CBFV 10-Q Quarter ended March 31, 2020

		(Unaudited)
		March 31,				December 31,
		2020				2019
(Dollars in thousands, except per share and share data)
ASSETS
Cash and Due From Banks:
Interest Bearing		$	64,004			$	68,798
Non-Interest Bearing			14,095				11,419
Total Cash and Due From Banks			78,099				80,217
Investment Securities:
Available-for-Sale			171,411				197,385
Loans, Net of Allowance for Loan Losses of $12,322 and $9,867 at March 31, 2020 and December 31, 2019, Respectively			962,328				942,629
Premises and Equipment, Net			22,037				22,282
Bank-Owned Life Insurance			24,361				24,222
Goodwill			28,425				28,425
Intangible Assets, Net			9,995				10,527
Accrued Interest and Other Assets			16,517				15,850
TOTAL ASSETS		$	1,313,173			$	1,321,537
LIABILITIES
Deposits:
Non-Interest Bearing Demand Deposits		$	267,369			$	267,152
NOW Accounts			229,601				232,099
Money Market Accounts			177,597				182,428
Savings Accounts			220,484				216,924
Time Deposits			211,589				219,756
Total Deposits			1,106,640				1,118,359
Short-Term Borrowings			34,967				30,571
Other Borrowings			11,000				14,000
Accrued Interest and Other Liabilities			9,041				7,510
TOTAL LIABILITIES			1,161,648				1,170,440
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized			-				-
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,393,712 and 5,463,828 Shares Outstanding at March 31, 2020 and December 31, 2019, Respectively			2,367				2,367
Capital Surplus			83,216				82,971
Retained Earnings			66,431				66,955
Treasury Stock, at Cost (287,281 and 217,165 Shares at March 31, 2020 and December 31, 2019, Respectively)			(5,914	)			(3,842	)
Accumulated Other Comprehensive Income			5,425				2,646
TOTAL STOCKHOLDERS' EQUITY			151,525				151,097
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,313,173			$	1,321,537

1

		Three Months Ended
		March 31,
		2020				2019
(Dollars in thousands, except share and per share data)
INTEREST AND DIVIDEND INCOME
Loans, Including Fees		$	10,764			$	10,433
Investment Securities:
Taxable			1,201				1,317
Tax-Exempt			106				208
Dividends			20				20
Other Interest and Dividend Income			238				318
TOTAL INTEREST AND DIVIDEND INCOME			12,329				12,296
INTEREST EXPENSE
Deposits			1,681				1,719
Short-Term Borrowings			45				46
Other Borrowings			70				97
TOTAL INTEREST EXPENSE			1,796				1,862
NET INTEREST INCOME			10,533				10,434
Provision For Loan Losses			2,500				25
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			8,033				10,409
NONINTEREST INCOME
Service Fees			603				592
Insurance Commissions			1,283				1,151
Other Commissions			110				117
Net Gain on Sales of Loans			127				92
Net Loss on Sales of Investment Securities			-				(60	)
Change in Fair Value of Marketable Equity Securities			(438	)			20
Net Gain on Purchased Tax Credits			15				9
Net Gain (Loss) on Disposal of Fixed Assets			17				(6	)
Income from Bank-Owned Life Insurance			139				132
Other Income			14				66
TOTAL NONINTEREST INCOME			1,870				2,113
NONINTEREST EXPENSE
Salaries and Employee Benefits			4,731				4,937
Occupancy			733				759
Equipment			257				296
Data Processing			425				408
FDIC Assessment			158				188
PA Shares Tax			275				268
Contracted Services			378				272
Legal and Professional Fees			235				181
Advertising			183				117
Other Real Estate Owned (Income)			(17	)			(63	)
Amortization of Intangible Assets			532				532
Other			1,111				984
TOTAL NONINTEREST EXPENSE			9,001				8,879
Income Before Income Tax Expense			902				3,643
Income Tax Expense			129				718
NET INCOME		$	773			$	2,925
EARNINGS PER SHARE
Basic		$	0.14			$	0.54
Diluted			0.14				0.54
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			5,431,199				5,432,856
Diluted			5,456,867				5,451,478

2

		Three Months Ended
		March 31,
		2020				2019
(Dollars in thousands)
Net Income		$	773			$	2,925
Other Comprehensive Income:
Unrealized Gains on Available-for-Sale Securities Net of Income, Net of Income Tax
Expense of $739 and $622 for the Three Months Ended March 31, 2020 and 2019, Respectively			2,779				2,337
Reclassification Adjustment for Losses on Securities Included in Net
Income, Net of Income Tax Benefit of ($13) for the Three Months Ended March 31, 2019 (1)			-				47
Other Comprehensive Income, Net of Income Tax Expense (Benefit)			2,779				2,384
Total Comprehensive Income		$	3,552			$	5,309

3

		Shares Issued				Common Stock				Capital Surplus				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income				Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2019			5,680,993			$	2,367			$	82,971			$	66,955			$	(3,842	)		$	2,646			$	151,097
Comprehensive Income:
Net Income			-				-				-				773				-				-				773
Other Comprehensive Income			-				-				-				-				-				2,779				2,779
Restricted Stock Awards Granted			-				-				96				-				(96	)			-				-
Stock-Based Compensation Expense			-				-				145				-				-				-				145
Exercise of Stock Options			-				-				4				-				(68	)			-				(64	)
Treasury stock purchased, at cost (67,816 shares)			-				-				-				-				(1,908	)			-				(1,908	)
Dividends Paid ($0.24 Per Share)			-				-				-				(1,297	)			-				-				(1,297	)
March 31, 2020			5,680,993			$	2,367			$	83,216			$	66,431			$	(5,914	)		$	5,425			$	151,525

		Shares Issued				Common Stock				Capital Surplus				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Loss				Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2018			5,680,993			$	2,367			$	83,225			$	57,843			$	(4,370	)		$	(1,440	)		$	137,625
Comprehensive Income:
Net Income			-				-				-				2,925				-				-				2,925
Other Comprehensive Income			-				-				-				-				-				2,384				2,384
Stock-Based Compensation Expense			-				-				77				-				-				-				77
Exercise of Stock Options			-				-				5				-				17				-				22
Dividends Paid ($0.24 Per Share)			-				-				-				(1,304	)			-				-				(1,304	)
March 31, 2019			5,680,993			$	2,367			$	83,307			$	59,464			$	(4,353	)		$	944			$	141,729

4

Three Months Ended March 31,		2020				2019
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income		$	773			$	2,925
Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities:
Net Accretion on Investments			(70	)			(1	)
Depreciation and Amortization			941				913
Provision for Loan Losses			2,500				25
Change in Fair Value of Marketable Equity Securities			438				(20	)
Net Gain on Purchased Tax Credits			(15	)			(9	)
Income from Bank-Owned Life Insurance			(139	)			(132	)
Proceeds From Mortgage Loans Sold			4,771				3,995
Originations of Mortgage Loans for Sale			(4,644	)			(3,903	)
Net Gain on Sales of Loans			(127	)			(92	)
Net Loss on Sales of Investment Securities			-				60
Net Gain on Sales of Other Real Estate Owned and Repossessed Assets			(4	)			(30	)
Noncash Expense for Stock-Based Compensation			145				77
Decrease (Increase) in Accrued Interest Receivable			23				(237	)
Net (Gain) Loss on Disposal of Fixed Assets			(17	)			6
(Decrease) Increase in Taxes Payable			(1,165	)			455
Payments on Operating Leases			(110	)			(103	)
(Decrease) Increase in Accrued Interest Payable			(124	)			176
Net Payment of Federal and State Income Taxes			-				(15	)
Other, Net			414				(2,828	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			3,590				1,262
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities			46,498				3,901
Purchases of Debt and Marketable Equity Securities			(19,824	)			(10,947	)
Proceeds from Sales of Securities			-				10,762
Net Increase in Loans			(18,861	)			3,845
Purchase of Premises and Equipment			(17	)			-
Asset Acquisition of a Customer List			-				(900	)
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets			22				773
Decrease in Restricted Equity Securities			66				55
NET CASH PROVIDED BY INVESTING ACTIVITIES			7,884				7,489
FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits			(11,719	)			18,807
Net Increase (Decrease) in Short-Term Borrowings			4,396				(290	)
Principal Payments on Other Borrowed Funds			(3,000	)			(3,000	)
Cash Dividends Paid			(1,297	)			(1,304	)
Treasury Stock, Purchases at Cost			(1,908	)			-
Exercise of Stock Options			(64	)			22
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(13,592	)			14,235
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(2,118	)			22,986
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR			80,217				53,353
CASH AND DUE FROM BANKS AT END OF PERIOD		$	78,099			$	76,339
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $1,799 and $1,538, respectively)		$	1,920			$	1,686
Income taxes			-				15
SUPPLEMENTAL NONCASH DISCLOSURE:
Real estate acquired in settlement of loans			76				-
Securities sold not settled			2,450				-
Right of use asset recognized			23				1,706
Lease liability recognized			23				1,712

5

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

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

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

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

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

Nature of Operations

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

Reclassifications

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

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. At March 31, 2020 and December 31, 2019, the carrying value of goodwill was $28.4 million. Goodwill is subject to impairment testing at the reporting unit level, which is conducted at least annually on October 31 or more frequently if triggering events occur or impairment indicators exist. The Company operates two reporting units – Community Banking segment and Insurance Brokerage Services segment. The Company has assigned 100% of the goodwill to the Community Banking reporting unit.

In 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-04 whereby the Company applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has the option of performing a qualitative assessment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually. The quantitative test primarily utilizes market comparisons and recent merger and acquisition transactions to determine whether there is goodwill impairment.

6

The COVID-19 pandemic that has impacted the U.S. and most of the world and government response to curtail the spread of the virus through shelter-in-place orders and mandatory closures of all but essential businesses beginning in March 2020 has significantly impacted our market area and the activities of individuals. These restrictions have resulted in significant adverse effects on macroeconomic conditions, and stock market valuations have decreased substantially for most companies, including banks. The ultimate effect of COVID-19 on the local or broader economy is not known nor is the ultimate length of the restrictions described and any accompanying effects. In light of the adverse circumstances resulting from COVID-19, management determined it was necessary to evaluate goodwill for impairment at March 31, 2020.

Determining the fair value of a reporting unit under a quantitative goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions. The Company utilized a market approach to determine the fair value of the Community Banking reporting unit. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, current and prospective financial information of the Bank, most recent performance of the Bank’s peers, including common banking industry performance measures and ratios, and comparable multiples from publicly traded companies in our industry. The valuation was primarily based on observable price to tangible book value bank merger and acquisition multiples for similar size community banks, which is the most widely used valuation metric in the community banking industry. As part of its analysis, the Company considered bank transactions of target banks that were comparable in asset size, risk and profitability and efficiency metrics during the “Great Recession” period from 2008 to 2010 when bank stock values were depressed and the stock market decline was similar with the current sudden and unexpected events caused by the COVID-19 pandemic.

Based on the analysis, management determined that goodwill was not impaired as of March 31, 2020. Future events, particularly worsening business, profitability and economic conditions as of a result of the COVID-19 pandemic, could cause additional triggering events and require management to further evaluate goodwill for impairment.

Recent Accounting Standards

In March 2020, the Financial Accounting Standard Board (“FASB”) issued ASU2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt). The ASU is intended to help stakeholders during the global market-wide reference rate transition period. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. While the LIBOR reform may require extensive changes to the contracts that govern LIBOR based products, as well as our systems and processes, we cannot yet determine whether the Company will be able to use the optional expedient for the changes to contract terms that may be required by LIBOR reform and therefore, the Company cannot yet determine the magnitude of the impact or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

7

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.

The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. For the three months ended March 31, 2020 and 2019, options to purchase 78,545 and 83,688 shares of common stock, respectively, were outstanding but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period, therefore the effect would be antidilutive. For the three months ended March 31, 2020, 30,250 shares of restricted stock awards were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effect would be anti-dilutive. For the three months ended March 31, 2019, there were no anti-dilutive restricted stock awards.

Note 3. Investment Securities

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

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:

For debt securities, the Company does not believe that any individual unrealized loss as of March 31, 2020 or December 31, 2019, 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, 2020 and December 31, 2019 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.

Marketable equity securities are measured at fair value with changes in fair value included in Change in Fair Value of Marketable Equity Securities on the Consolidated Statement of Income. Realized gains and losses on sales of marketable equity securities are included in Net Loss on Sales of Investment Securities on the Consolidated Statement of Income. There were no sales of marketable equity securities for the three months ended March 31, 2020 and 2019, respectively.

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

There were no sales of available-for-sale securities for the three months ended March 31, 2020. Sales of available-for-sale investment securities for the three months ended March 31, 2019 resulted in gross losses of $60,000.

Note 4. Loans and Allowance for Loan Losses

The Company’s loan portfolio consists of four classifications: real estate loans, commercial and industrial loans, consumer loans, and other loans. The following table presents the classifications of loans as of the dates indicated.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic, which includes authorizing the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). Under the PPP, participating SBA and other qualifying lenders can originate loans to eligible businesses that are fully guaranteed by the SBA as to principal and interest, have more favorable terms than traditional SBA loans and may be forgiven if the proceeds are used by the borrower for certain purposes. PPP is designed to help small businesses keep their workforce employed and cover expenses during the COVID-19 crisis. These loans have a two-year loan term to maturity, an interest rate of 1% per annum and loan payments are deferred for six months. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of a PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses. The Bank receives a processing fee from the SBA ranging from 1% to 5% depending on the size of the loan, which is offset by a 0.75% third-party servicing agent fee. On April 16, 2020, the original $349 billion funding cap was reached. On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was signed into law and includes an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP. The second round of the PPP began on April 27, 2020.

As part of the first round of the PPP, the Bank originated 181 loans totaling $38.6 million and generated approximately $1.2 million from processing fees. The total approved loans will impact 3,081 small business employees. The Bank is also participating in the second round of the PPP and as of April 29, 2020, we expect to submit approximately 315 applications totaling $27.6 million and generate an additional $1.0 million in processing fees. All PPP loan originations occurred after the end of the March 31, 2020 reporting period and will be classified as commercial and industrial loans held for investment.

Total unamortized net deferred loan fees were $950,000 and $907,000 at March 31, 2020 and December 31, 2019, respectively.

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $101.2 million and $100.0 million at March 31, 2020 and December 31, 2019, 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, 2020 and December 31, 2019, there were no loans in the criticized category of Loss within the internal risk rating system.

The increase of $20.3 million in the special mention loan category as of March 31, 2020 compared to December 31, 2019 was mainly from the downgrade of the hospitality portfolio due to the economic conditions in that industry caused by the COVID-19 pandemic. The increase of $4.1 million in the substandard category is primarily due to a lease dispute on a $2.3 million industrial building (commercial real estate) and $956,000 associated with two residential real estate loans which have insufficient debt service coverage from the borrower demonstrating an inability to build and sell the speculative homes at a fast enough rate that can service the interest-only debt.

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.

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.

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $1.7 million and $1.1 million at March 31, 2020 and December 31, 2019, respectively.

TDRs typically are the result of loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral. For a loan modification to be considered a TDR, the borrower must be experiencing financial difficulty and a concession must be granted, except for an insignificant delay in payment. Section 4013 of the CARES Act provides temporary relief from accounting and financial reporting requirements for TDRs regarding certain loan modifications related to COVID-19. Specifically, the CARES Act provides that the Bank may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and suspend any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Any modification involving a loan that was not more than 30 days past due as of December 31, 2019 and that occurs beginning on March 1, 2020 and ends on the earlier of December 31, 2020 or the date that is 60 days after the termination date of the national emergency related to the COVID-19 outbreak qualify for this exception, including a forbearance arrangement, interest rate modification, repayment plan or any other similar arrangement that defers or delays the payment of principal or interest.

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

The Bank offered forbearance options for borrowers impacted by COVID-19 that provide a short-term delay in payment by primarily allowing: (a) deferral of three months of payments; or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months. During the forbearance period, the borrower is not considered delinquent for credit bureau reporting purposes. The Company has elected the practical expedients related to TDRs that are available in the CARES Act and interagency guidance as an entity-wide accounting policy and does not consider any of the forbearance agreements TDRs. The following table provides details of loans in forbearance as of April 29, 2020.

Forbearance in the commercial real estate category includes, but is not limited to, $24.2 million of retail space, $17.9 million of nonowner occupied multi-family apartments, $15.8 million in hotels, $11.9 million of warehouse space, and $4.7 million in various business that are dependent on the oil and gas industry, which includes $3.1 million of hotels in proximity to oil and gas related activity.

The concessions granted for the TDRs in the portfolio primarily consist of, but are not limited to, modification of payment or other terms, temporary rate modification and extension of maturity date. Loans classified as TDRs consisted of 16 loans totaling $2.9 million and $3.0 million at March 31, 2020 and December 31, 2019, respectively.

For the three months ended March 31, 2020, there were no loans that were modified that were considered a TDR or TDRs that paid off.

For the three months ended March 31, 2019, one residential real estate loan was modified in a TDR transaction by extending the term of the loan and one residential real estate TDR paid off. No TDRs subsequently defaulted during the three months ended March 31, 2020 and 2019, respectively. The following table presents information at the time of modification related to loans modified in a TDR during the three months ended March 31, 2019.

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

The $3.8 million increase in recorded investment of loans evaluated for impairment is primarily due to a lease dispute on a $2.3 million industrial building (commercial real estate) and $956,000 and $853,000 associated with two residential real estate loans and one residential construction loan, respectively, which have insufficient debt service coverage from the borrower demonstrating an inability to build and sell the speculative homes at a fast enough rate that can service the interest-only debt. These loans were downgraded to substandard as of March 31, 2020.

The following table presents the activity in the allowance for loan losses (“ALLL”) 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 at the dates and for the periods indicated.

The COVID-19 pandemic, which led to state-wide shelter in place orders and mandatory closures of all but essential business has resulted in a dramatic increase in unemployment and recessionary economic conditions. Based on evaluation of the current macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis related to economic trends and industry conditions, specifically because of vulnerable industries such as hospitality, oil and gas, retail and restaurants, were adjusted for these circumstances and resulted in a $2.5 million provision for loan losses for the three months ended March 31, 2020. This change increased the ALLL in all categories except commercial and industrial due to a decrease in the average loss history factor as further explained below.

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

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

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.