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CBFV CB Financial Services

Filed: 10 May 21, 11:03am
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 001-36706
CB FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania51-0534721
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
100 N. Market Street, Carmichaels, PA15320
(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 shareCBFVThe 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 May 10, 2021, the number of shares outstanding of the Registrant’s Common Stock was 5,434,374.



FORM 10-Q
INDEX



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) March 31,
2021
December 31,
2020
(Dollars in thousands, except per share and share data)
ASSETS
Cash and Due From Banks:
Interest Bearing$216,753 $145,636 
Non-Interest Bearing13,247 15,275 
Total Cash and Due From Banks230,000 160,911 
Securities:
Available-for-Sale Debt Securities, at Fair Value139,406 142,897 
Equity Securities, at Fair Value2,750 2,503 
Total Securities142,156 145,400 
Loans, Net of Allowance for Loan Losses of $12,725 and $12,771 at March 31, 2021 and December 31, 2020, Respectively1,028,972 1,031,982 
Premises and Equipment, Net20,240 20,302 
Bank-Owned Life Insurance24,916 24,779 
Goodwill9,732 9,732 
Intangible Assets, Net7,867 8,399 
Accrued Interest Receivable and Other Assets12,938 15,215 
TOTAL ASSETS$1,476,821 $1,416,720 
LIABILITIES
Deposits:
Non-Interest Bearing Demand Deposits$377,137 $340,569 
NOW Accounts280,929 259,870 
Money Market Accounts198,975 199,029 
Savings Accounts246,725 235,088 
Time Deposits180,697 190,013 
Total Deposits1,284,463 1,224,569 
Short-Term Borrowings45,352 41,055 
Other Borrowings6,000 8,000 
Accrued Interest Payable and Other Liabilities7,230 8,566 
TOTAL LIABILITIES1,343,045 1,282,190 
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized
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, Respectively2,367 2,367 
Capital Surplus82,844 82,723 
Retained Earnings52,673 51,132 
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 Income986 3,402 
TOTAL STOCKHOLDERS' EQUITY133,776 134,530 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,476,821 $1,416,720 


The accompanying notes are an integral part of these consolidated financial statements
1

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
20212020
(Dollars in thousands, except share and per share data)
INTEREST AND DIVIDEND INCOME
Loans, Including Fees$10,146 $10,764 
Investment Securities:
Taxable646 1,201 
Tax-Exempt78 106 
Dividends20 20 
Other Interest and Dividend Income98 238 
TOTAL INTEREST AND DIVIDEND INCOME10,988 12,329 
INTEREST EXPENSE
Deposits947 1,681 
Short-Term Borrowings23 45 
Other Borrowings41 70 
TOTAL INTEREST EXPENSE1,011 1,796 
NET INTEREST AND DIVIDEND INCOME9,977 10,533 
Provision For Loan Losses2,500 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES9,977 8,033 
NONINTEREST INCOME
Service Fees546 605 
Insurance Commissions1,595 1,283 
Other Commissions165 110 
Net Gain on Sales of Loans86 127 
Net Gain (Loss) on Securities447 (438)
Net Gain on Purchased Tax Credits18 15 
Net Gain on Disposal of Fixed Assets17 
Income from Bank-Owned Life Insurance137 139 
Other Income180 14 
TOTAL NONINTEREST INCOME3,174 1,872 
NONINTEREST EXPENSE
Salaries and Employee Benefits4,894 4,731 
Occupancy710 733 
Equipment266 257 
Data Processing518 425 
FDIC Assessment250 158 
PA Shares Tax265 275 
Contracted Services687 378 
Legal and Professional Fees189 235 
Advertising140 183 
Other Real Estate Owned Income(38)(17)
Amortization of Intangible Assets532 532 
Other Expense982 1,113 
TOTAL NONINTEREST EXPENSE9,395 9,003 
Income Before Income Tax Expense3,756 902 
Income Tax Expense911 129 
NET INCOME$2,845 $773 
EARNINGS PER SHARE
Basic$0.52 $0.14 
Diluted0.52 0.14 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic5,434,374 5,431,199 
Diluted5,436,881 5,456,867 
The accompanying notes are an integral part of these consolidated financial statements
2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
March 31,
20212020
(Dollars in thousands)
Net Income$2,845 $773 
Other Comprehensive (Loss) Income:
Change in Unrealized (Loss) Gain on Investment Securities Available-for-Sale(2,851)3,518 
Income Tax Effect612 (739)
Reclassification Adjustment for Gain on Sale of Debt Securities Included in Net Income (1)
(225)
Income Tax Effect (2)
48 
Other Comprehensive (Loss) Income, Net of Income Tax Effect(2,416)2,779 
Total Comprehensive Income$429 $3,552 
(1)    Reported in Net Gain (Loss) on Securities on the Consolidated Statements of Income.
(2)    Reported in Income Tax Expense on the Consolidated Statements of Income.
The accompanying notes are an integral part of these consolidated financial statements
3

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury StockAccumulated Other
Comprehensive Income (Loss)
Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 20205,680,993 $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, 20215,680,993 $2,367 $82,844 $52,673 $(5,094)$986 $133,776 
Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury StockAccumulated Other
Comprehensive Income
Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 20195,680,993 $2,367 $82,971 $66,955 $(3,842)$2,646 $151,097 
Comprehensive Income:
Net Income— — — 773 — — 773 
Other Comprehensive Income— — — — — 2,779 2,779 
Restricted Stock Awards Forfeited— — 96 — (96)— 
Stock-Based Compensation Expense— — 145 — — — 145 
Exercise of Stock Options— — — (68)— (64)
Treasury Stock Purchased, at cost (67,816 shares)— �� — — (1,908)— (1,908)
Dividends Paid ($0.24 Per Share)— — — (1,297)— — (1,297)
March 31, 20205,680,993 $2,367 $83,216 $66,431 $(5,914)$5,425 $151,525 

The accompanying notes are an integral part of these consolidated financial statements
4

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,20212020
(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 Securities31 (70)
Depreciation and Amortization562 941 
Provision for Loan Losses2,500 
(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 Sold2,251 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(4)
Noncash Expense for Stock-Based Compensation121 145 
Decrease in Accrued Interest Receivable134 23 
Net Gain on Disposal of Fixed Assets(17)
Increase (Decrease) in Taxes Payable893 (1,165)
Payments on Operating Leases(88)(110)
Decrease in Accrued Interest Payable(141)(124)
Refund of Federal and State Income Taxes1,311 
Other, Net(597)414 
NET CASH PROVIDED BY OPERATING ACTIVITIES4,469 3,590 
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities10,953 46,498 
Purchases of Securities(22,299)(19,824)
Proceeds from Sale of Securities11,930 
Net Decrease (Increase) in Loans3,148 (18,861)
Purchase of Premises and Equipment(199)(17)
Proceeds From Sale of Other Real Estate Owned22 
Decrease in Restricted Equity Securities200 66 
NET CASH PROVIDED BY INVESTING ACTIVITIES3,733 7,884 
FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits59,894 (11,719)
Net Increase in Short-Term Borrowings4,297 4,396 
Principal Payments on Other Borrowed Funds(2,000)(3,000)
Cash Dividends Paid(1,304)(1,297)
Treasury Stock, Purchases at Cost(1,908)
Exercise of Stock Options(64)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES60,887 (13,592)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS69,089 (2,118)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR160,911 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

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 202120212020
(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 Loans76 
Securities Sold Not Settled2,450 
Right of Use Asset Recognized23 
Lease Liability Recognized23 

The accompanying notes are an integral part of these consolidated financial statements
6

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, 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, 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.
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 operations, and digital marketing and technology investments.
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.
7

Reclassifications
Certain comparative amounts for the prior year have been reclassified to conform to the current year presentation. Such reclassifications did not affect net 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 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 December 2019, FASB issued ASU 2019-12, Income taxes (Topic 740); Simplifying the Accounting for Income Taxes. ASU 2019-12 provides amendments intended to reduce the cost and complexity in accounting for 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 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 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 using the equity method. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated statements of financial condition or results of 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.
8

Note 2. Earnings Per Share
There are 0 convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statements of 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
March 31,
20212020
(Dollars in thousands, except share and per share data)
Net Income$2,845 $773 
Weighted-Average Basic Common Shares Outstanding5,434,374 5,431,199 
Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)2,507 25,668 
Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding5,436,881 5,456,867 
Earnings Per Share:
Basic$0.52 $0.14 
Diluted0.52 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
March 31,
20212020
Stock Options201,662 78,545 
Restricted Stock33,610 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.
9

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 $$(2,304)$48,688 
Obligations of States and Political Subdivisions20,664 1,063 21,727 
Mortgage-Backed Securities - Government-Sponsored Enterprises66,495 2,673 (177)68,991 
Total Available-for-Sale Debt Securities138,151 3,736 (2,481)139,406 
Equity Securities:
Mutual Funds1,001 
Other1,749 
Total Equity Securities2,750 
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 Subdivisions20,672 1,321 21,993 
Mortgage-Backed Securities - Government-Sponsored Enterprises75,900 3,593 79,493 
Total Available-for-Sale Debt Securities138,566 4,926 (595)142,897 
Equity Securities:
Mutual Funds1,019 
Other1,484 
Total Equity Securities2,503 
Total Securities$145,400 
10

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:
March 31, 2021
Less than 12 months12 Months or GreaterTotal
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)
U.S. Government Agencies12 $48,688 $(2,304)$$12 $48,688 $(2,304)
Mortgage Backed Securities- Government Sponsored Enterprises13,097 (177)13,097 (177)
Total15 $61,785 $(2,481)$$15 $61,785 $(2,481)
December 31, 2020
Less than 12 months12 Months or GreaterTotal
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)
U.S. Government Agencies$32,399 $(595)$$$32,399 $(595)
Total$32,399 $(595)$$$32,399 $(595)
For debt securities, the Company does not believe that any individual unrealized loss as of March 31, 2021 or December 31, 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 March 31, 2021 and December 31, 2020 relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell, and 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:
March 31, 2021
Amortized
Cost
Fair
Value
(Dollars in thousands)
Due in One Year or Less$500 $500 
Due after One Year through Five Years4,807 4,872 
Due after Five Years through Ten Years64,948 64,085 
Due after Ten Years67,896 69,949 
Total$138,151 $139,406 
11

The following table presents the gross realized gain and loss on sales of debt securities, as well as gain and loss on equity securities from both sales and market adjustments for the periods indicated. All gains and losses presented in the table below are reported in net gain (loss) on securities on the Consolidated Statements of Income.
Three Months Ended
March 31,
20212020
(Dollars in thousands)
Debt Securities
Gross Realized Gain$225 $
Gross Realized Loss
Net Gain on Debt Securities$225 $
Equity Securities
Net Unrealized Gain (Loss) Recognized on Securities Held$222 $(438)
Net Realized Gain Recognized on Securities Sold
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 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 are generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk.
Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan.
12

The following table presents the classifications of loans as of the dates indicated.
March 31, 2021December 31, 2020
AmountPercentAmountPercent
(Dollars in thousands)
Real Estate:
Residential$339,596 32.6 %$344,142 32.9 %
Commercial370,118 35.5 373,555 35.9 
Construction77,714 7.5 72,600 6.9 
Commercial and Industrial128,931 12.4 126,813 12.1 
Consumer111,650 10.7 113,854 10.9 
Other13,688 1.3 13,789 1.3 
Total Loans1,041,697 100.0 %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, $10.1 million in loans for health care and social assistance, $8.2 million for professional and technical services, $3.5 million for retail trade, $5.0 million for restaurant and food services, $4.9 million for manufacturing, and $4.5 million for wholesale trade. Net unamortized PPP loan origination fees as of March 31, 2021 and December 31, 2020 were $1.5 million and $1.1 million, respectively. $535,000 of net PPP loan origination fees were earned for the three months ended 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 $2.0 million at March 31, 2021 and December 31, 2020, respectively.
The Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first four categories are not 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 substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and 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 facts, is highly improbable. Loans classified as loss are considered uncollectable and of such little value that continuance as an asset is not warranted.
13

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 March 31, 2021 and December 31, 2020, there were 0 loans in the criticized category of Loss within the internal risk rating system.
March 31, 2021
Pass
Special
Mention
SubstandardDoubtfulTotal
(Dollars in Thousands)
Real Estate:
Residential$336,031 $1,090 $2,475 $$339,596 
Commercial322,743 31,818 15,557 370,118 
Construction72,969 2,145 2,600 77,714 
Commercial and Industrial114,911 7,943 5,493 584 128,931 
Consumer111,598 52 111,650 
Other13,612 76 13,688 
Total Loans$971,864 $43,072 $26,177 $584 $1,041,697 
December 31, 2020
Pass
Special
Mention
SubstandardDoubtfulTotal
(Dollars in Thousands)
Real Estate:
Residential$340,573 $1,115 $2,454 $$344,142 
Commercial320,358 37,482 15,715 373,555 
Construction68,343 53 4,204 72,600 
Commercial and Industrial113,797 7,787 4,620 609 126,813 
Consumer113,805 49 113,854 
Other13,711 78 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.
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
(Dollars in Thousands)
Real Estate:
Residential$336,483 $1,253 $$$1,253 $1,860 $339,596 
Commercial363,057 7,061 370,118 
Construction77,714 77,714 
Commercial and Industrial127,127 1,804 128,931 
Consumer111,346 249 252 52 111,650 
Other13,688 13,688 
Total Loans$1,029,415 $1,502 $$$1,505 $10,777 $1,041,697 
14

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 $$3,234 $1,841 $344,142 
Commercial365,712 740 741 7,102 373,555 
Construction72,600 72,600 
Commercial and Industrial124,916 1,897 126,813 
Consumer112,952 784 61 853 49 113,854 
Other13,789 13,789 
Total Loans$1,029,036 $3,704 $1,116 $$4,828 $10,889 $1,044,753 
Total unrecorded interest income related to nonaccrual loans was $61,000 and $11,000 for the three months ended March 31, 2021 and 2020, respectively.
15

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.
March 31,
2021
December 31,
2020
(Dollars in Thousands)
Nonaccrual Loans:
Real Estate:
Residential$1,860 $1,841 
Commercial7,061 7,102 
Commercial and Industrial1,804 1,897 
Consumer52 49 
Total Nonaccrual Loans10,777 10,889 
Accruing Loans Past Due 90 Days or More:
Real Estate:
Residential
Consumer
Total Accruing Loans Past Due 90 Days or More
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More10,777 10,897 
Troubled Debt Restructurings, Accruing:
Real Estate
Residential641 650 
Commercial2,777 2,861 
Commercial and Industrial57 80 
Total Troubled Debt Restructurings, Accruing3,475 3,591 
Total Nonperforming Loans14,252 14,488 
Other Real Estate Owned:
Residential
Commercial208 208 
Total Other Real Estate Owned208 208 
Total Nonperforming Assets$14,460 $14,696 
Nonperforming Loans to Total Loans1.37 %1.39 %
Nonperforming Assets to Total Assets0.98 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 $754,000 and $806,000 at March 31, 2021 and December 31, 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 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 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 January 1, 2022 (as extended by the
16

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.
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 as of the dates indicated.
March 31, 2021December 31, 2020
Number
of
Loans
Amount% of PortfolioNumber
of
Loans
Amount% of Portfolio
(Dollars in thousands)
Real Estate:
Residential1,343 0.4 %749 0.2 %
Commercial13,814 3.7 %19,818 5.3 %
Construction1,958 2.5 %1,958 2.7 %
Commercial and Industrial1,219 0.9 %1,219 1.0 %
Consumer106 0.1 %13 356 0.3 %
Total Loans in Forbearance25 $18,440 1.8 %31 $24,100 2.3 %
Loans in deferral at March 31, 2021 include 2 commercial real estate loans 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 $3.3 million, and 5 commercial and industrial loans totaling $1.2 million. All loans will have exited their deferral 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 16 loans totaling $4.1 million at March 31, 2021 and 17 loans totaling $4.2 million at December 31, 2020, respectively.
During the three months ended March 31, 2021, there were 0 loans that were modified that were considered a TDR and 1 residential real estate loan modified in a TDR totaling $3,000 that paid off. During the three months ended March 31, 2020, there were 0 loans that were modified that were considered a TDR and 0 loans modified in a TDR that paid off. NaN TDRs subsequently defaulted during the three months ended March 31, 2021 and 2020, respectively.
17

The following table presents a summary of the loans considered to be impaired as of the dates indicated.
March 31, 2021
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
(Dollars in thousands)
With No Related Allowance Recorded:
Real Estate:
Residential$1,174 $— $1,178 $1,177 $12 
Commercial33,497 — 33,627 33,666 361 
Construction2,599 — 2,599 2,599 23 
Commercial and Industrial3,703 — 3,938 3,956 28 
Total With No Related Allowance Recorded$40,973 $— $41,342 $41,398 $424 
With A Related Allowance Recorded:
Real Estate:
Residential$$$$$
Commercial571 269 571 576 
Construction
Commercial and Industrial2,487 502 2,487 2,512 17 
Total With A Related Allowance Recorded$3,058 $771 $3,058 $3,088 $23 
Total Impaired Loans:
Real Estate:
Residential$1,174 $$1,178 $1,177 $12 
Commercial34,068 269 34,198 34,242 367 
Construction2,599 2,599 2,599 23 
Commercial and Industrial6,190 502 6,425 6,468 45 
Total Impaired Loans$44,031 $771 $44,400 $44,486 $447 
18

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 
Commercial31,865 — 32,887 37,443 1,418 
Construction4,204 — 4,204 4,013 159 
Commercial and Industrial3,296 — 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$$$$$
Commercial1,524 293 1,524 1,585 72 
Construction
Commercial and Industrial2,069 356 2,069 2,114 57 
Total With A Related Allowance Recorded$3,593 $649 $3,593 $3,699 $129 
Total Impaired Loans
Real Estate:
Residential$1,183 $$1,187 $1,194 $46 
Commercial33,389 293 34,411 39,028 1,490 
Construction4,204 4,204 4,013 159 
Commercial and Industrial5,365 356 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 summarized by 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
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
December 31, 2020$2,249 $6,010 $889 $1,423 $1,283 $$917 $12,771 
Charge-offs(95)(95)
Recoveries12 28 49 
Provision(283)(93)50 108 (113)331 
March 31, 2021$1,975 $5,917 $939 $1,543 $1,103 $$1,248 $12,725 
19

March 31, 2021
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
Individually Evaluated for Impairment$$269 $$502 $$$$771 
Collectively Evaluated for Potential Impairment$1,975 $5,648 $939 $1,041 $1,103 $$1,248 $11,954 
December 31, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
Individually Evaluated for Impairment$$293 $$356 $$$$649 
Collectively Evaluated for Potential Impairment$2,249 $5,717 $889 $1,067 $1,283 $$917 $12,122 
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
December 31, 2019$2,023 $3,210 $285 $2,412 $1,417 $$520 $9,867 
Charge-offs(25)(99)(124)
Recoveries14 54 79 
Provision685 1,651 379 (829)507 107 2,500 
March 31, 2020$2,685 $4,875 $664 $1,592 $1,879 $$627 $12,322 
March 31, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
Individually Evaluated for Impairment$$392 $$259 $$$$651 
Collectively Evaluated for Potential Impairment$2,685 $4,483 $664 $1,333 $1,879 $$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
20

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.
March 31, 2021
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherTotal
(Dollars in thousands)
Individually Evaluated for Impairment$1,174 $34,068 $2,599 $6,190 $$$44,031 
Collectively Evaluated for Potential Impairment338,422 336,050 75,115 122,741 111,650 13,688 997,666 
Total Loans$339,596 $370,118 $77,714 $128,931 $111,650 $13,688 $1,041,697 
December 31, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherTotal
(Dollars in thousands)
Individually Evaluated for Impairment$1,183 $33,389 $4,204 $5,365 $$$44,141 
Collectively Evaluated for Potential Impairment342,959 340,166 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, 2020$1,194 
Accretable Yield(138)
March 31, 2021$1,056 
Note 5. Deposits
The following table shows the maturities of time deposits for the next five years and beyond at the date indicated.
March 31,
2021
(Dollars in thousands)
One Year or Less$79,821 
Over One Through Two Years51,301 
Over Two Through Three Years25,961 
Over Three Through Four Years8,582 
Over Four Through Five Years11,237 
Over Five Years3,795 
Total$180,697 
21

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $53.9 million and $59.2 million as of March 31, 2021 and December 31, 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.
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.
March 31, 2021December 31, 2020
AmountWeighted
Average
Rate
AmountWeighted
Average
Rate
(Dollars in thousands)
Securities Sold Under Agreements to Repurchase:
Balance at Period End$45,352 0.21 %$41,055 0.21 %
Average Balance Outstanding During the Period41,094 0.23 37,819 0.36 
Maximum Amount Outstanding at any Month End45,352 46,123 
Securities Collaterizing the Agreements at Period-End:
Carrying Value47,430 46,312 
Market Value46,571 47,283 
Note 7. Other Borrowed Funds
Other borrowed funds consist of fixed rate advances from the FHLB. The following table sets forth the scheduled maturities of other borrowed funds at the dates indicated.
March 31, 2021December 31, 2020
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
(Dollars in thousands)
Due in One Year$3,000 2.23 %$2,000 2.12 %
Due After One Year to Two Years3,000 2.41 3,000 2.23 
Due After Two Years to Three Years3,000 2.41 
Total$6,000 2.32 %$8,000 2.27 %
As of March 31, 2021, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $433.0 million with the FHLB and available borrowing capacity of $332.7 million. This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $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 March 31, 2021, of which there was 0 outstanding 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 March 31, 2021 and December 31, 2020, respectively.
22

At March 31, 2021, the Company maintained a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $84.4 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $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 $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 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 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 three months ended March 31, 2021 or year ended December 31, 2020.
Fair Value
Hierarchy
March 31
2021
December 31
2020
(Dollars in thousands)
Securities:
Available-for-Sale Debt Securities
U.S. Government AgenciesLevel 2$48,688 $41,411 
Obligations of States and Political SubdivisionsLevel 221,727 21,993 
Mortgage-Backed Securities - Government-Sponsored EnterprisesLevel 268,991 79,493 
Total Available-for-Sale Debt Securities139,406 142,897 
Equity Securities
Mutual FundsLevel 11,001 1,019 
OtherLevel 11,749 1,484 
Total Equity Securities2,750 2,503 
Total Securities$142,156 $145,400 
23

The following table presents the financial assets on the Consolidated 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.
Financial AssetFair Value HierarchyMarch 31,
2021
Valuation
Techniques
Significant Unobservable InputsRangeWeighted Average
(Dollars in thousands)
Impaired Loans Individually AssessedLevel 3$2,287 
Appraisal of Collateral (1)
Appraisal Adjustments (2)
%to50 %0
Mortgage Servicing RightsLevel 3766 Discounted Cash FlowDiscount Rate%to11 %9.8%
Prepayment Speed%to23 %13.8%
Financial AssetFair Value HierarchyDecember 31,
2020
Valuation
Techniques
Significant Unobservable InputsRangeWeighted Average
(Dollars in thousands)
Impaired Loans Individually AssessedLevel 3$2,944 
Appraisal of Collateral (1)
Appraisal Adjustments (2)
%to50 %0
Mortgage Servicing RightsLevel 3656 Discounted Cash FlowDiscount Rate%to11 %10.0%
Prepayment Speed12 %to27 %18.7%
OREOLevel 334 
Appraisal of Collateral (1)
Liquidation Expenses (2)
10 %to30 %0
(1)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 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 March 31, 2021 and December 31, 2020, the fair value of impaired loans consists of the loan balances of $3.1 million and $3.6 million, respectively, less their specific valuation allowances of $771,000 and $649,000, respectively.
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 in the Consolidated Statements of Financial Condition and are amortized into mortgage servicing income in Other Income in the Consolidated Statements of 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.
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, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.
24

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.
March 31, 2021December 31, 2020
Fair Value
Hierarchy
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(Dollars in thousands)
Financial Assets:
Cash and Due From Banks:
Interest BearingLevel 1$216,753 $216,753 $145,636 $145,636 
Non-Interest BearingLevel 113,247 13,247 15,275 15,275 
SecuritiesSee Above142,156 142,156 145,400 145,400 
Loans, NetLevel 31,028,972 1,065,445 1,031,982 1,073,633 
Restricted StockLevel 23,784 3,784 3,984 3,984 
Mortgage Servicing RightsLevel 3766 766 656 656 
Accrued Interest ReceivableLevel 23,738 3,738 3,872 3,872 
Financial Liabilities:
DepositsLevel 21,284,463 1,287,325 1,224,569 1,231,606 
Short-Term BorrowingsLevel 245,352 45,352 41,055 41,055 
Other Borrowed FundsLevel 26,000 6,098 8,000 8,067 
Accrued Interest PayableLevel 2626 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 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.
25

The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated.
March 31,
2021
December 31,
2020
(Dollars in thousands)
Standby Letters of Credit$110 $120 
Performance Letters of Credit2,753 2,947 
Construction Mortgages54,628 60,312 
Personal Lines of Credit7,120 6,930 
Overdraft Protection Lines6,189 6,287 
Home Equity Lines of Credit23,160 22,110 
Commercial Lines of Credit74,272 69,738 
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 Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated 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
March 31,
20212020
(Dollars in thousands)
Operating Lease Expense$95 $116 
Short-Term Lease Expense
Variable Lease Expense
Total Lease Expense$111 $125 
March 31,
2021
December 31,
2020
(Dollars in thousands)
Operating Leases:
ROU Assets$1,118 $1,206 
Weighted Average Lease Term in Years7.006.95
Weighted Average Discount Rate2.42 %2.39 %
26

March 31,
2021
(Dollars in throusands)
Maturity Analysis:
Due in One Year$346 
Due After One Year to Two Years249 
Due After Two Years to Three Years125 
Due After Three Years to Four Years107 
Due After Four to Five Years60 
Due After Five Years352 
Total$1,239 
Less: Present Value Discount118 
Lease Liabilities$1,121 
Note 11. Other Noninterest Expense
The details of other noninterest expense for the Company’s Consolidated Statements of Income for the periods indicated are as follows:
Three Months Ended
March 31,
20212020
(Dollars in thousands)
Non-Employee Compensation$148 $147 
Printing and Supplies99 101 
Postage63 61 
Telephone188 169 
Charitable Contributions15 51 
Dues and Subscriptions50 76 
Loan Expenses92 145 
Meals and Entertainment34 40 
Travel22 54 
Training17 
Bank Assessment44 44 
Insurance60 56 
Miscellaneous150 162 
Total Other Noninterest Expense$982 $1,113 
Note 12. Segment and Related Information
At 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.
27

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 BankExchange Underwriters, Inc.CB Financial Services, Inc.Net EliminationsConsolidated
(Dollars in thousands)
March 31, 2021
Assets$1,477,053 $5,207 $133,797 $(139,236)$1,476,821 
Liabilities1,349,183 1,746 21 (7,905)1,343,045 
Stockholders' Equity127,870 3,461 133,776 (131,331)133,776 
December 31, 2020
Assets$1,416,132 $5,379 $134,546 $(139,337)$1,416,720 
Liabilities1,287,148 2,325 16 (7,299)1,282,190 
Stockholders' Equity128,984 3,054 134,530 (132,038)134,530 
Three Months Ended March 31, 2021
Interest and Dividend Income$10,971 $$1,320 $(1,304)$10,988 
Interest Expense1,011 1,011 
Net Interest and Dividend Income9,960 1,320 (1,304)9,977 
Provision for Loan Losses
Net Interest and Dividend Income After Provision for Loan Losses9,960 1,320 (1,304)9,977 
Noninterest Income1,343 1,591 240 3,174 
Noninterest Expense8,390 1,001 9,395 
Undistributed Net Income of Subsidiary407 1,301 (1,708)
Income Before Income Tax Expense3,320 591 2,857 (3,012)3,756 
Income Tax Expense715 184 12 911 
Net Income$2,605 $407 $2,845 $(3,012)$2,845 
Three Months Ended March 31, 2020
Interest and Dividend Income$12,313 $$15 $$12,329 
Interest Expense1,796 1,796 
Net Interest and Dividend Income10,517 15 10,533 
Provision for Loan Losses2,500 2,500 
Net Interest and Dividend Income After Provision for Loan Losses8,017 15 8,033 
Noninterest Income (Loss)1,046 1,281 (455)1,872 
Noninterest Expense8,023 975 9,003 
Undistributed Net Income of Subsidiary213 1,123 (1,336)
Income Before Income Tax Expense (Benefit)1,253 307 678 (1,336)902 
Income Tax Expense (Benefit)130 94 (95)129 
Net Income$1,123 $213 $773 $(1,336)$773 
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Note 13. Intangible Assets
The following table presents a summary of intangible assets subject to amortization at the dates indicated.
March 31, 2021December 31, 2020
Gross Carrying AmountAccumulated AmortizationNet Carrying ValueGross Carrying AmountAccumulated AmortizationNet Carrying Value
(Dollars in thousands)
Core Deposit Intangible$14,103 $(7,532)$6,571 $14,103 $(7,047)$7,056 
Customer List1,800 (504)1,296 1,800 (457)1,343 
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
(Dollars in thousands)
Remaining in 2021$1,596 
20222,128 
20232,128 
20241,430 
2025189 
2026 and Thereafter396 
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,
20212020
(Dollars in thousands)
Mortgage Servicing Rights:
Balance, Beginning of Period$1,029 $1,001 
Additions17 45 
Amortization(79)(54)
Balance, End of Period$967 $992 
Valuation Allowance:
Balance, Beginning of Period$(373)$(71)
Valuation Allowance Adjustment172 
Balance, End of Period$(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.
29

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, 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 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.
30

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 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. The Bank also has a loan production office in 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 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 March 31, 2021, compared to the financial condition as of December 31, 2020 and the consolidated results of operations for the three months ended March 31, 2021 compared to the three months ended 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.
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
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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. 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 anticipates some recovery of these costs over time. The Company expects an annual reduction in pre-tax operating expenses in 2021 of approximately $1.5 million, along with $3.0 million of ongoing pre-tax cost savings as a result of the implementation of the 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 operations, and digital marketing and 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 21.0%. 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
March 31,
20212020
(Dollars in thousands)
Interest Income per Consolidated Statements of Income (GAAP)$10,988 $12,329 
Adjustment to FTE Basis40 53 
Interest Income (FTE) (Non-GAAP)11,028 12,382 
Interest Expense per Consolidated Statements of Income1,011 1,796 
Net Interest Income (FTE) (Non-GAAP)$10,017 $10,586 
Net Interest Rate Spread (GAAP)2.91 %3.34 %
Adjustment to FTE Basis0.01 0.01 
Net Interest Rate Spread (FTE) (Non-GAAP)2.92 3.35 
Net Interest Margin (GAAP)3.04 %3.55 %
Adjustment to FTE Basis0.01 0.02 
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.
March 31, 2021December 31, 2020
(Dollars in thousands) 
Allowance for Loan Losses (Numerator)$12,725 $12,771 
Total Loans1,041,697 $1,044,753 
PPP Loans(60,380)(55,096)
Total Loans, Excluding PPP Loans (Non-GAAP) (Denominator)$981,317 $989,657 
Allowance for Loan Losses to Total Loans (GAAP)1.22 %1.22 %
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 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.
March 31, 2021December 31, 2020
(Dollars in thousands, except share and per share data) 
Stockholders' Equity (GAAP)$133,776 $134,530 
Goodwill and Other Intangible Assets, Net(17,599)(18,131)
Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator)$116,177 $116,399 
Common Shares Outstanding (Denominator)5,434,374 5,434,374 
Book Value per Common Share (GAAP)$24.62 $24.76 
Tangible Book Value per Common Share (Non-GAAP)$21.38 $21.42 
Consolidated Statements of Financial Condition Analysis
Assets. Total assets increased $60.1 million, or 4.2%, to $1.48 billion at March 31, 2021, compared to $1.42 billion at December 31, 2020.
Cash and Securities
Cash and due from banks increased $69.1 million, or 42.9%, to $230.0 million at March 31, 2021, compared to $160.9 million at December 31, 2020. The change is primarily due to an increase in Deposits as further described below in the Liabilities section.
Securities decreased $3.2 million, or 2.2%, to $142.2 million at March 31, 2021, compared to $145.4 million at December 31, 2020. Current period activity included $11.0 million of paydowns on mortgage-backed securities, $22.3 million of mortgage-backed securities and U.S. government agency securities purchases, and $11.9 million of mortgage-backed securities sales, which resulted in the recognition of a $225,000 gain on the sale of securities. The sales recognized gains on higher-interest securities with faster prepayment speeds. In addition, there was a $3.1 million decrease in the market value of the debt securities portfolio and a $222,000 gain in market value in the equity securities portfolio, which is primarily comprised of bank stocks.
Payroll Protection Program (“PPP”) Update
The Small Business Administration reopened the 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.
$1.1 million of net PPP loan origination fees were unearned at December 31, 2020. Due to activity in the first quarter of 2021, $1.5 million of net PPP loan origination fees were unearned at March 31, 2021. $535,000 of net PPP loan
33

origination fees were earned in the first quarter of 2021 compared to $604,000 for the three months ended December 31, 2020.
Loans, Allowance for Loan Losses and Credit Quality
Total loans decreased $3.1 million to $1.04 billion at March 31, 2021. Excluding the impact of 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 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 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 $12.7 million at March 31, 2021 compared to $12.8 million at December 31, 2020. There was no provision for loan losses in the first quarter. An $8.3 million decrease in net reservable loans in the current period, which excludes PPP loan activity, and improving economic and industry condition contributed to the lack of provision in the current period. As a result, the allowance for loan losses to total loans of 1.22% at March 31, 2021 was comparable to the percentage at December 31, 2020. No allowance was allocated to the PPP loan portfolio. The allowance for loan losses to total loans, excluding PPP loans, was 1.30% at March 31, 2021 compared to 1.29% at December 31, 2020.
Nonperforming loans decreased to $14.3 million at March 31, 2021 compared to $14.5 million at December 31, 2020 and, coupled with a decrease in loans noted previously, resulted in the nonperforming loans to total loans ratio decrease to 1.37% at March 31, 2021 compared to 1.39% at December 31, 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.
March 31, 2021December 31, 2020
Number
of
Loans
Amount% of PortfolioNumber
of
Loans
Amount% of Portfolio
(Dollars in thousands)
Real Estate:
Residential1,343 0.4 %749 0.2 %
Commercial13,814 3.7 %19,818 5.3 %
Construction1,958 2.5 %1,958 2.7 %
Commercial and Industrial1,219 0.9 %1,219 1.0 %
Consumer106 0.1 %13 356 0.3 %
Total Loans in Forbearance25 $18,440 1.8 %31 $24,100 2.3 %
Loans in deferral at March 31, 2021 include two commercial real estate loans 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 $3.3 million, and five commercial and industrial loans totaling $1.2 million. All loans will have exited their deferral 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 prepaid expenses.
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Liabilities. Total liabilities increased $60.9 million, or 4.7%, to $1.34 billion at March 31, 2021 compared to $1.28 billion at December 31, 2020.
Deposits
Deposits increased $59.9 million to $1.28 billion as of March 31, 2021 compared to $1.22 billion at December 31, 2020. Noninterest bearing demand deposits, NOW accounts and savings accounts increased $36.6 million, $21.1 million and $11.6 million, respectively, partially offset by a decrease of $9.3 million in time deposits. 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 initially deposited at the Bank was approximately $23.4 million. Annualized deposit growth rate was 19.6% including PPP loan deposits and 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 $4.3 million, or 10.5%, to $45.4 million at March 31, 2021, compared to $41.1 million at December 31, 2020. At March 31, 2021 and December 31, 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 $2.0 million to $6.0 million at March 31, 2021 due to a Federal Home Loan Bank borrowing that matured in the current period.
Stockholders’ Equity. Stockholders’ equity decreased $754,000, or 0.6%, to $133.8 million at March 31, 2021, compared to $134.5 million at December 31, 2020.
Net income was $2.8 million for the three months ended March 31, 2021.
Accumulated other comprehensive income 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 $1.3 million in dividends to common stockholders in the current period.
Book value per share was $24.62 at March 31, 2021 compared to $24.76 at December 31, 2020, a decrease of $0.14. Tangible book value per share decreased $0.04, or 0.2%, to $21.38 compared to $21.42 at December 31, 2020. Refer to Explanation of Use of Non-GAAP Financial Measures in this Report.
Consolidated Results of Operations for the Three Months Ended March 31, 2021 and 2020 
Overview. Net income was $2.8 million for the three months ended March 31, 2021, an increase of $2.1 million compared to net income of $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 March 31, 2021 compared to $10.5 million for the three months ended March 31, 2020. Net interest margin (FTE) (Non-GAAP) decreased 52 basis points (“bps”) to 3.05% for the three months ended March 31, 2021 compared to 3.57% the three months ended March 31, 2020. Net interest margin (GAAP) decreased to 3.04% for the three months ended March 31, 2021 compared to 3.55% for the three months ended March 31, 2020.
Interest and Dividend Income
Interest and dividend income decreased $1.3 million, or 10.9%, to $11.0 million for the three months ended March 31, 2021 compared to $12.3 million the three months ended March 31, 2020.
Interest income on loans decreased $618,000, or 5.7%, to $10.1 million for the three months ended March 31, 2021 compared to $10.8 million for the three months ended March 31, 2020. While average loans increased $81.2 million compared to the three months ended March 31, 2020, the average yield decreased 57 bps to 4.00%. The current quarter loan yield compared to the quarter ended 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. PPP loans decreased loan yield approximately 5 bps but that was offset by the recognition of $535,000 of net PPP loan origination fees in the current period.
The impact of the accretion of the credit mark on acquired loan portfolios was $138,000 for the three months ended March 31, 2021 compared to $76,000 for the three months ended March 31, 2020, or 6 bps in the current period compared to 3 bps in the prior period.
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Interest income on taxable investment securities decreased $555,000, or 46.2%, to $646,000 for the three months ended March 31, 2021 compared to $1.2 million for the three months ended March 31, 2020 driven by a $35.8 million decrease in average investment securities balances and 93 bps decrease in average yield. The Federal Reserve’s pandemic-driven decision to drop the benchmark interest rate in 2020 resulted in significant calls of U.S. government agency securities and paydowns on mortgage-backed securities in the declining interest rate environment, which were replaced with lower-yielding securities or maintained in cash.
Other interest and dividend income, which primarily consists of interest-bearing cash, decreased $140,000, or 58.8% to $98,000 for the three months ended March 31, 2021 compared to $238,000 for the three months ended March 31, 2020. Average other interest-earning assets increased $97.3 million compared to the three months ended March 31, 2020 primarily from buildup of cash as a result of securities activity, and PPP loan funds and government stimulus payments deposited with the Bank, although average yield declined 123 bps due to interest rate cuts on interest-earning cash deposits held at other financial institutions.
Interest Expense
Interest expense decreased $785,000, or 43.7%, to $1.0 million for the three months ended March 31, 2021 compared to $1.8 million for the three months ended March 31, 2020.
Interest expense on deposits decreased $734,000, or 43.7%, to $947,000 for the three months ended March 31, 2021 compared to $1.7 million for the three months ended March 31, 2020. While average interest-earning deposits increased $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 resulted in a 37 bp, or 46.0%, decrease in average cost compared to the three months ended 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 41.4%, to $41,000 for the three months ended March 31, 2021 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a $5.6 million decrease in average balance.
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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 21.0% 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 March 31,
20212020
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$1,031,853 $10,168 4.00 %$950,661 $10,796 4.57 %
Debt Securities
Taxable122,883 646 2.10 158,655 1,201 3.03 
Tax Exempt12,943 96 2.97 16,837 127 3.02 
Marketable Equity Securities2,632 20 3.04 2,568 20 3.12 
Other Interest-Earning Assets161,871 98 0.25 64,608 238 1.48 
Total Interest-Earning Assets1,332,182 11,028 3.36 1,193,329 12,382 4.17 
Noninterest-Earning Assets92,550 114,056 
Total Assets$1,424,732 $1,307,385 
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits$259,065 77 0.12 %$226,482 267 0.47 %
Savings239,850 32 0.05 218,328 90 0.17 
Money Market197,395 98 0.20 180,982 249 0.55 
Time Deposits187,114 740 1.60 215,449 1,075 2.01 
Total Interest-Bearing Deposits883,424 947 0.43 841,241 1,681 0.80 
Short-Term Borrowings
Securities Sold Under Agreements to Repurchase41,094 23 0.23 29,541 45 0.61 
Other Borrowings7,200 41 2.31 12,780 70 2.20 
Total Interest-Bearing Liabilities931,718 1,011 0.44 883,562 1,796 0.82 
Noninterest-Bearing Demand Deposits349,108 261,504 
Other Liabilities8,869 9,797 
Total Liabilities1,289,695 1,154,863 
Stockholders' Equity135,037 152,522 
Total Liabilities and Stockholders' Equity$1,424,732 $1,307,385 
Net Interest Income (FTE) (Non-GAAP) (5)
$10,017 $10,586 
Net Interest Rate Spread (FTE) (Non-GAAP) (1)(5)
2.92 %3.35 %
Net Interest-Earning Assets (2)
$400,464 $309,767 
Net Interest Margin (FTE) (Non-GAAP) (3)(5)(
3.05 3.57 
Return on Average Assets0.81 0.24 
Return on Average Equity (4)
8.54 2.04 
Average Equity to Average Assets9.48 11.67 
Average Interest-Earning Assets to Average Interest-Bearing Liabilities142.98 135.06 
(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.
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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 21.0%. 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 March 31, 2021
Compared to
Three Months Ended March 31, 2020
Increase (Decrease) Due to
VolumeRateTotal
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net$776 $(1,404)$(628)
Debt Securities:
Taxable(234)(321)(555)
Exempt From Federal Tax(29)(2)(31)
Marketable Equity Securities(1)— 
Other Interest-Earning Assets161 (301)(140)
Total Interest-Earning Assets675 (2,029)(1,354)
Interest Expense:
Deposits67 (801)(734)
Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase$13 $(35)$(22)
Other Borrowings$(32)$$(29)
Total Interest-Bearing Liabilities48 (833)(785)
Change in Net Interest Income$627 $(1,196)$(569)
Provision for Loan Losses. There was no provision for loan losses for the three months ended March 31, 2021 compared to $2.5 million for the three months ended March 31, 2020. In the prior period, the COVID-19 pandemic, which led to state-wide shelter in place orders and mandatory closures of all but essential business resulted in a dramatic increase in unemployment and recessionary economic conditions. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis 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 the $2.5 million provision for loan losses. Those qualitative factors have been decreased as the economic impact from the pandemic has eased. An $8.3 million decrease in net reservable loans in the current quarter, which excludes PPP loan activity, and improving economic and industry condition contributed to the lack of provision in the current period.
Net charge-offs for the three months ended March 31, 2021 were $46,000, or 0.02% of average loans on an annualized basis. Net charge-offs for the three months ended March 31, 2020 were $45,000, or 0.02% of average loans on an annualized basis. Net charge-offs were primarily attributable to indirect automobile loans in both periods.
Noninterest Income. Noninterest income increased $1.3 million, or 69.6%, to $3.2 million for the three months ended March 31, 2021, compared to $1.9 million for the three months ended March 31, 2020.
Service fees decreased $59,000 to $546,000 for the three months ended March 31, 2021, compared to $605,000 for the three months ended March 31, 2020 due to decrease in overdraft fees.
Insurance commissions increased $312,000 to $1.6 million for the three months ended March 31, 2021 compared to $1.3 million for the three months ended March 31, 2020 primarily due to an increase in 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 stop loss charges.
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Net gain on sale of loans was $86,000 for the three months ended March 31, 2021 compared to $127,000 for the three months ended March 31, 2020.
Net gain on securities was $447,000 for the three months ended March 31, 2021 compared to a net loss of $438,000 for the three months ended 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 portfolio, primarily comprised of bank stocks, which experienced a recovery in value from pandemic-related losses. The fair value of the Company’s equity securities declined $438,000 in the first quarter of 2020 from the impact of COVID-19 on the stock market.
Other income (loss) included a $172,000 recapture of temporary impairment on mortgage servicing rights in the current quarter due to an increase in fair value in the serviced mortgage portfolio primarily attributable to prepayment speeds.
Noninterest Expense. Noninterest expense increased $392,000, or 4.4%, to $9.4 million for the three months ended March 31, 2021 compared to $9.0 million for the three months ended March 31, 2020.
Salaries and employee benefits increased $163,000 to $4.9 million for the three months ended March 31, 2021 compared to $4.7 million for the three months ended March 31, 2020. In the prior period, the Company recognized a $407,000 one-time 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 plan.
Contracted services increased $309,000 to $687,000 for the three months ended March 31, 2021 compared to $378,000 for the three months ended March 31, 2020 The 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 third party specialist to assist in core platform improvements and efficiencies.
Data processing increased $93,000 to $518,000 for the 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 primarily due to goodwill impairment negatively impacting the assessment rate in the current period.
Legal fees and professional fees decreased $46,000 to $189,000 for the three months ended March 31, 2021 compared to $235,000 for the three months ended 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 travel-related costs from employee work-at home arrangements during the pandemic.
Income Tax Expense. Income tax expense increased $782,000 to $911,000 for the three months ended March 31, 2021 compared to $129,000 for the three months ended March 31, 2020. This change was primarily due to an increase in pretax income in the current period and an income tax expense adjustment that resulted from amended tax returns as a result of the CARES Act.
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 March 31, 2021 and December 31, 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.
39

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 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 $230.0 million at 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 $13.1 million at March 31, 2021. In addition, at March 31, 2021, the Company had the ability to borrow up to $433.0 million from the FHLB of Pittsburgh, of which $332.7 million is available. The Company also has the ability to borrow up to $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 $50.0 million as of both March 31, 2021 and December 31, 2020.
At March 31, 2021, $79.8 million, or 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 time deposits. The Company believes, however, based on past experience that a significant portion of its time deposits will remain with it, either as 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 March 31, 2021, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $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. 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 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 March 31, 2021 and December 31, 2020, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. At 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.
March 31, 2021December 31, 2020
AmountRatioAmountRatio
(Dollars in thousands)
Common Equity Tier 1 (to risk weighted assets)
Actual$110,676 11.85 %$108,950 11.79 %
For Capital Adequacy Purposes42,046 4.50 41,598 4.50 
To Be Well Capitalized60,733 6.50 60,086 6.50 
Tier 1 Capital (to risk weighted assets)
Actual110,676 11.85 108,950 11.79 
For Capital Adequacy Purposes56,061 6.00 55,464 6.00 
To Be Well Capitalized74,748 8.00 73,952 8.00 
Total Capital (to risk weighted assets)
Actual122,368 13.10 120,520 13.04 
For Capital Adequacy Purposes74,748 8.00 73,952 8.00 
To Be Well Capitalized93,435 10.00 92,440 10.00 
Tier 1 Leverage (to adjusted total assets)
Actual110,676 7.87 108,950 7.81 
For Capital Adequacy Purposes56,280 4.00 55,765 4.00 
To Be Well Capitalized70,350 5.00 69,706 5.00 
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
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.
The Company monitors interest rate risk through the use of a simulation model. The quarterly reports developed in the simulation model assist the Company 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
41

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 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.
EVEEVE as a Percent of Portfolio Value of AssetsNet Interest
Earnings at Risk
Change in Interest Rates in Basis PointsDollar AmountDollar ChangePercent ChangeNPV RatioBasis Point ChangeDollar AmountDollar ChangePercent Change
(Dollars in thousands)
+300$161,400 $14,911 10.2 %11.80 %184 $48,197 $10,750 28.7 %
+200158,791 12,302 8.4 11.34 138 45,044 7,597 20.3 
+100153,779 7,290 5.0 10.70 74 40,959 3,512 9.4 
Flat146,489 — — 9.96 — 37,447 — — 
-100140,812 (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 table presented 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 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 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 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, 2020, which could materially affect our business, financial condition or future results. The risks described in such Annual Report on Form 10-K 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 March 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
3.2
31.1
31.2
32.1
101The following materials for the quarter ended March 31, 2021, formatted in XBRL (Extensible Business Reporting Language); the (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements (Unaudited)
104Cover Page Interactive Data File (Embedded within Inline XBRL 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:May 10, 2021/s/ John H. Montgomery
John H. Montgomery
President and Chief Executive Officer
Date: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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