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, ~~2020~~2021


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

For the transition period from __________ to __________

Commission file number: 001-36706


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


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


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


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


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

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

Common stock, par value $0.4167 per share

CBFV

The Nasdaq Stock Market, LLC

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


			Large accelerated filer ☐						Accelerated ~~Filer~~filer ☒☐
			Non-accelerated filer ☐☒						Smaller reporting company ☒
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August ~~7, 2020,~~5, 2021, the number of shares outstanding of the Registrant’s Common Stock was ~~5,393,712.~~5,380,165.

Table of Contents

FORM 10-Q

INDEX


			Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			1
Consolidated ~~Statement~~Statements of Financial Condition			1
Consolidated ~~Statement~~Statements of (Loss) Income			2
Consolidated ~~Statement~~Statements of Comprehensive Income			3
Consolidated Statements of Changes In Stockholders’ Equity			4
Consolidated ~~Statement~~Statements of Cash Flows			6
Notes to the Consolidated Financial Statements (Unaudited)			78
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			3236
Item 3. Quantitative and Qualitative Disclosure about Market Risk.			4752
Item 4. Controls and Procedures.			4853
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.			4954
Item 1A. Risk Factors.			4954
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			5054
Item 3. Defaults Upon Senior Securities.			5154
Item 4. Mine Safety Disclosures.			5154
Item 5. Other Information.			5154
Item 6. Exhibits			5155
SIGNATURES			5256

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED ~~STATEMENT~~STATEMENTS 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 Bearing 16,609 11,419
Total Cash and Due From Banks 131,403 80,217
Investment Securities:
Available-for-Sale 148,648 197,385
Loans, Net of Allowance for Loan Losses of $12,648 and $9,867 at June 30, 2020 and December 31, 2019, Respectively 1,029,511 942,629
Premises and Equipment, Net 21,818 22,282
Bank-Owned Life Insurance 24,499 24,222
Goodwill 28,425 28,425
Intangible Assets, Net 9,463 10,527
Accrued Interest and Other Assets 13,385 15,850
TOTAL ASSETS $ 1,407,152 $ 1,321,537
LIABILITIES
Deposits:
Non-Interest Bearing Demand Deposits $ 341,180 $ 267,152
NOW Accounts 237,343 232,099
Money Market Accounts 184,726 182,428
Savings Accounts 229,388 216,924
Time Deposits 201,303 219,756
Total Deposits 1,193,940 1,118,359
Short-Term Borrowings 42,349 30,571
Other Borrowings 11,000 14,000
Accrued Interest and Other Liabilities 7,471 7,510
TOTAL LIABILITIES 1,254,760 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, Respectively 2,367 2,367
Capital Surplus 83,327 82,971
Retained Earnings 68,039 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 Income 4,587 2,646
TOTAL STOCKHOLDERS' EQUITY 152,392 151,097
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 Bearing	15,810		15,275
Total Cash and Due From Banks	172,010		160,911

Securities:
Available-for-Sale Debt Securities, at Fair Value	205,711		142,897
Equity Securities, at Fair Value	2,761		2,503
Total Securities	208,472		145,400
Loans Held for Sale	11,409		0
Loans, Net of Allowance for Loan Losses of $11,544 and $12,771 at June 30, 2021 and December 31, 2020, Respectively	995,902		1,031,982
Premises and Equipment Held for Sale	795		0
Premises and Equipment, Net	18,682		20,302
Bank-Owned Life Insurance	25,052		24,779
Goodwill	9,732		9,732
Intangible Assets, Net	6,186		8,399
Accrued Interest Receivable and Other Assets	13,373		15,215
TOTAL ASSETS	$	1,461,613	$	1,416,720

LIABILITIES
Deposits Held for Sale	$	102,557	$	0
Deposits:
Non-Interest Bearing Demand Deposits	368,452		340,569
NOW Accounts	246,920		259,870
Money Market Accounts	176,824		199,029
Savings Accounts	226,639		235,088
Time Deposits	154,718		190,013
Total Deposits	1,173,553		1,224,569

Short-Term Borrowings	39,054		41,055
Other Borrowings	6,000		8,000
Accrued Interest Payable and Other Liabilities	7,913		8,566
TOTAL LIABILITIES	1,329,077		1,282,190

STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized	0		0
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,409,077 and 5,434,374 Shares Outstanding at June 30, 2021 and December 31, 2020, Respectively	2,367		2,367
Capital Surplus	82,969		82,723
Retained Earnings	51,146		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 Income	1,709		3,402
TOTAL STOCKHOLDERS' EQUITY	132,536		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


1

Table of Contents

CONSOLIDATED ~~STATEMENT~~STATEMENTS 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,
		2020		2019		2020		2019			2021		2020		2021		2020
(Dollars in thousands, except share and per share data)	(Dollars in thousands, except share and per share data)									(Dollars in thousands, except share and per share data)

INTEREST AND DIVIDEND INCOME	INTEREST AND DIVIDEND INCOME									INTEREST AND DIVIDEND INCOME
Loans, Including Fees	Loans, Including Fees	$	10,577	$	10,673	$	21,341	$	21,106	Loans, Including Fees	$	9,936	$	10,577	$	20,082	$	21,341
Investment Securities:	Investment Securities:									Investment Securities:
Taxable	Taxable	940		1,442		2,141		2,759		Taxable	635		940		1,281		2,141
Tax-Exempt	Tax-Exempt	106		160		212		368		Tax-Exempt	74		106		152		212
Dividends	Dividends	20		20		40		40		Dividends	24		20		44		40
Other Interest and Dividend Income	Other Interest and Dividend Income	84		374		322		692		Other Interest and Dividend Income	151		84		249		322
TOTAL INTEREST AND DIVIDEND INCOME	TOTAL INTEREST AND DIVIDEND INCOME	11,727		12,669		24,056		24,965		TOTAL INTEREST AND DIVIDEND INCOME	10,820		11,727		21,808		24,056

INTEREST EXPENSE	INTEREST EXPENSE									INTEREST EXPENSE
Deposits	Deposits	1,305		1,824		2,986		3,543		Deposits	827		1,305		1,774		2,986
Short-Term Borrowings	Short-Term Borrowings	39		50		84		96		Short-Term Borrowings	24		39		47		84
Other Borrowings	Other Borrowings	62		90		132		187		Other Borrowings	35		62		76		132
TOTAL INTEREST EXPENSE	TOTAL INTEREST EXPENSE	1,406		1,964		3,202		3,826		TOTAL INTEREST EXPENSE	886		1,406		1,897		3,202

NET INTEREST INCOME		10,321		10,705		20,854		21,139
Provision For Loan Losses		300		350		2,800		375
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		10,021		10,355		18,054		20,764

NET INTEREST AND DIVIDEND INCOME										NET INTEREST AND DIVIDEND INCOME	9,934		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 LOSSES										NET INTEREST INCOME AFTER (RECOVERY) PROVISION FOR LOAN LOSSES	11,134		10,021		21,111		18,054
NONINTEREST INCOME	NONINTEREST INCOME									NONINTEREST INCOME
Service Fees	Service Fees	487		617		1,092		1,210		Service Fees	614		487		1,160		1,092
Insurance Commissions	Insurance Commissions	1,113		1,083		2,396		2,234		Insurance Commissions	1,209		1,113		2,804		2,396
Other Commissions	Other Commissions	188		78		298		195		Other Commissions	173		188		338		298
Net Gain on Sales of Loans	Net Gain on Sales of Loans	441		50		568		142		Net Gain on Sales of Loans	31		441		117		568
Net Gain (Loss) on Sales of Investment Securities		489		7		489		(53)
Change in Fair Value of Marketable Equity Securities		28		109		(410)		129
Net Gain on Securities										Net Gain on Securities	11		517		458		79
Net Gain on Purchased Tax Credits	Net Gain on Purchased Tax Credits	16		9		31		18		Net Gain on Purchased Tax Credits	17		16		35		31
Net Gain on Disposal of Fixed Assets		—		8		17		2

Net (Loss) Gain on Disposal of Fixed Assets										Net (Loss) Gain on Disposal of Fixed Assets	(3)		0		(3)		17
Income from Bank-Owned Life Insurance	Income from Bank-Owned Life Insurance	138		134		277		266		Income from Bank-Owned Life Insurance	136		138		273		277
Other (Loss) Income		(252)		70		(238)		136
Other Income (Loss)										Other Income (Loss)	31		(252)		211		(238)
TOTAL NONINTEREST INCOME	TOTAL NONINTEREST INCOME	2,648		2,165		4,520		4,279		TOTAL NONINTEREST INCOME	2,219		2,648		5,393		4,520

NONINTEREST EXPENSE	NONINTEREST EXPENSE									NONINTEREST EXPENSE
Salaries and Employee Benefits	Salaries and Employee Benefits	4,828		4,708		9,559		9,645		Salaries and Employee Benefits	5,076		4,828		9,970		9,559
Occupancy	Occupancy	699		663		1,432		1,422		Occupancy	1,024		699		1,734		1,432
Equipment	Equipment	224		285		481		581		Equipment	311		224		577		481
Data Processing	Data Processing	460		380		885		788		Data Processing	607		460		1,125		885
FDIC Assessment	FDIC Assessment	163		175		321		363		FDIC Assessment	249		163		499		321
PA Shares Tax	PA Shares Tax	333		249		608		517		PA Shares Tax	225		333		490		608
Contracted Services	Contracted Services	562		361		940		633		Contracted Services	750		562		1,437		940
Legal and Professional Fees	Legal and Professional Fees	171		160		406		341		Legal and Professional Fees	419		171		608		406
Advertising	Advertising	155		220		338		337		Advertising	193		155		333		338
Other Real Estate Owned (Income)		(1)		(31)		(18)		(94)
Other Real Estate Owned Income										Other Real Estate Owned Income	(26)		(1)		(64)		(18)
Amortization of Intangible Assets	Amortization of Intangible Assets	532		532		1,064		1,064		Amortization of Intangible Assets	503		532		1,035		1,064
Other		945		1,095		2,058		2,080
Intangible Assets Impairment										Intangible Assets Impairment	1,178		0		1,178		0
Writedown of Fixed Assets										Writedown of Fixed Assets	2,268		0		2,268		0
Other Expense										Other Expense	945		945		1,927		2,058
TOTAL NONINTEREST EXPENSE	TOTAL NONINTEREST EXPENSE	9,071		8,797		18,074		17,677		TOTAL NONINTEREST EXPENSE	13,722		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) Expense										Income Tax (Benefit) Expense	(146)		695		765		824
NET (LOSS) INCOME										NET (LOSS) INCOME	$	(223)	$	2,903	$	2,622	$	3,676

Income Before Income Tax Expense		3,598		3,723		4,500		7,366
Income Tax Expense		695		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
Basic	Basic	$	0.54	$	0.55	$	0.68	$	1.09	Basic	$	(0.04)	$	0.54	$	0.48	$	0.68
Diluted	Diluted	0.54		0.55		0.68		1.08		Diluted	(0.04)		0.54		0.48		0.68

WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING									WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	Basic	5,393,712		5,433,537		5,412,456		5,433,198		Basic	5,432,234		5,393,712		5,433,298		5,412,456
Diluted	Diluted	5,393,770		5,444,824		5,423,770		5,448,040		Diluted	5,432,234		5,393,770		5,438,401		5,423,770

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


2

Table of Contents

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

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(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 Effect 120 (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 2 103 (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,
	2021		2020		2021		2020
(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-Sale	922		(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)	0		(489)		(225)		(489)
Income Tax Effect (2)	0		103		48		103
Other Comprehensive Income (Loss), Net of Income Tax Effect	723		(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 as~~Reported in Net Gain ~~(Loss)~~ on ~~Sales of Investments~~ Securities on the Consolidated ~~Statement~~Statements of (Loss) Income. ~~The income tax effect (benefit) is included~~

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

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


3

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other
Comprehensive Income (Loss) Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
March 31, 2020 5,680,993 $ 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, 2020 5,680,993 $ 2,367 $ 83,327 $ 68,039 $ (5,928) $ 4,587 $ 152,392

Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other
Comprehensive Income Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
March 31, 2019 5,680,993 $ 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 — (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, 2019 5,680,993 $ 2,367 $ 83,380 $ 61,140 $ (4,350) $ 2,970 $ 145,507


Three Months Ended June 30, 2021	Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income		Total Stockholders' Equity
(Dollars in thousands, except share and per share data)

March 31, 2021	5,680,993	$	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, 2021	5,680,993	$	2,367	$	82,969	$	51,146	$	(5,655)	$	1,709	$	132,536


Three Months Ended June 30, 2020	Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income		Total Stockholders' Equity
(Dollars in thousands, except share and per share data)

March 31, 2020	5,680,993	$	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, 2020	5,680,993	$	2,367	$	83,327	$	68,039	$	(5,928)	$	4,587	$	152,392

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


4

Table of Contents

Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock
Accumulated Other
Comprehensive Income
Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2019 5,680,993 $ 2,367 $ 82,971 $ 66,955 $ (3,842) $ 2,646 $ 151,097
Comprehensive 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 — — 4 — (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, 2020 5,680,993 $ 2,367 $ 83,327 $ 68,039 $ (5,928) $ 4,587 $ 152,392

Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other
Comprehensive Income (Loss) Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2018 5,680,993 $ 2,367 $ 83,225 $ 57,843 $ (4,370) $ (1,440) $ 137,625
Comprehensive Income:
Net Income — — — 5,904 — — 5,904
Other Comprehensive Income — — — — — 4,410 4,410
Restricted Stock Awards Forfeited — — 8 — (8) — —
Restricted Stock Awards Granted — — (11) — 11 — —
Stock-Based Compensation Expense — — 153 — — — 153
Exercise of Stock Options — — 5 — 17 — 22
Dividends Paid ($0.48 Per Share) — — — (2,607) — — (2,607)
June 30, 2019 5,680,993 $ 2,367 $ 83,380 $ 61,140 $ (4,350) $ 2,970 $ 145,507


Six Months Ended June 30, 2021	Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income		Total Stockholders' Equity
(Dollars in thousands, except share and per share data)

December 31, 2020	5,680,993	$	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, 2021	5,680,993	$	2,367	$	82,969	$	51,146	$	(5,655)	$	1,709	$	132,536


Six Months Ended June 30, 2020	Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income		Total Stockholders' Equity
(Dollars in thousands, except share and per share data)

December 31, 2019	5,680,993	$	2,367	$	82,971	$	66,955	$	(3,842)	$	2,646	$	151,097
Comprehensive Income:
Net Income	—	—		—		3,676		—		—		3,676
Other Comprehensive Income	—	—		—		—		—		1,941		1,941
Restricted Stock Awards Forfeited	—	—		96		—		(96)		—		0

Stock-Based Compensation Expense	—	—		256		—		—		—		256
Exercise of Stock Options	—	—		4		—		(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, 2020	5,680,993	$	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

Table of Contents

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

Six Months Ended June 30, 2020 2019
(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 Amortization 2,158 1,833
Provision for Loan Losses 2,800 375
Change in Fair Value of Marketable Equity Securities 410 (129)
Net Gain on Purchased Tax Credits (31) (18)
Income from Bank-Owned Life Insurance (277) (266)
Proceeds From Mortgage Loans Sold 15,140 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 Assets 16 (30)
Noncash Expense for Stock-Based Compensation 256 153
Increase in Accrued Interest Receivable (1,366) (343)
Net Gain on Disposal of Fixed Assets (17) (2)
Increase in Taxes Payable 1,018 536
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 ACTIVITIES 6,683 7,801
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities 72,253 15,703
Purchases of Debt and Marketable Equity Securities (38,823) (33,331)
Proceeds from Sales of Securities 17,893 12,672
Net Increase in Loans (86,434) (23,397)
Purchase of Premises and Equipment (97) (54)
Proceeds from Disposal of of Premises and Equipment 25 —
Asset Acquisition of a Customer List — (900)
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets 42 773
(Increase) Decrease in Restricted Equity Securities (137) 143
NET CASH USED IN INVESTING ACTIVITIES (35,278) (28,391)
FINANCING ACTIVITIES
Net Increase in Deposits 75,581 20,445
Net Increase (Decrease) in Short-Term Borrowings 11,778 (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 ACTIVITIES 79,781 11,611
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 51,186 (8,979)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 80,217 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 loans 76 158
Right of use asset recognized 47 1,706
Lease liability recognized 47 1,712


Six Months Ended June 30,	2021		2020
(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 Securities	32		(50)
Depreciation and Amortization	1,256		2,158
(Recovery) Provision for Loan Losses	(1,200)		2,800
Intangible Asset Impairment	1,178		0

Writedown on Fixed Assets	2,268		0
Lease impairment	227		0
Gain on Securities	(458)		(79)
Gain on Purchased Tax Credits	(35)		(31)
Income from Bank-Owned Life Insurance	(273)		(277)
Proceeds From Mortgage Loans Sold	3,916		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 Assets	0		16
Noncash Expense for Stock-Based Compensation	246		256
Decrease (Increase) in Accrued Interest Receivable	266		(1,366)
Net Loss (Gain) on Disposal of Fixed Assets	3		(17)
Increase in Taxes Payable	247		1,018
Payments on Operating Leases	(170)		(220)
Decrease in Accrued Interest Payable	(146)		(124)
Refund of Federal and State Income Taxes	1,311		0
Other, Net	(11)		(1,077)
NET CASH PROVIDED BY OPERATING ACTIVITIES	2,028		6,683
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities	20,412		72,253
Purchases of Securities	(97,142)		(38,823)
Proceeds from Sale of Securities	11,930		17,893
Net Decrease (Increase) in Loans	31,497		(86,434)
Purchase of Premises and Equipment	(2,240)		(97)
Proceeds from Disposal of Premises and Equipment	0		25

Proceeds From Sale of Other Real Estate Owned	0		42
Decrease (Increase) in Restricted Equity Securities	243		(137)

NET CASH USED IN INVESTING ACTIVITIES	(35,300)		(35,278)
FINANCING ACTIVITIES
Net Increase in Deposits	41,489		75,581
Net Increase in Short-Term Borrowings	8,051		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	0		(78)
NET CASH PROVIDED BY FINANCING ACTIVITIES	44,371		79,781
INCREASE IN CASH AND CASH EQUIVALENTS	11,099		51,186
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR	160,911		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

Table of Contents


6

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Six Months Ended June 30, 2021	2021		2020
(Dollars in thousands)

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid For:
Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $1,916 and $3,104, Respectively)	$	2,044	$	3,327
Income Taxes	1,160		0
SUPPLEMENTAL NONCASH DISCLOSURE:
Transfer of Loans to Loans Held for Sale	11,409		0
Transfer of Premises and Equipment to Premises and Equipment Held for Sale and Other Assets	1,075		0
Transfer of Deposits to Deposits Held for Sale	102,557		0
Other Real Estate Acquired in Settlement of Loans	0		76



Right of Use Asset Recognized	0		47
Lease Liability Recognized	0		47

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

Table of Contents

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 disclosure~~as of ~~contingent assets and liabilities at~~ the date of the ~~financial statements~~Consolidated Statements of Financial Condition and income and expenses ~~during~~for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, ~~evaluation~~other-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 offices~~11 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, ~~7 offices~~and 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.

~~Goodwill~~Assets and Liabilities Held for Sale

~~Goodwill represents the excess~~Assets and liabilities (disposal groups) are classified as held for sale when their carrying amounts will be recovered principally through sale when all of the ~~cost~~following 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 over~~active program to locate a buyer and other actions required to complete the ~~fair value of~~plan 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;

Table of Contents

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~~sale of the ~~world~~disposal group is probable, and ~~government response to curtail the spread~~transfer of the ~~virus through shelter-in-place orders~~disposal 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 area~~carrying amount and ~~the activities of individuals~~fair 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 length~~Consolidated Statements of ~~the restrictions described and any accompanying effects. In light of the adverse circumstances~~Financial Condition. Any loss resulting from ~~COVID-19, management determined it was necessary to evaluate goodwill~~this measurement is recognized in the period in which the held for ~~impairment at March 31, 2020.~~

~~Determining~~sale 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 ~~under~~of 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 test~~long-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 involves~~being 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 ~~significant~~a 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 in~~long-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 information~~carrying amount of the ~~Bank, most recent performance~~long-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 based~~group on ~~observable price~~a 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~~

Table of Contents

that ~~would require us to perform an interim goodwill impairment analysis and evaluate if it is more likely than not that~~asset 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, industry~~an 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 ~~ASU~~Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt). The ASU is intended to help stakeholders during the global market-wide reference rate transition period. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. While the LIBOR reform may require extensive changes to the contracts that govern LIBOR based products, as well as our systems and processes, we cannot yet determine whether the Company will be able to use the optional expedient for the changes to contract terms that may be required by LIBOR reform and therefore, the Company cannot yet determine the magnitude of the impact or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

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

~~Table of Contents~~

~~and the adoption of this ASU did not have a material impact on the Company's consolidated statement of financial condition or results of operations.~~

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

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

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

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

Table of Contents

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.

Table of Contents

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
Commercial	2,513

Commercial and Industrial	438
Consumer	254
Other	502
Total Loans Held for Sale	$	6,075

Premises and Equipment Held for Sale	795

Deposits Held for Sale
Non-Interest Bearing Demand Deposits	$	16,125
Interest Bearing Demand Deposits	29,487
Money Market Accounts	17,219
Savings Accounts	21,389
Time Deposits	18,337
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 ~~Statement~~Statements of (Loss) Income is used as the numerator.

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


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,					Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020			2021		2020
(Dollars in thousands, except share and per share data)	(Dollars in thousands, except share and per share data)									(Dollars in thousands, except share and per share data)

Net income		$	2,903	$	2,979	$	3,676	$	5,904
Net (Loss) Income										Net (Loss) Income	$	(223)	$	2,903		$	2,622	$	3,676

Weighted-Average Basic Common Shares Outstanding	Weighted-Average Basic Common Shares Outstanding	5,393,712		5,433,537		5,412,456		5,433,198		Weighted-Average Basic Common Shares Outstanding	5,432,234		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)	0		58			5,103		11,314
Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding	Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding	5,393,770		5,444,824		5,423,770		5,448,040		Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding	5,432,234		5,393,770			5,438,401		5,423,770

Earnings per share:
(Loss) Earnings Per Share:										(Loss) Earnings Per Share:
Basic	Basic	$	0.54	$	0.55	$	0.68	$	1.09	Basic	$	(0.04)	$	0.54		$	0.48	$	0.68
Diluted	Diluted	0.54		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

Table of Contents

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,
		2020	2019	2020	2019		2021	2020		2021	2020
Stock Options	Stock Options	205,271	252,559	73,371	103,059	Stock Options	216,662	205,271		201,662	73,731
Restricted Stock	Restricted Stock	43,650	6,900	30,250	600	Restricted Stock	76,070	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.

~~Table of Contents~~

Note ~~3. Investment~~4. Securities

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


		June 30, 2020															June 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 Agencies	U.S. Government Agencies	$	19,000	$	2	$	(8)	$	18,994	U.S. Government Agencies	$	50,992	$	6	$	(1,212)	$	49,786
Obligations of States and Political Subdivisions	Obligations of States and Political Subdivisions	20,769		1,189		—		21,958		Obligations of States and Political Subdivisions	19,412		1,183		0		20,595
Mortgage-Backed Securities - Government-Sponsored Enterprises	Mortgage-Backed Securities - Government-Sponsored Enterprises	100,733		4,649		(1)		105,381		Mortgage-Backed Securities - Government-Sponsored Enterprises	133,130		2,368		(168)		135,330
Total Debt Securities		$	140,502	$	5,840	$	(9)	$	146,333
Total Available-for-Sale Debt Securities										Total Available-for-Sale Debt Securities	203,534		3,557		(1,380)		205,711

Marketable Equity Securities:
Equity Securities:										Equity Securities:
Mutual Funds	Mutual Funds							1,022		Mutual Funds							1,004
Other	Other							1,293		Other							1,757
Total Marketable Equity Securities								2,315
Total Available-for-Sale Securities								$	148,648
Total Equity Securities										Total Equity Securities							2,761
Total Securities										Total Securities							$	208,472


		December 31, 2019															December 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 Agencies	U.S. Government Agencies	$	47,993	$	227	$	(164)	$	48,056	U.S. Government Agencies	$	41,994	$	12	$	(595)	$	41,411
Obligations of States and Political Subdivisions	Obligations of States and Political Subdivisions	25,026		819		(2)		25,843		Obligations of States and Political Subdivisions	20,672		1,321		0		21,993
Mortgage-Backed Securities - Government-Sponsored Enterprises	Mortgage-Backed Securities - Government-Sponsored Enterprises	118,282		2,601		(107)		120,776		Mortgage-Backed Securities - Government-Sponsored Enterprises	75,900		3,593		0		79,493
Total Debt Securities		$	191,301	$	3,647	$	(273)	$	194,675
Total Available-for-Sale Debt Securities										Total Available-for-Sale Debt Securities	138,566		4,926		(595)		142,897

Marketable Equity Securities:
Equity Securities:										Equity Securities:
Mutual Funds	Mutual Funds							997		Mutual Funds							1,019
Other	Other							1,713		Other							1,484
Total Marketable Equity Securities								2,710
Total Available-for-Sale Securities								$	197,385
Total Equity Securities										Total Equity Securities							2,503
Total Securities										Total Securities							$	145,400

1113

Table of Contents

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

U.S. Government Agencies	U.S. Government Agencies	3	$	8,992	$	(8)	—	$	—	$	—	3	$	8,992	$	(8)	U.S. Government Agencies	10		$	40,782	$	(1,212)	0	$	0	$	0	10	$	40,782	$	(1,212)
Obligations of States and Political Subdivisions		—	—		—		—	—		—		—	—		—

Mortgage Backed Securities- Government Sponsored Enterprises	Mortgage Backed Securities- Government Sponsored Enterprises	1	695		(1)		—	—		—		1	695		(1)		Mortgage Backed Securities- Government Sponsored Enterprises	4		17,908		(168)		0	0		0		4	17,908		(168)
Total	Total	4	$	9,687	$	(9)	—	$	—	$	—	4	$	9,687	$	(9)	Total	14		$	58,690	$	(1,380)	0	$	0	$	0	14	$	58,690	$	(1,380)


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

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

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

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

~~Table~~Securities available-for-sale with a fair value of ~~Contents~~

$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, 2020							June 30, 2021
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
(Dollars in thousands)	(Dollars in thousands)					(Dollars in thousands)

Due in One Year or Less	Due in One Year or Less	$	—	$	—	Due in One Year or Less	$	1,736	$	1,758
Due after One Year through Five Years	Due after One Year through Five Years	4,306		4,388		Due after One Year through Five Years	6,296		6,331
Due after Five Years through Ten Years	Due after Five Years through Ten Years	36,308		37,484		Due after Five Years through Ten Years	62,462		62,858
Due after Ten Years	Due after Ten Years	99,888		104,461		Due after Ten Years	133,040		134,764
Total	Total	$	140,502	$	146,333	Total	$	203,534	$	205,711

Table of Contents

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

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Debt Securities
Gross Gain $ 489 $ 12 $ 489 $ 12
Gross Loss — (5) — (65)
Net Gain (Loss) on Sales of Investment Securities $ 489 $ 7 $ 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 ~~Statement~~Statements 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,
	2021		2020		2021		2020
(Dollars in thousands)

Debt Securities
Gross Realized Gain	$	0	$	489	$	225	$	489
Gross Realized Loss	0		0		0		0
Net Gain on Debt Securities	$	0	$	489	$	225	$	489

Equity Securities
Net Unrealized Gain (Loss) Recognized on Securities Held	$	11	$	28	$	233	$	(410)
Net Realized Gain Recognized on Securities Sold	0		0		0		0
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 ~~consumer~~are generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk.

Consumer loans generally have higher interest rates and ~~other loans.~~ shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan.

Table of Contents

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


		June 30, 2020						December 31, 2019							June 30, 2021				December 31, 2020
		Amount		Percent		Amount		Percent			Amount		Percent		Amount		Percent
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Real Estate:	Real Estate:									Real Estate:
Residential	Residential	$	344,782	33.2	%	$	347,766	36.6	%	Residential	$	322,480	32.0	%	$	344,142	32.9	%
Commercial	Commercial	350,506		33.6		351,360		36.9		Commercial	360,518		35.7		373,555		35.9
Construction	Construction	58,295		5.6		35,605		3.7		Construction	85,187		8.5		72,600		6.9
Commercial and Industrial	Commercial and Industrial	149,085		14.3		85,586		9.0		Commercial and Industrial	120,191		11.9		126,813		12.1
Consumer	Consumer	117,145		11.2		113,637		11.9		Consumer	106,404		10.6		113,854		10.9
Other	Other	22,346		2.1		18,542		1.9		Other	12,666		1.3		13,789		1.3
Total Loans	Total Loans	1,042,159		100.0	%	952,496		100.0	%	Total Loans	1,007,446		100.0	%	1,044,753		100.0	%
Allowance for Loan Losses	Allowance for Loan Losses	(12,648)				(9,867)				Allowance for Loan Losses	(11,544)				(12,771)
Loans, Net	Loans, 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 called~~reopened the ~~Paycheck~~Payroll Protection Program ~~(“PPP”~~("PPP")~~. On April 16, 2020,~~ the ~~original $349 billion funding cap was reached. On April 23, 2020, the Paycheck Protection Program~~week of January 11, 2021 accepting applications for both First Draw and ~~Health Care Enhancement Act (the “PPP Enhancement Act”) was~~

~~Table of Contents~~

~~signed into law and included an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP. The second round of the~~Second 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 628~~funded 217 PPP loans totaling ~~$70.0~~$34.6 million with ~~a median loan balance~~net deferred origination fees of ~~$35,000. The~~$1.3 million.

PPP loans ~~impact over 8,300 small business employees. Among~~decreased $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 ~~impacted~~of 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 ~~SBA~~unamortized 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 during~~and $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, ~~2020~~2021 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
Commercial	2,513
Construction	0
Commercial and Industrial	438
Consumer	254
Other	502
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.

Table of Contents

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, ~~2020~~2021 and December 31, ~~2019,~~2020, there were 0 loans in the criticized category of Loss within the internal risk rating system.


		June 30, 2020																			June 30, 2021
		Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
(Dollars in Thousands)	(Dollars in Thousands)											(Dollars in Thousands)

Real Estate:	Real Estate:											Real Estate:
Residential	Residential	$	340,549	$	1,019	$	3,214	$	—	$	344,782	Residential	$	319,000	$	905	$	2,575	$	0	$	322,480
Commercial	Commercial	303,774		41,047		5,685		—		350,506		Commercial	312,217		32,908		15,393		0		360,518
Construction	Construction	54,165		3,385		745		—		58,295		Construction	78,700		3,887		2,600		0		85,187
Commercial and Industrial	Commercial and Industrial	139,171		7,582		1,675		657		149,085		Commercial and Industrial	104,660		9,848		5,123		560		120,191
Consumer	Consumer	116,955		—		190		—		117,145		Consumer	106,329		0		75		0		106,404
Other	Other	22,263		83		—		—		22,346		Other	12,593		73		0		0		12,666
Total Loans	Total Loans	$	976,877	$	53,116	$	11,509	$	657	$	1,042,159	Total Loans	$	933,499	$	47,621	$	25,766	$	560	$	1,007,446

~~Table of Contents~~

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

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

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


		June 30, 2020																											June 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:
Residential	Residential	$	342,287	$	265	$	37	$	—	$	302	$	2,193	$	344,782	Residential	$	319,916	$	217	$	381	$	0	$	598	$	1,966	$	322,480
Commercial	Commercial	350,235		78		28		—		106		165		350,506		Commercial	353,504		0		0		0		0		7,014		360,518
Construction	Construction	58,295		—		—		—		—		—		58,295		Construction	83,229		0		0		0		0		1,958		85,187
Commercial and Industrial	Commercial and Industrial	148,386		10		—		—		10		689		149,085		Commercial and Industrial	118,494		0		0		0		0		1,697		120,191
Consumer	Consumer	116,545		354		56		—		410		190		117,145		Consumer	105,869		374		86		0		460		75		106,404
Other	Other	22,346		—		—		—		—		—		22,346		Other	12,666		0		0		0		0		0		12,666
Total Loans	Total Loans	$	1,038,094	$	707	$	121	$	—	$	828	$	3,237	$	1,042,159	Total Loans	$	993,678	$	591	$	467	$	0	$	1,058	$	12,710	$	1,007,446

1517

Table of Contents


		December 31, 2019																											December 31, 2020
		Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans			Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
(Dollars in Thousands)	(Dollars in Thousands)															(Dollars in Thousands)

Real Estate:	Real Estate:															Real Estate:
Residential	Residential	$	342,010	$	3,462	$	281	$	196	$	3,939	$	1,817	$	347,766	Residential	$	339,067	$	2,919	$	315	$	0	$	3,234	$	1,841	$	344,142
Commercial	Commercial	351,104		22		—		—		22		234		351,360		Commercial	365,712		1		740		0		741		7,102		373,555
Construction	Construction	35,605		—		—		—		—		—		35,605		Construction	72,600		0		0		0		0		0		72,600
Commercial and Industrial	Commercial and Industrial	84,280		388		178		—		566		740		85,586		Commercial and Industrial	124,916		0		0		0		0		1,897		126,813
Consumer	Consumer	112,438		923		140		26		1,089		110		113,637		Consumer	112,952		784		61		8		853		49		113,854
Other	Other	18,542		—		—		—		—		—		18,542		Other	13,789		0		0		0		0		0		13,789
Total Loans	Total Loans	$	943,979	$	4,795	$	599	$	222	$	5,616	$	2,901	$	952,496	Total Loans	$	1,029,036	$	3,704	$	1,116	$	8	$	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.

1618

Table of Contents

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:
Residential	Residential	$	2,193		$	1,817		Residential	$	1,966		$	1,841
Commercial	Commercial	165			234			Commercial	7,014			7,102
Construction								Construction	1,958			0
Commercial and Industrial	Commercial and Industrial	689			740			Commercial and Industrial	1,697			1,897
Consumer	Consumer	190			110			Consumer	75			49
Total Nonaccrual Loans	Total Nonaccrual Loans	3,237			2,901			Total Nonaccrual Loans	12,710			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

Consumer	Consumer	—			26			Consumer	0			8
Total Accruing Loans Past Due 90 Days or More	Total Accruing Loans Past Due 90 Days or More	—			222			Total Accruing Loans Past Due 90 Days or More	0			8
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	3,237			3,123			Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	12,710			10,897

Troubled Debt Restructurings, Accruing:	Troubled Debt Restructurings, Accruing:							Troubled Debt Restructurings, Accruing:
Real Estate	Real Estate							Real Estate
Residential	Residential	673			511			Residential	632			650
Commercial	Commercial	1,614			1,648			Commercial	2,046			2,861
Commercial and Industrial	Commercial and Industrial	58			100			Commercial and Industrial	20			80
Total Troubled Debt Restructurings, Accruing	Total Troubled Debt Restructurings, Accruing	2,345			2,259			Total Troubled Debt Restructurings, Accruing	2,698			3,591

Total Nonperforming Loans	Total Nonperforming Loans	5,582			5,382			Total Nonperforming Loans	15,408			14,488

Other Real Estate Owned:	Other Real Estate Owned:							Other Real Estate Owned:
Residential	Residential	75			41			Residential	0			0
Commercial	Commercial	174			192			Commercial	208			208
Total Other Real Estate Owned	Total Other Real Estate Owned	249			233			Total Other Real Estate Owned	208			208

Total Nonperforming Assets	Total Nonperforming Assets	$	5,831		$	5,615		Total Nonperforming Assets	$	15,616		$	14,696

Nonperforming Loans to Total Loans	Nonperforming Loans to Total Loans	0.54		%	0.57		%	Nonperforming Loans to Total Loans	1.53		%	1.39		%
Nonperforming Assets to Total Assets	Nonperforming Assets to Total Assets	0.41			0.42			Nonperforming Assets to Total Assets	1.07			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, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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

~~Table of Contents~~

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, 2020~~January 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

Table of Contents

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

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

~~Table of Contents~~

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


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

Real Estate:
Residential	0	$	0	0	%		4	$	749	0.2	%
Commercial	4	6,544		1.8	%		8	19,818		5.3	%
Construction	0	0		0	%		1	1,958		2.7	%
Commercial and Industrial	5	1,221		1.0	%		5	1,219		1.0	%
Consumer	0	0		0	%		13	356		0.3	%

Total Loans in Forbearance	9	$	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 2020 108 $ 15,333
August 2020 41 5,912
September 2020 12 2,272
October 2020 2 136
Total Residential 163 23,653 6.9 %
Commercial
July 2020 70 64,039
August 2020 31 25,497
September 2020 7 8,714
October 2020 2 2,378
November 2020 1 4,489
Total Commercial 111 105,117 30.0 %
Construction
July 2020 3 10,494
August 2020 2 4,726
September 2020 1 298
Total Construction 6 15,518 26.6 %
Commercial and Industrial
July 2020 42 10,300
August 2020 32 5,180
September 2020 2 217
Total Commercial and Industrial 76 15,697 10.5 %
Consumer
July 2020 124 2,493
August 2020 39 857
September 2020 7 97
Total Consumer 170 3,447 2.9 %
Other
July 2020 1 2,504 11.2 %
Total Loans in Forbearance 527 $ 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 both~~that is secured by a hotel, ~~loans, 1 commercial~~ and ~~industrial~~a business relationship that rents equipment, supplies and ~~4 consumer loans totaling $393,000, $2.7 million, $123,000 and $133,000, respectively.~~

~~Table of Contents~~

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, ~~2020~~2021 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.

Table of Contents

The following ~~tables present~~table 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 Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
(Dollars in thousands)

Real Estate:
Residential	1	$	234	$	234	$	0
Total	1	$	234	234		$	0

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 1 $ 234 $ 234 $ —
Total 1 234 234 —

Three Months Ended June 30, 2019
Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Related Allowance
(Dollars in thousands)
Real Estate:
Residential 1 $ 114 $ 114 $ —
Total 1 114 114 —

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 1 $ 61 $ 61 $ —
Commercial and Industrial 1 $ 114 $ 114 $ —
Total 2 175 175 —

~~Table of Contents~~

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, 2020																			June 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:
Residential	Residential	$	1,669	$	—	$	1,673	$	1,671	$	32	Residential	$	1,161	$	—	$	1,165	$	1,171	$	23
Commercial	Commercial	2,855		—		2,873		2,895		75		Commercial	15,823		—		15,995		15,987		177
Construction	Construction	745		—		745		825		16		Construction	2,600		—		2,600		2,600		10
Commercial and Industrial	Commercial and Industrial	2,084		—		2,261		2,162		22		Commercial and Industrial	3,783		—		4,043		4,087		44
Total With No Related Allowance Recorded	Total 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:
Residential												Residential	$	0	$	0	$	0	$	0	$	0
Commercial	Commercial	$	3,846	$	399	$	3,846	$	3,903	$	69	Commercial	564		261		564		572		13
Construction												Construction	0		0		0		0		0
Commercial and Industrial	Commercial and Industrial	249		200		249		265		6		Commercial and Industrial	1,920		62		1,920		1,920		20
Total With A Related Allowance Recorded	Total 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:
Residential	Residential	$	1,669	$	—	$	1,673	$	1,671	$	32	Residential	$	1,161	$	0	$	1,165	$	1,171	$	23
Commercial	Commercial	6,701		399		6,719		6,798		144		Commercial	16,387		261		16,559		16,559		190
Construction	Construction	745		—		745		825		16		Construction	2,600		0		2,600		2,600		10
Commercial and Industrial	Commercial and Industrial	2,333		200		2,510		2,427		28		Commercial and Industrial	5,703		62		5,963		6,007		64
Total Impaired Loans	Total Impaired Loans	$	11,448	$	599	$	11,647	$	11,721	$	220	Total Impaired Loans	$	25,851	$	323	$	26,287	$	26,337	$	287

Table of Contents


		December 31, 2019																			December 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:
Residential	Residential	$	549	$	—	$	553	$	494	$	20	Residential	$	1,183	$	—	$	1,187	$	1,194	$	46
Commercial	Commercial	3,058		—		3,077		3,335		177		Commercial	31,865		—		32,887		37,443		1,418
Construction												Construction	4,204		—		4,204		4,013		159
Commercial and Industrial	Commercial and Industrial	133		—		135		156		6		Commercial and Industrial	3,296		—		3,506		3,426		89
Total With No Related Allowance Recorded	Total 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:
Residential												Residential	$	0	$	0	$	0	$	0	$	0
Commercial	Commercial	$	1,646	$	274	$	1,646	$	1,702	$	81	Commercial	1,524		293		1,524		1,585		72
Construction												Construction	0		0		0		0		0
Commercial and Industrial	Commercial and Industrial	2,378		610		2,529		2,448		113		Commercial and Industrial	2,069		356		2,069		2,114		57
Total With A Related Allowance Recorded	Total 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 Loans	Total Impaired Loans											Total Impaired Loans
Real Estate:	Real Estate:											Real Estate:
Residential	Residential	$	549	$	—	$	553	$	494	$	20	Residential	$	1,183	$	0	$	1,187	$	1,194	$	46
Commercial	Commercial	4,704		274		4,723		5,037		258		Commercial	33,389		293		34,411		39,028		1,490
Construction												Construction	4,204		0		4,204		4,013		159
Commercial and Industrial	Commercial and Industrial	2,511		610		2,664		2,604		119		Commercial and Industrial	5,365		356		5,575		5,540		146
Total Impaired Loans	Total 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 residential~~the 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 from~~exhibited an ability to cash flow during the ~~borrower demonstrating an inability~~COVID-19 pandemic, with the expectation that hotel operations strengthen further as occupancy rates increase due to ~~build~~the 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 as~~resumption of ~~June 30, 2020.~~travel.

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


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

March 31, 2020		$	2,685	$	4,875	$	664	$	1,592	$	1,879	$	—	$	627	$	12,322
March 31, 2021																		March 31, 2021	$	1,975	$	5,917	$	939	$	1,543	$	1,103	$	0	$	1,248	$	12,725
Charge-offs	Charge-offs	—		—		—		—		(37)		—		—		(37)		Charge-offs	0		0		0		0		(25)		0		0		(25)
Recoveries	Recoveries	2		13		—		6		42		—		—		63		Recoveries	4		0		0		10		30		0		0		44
Provision		1		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)		0		(103)		(1,200)
June 30, 2021																		June 30, 2021	$	1,588	$	5,582	$	1,136	$	1,152	$	941	$	0	$	1,145	$	11,544

Table of Contents

Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
December 31, 2019 $ 2,023 $ 3,210 $ 285 $ 2,412 $ 1,417 $ — $ 520 $ 9,867
Charge-offs (25) — — — (136) — — (161)
Recoveries 4 27 — 15 96 — — 142
Provision 686 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		Consumer		Other		Unallocated		Total
(Dollars in thousands)

December 31, 2020	$	2,249	$	6,010	$	889	$	1,423	$	1,283	$	0	$	917	$	12,771
Charge-offs	0		0		0		0		(120)		0		0		(120)
Recoveries	13		0		0		22		58		0		0		93
Provision (Recovery)	(674)		(428)		247		(293)		(280)		0		228		(1,200)
June 30, 2021	$	1,588	$	5,582	$	1,136	$	1,152	$	941	$	0	$	1,145	$	11,544


	June 30, 2021
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	0	$	261	$	0	$	62	$	0	$	0	$	0	$	323
Collectively Evaluated for Potential Impairment	$	1,588	$	5,321	$	1,136	$	1,090	$	941	$	0	$	1,145	$	11,221


		June 30, 2020																															December 31, 2020
		Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total			Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)	(Dollars in thousands)																	(Dollars in thousands)

Individually Evaluated for Impairment	Individually Evaluated for Impairment	$	—	$	399	$	—	$	200	$	—	$	—	$	—	$	599	Individually Evaluated for Impairment	$	0	$	293	$	0	$	356	$	0	$	0	$	0	$	649
Collectively Evaluated for Potential Impairment	Collectively 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	$	0	$	917	$	12,122

December 31, 2019
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
Individually Evaluated for Impairment $ — $ 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		Consumer		Other		Unallocated		Total
(Dollars in thousands)

March 31, 2020	$	2,685	$	4,875	$	664	$	1,592	$	1,879	$	0	$	627	$	12,322
Charge-offs	0		0		0		0		(37)		0		0		(37)
Recoveries	2		13		0		6		42		0		0		63
Provision (Recovery)	1		272		156		(32)		(170)		0		73		300
June 30, 2020	$	2,688	$	5,160	$	820	$	1,566	$	1,714	$	0	$	700	$	12,648

Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer Other Unallocated Total
(Dollars in thousands)
March 31, 2019 $ 1,154 $ 2,550 $ 500 $ 2,553 $ 1,733 $ — $ 922 $ 9,412
Charge-offs (43) — — — (73) — — (116)
Recoveries 5 8 — 1 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

Table of Contents


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

December 31, 2018		$	1,050	$	2,693	$	395	$	2,807	$	2,027	$	—	$	586	$	9,558
December 31, 2019																		December 31, 2019	$	2,023	$	3,210	$	285	$	2,412	$	1,417	$	0	$	520	$	9,867
Charge-offs	Charge-offs	(43)		—		—		—		(286)		—		—		(329)		Charge-offs	(25)		0		0		0		(136)		0		0		(161)
Recoveries	Recoveries	9		21		—		2		55		—		—		87		Recoveries	4		27		0		15		96		0		0		142
Provision		80		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		0		180		2,800
June 30, 2020																		June 30, 2020	$	2,688	$	5,160	$	820	$	1,566	$	1,714	$	0	$	700	$	12,648


		June 30, 2019																															June 30, 2020
		Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total			Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)	(Dollars in thousands)																	(Dollars in thousands)

Individually Evaluated for Impairment	Individually Evaluated for Impairment	$	—	$	656	$	—	$	771	$	—	$	—	$	—	$	1,427	Individually Evaluated for Impairment	$	0	$	399	$	0	$	200	$	0	$	0	$	0	$	599
Collectively Evaluated for Potential Impairment	Collectively 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	$	0	$	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 related~~losses 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 improvement~~2021. A $31.7 million decrease in ~~certain macroeconomic conditions, including unemployment, for the quarter ended June 30, 2020 compared to March 31, 2020, and resulted~~net reservable loans in the ~~decrease in~~current quarter, which excludes PPP loans and includes the ~~provision~~reclassification of $11.4 million of loans to held for ~~loan losses. This change increased the ALLL in all categories except commercial and industrial due to~~sale that do not require a reserve, as well as a decrease in ~~the average loss history factor as further explained below.~~

~~Prior~~specifically 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~~

~~Table of Contents~~

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
Consumer Other Total
(Dollars in thousands)
Individually Evaluated for Impairment $ 1,669 $ 6,701 $ 745 $ 2,333 $ — $ — $ 11,448
Collectively Evaluated for Potential Impairment 343,113 343,805 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 $70.0~~loans 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, 2019																											June 30, 2021
		Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total			Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
(Dollars in thousands)	(Dollars in thousands)															(Dollars in thousands)

Individually Evaluated for Impairment	Individually Evaluated for Impairment	$	549	$	4,704	$	—	$	2,511	$	—	$	—	$	7,764	Individually Evaluated for Impairment	$	1,161	$	16,387	$	2,600	$	5,703	$	0	$	0	$	25,851
Collectively Evaluated for Potential Impairment	Collectively Evaluated for Potential Impairment	347,217		346,656		35,605		83,075		113,637		18,542		944,732		Collectively Evaluated for Potential Impairment	321,319		344,131		82,587		114,488		106,404		12,666		981,595
Total Loans	Total 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

Table of Contents


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

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

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


	Accretable Discount
(Dollars in Thousands)

December 31, 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 Years~~	~~45,449~~
~~Over Two Through Three Years~~	~~41,849~~
~~Over Three Through Four Years~~	~~16,613~~
~~Over Four Through Five Years~~	~~10,025~~
~~Over Five Years~~	~~4,501~~
~~Total~~	$	~~201,303~~


June 30, 2021	Time Deposits		Time Deposits Held for Sale		Time Deposits, Net
(Dollars in thousands)

One Year or Less	$	70,931	$	7,849	$	63,082
Over One Through Two Years	56,888		4,283		52,605
Over Two Through Three Years	20,342		2,545		17,797
Over Three Through Four Years	10,024		2,121		7,903
Over Four Through Five Years	10,319		1,340		8,979
Over Five Years	4,551		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, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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.

~~Table of Contents~~

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.

Table of Contents

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


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

Securities Sold Under Agreements to Repurchase:	Securities Sold Under Agreements to Repurchase:									Securities Sold Under Agreements to Repurchase:
Balance at Period End	Balance at Period End	$	42,349	0.30	%	$	30,571	0.57	%	Balance at Period End	$	39,054	0.17	%		$	41,055	0.21	%
Average Balance Outstanding During the Period	Average Balance Outstanding During the Period	32,591		0.52		29,976		0.62		Average Balance Outstanding During the Period	45,232		0.21			37,819		0.36
Maximum Amount Outstanding at any Month End	Maximum Amount Outstanding at any Month End	42,349				34,197				Maximum Amount Outstanding at any Month End	52,777					46,123

Securities Collaterizing the Agreements at Period-End:	Securities Collaterizing the Agreements at Period-End:									Securities Collaterizing the Agreements at Period-End:
Carrying Value	Carrying Value	52,514				37,584				Carrying Value	53,496					46,312
Market Value	Market Value	53,969				37,873				Market Value	53,597					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, 2020						December 31, 2019							June 30, 2021					December 31, 2020
		Amount		Weighted Average Rate		Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

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

As of June 30, ~~2020,~~2021, the ~~Company~~Bank 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’s~~Bank’s investment in FHLB stock. Under this arrangement the ~~Company~~Bank 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 ~~balance~~balance.

As an alternative to pledging securities, the FHLB periodically provides standby letters of credit on behalf of the Bank to secure certain public deposits in excess of the level insured by the FDIC. If the FHLB is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to the Bank. Standby letters of credit issued on our behalf by the FHLB to secure public deposits were $104.5 million and $90.3 million as of June 30, ~~2020.~~2021 and December 31, 2020, respectively.

At June 30, ~~2020,~~2021, the ~~Company~~Bank 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 ~~Company~~Bank 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.

Table of Contents

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

~~Table of Contents~~

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

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

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

The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated ~~Statement~~Statements of Financial Condition as of the dates indicated, by level within the fair value hierarchy. The majority of the Company’s securities are included in Level 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the six months ended June 30, ~~2020~~2021 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 Securities							Available-for-Sale Debt Securities
U.S. Government Agencies	U.S. Government Agencies	Level 2	$	18,994	$	48,056	U.S. Government Agencies	Level 2	$	49,786	$	41,411
Obligations of States and Political Subdivisions	Obligations of States and Political Subdivisions	Level 2	21,958		25,843		Obligations of States and Political Subdivisions	Level 2	20,595		21,993
Mortgage-Backed Securities - Government-Sponsored Enterprises	Mortgage-Backed Securities - Government-Sponsored Enterprises	Level 2	105,381		120,776		Mortgage-Backed Securities - Government-Sponsored Enterprises	Level 2	135,330		79,493
Total Debt Securities			146,333		194,675
Total Available-for-Sale Debt Securities							Total Available-for-Sale Debt Securities		205,711		142,897

Marketable Equity Securities:
Equity Securities							Equity Securities
Mutual Funds	Mutual Funds	Level 1	1,022		997		Mutual Funds	Level 1	1,004		1,019
Other	Other	Level 1	1,293		1,713		Other	Level 1	1,757		1,484
Total Marketable Equity Securities			2,315		2,710
Total Available-for-Sale Securities			$	148,648	$	197,385
Total Equity Securities							Total Equity Securities		2,761		2,503
Total Securities							Total Securities		$	208,472	$	145,400

Table of Contents

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 Asset	Financial Asset	Fair Value Hierarchy	June 30, 2020		December 31, 2019		Valuation Techniques	Significant Unobservable Inputs	Range											Financial Asset	Fair Value Hierarchy	June 30, 2021		Valuation Techniques	Significant Unobservable Inputs		Range	Weighted Average
(Dollars in thousands)	(Dollars in thousands)																	(Dollars in thousands)

Impaired Loans		Level 3	$	3,496	$	3,140	Market Comparable Properties	Marketability Discount	10	%	to	30	%	(1)
OREO		Level 3	76		58		Market Comparable Properties	Marketability Discount	10	%	to	50	%	(1)
Impaired Loans Individually Assessed															Impaired Loans Individually Assessed	Level 3	$	2,161	Appraisal of Collateral (1)		Appraisal Adjustments (2)	0	%	to	50	%	6.6%

Mortgage Servicing Rights															Mortgage Servicing Rights	Level 3	689		Discounted Cash Flow		Discount Rate	9	%	to	11	%	10.0%
																					Prepayment Speed	7	%	to	27	%	15.6%


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

Impaired Loans Individually Assessed	Level 3	$	2,944	Appraisal of Collateral (1)	Appraisal Adjustments (2)	0	%	to	50	%	0

Mortgage Servicing Rights	Level 3	656		Discounted Cash Flow	Discount Rate	9	%	to	11	%	10.0%
					Prepayment Speed	12	%	to	27	%	18.7%
OREO	Level 3	34		Appraisal of Collateral (1)	Liquidation Expenses (2)	10	%	to	30	%	0

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

(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated ~~values.~~

~~Table~~liquidation expenses. The range and weighted average of ~~Contents~~appraisal adjustments and liquidation expense are presented as a percent of the appraisal.

Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. At June 30, ~~2020~~2021 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.

Table of Contents

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

Financial Assets:	Financial Assets:										Financial Assets:
Cash and Due From Banks:	Cash and Due From Banks:										Cash and Due From Banks:
Interest Bearing	Interest Bearing	Level 1	$	114,794	$	114,794	$	68,798	$	68,798	Interest Bearing	Level 1	$	156,200	$	156,200	$	145,636	$	145,636
Non-Interest Bearing	Non-Interest Bearing	Level 1	16,609		16,609		11,419		11,419		Non-Interest Bearing	Level 1	15,810		15,810		15,275		15,275
Investment Securities:
Available for Sale		See Above	148,648		148,648		197,385		197,385
Securities											Securities	See Above	208,472		208,472		145,400		145,400
Loans Held for Sale											Loans Held for Sale	Level 2	11,409		11,409		0		0
Loans, Net	Loans, Net	Level 3	1,029,511		1,074,146		942,629		961,110		Loans, Net	Level 3	1,007,311		1,029,046		1,031,982		1,073,633
Property and Equipment Held for Sale											Property and Equipment Held for Sale	Level 2	795		795		0		0
Restricted Stock	Restricted Stock	Level 2	3,793		3,793		3,656		3,656		Restricted Stock	Level 2	3,741		3,741		3,984		3,984
Bank-Owned Life Insurance		Level 2	24,499		24,499		24,222		24,222
Mortgage Servicing Rights	Mortgage Servicing Rights	Level 3	692		692		930		930		Mortgage Servicing Rights	Level 3	689		689		656		656
Accrued Interest Receivable	Accrued Interest Receivable	Level 2	4,663		4,663		3,297		3,297		Accrued Interest Receivable	Level 2	3,606		3,606		3,872		3,872

Financial Liabilities:	Financial Liabilities:										Financial Liabilities:
Deposits Held for Sale											Deposits Held for Sale	Level 2	102,557		107,685		0		0
Deposits	Deposits	Level 2	1,193,940		1,204,494		1,118,359		1,128,078		Deposits	Level 2	1,173,553		1,175,088		1,224,569		1,231,606
Short-term Borrowings		Level 2	42,349		42,349		30,571		30,571
Short-Term Borrowings											Short-Term Borrowings	Level 2	39,054		39,054		41,055		41,055
Other Borrowed Funds	Other Borrowed Funds	Level 2	11,000		11,269		14,000		15,380		Other Borrowed Funds	Level 2	6,000		6,044		8,000		8,067
Accrued Interest Payable	Accrued Interest Payable	Level 2	863		863		987		987		Accrued Interest Payable	Level 2	621		621		767		767

~~Table of Contents~~

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 ~~Statement~~Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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

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

Table of Contents

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 Credit	Standby Letters of Credit	$	53,109	$	42,041	Standby Letters of Credit	$	110	$	120
Performance Letters of Credit	Performance Letters of Credit	2,923		2,521		Performance Letters of Credit	2,764		2,947
Construction Mortgages	Construction Mortgages	74,021		59,689		Construction Mortgages	57,499		60,312
Personal Lines of Credit	Personal Lines of Credit	6,837		6,456		Personal Lines of Credit	7,178		6,930
Overdraft Protection Lines	Overdraft Protection Lines	6,364		6,415		Overdraft Protection Lines	6,031		6,287
Home Equity Lines of Credit	Home Equity Lines of Credit	20,805		20,560		Home Equity Lines of Credit	23,067		22,110
Commercial Lines of Credit	Commercial Lines of Credit	67,682		102,422		Commercial Lines of Credit	77,841		69,738
Total Commitments	Total 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 interest~~Accrued Interest Receivable and ~~other assets~~Other Assets and the related lease liabilities in ~~accrued interest~~Accrued Interest Payable and ~~other liabilities~~Other Liabilities on the Consolidated ~~Statement~~Statements of Financial Condition.

~~Table of Contents~~

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,
		2020		2019		2020		2019			2021		2020		2021		2020
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Operating Lease Expense	Operating Lease Expense	$	119	$	115	$	235	$	230	Operating Lease Expense	$	88	$	119	$	183	$	235
Short-Term Lease Expense										Short-Term Lease Expense	9		0		17		0
Variable Lease Expense	Variable Lease Expense	9		7		18		15		Variable Lease Expense	8		9		16		18
Total Lease Expense	Total 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 Assets	ROU Assets	$	1,118		$	1,289		ROU Assets	$	809		$	1,206
Weighted Average Lease Term in Years	Weighted Average Lease Term in Years	7.18			7.06			Weighted Average Lease Term in Years	7.06			6.95
Weighted Average Discount Rate	Weighted Average Discount Rate	2.92		%	2.89		%	Weighted Average Discount Rate	2.44		%	2.39		%

Table of Contents


	June 30, ~~2020~~2021
(Dollars in thousands)

Maturity Analysis:
Due in One Year	$	~~388~~328
Due After One Year to Two Years	~~257~~216
Due After Two Years to Three Years	~~123~~116
Due After Three Years to Four Years	57105
Due After Four to Five Years	45
Due After Five Years	~~386~~341
Total	$	~~1,256~~1,151
Less: Present Value Discount	~~135~~112
Lease Liabilities	$	~~1,121~~1,039

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.

Table of Contents

Note ~~11.~~12. Other Noninterest Expense

The details of other noninterest expense for the Company’s ~~consolidated statement~~Consolidated 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,
2020 2019 2020 2019
(Dollars in thousands)
Non-Employee Compensation $ 147 $ 131 $ 293 $ 271
Printing and Supplies 139 96 240 193
Postage 55 61 116 133
Telephone 132 158 301 302
Charitable Contributions 16 52 67 92
Dues and Subscriptions 41 47 117 98
Loan Expenses 125 128 270 212
Meals and Entertainment 34 46 74 101
Travel 20 61 74 97
Training 7 13 14 22
Bank Assessment 44 42 88 85
Insurance 58 60 114 113
Miscellaneous 127 200 290 361
Total Other Noninterest Expense $ 945 $ 1,095 $ 2,058 $ 2,080


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
(Dollars in thousands)

Non-Employee Compensation	$	141	$	147	$	290	$	293
Printing and Supplies	65		139		164		240
Postage	115		55		178		116
Telephone	140		132		328		301
Charitable Contributions	21		16		35		67
Dues and Subscriptions	37		41		88		117
Loan Expenses	110		125		202		270
Meals and Entertainment	26		34		60		74
Travel	28		20		50		74
Training	7		7		24		14
Bank Assessment	44		44		88		88
Insurance	59		58		119		114
Miscellaneous	152		127		301		290
Total Other Noninterest Expense	$	945	$	945	$	1,927	$	2,058

~~Table of Contents~~

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.

Table of Contents

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

Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated
(Dollars in thousands)
June 30, 2020
Assets $ 1,408,476 $ 3,737 $ 152,404 $ (157,465) $ 1,407,152
Liabilities 1,261,592 1,102 12 (7,946) 1,254,760
Stockholders' equity 146,884 2,635 152,392 (149,519) 152,392
December 31, 2019
Assets $ 1,321,001 $ 4,076 $ 151,124 $ (154,664) $ 1,321,537
Liabilities 1,178,759 1,194 27 (9,540) 1,170,440
Stockholders' equity 142,242 2,882 151,097 (145,124) 151,097
Three Months Ended June 30, 2020
Interest and dividend income $ 11,711 $ 1 $ 1,309 $ (1,294) $ 11,727
Interest expense 1,406 — — — 1,406
Net interest income 10,305 1 1,309 (1,294) 10,321
Provision for loan losses 300 — — — 300
Net interest income after provision for loan losses 10,005 1 1,309 (1,294) 10,021
Noninterest income 1,508 1,121 19 — 2,648
Noninterest expense 8,160 911 — — 9,071
Undistributed net income of subsidiary 148 — 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 5 — 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 $ 1,324 $ (1,294) $ 24,056
Interest expense 3,202 — — — 3,202
Net interest income 20,823 1 1,324 (1,294) 20,854
Provision for loan losses 2,800 — — — 2,800
Net interest income after provision for loan losses 18,023 1 1,324 (1,294) 18,054
Noninterest income (loss) 2,553 2,402 (435) — 4,520
Noninterest expense 16,181 1,887 6 — 18,074
Undistributed net income of subsidiary 360 — 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 Bank		Exchange Underwriters, Inc.		CB Financial Services, Inc.		Net Eliminations		Consolidated
(Dollars in thousands)

June 30, 2021
Assets	$	1,461,219	$	4,571	$	132,559	$	(136,736)	$	1,461,613
Liabilities	1,338,677		1,712		23		(11,335)		1,329,077
Stockholders' Equity	122,542		2,859		132,536		(125,401)		132,536

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

Three Months Ended June 30, 2021
Interest and Dividend Income	$	10,798	$	1	$	5,825	$	(5,804)	$	10,820
Interest Expense	886		0		0		0		886
Net Interest and Dividend Income	9,912		1		5,825		(5,804)		9,934
(Recovery) Provision for Loan Losses	(1,200)		0		0		0		(1,200)
Net Interest and Dividend Income After (Recovery) Provision for Loan Losses	11,112		1		5,825		(5,804)		11,134
Noninterest Income	1,002		1,209		8		0		2,219
Noninterest Expense	12,757		962		3		0		13,722
Undistributed Net Income (Loss) of Subsidiary	177		0		(6,050)		5,873		0
(Loss) Income Before Income Tax (Benefit) Expense	(466)		248		(220)		69		(369)
Income Tax (Benefit) Expense	(220)		71		3		0		(146)
Net (Loss) Income	$	(246)	$	177	$	(223)	$	69	$	(223)

Six Months Ended June 30, 2021
Interest and Dividend Income	$	21,768	$	3	$	7,145	$	(7,108)	$	21,808
Interest Expense	1,897		0		0		0		1,897
Net Interest and Dividend Income	19,871		3		7,145		(7,108)		19,911
(Recovery) Provision for Loan Losses	(1,200)		0		0		0		(1,200)
Net Interest and Dividend Income After (Recovery) Provision for Loan Losses	21,071		3		7,145		(7,108)		21,111
Noninterest Income	2,345		2,800		248		0		5,393
Noninterest Expense	21,147		1,964		6		0		23,117
Undistributed Net Income (Loss) of Subsidiary	585		0		(4,750)		4,165		0
Income Before Income Tax Expense	2,854		839		2,637		(2,943)		3,387
Income Tax Expense	496		254		15		0		765
Net Income	$	2,358	$	585	$	2,622	$	(2,943)	$	2,622

3133

Table of Contents

Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated
(Dollars in thousands)
Three Months Ended June 30, 2019
Interest and dividend income $ 12,655 $ 1 $ 1,317 $ (1,304) $ 12,669
Interest expense 1,964 — — — 1,964
Net interest income 10,691 1 1,317 (1,304) 10,705
Provision for loan losses 350 — — — 350
Net interest income after provision for loan losses 10,341 1 1,317 (1,304) 10,355
Noninterest income 990 1,079 96 — 2,165
Noninterest expense 7,907 887 3 — 8,797
Undistributed net income of subsidiary 132 — 1,587 (1,719) —
Income before income tax expense 3,556 193 2,997 (3,023) 3,723
Income tax expense 665 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 $ 1 $ 2,636 $ (2,608) $ 24,965
Interest expense 3,826 — — — 3,826
Net interest income 21,110 1 2,636 (2,608) 21,139
Provision for loan losses 375 — — — 375
Net interest income after provision for loan losses 20,735 1 2,636 (2,608) 20,764
Noninterest income 1,948 2,227 104 — 4,279
Noninterest expense 15,808 1,863 6 — 17,677
Undistributed net income of subsidiary 250 — 3,190 (3,440) —
Income before income tax expense 7,125 365 5,924 (6,048) 7,366
Income tax expense 1,327 115 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	$	1,309	$	(1,294)	$	11,727
Interest Expense	1,406		0		0		0		1,406
Net Interest and Dividend Income	10,305		1		1,309		(1,294)		10,321
Provision for Loan Losses	300		0		0		0		300
Net Interest and Dividend Income After Provision for Loan Losses	10,005		1		1,309		(1,294)		10,021
Noninterest Income	1,508		1,121		19		0		2,648
Noninterest Expense	8,160		911		0		0		9,071
Undistributed Net Income of Subsidiary	148		0		1,580		(1,728)		0
Income Before Income Tax Expense (Benefit)	3,501		211		2,908		(3,022)		3,598
Income Tax Expense	627		63		5		0		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	$	1,324	$	(1,294)	$	24,056
Interest Expense	3,202		0		0		0		3,202
Net Interest and Dividend Income	20,823		1		1,324		(1,294)		20,854
Provision for Loan Losses	2,800		0		0		0		2,800
Net Interest and Dividend Income After Provision for Loan Losses	18,023		1		1,324		(1,294)		18,054
Noninterest Income (Loss)	2,553		2,402		(435)		0		4,520
Noninterest Expense	16,181		1,887		6		0		18,074
Undistributed Net Income of Subsidiary	360		0		2,703		(3,063)		0
Income Before Income Tax Expense (Benefit)	4,755		516		3,586		(4,357)		4,500
Income Tax Expense (Benefit)	758		156		(90)		0		824
Net Income	$	3,997	$	360	$	3,676	$	(4,357)	$	3,676

Table of Contents

Note 14. Intangible Assets

The following table presents a summary of intangible assets subject to amortization at the dates indicated.


	June 30, 2021								December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
(Dollars in thousands)

Core Deposit Intangible	$	14,103	$	(7,987)	$	(1,178)	$	4,938	$	14,103	$	(7,047)	$	7,056
Customer List	1,800		(552)		0		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
2022	1,782
2023	1,782
2024	1,147
2025	189
2026 and Thereafter	395
Total Estimated Intangible Asset Amortization Expense	$	6,186

Table of Contents

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,
	2021		2020		2021		2020
(Dollars in thousands)

Mortgage Servicing Rights:
Balance, Beginning of Period	$	967	$	992	$	1,029	$	1,001
Additions	15		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;

~~Table of Contents~~

•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.

Table of Contents

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 offices~~11 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania ~~seven offices~~and 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

~~Table of Contents~~

has ~~two~~a loan production ~~offices~~office in ~~Fayette and~~ Allegheny County, a corporate center in Washington County and an operations center in Greene County in Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, Inc., the Bank’s wholly owned subsidiary that is a full-service, independent insurance agency located in ~~the~~ Washington County.

Overview

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

~~Goodwill.~~ ~~Goodwill represents~~As previously disclosed by the ~~excess~~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 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 ~~cost~~branch offices of ~~an acquisition over the fair value of the net assets acquired. Goodwill is subject~~Community 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 annually~~be 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.

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,

3437

Table of Contents

~~depressed~~which 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 similar~~other 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 sudden~~branch consolidations and ~~unexpected events caused by~~sales.

In addition, as part of the ~~COVID-19 pandemic. Based on~~Company's branch optimization and operational efficiency initiatives, the ~~analysis, management determined~~Company 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 impaired~~will 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 conditions~~approximately $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 management~~branch 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 factors~~be 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 that~~net 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 performance~~favorable impact of the ~~reporting unit~~expected 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.

Table of Contents

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


		Three Months Ended									Six Months Ended										Three Months Ended						Six Months Ended
		June 30,									June 30,										June 30,
		2020			2019			2020			2019				2021			2020			2021			2020
(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 Basis	Adjustment to FTE Basis	59			69			113			147			Adjustment to FTE Basis	43			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 Income		1,406			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 Basis	Adjustment to FTE Basis	0.12			0.03			0.07			0.02			Adjustment to FTE Basis	0.02			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 Basis	Adjustment to FTE Basis	0.12			0.03			0.07			0.02			Adjustment to FTE Basis	0.01			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 Loans	1,007,446			$	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

Table of Contents

Consolidated ~~Statement~~Statements 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. This~~2020. The change is primarily due to an increase in Deposits as further described below in the ~~result of investment security call and paydown activity.~~Liabilities section.

~~Table of Contents~~

•~~Investment securities classified as available-for-sale decreased $48.7~~Securities 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 $52.5~~2020. Current period activity included $97.1 million of ~~calls of~~mortgage-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 $19.8~~purchases, $20.4 million of paydowns on mortgage-backed ~~securities. In addition, there was the purchase of $38.8~~securities, and $11.9 million of mortgage-backed ~~and U.S. government agency~~ securities ~~partially offset by $17.9 million~~sales, which resulted in the recognition of ~~mortgage-backed security~~a $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 recognize~~recognized 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 ~~increase~~decrease in the market value of the debt securities portfolio ~~attributed to market interest rate decreases~~ and ~~$410,000 loss~~a $233,000 gain in market value in the ~~marketable~~ equity securities portfolio, which is primarily comprised of bank stocks.

Payroll Protection Program (“PPP”) Update

•~~Net~~PPP loans ~~increased $86.9~~decreased $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, compared~~2021. This includes the impact of reclassifying $11.4 million of loans to ~~$942.6 million million at December 31, 2019. Loan growth during~~held for sale. Excluding the ~~first half~~net 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 advances~~including $11.4 million of ~~$22.7 million in construction~~held 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 PPP~~declined $20.3 million. Average loans ~~organic loan growth was $19.6 million and represented an annualized growth rate of 4.1%~~ for the ~~six~~three 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, ~~2020~~2021 compared to ~~$9.9~~$12.8 million at December 31, ~~2019. This reflects~~2020. There was a ~~$2.8~~net recovery of $1.2 million of provision for loan ~~loss due~~losses 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 increase~~held for sale that do not require a reserve, as well as a decrease in ~~qualitative factors related to~~specifically 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 $5.6~~which 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 $5.4~~2021 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 available~~increase in ~~the CARES Act and interagency guidance and does not consider any of the~~nonperforming 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 response~~at 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 borrower~~December 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 due~~a $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 offered~~loan 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~~In 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.

3640

Table of Contents

~~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:~~

Industry Forbearance
Weighted
Average
Risk
Rating ⁽¹⁾
Industry
Amount As a
Percent
of Total
Risk
Based
Capital As a
Percent
of Loan
Class Number
of
Loans
Weighted
Average
Risk
Rating ⁽¹⁾
Forbearance
Amount As a
Percent
of
Industry
(Dollars in thousands)
Commercial Real Estate - Owner Occupied:
Retail 3.6 $ 27,829 23.8 % 7.9 % 11 3.4 $ 2,516 9.0 %
Office Space 3.7 10,646 9.1 3.0 6 4.0 2,801 26.3
Oil and Gas 3.2 3,160 2.7 0.9 1 3.0 622 19.7
Restaurants 3.4 1,034 0.9 0.3 4 3.4 404 39.1
Commercial Real Estate - Nonowner Occupied:
Retail 3.7 54,489 46.5 15.5 12 4.0 20,227 37.1
Multifamily 3.8 58,585 50.0 16.7 12 3.8 17,474 29.8
Office Space 4.0 43,102 36.8 12.3 7 4.8 12,998 30.2
Hotels 4.9 25,085 21.4 7.2 10 5.0 20,558 82.0
Senior Housing 3.7 8,212 7.0 2.3 1 4.0 4,008 48.8
Oil and Gas 3.7 7,871 6.7 2.2 — — — —
Restaurants 3.5 4,785 4.1 1.4 5 3.0 1,520 31.8
Construction - Commercial Real Estate:
Retail 4.0 7,789 6.7 13.4 1 4.0 7,109 91.3
Multifamily 4.0 3,080 2.6 5.3 — — — —
Office Space 4.0 9,011 7.7 15.5 — — — —
Hotels 4.4 4,760 4.1 8.2 1 5.0 1,788 37.6
Senior Housing 4.0 7,321 6.3 12.6 — — — —
Oil and Gas 4.0 1,572 1.3 2.7 — — — —
Commercial and Industrial:
Senior Housing 3.0 4,552 3.9 3.1 — — — —
Oil and Gas 3.6 6,259 5.3 4.2 11 3.6 3,175 50.7
Total:
Retail 3.7 90,107 77.0 24 3.9 29,852
Multifamily 3.8 61,665 52.7 12 3.8 17,474
Office Space 3.9 62,759 53.6 13 4.7 15,799
Hotels 4.8 29,845 25.5 11 5.0 22,346
Senior Housing 3.7 20,085 17.2 1 4.0 4,008
Oil and Gas 3.6 18,862 16.1 12 3.5 3,797
Restaurants 3.5 5,819 5.0 9 3.1 1,924
Total High Risk Industries 3.9 $ 289,142 247.0 82 4.3 $ 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.~~

~~Table of Contents~~

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


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

Real Estate:
Residential	—	—		—	%	7	1,343		0.4	%	4	749		0.2	%
Commercial	4	6,544		1.8	%	7	13,814		3.7	%	8	19,818		5.3	%
Construction	—	—		—	%	1	1,958		2.5	%	1	1,958		2.7	%
Commercial and Industrial	5	1,221		1.0	%	5	1,219		0.9	%	5	1,219		1.0	%
Consumer	—	—		—	%	5	106		0.1	%	13	356		0.3	%

Total Loans in Forbearance	9	$	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, ~~2020~~2021 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 $1.12~~2021 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. ~~The~~IRS 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 ~~subsequently~~initially 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 loan~~interest-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 $11.8~~decreased $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, ~~2020~~2021 and December 31, ~~2019,~~2020, short-term borrowings were comprised entirely of securities sold under agreements to ~~repurchase. The increase is~~repurchase, 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

Table of Contents

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 ~~FHLB~~Federal Home Loan Bank borrowing that matured in the current period.

Stockholders’ Equity. Stockholders’ equity ~~increased $1.3~~decreased $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 $1.9~~decreased $1.7 million primarily due to market interest rate conditions ~~in the current period~~ on the ~~Bank’s available-for-sale~~Company’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’s~~its 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, ~~2020~~2021 and ~~2019~~2020

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 to~~of $2.9 million for the three months ended June 30, ~~2020, compared~~2020.

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, ~~2020~~2020. Net interest margin (FTE) (Non-GAAP) decreased 45 basis points (“bps”) to 2.85% for the three months ended June 30, 2021 compared to ~~$10.7~~3.30% 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, ~~2020~~2021 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. Although~~2020. 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 by~~compared to $316,000 for the ~~declines in interest rate indices in March~~three 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 period~~three 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 agency~~securities activity, PPP loan funds and ~~municipal securities and~~

~~Table of Contents~~

government stimulus payments ~~but~~deposited with the Bank, although average yield declined ~~246~~10 bps due to interest rate cuts on interest-earning cash deposits held at other financial institutions.

Table of Contents

Interest Expense

◦•Interest ~~income on taxable investment securities~~expense decreased ~~$502,000,~~$520,000, or ~~34.8%~~37.0%, to ~~$940,000~~$886,000 million for the three months ended June 30, ~~2020~~2021 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, ~~2020~~2020. While average interest-earning deposits increased $47.9 million compared ~~$1.8 million for~~to 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 ~~quarter~~three 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, ~~2020~~2021 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a ~~$6.0~~$5.0 million decrease in average balance.

Table of Contents

Average Balances and Yields. The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of ~~21%~~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,
		2020										2019									2021						2020
		Average Balance		Interest and Dividends		Yield/ Cost ⁽⁴⁾		Average Balance		Interest and Dividends		Yield/ Cost ⁽⁴⁾			Average Balance		Interest and Dividends		Yield/ Cost (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 Securities	Debt Securities													Debt Securities
Taxable	Taxable	137,268		940		2.74		209,164		1,442		2.76		Taxable	124,685		635		2.04		137,268		940		2.74
Tax Exempt	Tax Exempt	14,106		130		3.69		23,450		195		3.33		Tax Exempt	12,276		94		3.06		14,106		130		3.69
Marketable Equity Securities	Marketable Equity Securities	2,579		20		3.10		2,526		20		3.17		Marketable Equity Securities	2,649		24		3.62		2,579		20		3.10
Other Interest-Earning Assets	Other Interest-Earning Assets	97,033		84		0.35		53,479		374		2.81		Other Interest-Earning Assets	246,392		151		0.25		97,033		84		0.35
Total Interest-Earning Assets	Total Interest-Earning Assets	1,264,986		11,786		3.75		1,194,657		12,738		4.28		Total Interest-Earning Assets	1,402,870		10,863		3.11		1,264,986		11,786		3.75
Noninterest-Earning Assets	Noninterest-Earning Assets	113,176						113,447						Noninterest-Earning Assets	82,794						113,176
Total Assets	Total 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
Borrowings		46,642		101		0.87		47,560		140		1.18
Short-Term Borrowings														Short-Term Borrowings
Securities Sold Under Agreements to Repurchase														Securities Sold Under Agreements to Repurchase	49,325		24		0.20		35,642		39		0.44
Other Borrowings														Other Borrowings	6,000		35		2.34		11,000		62		2.27
Total Interest-Bearing Liabilities	Total Interest-Bearing Liabilities	898,927		1,406		0.63		880,863		1,964		0.89		Total Interest-Bearing Liabilities	955,473		886		0.37		898,927		1,406		0.63
Noninterest-Bearing Demand Deposits	Noninterest-Bearing Demand Deposits	317,738						273,753						Noninterest-Bearing Demand Deposits	387,317						317,738
Other Liabilities	Other Liabilities	8,815						9,872						Other Liabilities	7,999						8,815
Total Liabilities	Total Liabilities	1,225,480						1,164,488						Total Liabilities	1,350,789						1,225,480

Stockholders' Equity	Stockholders' Equity	152,682						143,616						Stockholders' Equity	134,875						152,682
Total Liabilities and Stockholders' Equity	Total 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 Assets						0.85						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 Assets	Average Equity to Average Assets					11.08						10.98		Average Equity to Average Assets					9.08						11.08
Average Interest-Earning Assets to Average Interest-Bearing Liabilities	Average Interest-Earning Assets to Average Interest-Bearing Liabilities					140.72						135.62		Average Interest-Earning Assets to Average Interest-Bearing Liabilities					146.82						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.~~

4044

Table of Contents

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


		Three Months Ended 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 to											Increase (Decrease) Due to
		Volume		Rate		Total			Volume		Rate		Total
(Dollars in thousands) (Unaudited)	(Dollars in thousands) (Unaudited)							(Dollars in thousands) (Unaudited)

Interest and Dividend Income:	Interest and Dividend Income:							Interest and Dividend Income:
Loans, net	Loans, net	$	1,168	$	(1,263)	$	(95)	Loans, net	$	57	$	(710)	$	(653)
Debt Securities:	Debt Securities:							Debt Securities:
Taxable	Taxable	(492)		(10)		(502)		Taxable	(81)		(224)		(305)
Exempt From Federal Tax	Exempt From Federal Tax	(84)		19		(65)		Exempt From Federal Tax	(16)		(20)		(36)
Marketable Equity Securities								Marketable Equity Securities	1		3		4
Other Interest-Earning Assets	Other Interest-Earning Assets	175		(465)		(290)		Other Interest-Earning Assets	97		(30)		67
Total Interest-Earning Assets	Total Interest-Earning Assets	767		(1,719)		(952)		Total Interest-Earning Assets	58		(981)		(923)

Interest Expense:	Interest Expense:							Interest Expense:
Deposits	Deposits	31		(550)		(519)		Deposits	79		(557)		(478)
Borrowings		(3)		(36)		(39)
Short-Term Borrowings:								Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase								Securities Sold Under Agreements to Repurchase	11		(26)		(15)
Other Borrowings								Other Borrowings	(29)		2		(27)
Total Interest-Bearing Liabilities	Total Interest-Bearing Liabilities	28		(586)		(558)		Total Interest-Bearing Liabilities	61		(581)		(520)
Change in Net Interest Income		$	739	$	(1,133)	$	(394)
Change in Net Interest and Dividend Income								Change in Net Interest and Dividend Income	$	(3)	$	(400)	$	(403)

Provision for Loan Losses. ~~The provision~~Provision 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 compared~~2020. 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 ~~$350,000~~held 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 closures~~2021 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-offs~~16.2%, 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.

Table of Contents

•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 on~~prior 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 compared~~Other income increased to ~~$50,000~~$31,000 for the three months ended June 30, ~~2019, primarily~~2021 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 quarter~~prior 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.~~

~~Table of Contents~~

~~Noninterest Expense.~~ ~~Noninterest expense increased $274,000, or 3.1%,~~2021 compared to $9.1 million for the three months ended June 30, ~~2020 compared~~2020. Excluding the impact of non-cash charges related to ~~$8.8~~a $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 compared~~2020. The increase is primarily due to ~~$4.7~~the 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 primarily~~is due to the ~~Community Bank Cares premium pay during~~recognition of a $227,000 lease impairment related to the ~~pandemic~~consolidation of a branch as part of the branch optimization initiative as well as increase in ~~addition to merit~~repair 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 ~~compared~~The current period includes $434,000 of expenses associated with the engagement of a third-party workflow optimization expert to ~~$361,000 for~~assist in implementing robotic process automations and more effective sales management designed to improve operational efficiencies in the ~~three months ended June 30, 2019 primarily due~~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.

•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 compared~~2020. 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, ~~2019~~2021 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 $150,000~~Legal 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 ~~compared~~due to ~~$1.1 million~~a $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 $65,000~~2021 compared to $155,000 for the three months ended June 30, 2020 ~~compared~~due to ~~$220,000~~reduced 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, 2020~~2021 compared to ~~$285,000 for the three months ended June 30, 2019v primarily due to fully depreciated items.~~

~~Income Tax Expense.~~ ~~Income~~income tax ~~expense decreased $49,000 to~~expenses of $695,000 for the three months ended June 30, ~~2020, compared~~2020. This change was primarily related to ~~$744,000, for~~a 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% compared~~current 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, ~~2020~~2021 and ~~2019~~2020

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 was~~2021, 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.

Table of Contents

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, ~~2020~~2020. Net interest margin (Non-GAAP FTE) decreased 48 bps to 2.95% for the six months ended June 30, 2021 compared to ~~$21.1~~3.43% 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, ~~2020~~2020.

◦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, ~~2020~~2021 decreased 3542 bps to 4.0% compared to the six months ended June 30, ~~2019. The current period~~2020 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 by~~compared to $316,000 for the ~~150 bp decline in the Wall Street Journal Prime Rate in March~~six 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 ~~current~~prior 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 collectibility~~impact of the ~~interest income is not in question. With~~accretion of the ~~majority of loans exiting forbearance~~credit 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 from~~securities 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 ~~consist~~consists of interest-earning cash, decreased ~~$370,000,~~$73,000, or ~~53.5%~~22.7% for the six months ended June 30, ~~2020~~2021 compared to the six months ended June 30, ~~2019~~2020 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 by~~which 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 difference~~six 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.

4247

Table of Contents

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


		Six Months Ended June 30,																							Six Months Ended June 30,
		2020										2019									2021						2020
		Average Balance		Interest and Dividends		Yield/ Cost ⁽⁴⁾		Average Balance		Interest and Dividends		Yield/ Cost ⁽⁴⁾			Average Balance		Interest and Dividends		Yield/ Cost (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 Securities	Debt Securities													Debt Securities
Taxable	Taxable	147,962		2,141		2.89		199,843		2,759		2.76		Taxable	123,790		1,281		2.07		147,962		2,141		2.89
Tax Exempt	Tax Exempt	15,471		258		3.34		28,106		447		3.18		Tax Exempt	12,608		192		3.05		15,471		258		3.34
Marketable Equity Securities	Marketable Equity Securities	2,573		40		3.11		2,517		40		3.18		Marketable Equity Securities	2,641		44		3.33		2,573		40		3.11
Other Interest-Earning Assets	Other Interest-Earning Assets	80,821		322		0.80		49,617		692		2.81		Other Interest-Earning Assets	204,365		249		0.25		80,821		322		0.80
Total Interest-Earning Assets	Total Interest-Earning Assets	1,229,158		24,169		3.95		1,182,266		25,112		4.28		Total Interest-Earning Assets	1,367,723		21,897		3.23		1,229,158		24,169		3.95
Noninterest-Earning Assets	Noninterest-Earning Assets	113,616						112,727						Noninterest-Earning Assets	87,645						113,616
Total Assets	Total 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	%
Savings		222,899		124		0.11		215,283		294		0.28
Money Market		181,819		436		0.48		181,515		536		0.60
Time Deposits		210,648		2,018		1.93		219,220		2,143		1.97
Total Interest-Bearing Deposits		846,763		2,986		0.71		830,726		3,543		0.86
Borrowings		44,482		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 Borrowings														ST Borrowings
Securities Sold Under Agreements to Repurchase														Securities Sold Under Agreements to Repurchase	45,232		47		0.21		32,592		84		0.52
Other Borrowings														Other Borrowings	6,597		76		2.32		11,890		132		2.23
Total Interest-Bearing Liabilities	Total Interest-Bearing Liabilities	891,245		3,202		0.72		880,048		3,826		0.88		Total Interest-Bearing Liabilities	943,662		1,897		0.41		891,245		3,202		0.72
Noninterest-Bearing Demand Deposits	Noninterest-Bearing Demand Deposits	289,621						264,160						Noninterest-Bearing Demand Deposits	368,318						289,621
Other Liabilities	Other Liabilities	9,306						9,420						Other Liabilities	8,433						9,306
Total Liabilities	Total Liabilities	1,190,172						1,153,628						Total Liabilities	1,320,413						1,190,172

Stockholders' Equity	Stockholders' Equity	152,602						141,365						Stockholders' Equity	134,955						152,602
Total Liabilities and Stockholders' Equity	Total 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 Assets	Average Equity to Average Assets					11.36						10.92		Average Equity to Average Assets					9.27						11.36
Average Interest-Earning Assets to Average Interest-Bearing Liabilities	Average Interest-Earning Assets to Average Interest-Bearing Liabilities					137.91						134.34		Average Interest-Earning Assets to Average Interest-Bearing Liabilities					144.94						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.~~

4348

Table of Contents

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


		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 to											Increase (Decrease) Due to
		Volume		Rate		Total			Volume		Rate		Total
(Dollars in thousands) (Unaudited)	(Dollars in thousands) (Unaudited)							(Dollars in thousands) (Unaudited)

Interest and Dividend Income:	Interest and Dividend Income:							Interest and Dividend Income:
Loans, net	Loans, net	$	1,867	$	(1,633)	$	234	Loans, net	$	829	$	(2,106)	$	(1,277)
Debt Securities:	Debt Securities:							Debt Securities:
Taxable	Taxable	(743)		125		(618)		Taxable	(316)		(544)		(860)
Exempt From Federal Tax	Exempt From Federal Tax	(210)		21		(189)		Exempt From Federal Tax	(45)		(21)		(66)
Marketable Equity Securities	Marketable Equity Securities	1		(1)		—		Marketable Equity Securities	1		3		4
Other Interest-Earning Assets	Other Interest-Earning Assets	292		(662)		(370)		Other Interest-Earning Assets	251		(324)		(73)
Total Interest-Earning Assets	Total Interest-Earning Assets	1,207		(2,150)		(943)		Total Interest-Earning Assets	720		(2,992)		(2,272)

Interest Expense:	Interest Expense:							Interest Expense:
Deposits	Deposits	74		(631)		(557)		Deposits	151		(1,363)		(1,212)
Borrowings		(25)		(42)		(67)
Short-Term Borrowings:								Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase								Securities Sold Under Agreements to Repurchase	24		(61)		(37)
Other Borrowings								Other Borrowings	(61)		5		(56)
Total Interest-Bearing Liabilities	Total Interest-Bearing Liabilities	49		(673)		(624)		Total Interest-Bearing Liabilities	114		(1,419)		(1,305)
Change in Net Interest Income		$	1,158	$	(1,477)	$	(319)
Change in Net Interest and Dividend Income								Change in Net Interest and Dividend Income	$	606	$	(1,573)	$	(967)

Provision for Loan Losses. The ~~pandemic, which led~~provision 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 has~~a $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 ~~current~~prior 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 losses~~the 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, compared~~2020.

•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 $489,000~~2021, 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 expected~~an increase in customer usage compared to ~~a net loss~~the prior year period when shelter-in-place orders occurred at the onset of ~~$53,000~~the 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.

Table of Contents

•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 ~~increased~~decreased mortgage loan production from refinances, which ~~were~~are sold to reduce interest rate risk on lower yielding, long-term assets.

•~~Insurance commissions increased $162,000, or 7.3%, to $2.4 million~~Net gain on investment securities was $458,000 for the six months ended June 30, ~~2020~~2021 compared to ~~$2.2 million~~$79,000 for the six months ended June 30, ~~2019 due an~~2020. 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 as~~Income 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 ~~amortization~~the valuation allowance on mortgage servicing rights ~~combined with~~compared to a $269,000 valuation allowance adjustment from temporary impairment ~~on mortgage servicing rights recognized~~ in the ~~current~~prior period ~~due to~~caused 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.

~~Table of Contents~~

•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, ~~2020~~2021 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 compared~~2020. 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 million~~increased $411,000 for the six months ended June 30, ~~2020~~2021 compared to $9.6 million for the six months ended June 30, ~~2019.~~2020. The ~~current~~increase is primarily due to an increase in employee benefit expenses due to the prior period ~~was impacted by~~impact from a ~~first quarter 2020,~~ $407,000 one-time payment that offset employee benefits ~~from health insurance claims exceeding our stop-loss limit for~~related to the ~~2019 plan year and change~~transition from a self-funded to a fully insured plan. ~~Final calculation~~The current period was impacted by the recognition of $335,000 in severance related to the ~~stop loss payment was completed 90 days after~~branch optimization initiative whereas in the ~~end of the plan year. Also~~period the Company ~~benefited from deferred employee-related loan origination~~incurred 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 recognized~~recognition of approximately $236,000 of one-time payments related to the search for a permanent ~~CEO in~~CEO.

•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.~~

•~~Equipment~~FDIC assessment expense ~~decreased $100,000~~increased $178,000 to ~~$481,000~~$499,000 for the six months ended June 30, ~~2020~~2021 compared to ~~$581,000~~$321,000 for the six months ended June 30, ~~2019 as~~2020.The increase in assessment was due to the ~~result of decrease~~net 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 processing~~Legal fees and professional fees increased ~~$97,000~~$202,000 to ~~$885,000~~$608,000 for the six months ended June 30, ~~2020~~2021 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 ~~compared~~due to ~~$341,000~~a $209,000 investment banker success-based fee and legal fees related to the Agreement with Citizens Bank for the branch sales.

Table of Contents

•Other noninterest expense decreased $131,000 to $1.9 million for the six months ended June 30, ~~2019~~2021 compared to $2.1 million for the six months ended June 30, 2020 due to ~~fees associated with~~a decrease in loan-related expenses from the ~~search for a permanent CEO~~increased 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 compared~~2020. 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-tax~~pretax income ~~combined with stable tax-preference~~in 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 ~~resulted~~will 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, ~~2020~~2021 to satisfy its short- and long-term liquidity needs.

~~Table of Contents~~

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, ~~2020~~2021 and December 31, ~~2019.~~2020.

At June 30, ~~2020, $82.9~~2021, $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 deposit~~time deposits will remain with it, either as ~~certificates of deposit~~time deposits or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered.

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

CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank’s ability to pay dividends to CB Financial is subject to regulatory limitations. At 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.

Table of Contents

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.

~~Table of Contents~~

At June 30, ~~2020~~2021 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 ~~rish~~risk weight under the regulatory capital rules regardless of whether they were pledged as collateral to the Federal Reserve Bank's PPP lending facility, but were included in the Bank's leverage ratio requirement due to the Bank not pledging the loans as collateral to the PPP lending ~~facility~~ 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, 2020						December 31, 2019							June 30, 2021				December 31, 2020
		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio
(Dollars in thousands)	(Dollars in thousands)									(Dollars in thousands)

Common Equity Tier 1 (to risk weighted assets)	Common Equity Tier 1 (to risk weighted assets)									Common Equity Tier 1 (to risk weighted assets)
Actual	Actual	$	105,937	11.90	%	$	101,703	11.43	%	Actual	$	106,207	11.67	%	$	108,950	11.79	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	40,046		4.50		40,050		4.50		For Capital Adequacy Purposes	40,945		4.50		41,598		4.50
To Be Well Capitalized	To Be Well Capitalized	57,844		6.50		57,851		6.50		To Be Well Capitalized	59,143		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)
Actual	Actual	105,937		11.90		101,703		11.43		Actual	106,207		11.67		108,950		11.79
For Capital Adequacy Purposes	For Capital Adequacy Purposes	53,394		6.00		53,401		6.00		For Capital Adequacy Purposes	54,593		6.00		55,464		6.00
To Be Well Capitalized	To Be Well Capitalized	71,192		8.00		71,201		8.00		To Be Well Capitalized	72,791		8.00		73,952		8.00

Total Capital (to risk weighted assets)	Total Capital (to risk weighted assets)									Total Capital (to risk weighted assets)
Actual	Actual	117,079		13.16		111,570		12.54		Actual	117,582		12.92		120,520		13.04
For Capital Adequacy Purposes	For Capital Adequacy Purposes	71,192		8.00		71,201		8.00		For Capital Adequacy Purposes	72,791		8.00		73,952		8.00
To Be Well Capitalized	To Be Well Capitalized	88,990		10.00		89,001		10.00		To Be Well Capitalized	90,989		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)
Actual	Actual	105,937		7.90		101,703		7.85		Actual	106,207		7.23		108,950		7.81
For Capital Adequacy Purposes	For Capital Adequacy Purposes	53,613		4.00		51,838		4.00		For Capital Adequacy Purposes	58,728		4.00		55,765		4.00
To Be Well Capitalized	To Be Well Capitalized	67,016		5.00		64,798		5.00		To Be Well Capitalized	73,410		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

4752

Table of Contents

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 Equity EVE as a Percent of Portfolio Value of Assets Earnings at Risk
Change in Interest Rates in Basis Points ("bp") Dollar Amount Dollar Change Percent Change NPV Ratio Change Dollar Amount Dollar Change Percent Change
+300 bp $ 165,748 $ 11,848 7.7 % 12.63 % 171 bp $ 40,038 $ 3,113 8.4 %
+200 bp 164,162 10,262 6.7 12.21 129 39,065 2,140 5.8 %
+100 bp 160,516 6,616 4.3 11.65 73 37,841 916 2.5 %
Flat 153,900 — — 10.92 — 36,925 — — %
-100 bp 158,064 4,164 2.7 11.08 16 35,941 (984) (2.7) %


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

+300	$	152,158	$	9,568	6.7	%	11.34	%		153	$	45,462	$	8,749	23.8	%
+200	151,459		8,869		6.2		10.99			118	43,071		6,358		17.3
+100	148,374		5,784		4.1		10.47			66	39,676		2,963		8.1
Flat	142,590		—		—		9.81			—	36,713		—		—
-100	136,941		(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 tables~~table presented ~~assume~~assumes that the composition of the Company’s interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the ~~EVE tables provide~~table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and net interest income and will differ from actual results. EVE calculations also may not reflect the fair values of financial instruments. For example, changes in market interest rates can increase the fair values of the Company’s loans, deposits and borrowings.

Item 4. Controls and Procedures.

(a)Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of 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

Table of Contents

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.

~~Table of Contents~~

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 ~~our~~such Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

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

~~Table of Contents~~

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.

~~Table of Contents~~

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

The Company ~~did not purchase any~~made 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 Share		Total 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, 2021	25,297	22.16		25,297	$	6,939,518
Total	25,297	$	22.16	25,297

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Table of Contents

Item 6. Exhibits


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

5155

Table of Contents

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, 2020~~9, 2021	/s/ ~~Barron P. McCune, Jr.~~John H. Montgomery
		~~Barron P. McCune, Jr.~~John H. Montgomery
		President and Chief Executive Officer

Date:	August ~~7, 2020~~9, 2021	/s/ Jamie L. Prah
		Jamie L. Prah
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

5256


	(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 Bearing	16,609		11,419
Total Cash and Due From Banks	131,403		80,217

Investment Securities:
Available-for-Sale	148,648		197,385
Loans, Net of Allowance for Loan Losses of $12,648 and $9,867 at June 30, 2020 and December 31, 2019, Respectively	1,029,511		942,629
Premises and Equipment, Net	21,818		22,282
Bank-Owned Life Insurance	24,499		24,222
Goodwill	28,425		28,425
Intangible Assets, Net	9,463		10,527
Accrued Interest and Other Assets	13,385		15,850
TOTAL ASSETS	$	1,407,152	$	1,321,537

LIABILITIES
Deposits:
Non-Interest Bearing Demand Deposits	$	341,180	$	267,152
NOW Accounts	237,343		232,099
Money Market Accounts	184,726		182,428
Savings Accounts	229,388		216,924
Time Deposits	201,303		219,756
Total Deposits	1,193,940		1,118,359

Short-Term Borrowings	42,349		30,571
Other Borrowings	11,000		14,000
Accrued Interest and Other Liabilities	7,471		7,510
TOTAL LIABILITIES	1,254,760		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, Respectively	2,367		2,367
Capital Surplus	83,327		82,971
Retained Earnings	68,039		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 Income	4,587		2,646
TOTAL STOCKHOLDERS' EQUITY	152,392		151,097
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,407,152	$	1,321,537


	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	1	$	234	$	234	$	—
Total	1	234		234		—


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

Real Estate:
Residential	1	$	114	$	114	$	—
Total	1	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	1	$	61	$	61	$	—
Commercial and Industrial	1	$	114	$	114	$	—
Total	2	175		175		—


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

Commercial Real Estate - Owner Occupied:
Retail	3.6	$	27,829	23.8	%	7.9	%	11	3.4	$	2,516	9.0	%

Office Space	3.7	10,646		9.1		3.0		6	4.0	2,801		26.3


Oil and Gas	3.2	3,160		2.7		0.9		1	3.0	622		19.7
Restaurants	3.4	1,034		0.9		0.3		4	3.4	404		39.1

Commercial Real Estate - Nonowner Occupied:
Retail	3.7	54,489		46.5		15.5		12	4.0	20,227		37.1
Multifamily	3.8	58,585		50.0		16.7		12	3.8	17,474		29.8
Office Space	4.0	43,102		36.8		12.3		7	4.8	12,998		30.2
Hotels	4.9	25,085		21.4		7.2		10	5.0	20,558		82.0
Senior Housing	3.7	8,212		7.0		2.3		1	4.0	4,008		48.8
Oil and Gas	3.7	7,871		6.7		2.2		—	—	—		—
Restaurants	3.5	4,785		4.1		1.4		5	3.0	1,520		31.8

Construction - Commercial Real Estate:
Retail	4.0	7,789		6.7		13.4		1	4.0	7,109		91.3
Multifamily	4.0	3,080		2.6		5.3		—	—	—		—
Office Space	4.0	9,011		7.7		15.5		—	—	—		—
Hotels	4.4	4,760		4.1		8.2		1	5.0	1,788		37.6
Senior Housing	4.0	7,321		6.3		12.6		—	—	—		—
Oil and Gas	4.0	1,572		1.3		2.7		—	—	—		—

Commercial and Industrial:
Senior Housing	3.0	4,552		3.9		3.1		—	—	—		—
Oil and Gas	3.6	6,259		5.3		4.2		11	3.6	3,175		50.7

Total:
Retail	3.7	90,107		77.0				24	3.9	29,852
Multifamily	3.8	61,665		52.7				12	3.8	17,474
Office Space	3.9	62,759		53.6				13	4.7	15,799
Hotels	4.8	29,845		25.5				11	5.0	22,346
Senior Housing	3.7	20,085		17.2				1	4.0	4,008
Oil and Gas	3.6	18,862		16.1				12	3.5	3,797
Restaurants	3.5	5,819		5.0				9	3.1	1,924
Total High Risk Industries	3.9	$	289,142	247.0				82	4.3	$	95,200


	(Dollars in thousands)
	Economic Value of Equity									EVE as a Percent of Portfolio Value of Assets							Earnings at Risk
Change in Interest Rates in Basis Points ("bp")	Dollar Amount		Dollar Change		Percent Change		NPV Ratio		Change		Dollar Amount		Dollar Change		Percent Change
+300 bp	$	165,748	$	11,848	7.7	%	12.63	%	171	bp	$	40,038	$	3,113	8.4	%
+200 bp	164,162		10,262		6.7		12.21		129		39,065		2,140		5.8	%
+100 bp	160,516		6,616		4.3		11.65		73		37,841		916		2.5	%
Flat	153,900		—		—		10.92		—		36,925		—		—	%
-100 bp	158,064		4,164		2.7		11.08		16		35,941		(984)		(2.7)	%