

(b)Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2020,~~March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, claims seeking damages for improper collection procedures or misrepresentations, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any other pending legal proceedings that we believe would have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019 and "Part II, Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30,~~ 2020, which could materially affect our business, financial condition or future results. The risks described in such Annual Report on Form 10-K ~~and Form 10-Q~~ are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

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

The Company did not purchase any of its common stock during the three months ended ~~September 30, 2020.~~

On November 20, 2019, the Company announced that the Board had approved a program commencing on November 25, 2019 to repurchase up to $5.0 million of the Company’s outstanding common stock, which was approximately 3.2% of outstanding common shares. On March 19, 2020, the Company announced that the stock repurchase program was suspended until further notice. As of March 19, 2020, the Company had repurchased 69,966 shares. This repurchase program is scheduled to expire on November 24, 2020.31, 2021.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits


			3.1			Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4 filed on June 13, 2014 (File No. 333-196749))
			3.2			Bylaws, as amended (incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on May 20, 2020)
			31.1			Rule 13a-14(a) / 15d-14(a) Certification (Chief Executive Officer)
			31.2			Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer)
			32.1			~~Chief~~C ertification of C hief Executive Officer ~~Certification~~ and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
			~~32.2~~			~~Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
			~~101.0~~101			The following materials for the quarter ended ~~September 30, 2020,~~March 31, 2021, formatted in XBRL (Extensible Business Reporting Language); the (i) Consolidated ~~Statement~~Statements of Financial Condition, (ii) Consolidated ~~Statement~~Statements of ~~(Loss)~~ Income, (iii) Consolidated ~~Statement~~Statements of Comprehensive ~~(Loss)~~ Income, (iv) Consolidated ~~Statement~~Statements of Stockholders’ Equity, (v) Consolidated ~~Statement~~Statements of Cash Flows and (vi) Notes to the ~~Unaudited~~ Consolidated Financial Statements (Unaudited)
			~~104.0~~104			Cover Page Interactive Data File (Embedded within Inline XBRL ~~document)~~contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		CB FINANCIAL SERVICES, INC.
		(Registrant)

Date:	~~November 9, 2020~~May 10, 2021	/s/ John H. Montgomery
		John H. Montgomery
		President and Chief Executive Officer

Date:	~~November 9, 2020~~May 10, 2021	/s/ Jamie L. Prah
		Jamie L. Prah
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

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Nine Months Ended September 30,	2020		2019
(Dollars in thousands)
OPERATING ACTIVITIES
Net (Loss) Income	$	(13,719)	$	9,650
Αdjustmеnts to Rеconcilе Net (Loss) Income to Net Cash Provided By Operating Activities:
Net Accretion on Investments	(9)		(145)
Depreciation and Amortization	2,578		2,730
Provision for Loan Losses	4,000		550
Goodwill impairment	18,693		0
Writedown on Fixed Assets	884		0
Change in Fair Value of Marketable Equity Securities	469		(104)
Net Gain on Purchased Tax Credits	(46)		(27)
Income from Bank-Owned Life Insurance	(417)		(408)
Proceeds From Mortgage Loans Sold	24,317		7,378
Originations of Mortgage Loans for Sale	(23,314)		(7,188)
Net Gain on Sales of Loans	(1,003)		(190)
Net (Gain) Loss on Sales of Investment Securities	(489)		50
Net Loss on Sales of Other Real Estate Owned and Repossessed Assets	26		6
Noncash Expense for Stock-Based Compensation	370		230
(Increase) Decrease in Accrued Interest Receivable	(944)		33
Net Loss (Gain) on Disposal of Fixed Assets	48		(2)
(Decrease) Increase in Taxes Payable	(253)		259
Payments on Operating Leases	(412)		(312)
(Decrease) Increase in Accrued Interest Payable	(252)		331

Other, Net	(1,329)		(136)
NET CASH PROVIDED BY OPERATING ACTIVITIES	9,198		12,705
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities	91,219		34,490
Purchases of Debt and Marketable Equity Securities	(68,851)		(50,185)
Proceeds from Sales of Securities	17,893		29,460
Net Increase in Loans	(100,436)		(21,531)
Purchase of Premises and Equipment	(184)		(66)
Proceeds from Disposal of of Premises and Equipment	26		0
Asset Acquisition of a Customer List	0		(900)
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets	99		1,123
(Increase) Decrease in Restricted Equity Securities	(305)		214
Acquisition of Bank Owned Life Insurance	0		(750)
NET CASH USED IN INVESTING ACTIVITIES	(60,539)		(8,145)
FINANCING ACTIVITIES
Net Increase in Deposits	80,677		39,250
Net Increase (Decrease) in Short-Term Borrowings	11,490		(1,861)
Principal Payments on Other Borrowed Funds	(3,000)		(3,000)
Cash Dividends Paid	(3,888)		(3,911)
Treasury Stock, Purchases at Cost	(1,908)		0
Exercise of Stock Options	(78)		22
NET CASH PROVIDED BY FINANCING ACTIVITIES	83,293		30,500
INCREASE IN CASH AND CASH EQUIVALENTS	31,952		35,060
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR	80,217		53,353
CASH AND DUE FROM BANKS AT END OF PERIOD	$	112,169	$	88,413


Nine Months Ended September 30, 2020	2020		2019
(Dollars in thousands)

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $4,382 and $5,070, respectively)	$	4,694	$	5,497
Income taxes	1,785		2,260
SUPPLEMENTAL NONCASH DISCLOSURE:
Real estate acquired in settlement of loans	115		427

Income tax refund receivable	1,002		0
Loan payoff receivable	5,628		1,644
Right of use asset recognized	329		1,706
Lease liability recognized	329		1,712


	Three Months Ended September 30, 2020
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
(Dollars in thousands)

Real Estate:

Commercial	1	$	504	$	519	$	0
Commercial and Industrial	1	38		38		0
Total	2	$	542	$	557	$	0


	Three Months Ended June 30, 2019
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
(Dollars in thousands)

Real Estate:
Residential	1	$	10	$	10	$	0
Total	1	$	10	10		$	0


	Nine Months Ended September 30, 2019
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
(Dollars in thousands)

Real Estate:
Residential	2	$	71	$	71	$	0
Commercial and Industrial	1	114		114		0
Total	3	$	185	$	185	$	0


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
Outstanding at December 31, 2019	245,153	$	24.36	6.5
Granted	15,000	18.60
Exercised	(20,106)	22.69
Forfeited	(19,776)	26.64
Outstanding at September 30, 2020	220,271	$	23.92	6.1

Exercisable at September 30, 2020	139,548	$	23.67	5.6

	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Service Period in Years
Nonvested at September 30, 2020	80,723	$	24.36	6.9

Summary of Significant Assumptions for Newly Issued Stock Options
Expected Term in Years				6.5
Expected Volatility				25.8		%
Expected Dividends				$	0.96
Risk Free Rate of Return				0.28		%


	Number of Shares	Weighted Average Grant Date Fair Value Price		Weighted Average Remaining Service Period in Years
Nonvested at December 31, 2019	48,030	$	28.83	8.1
Granted	5,000	18.60
Vested	(600)	25.08
Forfeited	(3,300)	29.23
Nonvested at September 30, 2020	49,130	$	27.81	7.6


	Industry							Forbearance
	Weighted Average Risk Rating (1)	Industry Amount		As a Percent of Total Risk Based Capital		As a Percent of Loan Class		Number of Loans	Weighted Average Risk Rating (1)	Forbearance Amount		As a Percent of Industry
(Dollars in thousands)

Commercial Real Estate - Owner Occupied:
Retail	3.6	$	27,109	23.0	%	7.7	%	—	—	$	—	—	%







Commercial Real Estate - Nonowner Occupied:
Retail	3.7	56,185		47.6		15.9		—	—	—		—


Hotels	5.3	24,995		21.2		7.1		5	5.4	10,327		41.3




Construction - Commercial Real Estate:
Retail	4.0	7,992		6.8		11.6		1	4.0	7,162		89.6


Hotels	4.3	5,327		4.5		7.7		—	—	—		—







Total:
Retail	3.7	91,286		77.4				1	4.0	7,162


Hotels	5.1	30,322		25.7				5	5.4	10,327


	(Dollars in thousands)
	Economic Value of Equity						EVE as a Percent of Portfolio Value of Assets				Earnings at Risk
Change in Interest Rates in Basis Points ("bp")	Dollar Amount		Dollar Change		Percent Change		NPV Ratio		Change		Dollar Amount		Dollar Change		Percent Change
+300 bp	$	143,389	$	7,252	5.3	%	11.07	%	132	bp	$	45,995	$	9,177	24.9	%
+200 bp	143,822		7,685		5.6		10.82		107		43,504		6,686		18.2	%
+100 bp	142,697		6,560		4.8		10.45		70		40,052		3,234		8.8	%
Flat	136,137		—		—		9.75		—		36,818		—		—	%
-100 bp	140,703		4,566		3.4		9.97		22		34,449		(2,369)		(6.4)	%