CB Financial Services 10Q 2016 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended March 31, 2016

☐

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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒

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

As of May 11, 2016, the number of shares outstanding of the Registrant’s Common Stock was 4,081,017.

FORM 10-Q

INDEX

Page

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).	1
Consolidated Statement of Financial Condition	1
Consolidated Statement of Income	2
Consolidated Statement of Comprehensive Income	3
Consolidated Statement of Changes In Stockholders’ Equity	3
Consolidated Statement of Cash Flows	4
Notes to Unaudited Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	28
Item 3. Quantitative and Qualitative Disclosure about Market Risk.	34
Item 4. Controls and Procedures.	34
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.	35
Item 1A. Risk Factors.	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	35
Item 3. Defaults Upon Senior Securities.	35
Item 4. Mine Safety Disclosures.	35
Item 5. Other Information.	35
Item 6. Exhibits	36
SIGNATURES	37

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

	(Unaudited)
(Dollars in thousands, except share data)	March 31, 2016			December 31, 2015

ASSETS
Cash and Due From Banks:
Interest Bearing	$	4,886		$	2,316
Non-Interest Bearing		7,695			9,024
Total Cash and Due From Banks		12,581			11,340

Investment Securities:
Available-for-Sale		93,663			95,863
Loans, Net		677,033			676,864
Premises and Equipment, Net		12,505			10,277
Bank-Owned Life Insurance		18,329			18,209
Goodwill		4,953			4,953
Core Deposit Intangible		4,220			4,353
Accrued Interest and Other Assets		9,773			8,818
TOTAL ASSETS	$	833,057		$	830,677

LIABILITIES
Deposits:
Demand Deposits	$	165,050		$	161,053
NOW Accounts		99,574			99,514
Money Market Accounts		146,926			134,294
Savings Accounts		125,343			121,415
Time Deposits		135,669			145,651
Brokered Deposits		17,388			17,372
Total Deposits		689,950			679,299

Short-Term Borrowings		22,583			32,448
Other Borrowed Funds		28,000			28,000
Accrued Interest and Other Liabilities		4,133			4,034
TOTAL LIABILITIES		744,666			743,781

STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized		-			-
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 4,363,346 Shares Issued and 4,081,017 Shares Outstanding at March 31, 2016 and December 31, 2015, Respectively		1,818			1,818
Capital Surplus		41,701			41,614
Retained Earnings		48,872			47,725
Treasury Stock, at Cost (282,329 Shares at March 31, 2016 and December 31, 2015, Respectively)		(4,836	)		(4,836	)
Accumulated Other Comprehensive Income		836			575
TOTAL STOCKHOLDERS' EQUITY		88,391			86,896
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	833,057		$	830,677

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

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

		Three Months Ended March 31,
(Dollars in thousands, except share and per share data)		2016			2015

INTEREST AND DIVIDEND INCOME
Loans, Including Fees	$	7,497		$	7,481
Federal Funds Sold		4			1
Investment Securities:
Taxable		324			242
Exempt From Federal Income Tax		260			296
Other Interest and Dividend Income		37			155
TOTAL INTEREST AND DIVIDEND INCOME		8,122			8,175

INTEREST EXPENSE
Deposits		561			598
Federal Funds Purchased		1			1
Short-Term Borrowings		14			30
Other Borrowed Funds		127			90
TOTAL INTEREST EXPENSE		703			719

NET INTEREST INCOME		7,419			7,456
Provision For Loan Losses		850			300
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		6,569			7,156

NONINTEREST INCOME
Service Fees on Deposit Accounts		586			577
Insurance Commissions		872			931
Other Commissions		117			121
Net Gains on Sales of Loans		125			71
Income from Bank-Owned Life Insurance		120			118
Other		28			8
TOTAL NONINTEREST INCOME		1,848			1,826

NONINTEREST EXPENSE
Salaries and Employee Benefits		3,369			3,148
Occupancy		474			471
Equipment		422			405
FDIC Assessment		126			138
PA Shares Tax		202			183
Contracted Services		133			137
Legal and Professional Fees		141			131
Advertising		165			225
Bankcard Processing Expense		112			111
Other Real Estate Owned (Income) Expense		(545	)		20
Amortization of Core Deposit Intangible		134			134
Other		781			644
TOTAL NONINTEREST EXPENSE		5,514			5,747

Income Before Income Taxes		2,903			3,235
Income Taxes		858			940
NET INCOME	$	2,045		$	2,295

EARNINGS PER SHARE
Basic	$	0.50		$	0.56
Diluted		0.50			0.56

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		4,081,017			4,071,462
Diluted		4,081,869			4,071,462

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

		Three Months Ended March 31,
(Dollars in thousands)		2016		2015

Net Income	$	2,045	$	2,295

Other Comprehensive Income
Unrealized Gains on Available-for-Sale Securities Net of Income Tax of $135 and $170 for the Three Months Ended March 31, 2016 and 2015, Respectively		261		331
Other Comprehensive Income, Net of Income Tax		261		331
Total Comprehensive Income	$	2,306	$	2,626

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

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

December 31, 2014		4,363,346	$	1,818	$	41,762	$	42,766		$	(4,999	)	$	565	$	81,912
Comprehensive income:
Net income		-		-		-		2,295			-			-		2,295
Other comprehensive income		-		-		-		-			-			331		331
Dividends paid ($0.21 per share)		-		-		-		(855	)		-			-		(855	)
March 31, 2015		4,363,346	$	1,818	$	41,762	$	44,206		$	(4,999	)	$	896	$	83,683

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

December 31, 2015		4,363,346	$	1,818	$	41,614	$	47,725		$	(4,836	)	$	575	$	86,896
Comprehensive income:
Net income		-		-		-		2,045			-			-		2,045
Other comprehensive income		-		-		-		-			-			261		261
Stock-based compensation expense		-		-		87		-			-			-		87
Dividends paid ($0.22 per share)		-		-		-		(898	)		-			-		(898	)
March 31, 2016		4,363,346	$	1,818	$	41,701	$	48,872		$	(4,836	)	$	836	$	88,391

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

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

		Three Months Ended March 31,
(Dollars in thousands)		2016			2015

OPERATING ACTIVITIES
Net Income	$	2,045		$	2,295
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Net Amortization on Investments		56			184
Depreciation and Amortization		764			622
Provision for Loan Losses		850			300
Income from Bank-Owned Life Insurance		(120	)		(118	)
Proceeds From Mortgage Loans Sold		5,513			2,738
Originations of Mortgage Loans for Sale		(5,388	)		(2,667	)
Gains on Sales of Loans		(125	)		(71	)
Gains on Sales of Other Real Estate Owned and Repossessed Assets		(19	)		(7	)
Noncash Expense for Stock-Based Compensation		87			-
Decrease in Accrued Interest Receivable		185			173
Valuation Adjustment on Foreclosed Real Estate		(566	)		-
Decrease in Taxes Payable		947			(553	)
Increase in Accrued Interest Payable		4			46
Net Payment of Federal/State Income Taxes		(20	)		-
Other, Net		(1,411	)		108
NET CASH PROVIDED BY OPERATING ACTIVITIES		2,802			3,050

INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities		17,191			10,803
Purchases of Securities		(14,651	)		(6,252	)
Net Increase in Loans		(4,648	)		(6,092	)
Purchase of Premises and Equipment		(106	)		(173	)
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets		175			15
Decrease in Restricted Equity Securities		590			438
NET CASH USED IN INVESTING ACTIVITIES		(1,449	)		(1,261	)

FINANCING ACTIVITIES
Net Increase in Deposits		10,651			11,944
Net Decrease in Short-Term Borrowings		(9,865	)		(22,671	)
Principal Payments on Other Borrowed Funds		-			(1,056	)
Proceeds from Other Borrowed Funds		-			15,000
Cash Dividends Paid		(898	)		(855	)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(112	)		2,362

INCREASE IN CASH AND CASH EQUIVALENTS		1,241			4,151
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR		11,340			11,751
CASH AND DUE FROM BANKS AT END OF PERIOD	$	12,581		$	15,902

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $556 and $601 respectively)		699			674
Income taxes		20			31

Transfer of loans to loans held for sale		-			26,149
Real estate acquired in settlement of loans		3,236			307
Transfer of real estate acquired in settlement of loans to premise and equipment		2,350			-

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

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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”). CB Financial and the Bank 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 and in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, evaluation of securities for other-than-temporary impairment including related cash flow projections, goodwill 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 of 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, 2015. Interim results are not necessarily indicative of results for a full year.

The Company evaluated the provisions of Accounting Standards Codification (“ASC”) Topic 280 and determined that segment reporting information related to Exchange Underwriters was not required to be presented because the segment comprises less than 10% of total interest and noninterest income and less than 10% of the combined assets of the Company.

The Company evaluated subsequent events through the date the consolidated financial statements were filed with the Securities and Exchange Commission and incorporated into the consolidated financial statements the effect of all material known events determined by ASC Topic 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 primarily to communities in Greene, Allegheny, Washington, Fayette, and Westmoreland Counties located in southwestern Pennsylvania. The Company also conducts insurance brokerage activities through Exchange Underwriters.

Acquired Loans

Loans that were acquired in the merger with FedFirst Financial Corporation were recorded at fair value with no carryover of the related allowance for credit losses. The fair value of the acquired loans was estimated by management with the assistance of a third party valuation specialist.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance for loan losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method. The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance for credit losses. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.

Reclassifications

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

Recent Accounting Standards

In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 introduces amendments intended to simplify the accounting for stock compensation. ASU 2016-09 requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits, and assess the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period. The ASU also requires excess tax benefits be classified along with other income tax cash flows as an operating activity in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company is evaluating the provisions of ASU 2016-09, but, believes that its adoption will not have a material impact on the Company’s financial condition or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 will require lessees to recognize a right-of-use (ROU) asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation for leases with terms of more than twelve months. Both the ROU asset and lease liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. Accounting by lessors will remain largely unchanged from current U.S. GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted, and is to be applied as of the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact that the provisions of ASU 2016-02, will have on the Company’s financial condition and results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10), which enhances the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. ASU 2016-01 (i) requires equity investments (except those accounted for under the equity method or that are consolidated) to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for an entity to disclose the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost; (iv) requires an entity to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (v) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is evaluating the provisions of ASU 2016-01, but does not believe that its adoption will have a material impact on the Company’s financial condition and results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which establishes a comprehensive revenue recognition standard for virtually all industries under GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. ASU 2014-09 specifies that an entity shall recognize revenue when, or as, the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when, or as, the customer obtains control of the asset. Entities are required to disclose qualitative and quantitative information on the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company may elect, to early adopt the standard, but not before fiscal years beginning after December 15, 2016. The amendments may be applied retrospectively to each period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is evaluating the provisions of ASUs 2014-09 and 2015-14, but does not believe that their adoption will have a material impact on the Company’s financial condition and results of operations.

Recent Accounting Standards (continued)

In January 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates the requirement in ASC Subtopic 225-20 to consider whether an underlying event or transaction is extraordinary, and if so, to separately present the item in the income statement net of tax, after income from continuing operations. Items that are either unusual in nature or infrequently occurring will continue to be reported as a separate component of income from continuing operations. Alternatively, these amounts may still be disclosed in the notes to the financial statements. The same requirement has been expanded to include items that are both unusual and infrequent. ASU 2015-01 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted from the beginning of the fiscal year of adoption. The Company adopted the provisions of ASU 2015-01and has determined that its adoption had no material impact on the Company’s financial condition and results of operations.

Note 2. Earnings Per Share

There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income is used as the numerator.

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

	Three Months Ended March 31,
	2016			2015
Weighted-Average Common Shares Outstanding		4,363,346			4,363,346
Average Treasury Stock Shares		(282,329	)		(291,884	)
Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Basic Earnings Per Share		4,081,017			4,071,462
Additional Common Stock Equivalents (Restricted Stock) Used to Calculate Diluted Earnings Per Share		852			-
Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Diluted Earnings Per Share		4,081,869			4,071,462

Earnings per share:
Basic	$	0.50		$	0.56
Diluted		0.50			0.56

Note 3. Investment Securities

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

	(Dollars in thousands)
	March 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

U.S. Government Agencies	$	48,300	$	299	$	-		$	48,599
Obligations of States and Political Subdivisions		39,816		842		(16	)		40,642
Mortgage-Backed Securities - Government-Sponsored Enterprises		3,180		53		-			3,233
Equity Securities - Mutual Funds		500		21		-			521
Equity Securities - Other		600		70		(2	)		668
Total	$	92,396	$	1,285	$	(18	)	$	93,663

	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

U.S. Government Agencies	$	51,151	$	147	$	(110	)	$	51,188
Obligations of States and Political Subdivisions		39,351		760		(37	)		40,074
Mortgage-Backed Securities - Government-Sponsored Enterprises		3,390		13		-			3,403
Equity Securities - Mutual Funds		500		13		-			513
Equity Securities - Other		600		85		-			685
Total	$	94,992	$	1,018	$	(147	)	$	95,863

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:

	(Dollars in thousands)
	March 31, 2016
	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
U.S. Government Agencies		1	$	2,000	$	-			-	$	-	$	-			1	$	2,000	$	-
Obligations of States and Political Subdivisions		6		2,358		(11	)		3		1,268		(5	)		9		3,626		(16	)
Equity Securities - Other		3		148		(2	)		-		-		-			3		148		(2	)
Total		10	$	4,506	$	(13	)		3	$	1,268	$	(5	)		13	$	5,774	$	(18	)

	December 31, 2015
	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
U.S. Government Agencies		6	$	14,928	$	(110	)		-	$	-	$	-			6	$	14,928	$	(110	)
Obligations of States and Political Subdivisions		11		5,333		(25	)		8		4,549		(12	)		19		9,882		(37	)
Total		17	$	20,261	$	(135	)		8	$	4,549	$	(12	)		25	$	24,810	$	(147	)

For debt securities, the Company does not believe any individual unrealized loss as of March 31, 2016 and December 31, 2015 represents an other-than-temporary impairment. The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate an other-than-temporary impairment. The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer. The securities that are temporarily impaired at March 31, 2016 and December 31, 2015 relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell or 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.

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

	(Dollars in thousands)
	March 31, 2016
	Available-for-Sale
	Amortized Cost		Fair Value
Due in One Year or Less	$	-	$	-
Due after One Year through Five Years		25,912		26,132
Due after Five Years through Ten Years		59,878		60,601
Due after Ten Years		6,606		6,930
Total	$	92,396	$	93,663

Equity Securities – Mutual Funds and Equity Securities – Other do not have a scheduled maturity date, but have been included in the Due After Ten Years category.

Note 4. Loans and Related Allowance for Loan Loss

The Company’s loan portfolio is made up of four segments: real estate loans, commercial and industrial loans, consumer loans and other loans. These segments are further segregated between loans accounted for under the amortized cost method (“Originated Loans”) and acquired loans that were originally recorded at fair value with no carryover of the related pre-merger allowance for loan losses (“Loans Acquired at Fair Value”). The following table presents the major classifications of loans as of the dates indicated.

	(Dollars in thousands)
	March 31, 2016						December 31, 2015
	Amount			Percent			Amount			Percent
Originated Loans
Real Estate:
Residential	$	171,128			34.6	%	$	170,169			35.2	%
Commercial		128,401			26.0			127,614			26.4
Construction		16,414			3.3			17,343			3.6
Commercial and Industrial		64,805			13.1			60,487			12.5
Consumer		107,569			21.7			103,605			21.4
Other		6,299			1.3			4,592			0.9
Total Originated Loans		494,616			100.0	%		483,810			100.0	%
Allowance for Loan Losses		(6,937	)					(6,490	)
Loans, Net	$	487,679					$	477,320

Loans Acquired at Fair Value
Real Estate:
Residential	$	99,969			52.8	%	$	103,058			51.7	%
Commercial		73,489			38.8			75,406			37.8
Construction		1,769			0.9			3,870			1.9
Commercial and Industrial		13,955			7.4			16,660			8.3
Consumer		208			0.1			550			0.3
Total Loans Acquired at Fair Value		189,390			100.0	%		199,544			100.0	%
Allowance for Loan Losses		(36	)					-
Loans, Net	$	189,354					$	199,544

Total Loans
Real Estate:
Residential	$	271,097			39.6	%	$	273,227			40.0	%
Commercial		201,890			29.5			203,020			29.7
Construction		18,183			2.7			21,213			3.1
Commercial and Industrial		78,760			11.5			77,147			11.3
Consumer		107,777			15.8			104,155			15.2
Other		6,299			0.9			4,592			0.7
Total Loans		684,006			100.0	%		683,354			100.0	%
Allowance for Loan Losses		(6,973	)					(6,490	)
Loans, Net	$	677,033					$	676,864

Total unamortized net deferred loan fees were $700,000 and $705,000 at March 31, 2016 and December 31, 2015, respectively.

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $77.1 million and $73.1 million at March 31, 2016 and December 31, 2015, respectively.

The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated. At March 31, 2016 and December 31, 2015, there were no loans in the criticized category of Loss within the internal risk rating system.

	(Dollars in thousands)
	March 31, 2016
	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans
Real Estate:
Residential	$	170,304	$	460	$	364	$	-	$	171,128
Commercial		113,254		10,145		3,915		1,087		128,401
Construction		15,519		714		-		181		16,414
Commercial and Industrial		60,131		2,513		2,161		-		64,805
Consumer		107,453		-		116		-		107,569
Other		6,299		-		-		-		6,299
Total Originated Loans	$	472,960	$	13,832	$	6,556	$	1,268	$	494,616
Loans Acquired at Fair Value
Real Estate:
Residential	$	97,533	$	-	$	2,436	$	-	$	99,969
Commercial		67,998		2,230		3,261		-		73,489
Construction		1,769		-		-		-		1,769
Commercial and Industrial		12,700		662		593		-		13,955
Consumer		208		-		-		-		208
Total Loans Acquired at Fair Value	$	180,208	$	2,892	$	6,290	$	-	$	189,390
Total Loans
Real Estate:
Residential	$	267,837	$	460	$	2,800	$	-	$	271,097
Commercial		181,252		12,375		7,176		1,087		201,890
Construction		17,288		714		-		181		18,183
Commercial and Industrial		72,831		3,175		2,754		-		78,760
Consumer		107,661		-		116		-		107,777
Other		6,299		-		-		-		6,299
Total Loans	$	653,168	$	16,724	$	12,846	$	1,268	$	684,006

	December 31, 2015
	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans
Real Estate:
Residential	$	169,233	$	249	$	682	$	5	$	170,169
Commercial		113,087		6,870		6,565		1,092		127,614
Construction		16,384		729		-		230		17,343
Commercial and Industrial		57,586		2,145		756		-		60,487
Consumer		103,591		-		14		-		103,605
Other		4,592		-		-		-		4,592
Total Originated Loans	$	464,473	$	9,993	$	8,017	$	1,327	$	483,810
Loans Acquired at Fair Value
Real Estate:
Residential	$	100,633	$	-	$	2,425	$	-	$	103,058
Commercial		69,539		2,252		3,615		-		75,406
Construction		3,870		-		-		-		3,870
Commercial and Industrial		15,601		996		63		-		16,660
Consumer		550		-		-		-		550
Total Loans Acquired at Fair Value	$	190,193	$	3,248	$	6,103	$	-	$	199,544
Total Loans
Real Estate:
Residential	$	269,866	$	249	$	3,107	$	5	$	273,227
Commercial		182,626		9,122		10,180		1,092		203,020
Construction		20,254		729		-		230		21,213
Commercial and Industrial		73,187		3,141		819		-		77,147
Consumer		104,141		-		14		-		104,155
Other		4,592		-		-		-		4,592
Total Loans	$	654,666	$	13,241	$	14,120	$	1,327	$	683,354

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.

	(Dollars in thousands)
	March 31, 2016
	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
Originated Loans
Real Estate:
Residential	$	170,582	$	163	$	-	$	15	$	178	$	368	$	171,128
Commercial		127,981		110		-		-		110		310		128,401
Construction		16,233		-		-		-		-		181		16,414
Commercial and Industrial		64,682		123		-		-		123		-		64,805
Consumer		106,714		645		92		2		739		116		107,569
Other		6,299		-		-		-		-		-		6,299
Total Originated Loans	$	492,491	$	1,041	$	92	$	17	$	1,150	$	975	$	494,616
Loans Acquired at Fair Value
Real Estate:
Residential	$	97,454	$	868	$	-	$	50	$	918	$	1,597	$	99,969
Commercial		72,818		293		-		-		293		378		73,489
Construction		1,769		-		-		-		-		-		1,769
Commercial and Industrial		13,763		192		-		-		192		-		13,955
Consumer		208		-		-		-		-		-		208
Total Loans Acquired at Fair Value	$	186,012	$	1,353	$	-	$	50	$	1,403	$	1,975	$	189,390
Total Loans
Real Estate:
Residential	$	268,036	$	1,031	$	-	$	65	$	1,096	$	1,965	$	271,097
Commercial		200,799		403		-		-		403		688		201,890
Construction		18,002		-		-		-		-		181		18,183
Commercial and Industrial		78,445		315		-		-		315		-		78,760
Consumer		106,922		645		92		2		739		116		107,777
Other		6,299		-		-		-		-		-		6,299
Total Loans	$	678,503	$	2,394	$	92	$	67	$	2,553	$	2,950	$	684,006

	December 31, 2015
	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
Originated Loans
Real Estate:
Residential	$	168,786	$	563	$	133	$	-	$	696	$	687	$	170,169
Commercial		124,037		114		-		-		114		3,463		127,614
Construction		17,113		-		-		-		-		230		17,343
Commercial and Industrial		60,442		45		-		-		45		-		60,487
Consumer		102,629		923		39		-		962		14		103,605
Other		4,592		-		-		-		-		-		4,592
Total Originated Loans	$	477,599	$	1,645	$	172	$	-	$	1,817	$	4,394	$	483,810
Loans Acquired at Fair Value
Real Estate:
Residential	$	99,794	$	1,308	$	263	$	193	$	1,764	$	1,500	$	103,058
Commercial		73,988		1,019		-		-		1,019		399		75,406
Construction		3,870		-		-		-		-		-		3,870
Commercial and Industrial		16,450		38		130		-		168		42		16,660
Consumer		542		8		-		-		8		-		550
Total Loans Acquired at Fair Value	$	194,644	$	2,373	$	393	$	193	$	2,959	$	1,941	$	199,544
Total Loans
Real Estate:
Residential	$	268,580	$	1,871	$	396	$	193	$	2,460	$	2,187	$	273,227
Commercial		198,025		1,133		-		-		1,133		3,862		203,020
Construction		20,983		-		-		-		-		230		21,213
Commercial and Industrial		76,892		83		130		-		213		42		77,147
Consumer		103,171		931		39		-		970		14		104,155
Other		4,592		-		-		-		-		-		4,592
Total Loans	$	672,243	$	4,018	$	565	$	193	$	4,776	$	6,335	$	683,354

The following table sets forth the amounts and categories of our 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.

	(Dollars in Thousands)
	March 31, 2016			December 31, 2015
Nonaccrual Loans:
Real Estate:
Residential	$	1,965		$	2,187
Commercial		688			3,862
Construction		181			230
Commercial and Industrial		-			42
Consumer		116			14
Total Nonaccrual Loans		2,950			6,335

Accruing Loans Past Due 90 Days or More:
Real Estate:
Residential		65			193
Consumer		2			-
Total Accruing Loans 90 Days or More Past Due		67			193
Total Nonaccrual Loans and Accruing Loans 90 Days or More Past Due		3,017			6,528

Troubled Debt Restructurings, Accruing:
Originated Loans:
Real Estate - Commercial		1,365			1,375
Commercial and Industrial		7			7
Other		7			-
Total Originated Loans		1,379			1,382
Loans Acquired at Fair Value:
Real Estate - Residential		1,330			1,296
Real Estate - Commercial		891			1,488
Commercial and Industrial		539			-
Total Loans Acquired at Fair Value		2,760			2,784
Total Troubled Debt Restructurings, Accruing		4,139			4,166

Total Nonperforming Loans		7,156			10,694

Real Estate Owned:
Residential		80			138
Commercial		1,581			174
Total Real Estate Owned		1,661			312

Total Nonperforming Assets	$	8,817		$	11,006

Nonperforming Loans to Total Loans		1.05	%		1.56	%
Nonperforming Assets to Total Assets		1.06			1.32

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction was $2.9 million and $3.8 million at March 31, 2016 and December 31, 2015, respectively.

TDRs typically are the result of our loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral. The concessions granted for the TDRs in our 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 15 loans totaling $4.2 million and 13 loans totaling $4.2 million at March 31, 2016 and December 31, 2015, respectively. Originated loans classified as TDRs consisted of 5 loans totaling $1.4 million and 4 loans totaling $1.4 million at March 31, 2016 and December 31, 2015, respectively. Loans acquired at fair value as TDRs consisted of 10 loans totaling $2.8 million and 9 loans totaling $2.8 million at March 31, 2016 and December 31, 2015, respectively.

During the three months ended March 31, 2016, one commercial loan previously identified as an acquired at fair value TDR paid off. During the three months ended March 31, 2015, one commercial TDR acquired at fair value paid off and one commercial loan previously identified as an originated TDR was refinanced in a new TDR transaction. No TDRs have subsequently defaulted during the three months ended March 31, 2016 and 2015, respectively.

The following table presents information at the time of modification related to loans modified as TDRs during the periods indicated.

	(Dollars in thousands)
	Three Months Ended March 31, 2016
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
Originated Loans
Other		1	$	7	$	7	$	-
Total		1	$	7	$	7	$	-

Loans Acquired at Fair Value
Real Estate
Residential		1	$	37	$	45	$	-
Commercial		1		539		539		-
Total		2	$	576	$	584	$	-

	Three Months Ended March 31, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
Originated Loans
Real Estate
Commercial		1	$	430	$	430	$	-
Total		1	$	430	$	430	$	-

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

	(Dollars in thousands)
	March 31, 2016
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Originated Loans
Real Estate:
Commercial	$	3,987	$	-	$	3,987	$	4,023	$	44
Construction		181		-		181		207		-
Commercial and Industrial		720		-		720		684		8
Other		7		-		7		7		-
Total With No Related Allowance Recorded	$	4,895	$	-	$	4,895	$	4,921	$	52

Loans Acquired at Fair Value
Real Estate:
Residential	$	1,331	$	-	$	1,331	$	1,335	$	18
Commercial		3,261		-		3,353		3,290		38
Commercial and Industrial		593		-		593		601		6
Total With No Related Allowance Recorded	$	5,185	$	-	$	5,277	$	5,226	$	62

Total Loans
Real Estate:
Residential	$	1,331	$	-	$	1,331	$	1,335	$	18
Commercial		7,248		-		7,340		7,313		82
Construction		181		-		181		207		-
Commercial and Industrial		1,313		-		1,313		1,285		14
Other		7		-		7		7		-
Total With No Related Allowance Recorded	$	10,080	$	-	$	10,172	$	10,147	$	114

With A Related Allowance Recorded:
Originated Loans
Real Estate:
Commercial	$	1,425	$	377	$	1,430	$	1,430	$	16
Commercial and Industrial		1,448		322		1,448		1,447		13
Total With A Related Allowance Recorded	$	2,873	$	699	$	2,878	$	2,877	$	29

Loans Acquired at Fair Value
Real Estate:
Residential	$	247	$	52	$	254	$	247	$	-
Total With A Related Allowance Recorded	$	247	$	52	$	254	$	247	$	-

Total Loans
Real Estate:
Residential	$	247	$	52	$	254	$	247	$	-
Commercial		1,425		377		1,430		1,430		16
Commercial and Industrial		1,448		322		1,448		1,447		13
Total With A Related Allowance Recorded	$	3,120	$	751	$	3,132	$	3,124	$	29

	March 31, 2016 (cont.)
Total Impaired Loans:
Originated Loans
Real Estate:
Commercial	$	5,412	$	377	$	5,417	$	5,453	$	60
Construction		181		-		181		207		-
Commercial and Industrial		2,168		322		2,168		2,131		21
Other		7		-		7		7		-
Total Impaired Loans	$	7,768	$	699	$	7,773	$	7,798	$	81

Loans Acquired at Fair Value
Real Estate:
Residential	$	1,578	$	52	$	1,585	$	1,582	$	18
Commercial		3,261		-		3,353		3,290		38
Commercial and Industrial		593		-		593		601		6
Total Impaired Loans	$	5,432	$	52	$	5,531	$	5,473	$	62

Total Loans
Real Estate:
Residential	$	1,578	$	52	$	1,585	$	1,582	$	18
Commercial		8,673		377		8,770		8,743		98
Construction		181		-		181		207		-
Commercial and Industrial		2,761		322		2,761		2,732		27
Other		7		-		7		7		-
Total Impaired Loans	$	13,200	$	751	$	13,304	$	13,271	$	143

	December 31, 2015
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Originated Loans
Real Estate:
Residential	$	5	$	-	$	17	$	6	$	-
Commercial		6,636		-		6,636		7,095		232
Construction		229		-		230		292		-
Commercial and Industrial		627		-		627		756		35
Total With No Related Allowance Recorded	$	7,497	$	-	$	7,510	$	8,149	$	267

Loans Acquired at Fair Value
Real Estate:
Residential	$	1,296	$	-	$	1,296	$	1,315	$	67
Commercial		4,188		-		4,263		4,449		214
Commercial and Industrial		63		-		63		79		3
Total With No Related Allowance Recorded	$	5,547	$	-	$	5,622	$	5,843	$	284

Total Loans
Real Estate:
Residential	$	1,301	$	-	$	1,313	$	1,321	$	67
Commercial		10,824		-		10,899		11,544		446
Construction		229		-		230		292		-
Commercial and Industrial		690		-		690		835		38
Total With No Related Allowance Recorded	$	13,044	$	-	$	13,132	$	13,992	$	551

With A Related Allowance Recorded:
Originated Loans
Real Estate:
Commercial	$	1,436	$	408	$	1,441	$	1,457	$	37
Commercial and Industrial		136		9		137		128		5
Total With A Related Allowance Recorded	$	1,572	$	417	$	1,578	$	1,585	$	42

Total Impaired Loans
Originated Loans
Real Estate:
Residential	$	5	$	-	$	17	$	6	$	-
Commercial		8,072		408		8,077		8,552		269
Construction		229		-		230		292		-
Commercial and Industrial		763		9		764		884		40
Total Impaired Loans	$	9,069	$	417	$	9,088	$	9,734	$	309

Loans Acquired at Fair Value
Real Estate:
Residential	$	1,296	$	-	$	1,296	$	1,315	$	67
Commercial		4,188		-		4,263		4,449		214
Commercial and Industrial		63		-		63		79		3
Total Impaired Loans	$	5,547	$	-	$	5,622	$	5,843	$	284

Total Loans
Real Estate:
Residential	$	1,301	$	-	$	1,313	$	1,321	$	67
Commercial		12,260		408		12,340		13,001		483
Construction		229		-		230		292		-
Commercial and Industrial		826		9		827		963		43
Total Impaired Loans	$	14,616	$	417	$	14,710	$	15,577	$	593

The following table presents the activity in the allowance for loan losses summarized by major classifications and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment for the periods indicated.

	(Dollars in thousands)
	Real Estate Residential			Real Estate Commercial			Real Estate Construction			Commercial and Industrial		Consumer			Other			Unallocated		Total
Originated Loans
December 31, 2015	$	1,623		$	2,045		$	137		$	784	$	1,887		$	-		$	14	$	6,490
Charge-offs		(20	)		-			-			-		(185	)		(17	)		-		(222	)
Recoveries		1			-			-			-		24			9			-		34
Provision		(345	)		(9	)		(20	)		319		450			10			230		635
March 31, 2016	$	1,259		$	2,036		$	117		$	1,103	$	2,176		$	2		$	244	$	6,937

Loans Acquired at Fair Value
December 31, 2015	$	-		$	-		$	-		$	-	$	-		$	-		$	-	$	-
Charge-offs		-			(180	)		-			-		(5	)		-			-		(185	)
Recoveries		2			1			-			-		3			-			-		6
Provision		(2	)		179			-			-		2			-			36		215
March 31, 2016	$	-		$	-		$	-		$	-	$	-		$	-		$	36	$	36

Total Allowance for Loan Losses
December 31, 2015	$	1,623		$	2,045		$	137		$	784	$	1,887		$	-		$	14	$	6,490
Charge-offs		(20	)		(180	)		-			-		(190	)		(17	)		-		(407	)
Recoveries		3			1			-			-		27			9			-		40
Provision		(347	)		170			(20	)		319		452			10			266		850
March 31, 2016	$	1,259		$	2,036		$	117		$	1,103	$	2,176		$	2		$	280	$	6,973


Originated Loans	March 31, 2016
Individually Evaluated for Impairment	$	-		$	377		$	-		$	322	$	-		$	-		$	-	$	699
Collectively Evaluated for Potential Impairment	$	1,259		$	1,659		$	117		$	781	$	2,176		$	2		$	244	$	6,238

Loans Acquired at Fair Value
Individually Evaluated for Impairment	$	52		$	-		$	-		$	-	$	-		$	-		$	-	$	52
Collectively Evaluated for Potential Impairment	$	(52	)	$	-		$	-		$	-	$	-		$	-		$	36	$	(16	)

Total Allowance for Loan Losses
Individually Evaluated for Impairment	$	52		$	377		$	-		$	322	$	-		$	-		$	-	$	751
Collectively Evaluated for Potential Impairment	$	1,207		$	1,659		$	117		$	781	$	2,176		$	2		$	280	$	6,222

	Real Estate Residential			Real Estate Commercial			Real Estate Construction		Commercial and Industrial		Consumer			Other		Unallocated		Total
Originated Loans
December 31, 2014	$	2,690		$	582		$	122	$	684	$	1,015		$	-	$	102	$	5,195
Charge-offs		-			(6	)		-		-		(47	)		-		-		(53	)
Recoveries		3			2			-		-		31			-		-		36
Provision		(180	)		30			23		229		12			-		186		300
March 31, 2015	$	2,513		$	608		$	145	$	913	$	1,011		$	-	$	288	$	5,478

	March 31, 2015
Originated Loans
Individually Evaluated for Impairment	$	-		$	456		$	28	$	481	$	-		$	-	$	-	$	965
Collectively Evaluated for Potential Impairment	$	2,513		$	152		$	117	$	432	$	1,011		$	-	$	288	$	4,513

Originated Loans	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
December 31, 2015
Individually Evaluated for Impairment	$	-	$	408	$	-	$	9	$	-	$	-	$	-	$	417
Collectively Evaluated for Potential Impairment	$	1,623	$	1,637	$	137	$	775	$	1,887	$	-	$	14	$	6,073

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

	Accretable Discount
Balance at December 31, 2015	$	3,302
Accretable yield		(393	)
Nonaccretable premium		104
Balance at March 31, 2016	$	3,013

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.

	(Dollars in thousands)
	March 31, 2016
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
Originated Loans
Individually Evaluated for Impairment	$	-	$	5,412	$	181	$	2,168	$	-	$	7	$	7,768
Collectively Evaluated for Potential Impairment		171,128		122,989		16,233		62,637		107,569		6,292		486,848
	$	171,128	$	128,401	$	16,414	$	64,805	$	107,569	$	6,299	$	494,616

Loans Acquired at Fair Value
Individually Evaluated for Impairment	$	1,578	$	3,261	$	-	$	593	$	-	$	-	$	5,432
Collectively Evaluated for Potential Impairment		98,391		70,228		1,769		13,362		208		-		183,958
	$	99,969	$	73,489	$	1,769	$	13,955	$	208	$	-	$	189,390

Total Loans
Individually Evaluated for Impairment	$	1,578	$	8,673	$	181	$	2,761	$	-	$	-	$	13,193
Collectively Evaluated for Potential Impairment		269,519		193,217		18,002		75,999		107,777		6,299		670,813
	$	271,097	$	201,890	$	18,183	$	78,760	$	107,777	$	6,299	$	684,006

	December 31, 2015
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
Originated Loans
Individually Evaluated for Impairment	$	5	$	8,072	$	229	$	763	$	-	$	-	$	9,069
Collectively Evaluated for Potential Impairment		170,164		119,542		17,114		59,724		103,605		4,592		474,741
	$	170,169	$	127,614	$	17,343	$	60,487	$	103,605	$	4,592	$	483,810

Loans Acquired at Fair Value
Individually Evaluated for Impairment	$	1,296	$	4,188	$	-	$	63	$	-	$	-	$	5,547
Collectively Evaluated for Potential Impairment		101,762		71,218		3,870		16,597		550		-		193,997
	$	103,058	$	75,406	$	3,870	$	16,660	$	550	$	-	$	199,544

Total Loans
Individually Evaluated for Impairment	$	1,301	$	12,260	$	229	$	826	$	-	$	-	$	14,616
Collectively Evaluated for Potential Impairment		271,926		190,760		20,984		76,321		104,155		4,592		668,738
	$	273,227	$	203,020	$	21,213	$	77,147	$	104,155	$	4,592	$	683,354

Note 5. Deposits

The following table shows the maturities of time deposits for the next five years and beyond at the date indicated (dollars in thousands).

Maturity Period:	March 31, 2016
One Year or Less	$	56,521
Over One Through Two Years		25,981
Over Two Through Three Years		15,659
Over Three Through Four Years		13,751
Over Four Through Five Years		14,534
Over Five Years		9,223
Total	$	135,669

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $26.8 million and $33.1 million as of March 31, 2016 and December 31, 2015, respectively.

Note 6. Short-Term Borrowings

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

	(Dollars in thousands)
	March 31, 2016					December 31, 2015
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Short-term Borrowings
Federal Funds Purchased:
Average Balance Outstanding During the Period	$	326		1.23	%	$	485		0.41	%
Maximum Amount Outstanding at any Month End		-					5,900

FHLB Borrowings:
Balance at Period End		-		-			9,360		0.51
Average Balance Outstanding During the Period		583		0.69			7,347		0.37
Maximum Amount Outstanding at any Month End		-					30,950

Securities Sold Under Agreements to Repurchase:
Balance at Period End		22,583		0.19			23,088		0.18
Average Balance Outstanding During the Period		23,420		0.22			23,303		0.24
Maximum Amount Outstanding at any Month End		24,564					27,908

Securities Collaterizing the Agreements at Period-End:
Carrying Value		27,249					26,033
Market Value		27,401					26,063

Note 7. Other Borrowed Funds

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

	(Dollars in thousands)
	March 31, 2016					December 31, 2015
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Due in One Year	$	3,500		0.94	%	$	-		-	%
Due After One Year to Two Years		3,500		1.35			3,500		0.94
Due After Two Years to Three Years		4,000		1.67			4,500		1.41
Due After Three Years to Four Years		6,000		1.88			6,000		1.78
Due After Four Years to Five Years		5,000		2.09			6,000		1.97
Due After Five Years		6,000		2.32			8,000		2.27
Total	$	28,000		1.80		$	28,000		1.80

As of March 31, 2016, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $297.0 million with the FHLB. This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on outstanding residential mortgage loans and the Company’s investment in FHLB stock. Under this arrangement the Company had available a variable rate Line of Credit in the amount of $20.0 million as of March 31, 2016 and December 31, 2015.

The Company maintains a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank for $82.8 million that requires quarterly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by commercial and consumer indirect auto loans. The Company also maintains multiple line of credit arrangements with various banks totaling $40.0 million. As of March 31, 2016 and December 31, 2015, no draws had been taken on these facilities.

Note 8. 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 Statement 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.

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

	(Dollars in thousands)
	March 31, 2016		December 31, 2015
Standby Letters of Credit	$	10,766	$	18,316
Performance Letters of Credit		1,443		1,358
Construction Mortgages		16,043		21,144
Personal Lines of Credit		5,970		5,810
Overdraft Protection Lines		6,111		6,051
Home Equity Lines of Credit		14,594		14,491
Commercial Lines of Credit		50,628		45,584
	$	105,555	$	112,754

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. 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 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 market date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.

The three levels of fair value hierarchy are as follows:

Level I –		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 II –		Fair value is based on significant inputs, other than Level I inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level II inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs.

Level III –		Fair value would be based on significant unobservable inputs. Examples of valuation methodologies that would result in Level III 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 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 II of the fair value hierarchy. Fair values for Level II 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.

		(Dollars in thousands)
	Valuation Technique	March 31, 2016		December 31, 2015
Available for Sales Securities:
U.S. Government Agencies	Level II	$	48,599	$	51,188
Obligations of States and Political Subdivisions	Level II		40,642		40,074
Mortgage-Backed Securities - Government-Sponsored Enterprises	Level II		3,233		3,403
Equity Securities - Mutual Funds	Level I		521		513
Equity Securities - Other	Level I		668		685
Total Available for Sale Securities		$	93,663	$	95,863

The following table presents the financial assets 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. 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 I inputs or observable inputs, employed by certified appraisers, for similar assets classified as Level II 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 III inputs.

(Dollars in thousands)

Fair Value at

Significant

Financial Asset

Valuation
Technique

March 31,
2016

December 31,
2015

Valuation
Techniques

Significant
Unobservable Inputs

Unobservable
Input Value

Impaired Loans

Level III

2,369

1,155

Market Comparable Properties

Marketability Discount

10%

30%

⁽¹⁾

OREO

Level III

3,236

111

Market Comparable Properties

Marketability Discount

10%

50%

⁽¹⁾

⁽¹⁾Range includes discounts taken since appraisal and estimated values.

Impaired loans are evaluated when the loan is identified as impaired and valued at the lower of cost or fair value at that time. Fair value is measured based on the value of the collateral securing these loans and is classified as Level III in the fair value hierarchy. At March 31, 2016 and December 31, 2015, the fair value of impaired loans consists of the loan balance of $3.1 million and $1.6 million, respectively, less their specific valuation allowances of $751,000 and $417,000, respectively.

Other real estate owned, (OREO), properties are evaluated at the time of acquisition and recorded at fair value less estimated selling costs. After acquisition, other real estate owned is recorded at the lower of cost or fair value less estimated selling costs to sell. The fair value of an other real estate owned property is determined from a qualified independent appraisal and is classified as Level III in the fair value hierarchy. At March 31, 2016, two commercial real estate properties for $3.2 million were foreclosed on, moved into OREO, evaluated for fair value and recorded a gain on the valuation adjustment on foreclosed real estate for approximately $566,000. This recognized gain on the valuation adjustment was supported by independent appraisals of the two properties. One property was entered into a tentative sales agreement with a current customer which further supported the valuation adjustment. The other property was transferred into premise and equipment of the Company due to the location and the Company’s need of a new location for company headquarter’s. At December 31, 2015, two residential real estate loans for $111,000 were moved into OREO and at March 31, 2016, one has since been sold at a loss of approximately $5,000.

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.

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 Company employs simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices are not available, based upon the following assumptions:

Cash and Due From Banks, Restricted Stock, Bank-Owned Life Insurance, Accrued Interest Receivable, Short-Term Borrowings, and Accrued Interest Payable

The fair value is equal to the current carrying value.

Investment Securities

The fair value of investment securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted prices.

Loans Receivable

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans are estimated using discounted cash flow analyses, using market interest rates for comparable loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposit Liabilities

The fair values disclosed for demand deposits, are, by definition, equal to the amount payable on demand at the reporting date. The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

Borrowed Funds

Fair values of borrowed funds are estimated using discounted cash flow analyses based on current market rates for similar types of borrowing arrangements.

Commitments to Extend Credit

These financial instruments are generally not subject to sale and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 8.

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

		(Dollars in thousands)
		March 31, 2016				December 31, 2015
	Valuation Method Used	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and Due From Banks:
Interest Bearing	Level I	$	4,886	$	4,886	$	2,316	$	2,316
Non-Interest Bearing	Level I		7,695		7,695		9,024		9,024
Investment Securities:
Available for Sale	See Above		93,663		93,663		95,863		95,863
Loans, Net	Level III		677,033		694,320		676,864		692,373
Restricted Stock	Level II		3,235		3,235		3,824		3,824
Bank-Owned Life Insurance	Level II		18,329		18,329		18,209		18,209
Accrued Interest Receivable	Level II		2,234		2,234		2,419		2,419

Financial Liabilities:
Deposits	Level II		689,950		690,599		679,299		678,921
Short-term Borrowings	Level II		22,583		22,583		32,448		32,448
Other Borrowed Funds	Level III		28,000		28,483		28,000		27,830
Accrued Interest Payable	Level II		309		309		305		305

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, 2015.

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 the following:

General and local economic conditions;

Changes in 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;

Our ability to manage the risks involved in our business;

Our ability to integrate the operations of businesses we acquire;

Inflation, market and monetary fluctuations;

CB Financial’s ability to control costs and expenses;

Changes in federal and state legislation and regulation (i.e. the effect of new capital standards to be imposed by banking regulators and the implementation of the Dodd-Frank Act).

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. (“CB Financial”) is a bank holding company established in 2006. CB Financial’s business activity is conducted through its wholly owned banking subsidiary Community Bank (“the Bank”). CB Financial and the Bank are collectively referred to as the “Company.” All significant intercompany transactions have been eliminated.

The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from 16 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern 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.

On October 31, 2014, the Company completed its merger with FedFirst Financial Corporation (“FedFirst” or the “merger”), the holding company for First Federal Savings Bank, a community bank based in Monessen, Pennsylvania. The merger resulted in the addition of five branches and expanded the Company’s reach into Fayette and Westmoreland counties in southwestern Pennsylvania.

The Bank’s website address is www.communitybank.tv. Information on the website is not and should not be considered a part of this Form 10-Q.

Overview

The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of March 31, 2016 compared to the financial condition as of December 31, 2015 and the consolidated results of operations for the three months ended March 31, 2016 and 2015.

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, fees and charges on loans, 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, contracted services, legal fees, other real estate owned, advertising and promotion, stationery and supplies, 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 the southwestern Pennsylvania market area.

Statement of Financial Condition Analysis

Assets. Total assets increased $2.4 million, or 0.3%, to $833.1 million at March 31, 2016 compared to $830.7 million at December 31, 2015.

Investment securities classified as available-for-sale decreased $2.2 million, or 2.3%, to $93.7 million at March 31, 2016 compared to $95.9 million at December 31, 2015. This decrease was primarily the result of calls and maturities of U.S. government agency securities, partially offset by security purchases.

Loans, net, increased $169,000, or 0.02%, to $677.0 million at March 31, 2016 compared to $676.9 million at December 31, 2015. This was due to increases of $5.3 million in consumer and other loans (mainly indirect auto loans) and $1.6 million in commercial loans, offset by decreases of $3.0 million in construction loans, $2.1 million in residential real estate loans and $1.1 million in commercial real estate loans. In addition, approximately $3.2 million of loans were transferred to other real estate owned during the current period, which included $3.1 million in commercial real estate loans.

Premises and equipment, net, increased $2.2 million, or 21.68%, to $12.5 million at March 31, 2016 compared to $10.3 million at December 31, 2015. This was mainly due to an other real estate owned property being reclassified into fixed assets in process. This property will undergo an extensive renovation and will be placed into Bank operations.

Accrued interest and other assets increased $955,000, or 10.8%, primarily due to increases in other real estate owned and prepaid expenses. This was partially offset by a decrease in FHLB stock due to the decrease in the minimum required capital stock investment as a direct result of the short-term borrowings being paid off during the current period.

Liabilities. Total liabilities increased $885,000, or 0.1%, to $744.7 million at March 31, 2016 compared to $743.8 million at December 31, 2015.

Total deposits increased $10.7 million, or 1.6%, to $690.0 million at March 31, 2016 compared to $679.3 million at December 31, 2015. There were increases of $12.6 million in money market accounts, $4.0 million in demand deposits and $3.9 million in savings accounts, partially offset by a decrease of $10.0 million in time deposits. The increase in deposit balances is mainly attributable to an increase in school district deposits as a result of the State of Pennsylvania budget impasse being partially resolved early in the current period. Due to the low interest rate environment, the Bank has been selective on offering promotional interest rates and has concentrated its efforts on increasing noninterest-bearing accounts by building strong customer relationships.

Short-term borrowings decreased $9.9 million, or 30.4%, to $22.6 million at March 31, 2016 compared to $32.4 million at December 31, 2015. Other borrowed funds remained constant at $28.0 million at March 31, 2016 and December 31, 2015. At March 31, 2016, short-term borrowings were comprised entirely of $22.6 million of securities sold under agreements to repurchase, compared to $23.1 million at December 31, 2015. The decrease is related to business deposit customers whose funds, above designated target balances, being transferred into an overnight interest-earning investment account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase. Short-term Federal Home Loan Bank borrowings were paid off at March 31, 2016, compared to $9.4 million at December 31, 2015. In the first quarter of the prior period, a portion of FHLB short-term borrowings were replaced with $15.0 million in long-term borrowings with laddered maturities designed to mitigate interest rate risk in the event of rising interest rates. Due to a decline in school district deposits in the third and fourth quarter of the prior year and loan growth, the Bank borrowed $9.4 million short-term and laddered an additional $13.0 million of long-term, fixed-rate FHLB borrowings at December 31, 2015. As a result of prior year activity, the weighted average interest rate on long-term borrowings remained constant at 1.80%.

Stockholders’ Equity. Stockholders’ equity increased $1.5 million, or 1.7%, to $88.4 million at March 31, 2016 compared to $86.9 million at December 31, 2015. During the period, net income was $2.0 million and the Company paid $898,000 in dividends to stockholders.

Results of Operations for the Three Months Ended March 31, 2016 and 2015

Overview. Net income decreased $250,000, to $2.0 million, for the three months ended March 31, 2016 compared to $2.3 for the three months ended March 31, 2015. The decrease in net income was largely impacted by an $850,000 provision for loan losses recognized in the current period, mainly offset by a $566,000 pre-tax gain recognized due to the foreclosure procedures on two commercial real estate loans that moved into other real estate owned properties in the current period.

Net Interest Income. Net interest income decreased $37,000, or 0.5%, to $7.4 million for the three months ended March 31, 2016 compared to $7.5 million for the three months ended March 31, 2015.

Interest and dividend income decreased $53,000, or 0.6%, to $8.1 million for the three months ended March 31, 2016 compared to $8.2 million for the three months ended March 31, 2015. Other interest and dividend income decreased $118,000 primarily due to a decrease in FHLB stock dividends. This decrease was mainly due to a special FHLB dividend that was paid in the prior period. In addition, the decrease in borrowings compared to the prior period, the Bank was required to hold less FHLB stock resulting in a lower quarterly dividend in the current period. Interest income on securities exempt from federal tax decreased $36,000 due to deploying proceeds from security calls and maturities into funding loan production. There was a decrease of $3.8 million in the average balance on securities exempt from federal tax and a decrease of 14 basis points in yield as a result of purchasing securities with lower prevailing yields. Despite a decrease of $5.7 million in the average balance, interest income on taxable securities increased $82,000 due to an increase of 75 basis points in yield from new purchases or from higher yields on the remaining securities in the portfolio. Interest income on loans increased $16,000 despite a decrease in average loans outstanding of $2.8 million primarily due to loans moving into other real estate owned. In addition, $38.2 million of residential loans were sold in the second quarter of the prior year. The loan sales were primarily comprised of 30-year fixed rate mortgage loans that were acquired in the merger and were secured by properties located outside the Bank’s traditional lending area within the five counties it conducts business.

Interest expense decreased $16,000, or 2.2%, to $703,000 for the three months ended March 31, 2016 compared to $719,000 for the three months ended March 31, 2015. Interest expense on deposits decreased $37,000 due to a decrease in average interest-bearing deposits of $1.8 million, primarily due to maturities of time deposits moving into transactional accounts and school districts utilization of these funds due to the State of Pennsylvania budget impasse. The decrease in average balances and the Bank holding rates constant throughout the beginning of 2016, resulted in the average cost of interest-bearing deposits decreasing 3 basis points, primarily related to the repricing of maturing certificates of deposit to lower rates. Interest expense on short-term borrowings decreased $16,000, mainly due to the paid off FHLB short-term borrowing, which resulted in a decrease in average borrowings of $10.4 million. These decreases were partially offset by an increase in interest expense of $37,000 for other borrowed funds. This is a result of the prior period increase in long-term borrowings from the Bank laddering a series of FHLB borrowings in 2015 to mitigate interest rate risk in the event of rising interest rates.

Average Balances and Yields. The following table presents 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. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 34%. 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, but include non-accrual loans. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented and are expressed in annualized rates.

	(Dollars in thousands)
	Three Months Ended March 31,
	2016							2015
			Interest							Interest
	Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Cost ⁽¹⁾			Balance		Dividends		Cost ⁽¹⁾
Assets:
Interest-Earning Assets:
Loans, Net	$	679,494	$	7,527		4.46	%	$	682,292	$	7,503		4.46	%
Investment Securities
Taxable		55,585		324		2.33			61,302		242		1.58
Exempt From Federal Tax		38,255		387		4.05			42,073		441		4.19
Other Interest-Earning Assets		8,750		41		1.88			8,961		156		7.06
Total Interest-Earning Assets		782,084		8,279		4.26			794,628		8,342		4.26
Noninterest-Earning Assets		54,310							56,361
Total Assets	$	836,394						$	850,989

Liabilities and
Stockholders' equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits	$	117,675		49		0.17	%	$	99,953		40		0.16	%
Savings		123,344		56		0.18			120,960		53		0.18
Money Market		146,286		89		0.24			159,101		90		0.23
Time Deposits		143,346		367		1.03			152,457		415		1.10
Total Interest-Bearing Deposits		530,651		561		0.43			532,471		598		0.46

Borrowings		52,329		142		1.09			62,706		121		0.78
Total Interest-Bearing Liabilities		582,980		703		0.48			595,177		719		0.49

Noninterest-Bearing Demand Deposits		161,255							165,871
Other Liabilities		4,288							6,819
Total Liabilities		748,523							767,867

Stockholders' Equity		87,871							83,122
Total Liabilities and
Stockholders' Equity	$	836,394						$	850,989

Net Interest Income			$	7,576						$	7,623

Net Interest Rate Spread ⁽²⁾						3.78	%						3.77	%
Net Interest-Earning Assets ⁽³⁾	$	199,104						$	199,451
Net Interest Margin ⁽⁴⁾						3.90							3.89
Return on Average Assets						0.98							1.09
Return on Average Equity						9.36							11.20
Average Equity to Average Assets						10.51							9.77
Average Interest-Earning Assets to
Average Interest-Bearing Liabilities						134.15							133.51

(1)

Annualized.

(2)

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.

(3)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 34%. 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.

	(Dollars in thousands)
	Three Months Ended March 31, 2016
	Compared To
	Three Months Ended March 31, 2015
	Increase (Decrease) Due to
	Volume			Rate			Total

Interest and Dividend Income:
Loans, net	$	24		$	-		$	24
Investment Securities:
Taxable		(24	)		106			82
Exempt From Federal Tax		(39	)		(15	)		(54	)
Other Interest-Earning Assets		(3	)		(112	)		(115	)
Total Interest-Earning Assets		(42	)		(21	)		(63	)

Interest Expense:
Deposits		3			(40	)		(37	)
Borrowings		(21	)		42			21
Total Interest-Bearing Liablities		(18	)		2			(16	)
Change in Net Interest Income	$	(24	)	$	(23	)	$	(47	)

Provision for Loan Losses. The provision for loan losses was $850,000 for the three months ended March 31, 2016 compared to the provision for loan losses of $300,000 for the three months ended March 31, 2015. The originated loan portfolio had $635,000 of provision applied and the acquired at fair value loan portfolio had $215,000 of provision applied for the three months ended March 31, 2016. This compared to the entire $300,000 provision for the three months ended March 31, 2015 being applied to the originated loan portfolio. Net charge-offs for the three months ended March 31, 2016 were $367,000 compared to net charge-offs of $17,000 for the three months ended March 31, 2015. Management analyzes the loan portfolio on a quarterly basis to determine the adequacy of the allowance for loan losses and the need for additional provisions for loan losses and determined the current quarter provision was necessary due to quarterly charge-offs and commercial and indirect auto loan growth. The current period charge-offs had an impact on the historical quantitative factors within the allowance calculation. The softening in the local economy affected the qualitative factors and further substantiated the additional provision recorded in the current period.

Noninterest Income. Noninterest income increased $22,000 to $1.8 million for the three months ended March 31, 2016 compared to $1.8 for the three months ended March 31, 2015 due to a combination of factors. Net gains on the sales of loans increased $54,000 primarily due an increase in the number of loans originated and subsequently sold to the FHLB as part of the Mortgage Partnership Finance® (“MPF®”) program. The MPF® program enables member financial institutions to offer competitive interest rates for fixed-rate mortgage loans without assuming any of the interest rate risk associated with a long-term asset. Other miscellaneous income increased $20,000 primarily due to a decline in amortization on mortgage servicing rights related to loans sold to the FHLB as part of the MPF® program. Service fees on deposit accounts increased $9,000 primarily due to check card fees from transactional activity in the current period. Offsetting these increases was a $59,000 decrease in insurance commission from Exchange Underwriters. The decrease in insurance commissions included $158,000 of contingency fees for the three months ended March 31, 2016 compared to $211,000 for the three months ended March 31, 2015. These commissions are contingent upon several factors including, but not limited to, eligible written premiums, earned premiums, incurred losses and stop loss charges.

Noninterest Expense. Noninterest expense decreased $233,000, or 4.1%, to $5.5 million for the three months ended March 31, 2016 compared to $5.7 million for the three months ended March 31, 2015. Other real estate owned expense decreased $565,000 primarily due to a $566,000 pre-tax gain recognized due to the foreclosure procedures on two commercial real estate loans that moved into other real estate owned properties in the current period, partially offset by other real estate expenses. Advertising decreased $60,000 related to the termination of a cooperative marketing agreement at Exchange Underwriters. Salaries and employee benefits increased $221,000 million primarily due to a combination of normal salary increases, employee stock options and restricted stock awards, hiring of additional employees and group insurance expenses. Other noninterest expense increased $137,000 primarily due to current period expenses related to non-employee stock options and restricted stock awards, an increase in various miscellaneous expenses, such as telephone, postage, charitable contributions, and business travel. PA shares tax, which is calculated based on the Bank’s stockholders’ equity, increased $19,000 due to an anticipated increase in the tax rate in 2016. Occupancy and equipment increased $3,000 and $17,000, respectively, primarily due to annual increases in bank building rent expense, mainly offset by a decrease in repair and maintenance contracted services. In addition, the increase related to equipment was due to equipment maintenance contracts and equipment depreciation related to fixed asset additions.

Income Tax Expense. Income taxes decreased $82,000 to $858,000 for the three months ended March 31, 2016 compared to $940,000 for the three months ended March 31, 2015. The effective tax rate for the three months ended March 31, 2016 was 29.6% compared to 29.1% for the three months ended March 31, 2015. The decrease in income taxes and was due to a decrease of $332,000 in net income before income tax expense. The increase in the effective tax rate was primarily due to a decrease in tax-exempt income in the current period.

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 8 in the Notes to Consolidated Financial Statements for a summary of commitments outstanding as of March 31, 2016.

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 predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity at March 31, 2016 to satisfy its short- and long-term liquidity needs at that date.

The Company’s most liquid assets are cash and due from banks, which totaled $12.6 million at March 31, 2016. 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 $16.5 million. In addition, at March 31, 2016, the Company had the ability to borrow up to $297.0 million from the FHLB of Pittsburgh, of which $28.0 million was outstanding and $9.7 million was utilized toward a standby letter of credit. The Company also has the ability to borrow up to $82.8 million from the Federal Reserve Bank through its Borrower-In-Custody line of credit agreement and $40.0 million from multiple line of credit arrangements with various banks, none of which were outstanding.

At March 31, 2016, time deposits due within one year of that date totaled $56.5 million, or 41.7% of total time deposits. 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. The Company believes, however, based on past experience that a significant portion of its certificates of deposit will remain with it, either as certificates of deposit or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered.

CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank’s ability to pay dividends to CB Financial is subject to regulatory limitations. At March 31, 2016, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $815,000.

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 Federal Home Loan Bank, 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 Federal Home Loan Bank in the future.

Capital Management. The Company and the Bank are 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 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.

At March 31, 2016 and December 31, 2015, the Company was categorized as well capitalized under the regulatory framework for prompt corrective action. 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.

	(Dollars in thousands)
	March 31, 2016					December 31, 2015
	Amount		Ratio			Amount		Ratio
Common Equity Tier 1 (to risk weighted assets)
Actual	$	79,266		12.92	%	$	78,702		12.83	%
For Capital Adequacy Purposes		27,607		4.50			27,597		4.50
To Be Well Capitalized		39,876		6.50			39,862		6.50

Tier 1 Capital (to risk weighted assets)
Actual		79,266		12.92			78,702		12.83
For Capital Adequacy Purposes		36,809		6.00			36,795		6.00
To Be Well Capitalized		49,079		8.00			49,060		8.00

Total Capital (to risk weighted assets)
Actual		86,239		14.06			85,192		13.89
For Capital Adequacy Purposes		49,079		8.00			49,060		8.00
To Be Well Capitalized		61,348		10.00			61,326		10.00

Tier 1 Leverage (to adjusted total assets)
Actual		79,266		9.56			78,702		9.60
For Capital Adequacy Purposes		33,155		4.00			32,777		4.00
To Be Well Capitalized		41,444		5.00			40,972		5.00

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

The Company believes that as of March 31, 2016, there was no material change in the quantitative and qualitative disclosure about market risk data as of December 31, 2015, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Item 4. Controls and Procedures.

CB Financial’s management, including CB Financial’s principal executive officer and principal financial officer, have evaluated the effectiveness of CB Financial’s “disclosure controls and procedures” as such term is defined in Rule 13a-15(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by the report, CB Financial’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that CB Financial files or submits under the Exchange Act with the Securities and Exchange Commission (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 CB Financial’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

There have been no changes in CB Financial’s internal control over financial reporting during the quarter ended March 31, 2016, that has materially affected, or is reasonably likely to materially affect, CB Financial’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On April 21, 2014, a class action complaint, captioned Sutton v. FedFirst Financial Corp., et al., was filed under Case No. 24C14002331, in the Circuit Court in Baltimore City, Maryland (the “Court”), against FedFirst Financial Corp., each of FedFirst Financial’s directors, and CB Financial. The complaint alleged, among other things, that the FedFirst Financial directors breached their fiduciary duties to FedFirst Financial and its stockholders by agreeing to sell to CB Financial without first taking steps to ensure that FedFirst Financial stockholders would obtain adequate, fair and maximum consideration under the circumstances, by agreeing to terms with CB Financial that benefit themselves and/or CB Financial without regard for the FedFirst Financial stockholders and by agreeing to terms with CB Financial that discourages other bidders. The plaintiff also alleged that CB Financial aided and abetted the FedFirst Financial directors’ breaches of fiduciary duties. The complaint sought, among other things, an order declaring the Merger Agreement unenforceable and rescinding and invalidating the Merger Agreement, an order enjoining the defendants from consummating the merger, as well as attorneys’ and experts’ fees and certain other damages. On June 20, 2014, FedFirst Financial and the individual defendants filed a Motion to Dismiss the complaint. On July 29, 2014, the plaintiff filed an amended complaint adding an additional claim that the Form S-4 filed by CB Financial in connection with the merger contained material misstatements and omissions. On September 22, 2014, the Court dismissed all claims as to all defendants with prejudice, including claims against FedFirst Financial and its directors as well as claims against CB Financial. The plaintiff appealed the dismissal of the complaint. On October 29, 2015, the Maryland Court of Special Appeals affirmed the dismissal of the case. On December 31, 2015, the plaintiff filed a petition for a writ of certiorari to the highest court in the state, the Maryland Court of Special Appeals. On January 13, 2016, CB Financial and FedFirst defendants filed answers to the plaintiff’s petition. On February 22, 2016, the Maryland Court of Special Appeals issued the order denying the plaintiff’s writ of certiorari, which upheld the appellate decision and the case is now closed.

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 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, 2015, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits

31.1

Rule 13a-14(a) / 15d-14(a) Certification (President and Chief Executive Officer)

31.2

Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer)

32.1

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

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

The following materials for the quarter ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language); (i) the Consolidated Statement of Financial Condition, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Stockholders’ Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to the Unaudited Consolidated Financial Statements

SIGNATURES

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

		CB FINANCIAL SERVICES, INC.
		(Registrant)

Date:	May 11, 2016	/s/ Barron P. McCune, Jr.
		Barron P. McCune, Jr.
		President and Chief Executive Officer

Date:	May 11, 2016	/s/ Kevin D. Lemley
		Kevin D. Lemley
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

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CB Financial Services (CBFV) 10-Q2016 Q1 Quarterly report

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