Table of Contents
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 June 30, 20202021
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 Filerfiler
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 August 7, 2020,5, 2021, the number of shares outstanding of the Registrant’s Common Stock was 5,393,712.5,380,165.


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FORM 10-Q
INDEX
Page


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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTSTATEMENTS OF FINANCIAL CONDITION
(Unaudited) June 30,
2020
December 31,
2019
(Dollars in thousands, except per share and share data)
ASSETS
Cash and Due From Banks:
Interest Bearing$114,794  $68,798  
Non-Interest Bearing16,609  11,419  
Total Cash and Due From Banks131,403  80,217  
Investment Securities:
Available-for-Sale148,648  197,385  
Loans, Net of Allowance for Loan Losses of $12,648 and $9,867 at June 30, 2020 and December 31, 2019, Respectively1,029,511  942,629  
Premises and Equipment, Net21,818  22,282  
Bank-Owned Life Insurance24,499  24,222  
Goodwill28,425  28,425  
Intangible Assets, Net9,463  10,527  
Accrued Interest and Other Assets13,385  15,850  
TOTAL ASSETS$1,407,152  $1,321,537  
LIABILITIES
Deposits:
Non-Interest Bearing Demand Deposits$341,180  $267,152  
NOW Accounts237,343  232,099  
Money Market Accounts184,726  182,428  
Savings Accounts229,388  216,924  
Time Deposits201,303  219,756  
Total Deposits1,193,940  1,118,359  
Short-Term Borrowings42,349  30,571  
Other Borrowings11,000  14,000  
Accrued Interest and Other Liabilities7,471  7,510  
TOTAL LIABILITIES1,254,760  1,170,440  
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 5,393,712 and 5,463,828 Shares Outstanding at June 30, 2020 and December 31, 2019, Respectively2,367  2,367  
Capital Surplus83,327  82,971  
Retained Earnings68,039  66,955  
Treasury Stock, at Cost (287,281 and 217,165 Shares at June 30, 2020 and December 31, 2019, Respectively)(5,928) (3,842) 
Accumulated Other Comprehensive Income4,587  2,646  
TOTAL STOCKHOLDERS' EQUITY152,392  151,097  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,407,152  $1,321,537  


(Unaudited) June 30,
2021
December 31,
2020
(Dollars in thousands, except per share and share data)
ASSETS
Cash and Due From Banks:
Interest Bearing$156,200 $145,636 
Non-Interest Bearing15,810 15,275 
Total Cash and Due From Banks172,010 160,911 
Securities:
Available-for-Sale Debt Securities, at Fair Value205,711 142,897 
Equity Securities, at Fair Value2,761 2,503 
Total Securities208,472 145,400 
Loans Held for Sale11,409 
Loans, Net of Allowance for Loan Losses of $11,544 and $12,771 at June 30, 2021 and December 31, 2020, Respectively995,902 1,031,982 
Premises and Equipment Held for Sale795 
Premises and Equipment, Net18,682 20,302 
Bank-Owned Life Insurance25,052 24,779 
Goodwill9,732 9,732 
Intangible Assets, Net6,186 8,399 
Accrued Interest Receivable and Other Assets13,373 15,215 
TOTAL ASSETS$1,461,613 $1,416,720 
LIABILITIES
Deposits Held for Sale$102,557 $
Deposits:
Non-Interest Bearing Demand Deposits368,452 340,569 
NOW Accounts246,920 259,870 
Money Market Accounts176,824 199,029 
Savings Accounts226,639 235,088 
Time Deposits154,718 190,013 
Total Deposits1,173,553 1,224,569 
Short-Term Borrowings39,054 41,055 
Other Borrowings6,000 8,000 
Accrued Interest Payable and Other Liabilities7,913 8,566 
TOTAL LIABILITIES1,329,077 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 5,409,077 and 5,434,374 Shares Outstanding at June 30, 2021 and December 31, 2020, Respectively2,367 2,367 
Capital Surplus82,969 82,723 
Retained Earnings51,146 51,132 
Treasury Stock, at Cost (271,916 and 246,619 Shares at June 30, 2021 and December 31, 2020, Respectively)(5,655)(5,094)
Accumulated Other Comprehensive Income1,709 3,402 
TOTAL STOCKHOLDERS' EQUITY132,536 134,530 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,461,613 $1,416,720 
The accompanying notes are an integral part of these consolidated financial statements

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CONSOLIDATED STATEMENTSTATEMENTS OF (LOSS) INCOME (UNAUDITED)
Three Months Ended
June 30,
Six Months Ended
June 30, 2020
Three Months Ended
June 30,
Six Months Ended
June 30,
20202019202020192021202020212020
(Dollars in thousands, except share and per share data)(Dollars in thousands, except share and per share data)(Dollars in thousands, except share and per share data)
INTEREST AND DIVIDEND INCOMEINTEREST AND DIVIDEND INCOMEINTEREST AND DIVIDEND INCOME
Loans, Including FeesLoans, Including Fees$10,577  $10,673  $21,341  $21,106  Loans, Including Fees$9,936 $10,577 $20,082 $21,341 
Investment Securities:Investment Securities:Investment Securities:
TaxableTaxable940  1,442  2,141  2,759  Taxable635 940 1,281 2,141 
Tax-ExemptTax-Exempt106  160  212  368  Tax-Exempt74 106 152 212 
DividendsDividends20  20  40  40  Dividends24 20 44 40 
Other Interest and Dividend IncomeOther Interest and Dividend Income84  374  322  692  Other Interest and Dividend Income151 84 249 322 
TOTAL INTEREST AND DIVIDEND INCOMETOTAL INTEREST AND DIVIDEND INCOME11,727  12,669  24,056  24,965  TOTAL INTEREST AND DIVIDEND INCOME10,820 11,727 21,808 24,056 
INTEREST EXPENSEINTEREST EXPENSEINTEREST EXPENSE
DepositsDeposits1,305  1,824  2,986  3,543  Deposits827 1,305 1,774 2,986 
Short-Term BorrowingsShort-Term Borrowings39  50  84  96  Short-Term Borrowings24 39 47 84 
Other BorrowingsOther Borrowings62  90  132  187  Other Borrowings35 62 76 132 
TOTAL INTEREST EXPENSETOTAL INTEREST EXPENSE1,406  1,964  3,202  3,826  TOTAL INTEREST EXPENSE886 1,406 1,897 3,202 
NET INTEREST INCOME10,321  10,705  20,854  21,139  
Provision For Loan Losses300  350  2,800  375  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES10,021  10,355  18,054  20,764  
NET INTEREST AND DIVIDEND INCOMENET INTEREST AND DIVIDEND INCOME9,934 10,321 19,911 20,854 
(Recovery) Provision For Loan Losses(Recovery) Provision For Loan Losses(1,200)300 (1,200)2,800 
NET INTEREST INCOME AFTER (RECOVERY) PROVISION FOR LOAN LOSSESNET INTEREST INCOME AFTER (RECOVERY) PROVISION FOR LOAN LOSSES11,134 10,021 21,111 18,054 
NONINTEREST INCOMENONINTEREST INCOMENONINTEREST INCOME
Service FeesService Fees487  617  1,092  1,210  Service Fees614 487 1,160 1,092 
Insurance CommissionsInsurance Commissions1,113  1,083  2,396  2,234  Insurance Commissions1,209 1,113 2,804 2,396 
Other CommissionsOther Commissions188  78  298  195  Other Commissions173 188 338 298 
Net Gain on Sales of LoansNet Gain on Sales of Loans441  50  568  142  Net Gain on Sales of Loans31 441 117 568 
Net Gain (Loss) on Sales of Investment Securities489   489  (53) 
Change in Fair Value of Marketable Equity Securities28  109  (410) 129  
Net Gain on SecuritiesNet Gain on Securities11 517 458 79 
Net Gain on Purchased Tax CreditsNet Gain on Purchased Tax Credits16   31  18  Net Gain on Purchased Tax Credits17 16 35 31 
Net Gain on Disposal of Fixed Assets—   17   
Net (Loss) Gain on Disposal of Fixed AssetsNet (Loss) Gain on Disposal of Fixed Assets(3)(3)17 
Income from Bank-Owned Life InsuranceIncome from Bank-Owned Life Insurance138  134  277  266  Income from Bank-Owned Life Insurance136 138 273 277 
Other (Loss) Income(252) 70  (238) 136  
Other Income (Loss)Other Income (Loss)31 (252)211 (238)
TOTAL NONINTEREST INCOMETOTAL NONINTEREST INCOME2,648  2,165  4,520  4,279  TOTAL NONINTEREST INCOME2,219 2,648 5,393 4,520 
NONINTEREST EXPENSENONINTEREST EXPENSENONINTEREST EXPENSE
Salaries and Employee BenefitsSalaries and Employee Benefits4,828  4,708  9,559  9,645  Salaries and Employee Benefits5,076 4,828 9,970 9,559 
OccupancyOccupancy699  663  1,432  1,422  Occupancy1,024 699 1,734 1,432 
EquipmentEquipment224  285  481  581  Equipment311 224 577 481 
Data ProcessingData Processing460  380  885  788  Data Processing607 460 1,125 885 
FDIC AssessmentFDIC Assessment163  175  321  363  FDIC Assessment249 163 499 321 
PA Shares TaxPA Shares Tax333  249  608  517  PA Shares Tax225 333 490 608 
Contracted ServicesContracted Services562  361  940  633  Contracted Services750 562 1,437 940 
Legal and Professional FeesLegal and Professional Fees171  160  406  341  Legal and Professional Fees419 171 608 406 
AdvertisingAdvertising155  220  338  337  Advertising193 155 333 338 
Other Real Estate Owned (Income)(1) (31) (18) (94) 
Other Real Estate Owned IncomeOther Real Estate Owned Income(26)(1)(64)(18)
Amortization of Intangible AssetsAmortization of Intangible Assets532  532  1,064  1,064  Amortization of Intangible Assets503 532 1,035 1,064 
Other945  1,095  2,058  2,080  
Intangible Assets ImpairmentIntangible Assets Impairment1,178 1,178 
Writedown of Fixed AssetsWritedown of Fixed Assets2,268 2,268 
Other ExpenseOther Expense945 945 1,927 2,058 
TOTAL NONINTEREST EXPENSETOTAL NONINTEREST EXPENSE9,071  8,797  18,074  17,677  TOTAL NONINTEREST EXPENSE13,722 9,071 23,117 18,074 
(Loss) Income Before Income Tax (Benefit) Expense(Loss) Income Before Income Tax (Benefit) Expense(369)3,598 3,387 4,500 
Income Tax (Benefit) ExpenseIncome Tax (Benefit) Expense(146)695 765 824 
NET (LOSS) INCOMENET (LOSS) INCOME$(223)$2,903 $2,622 $3,676 
Income Before Income Tax Expense3,598  3,723  4,500  7,366  
Income Tax Expense695  744  824  1,462  
NET INCOME$2,903  $2,979  $3,676  $5,904  
EARNINGS PER SHARE
(LOSS) EARNINGS PER SHARE(LOSS) EARNINGS PER SHARE
BasicBasic$0.54  $0.55  $0.68  $1.09  Basic$(0.04)$0.54 $0.48 $0.68 
DilutedDiluted0.54  0.55  0.68  1.08  Diluted(0.04)0.54 0.48 0.68 
WEIGHTED AVERAGE SHARES OUTSTANDINGWEIGHTED AVERAGE SHARES OUTSTANDINGWEIGHTED AVERAGE SHARES OUTSTANDING
BasicBasic5,393,712  5,433,537  5,412,456  5,433,198  Basic5,432,234 5,393,712 5,433,298 5,412,456 
DilutedDiluted5,393,770  5,444,824  5,423,770  5,448,040  Diluted5,432,234 5,393,770 5,438,401 5,423,770 
The accompanying notes are an integral part of these consolidated financial statements

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CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
(Dollars in thousands)
Net Income$2,903  $2,979  $3,676  $5,904  
Other Comprehensive (Loss) Income:
Change in Unrealized (Loss) Gain on Investment Securities Available-for-Sale(572) 2,571  2,946  5,530  
Income Tax Effect120  (540) (619) (1,162) 
Reclassification Adjustment for (Gain) Loss on Sales of Investment Securities Included in Net Income (1)
(489) (7) (489) 53  
Income Tax Effect (1)
103   103  (11) 
Other Comprehensive (Loss) Income, Net of Income Tax Expense (Benefit)(838) 2,026  1,941  4,410  
Total Comprehensive Income$2,065  $5,005  $5,617  $10,314  
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
(Dollars in thousands)
Net (Loss) Income$(223)$2,903 $2,622 $3,676 
Other Comprehensive Income (Loss):
Change in Unrealized Gain (Loss) on Investment Securities Available-for-Sale922 (572)(1,929)2,946 
Income Tax Effect(199)120 413 (619)
Reclassification Adjustment for Gain on Sale of Debt Securities Included in Net Income (1)
(489)(225)(489)
Income Tax Effect (2)
103 48 103 
Other Comprehensive Income (Loss), Net of Income Tax Effect723 (838)(1,693)1,941 
Total Comprehensive Income$500 $2,065 $929 $5,617 
(1)    The gross amount of gain (loss) on sales of investment securities is reported asReported in Net Gain (Loss) on Sales of Investments Securities on the Consolidated StatementStatements of (Loss) Income. The income tax effect (benefit) is included
(2)    Reported in Income Tax (Benefit) Expense on the Consolidated StatementStatements of (Loss) Income.
The accompanying notes are an integral part of these consolidated financial statements

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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)
March 31, 20205,680,993  $2,367  $83,216  $66,431  $(5,914) $5,425  $151,525  
Comprehensive Income:
Net Income—  —  —  2,903  —  —  2,903  
Other Comprehensive Loss—  —  —  —  —  (838) (838) 
Stock-Based Compensation Expense—  —  111  —  —  —  111  
Exercise of Stock Options—  —  —  —  (14) —  (14) 
Dividends Paid ($0.24 Per Share)—  —  —  (1,295) —  —  (1,295) 
June 30, 20205,680,993  $2,367  $83,327  $68,039  $(5,928) $4,587  $152,392  

Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury StockAccumulated Other
Comprehensive Income
Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
March 31, 20195,680,993  $2,367  $83,307  $59,464  $(4,353) $944  $141,729  
Comprehensive Income:
Net Income—  —  —  2,979  —  —  2,979  
Other Comprehensive Income—  —  —  —  —  2,026  2,026  
Restricted Stock Awards Forfeited—  —   —  (8) —  —  
Restricted Stock Awards Granted—  —  (11) —  11  —  —  
Stock-Based Compensation Expense—  —  76  —  —  —  76  
Dividends Paid ($0.24 Per Share)—  —  —  (1,303) —  —  (1,303) 
June 30, 20195,680,993  $2,367  $83,380  $61,140  $(4,350) $2,970  $145,507  

Three Months Ended June 30, 2021Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive IncomeTotal Stockholders' Equity
(Dollars in thousands, except share and per share data)
March 31, 20215,680,993 $2,367 $82,844 $52,673 $(5,094)$986 $133,776 
Comprehensive Income:
Net Loss— — — (223)— — (223)
Other Comprehensive Income— — — — — 723 723 
Stock-Based Compensation Expense— — 125 — — — 125 
Treasury stock purchased, at cost (25,297 shares)— — — — (561)— (561)
Dividends Paid ($0.24 Per Share)— — — (1,304)— — (1,304)
June 30, 20215,680,993 $2,367 $82,969 $51,146 $(5,655)$1,709 $132,536 


Three Months Ended June 30, 2020Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive IncomeTotal Stockholders' Equity
(Dollars in thousands, except share and per share data)
March 31, 20205,680,993 $2,367 $83,216 $66,431 $(5,914)$5,425 $151,525 
Comprehensive Income:
Net Income— — — 2,903 — — 2,903 
Other Comprehensive Loss— — — — — (838)(838)
Stock-Based Compensation Expense— — 111 — — — 111 
Exercise of Stock Options— — — — (14)— (14)
Dividends Paid ($0.24 Per Share)— — — (1,295)— — (1,295)
June 30, 20205,680,993 $2,367 $83,327 $68,039 $(5,928)$4,587 $152,392 
The accompanying notes are an integral part of these consolidated financial statements

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Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury Stock
Accumulated 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—  —  —  3,676  —  —  3,676  
Other Comprehensive Income—  —  —  —  —  1,941  1,941  
Restricted Stock Awards Forfeited—  —  96  —  (96) —  —  
Stock-Based Compensation Expense—  —  256  —  —  —  256  
Exercise of Stock Options—  —   —  (82) —  (78) 
Treasury stock purchased, at cost (67,816 shares)—  —  —  —  (1,908) —  (1,908) 
Dividends Paid ($0.48 Per Share)—  —  —  (2,592) —  —  (2,592) 
June 30, 20205,680,993  $2,367  $83,327  $68,039  $(5,928) $4,587  $152,392  
Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury StockAccumulated Other
Comprehensive Income (Loss)
Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 20185,680,993  $2,367  $83,225  $57,843  $(4,370) $(1,440) $137,625  
Comprehensive Income:
Net Income—  —  —  5,904  —  —  5,904  
Other Comprehensive Income—  —  —  —  —  4,410  4,410  
Restricted Stock Awards Forfeited—  —   —  (8) —  —  
Restricted Stock Awards Granted—  —  (11) —  11  —  —  
Stock-Based Compensation Expense—  —  153  —  —  —  153  
Exercise of Stock Options—  —   —  17  —  22  
Dividends Paid ($0.48 Per Share)—  —  —  (2,607) —  —  (2,607) 
June 30, 20195,680,993  $2,367  $83,380  $61,140  $(4,350) $2,970  $145,507  


Six Months Ended June 30, 2021Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive IncomeTotal 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— — — 2,622 — — 2,622 
Other Comprehensive Loss— — — — — (1,693)(1,693)
Stock-Based Compensation Expense— — 246 — — — 246 
Treasury stock purchased, at cost (25,297 shares)— — — — (561)— (561)
Dividends Paid ($0.48 Per Share)— — — (2,608)— — (2,608)
June 30, 20215,680,993 $2,367 $82,969 $51,146 $(5,655)$1,709 $132,536 



Six Months Ended June 30, 2020Shares IssuedCommon StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive IncomeTotal 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— — — 3,676 — — 3,676 
Other Comprehensive Income— — — — — 1,941 1,941 
Restricted Stock Awards Forfeited— — 96 — (96)— 
Stock-Based Compensation Expense— — 256 — — — 256 
Exercise of Stock Options— — — (82)— (78)
Treasury Stock Purchased, at cost (67,816 shares)— — — — (1,908)— (1,908)
Dividends Paid ($0.48 Per Share)— — — (2,592)— — (2,592)
June 30, 20205,680,993 $2,367 $83,327 $68,039 $(5,928)$4,587 $152,392 
The accompanying notes are an integral part of these consolidated financial statements

5


CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,20202019
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income$3,676  $5,904  
Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities:
Net (Accretion) Amortization on Investments(50) 20  
Depreciation and Amortization2,158  1,833  
Provision for Loan Losses2,800  375  
Change in Fair Value of Marketable Equity Securities410  (129) 
Net Gain on Purchased Tax Credits(31) (18) 
Income from Bank-Owned Life Insurance(277) (266) 
Proceeds From Mortgage Loans Sold15,140  5,724  
Originations of Mortgage Loans for Sale(14,572) (5,582) 
Net Gain on Sales of Loans(568) (142) 
Net (Gain) Loss on Sales of Investment Securities(489) 53  
Net Loss (Gain) on Sales of Other Real Estate Owned and Repossessed Assets16  (30) 
Noncash Expense for Stock-Based Compensation256  153  
Increase in Accrued Interest Receivable(1,366) (343) 
Net Gain on Disposal of Fixed Assets(17) (2) 
Increase in Taxes Payable1,018  536  
Payments on Operating Leases(220) (207) 
(Decrease) Increase in Accrued Interest Payable(124) 293  
Net Payment of Federal and State Income Taxes—  (1,365) 
Other, Net(1,077) 994  
NET CASH PROVIDED BY OPERATING ACTIVITIES6,683  7,801  
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities72,253  15,703  
Purchases of Debt and Marketable Equity Securities(38,823) (33,331) 
Proceeds from Sales of Securities17,893  12,672  
Net Increase in Loans(86,434) (23,397) 
Purchase of Premises and Equipment(97) (54) 
Proceeds from Disposal of of Premises and Equipment25  —  
Asset Acquisition of a Customer List—  (900) 
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets42  773  
(Increase) Decrease in Restricted Equity Securities(137) 143  
NET CASH USED IN INVESTING ACTIVITIES(35,278) (28,391) 
FINANCING ACTIVITIES
Net Increase in Deposits75,581  20,445  
Net Increase (Decrease) in Short-Term Borrowings11,778  (3,249) 
Principal Payments on Other Borrowed Funds(3,000) (3,000) 
Cash Dividends Paid(2,592) (2,607) 
Treasury Stock, Purchases at Cost(1,908) —  
Exercise of Stock Options(78) 22  
NET CASH PROVIDED BY FINANCING ACTIVITIES79,781  11,611  
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS51,186  (8,979) 
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR80,217  53,353  
CASH AND DUE FROM BANKS AT END OF PERIOD$131,403  $44,374  
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $3,104 and $3,244, respectively)$3,327  $3,532  
Income taxes—  1,365  
SUPPLEMENTAL NONCASH DISCLOSURE:
Real estate acquired in settlement of loans76  158  
Right of use asset recognized47  1,706  
Lease liability recognized47  1,712  
Six Months Ended June 30,20212020
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income$2,622 $3,676 
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities
Amortization (Accretion) on Securities32 (50)
Depreciation and Amortization1,256 2,158 
(Recovery) Provision for Loan Losses(1,200)2,800 
Intangible Asset Impairment1,178 
Writedown on Fixed Assets2,268 
Lease impairment227 
Gain on Securities(458)(79)
Gain on Purchased Tax Credits(35)(31)
Income from Bank-Owned Life Insurance(273)(277)
Proceeds From Mortgage Loans Sold3,916 15,140 
Originations of Mortgage Loans for Sale(9,134)(14,572)
Gain on Sale of Loans(117)(568)
Gain on Sale of Other Real Estate Owned and Repossessed Assets16 
Noncash Expense for Stock-Based Compensation246 256 
Decrease (Increase) in Accrued Interest Receivable266 (1,366)
Net Loss (Gain) on Disposal of Fixed Assets(17)
Increase in Taxes Payable247 1,018 
Payments on Operating Leases(170)(220)
Decrease in Accrued Interest Payable(146)(124)
Refund of Federal and State Income Taxes1,311 
Other, Net(11)(1,077)
NET CASH PROVIDED BY OPERATING ACTIVITIES2,028 6,683 
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities20,412 72,253 
Purchases of Securities(97,142)(38,823)
Proceeds from Sale of Securities11,930 17,893 
Net Decrease (Increase) in Loans31,497 (86,434)
Purchase of Premises and Equipment(2,240)(97)
Proceeds from Disposal of Premises and Equipment25 
Proceeds From Sale of Other Real Estate Owned42 
Decrease (Increase) in Restricted Equity Securities243 (137)
NET CASH USED IN INVESTING ACTIVITIES(35,300)(35,278)
FINANCING ACTIVITIES
Net Increase in Deposits41,489 75,581 
Net Increase in Short-Term Borrowings8,051 11,778 
Principal Payments on Other Borrowed Funds(2,000)(3,000)
Cash Dividends Paid(2,608)(2,592)
Treasury Stock, Purchases at Cost(561)(1,908)
Exercise of Stock Options(78)
NET CASH PROVIDED BY FINANCING ACTIVITIES44,371 79,781 
INCREASE IN CASH AND CASH EQUIVALENTS11,099 51,186 
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR160,911 80,217 
CASH AND DUE FROM BANKS AT END OF PERIOD$172,010 $131,403 

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

6


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 202120212020
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid For:
Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $1,916 and $3,104, Respectively)$2,044 $3,327 
Income Taxes1,160 
SUPPLEMENTAL NONCASH DISCLOSURE:
Transfer of Loans to Loans Held for Sale11,409 
Transfer of Premises and Equipment to Premises and Equipment Held for Sale and Other Assets1,075 
Transfer of Deposits to Deposits Held for Sale102,557 
Other Real Estate Acquired in Settlement of Loans76 
Right of Use Asset Recognized47 
Lease Liability Recognized47 
The accompanying notes are an integral part of these consolidated financial statements

7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters” or “EU”). CB Financial, and the Bank and Exchange Underwriters are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“GAAP”). and with general practice within the banking industry. 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 disclosureas of contingent assets and liabilities at the date of the financial statementsConsolidated Statements of Financial Condition and income and expenses duringfor 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, evaluationother-than-temporary impairment evaluations of securities, for other-than-temporary impairment including related cash flow projections, goodwill and intangible assets impairment, and the valuation of deferred tax assets.
In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations at the dates and for the periods presented. All these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. Interim results are not necessarily indicative of results for a full year.
The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC”ASC") 855, Subsequent Events, to be recognizable events.
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 16 offices11 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, 7 officesand 5 branches in Brooke, Marshall, Ohio, Upshur and Wetzel Counties in West Virginia, and 1 office in Belmont County in Ohio.Virginia. 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.
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.
GoodwillAssets and Liabilities Held for Sale
Goodwill represents the excessAssets and liabilities (disposal groups) are classified as held for sale when their carrying amounts will be recovered principally through sale when all of the costfollowing criteria are met:
management, having the authority to approve the action, commits to a plan to sell the disposal group;
the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups;
an acquisition overactive program to locate a buyer and other actions required to complete the fair value ofplan to sell the net assets acquired. At June 30, 2020 and December 31, 2019, the carrying value of goodwill was $28.4 million. Goodwill is subject to impairment testing at the reporting unit level, which is conducted at least annually on October 31 or more frequently if triggering events occur or impairment indicators exist. The Company operates 2 reporting units – Community Banking segment and Insurance Brokerage Services segment. The Company has assigned 100% of the goodwill to the Community Banking reporting unit.
In 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-04 whereby the Company applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has the option of performing a qualitative assessment to determine whether any further quantitative testing for impairment is necessary. The option of whether ordisposal group have been initiated;
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not to perform a qualitative assessment is made annually. The quantitative test primarily utilizes market comparisons and recent merger and acquisition transactions to determine whether there is goodwill impairment.
The COVID-19 pandemic that has impacted the U.S. and mostsale of the worlddisposal group is probable, and government response to curtail the spreadtransfer of the virus through shelter-in-place ordersdisposal group is expected to qualify as a completed sale within one year, except if events or circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year;
the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and mandatory closures
actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Assets and liabilities held for sale are measured at the lower of all but essential businesses beginning in March 2020 has significantly impacted our market areacarrying amount and the activities of individualsfair value, less estimated costs to sell, and businesses. These restrictions have resulted in significant adverse effects on macroeconomic conditions, and stock market valuations have decreased substantially for most companies, including banks. The ultimate effect of COVID-19are presented separately on the local or broader economy is not yet known nor is the ultimate lengthConsolidated Statements of the restrictions described and any accompanying effects. In light of the adverse circumstancesFinancial Condition. Any loss resulting from COVID-19, management determined it was necessary to evaluate goodwillthis measurement is recognized in the period in which the held for impairment at March 31, 2020.
Determiningsale criteria are met. Gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any estimated costs to sell, each reporting period it remains classified as held for sale and reports any subsequent losses as an adjustment to the carrying value of the disposal group. Assets classified as held for sale are no longer depreciated or amortized.
Loans held for sale may consist of residential real estate loans originated and intended for sale in the secondary market. These loans are generally sold with loan servicing rights retained. Net unrealized losses, if any, are recognized through a valuation allowance charged to income. Gains and losses on residential real estate loans held for sale are included in noninterest income.
Impairment of Long-Lived Assets
The Company routinely performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable and are in excess of their fair value less estimated costs to sell. If estimated recoverable amounts are lower than carrying values, assets are considered impaired and reduced to their recoverable amounts with the recognized impairment charges recorded in noninterest expense in the Consolidated Statements of (Loss) Income.
Long-lived assets are tested for impairment individually or as part of an asset group. An asset group is the unit underof accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
The Company follows ASC 360, Property, Plant and Equipment, which requires three steps to identify, recognize and measure the impairment of a quantitative goodwill impairment testlong-lived asset (asset group) to be held and used:
Step 1 – Consider whether Indicators of Impairment are Present.
The following are examples of such events or changes in circumstances.
A significant decrease in the market price of a long-lived asset (asset group).
A significant adverse change in the extent or manner in which a long-lived asset (asset group) is judgmental and often involvesbeing used or in its physical condition.
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator.
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group).
A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of significanta long-lived asset (asset group).
A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.
Step 2—Test for Recoverability
If indicators of impairment are present, the Company performs a recoverability test comparing the sum of the estimated undiscounted cash flows attributable to the long-lived asset or asset group in question to the carrying amount of the long-lived asset or asset group.
Step 3—Measurement of an Impairment Loss
If the undiscounted cash flows used in the recoverability test are less than the carrying amount of the long-lived asset (asset group), the Company estimates and assumptions. The Company utilized a market approach to determine the fair value of the Community Banking reporting unit. Significant assumptions inherent inlong-lived asset or asset group and recognizes an impairment loss when the valuation methodologies for goodwill are employed and include, but are not limited to, current and prospective financial informationcarrying amount of the Bank, most recent performancelong-lived asset or asset group exceeds the estimated fair value.
An impairment loss is allocated to the long-lived assets of the Bank’s peers, including common banking industry performance measures and ratios, and comparable multiples from publicly traded companies in our industry. The valuation was primarily basedgroup on observable pricea pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to tangible book value bank merger and acquisition multiples for similar size community banks, which is the most widely used valuation metric in the community banking industry. As part of its analysis, the Company considered bank transactions of target banks that were comparable inan individual long-lived asset size, risk and profitability and efficiency metrics during the “Great Recession” period from 2008 to 2010 when bank stock values were depressed and the stock market decline was similar with the current sudden and unexpected events caused by the COVID-19 pandemic. Based on the analysis, management determined that goodwill was not impaired as of March 31, 2020. Future events, particularly worsening business, profitability and economic conditions as of a result of the COVID-19 pandemic, could cause additional triggering events and require management to further evaluate goodwill for impairment.group must not reduce the carrying amount of
In performing our quarterly goodwill impairment assessment, we first assessed qualitative factors to determine whether any triggering events occurred
9

that would require us to perform an interim goodwill impairment analysis and evaluate if it is more likely than not thatasset below its fair value whenever the fair value is determinable without undue cost and effort. ASC 360 prohibits the subsequent reversal of a reporting unit is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industryan impairment loss for an asset held and market considerations, financial performance of the reporting unit and other relevant entity and reporting-unit specific considerations. Based on qualitative assessment as of June 30, 2020, we concluded that no triggering events occurred and it is more likely than not that the fair value of a reporting unit exceed its carrying value indicating that goodwill of the reporting unit is considered not impaired. As such, no quantitative assessment was performed.used.
Recent Accounting Standards
In March 2020, the Financial Accounting Standard Board (“FASB”) issued ASUAccounting 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 August 2018, theDecember 2019, FASB issued ASU 2018-152019-12, , Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)Income taxes (Topic 740); Simplifying the Accounting for Income Taxes. ASU 2018-15 was issued2019-12 provides amendments intended to help entities evaluatereduce the cost and complexity in accounting for fees paid byincome 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 customerforeign subsidiary becomes an equity method investment or a foreign equity method investment become a subsidiary; and (iii) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 provides the following amendments that simplify and improve guidance with Topic 740: (i) franchise taxes that are based partially on income; (ii) transactions that result in a cloud computing arrangement (hosting arrangement) by providing guidancestep up in the tax basis of goodwill; (iii) separate financial statements of legal entities that are not subject to tax; (iv) enacted changes in tax laws in interim periods; and (v) employee stock ownership plans and investments in qualified affordable housing projects accounted for determining whenusing the arrangement includes a software license. Theequity method. For public business entities, the amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments. This guidance becameASU 2019-12 are effective for the Companyfiscal years, and interim periods within those fiscal years, beginning in the first quarter 2020
8

and the adoption of this ASU did not have a material impact on the Company's consolidated statement of financial condition or results of operations.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). ASU 2018-13 modifies disclosure requirements on fair value measurements. This ASU removes requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. ASU 2018-13 clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date. ASU 2018-13 adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU were effective for the Company beginning in the first quarterafter December 15, 2020. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented. The adoption of this ASU did not have a material impact on the Company's consolidated statementstatements of financial condition or results of operations.
In January 2017, the FASB issued ASU 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the second step of the goodwill impairment test. Instead, an entity applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. ASU 2017-04 is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted, and is to be applied on a prospective basis. The Company elected to early adopt the provisions of ASU 2017-04 effective October 31, 2019 and the adoption did not have a material impact on the Company's consolidated statement of financial condition or results of operations.operation.
In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP; and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 was originally effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting in a required implementation date for the Company of January 1, 2023. Early adoption will continue to be permitted. The Company is evaluating the impact of this ASU and expects to recognize a one-time adjustment to the allowance for loan losses upon adoption, but we cannot yet determine the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

Note 2. Impairment of Long-Lived Assets and Assets and Liabilities of Branches Held for Sale
Branch Optimization and Operational Efficiency Initiatives
As previously disclosed by the Company on February 23, 2021, May 27, 2021 and June 10, 2021, the Company announced the implementation of branch optimization and operational efficiency strategic initiatives to improve the Bank’s financial performance and operations in order to position the Bank for continued profitable growth. The Bank intends to optimize its
910

current branch network 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 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.
The Bank continues to make progress related to these initiatives through the consolidation of 6 branches that was completed on June 30, 2021, reducing the Bank's branch network to 16 branches. The Bank is also in the process of implementing operational efficiencies related to individualized processes within its branch network and operating environment. In addition, on June 10, 2021, CB Financial, Community Bank, and Citizens Bank of West Virginia, Inc. (“Citizens Bank”) executed a Purchase and Assumption Agreement (the “Agreement”) pursuant to which Citizens Bank has agreed to purchase certain loans and other assets, and assume certain deposits and other liabilities, of the branch offices of Community Bank located in Buckhannon, West Virginia, and in New Martinsville, West Virginia. The Agreement provides for a 5.0% premium to be paid on assumed deposits, which will be recognized as income upon the expected close of the transaction in the fourth quarter of 2021, subject to regulatory approval and other closing conditions.
As a result of the events and changes in circumstances associated with the branch optimization initiatives whereby 6 branches were consolidated and 2 others are to be divested, the Company performed assessments of the recoverability of long-lived assets to determine whether their carrying values may not be recoverable. Utilizing guidance in ASC 360, the Company performed the three step process to identify, recognize and measure the impairment of the long-lived assets.
For the 6 locations that were consolidated:
NaN locations were written down to the fair value of the land based on the appraised value due to plans to raze the buildings.
NaN locations are being marketed for sale and were written down to fair value based on appraised value.
NaN location is leased. Refer to Note 2.11 for further discussion of the impairment of the right of use asset associated with the operating lease.
For the 2 branches to be divested, fair value of the premises and equipment was determined based on the contractual terms of the Agreement, which note the premises and equipment will be purchased at the Company's net book value, net of a $338,000 contractual discount at the acquisition date.
In total, the Company recognized $2.3 million in charges on the premises and equipment for the three and six months ended June 30, 2021 as Writedown on Fixed Assets in the Consolidated Statements of (Loss) Income.
The branch optimization and operational efficiency initiatives resulted in $4.7 million and $5.1 million of restructuring-related and other expenses for the three and six months ended June 30, 2021, respectively. The expenses include the aforementioned $2.3 million writedown on fixed assets, as well as a $1.2 million impairment of intangible assets associated with the branch sales (refer to Note 14 for further information) and $1.3 million and $1.6 million of expenses related to contracted services, employee severance costs, branch lease impairment (refer to Note 11 for further information), professional fees, data processing fees, legal and other expenses for the three and six months ended June 30, 2021, respectively.
Assets and Liabilities of Branches Held for Sale
At June 30, 2021, the Company reclassified the deposits to be assumed to deposits held for sale, loans to be purchased to loans held for sale and premises and equipment to be purchased to premises and equipment held for sale on the Consolidated Statements of Financial Condition.
11

The assets and liabilities classified as held for sale of the disposal group related to the branch sales are as follows
June 30,
2021
(Dollars in thousands)
Loans Held for Sale
Real Estate:
Residential$2,368 
Commercial2,513 
Commercial and Industrial438 
Consumer254 
Other502 
Total Loans Held for Sale$6,075 
Premises and Equipment Held for Sale795 
Deposits Held for Sale
Non-Interest Bearing Demand Deposits$16,125 
Interest Bearing Demand Deposits29,487 
Money Market Accounts17,219 
Savings Accounts21,389 
Time Deposits18,337 
Total Deposits Held for Sale$102,557 
Note 3. (Loss) Earnings Per Share
There are 0 convertible securities which would affect the numerator in calculating basic and diluted (loss) earnings per share; therefore, net (loss) income as presented on the Consolidated StatementStatements of (Loss) Income is used as the numerator.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20202019202020192021202020212020
(Dollars in thousands, except share and per share data)(Dollars in thousands, except share and per share data)(Dollars in thousands, except share and per share data)
Net income$2,903  $2,979  $3,676  $5,904  
Net (Loss) IncomeNet (Loss) Income$(223)$2,903 $2,622 $3,676 
Weighted-Average Basic Common Shares OutstandingWeighted-Average Basic Common Shares Outstanding5,393,712  5,433,537  5,412,456  5,433,198  Weighted-Average Basic Common Shares Outstanding5,432,234 5,393,712 5,433,298 5,412,456 
Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)58  11,287  11,314  14,842  Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)58 5,103 11,314 
Weighted-Average Diluted Common Shares and Common Stock Equivalents OutstandingWeighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding5,393,770  5,444,824  5,423,770  5,448,040  Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding5,432,234 5,393,770 5,438,401 5,423,770 
Earnings per share:
(Loss) Earnings Per Share:(Loss) Earnings Per Share:
BasicBasic$0.54  $0.55  $0.68  $1.09  Basic$(0.04)$0.54 $0.48 $0.68 
DilutedDiluted0.54  0.55  0.68  1.08  Diluted(0.04)0.54 0.48 0.68 
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
12

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
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20202019202020192021202020212020
Stock OptionsStock Options205,271  252,559  73,371  103,059  Stock Options216,662 205,271 201,662 73,731 
Restricted StockRestricted Stock43,650  6,900  30,250  600  Restricted Stock76,070 43,650 33,610 30,250 
When there is a net loss for the period, the exercise or conversion of any potential shares increases the number of shares in the denominator and results in a lower loss per share. In that situation, the potential shares are antidilutive and not included in the Company's loss per share calculation. Therefore, if there is a net loss, diluted loss per share is the same as basic loss per share.

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Note 3. Investment4. Securities
The following table presents the amortized cost and fair value of investment securities available-for-sale at the dates indicated:
June 30, 2020June 30, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Debt Securities:
Available-for-Sale Debt Securities:Available-for-Sale Debt Securities:
U.S. Government AgenciesU.S. Government Agencies$19,000  $ $(8) $18,994  U.S. Government Agencies$50,992 $$(1,212)$49,786 
Obligations of States and Political SubdivisionsObligations of States and Political Subdivisions20,769  1,189  —  21,958  Obligations of States and Political Subdivisions19,412 1,183 20,595 
Mortgage-Backed Securities - Government-Sponsored EnterprisesMortgage-Backed Securities - Government-Sponsored Enterprises100,733  4,649  (1) 105,381  Mortgage-Backed Securities - Government-Sponsored Enterprises133,130 2,368 (168)135,330 
Total Debt Securities$140,502  $5,840  $(9) $146,333  
Total Available-for-Sale Debt SecuritiesTotal Available-for-Sale Debt Securities203,534 3,557 (1,380)205,711 
Marketable Equity Securities:
Equity Securities:Equity Securities:
Mutual FundsMutual Funds1,022  Mutual Funds1,004 
OtherOther1,293  Other1,757 
Total Marketable Equity Securities2,315  
Total Available-for-Sale Securities$148,648  
Total Equity SecuritiesTotal Equity Securities2,761 
Total SecuritiesTotal Securities$208,472 
December 31, 2019December 31, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Debt Securities:
Available-for-Sale Debt Securities:Available-for-Sale Debt Securities:
U.S. Government AgenciesU.S. Government Agencies$47,993  $227  $(164) $48,056  U.S. Government Agencies$41,994 $12 $(595)$41,411 
Obligations of States and Political SubdivisionsObligations of States and Political Subdivisions25,026  819  (2) 25,843  Obligations of States and Political Subdivisions20,672 1,321 21,993 
Mortgage-Backed Securities - Government-Sponsored EnterprisesMortgage-Backed Securities - Government-Sponsored Enterprises118,282  2,601  (107) 120,776  Mortgage-Backed Securities - Government-Sponsored Enterprises75,900 3,593 79,493 
Total Debt Securities$191,301  $3,647  $(273) $194,675  
Total Available-for-Sale Debt SecuritiesTotal Available-for-Sale Debt Securities138,566 4,926 (595)142,897 
Marketable Equity Securities:
Equity Securities:Equity Securities:
Mutual FundsMutual Funds997  Mutual Funds1,019 
OtherOther1,713  Other1,484 
Total Marketable Equity Securities2,710  
Total Available-for-Sale Securities$197,385  
Total Equity SecuritiesTotal Equity Securities2,503 
Total SecuritiesTotal Securities$145,400 
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The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated:
June 30, 2020June 30, 2021
Less than 12 months12 Months or GreaterTotalLess 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
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
U.S. Government AgenciesU.S. Government Agencies $8,992  $(8) —  $—  $—   $8,992  $(8) U.S. Government Agencies10 $40,782 $(1,212)$$10 $40,782 $(1,212)
Obligations of States and Political Subdivisions—  —  —  —  —  —  —  —  —  
Mortgage Backed Securities- Government Sponsored EnterprisesMortgage Backed Securities- Government Sponsored Enterprises 695  (1) —  —  —   695  (1) Mortgage Backed Securities- Government Sponsored Enterprises17,908 (168)17,908 (168)
TotalTotal $9,687  $(9) —  $—  $—   $9,687  $(9) Total14 $58,690 $(1,380)$$14 $58,690 $(1,380)
December 31, 2019December 31, 2020
Less than 12 months12 Months or GreaterTotalLess than 12 months12 Months or GreaterTotal
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
U.S. Government AgenciesU.S. Government Agencies $16,116  $(83)  $13,938  $(81) 12  $30,054  $(164) U.S. Government Agencies$32,399 $(595)$$$32,399 $(595)
Obligations of States and Political Subdivisions—  —  —   509  (2)  509  (2) 
Mortgage Backed Securities- Government Sponsored Enterprises 20,003  (104)  1,711  (3)  21,714  (107) 
TotalTotal13  $36,119  $(187)  $16,158  $(86) 21  $52,277  $(273) Total$32,399 $(595)$$$32,399 $(595)
For debt securities, the Company does not believe that any individual unrealized loss as of June 30, 20202021 or December 31, 2019,2020, represents an other-than-temporary impairment. The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate an other-than-temporary impairment. The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer. The securities that are temporarily impaired at June 30, 20202021 and December 31, 20192020 relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell, orand it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

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TableSecurities available-for-sale with a fair value of Contents
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$166.1 million and $119.7 million at June 30, 2021 and December 31, 2020, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law.
The following table presents the scheduled maturities of debt securities as of the date indicated:
June 30, 2020June 30, 2021
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Due in One Year or LessDue in One Year or Less$—  $—  Due in One Year or Less$1,736 $1,758 
Due after One Year through Five YearsDue after One Year through Five Years4,306  4,388  Due after One Year through Five Years6,296 6,331 
Due after Five Years through Ten YearsDue after Five Years through Ten Years36,308  37,484  Due after Five Years through Ten Years62,462 62,858 
Due after Ten YearsDue after Ten Years99,888  104,461  Due after Ten Years133,040 134,764 
TotalTotal$140,502  $146,333  Total$203,534 $205,711 
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The following table presents the gross realized gain and loss ofon sales of available-for-sale investmentdebt securities, as well as gain and loss on equity securities from both sales and market adjustments for the periods indicated.
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Debt Securities
Gross Gain$489  $12  $489  $12  
Gross Loss—  (5) —  (65) 
Net Gain (Loss) on Sales of Investment Securities$489  $ $489  $(53) 
Marketable equity All gains and losses presented in the table below are reported in net gain on securities are measured at fair value with changes in fair value included in Change in Fair Value of Marketable Equity Securities on the Consolidated StatementStatements of Income. Realized gains and losses on sales of marketable equity securities are included in Net Gain (Loss) on Sales of Investment Securities on the Consolidated Statement of Income. There were 0 sales of marketable equity securities for the three and six months ended June 30, 2020 and 2019, respectively.
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
(Dollars in thousands)
Debt Securities
Gross Realized Gain$$489 $225 $489 
Gross Realized Loss
Net Gain on Debt Securities$$489 $225 $489 
Equity Securities
Net Unrealized Gain (Loss) Recognized on Securities Held$11 $28 $233 $(410)
Net Realized Gain Recognized on Securities Sold
Net Gain (Loss) on Equity Securities$11 $28 $233 $(410)
Net Gain on Securities$11 $517 $458 $79 
Note 4.5. Loans and Allowance for Loan Losses
The Company’s loan portfolio is segmented to enable management to monitor risk and performance. Real estate loans are further segregated into three classes. Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate. Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate. The commercial and industrial segment consists of four classifications:loans to finance the activities of commercial customers. The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit.
Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient.
Commercial real estate loans generally present a higher level of risk than loans secured by residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.
Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. Construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion.
Commercial and industrial loans consumerare generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk.
Consumer loans generally have higher interest rates and other loans. shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan.
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The following table presents the classifications of loans as of the dates indicated.
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
AmountPercentAmountPercentAmountPercentAmountPercent
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Real Estate:Real Estate:Real Estate:
ResidentialResidential$344,782  33.2 %$347,766  36.6 %Residential$322,480 32.0 %$344,142 32.9 %
CommercialCommercial350,506  33.6  351,360  36.9  Commercial360,518 35.7 373,555 35.9 
ConstructionConstruction58,295  5.6  35,605  3.7  Construction85,187 8.5 72,600 6.9 
Commercial and IndustrialCommercial and Industrial149,085  14.3  85,586  9.0  Commercial and Industrial120,191 11.9 126,813 12.1 
ConsumerConsumer117,145  11.2  113,637  11.9  Consumer106,404 10.6 113,854 10.9 
OtherOther22,346  2.1  18,542  1.9  Other12,666 1.3 13,789 1.3 
Total LoansTotal Loans1,042,159  100.0 %952,496  100.0 %Total Loans1,007,446 100.0 %1,044,753 100.0 %
Allowance for Loan LossesAllowance for Loan Losses(12,648) (9,867) Allowance for Loan Losses(11,544)(12,771)
Loans, NetLoans, Net$1,029,511  $942,629  Loans, Net$995,902 $1,031,982 
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic, which included authorizing the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program calledreopened the PaycheckPayroll Protection Program (“PPP”("PPP"). On April 16, 2020, the original $349 billion funding cap was reached. On April 23, 2020, the Paycheck Protection Programweek of January 11, 2021 accepting applications for both First Draw and Health Care Enhancement Act (the “PPP Enhancement Act”) was
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signed into law and included an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP. The second round of theSecond Draw PPP began on April 27, 2020.
Under the PPP, participating SBA and other qualifying lenders can originate loans to eligible businesses that are fully guaranteed by the SBA as to principal and interest, have more favorable terms than traditional SBA loans and may be forgiven if the proceeds are used by the borrower for certain purposes. PPP is designed to help small businesses keep their workforce employed and cover expenses during the COVID-19 crisis. These loans have a two- or five-year loan term to maturity, an interest rate of 1% per annum and loan payments are deferred for six months. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of a PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses. The Bank receives a processing fee from the SBA ranging from 1% to 5% depending on the size of the loan, which is offset by a 0.75% third-party servicing agent fee.
Loans. As of June 30, 2020,2021, as part of this round of PPP, the Bank originated 628funded 217 PPP loans totaling $70.0$34.6 million with a median loan balancenet deferred origination fees of $35,000. The$1.3 million.
PPP loans impact over 8,300 small business employees. Amongdecreased $5.6 million to $49.5 million at June 30, 2021 compared to $55.1 million at December 31, 2020. At June 30, 2021, the largest sectors impactedof PPP loans were $15.3$8.6 million for construction and specialty-trade contractors, $5.8 million in loans for health care and social assistance, $12.4 million for construction and specialty-trade contractors, $6.1$4.5 million for professional and technical services, $5.9 million for retail trade, $5.1 million for wholesale trade, $4.6$3.4 million for manufacturing, and $3.4$3.1 million for restaurant and food services. services, and $2.8 million for wholesale trade.
Net SBAunamortized PPP loan origination fees as of June 30, 2021 and December 31, 2020 were $2.1$1.4 million of which $191,000 was recognized duringand $1.1 million, respectively. Net PPP loan origination fees earned were $489,000 and $1.0 million for the three and six months ended June 30, 2020. We expect to recognize the majority of unearned net origination fees in the third and fourth quarter upon processing requests for loan forgiveness.2021, respectively. 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 $2.9$2.4 million and $907,000 at June 30, 2020 and December 31, 2019, respectively. The increase in unamortized net deferred loan fees is primarily due to PPP loans.
Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $105.6 million and $100.0$2.0 million at June 30, 20202021 and December 31, 2019,2020, respectively.
The following table presents classification of loans held for sale as of June 30, 2021. Loans held for sale includes $6.1 million related to the Agreement executed with Citizens Bank and $5.3 million of residential real estate loans originated and intended for sale in the secondary market. There were 0 loans held for sale at December 31, 2020. Additionally, there were no loans held for sale that were delinquent, nonaccrual or considered criticized loans.
June 30
2021
Real Estate:
Residential$7,702 
Commercial2,513 
Construction
Commercial and Industrial438 
Consumer254 
Other502 
Total Loans Held for Sale$11,409 
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.
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The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated. At June 30, 20202021 and December 31, 2019,2020, there were 0 loans in the criticized category of Loss within the internal risk rating system.
June 30, 2020June 30, 2021
Pass
Special
Mention
SubstandardDoubtfulTotalPass
Special
Mention
SubstandardDoubtfulTotal
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Real Estate:Real Estate:Real Estate:
ResidentialResidential$340,549  $1,019  $3,214  $—  $344,782  Residential$319,000 $905 $2,575 $$322,480 
CommercialCommercial303,774  41,047  5,685  —  350,506  Commercial312,217 32,908 15,393 360,518 
ConstructionConstruction54,165  3,385  745  —  58,295  Construction78,700 3,887 2,600 85,187 
Commercial and IndustrialCommercial and Industrial139,171  7,582  1,675  657  149,085  Commercial and Industrial104,660 9,848 5,123 560 120,191 
ConsumerConsumer116,955  —  190  —  117,145  Consumer106,329 75 106,404 
OtherOther22,263  83  —  —  22,346  Other12,593 73 12,666 
Total LoansTotal Loans$976,877  $53,116  $11,509  $657  $1,042,159  Total Loans$933,499 $47,621 $25,766 $560 $1,007,446 
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December 31, 2019
Pass
Special
Mention
SubstandardDoubtfulTotal
(Dollars in Thousands)
Real Estate:
Residential$343,851  $1,997  $1,918  $—  $347,766  
Commercial335,436  12,260  3,664  —  351,360  
Construction33,342  2,263  —  —  35,605  
Commercial and Industrial75,201  7,975  1,691  719  85,586  
Consumer113,527  —  110  —  113,637  
Other18,452  90  —  —  18,542  
Total Loans$919,809  $24,585  $7,383  $719  $952,496  
The increase of $28.5 million in the special mention loan category as of June 30, 2020 compared to December 31, 2019 was mainly from the downgrade of the hospitality portfolio due to the economic conditions in that industry caused by the COVID-19 pandemic. The increase of $4.1 million in the substandard category is primarily due to a lease dispute on a $2.3 million industrial building (commercial real estate) and $961,000 and $853,000 associated with 2 residential real estate loans and 1 residential construction loan, respectively, which have insufficient debt service coverage from the borrower demonstrating an inability to build and sell the speculative homes at a fast enough rate that can service the interest-only debt.
December 31, 2020
Pass
Special
Mention
SubstandardDoubtfulTotal
(Dollars in Thousands)
Real Estate:
Residential$340,573 $1,115 $2,454 $$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.
June 30, 2020June 30, 2021
Loans
Current
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past Due
Non-
Accrual
Total
Loans
Loans
Current
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past Due
Non-
Accrual
Total
Loans
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Real Estate:Real Estate:Real Estate:
ResidentialResidential$342,287  $265  $37  $—  $302  $2,193  $344,782  Residential$319,916 $217 $381 $$598 $1,966 $322,480 
CommercialCommercial350,235  78  28  —  106  165  350,506  Commercial353,504 7,014 360,518 
ConstructionConstruction58,295  —  —  —  —  —  58,295  Construction83,229 1,958 85,187 
Commercial and IndustrialCommercial and Industrial148,386  10  —  —  10  689  149,085  Commercial and Industrial118,494 1,697 120,191 
ConsumerConsumer116,545  354  56  —  410  190  117,145  Consumer105,869 374 86 460 75 106,404 
OtherOther22,346  —  —  —  —  —  22,346  Other12,666 12,666 
Total LoansTotal Loans$1,038,094  $707  $121  $—  $828  $3,237  $1,042,159  Total Loans$993,678 $591 $467 $$1,058 $12,710 $1,007,446 
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December 31, 2019December 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
Loans
Current
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past Due
Non-
Accrual
Total
Loans
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Real Estate:Real Estate:Real Estate:
ResidentialResidential$342,010  $3,462  $281  $196  $3,939  $1,817  $347,766  Residential$339,067 $2,919 $315 $$3,234 $1,841 $344,142 
CommercialCommercial351,104  22  —  —  22  234  351,360  Commercial365,712 740 741 7,102 373,555 
ConstructionConstruction35,605  —  —  —  —  —  35,605  Construction72,600 72,600 
Commercial and IndustrialCommercial and Industrial84,280  388  178  —  566  740  85,586  Commercial and Industrial124,916 1,897 126,813 
ConsumerConsumer112,438  923  140  26  1,089  110  113,637  Consumer112,952 784 61 853 49 113,854 
OtherOther18,542  —  —  —  —  —  18,542  Other13,789 13,789 
Total LoansTotal Loans$943,979  $4,795  $599  $222  $5,616  $2,901  $952,496  Total Loans$1,029,036 $3,704 $1,116 $$4,828 $10,889 $1,044,753 
The increase in nonaccrual loans at June 30, 2021 compared to December 31, 2020 is primarily related to a $2.0 million construction loan secured by a hotel.
Additional interest income that would have been recorded on nonaccrual loans if the loans were current was $135,000 and $196,000 for the three and six months ended June 30, 2021, respectively, and $37,000 and $48,000 for the three and six months ended June 30, 2020, respectively.
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The following table sets forth the amounts and categories of nonperforming assets at the dates indicated. Included in nonperforming loans and assets are troubled debt restructurings (“TDRs”), which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section. Nonperforming loans do not include loans modified under Section 4013 of the CARES Act and interagency guidance as further explained below.
June 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Nonaccrual Loans:Nonaccrual Loans:Nonaccrual Loans:
Real Estate:Real Estate:Real Estate:
ResidentialResidential$2,193  $1,817  Residential$1,966 $1,841 
CommercialCommercial165  234  Commercial7,014 7,102 
ConstructionConstruction1,958 
Commercial and IndustrialCommercial and Industrial689  740  Commercial and Industrial1,697 1,897 
ConsumerConsumer190  110  Consumer75 49 
Total Nonaccrual LoansTotal Nonaccrual Loans3,237  2,901  Total Nonaccrual Loans12,710 10,889 
Accruing Loans Past Due 90 Days or More:Accruing Loans Past Due 90 Days or More:Accruing Loans Past Due 90 Days or More:
Real Estate:
Residential—  196  
ConsumerConsumer—  26  Consumer
Total Accruing Loans Past Due 90 Days or MoreTotal Accruing Loans Past Due 90 Days or More—  222  Total Accruing Loans Past Due 90 Days or More
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or MoreTotal Nonaccrual Loans and Accruing Loans Past Due 90 Days or More3,237  3,123  Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More12,710 10,897 
Troubled Debt Restructurings, Accruing:Troubled Debt Restructurings, Accruing:Troubled Debt Restructurings, Accruing:
Real EstateReal EstateReal Estate
ResidentialResidential673  511  Residential632 650 
CommercialCommercial1,614  1,648  Commercial2,046 2,861 
Commercial and IndustrialCommercial and Industrial58  100  Commercial and Industrial20 80 
Total Troubled Debt Restructurings, AccruingTotal Troubled Debt Restructurings, Accruing2,345  2,259  Total Troubled Debt Restructurings, Accruing2,698 3,591 
Total Nonperforming LoansTotal Nonperforming Loans5,582  5,382  Total Nonperforming Loans15,408 14,488 
Other Real Estate Owned:Other Real Estate Owned:Other Real Estate Owned:
ResidentialResidential75  41  Residential
CommercialCommercial174  192  Commercial208 208 
Total Other Real Estate OwnedTotal Other Real Estate Owned249  233  Total Other Real Estate Owned208 208 
Total Nonperforming AssetsTotal Nonperforming Assets$5,831  $5,615  Total Nonperforming Assets$15,616 $14,696 
Nonperforming Loans to Total LoansNonperforming Loans to Total Loans0.54 %0.57 %Nonperforming Loans to Total Loans1.53 %1.39 %
Nonperforming Assets to Total AssetsNonperforming Assets to Total Assets0.41  0.42  Nonperforming Assets to Total Assets1.07 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 $1.2$1.5 million and $1.1 million$806,000 at June 30, 20202021 and December 31, 2019,2020, respectively.
TDRs typically are the result of loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral. For a loan modification to be considered a TDR, the borrower must be experiencing financial difficulty and a concession must be granted, except for an insignificant delay in payment. Section 4013 of the CARES Act providesand 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
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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 December 31, 2020January 1, 2022 (as extended by the Consolidated Appropriations Act, 2021) or the date that is 60 days after the termination date of the national emergency related to
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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 they differit 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 Bankbank regulatory agencies have subsequently confirmed that their guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act. Both Section 4013 of the CARES Act and the interagency statement can be applied to a second modification that occurs after the first modification provided that the second modification does not qualify as a TDR under Section 4013 of the CARES Act or the interagency statement. In its evaluation of whether a payment deferral qualifies as short-term under the interagency statement, an entity should assess multiple payment deferrals collectively (i.e., the cumulative deferrals cannot exceed six months).
The Bank offered forbearance options for borrowers impacted by COVID-19 that provide a short-term delay in payment by primarily allowing: (a) deferral of three to six months of payments; or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months. During the forbearance period, the borrower is not considered delinquent for credit bureau reporting purposes. The Company has elected the practical expedients related to TDRs that are available in the CARES Act and interagency guidance as an entity-wide accounting policy and does not consider any of the forbearance agreements TDRs, delinquent, or nonaccrual.

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The following table provides details of loans in forbearance and the forbearance end dates as of the dates indicated.
June 30, 2021December 31, 2020
Number
of
Loans
Amount% of PortfolioNumber
of
Loans
Amount% of Portfolio
(Dollars in thousands)
Real Estate:
Residential$%$749 0.2 %
Commercial6,544 1.8 %19,818 5.3 %
Construction%1,958 2.7 %
Commercial and Industrial1,221 1.0 %1,219 1.0 %
Consumer%13 356 0.3 %
Total Loans in Forbearance$7,765 0.8 %31 $24,100 2.3 %
Loans in deferral at June 30, 2020.
Number
of
Loans
Amount% of Portfolio
(Dollars in thousands)
Real Estate:
Residential
July 2020108  $15,333  
August 202041  5,912  
September 202012  2,272  
October 2020 136  
Total Residential163  23,653  6.9 %
Commercial
July 202070  64,039  
August 202031  25,497  
September 2020 8,714  
October 2020 2,378  
November 2020 4,489  
Total Commercial111  105,117  30.0 %
Construction
July 2020 10,494  
August 2020 4,726  
September 2020 298  
Total Construction 15,518  26.6 %
Commercial and Industrial
July 202042  10,300  
August 202032  5,180  
September 2020 217  
Total Commercial and Industrial76  15,697  10.5 %
Consumer
July 2020124  2,493  
August 202039  857  
September 2020 97  
Total Consumer170  3,447  2.9 %
Other
July 2020 2,504  11.2 %
Total Loans in Forbearance527  $165,936  15.9 %
As of June 30, 2020, $165.9 million, or 15.9% of total loans, were in forbearance. Approximately $105.2 million, or 63.4% of loans in forbearance, are scheduled to end forbearance as of July 2020 and return to their normal payment schedule. As of July 30, 2020, out of the 348 loans totaling $105.2 million with a forbearance period ending in July 2020, 92021 include 1 commercial real estate loans totaling $3.3 million requested additional forbearance - 2 residential, 2 commercial real estate, which were boththat is secured by a hotel, loans, 1 commercial and industriala business relationship that rents equipment, supplies and 4 consumer loans totaling $393,000, $2.7 million, $123,000 and $133,000, respectively.
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At June 30, 2020, out of approximately 128 loans totaling $22.7 million with a forbearance period ending on or prior to June 30, 2020, 6 loans totaling $5.8 million requested an additional one- to three-month forbearance. These loans wereother materials for events comprised of 3 residential mortgage loans, 2 commercial real estate loans which were both hotel loans, and 1 consumer loan totaling $493,000, $5.3$3.3 million, and $12,000, respectively.5 commercial and industrial loans totaling $1.2 million. These loans ended their forbearance period in July and begin making regularly scheduled payments.
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 1614 loans totaling $3.0$3.3 million at June 30, 20202021 and 17 loans totaling $4.2 million at December 31, 2019,2020, respectively.
During the three and six months ended June 30, 2020, there was 1 residential real estate loan modified in a TDR totaling $60,000 that paid off. During the six months ended June 30, 2019, 1 residential real estate loan modified in a TDR totaling $851,000 paid off. NaN TDRs subsequently defaulted during the three and six months ended June 30, 2020 and 2019, respectively.
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The following tables presenttable presents information at the time of modification related to loans modified in a TDR during the periods indicated. During the three and six months ended June 30, 2021, there were 0 loans that were modified that were considered a TDR.
Three Months and Six Months Ended June 30, 2020
Number of ContractsPre- Modification Outstanding Recorded InvestmentPost- Modification Outstanding Recorded InvestmentRelated Allowance
(Dollars in thousands)
Real Estate:
Residential$234 $234 $
Total$234 234 $
During the three months ended June 30, 2021, 1 commercial real estate loan totaling $698,000 and 1 commercial and industrial loan totaling $8,000 that were previously modified in a TDR paid off in full. During the six months ended June 30, 2021, 1 residential real estate loan totaling $3,000, 1 commercial real estate loan totaling $698,000 and 1 commercial and industrial loan totaling $8,000 previously modified in a TDR paid off in full. During the three and six month ended June 30, 2020, 1 residential real estate loan totaling $60,000 previously modified in a TDR paid off in full.
NaN TDRs subsequently defaulted during the three and 2019.
Three and Six Months Ended June 30, 2020
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Related
Allowance
(Dollars in thousands)
Real Estate:
Residential $234  $234  $—  
Total 234  234  —  

Three Months Ended June 30, 2019
Number of ContractsPre- Modification Outstanding Recorded InvestmentPost- Modification Outstanding Recorded InvestmentRelated Allowance
(Dollars in thousands)
Real Estate:
Residential $114  $114  $—  
Total 114  114  —  

Six Months Ended June 30, 2019
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Related
Allowance
(Dollars in thousands)
Real Estate:
Residential $61  $61  $—  
Commercial and Industrial $114  $114  $—  
Total 175  175  —  
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six months ended June 30, 2021 and 2020, respectively.
The following table presents a summary of the loans considered to be impaired as of the dates indicated.
June 30, 2020June 30, 2021
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
With No Related Allowance Recorded:With No Related Allowance Recorded:With No Related Allowance Recorded:
Real Estate:Real Estate:Real Estate:
ResidentialResidential$1,669  $—  $1,673  $1,671  $32  Residential$1,161 $— $1,165 $1,171 $23 
CommercialCommercial2,855  —  2,873  2,895  75  Commercial15,823 — 15,995 15,987 177 
ConstructionConstruction745  —  745  825  16  Construction2,600 — 2,600 2,600 10 
Commercial and IndustrialCommercial and Industrial2,084  —  2,261  2,162  22  Commercial and Industrial3,783 — 4,043 4,087 44 
Total With No Related Allowance RecordedTotal With No Related Allowance Recorded$7,353  $—  $7,552  $7,553  $145  Total With No Related Allowance Recorded$23,367 $— $23,803 $23,845 $254 
With A Related Allowance Recorded:With A Related Allowance Recorded:With A Related Allowance Recorded:
Real Estate:Real Estate:Real Estate:
ResidentialResidential$$$$$
CommercialCommercial$3,846  $399  $3,846  $3,903  $69  Commercial564 261 564 572 13 
ConstructionConstruction
Commercial and IndustrialCommercial and Industrial249  200  249  265   Commercial and Industrial1,920 62 1,920 1,920 20 
Total With A Related Allowance RecordedTotal With A Related Allowance Recorded$4,095  $599  $4,095  $4,168  $75  Total With A Related Allowance Recorded$2,484 $323 $2,484 $2,492 $33 
Total Impaired Loans:Total Impaired Loans:Total Impaired Loans:
Real Estate:Real Estate:Real Estate:
ResidentialResidential$1,669  $—  $1,673  $1,671  $32  Residential$1,161 $$1,165 $1,171 $23 
CommercialCommercial6,701  399  6,719  6,798  144  Commercial16,387 261 16,559 16,559 190 
ConstructionConstruction745  —  745  825  16  Construction2,600 2,600 2,600 10 
Commercial and IndustrialCommercial and Industrial2,333  200  2,510  2,427  28  Commercial and Industrial5,703 62 5,963 6,007 64 
Total Impaired LoansTotal Impaired Loans$11,448  $599  $11,647  $11,721  $220  Total Impaired Loans$25,851 $323 $26,287 $26,337 $287 
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December 31, 2019December 31, 2020
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
With No Related Allowance Recorded:With No Related Allowance Recorded:With No Related Allowance Recorded:
Real Estate:Real Estate:Real Estate:
ResidentialResidential$549  $—  $553  $494  $20  Residential$1,183 $— $1,187 $1,194 $46 
CommercialCommercial3,058  —  3,077  3,335  177  Commercial31,865 — 32,887 37,443 1,418 
ConstructionConstruction4,204 — 4,204 4,013 159 
Commercial and IndustrialCommercial and Industrial133  —  135  156   Commercial and Industrial3,296 — 3,506 3,426 89 
Total With No Related Allowance RecordedTotal With No Related Allowance Recorded$3,740  $—  $3,765  $3,985  $203  Total With No Related Allowance Recorded$40,548 $— $41,784 $46,076 $1,712 
With A Related Allowance Recorded:With A Related Allowance Recorded:With A Related Allowance Recorded:
Real Estate:Real Estate:Real Estate:
ResidentialResidential$$$$$
CommercialCommercial$1,646  $274  $1,646  $1,702  $81  Commercial1,524 293 1,524 1,585 72 
ConstructionConstruction
Commercial and IndustrialCommercial and Industrial2,378  610  2,529  2,448  113  Commercial and Industrial2,069 356 2,069 2,114 57 
Total With A Related Allowance RecordedTotal With A Related Allowance Recorded$4,024  $884  $4,175  $4,150  $194  Total With A Related Allowance Recorded$3,593 $649 $3,593 $3,699 $129 
Total Impaired LoansTotal Impaired LoansTotal Impaired Loans
Real Estate:Real Estate:Real Estate:
ResidentialResidential$549  $—  $553  $494  $20  Residential$1,183 $$1,187 $1,194 $46 
CommercialCommercial4,704  274  4,723  5,037  258  Commercial33,389 293 34,411 39,028 1,490 
ConstructionConstruction4,204 4,204 4,013 159 
Commercial and IndustrialCommercial and Industrial2,511  610  2,664  2,604  119  Commercial and Industrial5,365 356 5,575 5,540 146 
Total Impaired LoansTotal Impaired Loans$7,764  $884  $7,940  $8,135  $397  Total Impaired Loans$44,141 $649 $45,377 $49,775 $1,841 
The $3.8 million increase in recorded investment of loans evaluated for impairment decreased $18.3 million at June 30, 2021 compared to December 31, 2020 and was primarily related to commercial real estate loans. This is primarily due to a lease dispute on a $2.3 million industrial building (commercial real estate) and $961,000 and $853,000 associated with 2 residentialthe result of no longer evaluating separately for impairment certain commercial real estate loans secured by hotels that have manageable loan-to-value ratios and 1 residential construction loan, respectively, which have insufficient debt service coverage fromexhibited an ability to cash flow during the borrower demonstrating an inabilityCOVID-19 pandemic, with the expectation that hotel operations strengthen further as occupancy rates increase due to buildthe economy reopening and sell the speculative homes at a fast enough rate that can service the interest-only debt. These loans were downgraded to substandard asresumption of June 30, 2020.travel.
The following table presentstables present the activity in the allowance for loan losses (“ALLL”) summarized by major classificationsprimary 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
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
March 31, 2020$2,685  $4,875  $664  $1,592  $1,879  $—  $627  $12,322  
March 31, 2021March 31, 2021$1,975 $5,917 $939 $1,543 $1,103 $$1,248 $12,725 
Charge-offsCharge-offs—  —  —  —  (37) —  —  (37) Charge-offs(25)(25)
RecoveriesRecoveries 13  —   42  —  —  63  Recoveries10 30 44 
Provision 272  156  (32) (170) —  73  300  
June 30, 2020$2,688  $5,160  $820  $1,566  $1,714  $—  $700  $12,648  
Provision (Recovery)Provision (Recovery)(391)(335)197 (401)(167)(103)(1,200)
June 30, 2021June 30, 2021$1,588 $5,582 $1,136 $1,152 $941 $$1,145 $11,544 
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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) —  —  —  (136) —  —  (161) 
Recoveries 27  —  15  96  —  —  142  
Provision686  1,923  535  (861) 337  —  180  2,800  
June 30, 2020$2,688  $5,160  $820  $1,566  $1,714  $—  $700  $12,648  
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 $$917 $12,771 
Charge-offs(120)(120)
Recoveries13 22 58 93 
Provision (Recovery)(674)(428)247 (293)(280)228 (1,200)
June 30, 2021$1,588 $5,582 $1,136 $1,152 $941 $$1,145 $11,544 
June 30, 2021
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
Individually Evaluated for Impairment$$261 $$62 $$$$323 
Collectively Evaluated for Potential Impairment$1,588 $5,321 $1,136 $1,090 $941 $$1,145 $11,221 
June 30, 2020December 31, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Individually Evaluated for ImpairmentIndividually Evaluated for Impairment$—  $399  $—  $200  $—  $—  $—  $599  Individually Evaluated for Impairment$$293 $$356 $$$$649 
Collectively Evaluated for Potential ImpairmentCollectively Evaluated for Potential Impairment$2,688  $4,761  $820  $1,366  $1,714  $—  $700  $12,049  Collectively Evaluated for Potential Impairment$2,249 $5,717 $889 $1,067 $1,283 $$917 $12,122 
December 31, 2019
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
Individually Evaluated for Impairment$—  $274  $—  $610  $—  $—  $—  $884  
Collectively Evaluated for Potential Impairment$2,023  $2,936  $285  $1,802  $1,417  $—  $520  $8,983  
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
March 31, 2020$2,685 $4,875 $664 $1,592 $1,879 $$627 $12,322 
Charge-offs(37)(37)
Recoveries13 42 63 
Provision (Recovery)272 156 (32)(170)73 300 
June 30, 2020$2,688 $5,160 $820 $1,566 $1,714 $$700 $12,648 
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)
March 31, 2019$1,154  $2,550  $500  $2,553  $1,733  $—  $922  $9,412  
Charge-offs(43) —  —  —  (73) —  —  (116) 
Recoveries  —   31  —  —  45  
Provision(20) 888  (12) 164  (191) —  (479) 350  
June 30, 2019$1,096  $3,446  $488  $2,718  $1,500  $—  $443  $9,691  

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Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
December 31, 2018$1,050  $2,693  $395  $2,807  $2,027  $—  $586  $9,558  
December 31, 2019December 31, 2019$2,023 $3,210 $285 $2,412 $1,417 $$520 $9,867 
Charge-offsCharge-offs(43) —  —  —  (286) —  —  (329) Charge-offs(25)(136)(161)
RecoveriesRecoveries 21  —   55  —  —  87  Recoveries27 15 96 142 
Provision80  732  93  (91) (296) —  (143) 375  
June 30, 2019$1,096  $3,446  $488  $2,718  $1,500  $—  $443  $9,691  
Provision (Recovery)Provision (Recovery)686 1,923 535 (861)337 180 2,800 
June 30, 2020June 30, 2020$2,688 $5,160 $820 $1,566 $1,714 $$700 $12,648 
June 30, 2019June 30, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherUnallocatedTotal
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Individually Evaluated for ImpairmentIndividually Evaluated for Impairment$—  $656  $—  $771  $—  $—  $—  $1,427  Individually Evaluated for Impairment$$399 $$200 $$$$599 
Collectively Evaluated for Potential ImpairmentCollectively Evaluated for Potential Impairment$1,096  $2,790  $488  $1,947  $1,500  $—  $443  $8,264  Collectively Evaluated for Potential Impairment$2,688 $4,761 $820 $1,366 $1,714 $$700 $12,049 
The COVID-19 pandemic, which led to state-wide shelter in place orders and mandatory closures of all but essential business, has resulted in a dramatic increase in unemployment and recessionary economic conditions. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis relatedlosses was $11.5 million at June 30, 2021 compared to economic trends and industry conditions, specifically because$12.8 million at December 31, 2020. There was a net recovery of vulnerable industries such as hospitality, oil and gas, retail and restaurants, were adjusted for these circumstances and resulted in a $300,000 and $2.8$1.2 million of provision for loan losses for the three and six months ended June 30, 2020, respectively. While recessionary economic conditions still exist, there has been an improvement2021. A $31.7 million decrease in certain macroeconomic conditions, including unemployment, for the quarter ended June 30, 2020 compared to March 31, 2020, and resultednet reservable loans in the decrease incurrent quarter, which excludes PPP loans and includes the provisionreclassification of $11.4 million of loans to held for loan losses. This change increased the ALLL in all categories except commercial and industrial due tosale that do not require a reserve, as well as a decrease in the average loss history factor as further explained below.
Priorspecifically impaired loans and improving economic and industry conditions contributed to the quarter ended March 31, 2020, management determined historical loss experience for each segment of loans using a two-year rolling average of the net charge-off data within each loan segment, which was then used in combination with qualitative factors to calculate the general allowance component that covers pools of homogeneous loans that are not specifically evaluated for impairment. For the quarter ended March 31, 2020, the Company began using a five-year rolling average of the net charge-off data within each segment. This change was driven by no net charge-off experiencerecovery in the commercial real estate and commercial and industrial segments in the prior two-year rolling period as of March 31, 2020, which the Company believes does not represent the inherent risks in those segments. In the first quarter of 2018, the Company incurred $1.4 million of commercial and industrial charge-offs, however this period would have been removed from the lookback period as of March 31, 2020 if continuing to use a two-year history. In addition, moving to a five-year history is expected to improve the calculation moving forward by capturing economic ebbs and flows over a longer period while also not heavily weighting one period of charge-off activity.
The following table presents changes in the accretable discount on the loans acquired at fair value at the dates indicated (dollars in thousands).
Accretable Discount
(Dollars in Thousands)
December 31, 2019$1,628 
Accretable Yield(166)
June 30, 2020$1,462 
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current period.
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.
June 30, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherTotal
(Dollars in thousands)
Individually Evaluated for Impairment$1,669  $6,701  $745  $2,333  $—  $—  $11,448  
Collectively Evaluated for Potential Impairment343,113  343,805  57,550  146,752  117,145  22,346  1,030,711  
Total Loans$344,782  $350,506  $58,295  $149,085  $117,145  $22,346  $1,042,159  
Commercial At June 30, 2021 and December 31, 2020, commercial and industrial contains $70.0loans include $49.5 million and $55.1 million, respectively, of PPP loans collectively evaluated for potential impairment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.
December 31, 2019June 30, 2021
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherTotal
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherTotal
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Individually Evaluated for ImpairmentIndividually Evaluated for Impairment$549  $4,704  $—  $2,511  $—  $—  $7,764  Individually Evaluated for Impairment$1,161 $16,387 $2,600 $5,703 $$$25,851 
Collectively Evaluated for Potential ImpairmentCollectively Evaluated for Potential Impairment347,217  346,656  35,605  83,075  113,637  18,542  944,732  Collectively Evaluated for Potential Impairment321,319 344,131 82,587 114,488 106,404 12,666 981,595 
Total LoansTotal Loans$347,766  $351,360  $35,605  $85,586  $113,637  $18,542  $952,496  Total Loans$322,480 $360,518 $85,187 $120,191 $106,404 $12,666 $1,007,446 
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December 31, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
ConsumerOtherTotal
(Dollars in thousands)
Individually Evaluated for Impairment$1,183 $33,389 $4,204 $5,365 $$$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(291)
June 30, 2021$903 
Note 5.6. Time Deposits
The following table shows the maturities of time deposits for the next five years and beyond at the date indicated.
June 30,
2020
(Dollars in thousands)
One Year or Less$82,866 
Over One Through Two Years45,449 
Over Two Through Three Years41,849 
Over Three Through Four Years16,613 
Over Four Through Five Years10,025 
Over Five Years4,501 
Total$201,303 
June 30, 2021Time DepositsTime Deposits Held for SaleTime Deposits,
Net
(Dollars in thousands)
One Year or Less$70,931 $7,849 $63,082 
Over One Through Two Years56,888 4,283 52,605 
Over Two Through Three Years20,342 2,545 17,797 
Over Three Through Four Years10,024 2,121 7,903 
Over Four Through Five Years10,319 1,340 8,979 
Over Five Years4,551 199 4,352 
Total$173,055 $18,337 $154,718 
The balance in time deposits, including time deposits held for sale, that meet or exceed the FDIC insurance limit of $250,000 totaled $63.0$53.6 million and $69.3$59.2 million as of June 30, 20202021 and December 31, 2019,2020, respectively.
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The aggregate amount of demand deposits, including demand deposits held for sale, that are overdrawn and have been reclassified as loans was $116,000 and $231,000 as of June 30, 2021 and December 31, 2020, respectively.

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Note 6.7. 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. $10.1 million of securities sold under agreements to repurchase are reported as deposits held for sale at June 30, 2021 because the associated deposits will be sold as part of the Agreement with Citizens Bank. See Note 2 for further information.
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The following table sets forth the components of short-term borrowings as of the dates indicated.
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
AmountWeighted
Average
Rate
AmountWeighted
Average
Rate
AmountWeighted
Average
Rate
AmountWeighted
Average
Rate
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Securities Sold Under Agreements to Repurchase:Securities Sold Under Agreements to Repurchase:Securities Sold Under Agreements to Repurchase:
Balance at Period EndBalance at Period End$42,349  0.30 %$30,571  0.57 %Balance at Period End$39,054 0.17 %$41,055 0.21 %
Average Balance Outstanding During the PeriodAverage Balance Outstanding During the Period32,591  0.52  29,976  0.62  Average Balance Outstanding During the Period45,232 0.21 37,819 0.36 
Maximum Amount Outstanding at any Month EndMaximum Amount Outstanding at any Month End42,349  34,197  Maximum Amount Outstanding at any Month End52,777 46,123 
Securities Collaterizing the Agreements at Period-End:Securities Collaterizing the Agreements at Period-End:Securities Collaterizing the Agreements at Period-End:
Carrying ValueCarrying Value52,514  37,584  Carrying Value53,496 46,312 
Market ValueMarket Value53,969  37,873  Market Value53,597 47,283 
Note 7.8. Other Borrowed Funds
Other borrowed funds consist of fixed rate advances from the Federal Home Loan Bank of Pittsburgh (“FHLB”).FHLB. The following table sets forth the scheduled maturities of other borrowed funds at the dates indicated.
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Due in One YearDue in One Year$5,000  2.09 %$6,000  1.97 %Due in One Year$3,000 2.23 %$2,000 2.12 %
Due After One Year to Two YearsDue After One Year to Two Years3,000  2.23  5,000  2.18  Due After One Year to Two Years3,000 2.41 3,000 2.23 
Due After Two Years to Three YearsDue After Two Years to Three Years3,000  2.41  3,000  2.41  Due After Two Years to Three Years3,000 2.41 
TotalTotal$11,000  2.21 %$14,000  2.14 %Total$6,000 2.32 %$8,000 2.27 %
As of June 30, 2020,2021, the CompanyBank maintained a credit arrangement with a maximum borrowing limit of approximately $428.5$430.7 million with the FHLB and available borrowing capacity of $399.3$317.8 million. This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $577.1$577.9 million of residential and commercial mortgage loans and the Company’sBank’s investment in FHLB stock. Under this arrangement the CompanyBank had available a variable rate Line of Credit in the amount of $150.0 million as of June 30, 2020,2021, of which there was 0 outstanding balancebalance.
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 $104.5 million and $90.3 million as of June 30, 2020.2021 and December 31, 2020, respectively.
At June 30, 2020,2021, the CompanyBank maintained a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $90.4$79.8 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $143.5$120.3 million of commercial and industrial and consumer indirect auto loans. In addition, the CompanyBank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $60.0$50.0 million of which 0 draws had been taken.
At June 30, 2021 and December 31, 2020, CB Financial did not maintain any credit facilities.
Note 8.9. 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.
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The three levels of fair value hierarchy are as follows:
Level 1 –    Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.
Level 2 –    Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs
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include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs.
Level 3 –    Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques.
This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.
The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated StatementStatements 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 six months ended June 30, 20202021 or year ended December 31, 2019.2020.
Fair Value
Hierarchy
June 30,
2020
December 31,
2019
Fair Value
Hierarchy
June 30
2021
December 31
2020
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Available for Sales Securities:
Debt Securities:
Securities:Securities:
Available-for-Sale Debt SecuritiesAvailable-for-Sale Debt Securities
U.S. Government AgenciesU.S. Government AgenciesLevel 2$18,994  $48,056  U.S. Government AgenciesLevel 2$49,786 $41,411 
Obligations of States and Political SubdivisionsObligations of States and Political SubdivisionsLevel 221,958  25,843  Obligations of States and Political SubdivisionsLevel 220,595 21,993 
Mortgage-Backed Securities - Government-Sponsored EnterprisesMortgage-Backed Securities - Government-Sponsored EnterprisesLevel 2105,381  120,776  Mortgage-Backed Securities - Government-Sponsored EnterprisesLevel 2135,330 79,493 
Total Debt Securities146,333  194,675  
Total Available-for-Sale Debt SecuritiesTotal Available-for-Sale Debt Securities205,711 142,897 
Marketable Equity Securities:
Equity SecuritiesEquity Securities
Mutual FundsMutual FundsLevel 11,022  997  Mutual FundsLevel 11,004 1,019 
OtherOtherLevel 11,293  1,713  OtherLevel 11,757 1,484 
Total Marketable Equity Securities2,315  2,710  
Total Available-for-Sale Securities$148,648  $197,385  
Total Equity SecuritiesTotal Equity Securities2,761 2,503 
Total SecuritiesTotal Securities$208,472 $145,400 
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The following table presents the financial assets on the Consolidated Statements of Financial Condition measured at fair value on a nonrecurring basis on the Consolidated Statement of Financial Condition as of the dates indicated by level within the fair value hierarchy.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. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include quoted market prices for identical assets classified as Level 1 inputs or observable inputs, employed by certified appraisers, for similar assets classified as Level 2 inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level 3 inputs.
Fair Value at
Financial AssetFinancial AssetFair Value
Hierarchy
June 30,
2020
December 31,
2019
Valuation
Techniques
Significant
Unobservable Inputs
RangeFinancial AssetFair Value HierarchyJune 30,
2021
Valuation
Techniques
Significant Unobservable InputsRangeWeighted Average
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Impaired LoansLevel 3$3,496  $3,140  Market Comparable PropertiesMarketability Discount10 %to30 %(1) 
OREOLevel 376  58  Market Comparable PropertiesMarketability Discount10 %to50 %(1) 
Impaired Loans Individually AssessedImpaired Loans Individually AssessedLevel 3$2,161 
Appraisal of Collateral (1)
Appraisal Adjustments (2)
%to50 %6.6%
Mortgage Servicing RightsMortgage Servicing RightsLevel 3689 Discounted Cash FlowDiscount Rate%to11 %10.0%
Prepayment Speed%to27 %15.6%
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)Range includes discounts taken since appraisalFair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable.
(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated values.
27

Tableliquidation expenses. The range and weighted average of Contentsappraisal adjustments and liquidation expense are presented as a percent of the appraisal.
cbfv-20200630_g1.jpg
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 June 30, 20202021 and December 31, 2019,2020, the fair value of impaired loans consists of the loan balances of $4.1$2.5 million and $4.0$3.6 million, respectively, less their specific valuation allowances of $599,000$323,000 and $884,000,$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 (Loss) Income.
OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.
For the six months ended June 30, 2020, 1 commercial real estate OREO property with a fair value of $18,000 sold at a gain of $4,000 and 1 residential real estate OREO property with a fair value of $40,000 sold at a loss of $20,000. In addition, 2 residential real estate loans for $76,000 transferred to OREO.
For the six months ended June 30, 2019, 1 commercial real estate OREO property with a fair value of $697,000 was sold at a $33,000 gain and 1 residential OREO property with a fair value of $46,000 was sold at a loss of $3,000.
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.
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As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.
The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated.
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Fair Value
Hierarchy
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Fair Value
Hierarchy
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Financial Assets:Financial Assets:Financial Assets:
Cash and Due From Banks:Cash and Due From Banks:Cash and Due From Banks:
Interest BearingInterest BearingLevel 1$114,794  $114,794  $68,798  $68,798  Interest BearingLevel 1$156,200 $156,200 $145,636 $145,636 
Non-Interest BearingNon-Interest BearingLevel 116,609  16,609  11,419  11,419  Non-Interest BearingLevel 115,810 15,810 15,275 15,275 
Investment Securities:
Available for SaleSee Above148,648  148,648  197,385  197,385  
SecuritiesSecuritiesSee Above208,472 208,472 145,400 145,400 
Loans Held for SaleLoans Held for SaleLevel 211,409 11,409 
Loans, NetLoans, NetLevel 31,029,511  1,074,146  942,629  961,110  Loans, NetLevel 31,007,311 1,029,046 1,031,982 1,073,633 
Property and Equipment Held for SaleProperty and Equipment Held for SaleLevel 2795 795 
Restricted StockRestricted StockLevel 23,793  3,793  3,656  3,656  Restricted StockLevel 23,741 3,741 3,984 3,984 
Bank-Owned Life InsuranceLevel 224,499  24,499  24,222  24,222  
Mortgage Servicing RightsMortgage Servicing RightsLevel 3692  692  930  930  Mortgage Servicing RightsLevel 3689 689 656 656 
Accrued Interest ReceivableAccrued Interest ReceivableLevel 24,663  4,663  3,297  3,297  Accrued Interest ReceivableLevel 23,606 3,606 3,872 3,872 
Financial Liabilities:Financial Liabilities:Financial Liabilities:
Deposits Held for SaleDeposits Held for SaleLevel 2102,557 107,685 
DepositsDepositsLevel 21,193,940  1,204,494  1,118,359  1,128,078  DepositsLevel 21,173,553 1,175,088 1,224,569 1,231,606 
Short-term BorrowingsLevel 242,349  42,349  30,571  30,571  
Short-Term BorrowingsShort-Term BorrowingsLevel 239,054 39,054 41,055 41,055 
Other Borrowed FundsOther Borrowed FundsLevel 211,000  11,269  14,000  15,380  Other Borrowed FundsLevel 26,000 6,044 8,000 8,067 
Accrued Interest PayableAccrued Interest PayableLevel 2863  863  987  987  Accrued Interest PayableLevel 2621 621 767 767 

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Note 9.10. 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 StatementStatements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments and conditional obligations are evaluated the same as on-balance-sheet instruments but do not have a corresponding reserve recorded. The Company’s opinion on not implementing a corresponding reserve for off-balance-sheet instruments is supported by historical factors of no losses recorded due to these items. The Company is continually evaluating these items for credit quality and any future need for the corresponding reserve.
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The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated.
June 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Standby Letters of CreditStandby Letters of Credit$53,109  $42,041  Standby Letters of Credit$110 $120 
Performance Letters of CreditPerformance Letters of Credit2,923  2,521  Performance Letters of Credit2,764 2,947 
Construction MortgagesConstruction Mortgages74,021  59,689  Construction Mortgages57,499 60,312 
Personal Lines of CreditPersonal Lines of Credit6,837  6,456  Personal Lines of Credit7,178 6,930 
Overdraft Protection LinesOverdraft Protection Lines6,364  6,415  Overdraft Protection Lines6,031 6,287 
Home Equity Lines of CreditHome Equity Lines of Credit20,805  20,560  Home Equity Lines of Credit23,067 22,110 
Commercial Lines of CreditCommercial Lines of Credit67,682  102,422  Commercial Lines of Credit77,841 69,738 
Total CommitmentsTotal Commitments$231,741  $240,104  Total Commitments$174,490 $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.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 10.11. 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 interestAccrued Interest Receivable and other assetsOther Assets and the related lease liabilities in accrued interestAccrued Interest Payable and other liabilitiesOther Liabilities on the Consolidated StatementStatements of Financial Condition.
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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
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20202019202020192021202020212020
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Operating Lease ExpenseOperating Lease Expense$119  $115  $235  $230  Operating Lease Expense$88 $119 $183 $235 
Short-Term Lease ExpenseShort-Term Lease Expense17 
Variable Lease ExpenseVariable Lease Expense  18  15  Variable Lease Expense16 18 
Total Lease ExpenseTotal Lease Expense$128  $122  $253  $245  Total Lease Expense$105 $128 $216 $253 
June 30,
2021
December 31,
2020
(Dollars in thousands)(Dollars in thousands)
June 30,
2020
December 31,
2019
Operating Leases:Operating Leases:Operating Leases:
ROU AssetsROU Assets$1,118  $1,289  ROU Assets$809 $1,206 
Weighted Average Lease Term in YearsWeighted Average Lease Term in Years7.187.06Weighted Average Lease Term in Years7.066.95
Weighted Average Discount RateWeighted Average Discount Rate2.92 %2.89 %Weighted Average Discount Rate2.44 %2.39 %
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June 30,
20202021
(Dollars in thousands)
Maturity Analysis:
Due in One Year$388328 
Due After One Year to Two Years257216 
Due After Two Years to Three Years123116 
Due After Three Years to Four Years57105 
Due After Four to Five Years45 
Due After Five Years386341 
Total$1,2561,151 
Less: Present Value Discount135112 
Lease Liabilities$1,1211,039 
Impairment of ROU Assets
ROU assets from operating leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment and are reviewed for impairment when indicators of impairment are present. ASC 360 requires three steps to identify, recognize and measure impairment. If indicators of impairment are present (Step 1), the Company performs a recoverability test (Step 2) comparing the sum of the estimated undiscounted cash flows attributable to the ROU asset in question to the carrying amount. If the undiscounted cash flows used in the recoverability test are less than the carrying amount, the Company estimates the fair value of the ROU asset and recognizes an impairment loss when the carrying amount exceeds the estimated fair value (Step 3).
At June 30, 2021, the Company consolidated 6 branches as part of its branch optimization initiative. NaN of the branches was leased and the Company performed the three-step evaluation as outlined above to determine whether the operating lease was impaired. As part of the recoverability test, the Company elected to exclude operating lease liabilities from the carrying amount of the asset group. The undiscounted future cash flows used in the recoverability test were based on assumptions made by the Company rather than market participant assumptions. Since an election was made to exclude operating lease liabilities from the asset or asset group, all future cash lease payments for the lease were also excluded. In addition, the Company elected to exclude operating lease liabilities from the estimated fair value, consistent with the recoverability test When determining the fair value of the ROU asset, the Company estimated what market participants would pay to lease the asset. The ROU asset was valued assuming its highest and best use in its current form.
Based on the analysis, the Company concluded that the ROU asset for this branch was fully impaired as of June 30, 2021, resulting in a remaining ROU carrying value of 0 and the recognition of a $227,000 impairment for the three and six months ended June 30, 2021. The impairment was recognized in Occupancy expense on the Consolidated Statements of (Loss) Income.
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Note 11.12. Other Noninterest Expense
The details of other noninterest expense for the Company’s consolidated statementConsolidated Statements of income(Loss) Income for the three and six months ended June 30, 2020 and 2019,periods indicated are as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
(Dollars in thousands)
Non-Employee Compensation$147  $131  $293  $271  
Printing and Supplies139  96  240  193  
Postage55  61  116  133  
Telephone132  158  301  302  
Charitable Contributions16  52  67  92  
Dues and Subscriptions41  47  117  98  
Loan Expenses125  128  270  212  
Meals and Entertainment34  46  74  101  
Travel20  61  74  97  
Training 13  14  22  
Bank Assessment44  42  88  85  
Insurance58  60  114  113  
Miscellaneous127  200  290  361  
Total Other Noninterest Expense$945  $1,095  $2,058  $2,080  
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Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
(Dollars in thousands)
Non-Employee Compensation$141 $147 $290 $293 
Printing and Supplies65 139 164 240 
Postage115 55 178 116 
Telephone140 132 328 301 
Charitable Contributions21 16 35 67 
Dues and Subscriptions37 41 88 117 
Loan Expenses110 125 202 270 
Meals and Entertainment26 34 60 74 
Travel28 20 50 74 
Training24 14 
Bank Assessment44 44 88 88 
Insurance59 58 119 114 
Miscellaneous152 127 301 290 
Total Other Noninterest Expense$945 $945 $1,927 $2,058 

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Note 12.13. Segment and Related Information
At June 30, 2020,2021, the Company’s business activities were comprised of 2 operating segments, which are community banking and insurance brokerage services. CB Financial Services, Inc. is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank. Exchange Underwriters has an independent board of directors from the Company and is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products.
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The following is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated.
Community BankExchange Underwriters, Inc.CB Financial Services, Inc.Net EliminationsConsolidated
(Dollars in thousands)
June 30, 2020
Assets$1,408,476  $3,737  $152,404  $(157,465) $1,407,152  
Liabilities1,261,592  1,102  12  (7,946) 1,254,760  
Stockholders' equity146,884  2,635  152,392  (149,519) 152,392  
December 31, 2019
Assets$1,321,001  $4,076  $151,124  $(154,664) $1,321,537  
Liabilities1,178,759  1,194  27  (9,540) 1,170,440  
Stockholders' equity142,242  2,882  151,097  (145,124) 151,097  
Three Months Ended June 30, 2020
Interest and dividend income$11,711  $ $1,309  $(1,294) $11,727  
Interest expense1,406  —  —  —  1,406  
Net interest income10,305   1,309  (1,294) 10,321  
Provision for loan losses300  —  —  —  300  
Net interest income after provision for loan losses10,005   1,309  (1,294) 10,021  
Noninterest income1,508  1,121  19  —  2,648  
Noninterest expense8,160  911  —  —  9,071  
Undistributed net income of subsidiary148  —  1,580  (1,728) —  
Income before income tax expense (benefit)3,501  211  2,908  (3,022) 3,598  
Income tax expense (benefit)627  63   —  695  
Net income$2,874  $148  $2,903  $(3,022) $2,903  
Six Months Ended June 30, 2020
Interest and dividend income$24,025  $ $1,324  $(1,294) $24,056  
Interest expense3,202  —  —  —  3,202  
Net interest income20,823   1,324  (1,294) 20,854  
Provision for loan losses2,800  —  —  —  2,800  
Net interest income after provision for loan losses18,023   1,324  (1,294) 18,054  
Noninterest income (loss)2,553  2,402  (435) —  4,520  
Noninterest expense16,181  1,887   —  18,074  
Undistributed net income of subsidiary360  —  2,703  (3,063) —  
Income before income tax expense (benefit)4,755  516  3,586  (4,357) 4,500  
Income tax expense (benefit)758  156  (90) —  824  
Net income$3,997  $360  $3,676  $(4,357) $3,676  
Community BankExchange Underwriters, Inc.CB Financial Services, Inc.Net EliminationsConsolidated
(Dollars in thousands)
June 30, 2021
Assets$1,461,219 $4,571 $132,559 $(136,736)$1,461,613 
Liabilities1,338,677 1,712 23 (11,335)1,329,077 
Stockholders' Equity122,542 2,859 132,536 (125,401)132,536 
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 June 30, 2021
Interest and Dividend Income$10,798 $$5,825 $(5,804)$10,820 
Interest Expense886 886 
Net Interest and Dividend Income9,912 5,825 (5,804)9,934 
(Recovery) Provision for Loan Losses(1,200)(1,200)
Net Interest and Dividend Income After (Recovery) Provision for Loan Losses11,112 5,825 (5,804)11,134 
Noninterest Income1,002 1,209 2,219 
Noninterest Expense12,757 962 13,722 
Undistributed Net Income (Loss) of Subsidiary177 (6,050)5,873 
(Loss) Income Before Income Tax (Benefit) Expense(466)248 (220)69 (369)
Income Tax (Benefit) Expense(220)71 (146)
Net (Loss) Income$(246)$177 $(223)$69 $(223)
Six Months Ended June 30, 2021
Interest and Dividend Income$21,768 $$7,145 $(7,108)$21,808 
Interest Expense1,897 1,897 
Net Interest and Dividend Income19,871 7,145 (7,108)19,911 
(Recovery) Provision for Loan Losses(1,200)(1,200)
Net Interest and Dividend Income After (Recovery) Provision for Loan Losses21,071 7,145 (7,108)21,111 
Noninterest Income2,345 2,800 248 5,393 
Noninterest Expense21,147 1,964 23,117 
Undistributed Net Income (Loss) of Subsidiary585 (4,750)4,165 
Income Before Income Tax Expense2,854 839 2,637 (2,943)3,387 
Income Tax Expense496 254 15 765 
Net Income$2,358 $585 $2,622 $(2,943)$2,622 
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Community BankExchange Underwriters, Inc.CB Financial Services, Inc.Net EliminationsConsolidated
(Dollars in thousands)
Three Months Ended June 30, 2019
Interest and dividend income$12,655  $ $1,317  $(1,304) $12,669  
Interest expense1,964  —  —  —  1,964  
Net interest income10,691   1,317  (1,304) 10,705  
Provision for loan losses350  —  —  —  350  
Net interest income after provision for loan losses10,341   1,317  (1,304) 10,355  
Noninterest income990  1,079  96  —  2,165  
Noninterest expense7,907  887   —  8,797  
Undistributed net income of subsidiary132  —  1,587  (1,719) —  
Income before income tax expense3,556  193  2,997  (3,023) 3,723  
Income tax expense665  61  18  —  744  
Net income$2,891  $132  $2,979  $(3,023) $2,979  
Six Months Ended June 30, 2019
Interest and dividend income$24,936  $ $2,636  $(2,608) $24,965  
Interest expense3,826  —  —  —  3,826  
Net interest income21,110   2,636  (2,608) 21,139  
Provision for loan losses375  —  —  —  375  
Net interest income after provision for loan losses20,735   2,636  (2,608) 20,764  
Noninterest income1,948  2,227  104  —  4,279  
Noninterest expense15,808  1,863   —  17,677  
Undistributed net income of subsidiary250  —  3,190  (3,440) —  
Income before income tax expense7,125  365  5,924  (6,048) 7,366  
Income tax expense1,327  115  20  —  1,462  
Net income$5,798  $250  $5,904  $(6,048) $5,904  
Three Months Ended June 30, 2020
Interest and Dividend Income$11,711 $$1,309 $(1,294)$11,727 
Interest Expense1,406 1,406 
Net Interest and Dividend Income10,305 1,309 (1,294)10,321 
Provision for Loan Losses300 300 
Net Interest and Dividend Income After Provision for Loan Losses10,005 1,309 (1,294)10,021 
Noninterest Income1,508 1,121 19 2,648 
Noninterest Expense8,160 911 9,071 
Undistributed Net Income of Subsidiary148 1,580 (1,728)
Income Before Income Tax Expense (Benefit)3,501 211 2,908 (3,022)3,598 
Income Tax Expense627 63 695 
Net Income$2,874 $148 $2,903 $(3,022)$2,903 
Six Months Ended June 30, 2020
Interest and Dividend Income$24,025 $$1,324 $(1,294)$24,056 
Interest Expense3,202 3,202 
Net Interest and Dividend Income20,823 1,324 (1,294)20,854 
Provision for Loan Losses2,800 2,800 
Net Interest and Dividend Income After Provision for Loan Losses18,023 1,324 (1,294)18,054 
Noninterest Income (Loss)2,553 2,402 (435)4,520 
Noninterest Expense16,181 1,887 18,074 
Undistributed Net Income of Subsidiary360 2,703 (3,063)
Income Before Income Tax Expense (Benefit)4,755 516 3,586 (4,357)4,500 
Income Tax Expense (Benefit)758 156 (90)824 
Net Income$3,997 $360 $3,676 $(4,357)$3,676 
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Note 14. Intangible Assets
The following table presents a summary of intangible assets subject to amortization at the dates indicated.
June 30, 2021December 31, 2020
Gross Carrying AmountAccumulated AmortizationImpairmentNet Carrying ValueGross Carrying AmountAccumulated AmortizationNet Carrying Value
(Dollars in thousands)
Core Deposit Intangible$14,103 $(7,987)$(1,178)$4,938 $14,103 $(7,047)$7,056 
Customer List1,800 (552)1,248 1,800 (457)1,343 
Total Intangible Assets$15,903 $(8,539)$(1,178)$6,186 $15,903 $(7,504)$8,399 
On June 10, 2021, the Agreement was executed with Citizens Bank pursuant to which Citizens Bank has agreed to assume certain deposits of the branch offices of Community Bank located in Buckhannon, West Virginia, and in New Martinsville, West Virginia. In 2018, the Company recorded a core deposit intangible asset related to the acquisition of these two branches as part of the merger with First West Virginia Bancorp, Inc. As a result of signing the Agreement and the expected sale of a portion of the deposits associated with the remaining core deposit intangible, the Company performed an interim evaluation to determine whether the core deposit intangible was impaired. As a result of the evaluation, the Company determined the carrying amount of the core deposit intangible was impaired $1.2 million. The Company recorded the impairment in Intangible Asset and Goodwill Impairment on the Consolidated Statements of (Loss) Income.
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$891 
20221,782 
20231,782 
20241,147 
2025189 
2026 and Thereafter395 
Total Estimated Intangible Asset Amortization Expense$6,186 
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Note 15. Mortgage Servicing Rights
The following table presents MSR activity and net carrying values for the periods indicated.
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
(Dollars in thousands)
Mortgage Servicing Rights:
Balance, Beginning of Period$967 $992 $1,029 $1,001 
Additions15 91 32 137 
Amortization(80)(51)(159)(106)
Balance, End of Period$902 $1,032 $902 $1,032 
Valuation Allowance:
Balance, Beginning of Period$(201)$(71)$(373)$(71)
Valuation Allowance Adjustment(12)(269)160 (269)
Balance, End of Period$(213)$(340)$(213)$(340)
Mortgage Servicing Rights, Net Carrying Value$689 $692 $689 $692 
Amortization of MSRs and the period change in the valuation allowance are reported in Other Income on the Consolidated Statements of (Loss) Income.
Real estate loans serviced for others, which are not included in the Consolidated Statements of Financial Condition, totaled $96.7 million and $105.8 million at June 30, 2021 and December 31, 2020, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Forward-Looking Statements
This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:
General and local economic conditions;
The scope and duration of economic contraction as a result of the COVID-19 pandemic and its effects on the Company’s business and that of the Company’s customers;
Our ability to realize the expected cost savings and other efficiencies related to our branch optimization and operational efficiency initiatives;
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;
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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.
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Many of these risks and uncertainties have been elevated by and may continue to be elevated by the COVID-19 pandemic. The ability to predict the impact of the ongoing COVID-19 pandemic on the Company’s future operating results with any precision is difficult and depends on many factors beyond our control.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.
Given the numerous unknowns and risks that are heavily weighted to the downside due to COVID-19, our forward-looking statements are subject to the risk that conditions will be substantially different than we currently expect. If efforts to contain COVID-19 are unsuccessful and government restriction last longer than expected, the recession would be much longer and much more severe and damaging. Ineffective fiscal stimulus, or an extended delay in implementing it, are also major risks. The deeper the recession and the longer it lasts, the more it will damage consumer fundamentals and sentiment. This could both prolong the recession and make any recovery weaker. Similarly, the recession could damage business fundamentals. As a result, the outbreak and its consequences, including responsive measures to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting, possibly materially, the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.
The ability to predict the impact of the COVID-19 pandemic on the Company’s future operating results with any precision is difficult and depends on many factors beyond our control. The Company's market area was impacted by state-wide shelter-in-place orders and closing all but essential businesses. Certain government restrictions remaining 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, including limiting branch traffic to drive-thru and special appointments only, 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 and result in decreases in late charges.
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 goodwill, intangible assets, and/or long-lived assets.
The Federal Reserve Board’s decision to drop the benchmark interest rate from a range of 1.5% to 1.75% to start the year to a range of 0% to 0.25% as part of a wide-ranging emergency action to protect the economy from the COVID-19 outbreak may result in an influx of loan refinances that could impact the Company’s net interest income.
The lack of movement 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 16 offices11 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania seven officesand five branches in Brooke, Marshall, Ohio, Upshur and Wetzel Counties in West Virginia, and one office in Belmont County in Ohio.Virginia. The Bank also
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has twoa loan production officesoffice in Fayette and Allegheny County, a corporate center in Washington County and an operations center in Greene County in Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, Inc., the Bank’s wholly owned subsidiary that is a full-service, independent insurance agency located in the Washington County.
Overview
The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of June 30, 2020,2021, compared to the financial condition as of December 31, 20192020 and the consolidated results of operations for the three and six months ended June 30, 20202021 compared to the three and six monthmonths ended June 30, 2019.2020.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, insurance commissions, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contracted services, legal and professional fees, advertising, deposit and general insurance and other expenses.
Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in southwestern Pennsylvania and Ohio Valley market areas.
Critical Accounting EstimatesBranch Optimization and Operational Efficiency Update
Goodwill. Goodwill representsAs previously disclosed by the excessCompany on February 23, 2021, May 27, 2021 and June 10, 2021, the Company announced the implementation of branch optimization and operational efficiency strategic initiatives to improve the Bank’s financial performance and operations in order to position the Bank for continued profitable growth. The Bank intends to optimize its current branch network 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 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.
The Bank continues to make progress related to these initiatives through the consolidation of six branches that was completed on June 30, 2021, reducing the Bank's branch network to 16 branches. The Bank is also in the process of implementing operational efficiencies related to over 185 individualized processes within its branch network and operating environment. In addition, on June 10, 2021, CB Financial, Community Bank, and Citizens Bank of West Virginia, Inc. (“Citizens Bank”) executed a Purchase and Assumption Agreement (the “Agreement”) pursuant to which Citizens Bank has agreed to purchase certain loans and other assets, and assume certain deposits and other liabilities, of the costbranch offices of an acquisition over the fair value of the net assets acquired. Goodwill is subjectCommunity Bank located in Buckhannon, West Virginia, and in New Martinsville, West Virginia. The Agreement provides for a 5.0% premium to impairment testing at the reporting unit level, which is conducted at least annuallybe paid on October 31 or more frequently if triggering events occur or impairment indicators exist. The Company operates two reporting units – Community Banking segment and Insurance Brokerage Services segment. The Company has assigned 100% of the goodwill to the Community Banking reporting unit.
In 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-04 whereby the Company applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has the option of performing a qualitative assessment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually. The quantitative test primarily utilizes market comparisons and recent merger and acquisition transactions to determine whether there is goodwill impairment.
The COVID-19 pandemic that has impacted the U.S. and most of the world and government response to curtail the spread of the virus through shelter-in-place orders and mandatory closures of all but essential businesses beginning in March 2020 has significantly impacted our market area and the activities of individuals and businesses. These restrictions have resulted in significant adverse effects on macroeconomic conditions, and stock market valuations have decreased substantially for most companies, including banks. The ultimate effect of COVID-19 on the local or broader economy is not yet known nor is the ultimate length of the restrictions described and any accompanying effects. In light of the adverse circumstances resulting from COVID-19, management determined it was necessary to evaluate goodwill for impairment at March 31, 2020.
Determining the fair value of a reporting unit under a quantitative goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions. The Company utilized a market approach to determine the fair value of the Community Banking reporting unit. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, current and prospective financial information of the Bank, most recent performance of the Bank’s peers, including common banking industry performance measures and ratios, and comparable multiples from publicly traded companies in our industry. The valuation was primarily based on observable price to tangible book value bank merger and acquisition multiples for similar size community banks, which is the most widely used valuation metric in the community banking industry. As part of its analysis, the Company considered bank transactions of target banks that were comparable in asset size, risk and profitability and efficiency metrics during the “Great Recession” period from 2008 to 2010 when bank stock values wereassumed deposits,
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depressedwhich will be recognized as income upon the expected close of the transaction in the fourth quarter of 2021, subject to regulatory approval and the stock market decline was similarother closing conditions.
The Company presently expects to incur $7.9 million of non-recurring expenses in 2021 and, as of June 30, 2021, has incurred $5.1 million of expenses related to these items. The expenses include $2.3 million writedown on fixed assets and $1.2 million impairment of intangible assets associated with the current suddenbranch consolidations and unexpected events caused bysales.
In addition, as part of the COVID-19 pandemic. Based onCompany's branch optimization and operational efficiency initiatives, the analysis, management determinedCompany incurred $1.6 million of expenses related to contracted services, employee severance costs, branch lease impairment, professional fees, data processing fees, legal and other expenses.
The majority of the remaining expenses to be recognized in 2021 are related to the operational and revenue efficiency initiative of approximately $1.5 million that goodwill was not impairedwill be reflected in contracted services. The Company anticipates savings from this initiative ranging from approximately $2.5 million to $3.5 million in 2022, as well as creating possible enhanced revenue and fee generating capacity in future years.
In addition, the Company expects an annual reduction in pre-tax operating expenses in 2021of March 31, 2020. Future events, particularly worsening business, profitability and economic conditionsapproximately $1.0 million, along with $3.0 million of ongoing pre-tax cost savings as of a result of the COVID-19 pandemic, could cause additional triggering events and require managementbranch optimization initiatives. The Company expects these ongoing savings to further evaluate goodwill for impairment.
In performing our quarterly goodwill impairment assessment, we first assessed qualitative factorsbe incremental to determine whether any triggering events occurred that would require us to perform an interim goodwill impairment analysis and evaluate if it is more likely than not thatnet income beginning in 2022. This estimated cost excludes the fair value of a reporting unit is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industry and market considerations, financial performancefavorable impact of the reporting unitexpected premium from sale of branches expected to be recognized in the fourth quarter of 2021 and other relevant entity and reporting-unit specific considerations. Based on qualitative assessment as of June 30, 2020, we concluded that no triggering events occurred and it is more likely than not that the fair value of a reporting unit exceeds its carrying value indicating that goodwill of the reporting unit is considered not impaired. As such, no quantitative assessment was performed.currently estimated to be $5.1 million.
Explanation of Use of Non-GAAP Financial Measures
In addition to financial measures presented in accordance with generally accepted accounting principles in the United States of America (“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. Non-GAAP adjusted items impacting the Company's financial performance are identified to assist investors in providing a complete understanding of factors and trends affecting the Company’s business and in analyzing the Company’s operating results on the same basis as that applied by management. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP financial measures or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.
The interest income on interest-earning assets, net interest rate spread and net interest margin are presented on a fully tax-equivalent (“FTE”) basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory income tax rate of 21 percent.21.0%. We believe the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.
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The following table reconciles net interest income, net interest spread and net interest margin on a FTE basis for the periods indicated:
Three Months EndedSix Months EndedThree Months EndedSix Months Ended
June 30,June 30,June 30,
20202019202020192021202020212020
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Interest Income per Consolidated Statement of Income (GAAP)$11,727  $12,669  $24,056  $24,965  
Interest Income (GAAP)Interest Income (GAAP)$10,820 $11,727 $21,808 $24,056 
Adjustment to FTE BasisAdjustment to FTE Basis59  69  113  147  Adjustment to FTE Basis43 59 89 113 
Interest Income (FTE) (Non-GAAP)Interest Income (FTE) (Non-GAAP)11,786  12,738  24,169  25,112  Interest Income (FTE) (Non-GAAP)10,863 11,786 21,897 24,169 
Interest Expense per Consolidated Statement of Income1,406  1,964  3,202  3,826  
Interest Expense (GAAP)Interest Expense (GAAP)886 1,406 1,897 3,202 
Net Interest Income (FTE) (Non-GAAP)Net Interest Income (FTE) (Non-GAAP)$10,380  $10,774  $20,967  $21,286  Net Interest Income (FTE) (Non-GAAP)$9,977 $10,380 $20,000 $20,967 
Net Interest Rate Spread (GAAP)Net Interest Rate Spread (GAAP)3.00 %3.36 %3.16 %3.38 %Net Interest Rate Spread (GAAP)2.72 %3.10 %2.81 %3.22 %
Adjustment to FTE BasisAdjustment to FTE Basis0.12  0.03  0.07  0.02  Adjustment to FTE Basis0.02 0.02 0.01 0.01 
Net Interest Rate Spread (FTE) (Non-GAAP)Net Interest Rate Spread (FTE) (Non-GAAP)3.12  3.39  3.23  3.40  Net Interest Rate Spread (FTE) (Non-GAAP)2.74 3.12 2.82 3.23 
Net Interest Margin (GAAP)Net Interest Margin (GAAP)3.18 %3.59 %3.36 %3.61 %Net Interest Margin (GAAP)2.84 %3.28 %2.94 %3.41 %
Adjustment to FTE BasisAdjustment to FTE Basis0.12  0.03  0.07  0.02  Adjustment to FTE Basis0.01 0.02 0.01 0.02 
Net Interest Margin (FTE) (Non-GAAP)Net Interest Margin (FTE) (Non-GAAP)3.30  3.62  3.43  3.63  Net Interest Margin (FTE) (Non-GAAP)2.85 3.30 2.95 3.43 
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.
June 30,
2021
December 31, 2020
(Dollars in thousands) 
Allowance for Loan Losses (Numerator)$11,544 $12,771 
Total Loans1,007,446 $1,044,753 
PPP Loans(49,525)(55,096)
Total Loans, Excluding PPP Loans (Non-GAAP) (Denominator)$957,921 $989,657 
Allowance for Loan Losses to Total Loans (GAAP)1.15 %1.22 %
Allowance for Loan Losses to Total Loans, Excluding PPP Loans (Non-GAAP)1.21 %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.
June 30,
2021
December 31, 2020
(Dollars in thousands, except share and per share data) 
Stockholders' Equity (GAAP)$132,536 $134,530 
Goodwill and Other Intangible Assets, Net(15,918)(18,131)
Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator)$116,618 $116,399 
Common Shares Outstanding (Denominator)5,409,077 5,434,374 
Book Value per Common Share (GAAP)$24.50 $24.76 
Tangible Book Value per Common Share (Non-GAAP)$21.56 $21.42 
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Consolidated StatementStatements of Financial Condition Analysis
Assets. Total assets increased $85.6$44.9 million, or 6.5%3.2%, to $1.41$1.46 billion at June 30, 2020,2021, compared to $1.32$1.42 billion at December 31, 2019.2020. The change is primarily due to higher cash and due from banks and securities.
Cash and Securities
Cash and due from banks increased $51.2$11.1 million, or 63.8%6.9%, to $131.4$172.0 million at June 30, 2020,2021, compared to $80.2$160.9 million at December 31, 2019. This2020. The change is primarily due to an increase in Deposits as further described below in the result of investment security call and paydown activity.Liabilities section.
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Investment securities classified as available-for-sale decreased $48.7Securities increased $63.1 million, or 24.7%43.4%, to $148.6$208.5 million at June 30, 2020,2021, compared to $197.4$145.4 million at December 31, 2019. This was primarily the result of $52.52020. Current period activity included $97.1 million of calls ofmortgage-backed securities and U.S. government agency and municipal securities due to the market interest rate decreases that occurred in light of the COVID-19 pandemic and $19.8purchases, $20.4 million of paydowns on mortgage-backed securities. In addition, there was the purchase of $38.8securities, and $11.9 million of mortgage-backed and U.S. government agency securities partially offset by $17.9 millionsales, which resulted in the recognition of mortgage-backed securitya $225,000 gain on the sale of securities. The purchases were made to earn a higher yield on excess cash with an expected 6 bps increase in incremental annual net interest margin. The sales to recognizerecognized gains on higher-interest securities that were paying down quicker than expected.with faster prepayment speeds. In addition, there was a $2.5$2.2 million increasedecrease in the market value of the debt securities portfolio attributed to market interest rate decreases and $410,000 lossa $233,000 gain in market value in the marketable equity securities portfolio, which is primarily comprised of bank stocks.
Payroll Protection Program (“PPP”) Update
NetPPP loans increased $86.9decreased $5.6 million or 9.2%, to $1.03$49.5 million at June 30, 2021 compared to $55.1 million at December 31, 2020, which includes $34.6 million in originations in the current period offset by loan forgiveness.
$1.1 million of net PPP loan origination fees were unearned at December 31, 2020. Due to activity in the current period, $1.4 million of net PPP loan origination fees were unearned at June 30, 2021. $489,000 of net PPP loan origination fees were earned in the second quarter of 2021 compared to $535,000 for the three months ended March 31, 2021.
Loans, Allowance for Loan Losses and Credit Quality
Total loans held for investment decreased $37.3 million to $1.01 billion at June 30, 2020, compared2021. This includes the impact of reclassifying $11.4 million of loans to $942.6 million million at December 31, 2019. Loan growth duringheld for sale. Excluding the first halfnet decline of the year was primarily due to funding of $70.0$5.6 million in PPP loans in the current period and net loan advancesincluding $11.4 million of $22.7 million in constructionheld for sale loans, as of June 30, 2020. Total loans excluding allowance for loan losses, increased $89.7 million and represented an 18.8% annualized growth rate. Excluding the impact of the PPPdeclined $20.3 million. Average loans organic loan growth was $19.6 million and represented an annualized growth rate of 4.1% for the sixthree months ended June 30, 2020.2021 decreased $15.0 million compared to the three months ended March 31, 2021.
The allowance for loan losses was $12.6$11.5 million at June 30, 20202021 compared to $9.9$12.8 million at December 31, 2019. This reflects2020. There was a $2.8net recovery of $1.2 million of provision for loan loss duelosses in the current quarter and year-to-date. A $31.7 million decrease in net reservable loans in the current period, which excludes PPP loans and includes the reclassification of $11.4 million of loans to an increaseheld for sale that do not require a reserve, as well as a decrease in qualitative factors related tospecifically impaired loans and improving economic trends and industry conditions contributed to account for the adverse economic impact of COVID-19.net recovery in the current period. As a result, the allowance for loan losses to total loans increased from 1.04%was 1.15% at June 30, 2021 compared to 1.22% at December 31, 2019 to 1.21% at June 30, 2020. No allowance was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee. The allowance for loan losses to total loans, excluding PPP loans, was 1.30%1.21% at June 30, 2021 compared to 1.29% at December 31, 2020.
Nonperforming loans, increased to $5.6which includes nonaccrual loans, accruing loans past due 90 days or more, and accruing loans that are considered troubled debt restructurings, were $15.4 million at June 30, 2020 from $5.42021 compared to $14.5 million at December 31, 2019 and, coupled with loan growth noted previously, resulted in the nonperforming loans to total loans ratio decreasing 3 bps to 0.54% at June 30, 2020 compared to 0.57% at December 31, 2019. Excluding PPP loans, the nonperforming2020. Nonperforming loans to total loans ratio was 0.57%1.53% at June 30, 2021 compared to 1.39% at December 31, 2020. The Company elected the practical expedients availableincrease in the CARES Act and interagency guidance and does not consider any of thenonperforming loans that were modified through forbearance agreements as nonperforming loans.
Bank regulatory agencies released an interagency statement that offers practical expedients for modifications that occur in responseat June 30, 2021 compared to the COVID-19 pandemic, but they differ with the CARES Act in certain areas. The expedients require a lender to conclude that a borrowerDecember 31, 2020 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 insignificantprimarily related to loans in which the borrower is less than 30 days past duea $2.0 million construction loan secured by a hotel that was placed 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. nonaccrual.
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 Actprovided borrower support and the interagency statement can be applied to a second modification that occurs after the first modification provided that the second modification does not qualify as a TDR under Section 4013 of the CARES Act or the interagency statement. In its evaluation of whether a payment deferral qualifies asrelief through short-term under the interagency statement, an entity should assess multiple payment deferrals collectively (i.e., the cumulative deferrals cannot exceed six months).
The Bank offeredloan 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 forbearanceIn certain circumstances, a second three-month deferral 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. As of June 30, 2020, $165.9 million, or 15.9% of total loans, were in forbearance. Approximately $105.2 million, or 63.4% of loans in forbearance, are scheduled to end forbearance as of July 2020 and return to their normal payment schedule. As of July 30, 2020, out of the 348 loans totaling $105.2 million with a forbearance period ending in July 2020, 9 loans totaling $3.3 million requested additional forbearance - two residential, two commercial real estate, which were both hotel loans, one commercial and industrial and four consumer loans totaling $393,000, $2.7 million, $123,000 and $133,000, respectively.
At June 30, 2020, out of approximately 128 loans totaling $22.7 million with a forbearance period ending on or prior to June 30, 2020, six loans totaling $5.8 million requested an additional one- to three-month forbearance. These loans werewas granted.
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comprised of three residential mortgage loans, two commercial real estate loans, which were both hotel loans, and one consumer loan totaling $493,000, $5.3 million and $12,000, respectively.
The following table sets forth details at June 30, 2020 of industries considered at higher risk to be negatively impacted by the COVID-19 pandemic:
IndustryForbearance
Weighted
Average
Risk
Rating (1)
Industry
Amount
As a
Percent
of Total
Risk
Based
Capital
As a
Percent
of Loan
Class
Number
of
Loans
Weighted
Average
Risk
Rating (1)
Forbearance
Amount
As a
Percent
of
Industry
(Dollars in thousands)
Commercial Real Estate - Owner Occupied:
Retail3.6$27,829  23.8 %7.9 %113.4$2,516  9.0 %
Office Space3.710,646  9.1  3.0  64.02,801  26.3  
Oil and Gas3.23,160  2.7  0.9  13.0622  19.7  
Restaurants3.41,034  0.9  0.3  43.4404  39.1  
Commercial Real Estate - Nonowner Occupied:
Retail3.754,489  46.5  15.5  124.020,227  37.1  
Multifamily3.858,585  50.0  16.7  123.817,474  29.8  
Office Space4.043,102  36.8  12.3  74.812,998  30.2  
Hotels4.925,085  21.4  7.2  105.020,558  82.0  
Senior Housing3.78,212  7.0  2.3  14.04,008  48.8  
Oil and Gas3.77,871  6.7  2.2  —  —  
Restaurants3.54,785  4.1  1.4  53.01,520  31.8  
Construction - Commercial Real Estate:
Retail4.07,789  6.7  13.4  14.07,109  91.3  
Multifamily4.03,080  2.6  5.3  —  —  
Office Space4.09,011  7.7  15.5  —  —  
Hotels4.44,760  4.1  8.2  15.01,788  37.6  
Senior Housing4.07,321  6.3  12.6  —  —  
Oil and Gas4.01,572  1.3  2.7  —  —  
Commercial and Industrial:
Senior Housing3.04,552  3.9  3.1  —  —  
Oil and Gas3.66,259  5.3  4.2  113.63,175  50.7  
Total:
Retail3.790,107  77.0  243.929,852  
Multifamily3.861,665  52.7  123.817,474  
Office Space3.962,759  53.6  134.715,799  
Hotels4.829,845  25.5  115.022,346  
Senior Housing3.720,085  17.2  14.04,008  
Oil and Gas3.618,862  16.1  123.53,797  
Restaurants3.55,819  5.0  93.11,924  
Total High Risk Industries3.9$289,142  247.0  824.3$95,200  
(1) Loan risk rating of 1-4 is considered a pass-rated credit, 5 is special mention, 6 is substandard, 7 is doubtful and 8 is loss.

Refer to Note 4 in the Notes to Consolidated Financial Statements of this report for other details of activity related to loans in forbearance and PPP loans.

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The following table provides details of loans in forbearance at the dates indicated.
June 30, 2021March 31, 2021December 31, 2020
Number
of
Loans
Amount% of PortfolioNumber
of
Loans
Amount% of PortfolioNumber
of
Loans
Amount% of Portfolio
(Dollars in thousands)
Real Estate:
Residential— — — %1,343 0.4 %749 0.2 %
Commercial6,544 1.8 %13,814 3.7 %19,818 5.3 %
Construction— — — %1,958 2.5 %1,958 2.7 %
Commercial and Industrial1,221 1.0 %1,219 0.9 %1,219 1.0 %
Consumer— — — %106 0.1 %13 356 0.3 %
Total Loans in Forbearance$7,765 0.8 %25 $18,440 1.8 %31 $24,100 2.3 %
Loans in deferral at June 30, 2021 include one commercial real estate loans totaling $3.3 million that is secured by a hotel, 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. These loans ended their forbearance period in July and begin making regularly scheduled payments.
Other
Premises and equipment decreased $1.6 million to $18.7 million at June 30, 2021 compared to $20.3 million at December 31, 2020. The Company recognized a $2.3 million writedown on fixed assets related to the branch optimization initiative. In addition, $795,000 of premises and equipment was transferred to held for sale related to the signing of the Agreement with Citizens Bank and impending sale of two branches. The Company also recognized $485,000 of depreciation and $280,000 was transferred to Other Assets due to a branch closure and marketing of the property for sale. This was offset by $2.2 million of purchases, primarily related to the operational efficiency initiative.
Intangible Assets decreased $2.2 million to $8.4 million at June 30, 2021 compared to $6.2 million at December 31, 2020 primarily due to an impairment of $1.2 million and amortization expense of $1.0 million. As a result of signing the Agreement with Citizens Bank and the expected sale of a portion of the deposits associated with the remaining core deposit intangible asset, the Company performed an interim evaluation to determine whether the core deposit intangible was impaired. As a result of the evaluation, the Company determined the carrying amount of the core deposit intangible was impaired $1.2 million.
Accrued Interest Receivable and Other Assets decreased $1.8 million, or 11.8% to $13.4 million at June 30, 2021, compared to $15.2 million at December 31, 2020 primarily related to the receipt of a $1.3 million federal income tax refund.
Liabilities. Total liabilities increased $84.3$46.9 million, or 7.2%3.7%, to $1.25$1.33 billion at June 30, 20202021 compared to $1.17$1.28 billion at December 31, 2019.2020.
Deposits
Total deposits, including deposits held for sale, increased $75.6$51.5 million or 6.8%, to $1.19$1.28 billion atas of June 30, 2020, from $1.122021 compared to $1.22 billion at December 31, 2019.2020. Noninterest bearing demand deposits, NOW accounts and savings accounts increased $74.0$44.0 million, $16.5 million and $12.5$12.9 million, respectively, partially offset by a decrease of $18.5$17.0 million in time deposits. TheIRS and stimulus-related payments totaled $29.9 million in the first quarter and the impact of the PPP loans that were originated in the current year and the proceeds of which were subsequentlyinitially deposited at the Bank was approximately $54.8$28.7 million. The Bank has been selective on offering promotional interest rates in light of recent rate decreases by the Federal Reserve. Annualized deposit growth rate was 13.5%8.4% including IRS and PPP loan deposits. Average total deposits increased $54.9 million, primarily in noninterest and 3.7% without PPP loaninterest-bearing demand deposits, representing organic deposit growth.for the three months ended June 30, 2021 compared to the three months ended March 31, 2021.
Borrowed Funds
Short-term borrowings increased $11.8decreased $2.0 million, or 38.5%4.9%, to $42.3$39.1 million at June 30, 2020,2021, compared to $30.6$41.1 million at December 31, 2019.2020. At June 30, 20202021 and December 31, 2019,2020, short-term borrowings were comprised entirely of securities sold under agreements to repurchase. The increase isrepurchase, which are related to business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities
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from the Bank’s investment portfolio under an agreement to repurchase. $10.1 million was excluded from short-term borrowings at June 30, 2021 and reported as deposits held for sale.
Other borrowed funds decreased $3.0$2.0 million to $6.0 million at June 30, 2021 due to a FHLBFederal Home Loan Bank borrowing that matured in the current period.
Stockholders’ Equity. Stockholders’ equity increased $1.3decreased $2.0 million, or 0.9%1.5%, to $152.4$132.5 million at June 30, 2020,2021, compared to $151.1$134.5 million at December 31, 2019.2020.
Net income was $3.7$2.6 million for the six months ended June 30, 2020.2021.
Accumulated other comprehensive income increased $1.9decreased $1.7 million primarily due to market interest rate conditions in the current period on the Bank’s available-for-saleCompany’s debt securities.
The Company declared and paid $2.6 million in dividends to common stockholders in the current year.period.
AsThe Company repurchased $561,000 of its common stock as part of the Company’sits stock repurchase program, the Company repurchased 67,816 shares of common stock totaling $1.9 million in the current year. COVID-19 prompted the Company to announce on March 19, 2020 that the stock repurchase program was suspended until further notice to preserve excess capital in support of the Bank’s business of providing financial services to its customers and communities.program.
Book value per share (GAAP) was $28.25, an increase of $0.60$24.50 at June 30, 2020,2021 compared to $27.65 for$24.76 at December 31, 2019.2020, a decrease of $0.26. Tangible book value per share (Non-GAAP) increased $0.14, or 0.7%, to $21.56 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 June 30, 20202021 and 20192020 
Overview. Net loss was $223,000 for the three months ended June 30, 2021, a decrease of $3.1 million compared to net income decreased $76,000 toof $2.9 million for the three months ended June 30, 2020, compared2020.
Net Interest and Dividend Income. Net interest and dividend income decreased $387,000, or 3.7%, to $3.0$9.9 million for the three months ended June 30, 2019.
Net Interest Income. Net interest income decreased $384,000, or 3.6%,2021 compared to $10.3 million for the three months ended June 30, 20202020. Net interest margin (FTE) (Non-GAAP) decreased 45 basis points (“bps”) to 2.85% for the three months ended June 30, 2021 compared to $10.73.30% the three months ended June 30, 2020. Net interest margin (GAAP) decreased to 2.84% for the three months ended June 30, 2021 compared to 3.28% for the three months ended June 30, 2020. While the Company has further controlled its deposit cost structure as deposit balances increased and benefited from nonrenewal or repricing of higher cost time deposits, the net interest margin has decreased primarily due to the low interest rate environment decreasing yields on loans and securities.
Interest and Dividend Income
Interest and dividend income decreased $907,000, or 7.7%, to $10.8 million for the three months ended June 30, 2019.2021 compared to $11.7 million the three months ended June 30, 2020.
Interest and dividend income on loans decreased $942,000,$641,000, or 7.4%6.1%, to $11.7$9.9 million for the three months ended June 30, 20202021 compared to $12.7 million the three months ended June 30, 2019.
Interest income on loans decreased $96,000, or 0.9%, $10.6 million for the three months ended June 30, 2020 compared to $10.7 million for the three months ended June 30, 2019. Although2020. While average loans increased $108.0$2.9 million compared to the three months ended June 30, 2019,2020, the average yield decreased 53 basis points (“bps”)28 bps to 4.21%3.93%. The current quarter
Interest and fee income on PPP loans was $636,000 for the three months ended June 30, 2021 and contributed 3 bps to loan yield, was impacted bycompared to $316,000 for the declines in interest rate indices in Marchthree months ended June 30, 2020, at the onset of the COVID-19 pandemic, which resulted in an immediate decrease in interest rates on adjustable rate loans. In addition, PPP loans decreased the loan yield 67 bps in the current quarter. The Bank continued to accrue and recognize interest income on loans in forbearance due to expectation that borrowers will resume payment at the end of forbearance and collectibility of the interest income is not in question. With the majority of loans scheduled to exit forbearance in the third quarter, the Bank will evaluate whether continuing to accrue interest is prudent on a loan-by-loan or industry basis.prior period.
The impact of the accretion of the credit mark on acquired loan portfolios was $90,000 in$153,000 for the current periodthree months ended June 30, 2021 compared to $78,000 in$90,000 for the prior period,three months ended June 30, 2020, or 46 bps in the current period compared to 34 bps in the prior period.
Interest income on taxable investment securities decreased $305,000, or 32.4%, to $635,000 for the three months ended June 30, 2021 compared to $940,000 for the three months ended June 30, 2020 driven by a $12.6 million decrease in average investment securities balances and 70 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 $290,000,increased $67,000, or 77.5%79.8% to $151,000 for the three months ended June 30, 2021 compared to $84,000 for the three months ended June 30, 2020 compared to $374,000 for the three months ended June 30, 2019.2020. Average other interest-earning assets increased $43.6$149.4 million compared to the three months ended June 30, 2020 primarily from buildup of cash as a result of calls of U.S. government agencysecurities activity, PPP loan funds and municipal securities and
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government stimulus payments butdeposited with the Bank, although average yield declined 24610 bps due to interest rate cuts on interest-earning cash deposits held at other financial institutions.
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Interest Expense
Interest income on taxable investment securitiesexpense decreased $502,000,$520,000, or 34.8%37.0%, to $940,000$886,000 million for the three months ended June 30, 20202021 compared to $1.4 million for the three months ended June 30, 2019 driven by a $71.9 million decrease in average investment security balance. The Federal Reserve’s decision to drop the benchmark interest rate resulted in the call of $52.5 million in U.S. government agency and municipal securities in the current year. In addition, there were $19.8 million of paydowns on mortgage-backed securities in the current year. The funds were partially maintained in cash or reinvested in lower rate securities.
Interest expense decreased $558,000, or 28.4%, to $1.4 million for the three months ended June 30, 2020 compared to $2.0 million for the three months ended June 30, 2019.2020.
Interest expense on deposits decreased $519,000,$478,000, or 28.5%36.6%, to $827,000 for the three months ended June 30, 2021 compared to $1.3 million for the three months ended June 30, 20202020. While average interest-earning deposits increased $47.9 million compared $1.8 million forto the three months ended June 30, 2019. While average interest-earning deposits increased $19.0 million,2020, interest rate declines for all products driven by pandemic-related interest rate cuts and efforts to control pricing resulted in a 2625 bp, or 40.6%, decrease in average cost compared to the quarterthree months ended June 30, 2019.2020. In addition, average time deposits and the related average cost decreased $28.3 million and 31 bps, respectively.
Interest expense on other borrowed funds decreased $28,000$27,000, or 43.5%, to $62,000$35,000 for the three months ended June 30, 20202021 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a $6.0$5.0 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%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 June 30,Three Months Ended June 30,
2020201920212020
Average
Balance
Interest
and
Dividends
Yield/
Cost (4)
Average
Balance
Interest
and
Dividends
Yield/
Cost (4)
Average
Balance
Interest
and
Dividends
Yield/
Cost (1)
Average
Balance
Interest
and
Dividends
Yield/
Cost (1)
(Dollars in thousands) (Unaudited)(Dollars in thousands) (Unaudited)(Dollars in thousands) (Unaudited)
Assets:Assets:Assets:
Interest-Earning Assets:Interest-Earning Assets:Interest-Earning Assets:
Loans, Net(2)Loans, Net(2)$1,014,000  $10,612  4.21 %$906,038  $10,707  4.74 %Loans, Net(2)$1,016,868 $9,959 3.93 %$1,014,000 $10,612 4.21 %
Debt SecuritiesDebt SecuritiesDebt Securities
TaxableTaxable137,268  940  2.74  209,164  1,442  2.76  Taxable124,685 635 2.04 137,268 940 2.74 
Tax ExemptTax Exempt14,106  130  3.69  23,450  195  3.33  Tax Exempt12,276 94 3.06 14,106 130 3.69 
Marketable Equity SecuritiesMarketable Equity Securities2,579  20  3.10  2,526  20  3.17  Marketable Equity Securities2,649 24 3.62 2,579 20 3.10 
Other Interest-Earning AssetsOther Interest-Earning Assets97,033  84  0.35  53,479  374  2.81  Other Interest-Earning Assets246,392 151 0.25 97,033 84 0.35 
Total Interest-Earning AssetsTotal Interest-Earning Assets1,264,986  11,786  3.75  1,194,657  12,738  4.28  Total Interest-Earning Assets1,402,870 10,863 3.11 1,264,986 11,786 3.75 
Noninterest-Earning AssetsNoninterest-Earning Assets113,176  113,447  Noninterest-Earning Assets82,794 113,176 
Total AssetsTotal Assets$1,378,162  $1,308,104  Total Assets$1,485,664 $1,378,162 
Liabilities and Stockholders' Equity:Liabilities and Stockholders' Equity:Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:Interest-Bearing Liabilities:Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits(3)Interest-Bearing Demand Deposits(3)$236,312  141  0.24 %$216,190  295  0.55 %Interest-Bearing Demand Deposits(3)$275,752 55 0.08 %$236,312 141 0.24 %
Savings(3)Savings(3)227,470  35  0.06  217,426  149  0.27  Savings(3)247,238 25 0.04 227,470 35 0.06 
Money Market(3)Money Market(3)182,656  187  0.41  178,561  263  0.59  Money Market(3)199,652 71 0.14 182,656 187 0.41 
Time Deposits(3)Time Deposits(3)205,847  942  1.84  221,126  1,117  2.03  Time Deposits(3)177,506 676 1.53 205,847 942 1.84 
Total Interest-Bearing Deposits(3)Total Interest-Bearing Deposits(3)852,285  1,305  0.62  833,303  1,824  0.88  Total Interest-Bearing Deposits(3)900,148 827 0.37 852,285 1,305 0.62 
Borrowings46,642  101  0.87  47,560  140  1.18  
Short-Term BorrowingsShort-Term Borrowings
Securities Sold Under Agreements to RepurchaseSecurities Sold Under Agreements to Repurchase49,325 24 0.20 35,642 39 0.44 
Other BorrowingsOther Borrowings6,000 35 2.34 11,000 62 2.27 
Total Interest-Bearing LiabilitiesTotal Interest-Bearing Liabilities898,927  1,406  0.63  880,863  1,964  0.89  Total Interest-Bearing Liabilities955,473 886 0.37 898,927 1,406 0.63 
Noninterest-Bearing Demand DepositsNoninterest-Bearing Demand Deposits317,738  273,753  Noninterest-Bearing Demand Deposits387,317 317,738 
Other LiabilitiesOther Liabilities8,815  9,872  Other Liabilities7,999 8,815 
Total LiabilitiesTotal Liabilities1,225,480  1,164,488  Total Liabilities1,350,789 1,225,480 
Stockholders' EquityStockholders' Equity152,682  143,616  Stockholders' Equity134,875 152,682 
Total Liabilities and Stockholders' EquityTotal Liabilities and Stockholders' Equity$1,378,162  $1,308,104  Total Liabilities and Stockholders' Equity$1,485,664 $1,378,162 
Net Interest Income (FTE) (Non-GAAP)(4)Net Interest Income (FTE) (Non-GAAP)(4)$10,380  $10,774  Net Interest Income (FTE) (Non-GAAP)(4)$9,977 $10,380 
Net Interest Rate Spread (FTE) (Non-GAAP) (1)(5)
Net Interest Rate Spread (FTE) (Non-GAAP) (1)(5)
3.12 %3.39 %
Net Interest Rate Spread (FTE) (Non-GAAP) (1)(5)
2.74 %3.12 %
Net Interest-Earning Assets (2)(6)
Net Interest-Earning Assets (2)(6)
$366,059  $313,794  
Net Interest-Earning Assets (2)(6)
$447,397 $366,059 
Net Interest Margin (FTE) (Non-GAAP) (3)
3.30  3.62  
Return on Average Assets0.85  0.91  
Return on Average Equity (4)
7.65  8.32  
Net Interest Margin (GAAP) (7)
Net Interest Margin (GAAP) (7)
2.84 3.28 
Net Interest Margin (FTE) (Non-GAAP) (4)(7)
Net Interest Margin (FTE) (Non-GAAP) (4)(7)
2.85 3.30 
Return on Average Assets (1)
Return on Average Assets (1)
(0.06)0.85 
Return on Average Equity (1)
Return on Average Equity (1)
(0.66)7.65 
Average Equity to Average AssetsAverage Equity to Average Assets11.08  10.98  Average Equity to Average Assets9.08 11.08 
Average Interest-Earning Assets to Average Interest-Bearing LiabilitiesAverage Interest-Earning Assets to Average Interest-Bearing Liabilities140.72  135.62  Average Interest-Earning Assets to Average Interest-Bearing Liabilities146.82 140.72 
(1)Annualized based on three months ended results.
(2)Net of the allowance for loan losses, and includes nonaccrual loans with a zero yield and loans held for sale.
(3)Includes Deposits Held for Sale
(4)See section entitled "Explanation of Use of Non-GAAP Financial Measures" appearing earlier in this quarterly report.
(5)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)(6)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)(7)Net interest margin represents annualized net interest income divided by average total interest-earning assets.
(4)Annualized based on three months ended results.

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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%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 June 30, 2020
Compared to
Three Months Ended June 30, 2019
Three Months Ended June 30, 2021
Compared to
Three Months Ended June 30, 2020
Increase (Decrease) Due toIncrease (Decrease) Due to
VolumeRateTotalVolumeRateTotal
(Dollars in thousands) (Unaudited)(Dollars in thousands) (Unaudited)(Dollars in thousands) (Unaudited)
Interest and Dividend Income:Interest and Dividend Income:Interest and Dividend Income:
Loans, netLoans, net$1,168  $(1,263) $(95) Loans, net$57 $(710)$(653)
Debt Securities:Debt Securities:Debt Securities:
TaxableTaxable(492) (10) (502) Taxable(81)(224)(305)
Exempt From Federal TaxExempt From Federal Tax(84) 19  (65) Exempt From Federal Tax(16)(20)(36)
Marketable Equity SecuritiesMarketable Equity Securities
Other Interest-Earning AssetsOther Interest-Earning Assets175  (465) (290) Other Interest-Earning Assets97 (30)67 
Total Interest-Earning AssetsTotal Interest-Earning Assets767  (1,719) (952) Total Interest-Earning Assets58 (981)(923)
Interest Expense:Interest Expense:Interest Expense:
DepositsDeposits31  (550) (519) Deposits79 (557)(478)
Borrowings(3) (36) (39) 
Short-Term Borrowings:Short-Term Borrowings:
Securities Sold Under Agreements to RepurchaseSecurities Sold Under Agreements to Repurchase11 (26)(15)
Other BorrowingsOther Borrowings(29)(27)
Total Interest-Bearing LiabilitiesTotal Interest-Bearing Liabilities28  (586) (558) Total Interest-Bearing Liabilities61 (581)(520)
Change in Net Interest Income$739  $(1,133) $(394) 
Change in Net Interest and Dividend IncomeChange in Net Interest and Dividend Income$(3)$(400)$(403)
Provision for Loan Losses. The provisionProvision for loan losses was a recovery of $1.2 million for the three months ended June 30, 2021 compared to a provision of $300,000 for the three months ended June 30, 2020 compared2020. A $23.4 million decrease in net reservable loans in the current quarter, which excludes PPP loans and includes the reclassification of $11.4 million of loans to $350,000held for sale, along with a decrease in specific reserves on impaired loans and improvements in the economic and industry outlook contributed to the recovery in the current period.
Net recoveries for the three months ended June 30, 2019. The COVID-19 pandemic, which led to state-wide shelter in place orders and mandatory closures2021 were $19,000, or (0.01)% of all but essential business, has resulted in a dramatic increase in unemployment and recessionary economic 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, retail, oil and gas, and restaurants, were significantly adjusted for these circumstances for the quarter ended March 31, 2020 and resulted in a $2.5 million provision. While recessionary economic conditions still exist, there has beenaverage loans on an improvement to certain macroeconomic conditions, including unemployment, for the quarter ended June 30, 2020 compared to March 31, 2020, and resulted in a $300,000 provision.
annualized basis. Net recoveries for the three months ended June 30, 2020 were $26,000, or 0.01% net recoveries to(0.01)% of average loans on an annualized basis. Net charge-offs were $71,000,
Noninterest Income. Noninterest income decreased $429,000, or 0.03% net charge-offs16.2%, to average loans on an annualized basis,$2.2 million for the three months ended June 30, 2019 driven by higher automobile loan charge-offs.
Noninterest Income. Noninterest income increased $483,000, or 22.3%,2021, compared to $2.6 million for the three months ended June 30, 2020,2020.
Service fees increased $127,000 to $614,000 for the three months ended June 30, 2021, compared to $2.2$487,000 for the three months ended June 30, 2020 due to an increase in customer usage compared to the prior year period when shelter-in-place orders occurred at the onset of the COVID-19 pandemic.
Insurance commissions increased $96,000 to $1.2 million for the three months ended June 30, 2019.2021 compared to $1.1 million for the three months ended June 30, 2020 primarily due to an increase in commercial-related insurance policy revenue.
Net gain on sale of loans was $31,000 for the three months ended June 30, 2021 compared to $441,000 for the three months ended June 30, 2020, primarily due to increased mortgage loan production from refinances in the prior year, which were sold to reduce interest rate risk on lower yielding, long-term assets.
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Net gain on securities was $11,000 for the three months ended June 30, 2021 compared to $517,000 for the three months ended June 30, 2020. The Company recognized a $489,000 net gain on sales of investment securities in the current quarter to recognize gains onprior period from sales of higher-interest mortgage-backed securities that were paying down quicker than expected.with faster prepayment speeds.
The Company recognized $441,000 gain on sales of loans in the current quarter comparedOther income increased to $50,000$31,000 for the three months ended June 30, 2019, primarily2021 compared to a $252,000 loss for the three months ended June 30, 2020 due to increased mortgage loan production from refinances, which were sold to reduce interest rate risk on lower yielding, long-term assets.
Other (loss) income included a $51,000 increase in amortization$269,000 valuation allowance adjustment on mortgage servicing rights combined with a $269,000 temporary impairment on mortgage servicing rights recognized in the current quarterprior period primarily due to a decline in the interest rate environment that has caused increased prepayment speeds and resulted in a decrease in fair value of the serviced mortgage portfolio.
Noninterest Expense.Service fees decreased $130,000 Noninterest expense increased $4.7 million, or 51.3%, to $487,000 in the current quarter compared to $617,000$13.7 million for the three months ended June 30, 2019 due to waiver of fees and decrease in customer usage from the pandemic.
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Noninterest Expense. Noninterest expense increased $274,000, or 3.1%,2021 compared to $9.1 million for the three months ended June 30, 2020 compared2020. Excluding the impact of non-cash charges related to $8.8a $2.3 million writedown on fixed assets and $1.2 million intangible asset impairment, noninterest expense increased $1.2 million to $10.3 million for the three months ended June 30, 2019.2021 compared to $9.1 million for the three months ended June 30, 2020. The current period was also impacted by $1.3 million of other branch optimization and operational efficiency strategic expenses.
The Company incurred a writedown on fixed assets of $2.3 million for the three months ended June 30, 2021 related to the branch consolidation and sale initiative.
The Company incurred an intangible asset impairment of $1.2 million for the three months ended June 30, 2021. As a result of signing the Agreement with Citizens Bank and the expected sale of a portion of the deposits associated with the remaining core deposit intangible, the Company performed an interim evaluation to determine whether the core deposit intangible was impaired. As a result of the evaluation, the Company determined the carrying amount of the core deposit intangible was impaired $1.2 million.
Salaries and employee benefits increased $120,000$248,000 to $5.1 million for the three months ended June 30, 2021 compared to $4.8 million for the three months ended June 30, 2020 compared2020. The increase is primarily due to $4.7the recognition of $246,000 in severance related to the branch optimization initiative.
Occupancy expense increased $325,000 to $1.0 million for the three months ended June 30, 2019.2021 compared to $699,000 for the three months ended June 30, 2020. The increase was primarilyis due to the Community Bank Cares premium pay duringrecognition of a $227,000 lease impairment related to the pandemicconsolidation of a branch as part of the branch optimization initiative as well as increase in addition to meritrepair and promotional increases, which were more than offset by deferred employee-related loan origination costs associated with PPP loans.maintenance.
Contracted services increased $201,000$188,000 to $750,000 for the three months ended June 30, 2021 compared to $562,000 for the three months ended June 30, 2020 comparedThe current period includes $434,000 of expenses associated with the engagement of a third-party workflow optimization expert to $361,000 forassist in implementing robotic process automations and more effective sales management designed to improve operational efficiencies in the three months ended June 30, 2019 primarily duenear and long-term and engagement of other third party specialists to assist in core platform improvements and efficiencies. The prior period included expense related to the hiring of temporary employees hired to assist with PPP loan processing and consultants used to assist in infrastructure improvements.
Data processing increased $80,000$147,000 to $607,000 for the three months ended June 30, 2021 compared to $460,000 for the three months ended June 30, 2020 compared2020. This is primarily due to $380,000$110,000 of deconversion costs associated with the branch sales.
Federal Deposit Insurance Corporation (“FDIC”) assessment expense increased $86,000 to $249,000 for the three months ended June 30, 20192021 compared to $163,000 for the three months ended June 30, 2020. The increase in assessment was due to the net loss recognized for the three months ended September 30, 2020 primarily due to technology investments.goodwill impairment negatively impacting the assessment rate in the current period.
Other noninterest expense decreased $150,000Legal fees and professional fees increased $248,000 to $945,000$419,000 for the three months ended June 30, 2021 compared to $171,000 for the three months ended June 30, 2020 compareddue to $1.1 milliona $209,000 investment banker success-based fee and legal fees related to the Agreement with Citizens Bank for the branch sales.
Advertising increased $38,000 to $193,000 for the three months ended June 30, 2019 primarily due to decreases in travel-related and telephone costs from employee work-at home arrangements during the pandemic as well as fraud losses incurred in the prior period.
Advertising decreased $65,0002021 compared to $155,000 for the three months ended June 30, 2020 compareddue to $220,000reduced marketing initiatives during the pandemic in the prior year.
Income Taxes. Income tax benefit was $146,000 for the three months ended June 30, 2019 due to less emphasis on marketing initiatives during the pandemic.
Equipment expense decreased $61,000 to $224,000 for three months ended June 30, 20202021 compared to $285,000 for the three months ended June 30, 2019v primarily due to fully depreciated items.
Income Tax Expense. Incomeincome tax expense decreased $49,000 toexpenses of $695,000 for the three months ended June 30, 2020, compared2020. This change was primarily related to $744,000, fora pretax loss recognized in the three months ended June 30, 2019. The effective tax rate for the three months ended June 30, 2020 was 19.3% comparedcurrent period as a result of expenses incurred due to 20.0%, for the three months ended June 30, 2019.branch optimization and operational efficiency strategic initiatives.
Results of Operations for the Six Months Ended June 30, 20202021 and 20192020
Overview. Net income for the six months ended June 30, 2020 was $3.7 million compared to $5.9$2.6 million for the six months ended June 30, 2019. This was2021, a decrease of $2.2$1.1 million or 37.7%.compared to net income of $3.7 million for the six months ended June 30, 2020.
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Net Interest and Dividend Income. Net interest and dividend income decreased $285,000,$943,000, or 1.3%4.5% to $19.9 million for the six months ended June 30, 2021 compared to $20.9 million for the six months ended June 30, 20202020. Net interest margin (Non-GAAP FTE) decreased 48 bps to 2.95% for the six months ended June 30, 2021 compared to $21.13.43% the six months ended June 30, 2020. Net interest margin (GAAP) decreased to 2.94% for the six months ended June 30, 2021 compared to 3.41% for the six months ended June 30, 2020. While the Company has further controlled its deposit cost structure as deposit balances increased and benefited from nonrenewal or repricing of higher cost time deposits, the net interest margin has decreased primarily due to the low interest rate environment decreasing yields on loans and securities.
Interest and Dividend Income
Interest and dividend income decreased $2.2 million, or 9.3%, to $21.8 million for the six months ended June 30, 2019.
Interest and dividend income decreased $909,000, or 3.6%,2021 compared to $24.1 million for the six months ended June 30, 20202020.
Interest income on loans decreased $1.3 million or 5.9% to $20.1 million during the six months ended June 30, 2021 compared to $25.0$21.3 million for the six months ended June 30, 2019.
2020. Although average loans increased $80.1$42.0 million, primarily driven by PPP loans, the loan yield for the six months ended June 30, 20202021 decreased 3542 bps to 4.0% compared to the six months ended June 30, 2019. The current period2020 due to the full year impact of the COVID-19 pandemic-related declines in market interest rates beginning March 31, 2020.
Interest and fee income on PPP loans was $1.3 million for the six months ended June 30, 2021 and contributed 4 bps to loan yield, was significantly impacted bycompared to $316,000 for the 150 bp decline in the Wall Street Journal Prime Rate in Marchsix months ended June 30, 2020, which resulted in immediate decrease in interest rates on adjustable rate loans linked to that index. In addition, PPP loans decreased the loan yield 4 bps in the currentprior period.
The Bank continued to accrue and recognize interest income on loans in forbearance due to expectation that borrowers will resume payment at the end of forbearance and collectibilityimpact of the interest income is not in question. Withaccretion of the majority of loans exiting forbearancecredit mark on acquired loan portfolios was $291,000 for the six months ended June 30, 2021 compared to $166,000 for the six months ended June 30, 2020, or 5 bps in the third quarter,current period compared to 3 bps in the Bank will evaluate whether continuing to accrue interest is prudent on a loan-by-loan or industry basis.prior period.
Interest income on taxable investment securities decreased $618,000,$860,000, or 22.4%40.2%, to $1.3 million for the six months ended June 30, 2021 compared to $2.1 million for the six months ended June 30, 2020 compared to $2.8 million for the six months ended June 30, 2019 driven by a $51.9$24.2 million decrease in average taxable investment security balance primarily fromsecurities and an 82 bps decrease in average yield. The Federal Reserve 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 athe declining interest rate environment.environment, which were replaced by lower-yielding securities.
Interest from other interest-earning assets, which primarily consistconsists of interest-earning cash, decreased $370,000,$73,000, or 53.5%22.7% for the six months ended June 30, 20202021 compared to the six months ended June 30, 20192020 even though average balances increased $31.2$123.5 million primarily related to funds received from calls of U.S. government agency securities.deposits and investment security activity. The impact on interest income was primarily due to pandemic-driven declines on market interest rates earned on deposits at other financial institutions, as noted bywhich resulted in a 55 bp decrease in yield.
Interest Expense
Interest expense decreased $1.3 million, or 40.8%, to $1.9 million for the 201 bp differencesix months ended June 30, 2021 compared to $3.2 million for respective periods.the six months ended June 30, 2020.
Interest expense on deposits decreased $557,000,$1.2 million, or 15.7%40.6%, to $1.8 million for the six months ended June 30, 2021 compared to $3.0 million for the six months ended June 30, 2020 compared to $3.5 million for the six months ended June 30, 2019.2020. While average interest-bearing deposits increased $16.0$45.1 million, interest rate declines for all products driven by pandemic-related interest rate cuts, nonrenewal or repricing of higher cost time deposits, and overall efforts to control pricing resulted in a 1531 bp decrease in average cost compared to the six months ended June 30, 2019.2020.
Interest expense on other borrowed funds decreased $56,000, or 42.4%, to $76,000 for the six months ended June 30, 2021 compared to $132,000 for the six months ended June 30, 2020 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a $5.3 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% 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.
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
Average
Balance
Interest
and
Dividends
Yield/
Cost (4)
Average
Balance
Interest
and
Dividends
Yield/
Cost (4)
Average
Balance
Interest
and
Dividends
Yield/
Cost (1)
Average
Balance
Interest
and
Dividends
Yield/
Cost (1)
(Dollars in thousands) (Unaudited)(Dollars in thousands) (Unaudited)(Dollars in thousands) (Unaudited)
Assets:Assets:Assets:
Interest-Earning Assets:Interest-Earning Assets:Interest-Earning Assets:
Loans, Net$982,331  $21,408  4.38 %$902,183  $21,174  4.73 %
Loans, Net (2)
Loans, Net (2)
$1,024,319 $20,131 3.96 %$982,331 $21,408 4.38 %
Debt SecuritiesDebt SecuritiesDebt Securities
TaxableTaxable147,962  2,141  2.89  199,843  2,759  2.76  Taxable123,790 1,281 2.07 147,962 2,141 2.89 
Tax ExemptTax Exempt15,471  258  3.34  28,106  447  3.18  Tax Exempt12,608 192 3.05 15,471 258 3.34 
Marketable Equity SecuritiesMarketable Equity Securities2,573  40  3.11  2,517  40  3.18  Marketable Equity Securities2,641 44 3.33 2,573 40 3.11 
Other Interest-Earning AssetsOther Interest-Earning Assets80,821  322  0.80  49,617  692  2.81  Other Interest-Earning Assets204,365 249 0.25 80,821 322 0.80 
Total Interest-Earning AssetsTotal Interest-Earning Assets1,229,158  24,169  3.95  1,182,266  25,112  4.28  Total Interest-Earning Assets1,367,723 21,897 3.23 1,229,158 24,169 3.95 
Noninterest-Earning AssetsNoninterest-Earning Assets113,616  112,727  Noninterest-Earning Assets87,645 113,616 
Total AssetsTotal Assets$1,342,774  $1,294,993  Total Assets$1,455,368 $1,342,774 
Liabilities and Stockholders' Equity:Liabilities and Stockholders' Equity:Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:Interest-Bearing Liabilities:Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits$231,397  408  0.35 %$214,708  570  0.54 %
Savings222,899  124  0.11  215,283  294  0.28  
Money Market181,819  436  0.48  181,515  536  0.60  
Time Deposits210,648  2,018  1.93  219,220  2,143  1.97  
Total Interest-Bearing Deposits846,763  2,986  0.71  830,726  3,543  0.86  
Borrowings44,482  216  0.98�� 49,322  283  1.16  
Interest-Bearing Demand Deposits (3)
Interest-Bearing Demand Deposits (3)
$267,455 133 0.10 %$231,397 408 0.35 %
Savings (3)
Savings (3)
243,565 57 0.05 222,899 124 0.11 
Money Market (3)
Money Market (3)
198,530 168 0.17 181,819 436 0.48 
Time Deposits (3)
Time Deposits (3)
182,283 1,416 1.57 210,648 2,018 1.93 
Total Interest-Bearing Deposits (3)
Total Interest-Bearing Deposits (3)
891,833 1,774 0.40 846,763 2,986 0.71 
ST BorrowingsST Borrowings
Securities Sold Under Agreements to RepurchaseSecurities Sold Under Agreements to Repurchase45,232 47 0.21 32,592 84 0.52 
Other BorrowingsOther Borrowings6,597 76 2.32 11,890 132 2.23 
Total Interest-Bearing LiabilitiesTotal Interest-Bearing Liabilities891,245  3,202  0.72  880,048  3,826  0.88  Total Interest-Bearing Liabilities943,662 1,897 0.41 891,245 3,202 0.72 
Noninterest-Bearing Demand DepositsNoninterest-Bearing Demand Deposits289,621  264,160  Noninterest-Bearing Demand Deposits368,318 289,621 
Other LiabilitiesOther Liabilities9,306  9,420  Other Liabilities8,433 9,306 
Total LiabilitiesTotal Liabilities1,190,172  1,153,628  Total Liabilities1,320,413 1,190,172 
Stockholders' EquityStockholders' Equity152,602  141,365  Stockholders' Equity134,955 152,602 
Total Liabilities and Stockholders' EquityTotal Liabilities and Stockholders' Equity$1,342,774  $1,294,993  Total Liabilities and Stockholders' Equity$1,455,368 $1,342,774 
Net Interest Income (FTE) (Non-GAAP)$20,967  $21,286  
Net Interest Rate Spread (FTE) (Non-GAAP) (1)
3.23 %3.40 %
Net Interest-Earning Assets (2)
$337,913  $302,218  
Net Interest Income (FTE) (Non-GAAP) (4)
Net Interest Income (FTE) (Non-GAAP) (4)
$20,000 $20,967 
Net Interest Rate Spread (FTE) (Non-GAAP) (4)(5)
Net Interest Rate Spread (FTE) (Non-GAAP) (4)(5)
2.82 %3.23 %
Net Interest-Earning Assets (6)
Net Interest-Earning Assets (6)
$424,061 $337,913 
Net Interest Margin (GAAP) (7)
Net Interest Margin (GAAP) (7)
2.94 3.41 
Net Interest Margin (FTE) (Non-GAAP) (3)(7)
Net Interest Margin (FTE) (Non-GAAP) (3)(7)
3.43  3.63  
Net Interest Margin (FTE) (Non-GAAP) (3)(7)
2.95 3.43 
Return on Average Assets(1)Return on Average Assets(1)0.55  0.92  Return on Average Assets(1)0.36 0.55 
Return on Average Equity(1)Return on Average Equity(1)4.84  8.42  Return on Average Equity(1)3.92 4.84 
Average Equity to Average AssetsAverage Equity to Average Assets11.36  10.92  Average Equity to Average Assets9.27 11.36 
Average Interest-Earning Assets to Average Interest-Bearing LiabilitiesAverage Interest-Earning Assets to Average Interest-Bearing Liabilities137.91  134.34  Average Interest-Earning Assets to Average Interest-Bearing Liabilities144.94 137.91 
(1)Annualized based on six months ended results.
(2)Net of the allowance for loan losses, and includes nonaccrual loans with a zero yield and loans held for sale.
(3)Includes Deposits Held for Sale
(4)See section entitled "Explanation of Use of Non-GAAP Financial Measures" appearing earlier in this quarterly report.
(5)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)(6)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)(7)Net interest margin represents annualized net interest income divided by average total interest-earning assets.
(4)Annualized based on six months ended results.

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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%. 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.
Six Months Ended June 30, 2020
Compared to
Six Months Ended June 30, 2019
Six Months Ended June 30, 2021
Compared to
Six Months Ended June 30, 2020
Increase (Decrease) Due toIncrease (Decrease) Due to
VolumeRateTotalVolumeRateTotal
(Dollars in thousands) (Unaudited)(Dollars in thousands) (Unaudited)(Dollars in thousands) (Unaudited)
Interest and Dividend Income:Interest and Dividend Income:Interest and Dividend Income:
Loans, netLoans, net$1,867  $(1,633) $234  Loans, net$829 $(2,106)$(1,277)
Debt Securities:Debt Securities:Debt Securities:
TaxableTaxable(743) 125  (618) Taxable(316)(544)(860)
Exempt From Federal TaxExempt From Federal Tax(210) 21  (189) Exempt From Federal Tax(45)(21)(66)
Marketable Equity SecuritiesMarketable Equity Securities (1) —  Marketable Equity Securities
Other Interest-Earning AssetsOther Interest-Earning Assets292  (662) (370) Other Interest-Earning Assets251 (324)(73)
Total Interest-Earning AssetsTotal Interest-Earning Assets1,207  (2,150) (943) Total Interest-Earning Assets720 (2,992)(2,272)
Interest Expense:Interest Expense:Interest Expense:
DepositsDeposits74  (631) (557) Deposits151 (1,363)(1,212)
Borrowings(25) (42) (67) 
Short-Term Borrowings:Short-Term Borrowings:
Securities Sold Under Agreements to RepurchaseSecurities Sold Under Agreements to Repurchase24 (61)(37)
Other BorrowingsOther Borrowings(61)(56)
Total Interest-Bearing LiabilitiesTotal Interest-Bearing Liabilities49  (673) (624) Total Interest-Bearing Liabilities114 (1,419)(1,305)
Change in Net Interest Income$1,158  $(1,477) $(319) 
Change in Net Interest and Dividend IncomeChange in Net Interest and Dividend Income$606 $(1,573)$(967)
Provision for Loan Losses. The pandemic, which ledprovision for loan losses had a $1.2 million recovery for the six months ended June 30, 2021, compared to state-wide shelter in place orders and mandatory closures of all but essential business hasa $2.8 million provision for the six months ended June 30, 2020. The pandemic resulted in a dramatic increase in unemployment and recessionary economic conditions in the currentprior year. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis were increased at the onset of the pandemic, primarily related to economic trends and industry conditions, specifically because of vulnerable industries such as hospitality, retail, oil and gas, retail and restaurants were adjusted for these circumstances and resulted in the prior year provision. Those qualitative factors have been decreased as the economic impact of the pandemic have eased. In addition, a $2.8$14.2 million decrease in net reservable loans compared to June 30, 2020, which excludes PPP loan activity, combined with a decrease in specific reserves on impaired loans and improving economic and industry condition contributed to the recovery of provision in the current period.
Net charge-offs were $27,000 for loan lossesthe six months ended June 30, 2021, or 0.01% net charge-offs to average loans on an annualized basis. Net charge-offs were $19,000 for the six months ended June 30, 2020, compared to $375,000 for the six months ended June 30, 2019.
Net charge-offs were $19,000, or 0.00% net charge-offs to average loans on an annualized basis,basis. Net charge-offs were primarily driven by automobile loans in the consumer loan category in both periods.
Noninterest Income. Noninterest income increased $873,000, or 19.3%, to $5.4 million for the six months ended June 30, 2020. Net charge-offs were $242,000, or 0.05% net charge-offs to average loans on an annualized basis, for the six months ended June 30, 2019. The increase in the prior year was driven by higher automobile loan charge-offs.
Noninterest Income. Noninterest income increased $241,000, or 5.6%,2021, compared to $4.5 million for the six months ended June 30, 2020, compared2020.
Service fees increased $68,000 to $4.3 million$1.2 million for the six months ended June 30, 2019.
Net gain on sales of investment securities was $489,0002021, compared to $1.1 million for the six months ended June 30, 2020 due to harvest gains on higher-interest mortgage-backed securities that were paying down quicker than expectedan increase in customer usage compared to a net lossthe prior year period when shelter-in-place orders occurred at the onset of $53,000the COVID-19 pandemic.
Insurance commissions increased $408,000, or 17.0%, to $2.8 million for the six months ended June 30, 2019.2021, compared to $2.4 million for the six months ended June 30, 2020 due to an increase contingency fees. Contingency fees are profit sharing commissions that are contingent upon several factors including, but not limited to, eligible written premiums, incurred losses, policy cancellations and stop loss charges.
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Net gain on sales of loans was $117,000 for the six months ended June 30, 2021 compared to $568,000 for the six months ended June 30, 2020 compared to $142,000 for the six months ended June 30, 2019 primarily due to increaseddecreased mortgage loan production from refinances, which wereare sold to reduce interest rate risk on lower yielding, long-term assets.
Insurance commissions increased $162,000, or 7.3%, to $2.4 millionNet gain on investment securities was $458,000 for the six months ended June 30, 20202021 compared to $2.2 million$79,000 for the six months ended June 30, 2019 due an2020. In the current period, 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 $233,000 increase in both commercial and personal line polices.fair value on the equity securities portfolio, primarily comprised of bank stocks, which experienced a recovery in fair value from pandemic related losses. In the prior year, there was a net gain of $489,000 on sales of investment securities from sales of higher-interest securities with faster prepayment speeds that was offset by a $410,000 decrease in fair value in the equity securities portfolio, which is primarily comprised of bank stocks, due to the COVID-19 impacts on the banking industry.
Other (loss) income decreased $374,000 asIncome was $211,000 for the six months ended June 30, 2021 compared to Other Loss of $238,000 in the six months ended June 30, 2020. In the current period there was a result of an increase$160,000 reduction in amortizationthe valuation allowance on mortgage servicing rights combined withcompared to a $269,000 valuation allowance adjustment from temporary impairment on mortgage servicing rights recognized in the currentprior period due tocaused by a decline in the interest rate environment that caused increased prepayment speeds and resulted in a decrease in fair value of the serviced mortgage portfolio. In addition, there was a $53,000 increase in amortization on mortgage servicing rights in the current period.
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Noninterest Expense.Service fees decreased $118,000 Noninterest expense increased $5.0 million, or 27.9%, to $1.1$23.1 million for the six months ended June 30, 20202021 compared to $1.2 million for the six months ended June 30, 2019 due to waiver of fees and decrease in customer usage from the pandemic.
The Company’s marketable equity securities, which are primarily comprised of bank stocks, reflected a decline of $410,000 for the six months ended June 30, 2020 primarily from the impact of COVID-19 on the stock market.
Noninterest Expense. Noninterest expense increased $397,000, or 2.2%, to $18.1 million for the six months ended June 30, 2020 compared2020. This was primarily impacted by a $2.3 million writedown on fixed assets and $1.2 million intangible asset impairment as previously noted. Excluding the impact of these non-cash charges, noninterest expense increased $1.6 million, or 8.8%, to $17.7$19.7 million for the six months ended June 30, 2019.2021 compared to the six months ended June 30, 2020. The current period was also impacted by $1.6 million of other branch optimization and operational efficiency strategic expenses.
Salaries and employee benefits decreased $86,000 to $9.6 millionincreased $411,000 for the six months ended June 30, 20202021 compared to $9.6 million for the six months ended June 30, 2019.2020. The currentincrease is primarily due to an increase in employee benefit expenses due to the prior period was impacted byimpact from a first quarter 2020, $407,000 one-time payment that offset employee benefits from health insurance claims exceeding our stop-loss limit forrelated to the 2019 plan year and changetransition from a self-funded to a fully insured plan. Final calculationThe current period was impacted by the recognition of $335,000 in severance related to the stop loss payment was completed 90 days afterbranch optimization initiative whereas in the end of the plan year. Alsoperiod the Company benefited from deferred employee-related loan originationincurred costs associated with PPP loans, which were partially offset by the Community Bank Cares 10% premium pay during the pandemic. Additionally,pandemic and the Company recognizedrecognition of approximately $236,000 of one-time payments related to the search for a permanent CEO inCEO.
Occupancy expense increased $302,000 to $1.7 million for the six months ended June 30, 2021 compared to $1.4 million for the six months ended June 30, 2020. The increase is due to the recognition of a $227,000 lease impairment related to the consolidation of a branch as part of the branch optimization initiative.
Equipment expense increased $96,000 to $577,000 for the six months ended June 30, 2021 compared to $481,000 for the six months ended June 30, 2020 as the result of an increase in repairs and maintenance.
Data processing increased $240,000 to $1.1 million for the six months ended June 30, 2021 compared to $885,000 for the six months ended June 30, 2020 primarily due to $110,000 in deconversion costs associated with the branch sales as well as other technology investments.
Contracted services increased $307,000$497,000 to $1.4 million for the six months ended June 30, 2021 compared to $940,000 for the six months ended June 30, 2020, compared to $633,000 for the six months ended June 30, 2019, primarily due to $702,000 of expenses associated with 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 other third party specialists to assist in core platform improvements and efficiencies. The prior period included expense related to the hiring of temporary employees hired to assist with PPP loan processing and consultants used to assist in infrastructure improvements. In the first quarter of 2020, contracted services were impacted by $116,000 in consulting fees associated with the search for a new CEO.
EquipmentFDIC assessment expense decreased $100,000increased $178,000 to $481,000$499,000 for the six months ended June 30, 20202021 compared to $581,000$321,000 for the six months ended June 30, 2019 as2020.The increase in assessment was due to the result of decreasenet loss recognized for the three months ended September 30, 2020 primarily due to goodwill impairment negatively impacting the assessment rate in depreciation and repairs and maintenance.the current period.
Data processingLegal fees and professional fees increased $97,000$202,000 to $885,000$608,000 for the six months ended June 30, 20202021 compared to $788,000 for the six months ended June 30, 2019 primarily due to technology investments.
Legal and professional fees increased $65,000 to $406,000 for the six months ended June 30, 2020 compareddue to $341,000a $209,000 investment banker success-based fee and legal fees related to the Agreement with Citizens Bank for the branch sales.
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Other noninterest expense decreased $131,000 to $1.9 million for the six months ended June 30, 20192021 compared to $2.1 million for the six months ended June 30, 2020 due to fees associated witha decrease in loan-related expenses from the search for a permanent CEOincreased volume of refinancing in the first quarter.prior period.
Income Tax Expense.Taxes. Income tax expense decreased $638,000$59,000 to $765,000 for the six months ended June 30, 2021 compared to $824,000 for the six months ended June 30, 2020 compared2020. This change was primarily due to $1.5 million for the six months ended June 30, 2019. The effective tax rate for the six months ended June 30, 2020 was 18.3% compared to 19.8%, for the six months ended June 30, 2019. A $2.9 milliona decrease in pre-taxpretax income combined with stable tax-preferencein the current period as a result of expenses incurred due to branch optimization and operational efficiency strategic initiatives. Branch optimization expenses during the current period were deferred for tax purposes and these items resultedwill be recognized in a lower effective tax rate for the six months ended June 30, 2020.future periods.
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 910 in the Notes to Consolidated Financial Statements of this report for a summary of commitments outstanding as of June 30, 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.
The ability to predict the impact of the COVID-19 pandemic on the Company’s liquidity with any precision is difficult and depends on many factors beyond our control. The market area was one of the first to implement state-wide shelter-in-place orders and closing all but essential businesses and certain government restriction remain in effect. The far-reaching consequences of these actions and the crisis is unknown and will largely depend on the extent and length of the recession combined with how quickly the economy can fully re-open. Forbearance activity and any additional forbearance that may be needed could significantly impact our sources of funds from loan cash flows.
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 June 30, 20202021 to satisfy its short- and long-term liquidity needs.
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The Company’s most liquid assets are cash and due from banks, which totaled $131.4$172.0 million at June 30, 2020.2021. 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 $10.0$42.4 million at June 30, 2020.2021. In addition, at June 30, 2020,2021, the Company had the ability to borrow up to $428.5$430.7 million from the FHLB of Pittsburgh, of which $399.3$317.8 million is available. The Company also has the ability to borrow up to $90.4$79.8 million million from the FRB through its Borrower-In-Custody line of credit agreement and the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling $60.0$50.0 million as of both June 30, 20202021 and December 31, 2019.2020.
At June 30, 2020, $82.92021, $70.9 million, or 41.2%41.0% of total time deposits mature within one year. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these certificates of deposit.time deposits. The Company believes, however, based on past experience that a significant portion of its certificates of deposittime deposits will remain with it, either as certificates of deposittime 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 June 30, 2020,2021, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $4.8$9.2 million. While the Company is not currently planning to reduce or suspend quarterly dividends, if the Company incurs or is expected to incur significant reduction in earnings as a result of the COVID-19 pandemic, it may need to suspend or reduce the level of quarterly dividends. In addition, primarily due to the COVID-19 pandemic and the expected impacts on the economy, on March 19, 2020, the Company announced that its stock repurchase program was suspended until further notice to preserve excess capital in support of the Bank’s business of providing financial services to its customers and communities. The ability to pay future dividends or conduct stock repurchases may be limited under applicable banking regulations and regulatory policies due to expected losses for future periods and/or the inability to upstream funds from the Bank to the Company as a result of lower income or regulatory capital levels.
Capital Management. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary 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.
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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.

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At June 30, 20202021 and December 31, 2019,2020, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. At June 30, 2020,2021, 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 rishrisk 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 facility.
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.
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
AmountRatioAmountRatioAmountRatioAmountRatio
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Common Equity Tier 1 (to risk weighted assets)Common Equity Tier 1 (to risk weighted assets)Common Equity Tier 1 (to risk weighted assets)
ActualActual$105,937  11.90 %$101,703  11.43 %Actual$106,207 11.67 %$108,950 11.79 %
For Capital Adequacy PurposesFor Capital Adequacy Purposes40,046  4.50  40,050  4.50  For Capital Adequacy Purposes40,945 4.50 41,598 4.50 
To Be Well CapitalizedTo Be Well Capitalized57,844  6.50  57,851  6.50  To Be Well Capitalized59,143 6.50 60,086 6.50 
Tier 1 Capital (to risk weighted assets)Tier 1 Capital (to risk weighted assets)Tier 1 Capital (to risk weighted assets)
ActualActual105,937  11.90  101,703  11.43  Actual106,207 11.67 108,950 11.79 
For Capital Adequacy PurposesFor Capital Adequacy Purposes53,394  6.00  53,401  6.00  For Capital Adequacy Purposes54,593 6.00 55,464 6.00 
To Be Well CapitalizedTo Be Well Capitalized71,192  8.00  71,201  8.00  To Be Well Capitalized72,791 8.00 73,952 8.00 
Total Capital (to risk weighted assets)Total Capital (to risk weighted assets)Total Capital (to risk weighted assets)
ActualActual117,079  13.16  111,570  12.54  Actual117,582 12.92 120,520 13.04 
For Capital Adequacy PurposesFor Capital Adequacy Purposes71,192  8.00  71,201  8.00  For Capital Adequacy Purposes72,791 8.00 73,952 8.00 
To Be Well CapitalizedTo Be Well Capitalized88,990  10.00  89,001  10.00  To Be Well Capitalized90,989 10.00 92,440 10.00 
Tier 1 Leverage (to adjusted total assets)Tier 1 Leverage (to adjusted total assets)Tier 1 Leverage (to adjusted total assets)
ActualActual105,937  7.90  101,703  7.85  Actual106,207 7.23 108,950 7.81 
For Capital Adequacy PurposesFor Capital Adequacy Purposes53,613  4.00  51,838  4.00  For Capital Adequacy Purposes58,728 4.00 55,765 4.00 
To Be Well CapitalizedTo Be Well Capitalized67,016  5.00  64,798  5.00  To Be Well Capitalized73,410 5.00 69,706 5.00 
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
General.Management of Interest Rate Risk. The majority of the Company’s assets and liabilities are monetary in nature. Consequently, the Company’s most significant form of market risk is interest rate risk and a principal part of its business strategy is to manage interest rate risk by reducing the exposure of net interest income to changes in market interest rates. Accordingly, the Company’s Board has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in the Company’s assets and liabilities, for determining the level of risk that is appropriate given the Company’s business strategy, operating environment, capital, liquidity and performance objectives; and for managing this risk consistent with the guidelines approved by the Board. Senior management monitors the level of interest rate risk and the Asset/Liability Management Committee meets on a quarterly basis to review its asset/liability policies and position and interest rate risk position, and to discuss and implement interest rate risk strategies.
Economic Value of Equity.The Company monitors interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of its assets and liabilities (its economic value of equity, or “EVE”) would change in the event of a range of assumed changes in market interest rates.model. The quarterly reports developed in the simulation model assist the Company 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
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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 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 June 30, 2021
The table below sets forth, as of June 30, 2020,2021, the estimated changes in EVE and net interest income at risk that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.
(Dollars in thousands)
Economic Value of EquityEVE as a Percent of Portfolio Value of AssetsEarnings at Risk
Change in Interest Rates in Basis Points ("bp")Dollar AmountDollar ChangePercent ChangeNPV RatioChangeDollar AmountDollar ChangePercent Change
+300 bp$165,748  $11,848  7.7 %12.63 %171  bp$40,038  $3,113  8.4 %
+200 bp164,162  10,262  6.7  12.21  129  39,065  2,140  5.8 %
+100 bp160,516  6,616  4.3  11.65  73  37,841  916  2.5 %
Flat153,900  —  —  10.92  —  36,925  —  — %
-100 bp158,064  4,164  2.7  11.08  16  35,941  (984) (2.7)%
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$152,158 $9,568 6.7 %11.34 %153 $45,462 $8,749 23.8 %
+200151,459 8,869 6.2 10.99 118 43,071 6,358 17.3 
+100148,374 5,784 4.1 10.47 66 39,676 2,963 8.1 
Flat142,590 — — 9.81 — 36,713 — — 
-100136,941 (5,649)(4.0)9.26 (55)33,808 (2,905)(7.9)
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE and net interest income require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE tablestable presented assumeassumes that the composition of the Company’s interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE tables providetable 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 June 30, 2020.2021. 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
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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 June 30, 2020,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, claims seeking damages for improper collection procedures or misrepresentations, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any other pending legal proceedings that we believe would have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which could materially affect our business, financial condition or future results. The risks described in oursuch 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.
The COVID-19 pandemic has adversely impacted our business and financial results and that of many of our customers, and the ultimate impact will depend on future developments, which are highly uncertain, cannot be predicted and outside of our control, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
The COVID-19 pandemic has created extensive disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal and monetary stimulus, and legislation designed to deliver financial aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and the efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted market interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and the effects of COVID-19 could have a material adverse impact on us in a number of ways as described in more detail below.
Credit Risk – Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrowers’ businesses. Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. Hotel and restaurant operators and others in the leisure, hospitality and travel industries, among other industries, have been particularly hurt by COVID-19. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our credit exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to customers. During a challenging economic environment like now, our customers depend more on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity. Furthermore, in an effort to support our communities during the pandemic, we are participating in the PPP under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise extended credit.
Strategic Risk – Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various response of governmental and nongovernmental authorities. The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets. Furthermore, many of the governmental actions have been directed toward curtailing household
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and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. For example, in many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses. The future effects of COVID-19 on economic activity could negatively affect the future banking products we provide, including a decline in originating loans.
Operational Risk – Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk from phishing, malware, and other cybersecurity attacks, all of which could expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any impacted customers.
Moreover, we rely on many third parties in our business operations, including the appraiser of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.
Interest Rate Risk/Market Value Risk – Our net interest income, lending and investment activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0% to 0.25%, citing concerns about the impact of COVID-19 on financial markets and market stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in prevailing fair market values of our investment securities and other assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.
Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work-from-home arrangements, third party providers’ ability to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.
Impairment in the carrying value of goodwill could negatively affect our results of operations.
At June 30, 2020, we had $28.4 million of goodwill on our Consolidated Statement of Financial Condition. Any impairment to goodwill could have a material adverse impact on the Company’s consolidated financial conditions and results of operations. 100% of the goodwill is assigned to the Community Banking reporting unit. Under GAAP, goodwill must be evaluated for impairment annually or on an interim basis when a triggering event occurs. If the carrying value of our reporting unit exceeds its current fair value as determined based on the value of the business, the goodwill is considered impaired and is reduced to fair value by a non-cash, non-tax-deductible charge to earnings. The impairment testing required by GAAP involves estimates and significant judgments by management. Although we believe our assumptions and estimates are reasonable and appropriate, any changes in key assumptions or other unanticipated events and circumstances may affect the accuracy or validity of such estimates. Events and conditions that could result in impairment in the value of our goodwill include worsening business conditions and economic factors, particularly those that may result from the impact of a downturn in the economy as a result of COVID-19, changes in the industries in which we operate, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term profitability and cash flows.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company did not purchase anymade the following purchases of its common stock during the three months ended June 30, 2020.
On November 20, 2019, the Company announced that the Board had approved a program commencing on November 25, 2019 to repurchase up to $5.0 million of the Company’s outstanding common stock, which was approximately 3.2% of outstanding common shares. On March 19, 2020, the Company announced that the stock repurchase program was suspended until further notice. As of March 19, 2020, the Company had repurchased 69,966 shares. This repurchase program is scheduled to expire on November 24, 2020.2021.
Period
Total Number of Shares Purchased (1)
Average Price Paid per ShareTotal Number of Shares Purchased as
Part of the Publicly Announced Program
Approximate Dollar Value of Shares That
May Yet Be Purchased Under the Program
April 1-30, 2021$— $— 
May 1-31, 2021— $— 
June 1-30, 202125,29722.16 25,297$6,939,518 
Total25,297$22.16 25,297
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
3.1
3.2
31.1
31.2
32.1
32.2
101.0101The following materials for the quarter ended June 30, 2020,2021, formatted in XBRL (Extensible Business Reporting Language); the (i) Consolidated StatementStatements of Financial Condition, (ii) Consolidated StatementStatements of Operations,(Loss) Income, (iii) Consolidated StatementStatements of Comprehensive Income, (iv) Consolidated StatementStatements of Stockholders’ Equity, (v) Consolidated StatementStatements of Cash Flows and (vi) Notes to the Unaudited Consolidated Financial Statements.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:August 7, 20209, 2021/s/ Barron P. McCune, Jr.John H. Montgomery
Barron P. McCune, Jr.John H. Montgomery
President and Chief Executive Officer
Date:August 7, 20209, 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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