CBFV 10-Q Quarterly Report June 30, 2020

CB FINANCIAL SERVICES, INC.

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cbfv-20200630

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2020


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

For the transition period from __________ to __________

Commission file number: 001-36706


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


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


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


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


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

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

Common stock, par value $0.4167 per share

CBFV

The Nasdaq Stock Market, LLC

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

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

Yes ☒ No ☐

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

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


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

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

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

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

Table of Contents

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 Statements of Changes In Stockholders’ Equity			4
Consolidated Statement of Cash Flows			6
Notes to Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			32
Item 3. Quantitative and Qualitative Disclosure about Market Risk.			47
Item 4. Controls and Procedures.			48
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.			49
Item 1A. Risk Factors.			49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			50
Item 3. Defaults Upon Senior Securities.			51
Item 4. Mine Safety Disclosures.			51
Item 5. Other Information.			51
Item 6. Exhibits			51
SIGNATURES			52

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION


	(Unaudited) June 30, 2020		December 31, 2019
(Dollars in thousands, except per share and share data)

ASSETS
Cash and Due From Banks:
Interest Bearing	$	114,794	$	68,798
Non-Interest Bearing	16,609		11,419
Total Cash and Due From Banks	131,403		80,217

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

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

Short-Term Borrowings	42,349		30,571
Other Borrowings	11,000		14,000
Accrued Interest and Other Liabilities	7,471		7,510
TOTAL LIABILITIES	1,254,760		1,170,440

STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized	—		—
Common Stock, $ 0.4167 Par Value; 35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,393,712 and 5,463,828 Shares Outstanding at June 30, 2020 and December 31, 2019, Respectively	2,367		2,367
Capital Surplus	83,327		82,971
Retained Earnings	68,039		66,955
Treasury Stock, at Cost ( 287,281 and 217,165 Shares at June 30, 2020 and December 31, 2019, Respectively)	( 5,928 )		( 3,842 )
Accumulated Other Comprehensive Income	4,587		2,646
TOTAL STOCKHOLDERS' EQUITY	152,392		151,097
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,407,152	$	1,321,537

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


1

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CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)


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

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

INTEREST EXPENSE
Deposits	1,305		1,824		2,986		3,543
Short-Term Borrowings	39		50		84		96
Other Borrowings	62		90		132		187
TOTAL INTEREST EXPENSE	1,406		1,964		3,202		3,826

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

NONINTEREST INCOME
Service Fees	487		617		1,092		1,210
Insurance Commissions	1,113		1,083		2,396		2,234
Other Commissions	188		78		298		195
Net Gain on Sales of Loans	441		50		568		142
Net Gain (Loss) on Sales of Investment Securities	489		7		489		( 53 )
Change in Fair Value of Marketable Equity Securities	28		109		( 410 )		129
Net Gain on Purchased Tax Credits	16		9		31		18
Net Gain on Disposal of Fixed Assets	—		8		17		2
Income from Bank-Owned Life Insurance	138		134		277		266
Other (Loss) Income	( 252 )		70		( 238 )		136
TOTAL NONINTEREST INCOME	2,648		2,165		4,520		4,279

NONINTEREST EXPENSE
Salaries and Employee Benefits	4,828		4,708		9,559		9,645
Occupancy	699		663		1,432		1,422
Equipment	224		285		481		581
Data Processing	460		380		885		788
FDIC Assessment	163		175		321		363
PA Shares Tax	333		249		608		517
Contracted Services	562		361		940		633
Legal and Professional Fees	171		160		406		341
Advertising	155		220		338		337
Other Real Estate Owned (Income)	( 1 )		( 31 )		( 18 )		( 94 )
Amortization of Intangible Assets	532		532		1,064		1,064
Other	945		1,095		2,058		2,080
TOTAL NONINTEREST EXPENSE	9,071		8,797		18,074		17,677

Income Before Income Tax Expense	3,598		3,723		4,500		7,366
Income Tax Expense	695		744		824		1,462
NET INCOME	$	2,903	$	2,979	$	3,676	$	5,904

EARNINGS PER SHARE
Basic	$	0.54	$	0.55	$	0.68	$	1.09
Diluted	0.54		0.55		0.68		1.08

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

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


2

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
(Dollars in thousands)

Net Income	$	2,903	$	2,979	$	3,676	$	5,904

Other Comprehensive (Loss) Income:
Change in Unrealized (Loss) Gain on Investment Securities Available-for-Sale	( 572 )		2,571		2,946		5,530
Income Tax Effect	120		( 540 )		( 619 )		( 1,162 )

Reclassification Adjustment for (Gain) Loss on Sales of Investment Securities Included in Net Income ⁽¹⁾	( 489 )		( 7 )		( 489 )		53
Income Tax Effect ⁽¹⁾	103		2		103		( 11 )
Other Comprehensive (Loss) Income, Net of Income Tax Expense (Benefit)	( 838 )		2,026		1,941		4,410
Total Comprehensive Income	$	2,065	$	5,005	$	5,617	$	10,314

(1) The gross amount of gain (loss) on sales of investment securities is reported as Net Gain (Loss) on Sales of Investments Securities on the Consolidated Statement of Income. The income tax effect (benefit) is included in Income Tax Expense on the Consolidated Statement of Income.

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


3

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


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

March 31, 2020	5,680,993	$	2,367	$	83,216	$	66,431	$	( 5,914 )	$	5,425	$	151,525
Comprehensive Income:
Net Income	—	—		—		2,903		—		—		2,903
Other Comprehensive Loss	—	—		—		—		—		( 838 )		( 838 )


Stock-Based Compensation Expense	—	—		111		—		—		—		111
Exercise of Stock Options	—	—		—		—		( 14 )		—		( 14 )

Dividends Paid ($ 0.24 Per Share)	—	—		—		( 1,295 )		—		—		( 1,295 )
June 30, 2020	5,680,993	$	2,367	$	83,327	$	68,039	$	( 5,928 )	$	4,587	$	152,392


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

March 31, 2019	5,680,993	$	2,367	$	83,307	$	59,464	$	( 4,353 )	$	944	$	141,729
Comprehensive Income:
Net Income	—	—		—		2,979		—		—		2,979
Other Comprehensive Income	—	—		—		—		—		2,026		2,026
Restricted Stock Awards Forfeited	—	—		8		—		( 8 )		—		—
Restricted Stock Awards Granted	—	—		( 11 )		—		11		—		—
Stock-Based Compensation Expense	—	—		76		—		—		—		76


Dividends Paid ($ 0.24 Per Share)	—	—		—		( 1,303 )		—		—		( 1,303 )
June 30, 2019	5,680,993	$	2,367	$	83,380	$	61,140	$	( 4,350 )	$	2,970	$	145,507

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


4

Table of Contents


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

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

Restricted Stock Awards Forfeited	—	—		96		—		( 96 )		—		—
Stock-Based Compensation Expense	—	—		256		—		—		—		256
Exercise of Stock Options	—	—		4		—		( 82 )		—		( 78 )
Treasury stock purchased, at cost ( 67,816 shares)	—	—		—		—		( 1,908 )		—		( 1,908 )
Dividends Paid ($ 0.48 Per Share)	—	—		—		( 2,592 )		—		—		( 2,592 )
June 30, 2020	5,680,993	$	2,367	$	83,327	$	68,039	$	( 5,928 )	$	4,587	$	152,392


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

December 31, 2018	5,680,993	$	2,367	$	83,225	$	57,843	$	( 4,370 )	$	( 1,440 )	$	137,625
Comprehensive Income:
Net Income	—	—		—		5,904		—		—		5,904
Other Comprehensive Income	—	—		—		—		—		4,410		4,410
Restricted Stock Awards Forfeited	—	—		8		—		( 8 )		—		—
Restricted Stock Awards Granted	—	—		( 11 )		—		11		—		—
Stock-Based Compensation Expense	—	—		153		—		—		—		153
Exercise of Stock Options	—	—		5		—		17		—		22

Dividends Paid ($ 0.48 Per Share)	—	—		—		( 2,607 )		—		—		( 2,607 )
June 30, 2019	5,680,993	$	2,367	$	83,380	$	61,140	$	( 4,350 )	$	2,970	$	145,507

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


5

Table of Contents

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


Six Months Ended June 30,	2020		2019
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income	$	3,676	$	5,904
Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities:
Net (Accretion) Amortization on Investments	( 50 )		20
Depreciation and Amortization	2,158		1,833
Provision for Loan Losses	2,800		375
Change in Fair Value of Marketable Equity Securities	410		( 129 )
Net Gain on Purchased Tax Credits	( 31 )		( 18 )
Income from Bank-Owned Life Insurance	( 277 )		( 266 )
Proceeds From Mortgage Loans Sold	15,140		5,724
Originations of Mortgage Loans for Sale	( 14,572 )		( 5,582 )
Net Gain on Sales of Loans	( 568 )		( 142 )
Net (Gain) Loss on Sales of Investment Securities	( 489 )		53
Net Loss (Gain) on Sales of Other Real Estate Owned and Repossessed Assets	16		( 30 )
Noncash Expense for Stock-Based Compensation	256		153
Increase in Accrued Interest Receivable	( 1,366 )		( 343 )
Net Gain on Disposal of Fixed Assets	( 17 )		( 2 )
Increase in Taxes Payable	1,018		536
Payments on Operating Leases	( 220 )		( 207 )
(Decrease) Increase in Accrued Interest Payable	( 124 )		293
Net Payment of Federal and State Income Taxes	—		( 1,365 )
Other, Net	( 1,077 )		994
NET CASH PROVIDED BY OPERATING ACTIVITIES	6,683		7,801
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities	72,253		15,703
Purchases of Debt and Marketable Equity Securities	( 38,823 )		( 33,331 )
Proceeds from Sales of Securities	17,893		12,672
Net Increase in Loans	( 86,434 )		( 23,397 )
Purchase of Premises and Equipment	( 97 )		( 54 )
Proceeds from Disposal of of Premises and Equipment	25		—
Asset Acquisition of a Customer List	—		( 900 )
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets	42		773
(Increase) Decrease in Restricted Equity Securities	( 137 )		143
NET CASH USED IN INVESTING ACTIVITIES	( 35,278 )		( 28,391 )
FINANCING ACTIVITIES
Net Increase in Deposits	75,581		20,445
Net Increase (Decrease) in Short-Term Borrowings	11,778		( 3,249 )
Principal Payments on Other Borrowed Funds	( 3,000 )		( 3,000 )
Cash Dividends Paid	( 2,592 )		( 2,607 )
Treasury Stock, Purchases at Cost	( 1,908 )		—
Exercise of Stock Options	( 78 )		22
NET CASH PROVIDED BY FINANCING ACTIVITIES	79,781		11,611
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	51,186		( 8,979 )
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR	80,217		53,353
CASH AND DUE FROM BANKS AT END OF PERIOD	$	131,403	$	44,374
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $ 3,104 and $ 3,244 , respectively)	$	3,327	$	3,532
Income taxes	—		1,365
SUPPLEMENTAL NONCASH DISCLOSURE:
Real estate acquired in settlement of loans	76		158

Right of use asset recognized	47		1,706
Lease liability recognized	47		1,712

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


6

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters” or “EU”). CB Financial and the Bank 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. The Bank operates 16 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 June 30, 2020 and December 31, 2019, the carrying value of goodwill was $ 28.4 million. Goodwill is subject to impairment testing at the reporting unit level, which is conducted at least annually on October 31 or more frequently if triggering events occur or impairment indicators exist. The Company operates 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.

Table of Contents

not to perform a qualitative assessment is made annually. The quantitative test primarily utilizes market comparisons and recent merger and acquisition transactions to determine whether there is goodwill impairment.

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

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

In performing our quarterly goodwill impairment assessment, we first assessed qualitative factors to determine whether any triggering events occurred that would require us to perform an interim goodwill impairment analysis and evaluate if it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the reporting unit and other relevant entity and reporting-unit specific considerations. Based on qualitative assessment as of June 30, 2020, we concluded that no triggering events occurred and it is more likely than not that the fair value of a reporting unit exceed its carrying value indicating that goodwill of the reporting unit is considered not impaired. As such, no quantitative assessment was performed.

Recent Accounting Standards

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

In August 2018, the FASB issued ASU 2018-15 , Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) . ASU 2018-15 was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments. This guidance became effective for the Company beginning in the first quarter 2020

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

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

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

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

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

Net income	$	2,903	$	2,979	$	3,676	$	5,904

Weighted-Average Basic Common Shares Outstanding	5,393,712		5,433,537		5,412,456		5,433,198
Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)	58		11,287		11,314		14,842
Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding	5,393,770		5,444,824		5,423,770		5,448,040

Earnings per share:
Basic	$	0.54	$	0.55	$	0.68	$	1.09
Diluted	0.54		0.55		0.68		1.08

The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents for the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effects would be anti-dilutive.


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Stock Options	205,271	252,559	73,371	103,059
Restricted Stock	43,650	6,900	30,250	600

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Note 3. Investment Securities

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


	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(Dollars in thousands)

Debt Securities:
U.S. Government Agencies	$	19,000	$	2	$	( 8 )	$	18,994
Obligations of States and Political Subdivisions	20,769		1,189		—		21,958
Mortgage-Backed Securities - Government-Sponsored Enterprises	100,733		4,649		( 1 )		105,381
Total Debt Securities	$	140,502	$	5,840	$	( 9 )	$	146,333

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


	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(Dollars in thousands)

Debt Securities:
U.S. Government Agencies	$	47,993	$	227	$	( 164 )	$	48,056
Obligations of States and Political Subdivisions	25,026		819		( 2 )		25,843
Mortgage-Backed Securities - Government-Sponsored Enterprises	118,282		2,601		( 107 )		120,776
Total Debt Securities	$	191,301	$	3,647	$	( 273 )	$	194,675

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

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The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated:


	June 30, 2020
	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
(Dollars in thousands)

U.S. Government Agencies	3	$	8,992	$	( 8 )	—	$	—	$	—	3	$	8,992	$	( 8 )
Obligations of States and Political Subdivisions	—	—		—		—	—		—		—	—		—
Mortgage Backed Securities- Government Sponsored Enterprises	1	695		( 1 )		—	—		—		1	695		( 1 )
Total	4	$	9,687	$	( 9 )	—	$	—	$	—	4	$	9,687	$	( 9 )


	December 31, 2019
	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
(Dollars in thousands)

U.S. Government Agencies	6	$	16,116	$	( 83 )	6	$	13,938	$	( 81 )	12	$	30,054	$	( 164 )
Obligations of States and Political Subdivisions	—	—		—		1	509		( 2 )		1	509		( 2 )
Mortgage Backed Securities- Government Sponsored Enterprises	7	20,003		( 104 )		1	1,711		( 3 )		8	21,714		( 107 )
Total	13	$	36,119	$	( 187 )	8	$	16,158	$	( 86 )	21	$	52,277	$	( 273 )

For debt securities, the Company does not believe that any individual unrealized loss as of June 30, 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 June 30, 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.

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


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

Due in One Year or Less	$	—	$	—
Due after One Year through Five Years	4,306		4,388
Due after Five Years through Ten Years	36,308		37,484
Due after Ten Years	99,888		104,461
Total	$	140,502	$	146,333

The following table presents gross gain and loss of sales of available-for-sale investment securities for the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Debt Securities
Gross Gain	$	489	$	12	$	489	$	12
Gross Loss	—		( 5 )		—		( 65 )
Net Gain (Loss) on Sales of Investment Securities	$	489	$	7	$	489	$	( 53 )

Marketable equity 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 Gain (Loss) on Sales of Investment Securities on the Consolidated Statement of Income. There were no sales of marketable equity securities for the three and six months ended June 30, 2020 and 2019, respectively.

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.


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

Real Estate:
Residential	$	344,782	33.2	%	$	347,766	36.6	%
Commercial	350,506		33.6		351,360		36.9
Construction	58,295		5.6		35,605		3.7
Commercial and Industrial	149,085		14.3		85,586		9.0
Consumer	117,145		11.2		113,637		11.9
Other	22,346		2.1		18,542		1.9
Total Loans	1,042,159		100.0	%	952,496		100.0	%
Allowance for Loan Losses	( 12,648 )				( 9,867 )
Loans, Net	$	1,029,511			$	942,629

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic, which included authorizing the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). 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

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signed into law and included an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP. The second round of the PPP began on April 27, 2020.

Under the PPP, participating SBA and other qualifying lenders can originate loans to eligible businesses that are fully guaranteed by the SBA as to principal and interest, have more favorable terms than traditional SBA loans and may be forgiven if the proceeds are used by the borrower for certain purposes. PPP is designed to help small businesses keep their workforce employed and cover expenses during the COVID-19 crisis. These loans have a two- or five-year loan term to maturity, an interest rate of 1% per annum and loan payments are deferred for six months. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of a PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses. The Bank receives a processing fee from the SBA ranging from 1 % to 5 % depending on the size of the loan, which is offset by a 0.75 % third-party servicing agent fee.

As of June 30, 2020, the Bank originated 628 loans totaling $ 70.0 million, with a median loan balance of $ 35,000 . The loans impact over 8,300 small business employees. Among the largest sectors impacted were $ 15.3 million in loans for health care and social assistance, $ 12.4 million for construction and specialty-trade contractors, $ 6.1 million for professional and technical services, $ 5.9 million for retail trade, $ 5.1 million for wholesale trade, $ 4.6 million for manufacturing and $ 3.4 million for restaurant and food services. Net SBA origination fees as of June 30, 2020 were $ 2.1 million, of which $ 191,000 was recognized during the three and six months ended June 30, 2020. We expect to recognize the majority of unearned net origination fees in the third and fourth quarter upon processing requests for loan forgiveness. All PPP loans are classified as commercial and industrial loans held for investment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

Total unamortized net deferred loan fees were $ 2.9 million and $ 907,000 at June 30, 2020 and December 31, 2019, respectively. The increase in unamortized net deferred loan fees is primarily due to PPP loans.

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $ 105.6 million and $ 100.0 million at June 30, 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 June 30, 2020 and December 31, 2019, there were no loans in the criticized category of Loss within the internal risk rating system.


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

Real Estate:
Residential	$	340,549	$	1,019	$	3,214	$	—	$	344,782
Commercial	303,774		41,047		5,685		—		350,506
Construction	54,165		3,385		745		—		58,295
Commercial and Industrial	139,171		7,582		1,675		657		149,085
Consumer	116,955		—		190		—		117,145
Other	22,263		83		—		—		22,346
Total Loans	$	976,877	$	53,116	$	11,509	$	657	$	1,042,159

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	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
(Dollars in Thousands)

Real Estate:
Residential	$	343,851	$	1,997	$	1,918	$	—	$	347,766
Commercial	335,436		12,260		3,664		—		351,360
Construction	33,342		2,263		—		—		35,605
Commercial and Industrial	75,201		7,975		1,691		719		85,586
Consumer	113,527		—		110		—		113,637
Other	18,452		90		—		—		18,542
Total Loans	$	919,809	$	24,585	$	7,383	$	719	$	952,496

The increase of $ 28.5 million in the special mention loan category as of June 30, 2020 compared to December 31, 2019 was mainly from the downgrade of the hospitality portfolio due to the economic conditions in that industry caused by the COVID-19 pandemic. The increase of $ 4.1 million in the substandard category is primarily due to a lease dispute on a $ 2.3 million industrial building (commercial real estate) and $ 961,000 and $ 853,000 associated with 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.

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


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

Real Estate:
Residential	$	342,287	$	265	$	37	$	—	$	302	$	2,193	$	344,782
Commercial	350,235		78		28		—		106		165		350,506
Construction	58,295		—		—		—		—		—		58,295
Commercial and Industrial	148,386		10		—		—		10		689		149,085
Consumer	116,545		354		56		—		410		190		117,145
Other	22,346		—		—		—		—		—		22,346
Total Loans	$	1,038,094	$	707	$	121	$	—	$	828	$	3,237	$	1,042,159

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

Real Estate:
Residential	$	342,010	$	3,462	$	281	$	196	$	3,939	$	1,817	$	347,766
Commercial	351,104		22		—		—		22		234		351,360
Construction	35,605		—		—		—		—		—		35,605
Commercial and Industrial	84,280		388		178		—		566		740		85,586
Consumer	112,438		923		140		26		1,089		110		113,637
Other	18,542		—		—		—		—		—		18,542
Total Loans	$	943,979	$	4,795	$	599	$	222	$	5,616	$	2,901	$	952,496

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The following table sets forth the amounts and categories of nonperforming assets at the dates indicated. Included in nonperforming loans and assets are troubled debt restructurings (“TDRs”), which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section. Nonperforming loans do not include loans modified under Section 4013 of the CARES Act and interagency guidance as further explained below.


	June 30, 2020			December 31, 2019
(Dollars in Thousands)

Nonaccrual Loans:
Real Estate:
Residential	$	2,193		$	1,817
Commercial	165			234
Commercial and Industrial	689			740
Consumer	190			110
Total Nonaccrual Loans	3,237			2,901

Accruing Loans Past Due 90 Days or More:
Real Estate:
Residential	—			196
Consumer	—			26
Total Accruing Loans Past Due 90 Days or More	—			222
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	3,237			3,123

Troubled Debt Restructurings, Accruing:
Real Estate
Residential	673			511
Commercial	1,614			1,648
Commercial and Industrial	58			100
Total Troubled Debt Restructurings, Accruing	2,345			2,259

Total Nonperforming Loans	5,582			5,382

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

Total Nonperforming Assets	$	5,831		$	5,615

Nonperforming Loans to Total Loans	0.54		%	0.57		%
Nonperforming Assets to Total Assets	0.41			0.42

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 1.2 million and $ 1.1 million at June 30, 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

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modifications would be considered a TDR, including the related impairment for accounting purposes. Any modification involving a loan that was not more than 30 days past due as of December 31, 2019 and that occurs beginning on March 1, 2020 and ends on the earlier of December 31, 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.

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

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The following table provides details of loans in forbearance and the forbearance end dates as of June 30, 2020.


	Number of Loans	Amount		% of Portfolio
(Dollars in thousands)

Real Estate:
Residential
July 2020	108	$	15,333
August 2020	41	5,912
September 2020	12	2,272
October 2020	2	136
Total Residential	163	23,653		6.9	%

Commercial
July 2020	70	64,039
August 2020	31	25,497
September 2020	7	8,714
October 2020	2	2,378
November 2020	1	4,489
Total Commercial	111	105,117		30.0	%

Construction
July 2020	3	10,494
August 2020	2	4,726
September 2020	1	298
Total Construction	6	15,518		26.6	%

Commercial and Industrial
July 2020	42	10,300
August 2020	32	5,180
September 2020	2	217
Total Commercial and Industrial	76	15,697		10.5	%

Consumer
July 2020	124	2,493
August 2020	39	857
September 2020	7	97
Total Consumer	170	3,447		2.9	%

Other
July 2020	1	2,504		11.2	%
Total Loans in Forbearance	527	$	165,936	15.9	%

As of June 30, 2020, $ 165.9 million, or 15.9 % of total loans, were in forbearance. Approximately $ 105.2 million, or 63.4 % of loans in forbearance, are scheduled to end forbearance as of July 2020 and return to their normal payment schedule. As of July 30, 2020, out of the 348 loans totaling $ 105.2 million with a forbearance period ending in July 2020, 9 loans totaling $ 3.3 million requested additional forbearance - two residential, two commercial real estate, which were both hotel loans, one commercial and industrial and four consumer loans totaling $ 393,000 , $ 2.7 million, $ 123,000 and $ 133,000 , respectively.

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At June 30, 2020, out of approximately 128 loans totaling $ 22.7 million with a forbearance period ending on or prior to June 30, 2020, six loans totaling $ 5.8 million requested an additional one- to three-month forbearance. These loans were comprised of three residential mortgage loans, two commercial real estate loans, which were both hotel loans, and one consumer loan totaling $ 493,000 , $ 5.3 million and $ 12,000 , respectively.

The 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 $ 3.0 million at June 30, 2020 and December 31, 2019, respectively.

During the three and six months ended June 30, 2020, there was one residential real estate loan modified in a TDR totaling $ 60,000 that paid off. During the six months ended June 30, 2019, one residential real estate loan modified in a TDR totaling $ 851,000 paid off. No TDRs subsequently defaulted during the three and six months ended June 30, 2020 and 2019, respectively. The following tables present information at the time of modification related to loans modified in a TDR during the three and six months ended June 30, 2020 and 2019.


	Three and Six Months Ended June 30, 2020
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
(Dollars in thousands)

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


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

Real Estate:
Residential	1	$	114	$	114	$	—
Total	1	114		114		—


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

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

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


	June 30, 2020
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)

With No Related Allowance Recorded:
Real Estate:
Residential	$	1,669	$	—	$	1,673	$	1,671	$	32
Commercial	2,855		—		2,873		2,895		75
Construction	745		—		745		825		16
Commercial and Industrial	2,084		—		2,261		2,162		22
Total With No Related Allowance Recorded	$	7,353	$	—	$	7,552	$	7,553	$	145

With A Related Allowance Recorded:
Real Estate:
Commercial	$	3,846	$	399	$	3,846	$	3,903	$	69
Commercial and Industrial	249		200		249		265		6
Total With A Related Allowance Recorded	$	4,095	$	599	$	4,095	$	4,168	$	75

Total Impaired Loans:
Real Estate:
Residential	$	1,669	$	—	$	1,673	$	1,671	$	32
Commercial	6,701		399		6,719		6,798		144
Construction	745		—		745		825		16
Commercial and Industrial	2,333		200		2,510		2,427		28
Total Impaired Loans	$	11,448	$	599	$	11,647	$	11,721	$	220

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	December 31, 2019
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)

With No Related Allowance Recorded:
Real Estate:
Residential	$	549	$	—	$	553	$	494	$	20
Commercial	3,058		—		3,077		3,335		177
Commercial and Industrial	133		—		135		156		6
Total With No Related Allowance Recorded	$	3,740	$	—	$	3,765	$	3,985	$	203

With A Related Allowance Recorded:
Real Estate:
Commercial	$	1,646	$	274	$	1,646	$	1,702	$	81
Commercial and Industrial	2,378		610		2,529		2,448		113
Total With A Related Allowance Recorded	$	4,024	$	884	$	4,175	$	4,150	$	194

Total Impaired Loans
Real Estate:
Residential	$	549	$	—	$	553	$	494	$	20
Commercial	4,704		274		4,723		5,037		258
Commercial and Industrial	2,511		610		2,664		2,604		119
Total Impaired Loans	$	7,764	$	884	$	7,940	$	8,135	$	397

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 $ 961,000 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 June 30, 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.


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

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

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

December 31, 2019	$	2,023	$	3,210	$	285	$	2,412	$	1,417	$	—	$	520	$	9,867
Charge-offs	( 25 )		—		—		—		( 136 )		—		—		( 161 )
Recoveries	4		27		—		15		96		—		—		142
Provision	686		1,923		535		( 861 )		337		—		180		2,800
June 30, 2020	$	2,688	$	5,160	$	820	$	1,566	$	1,714	$	—	$	700	$	12,648


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

Individually Evaluated for Impairment	$	—	$	399	$	—	$	200	$	—	$	—	$	—	$	599
Collectively Evaluated for Potential Impairment	$	2,688	$	4,761	$	820	$	1,366	$	1,714	$	—	$	700	$	12,049


	December 31, 2019
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	—	$	274	$	—	$	610	$	—	$	—	$	—	$	884
Collectively Evaluated for Potential Impairment	$	2,023	$	2,936	$	285	$	1,802	$	1,417	$	—	$	520	$	8,983


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

March 31, 2019	$	1,154	$	2,550	$	500	$	2,553	$	1,733	$	—	$	922	$	9,412
Charge-offs	( 43 )		—		—		—		( 73 )		—		—		( 116 )
Recoveries	5		8		—		1		31		—		—		45
Provision	( 20 )		888		( 12 )		164		( 191 )		—		( 479 )		350
June 30, 2019	$	1,096	$	3,446	$	488	$	2,718	$	1,500	$	—	$	443	$	9,691

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

December 31, 2018	$	1,050	$	2,693	$	395	$	2,807	$	2,027	$	—	$	586	$	9,558
Charge-offs	( 43 )		—		—		—		( 286 )		—		—		( 329 )
Recoveries	9		21		—		2		55		—		—		87
Provision	80		732		93		( 91 )		( 296 )		—		( 143 )		375
June 30, 2019	$	1,096	$	3,446	$	488	$	2,718	$	1,500	$	—	$	443	$	9,691


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

Individually Evaluated for Impairment	$	—	$	656	$	—	$	771	$	—	$	—	$	—	$	1,427
Collectively Evaluated for Potential Impairment	$	1,096	$	2,790	$	488	$	1,947	$	1,500	$	—	$	443	$	8,264

The COVID-19 pandemic, which led to state-wide shelter in place orders and mandatory closures of all but essential business, has resulted in a dramatic increase in unemployment and recessionary economic conditions. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis related 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 $ 300,000 and $ 2.8 million provision for loan losses for the three and six months ended June 30, 2020, respectively. While recessionary economic conditions still exist, there has been an improvement in certain macroeconomic conditions, including unemployment, for the quarter ended June 30, 2020 compared to March 31, 2020, and resulted in the decrease in the provision for loan losses. 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 been removed from the lookback period as of March 31, 2020 if continuing to use a two-year history. In addition, moving to a five-year history is expected to improve the calculation moving forward by capturing economic ebbs and flows over a longer period while also not heavily weighting one period of charge-off activity.

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


	Accretable Discount
(Dollars in Thousands)

December 31, 2019	$	1,628
Accretable Yield	( 166 )
June 30, 2020	$	1,462

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The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated.


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

Individually Evaluated for Impairment	$	1,669	$	6,701	$	745	$	2,333	$	—	$	—	$	11,448
Collectively Evaluated for Potential Impairment	343,113		343,805		57,550		146,752		117,145		22,346		1,030,711
Total Loans	$	344,782	$	350,506	$	58,295	$	149,085	$	117,145	$	22,346	$	1,042,159

Commercial and industrial contains $ 70.0 million of PPP loans collectively evaluated for potential impairment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.


	December 31, 2019
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	549	$	4,704	$	—	$	2,511	$	—	$	—	$	7,764
Collectively Evaluated for Potential Impairment	347,217		346,656		35,605		83,075		113,637		18,542		944,732
Total Loans	$	347,766	$	351,360	$	35,605	$	85,586	$	113,637	$	18,542	$	952,496

Note 5. Deposits

The following table shows the maturities of time deposits for the next five years and beyond at the date indicated.


	June 30, 2020
(Dollars in thousands)

One Year or Less	$	82,866
Over One Through Two Years	45,449
Over Two Through Three Years	41,849
Over Three Through Four Years	16,613
Over Four Through Five Years	10,025
Over Five Years	4,501
Total	$	201,303

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $ 63.0 million and $ 69.3 million as of June 30, 2020 and December 31, 2019, respectively.

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Note 6. Short-Term Borrowings

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


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

Securities Sold Under Agreements to Repurchase:
Balance at Period End	$	42,349	0.30	%	$	30,571	0.57	%
Average Balance Outstanding During the Period	32,591		0.52		29,976		0.62
Maximum Amount Outstanding at any Month End	42,349				34,197

Securities Collaterizing the Agreements at Period-End:
Carrying Value	52,514				37,584
Market Value	53,969				37,873

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.


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

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

As of June 30, 2020, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $ 428.5 million with the FHLB and available borrowing capacity of $ 399.3 million. This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $ 577.1 million of residential and commercial mortgage loans and the Company’s investment in FHLB stock. Under this arrangement the Company had available a variable rate Line of Credit in the amount of $ 150.0 million as of June 30, 2020, of which there was no outstanding balance as of June 30, 2020.

At June 30, 2020, the Company maintained a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $ 90.4 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $ 143.5 million of commercial and industrial and consumer indirect auto loans. In addition, the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling $ 60.0 million of which no draws had been taken.

Note 8. Fair Value Disclosure

FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.

The three levels of fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs

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

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

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

The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated 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 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the six months ended June 30, 2020 or year ended December 31, 2019.


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

Available for Sales Securities:
Debt Securities:
U.S. Government Agencies	Level 2	$	18,994	$	48,056
Obligations of States and Political Subdivisions	Level 2	21,958		25,843
Mortgage-Backed Securities - Government-Sponsored Enterprises	Level 2	105,381		120,776
Total Debt Securities		146,333		194,675

Marketable Equity Securities:
Mutual Funds	Level 1	1,022		997
Other	Level 1	1,293		1,713
Total Marketable Equity Securities		2,315		2,710
Total Available-for-Sale Securities		$	148,648	$	197,385

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 1 inputs or observable inputs, employed by certified appraisers, for similar assets classified as Level 2 inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level 3 inputs.


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

Impaired Loans	Level 3	$	3,496	$	3,140	Market Comparable Properties	Marketability Discount	10	%	to	30	%	(1)
OREO	Level 3	76		58		Market Comparable Properties	Marketability Discount	10	%	to	50	%	(1)

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

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Impaired loans are evaluated when a 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 3 in the fair value hierarchy. At June 30, 2020 and December 31, 2019, the fair value of impaired loans consists of the loan balances of $ 4.1 million and $ 4.0 million, respectively, less their specific valuation allowances of $ 599,000 and $ 884,000 , respectively.

OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

For the six months ended June 30, 2020, one commercial real estate OREO property with a fair value of $ 18,000 sold at a gain of $ 4,000 and one residential real estate OREO property with a fair value of $ 40,000 sold at a loss of $ 20,000 . In addition, two residential real estate loans for $ 76,000 transferred to OREO.

For the six months ended June 30, 2019, one commercial real estate OREO property with a fair value of $ 697,000 was sold at a $ 33,000 gain and one residential OREO property with a fair value of $ 46,000 was sold at a loss of $ 3,000 .

Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

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


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

Financial Assets:
Cash and Due From Banks:
Interest Bearing	Level 1	$	114,794	$	114,794	$	68,798	$	68,798
Non-Interest Bearing	Level 1	16,609		16,609		11,419		11,419
Investment Securities:
Available for Sale	See Above	148,648		148,648		197,385		197,385
Loans, Net	Level 3	1,029,511		1,074,146		942,629		961,110
Restricted Stock	Level 2	3,793		3,793		3,656		3,656
Bank-Owned Life Insurance	Level 2	24,499		24,499		24,222		24,222
Mortgage Servicing Rights	Level 3	692		692		930		930
Accrued Interest Receivable	Level 2	4,663		4,663		3,297		3,297

Financial Liabilities:
Deposits	Level 2	1,193,940		1,204,494		1,118,359		1,128,078
Short-term Borrowings	Level 2	42,349		42,349		30,571		30,571
Other Borrowed Funds	Level 2	11,000		11,269		14,000		15,380
Accrued Interest Payable	Level 2	863		863		987		987

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Note 9. Commitments and Contingent Liabilities

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated 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.


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

Standby Letters of Credit	$	53,109	$	42,041
Performance Letters of Credit	2,923		2,521
Construction Mortgages	74,021		59,689
Personal Lines of Credit	6,837		6,456
Overdraft Protection Lines	6,364		6,415
Home Equity Lines of Credit	20,805		20,560
Commercial Lines of Credit	67,682		102,422
Total Commitments	$	231,741	$	240,104

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 10. Leases

The Company evaluates contracts at commencement to determine if a lease is present. The Company’s lease contracts are all classified as operating leases and create operating right-of-use (“ROU”) assets and corresponding lease liabilities on the balance sheet. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported in accrued interest and other assets and the related lease liabilities in accrued interest and other liabilities on the Consolidated Statement of Financial Condition.

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The following tables present the lease expense, ROU assets, weighted average term, discount rate and maturity analysis of lease liabilities for operating leases for the periods and dates indicated.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
(Dollars in thousands)

Operating Lease Expense	$	119	$	115	$	235	$	230
Variable Lease Expense	9		7		18		15
Total Lease Expense	$	128	$	122	$	253	$	245


	June 30, 2020			December 31, 2019
Operating Leases:
ROU Assets	$	1,118		$	1,289
Weighted Average Lease Term in Years	7.18			7.06
Weighted Average Discount Rate	2.92		%	2.89		%


	June 30, 2020
Maturity Analysis:
Due in One Year	$	388
Due After One Year to Two Years	257
Due After Two Years to Three Years	123
Due After Three Years to Four Years	57
Due After Four to Five Years	45
Due After Five Years	386
Total	$	1,256
Less: Present Value Discount	135
Lease Liabilities	$	1,121

Note 11. Other Noninterest Expense

The details of other noninterest expense for the Company’s consolidated statement of income for the three and six months ended June 30, 2020 and 2019, are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
(Dollars in thousands)

Non-Employee Compensation	$	147	$	131	$	293	$	271
Printing and Supplies	139		96		240		193
Postage	55		61		116		133
Telephone	132		158		301		302
Charitable Contributions	16		52		67		92
Dues and Subscriptions	41		47		117		98
Loan Expenses	125		128		270		212
Meals and Entertainment	34		46		74		101
Travel	20		61		74		97
Training	7		13		14		22
Bank Assessment	44		42		88		85
Insurance	58		60		114		113
Miscellaneous	127		200		290		361
Total Other Noninterest Expense	$	945	$	1,095	$	2,058	$	2,080

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Note 12. Segment and Related Information

At June 30, 2020, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services. CB Financial Services, Inc. is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank. Exchange Underwriters has an independent board of directors from the Company and is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products.

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


	Community Bank		Exchange Underwriters, Inc.		CB Financial Services, Inc.		Net Eliminations		Consolidated
(Dollars in thousands)

June 30, 2020
Assets	$	1,408,476	$	3,737	$	152,404	$	( 157,465 )	$	1,407,152
Liabilities	1,261,592		1,102		12		( 7,946 )		1,254,760
Stockholders' equity	146,884		2,635		152,392		( 149,519 )		152,392

December 31, 2019
Assets	$	1,321,001	$	4,076	$	151,124	$	( 154,664 )	$	1,321,537
Liabilities	1,178,759		1,194		27		( 9,540 )		1,170,440
Stockholders' equity	142,242		2,882		151,097		( 145,124 )		151,097

Three Months Ended June 30, 2020
Interest and dividend income	$	11,711	$	1	$	1,309	$	( 1,294 )	$	11,727
Interest expense	1,406		—		—		—		1,406
Net interest income	10,305		1		1,309		( 1,294 )		10,321
Provision for loan losses	300		—		—		—		300
Net interest income after provision for loan losses	10,005		1		1,309		( 1,294 )		10,021
Noninterest income	1,508		1,121		19		—		2,648
Noninterest expense	8,160		911		—		—		9,071
Undistributed net income of subsidiary	148		—		1,580		( 1,728 )		—
Income before income tax expense (benefit)	3,501		211		2,908		( 3,022 )		3,598
Income tax expense (benefit)	627		63		5		—		695
Net income	$	2,874	$	148	$	2,903	$	( 3,022 )	$	2,903

Six Months Ended June 30, 2020
Interest and dividend income	$	24,025	$	1	$	1,324	$	( 1,294 )	$	24,056
Interest expense	3,202		—		—		—		3,202
Net interest income	20,823		1		1,324		( 1,294 )		20,854
Provision for loan losses	2,800		—		—		—		2,800
Net interest income after provision for loan losses	18,023		1		1,324		( 1,294 )		18,054
Noninterest income (loss)	2,553		2,402		( 435 )		—		4,520
Noninterest expense	16,181		1,887		6		—		18,074
Undistributed net income of subsidiary	360		—		2,703		( 3,063 )		—
Income before income tax expense (benefit)	4,755		516		3,586		( 4,357 )		4,500
Income tax expense (benefit)	758		156		( 90 )		—		824
Net income	$	3,997	$	360	$	3,676	$	( 4,357 )	$	3,676

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	Community Bank		Exchange Underwriters, Inc.		CB Financial Services, Inc.		Net Eliminations		Consolidated
(Dollars in thousands)

Three Months Ended June 30, 2019
Interest and dividend income	$	12,655	$	1	$	1,317	$	( 1,304 )	$	12,669
Interest expense	1,964		—		—		—		1,964
Net interest income	10,691		1		1,317		( 1,304 )		10,705
Provision for loan losses	350		—		—		—		350
Net interest income after provision for loan losses	10,341		1		1,317		( 1,304 )		10,355
Noninterest income	990		1,079		96		—		2,165
Noninterest expense	7,907		887		3		—		8,797
Undistributed net income of subsidiary	132		—		1,587		( 1,719 )		—
Income before income tax expense	3,556		193		2,997		( 3,023 )		3,723
Income tax expense	665		61		18		—		744
Net income	$	2,891	$	132	$	2,979	$	( 3,023 )	$	2,979

Six Months Ended June 30, 2019
Interest and dividend income	$	24,936	$	1	$	2,636	$	( 2,608 )	$	24,965
Interest expense	3,826		—		—		—		3,826
Net interest income	21,110		1		2,636		( 2,608 )		21,139
Provision for loan losses	375		—		—		—		375
Net interest income after provision for loan losses	20,735		1		2,636		( 2,608 )		20,764
Noninterest income	1,948		2,227		104		—		4,279
Noninterest expense	15,808		1,863		6		—		17,677
Undistributed net income of subsidiary	250		—		3,190		( 3,440 )		—
Income before income tax expense	7,125		365		5,924		( 6,048 )		7,366
Income tax expense	1,327		115		20		—		1,462
Net income	$	5,798	$	250	$	5,904	$	( 6,048 )	$	5,904

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:

• General and local economic conditions;

• The scope and duration of economic contraction as a result of the COVID-19 pandemic and its effects on the Company’s business and that of the Company’s customers;

• Changes in market interest rates, deposit flows, demand for loans, real estate values and competition;

• Competitive products and pricing;

• The ability of our customers to make scheduled loan payments;

• Loan delinquency rates and trends;

• Our ability to manage the risks involved in our business;

• Our ability to integrate the operations of businesses we acquire;

• Our ability to control costs and expenses;

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• Inflation, market and monetary fluctuations;

• Changes in federal and state legislation and regulation applicable to our business;

• Actions by our competitors; and

• Other factors disclosed in the Company’s periodic reports as filed with the Securities and Exchange Commission.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

Given the numerous unknowns and risks that are heavily weighted to the downside due to COVID-19, our forward-looking statements are subject to the risk that conditions will be substantially different than we currently expect. If efforts to contain COVID-19 are unsuccessful and government restriction last longer than expected, the recession would be much longer and much more severe and damaging. Ineffective fiscal stimulus, or an extended delay in implementing it, are also major risks. The deeper the recession and the longer it lasts, the more it will damage consumer fundamentals and sentiment. This could both prolong the recession and make any recovery weaker. Similarly, the recession could damage business fundamentals. As a result, the outbreak and its consequences, including responsive measures to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting, possibly materially, the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.

The ability to predict the impact of the COVID-19 pandemic on the Company’s future operating results with any precision is difficult and depends on many factors beyond our control. The Company's market area was impacted by state-wide shelter-in-place orders and closing all but essential businesses. Certain government restrictions remaining in effect. The far-reaching consequences of these actions and the crisis is unknown and will largely depend on the extent and length of the recession combined with how quickly the economy can re-open. For example:

• While specific actions have been taken to protect employees through work-at-home arrangements and social distancing measures for those working in our offices, including limiting branch traffic to drive-thru and special appointments only, outbreak among employees could result in closure of branches or back office operations for quarantine purposes and result in the unavailability of key employees and disruption of services provided to customers.

• The lack of economic activity may curtail lending opportunities, especially from a commercial perspective, and impact our customers involved in vulnerable industries such as hospitality, retail, office space, senior housing, oil and gas, and restaurants.

• Forbearance activity and any additional forbearance that may be needed could impact cash flows and liquidity and result in decreases in late charges.

• Delinquencies, nonperforming loans, charge-offs and the related provision for loan losses, and foreclosures may significantly increase after forbearance period ends, if economic stimulus does not have the intended outcome, and/or if the economy does not fully re-open allowing people to return to work.

• A sustained economic downturn may result in a decrease in the Company’s value and result in potential material impairment to its goodwill, intangible assets, and/or long-lived assets.

• The Federal Reserve Board’s decision to drop the benchmark interest rate from a range of 1.5% to 1.75% to start the year to a range of 0% to 0.25% as part of a wide-ranging emergency action to protect the economy from the COVID-19 outbreak may result in an influx of loan refinances that could impact the Company’s net interest income.

• The lack of movement may negatively impact our noninterest income through less fee activity, such as from customer debit card swipes for purchases.

• Insurance commissions may decline because workers compensation policies are mainly determined based on payroll figures, which could decrease due to job loss.

The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

General

CB Financial Services, Inc. is a bank holding company established in 2006 and headquartered in Carmichaels, Pennsylvania. CB Financial’s business activity is conducted primarily through its wholly owned bank subsidiary, Community Bank.

The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from 16 offices 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 also

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

Overview

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

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, insurance commissions, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contracted services, legal and professional fees, advertising, deposit and general insurance and other expenses.

Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in southwestern Pennsylvania and Ohio Valley market areas.

Critical Accounting Estimates

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. 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.

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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.

In performing our quarterly goodwill impairment assessment, we first assessed qualitative factors to determine whether any triggering events occurred that would require us to perform an interim goodwill impairment analysis and evaluate if it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the reporting unit and other relevant entity and reporting-unit specific considerations. Based on qualitative assessment as of June 30, 2020, we concluded that no triggering events occurred and it is more likely than not that the fair value of a reporting unit exceeds its carrying value indicating that goodwill of the reporting unit is considered not impaired. As such, no quantitative assessment was performed.

Explanation of Use of Non-GAAP Financial Measures

In addition to financial measures presented in accordance with generally accepted accounting principles (“GAAP”), we present certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information in understanding our underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP financial measures or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

The interest income on interest-earning assets, net interest rate spread and net interest margin are presented on a fully tax-equivalent (“FTE”) basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory income tax rate of 21 percent. We believe the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

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


	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2020			2019			2020			2019
(Dollars in thousands)

Interest Income per Consolidated Statement of Income (GAAP)	$	11,727		$	12,669		$	24,056		$	24,965
Adjustment to FTE Basis	59			69			113			147
Interest Income (FTE) (Non-GAAP)	11,786			12,738			24,169			25,112
Interest Expense per Consolidated Statement of Income	1,406			1,964			3,202			3,826
Net Interest Income (FTE) (Non-GAAP)	$	10,380		$	10,774		$	20,967		$	21,286

Net Interest Rate Spread (GAAP)	3.00		%	3.36		%	3.16		%	3.38		%
Adjustment to FTE Basis	0.12			0.03			0.07			0.02
Net Interest Rate Spread (FTE) (Non-GAAP)	3.12			3.39			3.23			3.40

Net Interest Margin (GAAP)	3.18		%	3.59		%	3.36		%	3.61		%
Adjustment to FTE Basis	0.12			0.03			0.07			0.02
Net Interest Margin (FTE) (Non-GAAP)	3.30			3.62			3.43			3.63

Consolidated Statement of Financial Condition Analysis

Assets. Total assets increased $85.6 million, or 6.5%, to $1.41 billion at June 30, 2020, compared to $1.32 billion at December 31, 2019.

• Cash and due from banks increased $51.2 million, or 63.8%, to $131.4 million at June 30, 2020, compared to $80.2 million at December 31, 2019. This is primarily the result of investment security call and paydown activity.

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• Investment securities classified as available-for-sale decreased $48.7 million, or 24.7%, to $148.6 million at June 30, 2020, compared to $197.4 million at December 31, 2019. This was primarily the result of $52.5 million of calls of U.S. government agency and municipal securities due to the market interest rate decreases that occurred in light of the COVID-19 pandemic and $19.8 million of paydowns on mortgage-backed securities. In addition, there was the purchase of $38.8 million of mortgage-backed and U.S. government agency securities partially offset by $17.9 million of mortgage-backed security sales to recognize gains on higher-interest securities that were paying down quicker than expected. In addition, there was a $2.5 million increase in the market value of the debt securities portfolio attributed to market interest rate decreases and $410,000 loss in market value in the marketable equity securities portfolio, which is primarily comprised of bank stocks.

• Net loans increased $86.9 million, or 9.2%, to $1.03 billion at June 30, 2020, compared to $942.6 million million at December 31, 2019. Loan growth during the first half of the year was primarily due to funding of $70.0 million in PPP loans and net loan advances of $22.7 million in construction loans as of June 30, 2020. Total loans, excluding allowance for loan losses, increased $89.7 million and represented an 18.8% annualized growth rate. Excluding the impact of the PPP loans, organic loan growth was $19.6 million and represented an annualized growth rate of 4.1% for the six months ended June 30, 2020.

The allowance for loan losses was $12.6 million at June 30, 2020 compared to $9.9 million at December 31, 2019. This reflects a $2.8 million provision for loan loss due to an increase in qualitative factors related to economic trends and industry conditions to account for the adverse economic impact of COVID-19. As a result, the allowance for loan losses to total loans increased from 1.04% at December 31, 2019 to 1.21% at June 30, 2020. No allowance was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee. The allowance for loan losses to total loans, excluding PPP loans, was 1.30% at June 30, 2020.

Nonperforming loans increased to $5.6 million at June 30, 2020 from $5.4 million at December 31, 2019 and, coupled with loan growth noted previously, resulted in the nonperforming loans to total loans ratio decreasing 3 bps to 0.54% at June 30, 2020 compared to 0.57% at December 31, 2019. Excluding PPP loans, the nonperforming loans to total loans ratio was 0.57% at June 30, 2020. The Company elected the practical expedients available in the CARES Act and interagency guidance and does not consider any of the loans that were modified through forbearance agreements as nonperforming loans.

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. As of June 30, 2020, $165.9 million, or 15.9% of total loans, were in forbearance. Approximately $105.2 million, or 63.4% of loans in forbearance, are scheduled to end forbearance as of July 2020 and return to their normal payment schedule. As of July 30, 2020, out of the 348 loans totaling $105.2 million with a forbearance period ending in July 2020, 9 loans totaling $3.3 million requested additional forbearance - two residential, two commercial real estate, which were both hotel loans, one commercial and industrial and four consumer loans totaling $393,000, $2.7 million, $123,000 and $133,000, respectively.

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comprised of three residential mortgage loans, two commercial real estate loans, which were both hotel loans, and one consumer loan totaling $493,000, $5.3 million and $12,000, respectively.

The following table sets forth details at June 30, 2020 of industries considered at higher risk to be negatively impacted by the COVID-19 pandemic:


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

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

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


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

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

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

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

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

(1) Loan risk rating of 1-4 is considered a pass-rated credit, 5 is special mention, 6 is substandard, 7 is doubtful and 8 is loss.

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

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Liabilities. Total liabilities increased $84.3 million, or 7.2%, to $1.25 billion at June 30, 2020 compared to $1.17 billion at December 31, 2019.

• Total deposits increased $75.6 million, or 6.8%, to $1.19 billion at June 30, 2020, from $1.12 billion at December 31, 2019. Noninterest bearing demand deposits and savings accounts increased $74.0 million and $12.5 million, respectively, partially offset by a decrease of $18.5 million in time deposits. The impact of the PPP loans that were originated and the proceeds of which were subsequently deposited at the Bank was approximately $54.8 million. The Bank has been selective on offering promotional interest rates in light of recent rate decreases by the Federal Reserve. Annualized deposit growth rate was 13.5% including PPP loan deposits and 3.7% without PPP loan deposits, representing organic deposit growth.

• Short-term borrowings increased $11.8 million, or 38.5%, to $42.3 million at June 30, 2020, compared to $30.6 million at December 31, 2019. At June 30, 2020 and December 31, 2019, short-term borrowings were comprised entirely of securities sold under agreements to repurchase. The increase is related to business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase.

• Other borrowed funds decreased $3.0 million due to a FHLB borrowing that matured in the current period.

Stockholders’ Equity. Stockholders’ equity increased $1.3 million, or 0.9%, to $152.4 million at June 30, 2020, compared to $151.1 million at December 31, 2019.

• Net income was $3.7 million for the six months ended June 30, 2020.

• Accumulated other comprehensive income increased $1.9 million primarily due to market interest rate conditions in the current period on the Bank’s available-for-sale debt securities.

• The Company paid $2.6 million in dividends to common stockholders in the current year.

• As part of the Company’s stock repurchase program, the Company repurchased 67,816 shares of common stock totaling $1.9 million in the current year. COVID-19 prompted the Company to announce on March 19, 2020 that the stock repurchase program was suspended until further notice to preserve excess capital in support of the Bank’s business of providing financial services to its customers and communities.

• Book value per share was $28.25, an increase of $0.60 at June 30, 2020, compared to $27.65 for December 31, 2019.

Consolidated Results of Operations for the Three Months Ended June 30, 2020 and 2019

Overview. Net income decreased $76,000 to $2.9 million for the three months ended June 30, 2020, compared to $3.0 million for the three months ended June 30, 2019.

Net Interest Income. Net interest income decreased $384,000, or 3.6%, to $10.3 million for the three months ended June 30, 2020 compared to $10.7 million for the three months ended June 30, 2019.

• Interest and dividend income decreased $942,000, or 7.4%, to $11.7 million for the three months ended June 30, 2020 compared to $12.7 million the three months ended June 30, 2019.

◦ Interest income on loans decreased $96,000, or 0.9%, $10.6 million for the three months ended June 30, 2020 compared to $10.7 million for the three months ended June 30, 2019. Although average loans increased $108.0 million compared to the three months ended June 30, 2019, the average yield decreased 53 basis points (“bps”) to 4.21%. The current quarter loan yield was impacted by the declines in interest rate indices in March 2020 at the onset of the COVID-19 pandemic, which resulted in an immediate decrease in interest rates on adjustable rate loans. In addition, PPP loans decreased the loan yield 6 bps in the current quarter. The Bank continued to accrue and recognize interest income on loans in forbearance due to expectation that borrowers will resume payment at the end of forbearance and collectibility of the interest income is not in question. With the majority of loans scheduled to exit forbearance in the third quarter, the Bank will evaluate whether continuing to accrue interest is prudent on a loan-by-loan or industry basis.

◦ The impact of the accretion of the credit mark on acquired loan portfolios was $90,000 in the current period compared to $78,000 in the prior period, or 4 bps in the current period compared to 3 bps in the prior period.

◦ Other interest and dividend income, which primarily consists of interest-bearing cash, decreased $290,000, or 77.5% to $84,000 for the three months ended June 30, 2020 compared to $374,000 for the three months ended June 30, 2019. Average other interest-earning assets increased $43.6 million compared to the three months ended June 30, 2020 primarily from buildup of cash as a result of calls of U.S. government agency and municipal securities and

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government stimulus payments, but average yield declined 246 bps due to interest rate cuts on interest-earning cash deposits held at other financial institutions.

◦ Interest income on taxable investment securities decreased $502,000, or 34.8%, to $940,000 for the three months ended June 30, 2020 compared to $1.4 million for the three months ended June 30, 2019 driven by a $71.9 million decrease in average investment security balance. The Federal Reserve’s decision to drop the benchmark interest rate resulted in the call of $52.5 million in U.S. government agency and municipal securities in the current year. In addition, there were $19.8 million of paydowns on mortgage-backed securities in the current year. The funds were partially maintained in cash or reinvested in lower rate securities.

• Interest expense decreased $558,000, or 28.4%, to $1.4 million for the three months ended June 30, 2020 compared to $2.0 million for the three months ended June 30, 2019.

◦ Interest expense on deposits decreased $519,000, or 28.5%, to $1.3 million for the three months ended June 30, 2020 compared $1.8 million for the three months ended June 30, 2019. While average interest-earning deposits increased $19.0 million, interest rate declines for all products driven by pandemic-related interest rate cuts and efforts to control pricing resulted in a 26 bp decrease in average cost compared to the quarter ended June 30, 2019.

◦ Interest expense on other borrowed funds decreased $28,000 to $62,000 for the three months ended June 30, 2020 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a $6.0 million decrease in average balance.

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


	Three Months Ended June 30,
	2020										2019
	Average Balance		Interest and Dividends		Yield/ Cost ⁽⁴⁾		Average Balance		Interest and Dividends		Yield/ Cost ⁽⁴⁾
(Dollars in thousands) (Unaudited)

Assets:
Interest-Earning Assets:
Loans, Net	$	1,014,000	$	10,612	4.21	%	$	906,038	$	10,707	4.74	%
Debt Securities
Taxable	137,268		940		2.74		209,164		1,442		2.76
Tax Exempt	14,106		130		3.69		23,450		195		3.33
Marketable Equity Securities	2,579		20		3.10		2,526		20		3.17
Other Interest-Earning Assets	97,033		84		0.35		53,479		374		2.81
Total Interest-Earning Assets	1,264,986		11,786		3.75		1,194,657		12,738		4.28
Noninterest-Earning Assets	113,176						113,447
Total Assets	$	1,378,162					$	1,308,104

Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits	$	236,312	141		0.24	%	$	216,190	295		0.55	%
Savings	227,470		35		0.06		217,426		149		0.27
Money Market	182,656		187		0.41		178,561		263		0.59
Time Deposits	205,847		942		1.84		221,126		1,117		2.03
Total Interest-Bearing Deposits	852,285		1,305		0.62		833,303		1,824		0.88
Borrowings	46,642		101		0.87		47,560		140		1.18
Total Interest-Bearing Liabilities	898,927		1,406		0.63		880,863		1,964		0.89
Noninterest-Bearing Demand Deposits	317,738						273,753
Other Liabilities	8,815						9,872
Total Liabilities	1,225,480						1,164,488

Stockholders' Equity	152,682						143,616
Total Liabilities and Stockholders' Equity	$	1,378,162					$	1,308,104

Net Interest Income (FTE) (Non-GAAP)			$	10,380					$	10,774
Net Interest Rate Spread (FTE) (Non-GAAP) ⁽¹⁾					3.12	%					3.39	%
Net Interest-Earning Assets ⁽²⁾	$	366,059					$	313,794
Net Interest Margin (FTE) (Non-GAAP) ⁽³⁾					3.30						3.62
Return on Average Assets					0.85						0.91
Return on Average Equity ⁽⁴⁾					7.65						8.32
Average Equity to Average Assets					11.08						10.98
Average Interest-Earning Assets to Average Interest-Bearing Liabilities					140.72						135.62

(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3) Net interest margin represents annualized net interest income divided by average total interest-earning assets.

(4) Annualized based on three months ended results.

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


	Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
	Increase (Decrease) Due to
	Volume		Rate		Total
(Dollars in thousands) (Unaudited)

Interest and Dividend Income:
Loans, net	$	1,168	$	(1,263)	$	(95)
Debt Securities:
Taxable	(492)		(10)		(502)
Exempt From Federal Tax	(84)		19		(65)
Other Interest-Earning Assets	175		(465)		(290)
Total Interest-Earning Assets	767		(1,719)		(952)

Interest Expense:
Deposits	31		(550)		(519)
Borrowings	(3)		(36)		(39)
Total Interest-Bearing Liabilities	28		(586)		(558)
Change in Net Interest Income	$	739	$	(1,133)	$	(394)

Provision for Loan Losses. The provision for loan losses was $300,000 for the three months ended June 30, 2020 compared to $350,000 for the three months ended June 30, 2019. 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. The qualitative factors used in the allowance for loan loss analysis related to economic trends and industry conditions, specifically because of vulnerable industries such as hospitality, retail, oil and gas, and restaurants, were significantly adjusted for these circumstances for the quarter ended March 31, 2020 and resulted in a $2.5 million provision. While recessionary economic conditions still exist, there has been an improvement to certain macroeconomic conditions, including unemployment, for the quarter ended June 30, 2020 compared to March 31, 2020, and resulted in a $300,000 provision.

Net recoveries for the three months ended June 30, 2020 were $26,000, or 0.01% net recoveries to average loans on an annualized basis. Net charge-offs were $71,000, or 0.03% net charge-offs to average loans on an annualized basis, for the three months ended June 30, 2019 driven by higher automobile loan charge-offs.

Noninterest Income . Noninterest income increased $483,000, or 22.3%, to $2.6 million for the three months ended June 30, 2020, compared to $2.2 million for the three months ended June 30, 2019.

• The Company recognized a $489,000 net gain on sales of investment securities in the current quarter to recognize gains on higher-interest mortgage-backed securities that were paying down quicker than expected.

• The Company recognized $441,000 gain on sales of loans in the current quarter compared to $50,000 for the three months ended June 30, 2019, primarily due to increased mortgage loan production from refinances, which were sold to reduce interest rate risk on lower yielding, long-term assets.

• Other (loss) income included a $51,000 increase in amortization on mortgage servicing rights combined with a $269,000 temporary impairment on mortgage servicing rights recognized in the current quarter due to a decline in the interest rate environment that has caused increased prepayment speeds and resulted in a decrease in fair value of the serviced mortgage portfolio.

• Service fees decreased $130,000 to $487,000 in the current quarter compared to $617,000 for the three months ended June 30, 2019 due to waiver of fees and decrease in customer usage from the pandemic.

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Noninterest Expense. Noninterest expense increased $274,000, or 3.1%, to $9.1 million for the three months ended June 30, 2020 compared to $8.8 million for the three months ended June 30, 2019.

• Salaries and employee benefits increased $120,000 to $4.8 million for the three months ended June 30, 2020 compared to $4.7 million for the three months ended June 30, 2019. The increase was primarily due to the Community Bank Cares premium pay during the pandemic in addition to merit and promotional increases, which were more than offset by deferred employee-related loan origination costs associated with PPP loans.

• Contracted services increased $201,000 to $562,000 for the three months ended June 30, 2020 compared to $361,000 for the three months ended June 30, 2019 primarily due to temporary employees hired to assist with PPP loan processing and consultants used to assist in infrastructure improvements.

• Data processing increased $80,000 to $460,000 for the three months ended June 30, 2020 compared to $380,000 for the three months ended June 30, 2019 primarily due to technology investments.

• Other noninterest expense decreased $150,000 to $945,000 for the three months ended June 30, 2020 compared to $1.1 million for the three months ended June 30, 2019 primarily due to decreases in travel-related and telephone costs from employee work-at home arrangements during the pandemic as well as fraud losses incurred in the prior period.

• Advertising decreased $65,000 to $155,000 for the three months ended June 30, 2020 compared to $220,000 for the three months ended June 30, 2019 due to less emphasis on marketing initiatives during the pandemic.

• Equipment expense decreased $61,000 to $224,000 for three months ended June 30, 2020 compared to $285,000 for the three months ended June 30, 2019v primarily due to fully depreciated items.

Income Tax Expense. Income tax expense decreased $49,000 to $695,000 for the three months ended June 30, 2020, compared to $744,000, for the three months ended June 30, 2019. The effective tax rate for the three months ended June 30, 2020 was 19.3% compared to 20.0%, for the three months ended June 30, 2019.

Results of Operations for the Six Months Ended June 30, 2020 and 2019

Overview. Net income for the six months ended June 30, 2020 was $3.7 million compared to $5.9 million for the six months ended June 30, 2019. This was a decrease of $2.2 million, or 37.7%.

Net Interest Income. Net interest income decreased $285,000, or 1.3% to $20.9 million for the six months ended June 30, 2020 compared to $21.1 million for the six months ended June 30, 2019.

• Interest and dividend income decreased $909,000, or 3.6%, to $24.1 million for the six months ended June 30, 2020 compared to $25.0 million for the six months ended June 30, 2019.

◦ Although average loans increased $80.1 million, the loan yield for the six months ended June 30, 2020 decreased 35 bps compared to the six months ended June 30, 2019. The current period loan yield was significantly impacted by the 150 bp decline in the Wall Street Journal Prime Rate in March 2020, which resulted in immediate decrease in interest rates on adjustable rate loans linked to that index. In addition, PPP loans decreased the loan yield 4 bps in the current period. The Bank continued to accrue and recognize interest income on loans in forbearance due to expectation that borrowers will resume payment at the end of forbearance and collectibility of the interest income is not in question. With the majority of loans exiting forbearance in the third quarter, the Bank will evaluate whether continuing to accrue interest is prudent on a loan-by-loan or industry basis.

◦ Interest income on taxable investment securities decreased $618,000, or 22.4% to $2.1 million for the six months ended June 30, 2020 compared to $2.8 million for the six months ended June 30, 2019 driven by a $51.9 million decrease in average investment security balance primarily from significant calls of U.S. government agency securities in a declining interest rate environment.

◦ Interest from other interest-earning assets, which primarily consist of interest-earning cash, decreased $370,000, or 53.5% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 even though average balances increased $31.2 million primarily related to funds received from calls of U.S. government agency securities. The impact on interest income was primarily due to declines on interest rates earned on deposits at other financial institutions as noted by the 201 bp difference for respective periods.

◦ Interest expense on deposits decreased $557,000, or 15.7%, to $3.0 million for the six months ended June 30, 2020 compared to $3.5 million for the six months ended June 30, 2019. While average interest-bearing deposits increased $16.0 million, interest rate declines for all products driven by pandemic-related interest rate cuts and efforts to control pricing resulted in a 15 bp decrease in average cost compared to the six months ended June 30, 2019.

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


	Six Months Ended June 30,
	2020										2019
	Average Balance		Interest and Dividends		Yield/ Cost ⁽⁴⁾		Average Balance		Interest and Dividends		Yield/ Cost ⁽⁴⁾
(Dollars in thousands) (Unaudited)

Assets:
Interest-Earning Assets:
Loans, Net	$	982,331	$	21,408	4.38	%	$	902,183	$	21,174	4.73	%
Debt Securities
Taxable	147,962		2,141		2.89		199,843		2,759		2.76
Tax Exempt	15,471		258		3.34		28,106		447		3.18
Marketable Equity Securities	2,573		40		3.11		2,517		40		3.18
Other Interest-Earning Assets	80,821		322		0.80		49,617		692		2.81
Total Interest-Earning Assets	1,229,158		24,169		3.95		1,182,266		25,112		4.28
Noninterest-Earning Assets	113,616						112,727
Total Assets	$	1,342,774					$	1,294,993

Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits	$	231,397	408		0.35	%	$	214,708	570		0.54	%
Savings	222,899		124		0.11		215,283		294		0.28
Money Market	181,819		436		0.48		181,515		536		0.60
Time Deposits	210,648		2,018		1.93		219,220		2,143		1.97
Total Interest-Bearing Deposits	846,763		2,986		0.71		830,726		3,543		0.86
Borrowings	44,482		216		0.98		49,322		283		1.16
Total Interest-Bearing Liabilities	891,245		3,202		0.72		880,048		3,826		0.88
Noninterest-Bearing Demand Deposits	289,621						264,160
Other Liabilities	9,306						9,420
Total Liabilities	1,190,172						1,153,628

Stockholders' Equity	152,602						141,365
Total Liabilities and Stockholders' Equity	$	1,342,774					$	1,294,993

Net Interest Income (FTE) (Non-GAAP)			$	20,967					$	21,286
Net Interest Rate Spread (FTE) (Non-GAAP) ⁽¹⁾					3.23	%					3.40	%
Net Interest-Earning Assets ⁽²⁾	$	337,913					$	302,218
Net Interest Margin (FTE) (Non-GAAP) ⁽³⁾					3.43						3.63
Return on Average Assets					0.55						0.92
Return on Average Equity					4.84						8.42
Average Equity to Average Assets					11.36						10.92
Average Interest-Earning Assets to Average Interest-Bearing Liabilities					137.91						134.34

(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3) Net interest margin represents annualized net interest income divided by average total interest-earning assets.

(4) Annualized based on six months ended results.

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


	Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
	Increase (Decrease) Due to
	Volume		Rate		Total
(Dollars in thousands) (Unaudited)

Interest and Dividend Income:
Loans, net	$	1,867	$	(1,633)	$	234
Debt Securities:
Taxable	(743)		125		(618)
Exempt From Federal Tax	(210)		21		(189)
Marketable Equity Securities	1		(1)		—
Other Interest-Earning Assets	292		(662)		(370)
Total Interest-Earning Assets	1,207		(2,150)		(943)

Interest Expense:
Deposits	74		(631)		(557)
Borrowings	(25)		(42)		(67)
Total Interest-Bearing Liabilities	49		(673)		(624)
Change in Net Interest Income	$	1,158	$	(1,477)	$	(319)

Provision for Loan Losses. The 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 in the current year. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis related to economic trends and industry conditions, specifically because of vulnerable industries such as hospitality, retail, oil and gas, and restaurants, were adjusted for these circumstances and resulted in a $2.8 million provision for loan losses for the six months ended June 30, 2020 compared to $375,000 for the six months ended June 30, 2019.

Net charge-offs were $19,000, or 0.00% net charge-offs to average loans on an annualized basis, for the six months ended June 30, 2020. Net charge-offs were $242,000, or 0.05% net charge-offs to average loans on an annualized basis, for the six months ended June 30, 2019. The increase in the prior year was driven by higher automobile loan charge-offs.

Noninterest Income. Noninterest income increased $241,000, or 5.6%, to $4.5 million for the six months ended June 30, 2020, compared to $4.3 million million for the six months ended June 30, 2019.

• Net gain on sales of investment securities was $489,000 for the six months ended June 30, 2020 to harvest gains on higher-interest mortgage-backed securities that were paying down quicker than expected compared to a net loss of $53,000 for six months ended June 30, 2019.

• Net gain on sales of loans was $568,000 for the six months ended June 30, 2020 compared to $142,000 for the six months ended June 30, 2019 primarily due to increased mortgage loan production from refinances, which were sold to reduce interest rate risk on lower yielding, long-term assets.

• Insurance commissions increased $162,000, or 7.3%, to $2.4 million for the six months ended June 30, 2020 compared to $2.2 million for the six months ended June 30, 2019 due an increase in both commercial and personal line polices.

• Other (loss) income decreased $374,000 as a result of an increase in amortization on mortgage servicing rights combined with a $269,000 temporary impairment on mortgage servicing rights recognized in the current period due to a decline in the interest rate environment that caused increased prepayment speeds and resulted in a decrease in fair value of the serviced mortgage portfolio.

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• Service fees decreased $118,000 to $1.1 million for the six months ended June 30, 2020 compared to $1.2 million for the six months ended June 30, 2019 due to waiver of fees and decrease in customer usage from the pandemic.

• The Company’s marketable equity securities, which are primarily comprised of bank stocks, reflected a decline of $410,000 for the six months ended June 30, 2020 primarily from the impact of COVID-19 on the stock market.

Noninterest Expense. Noninterest expense increased $397,000, or 2.2%, to $18.1 million for the six months ended June 30, 2020 compared to $17.7 million for the six months ended June 30, 2019.

• Salaries and employee benefits decreased $86,000 to $9.6 million for the six months ended June 30, 2020 compared to $9.6 million for the six months ended June 30, 2019. The current period was impacted by a first quarter 2020, $407,000 one-time payment that offset employee benefits from health insurance claims exceeding our stop-loss limit for the 2019 plan year and change from a self-funded to a fully insured plan. Final calculation of the stop loss payment was completed 90 days after the end of the plan year. Also the Company benefited from deferred employee-related loan origination costs associated with PPP loans, which were partially offset by the Community Bank Cares premium pay during the pandemic. Additionally, the Company recognized approximately $236,000 of one-time payments related to the search for a permanent CEO in the six months ended June 30, 2020.

• Contracted services increased $307,000 to $940,000 for the six months ended June 30, 2020 compared to $633,000 for the six months ended June 30, 2019, primarily due to temporary employees hired to assist with PPP loan processing and consultants used to assist in infrastructure improvements. In the first quarter of 2020, contracted services were impacted by $116,000 in consulting fees associated with the search for a new CEO.

• Equipment expense decreased $100,000 to $481,000 for the six months ended June 30, 2020 compared to $581,000 for the six months ended June 30, 2019 as the result of decrease in depreciation and repairs and maintenance.

• Data processing increased $97,000 to $885,000 for the six months ended June 30, 2020 compared to $788,000 for the six months ended June 30, 2019 primarily due to technology investments.

• Legal and professional fees increased $65,000 to $406,000 for the six months ended June 30, 2020 compared to $341,000 for the six months ended June 30, 2019 due to fees associated with the search for a permanent CEO in the first quarter.

Income Tax Expense. Income tax expense decreased $638,000 to $824,000 for the six months ended June 30, 2020 compared to $1.5 million for the six months ended June 30, 2019. The effective tax rate for the six months ended June 30, 2020 was 18.3% compared to 19.8%, for the six months ended June 30, 2019. A $2.9 million decrease in pre-tax income combined with stable tax-preference items resulted in a lower effective tax rate for the six months ended June 30, 2020.

Off-Balance Sheet Arrangements.

Other than loan commitments and standby and performance letters of credit, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a significant current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Refer to Note 9 in the Notes to Consolidated Financial Statements of this report for a summary of commitments outstanding as of June 30, 2020.

Liquidity and Capital Management

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are typically predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The ability to predict the impact of the COVID-19 pandemic on the Company’s liquidity with any precision is difficult and depends on many factors beyond our control. The market area was one of the first to implement state-wide shelter-in-place orders and closing all but essential businesses and certain government restriction remain in effect. The far-reaching consequences of these actions and the crisis is unknown and will largely depend on the extent and length of the recession combined with how quickly the economy can fully re-open. Forbearance activity and any additional forbearance that may be needed could significantly impact our sources of funds from loan cash flows.

The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity at June 30, 2020 to satisfy its short- and long-term liquidity needs.

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The Company’s most liquid assets are cash and due from banks, which totaled $131.4 million at June 30, 2020. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Unpledged securities, which provide an additional source of liquidity, totaled $10.0 million at June 30, 2020. In addition, at June 30, 2020, the Company had the ability to borrow up to $428.5 million from the FHLB of Pittsburgh, of which $399.3 million is available. The Company also has the ability to borrow up to $90.4 million from the FRB through its Borrower-In-Custody line of credit agreement and the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling $60.0 million as of both June 30, 2020 and December 31, 2019.

At June 30, 2020, $82.9 million, or 41.2% of total time deposits mature within one year. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these 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.

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

CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank’s ability to pay dividends to CB Financial is subject to regulatory limitations. At June 30, 2020, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $4.8 million. While the Company is not currently planning to reduce or suspend quarterly dividends, if the Company incurs or is expected to incur significant reduction in earnings as a result of the COVID-19 pandemic, it may need to suspend or reduce the level of quarterly dividends. In addition, primarily due to the COVID-19 pandemic and the expected impacts on the economy, on March 19, 2020, the Company announced that its stock repurchase program was suspended until further notice to preserve excess capital in support of the Bank’s business of providing financial services to its customers and communities. The ability to pay future dividends or conduct stock repurchases may be limited under applicable banking regulations and regulatory policies due to expected losses for future periods and/or the inability to upstream funds from the Bank to the Company as a result of lower income or regulatory capital levels.

Capital Management. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.

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At June 30, 2020 and December 31, 2019, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. At June 30, 2020, the Bank's capital ratios were not affected by loans modified in accordance with Section 4013 of the CARES Act. In addition, PPP loans received a zero-percent rish weight under the regulatory capital rules regardless of whether they were pledged as collateral to the Federal Reserve Bank's PPP lending facility, but were included in the Bank's leverage ratio requirement due to the Bank not pledging the loans as collateral to the PPP lending facility The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized as of the dates indicated.


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

Common Equity Tier 1 (to risk weighted assets)
Actual	$	105,937	11.90	%	$	101,703	11.43	%
For Capital Adequacy Purposes	40,046		4.50		40,050		4.50
To Be Well Capitalized	57,844		6.50		57,851		6.50

Tier 1 Capital (to risk weighted assets)
Actual	105,937		11.90		101,703		11.43
For Capital Adequacy Purposes	53,394		6.00		53,401		6.00
To Be Well Capitalized	71,192		8.00		71,201		8.00

Total Capital (to risk weighted assets)
Actual	117,079		13.16		111,570		12.54
For Capital Adequacy Purposes	71,192		8.00		71,201		8.00
To Be Well Capitalized	88,990		10.00		89,001		10.00

Tier 1 Leverage (to adjusted total assets)
Actual	105,937		7.90		101,703		7.85
For Capital Adequacy Purposes	53,613		4.00		51,838		4.00
To Be Well Capitalized	67,016		5.00		64,798		5.00

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

General. The majority of the Company’s assets and liabilities are monetary in nature. Consequently, the Company’s most significant form of market risk is interest rate risk and a principal part of its business strategy is to manage interest rate risk by reducing the exposure of net interest income to changes in market interest rates. Accordingly, the Company’s Board has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in the Company’s assets and liabilities, for determining the level of risk that is appropriate given the Company’s business strategy, operating environment, capital, liquidity and performance objectives; and for managing this risk consistent with the guidelines approved by the Board. Senior management monitors the level of interest rate risk and the Asset/Liability Management Committee meets on a quarterly basis to review its asset/liability policies and position and interest rate risk position, and to discuss and implement interest rate risk strategies.

Economic Value of Equity . The Company monitors interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of its assets and liabilities (its economic value of equity, or “EVE”) would change in the event of a range of assumed changes in market interest rates. The quarterly reports developed in the simulation model assist the Company in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within the Company’s policy guidelines.

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The table below sets forth, as of June 30, 2020, the estimated changes in EVE that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.


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

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE tables presented assume that the composition of the Company’s interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE tables provide an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and will differ from actual results. EVE calculations also may not reflect the fair values of financial instruments. For example, changes in market interest rates can increase the fair values of the Company’s loans, deposits and borrowings.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.

Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, claims seeking damages for improper collection procedures or misrepresentations, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any other pending legal proceedings that we believe would have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, 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.

The COVID-19 pandemic has adversely impacted our business and financial results and that of many of our customers, and the ultimate impact will depend on future developments, which are highly uncertain, cannot be predicted and outside of our control, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has created extensive disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal and monetary stimulus, and legislation designed to deliver financial aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and the efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted market interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and the effects of COVID-19 could have a material adverse impact on us in a number of ways as described in more detail below.

Credit Risk – Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrowers’ businesses. Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. Hotel and restaurant operators and others in the leisure, hospitality and travel industries, among other industries, have been particularly hurt by COVID-19. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our credit exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to customers. During a challenging economic environment like now, our customers depend more on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity. Furthermore, in an effort to support our communities during the pandemic, we are participating in the PPP under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise extended credit.

Strategic Risk – Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various response of governmental and nongovernmental authorities. The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets. Furthermore, many of the governmental actions have been directed toward curtailing household

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and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. For example, in many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses. The future effects of COVID-19 on economic activity could negatively affect the future banking products we provide, including a decline in originating loans.

Operational Risk – Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk from phishing, malware, and other cybersecurity attacks, all of which could expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any impacted customers.

Moreover, we rely on many third parties in our business operations, including the appraiser of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

Interest Rate Risk/Market Value Risk – Our net interest income, lending and investment activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0% to 0.25%, citing concerns about the impact of COVID-19 on financial markets and market stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in prevailing fair market values of our investment securities and other assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work-from-home arrangements, third party providers’ ability to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

Impairment in the carrying value of goodwill could negatively affect our results of operations.

At June 30, 2020, we had $28.4 million of goodwill on our Consolidated Statement of Financial Condition. Any impairment to goodwill could have a material adverse impact on the Company’s consolidated financial conditions and results of operations. 100% of the goodwill is assigned to the Community Banking reporting unit. Under GAAP, goodwill must be evaluated for impairment annually or on an interim basis when a triggering event occurs. If the carrying value of our reporting unit exceeds its current fair value as determined based on the value of the business, the goodwill is considered impaired and is reduced to fair value by a non-cash, non-tax-deductible charge to earnings. The impairment testing required by GAAP involves estimates and significant judgments by management. Although we believe our assumptions and estimates are reasonable and appropriate, any changes in key assumptions or other unanticipated events and circumstances may affect the accuracy or validity of such estimates. Events and conditions that could result in impairment in the value of our goodwill include worsening business conditions and economic factors, particularly those that may result from the impact of a downturn in the economy as a result of COVID-19, changes in the industries in which we operate, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term profitability and cash flows.

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

The Company did not purchase any of its common stock during the three months ended June 30, 2020.

On November 20, 2019, the Company announced that the Board had approved a program commencing on November 25, 2019 to repurchase up to $5.0 million of the Company’s outstanding common stock, which was approximately 3.2% of outstanding common shares. On March 19, 2020, the Company announced that the stock repurchase program was suspended until further notice. As of March 19, 2020, the Company had repurchased 69,966 shares. This repurchase program is scheduled to expire on November 24, 2020.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits


			3.1			Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4 filed on June 13, 2014 (File No. 333-196749))
			3.2			Bylaws , as amended (incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on May 20, 2020 )
			31.1			Rule 13a-14(a) / 15d-14(a) Certification (Chief Executive Officer)
			31.2			Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer)
			32.1			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 June 30, 2020, formatted in XBRL (Extensible Business Reporting Language); the (i) Consolidated Statement of Financial Condition, (ii) Consolidated Statement of Operations, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated Statement of Stockholders’ Equity, (v) Consolidated Statement of Cash Flows and (vi) Notes to the Unaudited Consolidated Financial Statements.

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SIGNATURES

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


		CB FINANCIAL SERVICES, INC.
		(Registrant)

Date:	August 7, 2020	/s/ Barron P. McCune, Jr.
		Barron P. McCune, Jr.
		President and Chief Executive Officer

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

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Part I Financial Information Item 1. Financial Statements Note 1. Summary Of Significant Accounting Policies Note 2. Earnings Per Share Note 3. Investment Securities Note 4. Loans and Allowance For Loan Losses Note 5. Deposits Note 6. Short-term Borrowings Note 7. Other Borrowed Funds Note 8. Fair Value Disclosure Note 9. Commitments and Contingent Liabilities Note 10. Leases Note 11. Other Noninterest Expense Note 12. Segment and Related Information Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

3.1 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4 filed onJune13, 2014 (File No. 333-196749)) 3.2 Bylaws, as amended(incorporatedhereinby reference to Exhibit 3.2 tothe Company's Current Report on Form8-Kfiled onMay 20, 2020) 31.1 Rule 13a-14(a) / 15d-14(a) Certification (Chief Executive Officer) 31.2 Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer) 32.1 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

CBFV 10-Q Quarter ended June 30, 2020

Exhibits