CBFV 10-Q Quarterly Report June 30, 2021 | Alphaminr
CB Financial Services, Inc.
ALPHAMINR

CBFV 10-Q Quarter ended June 30, 2021

Balance Sheet
Cash Flow
Income Statement
Debt
CB FINANCIAL SERVICES, INC.
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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, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 001-36706
CB FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
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 5, 2021, the number of shares outstanding of the Registrant’s Common Stock was 5,380,165 .

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FORM 10-Q
INDEX
Page

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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) June 30,
2021 		December 31,
2020
(Dollars in thousands, except per share and share data)
ASSETS
Cash and Due From Banks:
Interest Bearing $ 156,200 $ 145,636
Non-Interest Bearing 15,810 15,275
Total Cash and Due From Banks 172,010 160,911
Securities:
Available-for-Sale Debt Securities, at Fair Value 205,711 142,897
Equity Securities, at Fair Value 2,761 2,503
Total Securities 208,472 145,400
Loans Held for Sale 11,409 —
Loans, Net of Allowance for Loan Losses of $ 11,544 and $ 12,771 at June 30, 2021 and December 31, 2020, Respectively
995,902 1,031,982
Premises and Equipment Held for Sale 795 —
Premises and Equipment, Net
18,682 20,302
Bank-Owned Life Insurance
25,052 24,779
Goodwill
9,732 9,732
Intangible Assets, Net
6,186 8,399
Accrued Interest Receivable and Other Assets 13,373 15,215
TOTAL ASSETS
$ 1,461,613 $ 1,416,720
LIABILITIES
Deposits Held for Sale $ 102,557 $ —
Deposits:
Non-Interest Bearing Demand Deposits 368,452 340,569
NOW Accounts 246,920 259,870
Money Market Accounts 176,824 199,029
Savings Accounts 226,639 235,088
Time Deposits 154,718 190,013
Total Deposits 1,173,553 1,224,569
Short-Term Borrowings
39,054 41,055
Other Borrowings
6,000 8,000
Accrued Interest Payable and Other Liabilities 7,913 8,566
TOTAL LIABILITIES
1,329,077 1,282,190
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized
— —
Common Stock, $ 0.4167 Par Value; 35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,409,077 and 5,434,374 Shares Outstanding at June 30, 2021 and December 31, 2020, Respectively
2,367 2,367
Capital Surplus
82,969 82,723
Retained Earnings
51,146 51,132
Treasury Stock, at Cost ( 271,916 and 246,619 Shares at June 30, 2021 and December 31, 2020, Respectively)
( 5,655 ) ( 5,094 )
Accumulated Other Comprehensive Income
1,709 3,402
TOTAL STOCKHOLDERS' EQUITY
132,536 134,530
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,461,613 $ 1,416,720
The accompanying notes are an integral part of these consolidated financial statements

1
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CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
(Dollars in thousands, except share and per share data)
INTEREST AND DIVIDEND INCOME
Loans, Including Fees $ 9,936 $ 10,577 $ 20,082 $ 21,341
Investment Securities:
Taxable 635 940 1,281 2,141
Tax-Exempt 74 106 152 212
Dividends 24 20 44 40
Other Interest and Dividend Income 151 84 249 322
TOTAL INTEREST AND DIVIDEND INCOME 10,820 11,727 21,808 24,056
INTEREST EXPENSE
Deposits 827 1,305 1,774 2,986
Short-Term Borrowings 24 39 47 84
Other Borrowings 35 62 76 132
TOTAL INTEREST EXPENSE 886 1,406 1,897 3,202
NET INTEREST AND DIVIDEND INCOME 9,934 10,321 19,911 20,854
(Recovery) Provision For Loan Losses ( 1,200 ) 300 ( 1,200 ) 2,800
NET INTEREST INCOME AFTER (RECOVERY) PROVISION FOR LOAN LOSSES 11,134 10,021 21,111 18,054
NONINTEREST INCOME
Service Fees 614 487 1,160 1,092
Insurance Commissions 1,209 1,113 2,804 2,396
Other Commissions 173 188 338 298
Net Gain on Sales of Loans 31 441 117 568
Net Gain on Securities 11 517 458 79
Net Gain on Purchased Tax Credits 17 16 35 31
Net (Loss) Gain on Disposal of Fixed Assets ( 3 ) — ( 3 ) 17
Income from Bank-Owned Life Insurance 136 138 273 277
Other Income (Loss) 31 ( 252 ) 211 ( 238 )
TOTAL NONINTEREST INCOME 2,219 2,648 5,393 4,520
NONINTEREST EXPENSE
Salaries and Employee Benefits 5,076 4,828 9,970 9,559
Occupancy 1,024 699 1,734 1,432
Equipment 311 224 577 481
Data Processing 607 460 1,125 885
FDIC Assessment 249 163 499 321
PA Shares Tax 225 333 490 608
Contracted Services 750 562 1,437 940
Legal and Professional Fees 419 171 608 406
Advertising 193 155 333 338
Other Real Estate Owned Income ( 26 ) ( 1 ) ( 64 ) ( 18 )
Amortization of Intangible Assets 503 532 1,035 1,064
Intangible Assets Impairment 1,178 — 1,178 —
Writedown of Fixed Assets 2,268 — 2,268 —
Other Expense 945 945 1,927 2,058
TOTAL NONINTEREST EXPENSE 13,722 9,071 23,117 18,074
(Loss) Income Before Income Tax (Benefit) Expense ( 369 ) 3,598 3,387 4,500
Income Tax (Benefit) Expense ( 146 ) 695 765 824
NET (LOSS) INCOME $ ( 223 ) $ 2,903 $ 2,622 $ 3,676
(LOSS) EARNINGS PER SHARE
Basic $ ( 0.04 ) $ 0.54 $ 0.48 $ 0.68
Diluted ( 0.04 ) 0.54 0.48 0.68
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 5,432,234 5,393,712 5,433,298 5,412,456
Diluted 5,432,234 5,393,770 5,438,401 5,423,770
The accompanying notes are an integral part of these consolidated financial statements

2
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
(Dollars in thousands)
Net (Loss) Income $ ( 223 ) $ 2,903 $ 2,622 $ 3,676
Other Comprehensive Income (Loss):
Change in Unrealized Gain (Loss) on Investment Securities Available-for-Sale 922 ( 572 ) ( 1,929 ) 2,946
Income Tax Effect ( 199 ) 120 413 ( 619 )
Reclassification Adjustment for Gain on Sale of Debt Securities Included in Net Income (1)
— ( 489 ) ( 225 ) ( 489 )
Income Tax Effect (2)
— 103 48 103
Other Comprehensive Income (Loss), Net of Income Tax Effect 723 ( 838 ) ( 1,693 ) 1,941
Total Comprehensive Income $ 500 $ 2,065 $ 929 $ 5,617
(1) Reported in Net Gain on Securities on the Consolidated Statements of (Loss) Income.
(2) Reported in Income Tax (Benefit) Expense on the Consolidated Statements of (Loss) Income.
The accompanying notes are an integral part of these consolidated financial statements

3
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


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


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

4
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Six Months Ended June 30, 2021 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2020 5,680,993 $ 2,367 $ 82,723 $ 51,132 $ ( 5,094 ) $ 3,402 $ 134,530
Comprehensive Income:
Net Income — — — 2,622 — — 2,622
Other Comprehensive Loss — — — — — ( 1,693 ) ( 1,693 )
Stock-Based Compensation Expense — — 246 — — — 246
Treasury stock purchased, at cost ( 25,297 shares)
— — — — ( 561 ) — ( 561 )
Dividends Paid ($ 0.48 Per Share)
— — — ( 2,608 ) — — ( 2,608 )
June 30, 2021 5,680,993 $ 2,367 $ 82,969 $ 51,146 $ ( 5,655 ) $ 1,709 $ 132,536



Six Months Ended June 30, 2020 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2019 5,680,993 $ 2,367 $ 82,971 $ 66,955 $ ( 3,842 ) $ 2,646 $ 151,097
Comprehensive Income:
Net Income — — — 3,676 — — 3,676
Other Comprehensive Income — — — — — 1,941 1,941
Restricted Stock Awards Forfeited — — 96 — ( 96 ) — —
Stock-Based Compensation Expense — — 256 — — — 256
Exercise of Stock Options — — 4 — ( 82 ) — ( 78 )
Treasury Stock Purchased, at cost ( 67,816 shares)
— — — — ( 1,908 ) — ( 1,908 )
Dividends Paid ($ 0.48 Per Share)
— — — ( 2,592 ) — — ( 2,592 )
June 30, 2020 5,680,993 $ 2,367 $ 83,327 $ 68,039 $ ( 5,928 ) $ 4,587 $ 152,392
The accompanying notes are an integral part of these consolidated financial statements

5
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 2021 2020
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income $ 2,622 $ 3,676
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities
Amortization (Accretion) on Securities 32 ( 50 )
Depreciation and Amortization 1,256 2,158
(Recovery) Provision for Loan Losses ( 1,200 ) 2,800
Intangible Asset Impairment 1,178 —
Writedown on Fixed Assets 2,268 —
Lease impairment 227 —
Gain on Securities ( 458 ) ( 79 )
Gain on Purchased Tax Credits ( 35 ) ( 31 )
Income from Bank-Owned Life Insurance ( 273 ) ( 277 )
Proceeds From Mortgage Loans Sold 3,916 15,140
Originations of Mortgage Loans for Sale ( 9,134 ) ( 14,572 )
Gain on Sale of Loans ( 117 ) ( 568 )
Gain on Sale of Other Real Estate Owned and Repossessed Assets — 16
Noncash Expense for Stock-Based Compensation 246 256
Decrease (Increase) in Accrued Interest Receivable 266 ( 1,366 )
Net Loss (Gain) on Disposal of Fixed Assets 3 ( 17 )
Increase in Taxes Payable 247 1,018
Payments on Operating Leases ( 170 ) ( 220 )
Decrease in Accrued Interest Payable ( 146 ) ( 124 )
Refund of Federal and State Income Taxes 1,311 —
Other, Net ( 11 ) ( 1,077 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,028 6,683
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities 20,412 72,253
Purchases of Securities ( 97,142 ) ( 38,823 )
Proceeds from Sale of Securities 11,930 17,893
Net Decrease (Increase) in Loans 31,497 ( 86,434 )
Purchase of Premises and Equipment ( 2,240 ) ( 97 )
Proceeds from Disposal of Premises and Equipment — 25
Proceeds From Sale of Other Real Estate Owned — 42
Decrease (Increase) in Restricted Equity Securities 243 ( 137 )
NET CASH USED IN INVESTING ACTIVITIES ( 35,300 ) ( 35,278 )
FINANCING ACTIVITIES
Net Increase in Deposits 41,489 75,581
Net Increase in Short-Term Borrowings 8,051 11,778
Principal Payments on Other Borrowed Funds ( 2,000 ) ( 3,000 )
Cash Dividends Paid ( 2,608 ) ( 2,592 )
Treasury Stock, Purchases at Cost ( 561 ) ( 1,908 )
Exercise of Stock Options — ( 78 )
NET CASH PROVIDED BY FINANCING ACTIVITIES 44,371 79,781
INCREASE IN CASH AND CASH EQUIVALENTS 11,099 51,186
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 160,911 80,217
CASH AND DUE FROM BANKS AT END OF PERIOD $ 172,010 $ 131,403
The accompanying notes are an integral part of these consolidated financial statements

6
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 2021 2021 2020
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid For:
Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $ 1,916 and $ 3,104 , Respectively)
$ 2,044 $ 3,327
Income Taxes 1,160 —
SUPPLEMENTAL NONCASH DISCLOSURE:
Transfer of Loans to Loans Held for Sale 11,409 —
Transfer of Premises and Equipment to Premises and Equipment Held for Sale and Other Assets 1,075 —
Transfer of Deposits to Deposits Held for Sale 102,557 —
Other Real Estate Acquired in Settlement of Loans — 76
Right of Use Asset Recognized — 47
Lease Liability Recognized — 47
The accompanying notes are an integral part of these consolidated financial statements

7
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters”). CB Financial, the Bank and Exchange Underwriters are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with general practice within the banking industry. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition and income and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, other-than-temporary impairment evaluations of securities, 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, 2020. Interim results are not necessarily indicative of results for a full year.
The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 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 11 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, and five branches in Marshall, Ohio, Upshur and Wetzel Counties in West Virginia. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, a full-service, independent insurance agency.
Reclassifications
Certain comparative amounts for the prior year have been reclassified to conform to the current year presentation. Such reclassifications did not affect net income or stockholders’ equity.
Assets and Liabilities Held for Sale
Assets and liabilities (disposal groups) are classified as held for sale when their carrying amounts will be recovered principally through sale when all of the following criteria are met:
• management, having the authority to approve the action, commits to a plan to sell the disposal group;
• the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups;
• an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated;
8
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• the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify as a completed sale within one year, except if events or circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year;
• the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
• actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Assets and liabilities held for sale are measured at the lower of carrying amount and fair value, less estimated costs to sell, and are presented separately on the Consolidated Statements of Financial Condition. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any estimated costs to sell, each reporting period it remains classified as held for sale and reports any subsequent losses as an adjustment to the carrying value of the disposal group. Assets classified as held for sale are no longer depreciated or amortized.
Loans held for sale may consist of residential real estate loans originated and intended for sale in the secondary market. These loans are generally sold with loan servicing rights retained. Net unrealized losses, if any, are recognized through a valuation allowance charged to income. Gains and losses on residential real estate loans held for sale are included in noninterest income.
Impairment of Long-Lived Assets
The Company routinely performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable and are in excess of their fair value less estimated costs to sell. If estimated recoverable amounts are lower than carrying values, assets are considered impaired and reduced to their recoverable amounts with the recognized impairment charges recorded in noninterest expense in the Consolidated Statements of (Loss) Income.
Long-lived assets are tested for impairment individually or as part of an asset group. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
The Company follows ASC 360, Property, Plant and Equipment, which requires three steps to identify, recognize and measure the impairment of a long-lived asset (asset group) to be held and used:
Step 1 – Consider whether Indicators of Impairment are Present.
The following are examples of such events or changes in circumstances.
• A significant decrease in the market price of a long-lived asset (asset group).
• A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition.
• A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator.
• An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group).
• A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group).
• A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.
Step 2—Test for Recoverability
If indicators of impairment are present, the Company performs a recoverability test comparing the sum of the estimated undiscounted cash flows attributable to the long-lived asset or asset group in question to the carrying amount of the long-lived asset or asset group.
Step 3—Measurement of an Impairment Loss
If the undiscounted cash flows used in the recoverability test are less than the carrying amount of the long-lived asset (asset group), the Company estimates the fair value of the long-lived asset or asset group and recognizes an impairment loss when the carrying amount of the long-lived asset or asset group exceeds the estimated fair value.
An impairment loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group must not reduce the carrying amount of
9
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that asset below its fair value whenever the fair value is determinable without undue cost and effort. ASC 360 prohibits the subsequent reversal of an impairment loss for an asset held and used.
Recent Accounting Standards
In March 2020, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt). The ASU is intended to help stakeholders during the global market-wide reference rate transition period. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. While the LIBOR reform may require extensive changes to the contracts that govern LIBOR based products, as well as our systems and processes, we cannot yet determine whether the Company will be able to use the optional expedient for the changes to contract terms that may be required by LIBOR reform and therefore, the Company cannot yet determine the magnitude of the impact or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.
In December 2019, FASB issued ASU 2019-12, Income taxes (Topic 740); Simplifying the Accounting for Income Taxes . ASU 2019-12 provides amendments intended to reduce the cost and complexity in accounting for income taxes while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 removes the following exceptions from ASC 740, Income Taxes: (i) exceptions to the incremental approach for intraperiod tax allocation; (ii) exceptions to accounting for basis differences when a foreign subsidiary becomes an equity method investment or a foreign equity method investment become a subsidiary; and (iii) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 provides the following amendments that simplify and improve guidance with Topic 740: (i) franchise taxes that are based partially on income; (ii) transactions that result in a step up in the tax basis of goodwill; (iii) separate financial statements of legal entities that are not subject to tax; (iv) enacted changes in tax laws in interim periods; and (v) employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated statements of financial condition or results of operation.
In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP; and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 was originally effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting in a required implementation date for the Company of January 1, 2023. Early adoption will continue to be permitted. The Company is evaluating the impact of this ASU and expects to recognize a one-time adjustment to the allowance for loan losses upon adoption, but we cannot yet determine the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.
Note 2. Impairment of Long-Lived Assets and Assets and Liabilities of Branches Held for Sale
Branch Optimization and Operational Efficiency Initiatives
As previously disclosed by the Company on February 23, 2021, May 27, 2021 and June 10, 2021, the Company announced the implementation of branch optimization and operational efficiency strategic initiatives to improve the Bank’s financial performance and operations in order to position the Bank for continued profitable growth. The Bank intends to optimize its
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current branch network while expanding technology and infrastructure investments in its remaining locations. The decision was the result of a comprehensive internal study that measured branch performance by comparing financial and non-financial indicators to growth opportunities, while evolving changes in consumer preferences, largely driven by the global pandemic, led to an acceleration of branch optimization efforts. The Bank also completed a comprehensive review of its branch network and operating environment to identify solutions to improve operating performance. This review prioritized profitability, efficiency, infrastructure and client experience improvements, automation in operations, and digital marketing and technology investments.
The Bank continues to make progress related to these initiatives through the consolidation of six branches that was completed on June 30, 2021, reducing the Bank's branch network to 16 branches. The Bank is also in the process of implementing operational efficiencies related to individualized processes within its branch network and operating environment. In addition, on June 10, 2021, CB Financial, Community Bank, and Citizens Bank of West Virginia, Inc. (“Citizens Bank”) executed a Purchase and Assumption Agreement (the “Agreement”) pursuant to which Citizens Bank has agreed to purchase certain loans and other assets, and assume certain deposits and other liabilities, of the branch offices of Community Bank located in Buckhannon, West Virginia, and in New Martinsville, West Virginia. The Agreement provides for a 5.0 % premium to be paid on assumed deposits, which will be recognized as income upon the expected close of the transaction in the fourth quarter of 2021, subject to regulatory approval and other closing conditions.
As a result of the events and changes in circumstances associated with the branch optimization initiatives whereby six branches were consolidated and two others are to be divested, the Company performed assessments of the recoverability of long-lived assets to determine whether their carrying values may not be recoverable. Utilizing guidance in ASC 360, the Company performed the three step process to identify, recognize and measure the impairment of the long-lived assets.
• For the six locations that were consolidated:
◦ Three locations were written down to the fair value of the land based on the appraised value due to plans to raze the buildings.
◦ Two locations are being marketed for sale and were written down to fair value based on appraised value.
◦ One location is leased. Refer to Note 11 for further discussion of the impairment of the right of use asset associated with the operating lease.
• For the two branches to be divested, fair value of the premises and equipment was determined based on the contractual terms of the Agreement, which note the premises and equipment will be purchased at the Company's net book value, net of a $ 338,000 contractual discount at the acquisition date.
In total, the Company recognized $ 2.3 million in charges on the premises and equipment for the three and six months ended June 30, 2021 as Writedown on Fixed Assets in the Consolidated Statements of (Loss) Income.
The branch optimization and operational efficiency initiatives resulted in $ 4.7 million and $ 5.1 million of restructuring-related and other expenses for the three and six months ended June 30, 2021, respectively. The expenses include the aforementioned $ 2.3 million writedown on fixed assets, as well as a $ 1.2 million impairment of intangible assets associated with the branch sales (refer to Note 14 for further information) and $ 1.3 million and $ 1.6 million of expenses related to contracted services, employee severance costs, branch lease impairment (refer to Note 11 for further information), professional fees, data processing fees, legal and other expenses for the three and six months ended June 30, 2021, respectively.
Assets and Liabilities of Branches Held for Sale
At June 30, 2021, the Company reclassified the deposits to be assumed to deposits held for sale, loans to be purchased to loans held for sale and premises and equipment to be purchased to premises and equipment held for sale on the Consolidated Statements of Financial Condition.
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The assets and liabilities classified as held for sale of the disposal group related to the branch sales are as follows
June 30,
2021
(Dollars in thousands)
Loans Held for Sale
Real Estate:
Residential $ 2,368
Commercial 2,513
Commercial and Industrial 438
Consumer 254
Other 502
Total Loans Held for Sale $ 6,075
Premises and Equipment Held for Sale 795
Deposits Held for Sale
Non-Interest Bearing Demand Deposits $ 16,125
Interest Bearing Demand Deposits 29,487
Money Market Accounts 17,219
Savings Accounts 21,389
Time Deposits 18,337
Total Deposits Held for Sale $ 102,557
Note 3. (Loss) Earnings Per Share
There are no convertible securities which would affect the numerator in calculating basic and diluted (loss) earnings per share; therefore, net (loss) income as presented on the Consolidated Statements of (Loss) Income is used as the numerator.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
(Dollars in thousands, except share and per share data)
Net (Loss) Income $ ( 223 ) $ 2,903 $ 2,622 $ 3,676
Weighted-Average Basic Common Shares Outstanding
5,432,234 5,393,712 5,433,298 5,412,456
Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)
— 58 5,103 11,314
Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding
5,432,234 5,393,770 5,438,401 5,423,770
(Loss) Earnings Per Share:
Basic
$ ( 0.04 ) $ 0.54 $ 0.48 $ 0.68
Diluted
( 0.04 ) 0.54 0.48 0.68
The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents for the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not
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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,
2021 2020 2021 2020
Stock Options 216,662 205,271 201,662 73,731
Restricted Stock 76,070 43,650 33,610 30,250
When there is a net loss for the period, the exercise or conversion of any potential shares increases the number of shares in the denominator and results in a lower loss per share. In that situation, the potential shares are antidilutive and not included in the Company's loss per share calculation. Therefore, if there is a net loss, diluted loss per share is the same as basic loss per share.
Note 4. Securities
The following table presents the amortized cost and fair value of securities available-for-sale at the dates indicated:
June 30, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
Available-for-Sale Debt Securities:
U.S. Government Agencies
$ 50,992 $ 6 $ ( 1,212 ) $ 49,786
Obligations of States and Political Subdivisions
19,412 1,183 — 20,595
Mortgage-Backed Securities - Government-Sponsored Enterprises
133,130 2,368 ( 168 ) 135,330
Total Available-for-Sale Debt Securities 203,534 3,557 ( 1,380 ) 205,711
Equity Securities:
Mutual Funds
1,004
Other
1,757
Total Equity Securities 2,761
Total Securities $ 208,472
December 31, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
Available-for-Sale Debt Securities:
U.S. Government Agencies
$ 41,994 $ 12 $ ( 595 ) $ 41,411
Obligations of States and Political Subdivisions
20,672 1,321 — 21,993
Mortgage-Backed Securities - Government-Sponsored Enterprises
75,900 3,593 — 79,493
Total Available-for-Sale Debt Securities 138,566 4,926 ( 595 ) 142,897
Equity Securities:
Mutual Funds
1,019
Other
1,484
Total Equity Securities 2,503
Total Securities $ 145,400
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The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated:
June 30, 2021
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
10 $ 40,782 $ ( 1,212 ) — $ — $ — 10 $ 40,782 $ ( 1,212 )
Mortgage Backed Securities- Government Sponsored Enterprises
4 17,908 ( 168 ) — — — 4 17,908 ( 168 )
Total 14 $ 58,690 $ ( 1,380 ) — $ — $ — 14 $ 58,690 $ ( 1,380 )
December 31, 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
7 $ 32,399 $ ( 595 ) — $ — $ — 7 $ 32,399 $ ( 595 )
Total
7 $ 32,399 $ ( 595 ) — $ — $ — 7 $ 32,399 $ ( 595 )
For debt securities, the Company does not believe that any individual unrealized loss as of June 30, 2021 or December 31, 2020, represents an other-than-temporary impairment. The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate an other-than-temporary impairment. The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer. The securities that are temporarily impaired at June 30, 2021 and December 31, 2020 relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell, and 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.
Securities available-for-sale with a fair value of $ 166.1 million and $ 119.7 million at June 30, 2021 and December 31, 2020, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law.
The following table presents the scheduled maturities of debt securities as of the date indicated:
June 30, 2021
Amortized
Cost
Fair
Value
(Dollars in thousands)
Due in One Year or Less
$ 1,736 $ 1,758
Due after One Year through Five Years
6,296 6,331
Due after Five Years through Ten Years
62,462 62,858
Due after Ten Years
133,040 134,764
Total
$ 203,534 $ 205,711
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The following table presents the gross realized gain and loss on sales of debt securities, as well as gain and loss on equity securities from both sales and market adjustments for the periods indicated. All gains and losses presented in the table below are reported in net gain on securities on the Consolidated Statements of (Loss) Income.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
(Dollars in thousands)
Debt Securities
Gross Realized Gain $ — $ 489 $ 225 $ 489
Gross Realized Loss — — — —
Net Gain on Debt Securities $ — $ 489 $ 225 $ 489
Equity Securities
Net Unrealized Gain (Loss) Recognized on Securities Held $ 11 $ 28 $ 233 $ ( 410 )
Net Realized Gain Recognized on Securities Sold — — — —
Net Gain (Loss) on Equity Securities $ 11 $ 28 $ 233 $ ( 410 )
Net Gain on Securities $ 11 $ 517 $ 458 $ 79
Note 5. Loans and Allowance for Loan Losses
The Company’s loan portfolio is segmented to enable management to monitor risk and performance. Real estate loans are further segregated into three classes. Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate. Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate. The commercial and industrial segment consists of loans to finance the activities of commercial customers. The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit.
Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient.
Commercial real estate loans generally present a higher level of risk than loans secured by residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.
Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. Construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion.
Commercial and industrial loans are generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk.
Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan.
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The following table presents the classifications of loans as of the dates indicated.
June 30, 2021 December 31, 2020
Amount
Percent
Amount
Percent
(Dollars in thousands)
Real Estate:
Residential
$ 322,480 32.0 % $ 344,142 32.9 %
Commercial
360,518 35.7 373,555 35.9
Construction
85,187 8.5 72,600 6.9
Commercial and Industrial
120,191 11.9 126,813 12.1
Consumer
106,404 10.6 113,854 10.9
Other
12,666 1.3 13,789 1.3
Total Loans
1,007,446 100.0 % 1,044,753 100.0 %
Allowance for Loan Losses
( 11,544 ) ( 12,771 )
Loans, Net
$ 995,902 $ 1,031,982
The Small Business Administration reopened the Payroll Protection Program ("PPP") the week of January 11, 2021 accepting applications for both First Draw and Second Draw PPP Loans. As of June 30, 2021, as part of this round of PPP, the Bank funded 217 PPP loans totaling $ 34.6 million with net deferred origination fees of $ 1.3 million.
PPP loans decreased $ 5.6 million to $ 49.5 million at June 30, 2021 compared to $ 55.1 million at December 31, 2020. At June 30, 2021, the largest sectors of PPP loans were $ 8.6 million for construction and specialty-trade contractors, $ 5.8 million in loans for health care and social assistance, $ 4.5 million for professional and technical services, $ 3.4 million for manufacturing, $ 3.1 million for restaurant and food services, and $ 2.8 million for wholesale trade.
Net unamortized PPP loan origination fees as of June 30, 2021 and December 31, 2020 were $ 1.4 million and $ 1.1 million, respectively. Net PPP loan origination fees earned were $ 489,000 and $ 1.0 million for the three and six months ended June 30, 2021, respectively. All PPP loans are classified as commercial and industrial loans held for investment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.
Total unamortized net deferred loan fees were $ 2.4 million and $ 2.0 million at June 30, 2021 and December 31, 2020, respectively.
The following table presents classification of loans held for sale as of June 30, 2021. Loans held for sale includes $ 6.1 million related to the Agreement executed with Citizens Bank and $ 5.3 million of residential real estate loans originated and intended for sale in the secondary market. There were no loans held for sale at December 31, 2020. Additionally, there were no loans held for sale that were delinquent, nonaccrual or considered criticized loans.
June 30
2021
Real Estate:
Residential $ 7,702
Commercial 2,513
Construction —
Commercial and Industrial 438
Consumer 254
Other 502
Total Loans Held for Sale $ 11,409
The Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first four categories are not considered criticized and are aggregated as “pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as loss are considered uncollectable and of such little value that continuance as an asset is not warranted.
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The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated. At June 30, 2021 and December 31, 2020, there were no loans in the criticized category of Loss within the internal risk rating system.
June 30, 2021
Pass
Special
Mention
Substandard
Doubtful
Total
(Dollars in Thousands)
Real Estate:
Residential
$ 319,000 $ 905 $ 2,575 $ — $ 322,480
Commercial
312,217 32,908 15,393 — 360,518
Construction
78,700 3,887 2,600 — 85,187
Commercial and Industrial
104,660 9,848 5,123 560 120,191
Consumer
106,329 — 75 — 106,404
Other
12,593 73 — — 12,666
Total Loans
$ 933,499 $ 47,621 $ 25,766 $ 560 $ 1,007,446
December 31, 2020
Pass
Special
Mention
Substandard
Doubtful
Total
(Dollars in Thousands)
Real Estate:
Residential
$ 340,573 $ 1,115 $ 2,454 $ — $ 344,142
Commercial
320,358 37,482 15,715 — 373,555
Construction
68,343 53 4,204 — 72,600
Commercial and Industrial
113,797 7,787 4,620 609 126,813
Consumer
113,805 — 49 — 113,854
Other
13,711 78 — — 13,789
Total Loans
$ 970,587 $ 46,515 $ 27,042 $ 609 $ 1,044,753
The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated.
June 30, 2021
Loans
Current
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past Due
Non-
Accrual
Total
Loans
(Dollars in Thousands)
Real Estate:
Residential
$ 319,916 $ 217 $ 381 $ — $ 598 $ 1,966 $ 322,480
Commercial
353,504 — — — — 7,014 360,518
Construction
83,229 — — — — 1,958 85,187
Commercial and Industrial
118,494 — — — — 1,697 120,191
Consumer
105,869 374 86 — 460 75 106,404
Other
12,666 — — — — — 12,666
Total Loans
$ 993,678 $ 591 $ 467 $ — $ 1,058 $ 12,710 $ 1,007,446
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December 31, 2020
Loans
Current
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past Due
Non-
Accrual
Total
Loans
(Dollars in Thousands)
Real Estate:
Residential
$ 339,067 $ 2,919 $ 315 $ — $ 3,234 $ 1,841 $ 344,142
Commercial
365,712 1 740 — 741 7,102 373,555
Construction
72,600 — — — — — 72,600
Commercial and Industrial
124,916 — — — — 1,897 126,813
Consumer
112,952 784 61 8 853 49 113,854
Other
13,789 — — — — — 13,789
Total Loans
$ 1,029,036 $ 3,704 $ 1,116 $ 8 $ 4,828 $ 10,889 $ 1,044,753
The increase in nonaccrual loans at June 30, 2021 compared to December 31, 2020 is primarily related to a $ 2.0 million construction loan secured by a hotel.
Additional interest income that would have been recorded on nonaccrual loans if the loans were current was $ 135,000 and $ 196,000 for the three and six months ended June 30, 2021, respectively, and $ 37,000 and $ 48,000 for the three and six months ended June 30, 2020, respectively.
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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,
2021 		December 31,
2020
(Dollars in Thousands)
Nonaccrual Loans:
Real Estate:
Residential
$ 1,966 $ 1,841
Commercial
7,014 7,102
Construction 1,958 —
Commercial and Industrial
1,697 1,897
Consumer
75 49
Total Nonaccrual Loans
12,710 10,889
Accruing Loans Past Due 90 Days or More:
Consumer
— 8
Total Accruing Loans Past Due 90 Days or More
— 8
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More
12,710 10,897
Troubled Debt Restructurings, Accruing:
Real Estate
Residential
632 650
Commercial
2,046 2,861
Commercial and Industrial
20 80
Total Troubled Debt Restructurings, Accruing
2,698 3,591
Total Nonperforming Loans
15,408 14,488
Other Real Estate Owned:
Residential
— —
Commercial
208 208
Total Other Real Estate Owned
208 208
Total Nonperforming Assets
$ 15,616 $ 14,696
Nonperforming Loans to Total Loans
1.53 % 1.39 %
Nonperforming Assets to Total Assets
1.07 1.04
The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 1.5 million and $ 806,000 at June 30, 2021 and December 31, 2020, respectively.
TDRs typically are the result of loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral. For a loan modification to be considered a TDR, the borrower must be experiencing financial difficulty and a concession must be granted, except for an insignificant delay in payment. Section 4013 of the CARES Act and regulatory guidance promulgated by federal banking regulators provide temporary relief from accounting and financial reporting requirements for TDRs regarding certain short-term loan modifications related to COVID-19. Specifically, the CARES Act provides that the Bank may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and suspend any determination that such loan 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 January 1, 2022 (as extended by the Consolidated Appropriations Act, 2021) or the date that is 60 days after the termination date of the national emergency related to
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the COVID-19 outbreak qualify for this exception, including a forbearance arrangement, interest rate modification, repayment plan or any other similar arrangement that defers or delays the payment of principal or interest.
Bank regulatory agencies released an interagency statement that offers practical expedients for modifications that occur in response to the COVID-19 pandemic, but it differs with the CARES Act in certain areas. The expedients require a lender to conclude that a borrower is not experiencing financial difficulty if either short-term (e.g., six months or less) modifications are made, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented or the modification or deferral program is mandated by the federal government or a state government. The bank 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.
The Bank offered forbearance options for borrowers impacted by COVID-19 that provide a short-term delay in payment by primarily allowing: (a) deferral of three to six months of payments; or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months . During the forbearance period, the borrower is not considered delinquent for credit bureau reporting purposes. The Company has elected the practical expedients related to TDRs that are available in the CARES Act and interagency guidance as an entity-wide accounting policy and does not consider any of the forbearance agreements TDRs, delinquent, or nonaccrual.
The following table provides details of loans in forbearance as of the dates indicated.
June 30, 2021 December 31, 2020
Number
of
Loans 		Amount % of Portfolio Number
of
Loans 		Amount % of Portfolio
(Dollars in thousands)
Real Estate:
Residential — $ — — % 4 $ 749 0.2 %
Commercial 4 6,544 1.8 % 8 19,818 5.3 %
Construction — — — % 1 1,958 2.7 %
Commercial and Industrial 5 1,221 1.0 % 5 1,219 1.0 %
Consumer — — — % 13 356 0.3 %
Total Loans in Forbearance 9 $ 7,765 0.8 % 31 $ 24,100 2.3 %
Loans in deferral at June 30, 2021 include one commercial real estate loans totaling $ 3.3 million that is secured by a hotel, and a business relationship that rents equipment, supplies and other materials for events comprised of three commercial real estate loans totaling $ 3.3 million, and five commercial and industrial loans totaling $ 1.2 million. These loans ended their forbearance period in July and begin making regularly scheduled payments.
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 14 loans totaling $ 3.3 million at June 30, 2021 and 17 loans totaling $ 4.2 million at December 31, 2020, respectively.
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The following table presents information at the time of modification related to loans modified in a TDR during the periods indicated. During the three and six months ended June 30, 2021, there were no loans that were modified that were considered a TDR.
Three Months and Six Months Ended June 30, 2020
Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Related Allowance
(Dollars in thousands)
Real Estate:
Residential 1 $ 234 $ 234 $ —
Total 1 $ 234 234 $ —
During the three months ended June 30, 2021, one commercial real estate loan totaling $ 698,000 and one commercial and industrial loan totaling $ 8,000 that were previously modified in a TDR paid off in full. During the six months ended June 30, 2021, one residential real estate loan totaling $ 3,000 , one commercial real estate loan totaling $ 698,000 and one commercial and industrial loan totaling $ 8,000 previously modified in a TDR paid off in full. During the three and six month ended June 30, 2020, one residential real estate loan totaling $ 60,000 previously modified in a TDR paid off in full.
No TDRs subsequently defaulted during the three and six months ended June 30, 2021 and 2020, respectively.
The following table presents a summary of the loans considered to be impaired as of the dates indicated.
June 30, 2021
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
(Dollars in thousands)
With No Related Allowance Recorded:
Real Estate:
Residential
$ 1,161 $ — $ 1,165 $ 1,171 $ 23
Commercial
15,823 — 15,995 15,987 177
Construction
2,600 — 2,600 2,600 10
Commercial and Industrial
3,783 — 4,043 4,087 44
Total With No Related Allowance Recorded
$ 23,367 $ — $ 23,803 $ 23,845 $ 254
With A Related Allowance Recorded:
Real Estate:
Residential
$ — $ — $ — $ — $ —
Commercial
564 261 564 572 13
Construction
— — — — —
Commercial and Industrial
1,920 62 1,920 1,920 20
Total With A Related Allowance Recorded
$ 2,484 $ 323 $ 2,484 $ 2,492 $ 33
Total Impaired Loans:
Real Estate:
Residential
$ 1,161 $ — $ 1,165 $ 1,171 $ 23
Commercial
16,387 261 16,559 16,559 190
Construction
2,600 — 2,600 2,600 10
Commercial and Industrial
5,703 62 5,963 6,007 64
Total Impaired Loans
$ 25,851 $ 323 $ 26,287 $ 26,337 $ 287
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December 31, 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
$ 1,183 $ — $ 1,187 $ 1,194 $ 46
Commercial
31,865 — 32,887 37,443 1,418
Construction 4,204 — 4,204 4,013 159
Commercial and Industrial
3,296 — 3,506 3,426 89
Total With No Related Allowance Recorded
$ 40,548 $ — $ 41,784 $ 46,076 $ 1,712
With A Related Allowance Recorded:
Real Estate:
Residential
$ — $ — $ — $ — $ —
Commercial
1,524 293 1,524 1,585 72
Construction — — — — —
Commercial and Industrial
2,069 356 2,069 2,114 57
Total With A Related Allowance Recorded
$ 3,593 $ 649 $ 3,593 $ 3,699 $ 129
Total Impaired Loans
Real Estate:
Residential
$ 1,183 $ — $ 1,187 $ 1,194 $ 46
Commercial
33,389 293 34,411 39,028 1,490
Construction 4,204 — 4,204 4,013 159
Commercial and Industrial
5,365 356 5,575 5,540 146
Total Impaired Loans
$ 44,141 $ 649 $ 45,377 $ 49,775 $ 1,841
The recorded investment of loans evaluated for impairment decreased $ 18.3 million at June 30, 2021 compared to December 31, 2020 and was primarily related to commercial real estate loans. This is the result of no longer evaluating separately for impairment certain commercial real estate loans secured by hotels that have manageable loan-to-value ratios and have exhibited an ability to cash flow during the COVID-19 pandemic, with the expectation that hotel operations strengthen further as occupancy rates increase due to the economy reopening and resumption of travel.
The following tables present the activity in the allowance for loan losses summarized by primary segments and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated.
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Unallocated
Total
(Dollars in thousands)
March 31, 2021 $ 1,975 $ 5,917 $ 939 $ 1,543 $ 1,103 $ — $ 1,248 $ 12,725
Charge-offs
— — — — ( 25 ) — — ( 25 )
Recoveries
4 — — 10 30 — — 44
Provision (Recovery) ( 391 ) ( 335 ) 197 ( 401 ) ( 167 ) — ( 103 ) ( 1,200 )
June 30, 2021 $ 1,588 $ 5,582 $ 1,136 $ 1,152 $ 941 $ — $ 1,145 $ 11,544
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Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Unallocated
Total
(Dollars in thousands)
December 31, 2020 $ 2,249 $ 6,010 $ 889 $ 1,423 $ 1,283 $ — $ 917 $ 12,771
Charge-offs
— — — — ( 120 ) — — ( 120 )
Recoveries
13 — — 22 58 — — 93
Provision (Recovery) ( 674 ) ( 428 ) 247 ( 293 ) ( 280 ) — 228 ( 1,200 )
June 30, 2021 $ 1,588 $ 5,582 $ 1,136 $ 1,152 $ 941 $ — $ 1,145 $ 11,544
June 30, 2021
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Unallocated
Total
(Dollars in thousands)
Individually Evaluated for Impairment
$ — $ 261 $ — $ 62 $ — $ — $ — $ 323
Collectively Evaluated for Potential Impairment
$ 1,588 $ 5,321 $ 1,136 $ 1,090 $ 941 $ — $ 1,145 $ 11,221
December 31, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Unallocated
Total
(Dollars in thousands)
Individually Evaluated for Impairment
$ — $ 293 $ — $ 356 $ — $ — $ — $ 649
Collectively Evaluated for Potential Impairment
$ 2,249 $ 5,717 $ 889 $ 1,067 $ 1,283 $ — $ 917 $ 12,122
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 (Recovery) 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 (Recovery) 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
The allowance for loan losses was $ 11.5 million at June 30, 2021 compared to $ 12.8 million at December 31, 2020. There was a net recovery of $ 1.2 million of provision for loan losses for the three and six months ended June 30, 2021. A $ 31.7 million decrease in net reservable loans in the current quarter, which excludes PPP loans and includes the reclassification of $ 11.4 million of loans to held for sale that do not require a reserve, as well as a decrease in specifically impaired loans and improving economic and industry conditions contributed to the net recovery in the current period.
The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated. At June 30, 2021 and December 31, 2020, commercial and industrial loans include $ 49.5 million and $ 55.1 million, respectively, of PPP loans collectively evaluated for potential impairment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.
June 30, 2021
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Total
(Dollars in thousands)
Individually Evaluated for Impairment
$ 1,161 $ 16,387 $ 2,600 $ 5,703 $ — $ — $ 25,851
Collectively Evaluated for Potential Impairment
321,319 344,131 82,587 114,488 106,404 12,666 981,595
Total Loans
$ 322,480 $ 360,518 $ 85,187 $ 120,191 $ 106,404 $ 12,666 $ 1,007,446
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December 31, 2020
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Total
(Dollars in thousands)
Individually Evaluated for Impairment
$ 1,183 $ 33,389 $ 4,204 $ 5,365 $ — $ — $ 44,141
Collectively Evaluated for Potential Impairment
342,959 340,166 68,396 121,448 113,854 13,789 1,000,612
Total Loans $ 344,142 $ 373,555 $ 72,600 $ 126,813 $ 113,854 $ 13,789 $ 1,044,753
The following table presents changes in the accretable discount on the loans acquired at fair value at the dates indicated.
Accretable Discount
(Dollars in Thousands)
December 31, 2020 $ 1,194
Accretable Yield
( 291 )
June 30, 2021 $ 903
Note 6. Time Deposits
The following table shows the maturities of time deposits for the next five years and beyond at the date indicated.
June 30, 2021 Time Deposits Time Deposits Held for Sale Time Deposits,
Net
(Dollars in thousands)
One Year or Less
$ 70,931 $ 7,849 $ 63,082
Over One Through Two Years
56,888 4,283 52,605
Over Two Through Three Years
20,342 2,545 17,797
Over Three Through Four Years
10,024 2,121 7,903
Over Four Through Five Years
10,319 1,340 8,979
Over Five Years
4,551 199 4,352
Total
$ 173,055 $ 18,337 $ 154,718
The balance in time deposits, including time deposits held for sale, that meet or exceed the FDIC insurance limit of $250,000 totaled $ 53.6 million and $ 59.2 million as of June 30, 2021 and December 31, 2020, respectively.
The aggregate amount of demand deposits, including demand deposits held for sale, that are overdrawn and have been reclassified as loans was $ 116,000 and $ 231,000 as of June 30, 2021 and December 31, 2020, respectively.
Note 7. Short-Term Borrowings
Borrowings with original maturities of one year or less are classified as short-term and may consist of borrowings with the Federal Home Loan Bank ("FHLB"), securities sold under agreements to repurchase or borrowings on revolving lines of credit with the Federal Reserve Bank or other correspondent banks. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are overnight sweep accounts with next-day maturities utilized by commercial customers to earn interest on their funds. Securities are pledged as collateral under these agreements in an amount at least equal to the outstanding balance and the collateral pledging requirements are monitored on a daily basis. $ 10.1 million of securities sold under agreements to repurchase are reported as deposits held for sale at June 30, 2021 because the associated deposits will be sold as part of the Agreement with Citizens Bank. See Note 2 for further information.
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The following table sets forth the components of short-term borrowings as of the dates indicated.
June 30, 2021 December 31, 2020
Amount Weighted
Average
Rate 		Amount Weighted
Average
Rate
(Dollars in thousands)
Securities Sold Under Agreements to Repurchase:
Balance at Period End $ 39,054 0.17 % $ 41,055 0.21 %
Average Balance Outstanding During the Period 45,232 0.21 37,819 0.36
Maximum Amount Outstanding at any Month End 52,777 46,123
Securities Collaterizing the Agreements at Period-End:
Carrying Value 53,496 46,312
Market Value 53,597 47,283
Note 8. Other Borrowed Funds
Other borrowed funds consist of fixed rate advances from the FHLB. The following table sets forth the scheduled maturities of other borrowed funds at the dates indicated.
June 30, 2021 December 31, 2020
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
(Dollars in thousands)
Due in One Year
$ 3,000 2.23 % $ 2,000 2.12 %
Due After One Year to Two Years
3,000 2.41 3,000 2.23
Due After Two Years to Three Years
— — 3,000 2.41
Total
$ 6,000 2.32 % $ 8,000 2.27 %
As of June 30, 2021, the Bank maintained a credit arrangement with a maximum borrowing limit of approximately $ 430.7 million with the FHLB and available borrowing capacity of $ 317.8 million. This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $ 577.9 million of residential and commercial mortgage loans and the Bank’s investment in FHLB stock. Under this arrangement the Bank had available a variable rate Line of Credit in the amount of $ 150.0 million as of June 30, 2021, of which there was no outstanding balance.
As an alternative to pledging securities, the FHLB periodically provides standby letters of credit on behalf of the Bank to secure certain public deposits in excess of the level insured by the FDIC. If the FHLB is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to the Bank. Standby letters of credit issued on our behalf by the FHLB to secure public deposits were $ 104.5 million and $ 90.3 million as of June 30, 2021 and December 31, 2020, respectively.
At June 30, 2021, the Bank maintained a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $ 79.8 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $ 120.3 million of commercial and industrial and consumer indirect auto loans. In addition, the Bank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $ 50.0 million of which no draws had been taken.
At June 30, 2021 and December 31, 2020, CB Financial did not maintain any credit facilities.
Note 9. Fair Value Disclosure
FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.
26
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The three levels of fair value hierarchy are as follows:
Level 1 –    Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.
Level 2 –    Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs 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 Statements of Financial Condition as of the dates indicated, by level within the fair value hierarchy. The majority of the Company’s securities are included in Level 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the six months ended June 30, 2021 or year ended December 31, 2020.
Fair Value
Hierarchy
June 30
2021 		December 31
2020
(Dollars in thousands)
Securities:
Available-for-Sale Debt Securities
U.S. Government Agencies
Level 2
$ 49,786 $ 41,411
Obligations of States and Political Subdivisions
Level 2
20,595 21,993
Mortgage-Backed Securities - Government-Sponsored Enterprises
Level 2
135,330 79,493
Total Available-for-Sale Debt Securities 205,711 142,897
Equity Securities
Mutual Funds
Level 1
1,004 1,019
Other
Level 1
1,757 1,484
Total Equity Securities 2,761 2,503
Total Securities $ 208,472 $ 145,400
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The following table presents the financial assets on the Consolidated Statements of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount. The table also presents the significant unobservable inputs used in the fair value measurements.
Financial Asset Fair Value Hierarchy June 30,
2021 		Valuation
Techniques 		Significant Unobservable Inputs Range Weighted Average
(Dollars in thousands)
Impaired Loans Individually Assessed Level 3 $ 2,161
Appraisal of Collateral (1)
Appraisal Adjustments (2)
0 % to 50 % 6.6 %
Mortgage Servicing Rights Level 3 689 Discounted Cash Flow Discount Rate 9 % to 11 % 10.0 %
Prepayment Speed 7 % to 27 % 15.6 %
Financial Asset Fair Value Hierarchy December 31,
2020 		Valuation
Techniques 		Significant Unobservable Inputs Range Weighted Average
(Dollars in thousands)
Impaired Loans Individually Assessed Level 3 $ 2,944
Appraisal of Collateral (1)
Appraisal Adjustments (2)
0 % to 50 % —
Mortgage Servicing Rights Level 3 656 Discounted Cash Flow Discount Rate 9 % to 11 % 10.0 %
Prepayment Speed 12 % to 27 % 18.7 %
OREO Level 3 34
Appraisal of Collateral (1)
Liquidation Expenses (2)
10 % to 30 % —
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable.
(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal.
Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. At June 30, 2021 and December 31, 2020, the fair value of impaired loans consists of the loan balances of $ 2.5 million and $ 3.6 million, respectively, less their specific valuation allowances of $ 323,000 and $ 649,000 , respectively.
The fair value of mortgage servicing rights ("MSRs") is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3. MSRs are reported in Other Assets in the Consolidated Statements of Financial Condition and are amortized into mortgage servicing income in Other Income in the Consolidated Statements of (Loss) Income.
OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.
Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.
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As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.
The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated.
June 30, 2021 December 31, 2020
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
$ 156,200 $ 156,200 $ 145,636 $ 145,636
Non-Interest Bearing
Level 1
15,810 15,810 15,275 15,275
Securities
See Above
208,472 208,472 145,400 145,400
Loans Held for Sale Level 2 11,409 11,409 — —
Loans, Net
Level 3
1,007,311 1,029,046 1,031,982 1,073,633
Property and Equipment Held for Sale Level 2 795 795 — —
Restricted Stock
Level 2
3,741 3,741 3,984 3,984
Mortgage Servicing Rights Level 3 689 689 656 656
Accrued Interest Receivable
Level 2
3,606 3,606 3,872 3,872
Financial Liabilities:
Deposits Held for Sale Level 2 102,557 107,685 — —
Deposits
Level 2
1,173,553 1,175,088 1,224,569 1,231,606
Short-Term Borrowings
Level 2
39,054 39,054 41,055 41,055
Other Borrowed Funds
Level 2
6,000 6,044 8,000 8,067
Accrued Interest Payable
Level 2
621 621 767 767
Note 10. Commitments and Contingent Liabilities
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments and conditional obligations are evaluated the same as on-balance-sheet instruments but do not have a corresponding reserve recorded. The Company’s opinion on not implementing a corresponding reserve for off-balance-sheet instruments is supported by historical factors of no losses recorded due to these items. The Company is continually evaluating these items for credit quality and any future need for the corresponding reserve.
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The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated.
June 30,
2021 		December 31,
2020
(Dollars in thousands)
Standby Letters of Credit
$ 110 $ 120
Performance Letters of Credit
2,764 2,947
Construction Mortgages
57,499 60,312
Personal Lines of Credit
7,178 6,930
Overdraft Protection Lines
6,031 6,287
Home Equity Lines of Credit
23,067 22,110
Commercial Lines of Credit
77,841 69,738
Total Commitments
$ 174,490 $ 168,444
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the letter. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets.
Note 11. Leases
The Company evaluates contracts at commencement to determine if a lease is present. The Company’s lease contracts are all classified as operating leases and create operating right-of-use (“ROU”) assets and corresponding lease liabilities on the balance sheet. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported in Accrued Interest Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition.
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,
2021 2020 2021 2020
(Dollars in thousands)
Operating Lease Expense $ 88 $ 119 $ 183 $ 235
Short-Term Lease Expense 9 — 17 —
Variable Lease Expense 8 9 16 18
Total Lease Expense $ 105 $ 128 $ 216 $ 253
June 30,
2021 		December 31,
2020
(Dollars in thousands)
Operating Leases:
ROU Assets $ 809 $ 1,206
Weighted Average Lease Term in Years 7.06 6.95
Weighted Average Discount Rate 2.44 % 2.39 %
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June 30,
2021
(Dollars in thousands)
Maturity Analysis:
Due in One Year $ 328
Due After One Year to Two Years 216
Due After Two Years to Three Years 116
Due After Three Years to Four Years 105
Due After Four to Five Years 45
Due After Five Years 341
Total $ 1,151
Less: Present Value Discount 112
Lease Liabilities $ 1,039
Impairment of ROU Assets
ROU assets from operating leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment and are reviewed for impairment when indicators of impairment are present. ASC 360 requires three steps to identify, recognize and measure impairment. If indicators of impairment are present (Step 1), the Company performs a recoverability test (Step 2) comparing the sum of the estimated undiscounted cash flows attributable to the ROU asset in question to the carrying amount. If the undiscounted cash flows used in the recoverability test are less than the carrying amount, the Company estimates the fair value of the ROU asset and recognizes an impairment loss when the carrying amount exceeds the estimated fair value (Step 3).
At June 30, 2021, the Company consolidated six branches as part of its branch optimization initiative. One of the branches was leased and the Company performed the three-step evaluation as outlined above to determine whether the operating lease was impaired. As part of the recoverability test, the Company elected to exclude operating lease liabilities from the carrying amount of the asset group. The undiscounted future cash flows used in the recoverability test were based on assumptions made by the Company rather than market participant assumptions. Since an election was made to exclude operating lease liabilities from the asset or asset group, all future cash lease payments for the lease were also excluded. In addition, the Company elected to exclude operating lease liabilities from the estimated fair value, consistent with the recoverability test When determining the fair value of the ROU asset, the Company estimated what market participants would pay to lease the asset. The ROU asset was valued assuming its highest and best use in its current form.
Based on the analysis, the Company concluded that the ROU asset for this branch was fully impaired as of June 30, 2021, resulting in a remaining ROU carrying value of zero and the recognition of a $ 227,000 impairment for the three and six months ended June 30, 2021. The impairment was recognized in Occupancy expense on the Consolidated Statements of (Loss) Income.
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Note 12. Other Noninterest Expense
The details of other noninterest expense for the Company’s Consolidated Statements of (Loss) Income for the periods indicated are as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
(Dollars in thousands)
Non-Employee Compensation $ 141 $ 147 $ 290 $ 293
Printing and Supplies 65 139 164 240
Postage 115 55 178 116
Telephone 140 132 328 301
Charitable Contributions 21 16 35 67
Dues and Subscriptions 37 41 88 117
Loan Expenses 110 125 202 270
Meals and Entertainment 26 34 60 74
Travel 28 20 50 74
Training 7 7 24 14
Bank Assessment 44 44 88 88
Insurance 59 58 119 114
Miscellaneous 152 127 301 290
Total Other Noninterest Expense $ 945 $ 945 $ 1,927 $ 2,058
Note 13. Segment and Related Information
At June 30, 2021, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services. CB Financial is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank. Exchange Underwriters has an independent board of directors from the Company and is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products.
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The following is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated.
Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated
(Dollars in thousands)
June 30, 2021
Assets $ 1,461,219 $ 4,571 $ 132,559 $ ( 136,736 ) $ 1,461,613
Liabilities 1,338,677 1,712 23 ( 11,335 ) 1,329,077
Stockholders' Equity 122,542 2,859 132,536 ( 125,401 ) 132,536
December 31, 2020
Assets $ 1,416,132 $ 5,379 $ 134,546 $ ( 139,337 ) $ 1,416,720
Liabilities 1,287,148 2,325 16 ( 7,299 ) 1,282,190
Stockholders' Equity 128,984 3,054 134,530 ( 132,038 ) 134,530
Three Months Ended June 30, 2021
Interest and Dividend Income $ 10,798 $ 1 $ 5,825 $ ( 5,804 ) $ 10,820
Interest Expense 886 — — — 886
Net Interest and Dividend Income 9,912 1 5,825 ( 5,804 ) 9,934
(Recovery) Provision for Loan Losses ( 1,200 ) — — — ( 1,200 )
Net Interest and Dividend Income After (Recovery) Provision for Loan Losses 11,112 1 5,825 ( 5,804 ) 11,134
Noninterest Income 1,002 1,209 8 — 2,219
Noninterest Expense 12,757 962 3 — 13,722
Undistributed Net Income (Loss) of Subsidiary 177 — ( 6,050 ) 5,873 —
(Loss) Income Before Income Tax (Benefit) Expense ( 466 ) 248 ( 220 ) 69 ( 369 )
Income Tax (Benefit) Expense ( 220 ) 71 3 — ( 146 )
Net (Loss) Income $ ( 246 ) $ 177 $ ( 223 ) $ 69 $ ( 223 )
Six Months Ended June 30, 2021
Interest and Dividend Income $ 21,768 $ 3 $ 7,145 $ ( 7,108 ) $ 21,808
Interest Expense 1,897 — — — 1,897
Net Interest and Dividend Income 19,871 3 7,145 ( 7,108 ) 19,911
(Recovery) Provision for Loan Losses ( 1,200 ) — — — ( 1,200 )
Net Interest and Dividend Income After (Recovery) Provision for Loan Losses 21,071 3 7,145 ( 7,108 ) 21,111
Noninterest Income 2,345 2,800 248 — 5,393
Noninterest Expense 21,147 1,964 6 — 23,117
Undistributed Net Income (Loss) of Subsidiary 585 — ( 4,750 ) 4,165 —
Income Before Income Tax Expense 2,854 839 2,637 ( 2,943 ) 3,387
Income Tax Expense 496 254 15 — 765
Net Income $ 2,358 $ 585 $ 2,622 $ ( 2,943 ) $ 2,622
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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 and Dividend Income 10,305 1 1,309 ( 1,294 ) 10,321
Provision for Loan Losses 300 — — — 300
Net Interest and Dividend Income After Provision for Loan Losses 10,005 1 1,309 ( 1,294 ) 10,021
Noninterest Income 1,508 1,121 19 — 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 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 and Dividend Income 20,823 1 1,324 ( 1,294 ) 20,854
Provision for Loan Losses 2,800 — — — 2,800
Net Interest and Dividend Income After Provision for Loan Losses 18,023 1 1,324 ( 1,294 ) 18,054
Noninterest Income (Loss) 2,553 2,402 ( 435 ) — 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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Note 14. Intangible Assets
The following table presents a summary of intangible assets subject to amortization at the dates indicated.
June 30, 2021 December 31, 2020
Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value
(Dollars in thousands)
Core Deposit Intangible $ 14,103 $ ( 7,987 ) $ ( 1,178 ) $ 4,938 $ 14,103 $ ( 7,047 ) $ 7,056
Customer List 1,800 ( 552 ) — 1,248 1,800 ( 457 ) 1,343
Total Intangible Assets $ 15,903 $ ( 8,539 ) $ ( 1,178 ) $ 6,186 $ 15,903 $ ( 7,504 ) $ 8,399
On June 10, 2021, the Agreement was executed with Citizens Bank pursuant to which Citizens Bank has agreed to assume certain deposits of the branch offices of Community Bank located in Buckhannon, West Virginia, and in New Martinsville, West Virginia. In 2018, the Company recorded a core deposit intangible asset related to the acquisition of these two branches as part of the merger with First West Virginia Bancorp, Inc. As a result of signing the Agreement and the expected sale of a portion of the deposits associated with the remaining core deposit intangible, the Company performed an interim evaluation to determine whether the core deposit intangible was impaired. As a result of the evaluation, the Company determined the carrying amount of the core deposit intangible was impaired $ 1.2 million. The Company recorded the impairment in Intangible Asset and Goodwill Impairment on the Consolidated Statements of (Loss) Income.
The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in subsequent fiscal years is as follows.
Amount
(Dollars in thousands)
Remaining in 2021 $ 891
2022 1,782
2023 1,782
2024 1,147
2025 189
2026 and Thereafter 395
Total Estimated Intangible Asset Amortization Expense $ 6,186
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Note 15. Mortgage Servicing Rights
The following table presents MSR activity and net carrying values for the periods indicated.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
(Dollars in thousands)
Mortgage Servicing Rights:
Balance, Beginning of Period $ 967 $ 992 $ 1,029 $ 1,001
Additions 15 91 32 137
Amortization ( 80 ) ( 51 ) ( 159 ) ( 106 )
Balance, End of Period $ 902 $ 1,032 $ 902 $ 1,032
Valuation Allowance:
Balance, Beginning of Period $ ( 201 ) $ ( 71 ) $ ( 373 ) $ ( 71 )
Valuation Allowance Adjustment ( 12 ) ( 269 ) 160 ( 269 )
Balance, End of Period $ ( 213 ) $ ( 340 ) $ ( 213 ) $ ( 340 )
Mortgage Servicing Rights, Net Carrying Value $ 689 $ 692 $ 689 $ 692
Amortization of MSRs and the period change in the valuation allowance are reported in Other Income on the Consolidated Statements of (Loss) Income.
Real estate loans serviced for others, which are not included in the Consolidated Statements of Financial Condition, totaled $ 96.7 million and $ 105.8 million at June 30, 2021 and December 31, 2020, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Forward-Looking Statements
This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:
• General and local economic conditions;
• The scope and duration of economic contraction as a result of the COVID-19 pandemic and its effects on the Company’s business and that of the Company’s customers;
• Our ability to realize the expected cost savings and other efficiencies related to our branch optimization and operational efficiency initiatives;
• Changes in market interest rates, deposit flows, demand for loans, real estate values and competition;
• Competitive products and pricing;
• The ability of our customers to make scheduled loan payments;
• Loan delinquency rates and trends;
• Our ability to manage the risks involved in our business;
• Our ability to integrate the operations of businesses we acquire;
• Our ability to control costs and expenses;
• Inflation, market and monetary fluctuations;
• Changes in federal and state legislation and regulation applicable to our business;
• Actions by our competitors; and
• Other factors disclosed in the Company’s periodic reports as filed with the Securities and Exchange Commission.
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Many of these risks and uncertainties have been elevated by and may continue to be elevated by the COVID-19 pandemic. The ability to predict the impact of the ongoing COVID-19 pandemic on the Company’s future operating results with any precision is difficult and depends on many factors beyond our control.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.
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 11 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and five branches in Marshall, Ohio, Upshur and Wetzel Counties in West Virginia. The Bank also has a loan production office in 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 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, 2021, compared to the financial condition as of December 31, 2020 and the consolidated results of operations for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, insurance commissions, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contracted services, legal and professional fees, advertising, deposit and general insurance and other expenses.
Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in southwestern Pennsylvania and Ohio Valley market areas.
Branch Optimization and Operational Efficiency Update
As previously disclosed by the Company on February 23, 2021, May 27, 2021 and June 10, 2021, the Company announced the implementation of branch optimization and operational efficiency strategic initiatives to improve the Bank’s financial performance and operations in order to position the Bank for continued profitable growth. The Bank intends to optimize its current branch network while expanding technology and infrastructure investments in its remaining locations. The decision was the result of a comprehensive internal study that measured branch performance by comparing financial and non-financial indicators to growth opportunities, while evolving changes in consumer preferences, largely driven by the global pandemic, led to an acceleration of branch optimization efforts. The Bank also completed a comprehensive review of its branch network and operating environment to identify solutions to improve operating performance. This review prioritized profitability, efficiency, infrastructure and client experience improvements, automation in operations, and digital marketing and technology investments.
The Bank continues to make progress related to these initiatives through the consolidation of six branches that was completed on June 30, 2021, reducing the Bank's branch network to 16 branches. The Bank is also in the process of implementing operational efficiencies related to over 185 individualized processes within its branch network and operating environment. In addition, on June 10, 2021, CB Financial, Community Bank, and Citizens Bank of West Virginia, Inc. (“Citizens Bank”) executed a Purchase and Assumption Agreement (the “Agreement”) pursuant to which Citizens Bank has agreed to purchase certain loans and other assets, and assume certain deposits and other liabilities, of the branch offices of Community Bank located in Buckhannon, West Virginia, and in New Martinsville, West Virginia. The Agreement provides for a 5.0% premium to be paid on assumed deposits,
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which will be recognized as income upon the expected close of the transaction in the fourth quarter of 2021, subject to regulatory approval and other closing conditions.
The Company presently expects to incur $7.9 million of non-recurring expenses in 2021 and, as of June 30, 2021, has incurred $5.1 million of expenses related to these items. The expenses include $2.3 million writedown on fixed assets and $1.2 million impairment of intangible assets associated with the branch consolidations and sales.
In addition, as part of the Company's branch optimization and operational efficiency initiatives, the Company incurred $1.6 million of expenses related to contracted services, employee severance costs, branch lease impairment, professional fees, data processing fees, legal and other expenses.
The majority of the remaining expenses to be recognized in 2021 are related to the operational and revenue efficiency initiative of approximately $1.5 million that will be reflected in contracted services. The Company anticipates savings from this initiative ranging from approximately $2.5 million to $3.5 million in 2022 , as well as creating possible enhanced revenue and fee generating capacity in future years.
In addition, the Company expects an annual reduction in pre-tax operating expenses in 2021 of approximately $1.0 million, alo ng with $3.0 million of ongoing pre-tax cost savings as a result of the branch optimization initiatives. The Company expects these ongoing savings to be incremental to net income beginning in 2022 . This estimated cost excludes the favorable impact of the expected premium from sale of branches expected to be recognized in the fourth quarter of 2021 and currently estimated to be $5.1 million.
Explanation of Use of Non-GAAP Financial Measures
In addition to financial measures presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we present certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information in understanding our underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Non-GAAP adjusted items impacting the Company's financial performance are identified to assist investors in providing a complete understanding of factors and trends affecting the Company’s business and in analyzing the Company’s operating results on the same basis as that applied by management. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP 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 21.0%. We believe the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.
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The following table reconciles net interest income, net interest spread and net interest margin on a FTE basis for the periods indicated:
Three Months Ended
Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Dollars in thousands)
Interest Income (GAAP) $ 10,820 $ 11,727 $ 21,808 $ 24,056
Adjustment to FTE Basis
43 59 89 113
Interest Income (FTE) (Non-GAAP)
10,863 11,786 21,897 24,169
Interest Expense (GAAP) 886 1,406 1,897 3,202
Net Interest Income (FTE) (Non-GAAP)
$ 9,977 $ 10,380 $ 20,000 $ 20,967
Net Interest Rate Spread (GAAP)
2.72 % 3.10 % 2.81 % 3.22 %
Adjustment to FTE Basis
0.02 0.02 0.01 0.01
Net Interest Rate Spread (FTE) (Non-GAAP)
2.74 3.12 2.82 3.23
Net Interest Margin (GAAP)
2.84 % 3.28 % 2.94 % 3.41 %
Adjustment to FTE Basis
0.01 0.02 0.01 0.02
Net Interest Margin (FTE) (Non-GAAP)
2.85 3.30 2.95 3.43
Allowance for loan losses to total loans, excluding PPP loans, is a non-GAAP measure that serves as a useful measurement to evaluate the allowance for loan losses without the impact of SBA guaranteed loans.
June 30,
2021 		December 31, 2020
(Dollars in thousands)
Allowance for Loan Losses (Numerator) $ 11,544 $ 12,771
Total Loans 1,007,446 $ 1,044,753
PPP Loans (49,525) (55,096)
Total Loans, Excluding PPP Loans (Non-GAAP) (Denominator) $ 957,921 $ 989,657
Allowance for Loan Losses to Total Loans (GAAP) 1.15 % 1.22 %
Allowance for Loan Losses to Total Loans, Excluding PPP Loans (Non-GAAP) 1.21 % 1.29 %
Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity divided by period-end common shares outstanding. We believe this non-GAAP measure serves as a useful tool to help evaluate the strength and discipline of the Company's capital management strategies and as an additional, conservative measure of the Company’s total value.
June 30,
2021 		December 31, 2020
(Dollars in thousands, except share and per share data)
Stockholders' Equity (GAAP) $ 132,536 $ 134,530
Goodwill and Other Intangible Assets, Net (15,918) (18,131)
Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 116,618 $ 116,399
Common Shares Outstanding (Denominator) 5,409,077 5,434,374
Book Value per Common Share (GAAP) $ 24.50 $ 24.76
Tangible Book Value per Common Share (Non-GAAP) $ 21.56 $ 21.42
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Consolidated Statements of Financial Condition Analysis
Assets. Total assets increased $44.9 million, or 3.2%, to $1.46 billion at June 30, 2021, compared to $1.42 billion at December 31, 2020. The change is primarily due to higher cash and due from banks and securities.
Cash and Securities
• Cash and due from banks increased $11.1 million, or 6.9%, to $172.0 million at June 30, 2021, compared to $160.9 million at December 31, 2020. The change is primarily due to an increase in Deposits as further described below in the Liabilities section.
• Securities increased $63.1 million, or 43.4%, to $208.5 million at June 30, 2021, compared to $145.4 million at December 31, 2020. Current period activity included $97.1 million of mortgage-backed securities and U.S. government agency securities purchases, $20.4 million of paydowns on mortgage-backed securities, and $11.9 million of mortgage-backed securities sales, which resulted in the recognition of a $225,000 gain on the sale of securities. The purchases were made to earn a higher yield on excess cash with an expected 6 bps increase in incremental annual net interest margin. The sales recognized gains on higher-interest securities with faster prepayment speeds. In addition, there was a $2.2 million decrease in the market value of the debt securities portfolio and a $233,000 gain in market value in the equity securities portfolio, which is primarily comprised of bank stocks.
Payroll Protection Program (“PPP”) Update
• PPP loans decreased $5.6 million to $49.5 million at June 30, 2021 compared to $55.1 million at December 31, 2020, which includes $34.6 million in originations in the current period offset by loan forgiveness.
• $1.1 million of net PPP loan origination fees were unearned at December 31, 2020. Due to activity in the current period, $1.4 million of net PPP loan origination fees were unearned at June 30, 2021. $489,000 of net PPP loan origination fees were earned in the second quarter of 2021 compared to $535,000 for the three months ended March 31, 2021.
Loans, Allowance for Loan Losses and Credit Quality
• Total loans held for investment decreased $37.3 million to $1.01 billion at June 30, 2021. This includes the impact of reclassifying $11.4 million of loans to held for sale. Excluding the net decline of $5.6 million in PPP loans in the current period and including $11.4 million of held for sale loans, loans declined $20.3 million. Average loans for the three months ended June 30, 2021 decreased $15.0 million compared to the three months ended March 31, 2021.
• The allowance for loan losses was $11.5 million at June 30, 2021 compared to $12.8 million at December 31, 2020. There was a net recovery of $1.2 million of provision for loan losses in the current quarter and year-to-date. A $31.7 million decrease in net reservable loans in the current period, which excludes PPP loans and includes the reclassification of $11.4 million of loans to held for sale that do not require a reserve, as well as a decrease in specifically impaired loans and improving economic and industry conditions contributed to the net recovery in the current period. As a result, the allowance for loan losses to total loans was 1.15% at June 30, 2021 compared to 1.22% at December 31, 2020. The allowance for loan losses to total loans, excluding PPP loans, was 1.21% at June 30, 2021 compared to 1.29% at December 31, 2020.
• Nonperforming loans, which includes nonaccrual loans, accruing loans past due 90 days or more, and accruing loans that are considered troubled debt restructurings, were $15.4 million at June 30, 2021 compared to $14.5 million at December 31, 2020. Nonperforming loans to total loans ratio was 1.53% at June 30, 2021 compared to 1.39% at December 31, 2020. The increase in nonperforming loans at June 30, 2021 compared to December 31, 2020 is primarily related to a $2.0 million construction loan secured by a hotel that was placed on nonaccrual.
• The Bank provided borrower support and relief through short-term loan forbearance options by primarily allowing: (a) deferral of three to six months of payments; or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months. In certain circumstances, a second three-month deferral period was granted.
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The following table provides details of loans in forbearance at the dates indicated.
June 30, 2021 March 31, 2021 December 31, 2020
Number
of
Loans 		Amount % of Portfolio Number
of
Loans 		Amount % of Portfolio Number
of
Loans 		Amount % of Portfolio
(Dollars in thousands)
Real Estate:
Residential — — — % 7 1,343 0.4 % 4 749 0.2 %
Commercial 4 6,544 1.8 % 7 13,814 3.7 % 8 19,818 5.3 %
Construction — — — % 1 1,958 2.5 % 1 1,958 2.7 %
Commercial and Industrial 5 1,221 1.0 % 5 1,219 0.9 % 5 1,219 1.0 %
Consumer — — — % 5 106 0.1 % 13 356 0.3 %
Total Loans in Forbearance 9 $ 7,765 0.8 % 25 $ 18,440 1.8 % 31 $ 24,100 2.3 %
Loans in deferral at June 30, 2021 include one commercial real estate loans totaling $3.3 million that is secured by a hotel, and a business relationship that rents equipment, supplies and other materials for events comprised of three commercial real estate loans totaling $3.3 million, and five commercial and industrial loans totaling $1.2 million. These loans ended their forbearance period in July and begin making regularly scheduled payments.
Other
• Premises and equipment decreased $1.6 million to $18.7 million at June 30, 2021 compared to $20.3 million at December 31, 2020. The Company recognized a $2.3 million writedown on fixed assets related to the branch optimization initiative. In addition, $795,000 of premises and equipment was transferred to held for sale related to the signing of the Agreement with Citizens Bank and impending sale of two branches. The Company also recognized $485,000 of depreciation and $280,000 was transferred to Other Assets due to a branch closure and marketing of the property for sale. This was offset by $2.2 million of purchases, primarily related to the operational efficiency initiative.
• Intangible Assets decreased $2.2 million to $8.4 million at June 30, 2021 compared to $6.2 million at December 31, 2020 primarily due to an impairment of $1.2 million and amortization expense of $1.0 million. As a result of signing the Agreement with Citizens Bank and the expected sale of a portion of the deposits associated with the remaining core deposit intangible asset, the Company performed an interim evaluation to determine whether the core deposit intangible was impaired. As a result of the evaluation, the Company determined the carrying amount of the core deposit intangible was impaired $1.2 million.
• Accrued Interest Receivable and Other Assets decreased $1.8 million, or 11.8% to $13.4 million at June 30, 2021, compared to $15.2 million at December 31, 2020 primarily related to the receipt of a $1.3 million federal income tax refund.
Liabilities. Total liabilities increased $46.9 million, or 3.7%, to $1.33 billion at June 30, 2021 compared to $1.28 billion at December 31, 2020.
Deposits
• Total deposits, including deposits held for sale, increased $51.5 million to $1.28 billion as of June 30, 2021 compared to $1.22 billion at December 31, 2020. Noninterest bearing demand deposits, NOW accounts and savings accounts increased $44.0 million, $16.5 million and $12.9 million, respectively, partially offset by a decrease of $17.0 million in time deposits. IRS and stimulus-related payments totaled $29.9 million in the first quarter and the impact of the PPP loans that were originated in the current year and the proceeds of which were initially deposited at the Bank was approximately $28.7 million. Annualized deposit growth rate was 8.4% including IRS and PPP loan deposits. Average total deposits increased $54.9 million, primarily in noninterest and interest-bearing demand deposits, for the three months ended June 30, 2021 compared to the three months ended March 31, 2021.
Borrowed Funds
• Short-term borrowings decreased $2.0 million, or 4.9%, to $39.1 million at June 30, 2021, compared to $41.1 million at December 31, 2020. At June 30, 2021 and December 31, 2020, short-term borrowings were comprised entirely of securities sold under agreements to repurchase, which are related to business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities
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from the Bank’s investment portfolio under an agreement to repurchase. $10.1 million was excluded from short-term borrowings at June 30, 2021 and reported as deposits held for sale.
• Other borrowed funds decreased $2.0 million to $6.0 million at June 30, 2021 due to a Federal Home Loan Bank borrowing that matured in the current period.
Stockholders’ Equity. Stockholders’ equity decreased $2.0 million, or 1.5%, to $132.5 million at June 30, 2021, compared to $134.5 million at December 31, 2020.
• Net income was $2.6 million for the six months ended June 30, 2021.
• Accumulated other comprehensive income decreased $1.7 million primarily due to market interest rate conditions on the Company’s debt securities.
• The Company declared and paid $2.6 million in dividends to common stockholders in the current period.
• The Company repurchased $561,000 of its common stock as part of its stock repurchase program.
• Book value per share (GAAP) was $24.50 at June 30, 2021 compared to $24.76 at December 31, 2020, a decrease of $0.26. Tangible book value per share (Non-GAAP) increased $0.14, or 0.7%, to $21.56 compared to $21.42 at December 31, 2020. Refer to Explanation of Use of Non-GAAP Financial Measures in this Report.
Consolidated Results of Operations for the Three Months Ended June 30, 2021 and 2020
Overview. Net loss was $223,000 for the three months ended June 30, 2021, a decrease of $3.1 million compared to net income of $2.9 million for the three months ended June 30, 2020.
Net Interest and Dividend Income. Net interest and dividend income decreased $387,000, or 3.7%, to $9.9 million for the three months ended June 30, 2021 compared to $10.3 million for the three months ended June 30, 2020. Net interest margin (FTE) (Non-GAAP) decreased 45 basis points (“bps”) to 2.85% for the three months ended June 30, 2021 compared to 3.30% the three months ended June 30, 2020. Net interest margin (GAAP) decreased to 2.84% for the three months ended June 30, 2021 compared to 3.28% for the three months ended June 30, 2020. While the Company has further controlled its deposit cost structure as deposit balances increased and benefited from nonrenewal or repricing of higher cost time deposits, the net interest margin has decreased primarily due to the low interest rate environment decreasing yields on loans and securities.
Interest and Dividend Income
• Interest and dividend income decreased $907,000, or 7.7%, to $10.8 million for the three months ended June 30, 2021 compared to $11.7 million the three months ended June 30, 2020.
◦ Interest income on loans decreased $641,000, or 6.1%, to $9.9 million for the three months ended June 30, 2021 compared to $10.6 million for the three months ended June 30, 2020. While average loans increased $2.9 million compared to the three months ended June 30, 2020, the average yield decreased 28 bps to 3.93%.
◦ Interest and fee income on PPP loans was $636,000 for the three months ended June 30, 2021 and contributed 3 bps to loan yield, compared to $316,000 for the three months ended June 30, 2020, which decreased loan yield 7 bps in the prior period.
◦ The impact of the accretion of the credit mark on acquired loan portfolios was $153,000 for the three months ended June 30, 2021 compared to $90,000 for the three months ended June 30, 2020, or 6 bps in the current period compared to 4 bps in the prior period.
◦ Interest income on taxable investment securities decreased $305,000, or 32.4%, to $635,000 for the three months ended June 30, 2021 compared to $940,000 for the three months ended June 30, 2020 driven by a $12.6 million decrease in average investment securities balances and 70 bps decrease in average yield. The Federal Reserve’s pandemic-driven decision to drop the benchmark interest rate in 2020 resulted in significant calls of U.S. government agency securities and paydowns on mortgage-backed securities in the declining interest rate environment, which were replaced with lower-yielding securities or maintained in cash.
◦ Other interest and dividend income, which primarily consists of interest-bearing cash, increased $67,000, or 79.8% to $151,000 for the three months ended June 30, 2021 compared to $84,000 for the three months ended June 30, 2020. Average other interest-earning assets increased $149.4 million compared to the three months ended June 30, 2020 primarily from buildup of cash as a result of securities activity, PPP loan funds and government stimulus payments deposited with the Bank, although average yield declined 10 bps due to interest rate cuts on interest-earning cash deposits held at other financial institutions.
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Interest Expense
• Interest expense decreased $520,000, or 37.0%, to $886,000 million for the three months ended June 30, 2021 compared to $1.4 million for the three months ended June 30, 2020.
◦ Interest expense on deposits decreased $478,000, or 36.6%, to $827,000 for the three months ended June 30, 2021 compared to $1.3 million for the three months ended June 30, 2020. While average interest-earning deposits increased $47.9 million compared to the three months ended June 30, 2020, interest rate declines for all products driven by pandemic-related interest rate cuts resulted in a 25 bp, or 40.6%, decrease in average cost compared to the three months ended June 30, 2020. In addition, average time deposits and the related average cost decreased $28.3 million and 31 bps, respectively.
◦ Interest expense on other borrowed funds decreased $27,000, or 43.5%, to $35,000 for the three months ended June 30, 2021 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a $5.0 million decrease in average balance.
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Average Balances and Yields . The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of 21.0% for the periods presented. As such, amounts will not agree to income as reported in the consolidated financial statements. 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,
2021 2020
Average
Balance 		Interest
and
Dividends
Yield/
Cost (1)
Average
Balance 		Interest
and
Dividends
Yield/
Cost (1)
(Dollars in thousands) (Unaudited)
Assets:
Interest-Earning Assets:
Loans, Net (2)
$ 1,016,868 $ 9,959 3.93 % $ 1,014,000 $ 10,612 4.21 %
Debt Securities
Taxable 124,685 635 2.04 137,268 940 2.74
Tax Exempt 12,276 94 3.06 14,106 130 3.69
Marketable Equity Securities 2,649 24 3.62 2,579 20 3.10
Other Interest-Earning Assets 246,392 151 0.25 97,033 84 0.35
Total Interest-Earning Assets 1,402,870 10,863 3.11 1,264,986 11,786 3.75
Noninterest-Earning Assets 82,794 113,176
Total Assets $ 1,485,664 $ 1,378,162
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits (3)
$ 275,752 55 0.08 % $ 236,312 141 0.24 %
Savings (3)
247,238 25 0.04 227,470 35 0.06
Money Market (3)
199,652 71 0.14 182,656 187 0.41
Time Deposits (3)
177,506 676 1.53 205,847 942 1.84
Total Interest-Bearing Deposits (3)
900,148 827 0.37 852,285 1,305 0.62
Short-Term Borrowings
Securities Sold Under Agreements to Repurchase 49,325 24 0.20 35,642 39 0.44
Other Borrowings 6,000 35 2.34 11,000 62 2.27
Total Interest-Bearing Liabilities 955,473 886 0.37 898,927 1,406 0.63
Noninterest-Bearing Demand Deposits 387,317 317,738
Other Liabilities 7,999 8,815
Total Liabilities 1,350,789 1,225,480
Stockholders' Equity 134,875 152,682
Total Liabilities and Stockholders' Equity $ 1,485,664 $ 1,378,162
Net Interest Income (FTE) (Non-GAAP) (4)
$ 9,977 $ 10,380
Net Interest Rate Spread (FTE) (Non-GAAP) (4)(5)
2.74 % 3.12 %
Net Interest-Earning Assets (6)
$ 447,397 $ 366,059
Net Interest Margin (GAAP) (7)
2.84 3.28
Net Interest Margin (FTE) (Non-GAAP) (4)(7)
2.85 3.30
Return on Average Assets (1)
(0.06) 0.85
Return on Average Equity (1)
(0.66) 7.65
Average Equity to Average Assets 9.08 11.08
Average Interest-Earning Assets to Average Interest-Bearing Liabilities 146.82 140.72
(1) Annualized based on three months ended results.
(2) Net of the allowance for loan losses, and includes nonaccrual loans with a zero yield and loans held for sale.
(3) Includes Deposits Held for Sale
(4) See section entitled "Explanation of Use of Non-GAAP Financial Measures" appearing earlier in this quarterly report.
(5) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(6) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(7) Net interest margin represents annualized net interest income divided by average total interest-earning assets.

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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 21.0%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.
Three Months Ended June 30, 2021
Compared to
Three Months Ended June 30, 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net $ 57 $ (710) $ (653)
Debt Securities:
Taxable (81) (224) (305)
Exempt From Federal Tax (16) (20) (36)
Marketable Equity Securities 1 3 4
Other Interest-Earning Assets 97 (30) 67
Total Interest-Earning Assets 58 (981) (923)
Interest Expense:
Deposits 79 (557) (478)
Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase 11 (26) (15)
Other Borrowings (29) 2 (27)
Total Interest-Bearing Liabilities 61 (581) (520)
Change in Net Interest and Dividend Income $ (3) $ (400) $ (403)
Provision for Loan Losses. Provision for loan losses was a recovery of $1.2 million for the three months ended June 30, 2021 compared to a provision of $300,000 for the three months ended June 30, 2020. A $23.4 million decrease in net reservable loans in the current quarter, which excludes PPP loans and includes the reclassification of $11.4 million of loans to held for sale, along with a decrease in specific reserves on impaired loans and improvements in the economic and industry outlook contributed to the recovery in the current period.
Net recoveries for the three months ended June 30, 2021 were $19,000, or (0.01)% of average loans on an annualized basis. Net recoveries for the three months ended June 30, 2020 were $26,000, or (0.01)% of average loans on an annualized basis.
Noninterest Income . Noninterest income decreased $429,000, or 16.2%, to $2.2 million for the three months ended June 30, 2021, compared to $2.6 million for the three months ended June 30, 2020.
• Service fees increased $127,000 to $614,000 for the three months ended June 30, 2021, compared to $487,000 for the three months ended June 30, 2020 due to an increase in customer usage compared to the prior year period when shelter-in-place orders occurred at the onset of the COVID-19 pandemic.
• Insurance commissions increased $96,000 to $1.2 million for the three months ended June 30, 2021 compared to $1.1 million for the three months ended June 30, 2020 primarily due to an increase in commercial-related insurance policy revenue.
• Net gain on sale of loans was $31,000 for the three months ended June 30, 2021 compared to $441,000 for the three months ended June 30, 2020, primarily due to increased mortgage loan production from refinances in the prior year, which were sold to reduce interest rate risk on lower yielding, long-term assets.
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• Net gain on securities was $11,000 for the three months ended June 30, 2021 compared to $517,000 for the three months ended June 30, 2020. The Company recognized a $489,000 net gain on sales of investment securities in the prior period from sales of higher-interest securities with faster prepayment speeds.
• Other income increased to $31,000 for the three months ended June 30, 2021 compared to a $252,000 loss for the three months ended June 30, 2020 due to a $269,000 valuation allowance adjustment on mortgage servicing rights in the prior period primarily 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.
Noninterest Expense. Noninterest expense increased $4.7 million, or 51.3%, to $13.7 million for the three months ended June 30, 2021 compared to $9.1 million for the three months ended June 30, 2020. Excluding the impact of non-cash charges related to a $2.3 million writedown on fixed assets and $1.2 million intangible asset impairment, noninterest expense increased $1.2 million to $10.3 million for the three months ended June 30, 2021 compared to $9.1 million for the three months ended June 30, 2020. The current period was also impacted by $1.3 million of other branch optimization and operational efficiency strategic expenses.
• The Company incurred a writedown on fixed assets of $2.3 million for the three months ended June 30, 2021 related to the branch consolidation and sale initiative.
• The Company incurred an intangible asset impairment of $1.2 million for the three months ended June 30, 2021. As a result of signing the Agreement with Citizens Bank and the expected sale of a portion of the deposits associated with the remaining core deposit intangible, the Company performed an interim evaluation to determine whether the core deposit intangible was impaired. As a result of the evaluation, the Company determined the carrying amount of the core deposit intangible was impaired $1.2 million.
• Salaries and employee benefits increased $248,000 to $5.1 million for the three months ended June 30, 2021 compared to $4.8 million for the three months ended June 30, 2020. The increase is primarily due to the recognition of $246,000 in severance related to the branch optimization initiative.
• Occupancy expense increased $325,000 to $1.0 million for the three months ended June 30, 2021 compared to $699,000 for the three months ended June 30, 2020. The increase is due to the recognition of a $227,000 lease impairment related to the consolidation of a branch as part of the branch optimization initiative as well as increase in repair and maintenance.
• Contracted services increased $188,000 to $750,000 for the three months ended June 30, 2021 compared to $562,000 for the three months ended June 30, 2020 The current period includes $434,000 of expenses associated with the engagement of a third-party workflow optimization expert to assist in implementing robotic process automations and more effective sales management designed to improve operational efficiencies in the near and long-term and engagement of other third party specialists to assist in core platform improvements and efficiencies. The prior period included expense related to the hiring of temporary employees to assist with PPP loan processing and consultants used to assist in infrastructure improvements.
• Data processing increased $147,000 to $607,000 for the three months ended June 30, 2021 compared to $460,000 for the three months ended June 30, 2020. This is primarily due to $110,000 of deconversion costs associated with the branch sales.
• Federal Deposit Insurance Corporation (“FDIC”) assessment expense increased $86,000 to $249,000 for the three months ended June 30, 2021 compared to $163,000 for the three months ended June 30, 2020. The increase in assessment was due to the net loss recognized for the three months ended September 30, 2020 primarily due to goodwill impairment negatively impacting the assessment rate in the current period.
• Legal fees and professional fees increased $248,000 to $419,000 for the three months ended June 30, 2021 compared to $171,000 for the three months ended June 30, 2020 due to a $209,000 investment banker success-based fee and legal fees related to the Agreement with Citizens Bank for the branch sales.
• Advertising increased $38,000 to $193,000 for the three months ended June 30, 2021 compared to $155,000 for the three months ended June 30, 2020 due to reduced marketing initiatives during the pandemic in the prior year.
Income Taxes. Income tax benefit was $146,000 for the three months ended June 30, 2021 compared to income tax expenses of $695,000 for the three months ended June 30, 2020. This change was primarily related to a pretax loss recognized in the current period as a result of expenses incurred due to branch optimization and operational efficiency strategic initiatives.
Results of Operations for the Six Months Ended June 30, 2021 and 2020
Overview. Net income was $2.6 million for the six months ended June 30, 2021, a decrease of $1.1 million compared to net income of $3.7 million for the six months ended June 30, 2020.
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Net Interest and Dividend Income. Net interest and dividend income decreased $943,000, or 4.5% to $19.9 million for the six months ended June 30, 2021 compared to $20.9 million for the six months ended June 30, 2020. Net interest margin (Non-GAAP FTE) decreased 48 bps to 2.95% for the six months ended June 30, 2021 compared to 3.43% the six months ended June 30, 2020. Net interest margin (GAAP) decreased to 2.94% for the six months ended June 30, 2021 compared to 3.41% for the six months ended June 30, 2020. While the Company has further controlled its deposit cost structure as deposit balances increased and benefited from nonrenewal or repricing of higher cost time deposits, the net interest margin has decreased primarily due to the low interest rate environment decreasing yields on loans and securities.
Interest and Dividend Income
• Interest and dividend income decreased $2.2 million, or 9.3%, to $21.8 million for the six months ended June 30, 2021 compared to $24.1 million for the six months ended June 30, 2020.
◦ Interest income on loans decreased $1.3 million or 5.9% to $20.1 million during the six months ended June 30, 2021 compared to $21.3 million for the six months ended June 30, 2020. Although average loans increased $42.0 million, primarily driven by PPP loans, the loan yield for the six months ended June 30, 2021 decreased 42 bps to 4.0% compared to the six months ended June 30, 2020 due to the full year impact of the COVID-19 pandemic-related declines in market interest rates beginning March 31, 2020.
◦ Interest and fee income on PPP loans was $1.3 million for the six months ended June 30, 2021 and contributed 4 bps to loan yield, compared to $316,000 for the six months ended June 30, 2020, which decreased loan yield 4 bps in the prior period.
◦ The impact of the accretion of the credit mark on acquired loan portfolios was $291,000 for the six months ended June 30, 2021 compared to $166,000 for the six months ended June 30, 2020, or 5 bps in the current period compared to 3 bps in the prior period.
◦ Interest income on taxable investment securities decreased $860,000, or 40.2%, to $1.3 million for the six months ended June 30, 2021 compared to $2.1 million for the six months ended June 30, 2020 driven by a $24.2 million decrease in average taxable investment securities and an 82 bps decrease in average yield. The Federal Reserve pandemic-driven decision to drop the benchmark interest rate in 2020 resulted in significant calls of U.S. government agency securities and paydowns on mortgage-backed securities in the declining rate environment, which were replaced by lower-yielding securities.
◦ Interest from other interest-earning assets, which primarily consists of interest-earning cash, decreased $73,000, or 22.7% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 even though average balances increased $123.5 million primarily related to funds received from deposits and investment security activity. The impact on interest income was primarily due to pandemic-driven declines on market interest rates earned on deposits at other financial institutions, which resulted in a 55 bp decrease in yield.
Interest Expense
• Interest expense decreased $1.3 million, or 40.8%, to $1.9 million for the six months ended June 30, 2021 compared to $3.2 million for the six months ended June 30, 2020.
◦ Interest expense on deposits decreased $1.2 million, or 40.6%, to $1.8 million for the six months ended June 30, 2021 compared to $3.0 million for the six months ended June 30, 2020. While average interest-bearing deposits increased $45.1 million, interest rate declines for all products driven by pandemic-related interest rate cuts, nonrenewal or repricing of higher cost time deposits, and overall efforts to control pricing resulted in a 31 bp decrease in average cost compared to the six months ended June 30, 2020.
◦ Interest expense on other borrowed funds decreased $56,000, or 42.4%, to $76,000 for the six months ended June 30, 2021 compared to $132,000 for the six months ended June 30, 2020 primarily due to FHLB long-term borrowings that matured and were paid off throughout the last year that resulted in a $5.3 million decrease in average balance.
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Average Balances and Yields. The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of 21% for the periods presented. As such, amounts will not agree to income as reported in the consolidated financial statements. 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,
2021 2020
Average
Balance 		Interest
and
Dividends
Yield/
Cost (1)
Average
Balance 		Interest
and
Dividends
Yield/
Cost (1)
(Dollars in thousands) (Unaudited)
Assets:
Interest-Earning Assets:
Loans, Net (2)
$ 1,024,319 $ 20,131 3.96 % $ 982,331 $ 21,408 4.38 %
Debt Securities
Taxable 123,790 1,281 2.07 147,962 2,141 2.89
Tax Exempt 12,608 192 3.05 15,471 258 3.34
Marketable Equity Securities 2,641 44 3.33 2,573 40 3.11
Other Interest-Earning Assets 204,365 249 0.25 80,821 322 0.80
Total Interest-Earning Assets 1,367,723 21,897 3.23 1,229,158 24,169 3.95
Noninterest-Earning Assets 87,645 113,616
Total Assets $ 1,455,368 $ 1,342,774
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits (3)
$ 267,455 133 0.10 % $ 231,397 408 0.35 %
Savings (3)
243,565 57 0.05 222,899 124 0.11
Money Market (3)
198,530 168 0.17 181,819 436 0.48
Time Deposits (3)
182,283 1,416 1.57 210,648 2,018 1.93
Total Interest-Bearing Deposits (3)
891,833 1,774 0.40 846,763 2,986 0.71
ST Borrowings
Securities Sold Under Agreements to Repurchase 45,232 47 0.21 32,592 84 0.52
Other Borrowings 6,597 76 2.32 11,890 132 2.23
Total Interest-Bearing Liabilities 943,662 1,897 0.41 891,245 3,202 0.72
Noninterest-Bearing Demand Deposits 368,318 289,621
Other Liabilities 8,433 9,306
Total Liabilities 1,320,413 1,190,172
Stockholders' Equity 134,955 152,602
Total Liabilities and Stockholders' Equity $ 1,455,368 $ 1,342,774
Net Interest Income (FTE) (Non-GAAP) (4)
$ 20,000 $ 20,967
Net Interest Rate Spread (FTE) (Non-GAAP) (4)(5)
2.82 % 3.23 %
Net Interest-Earning Assets (6)
$ 424,061 $ 337,913
Net Interest Margin (GAAP) (7)
2.94 3.41
Net Interest Margin (FTE) (Non-GAAP) (4)(7)
2.95 3.43
Return on Average Assets (1)
0.36 0.55
Return on Average Equity (1)
3.92 4.84
Average Equity to Average Assets 9.27 11.36
Average Interest-Earning Assets to Average Interest-Bearing Liabilities 144.94 137.91
(1) Annualized based on six months ended results.
(2) Net of the allowance for loan losses, and includes nonaccrual loans with a zero yield and loans held for sale.
(3) Includes Deposits Held for Sale
(4) See section entitled "Explanation of Use of Non-GAAP Financial Measures" appearing earlier in this quarterly report.
(5) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(6) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(7) Net interest margin represents annualized net interest income divided by average total interest-earning assets.

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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, 2021
Compared to
Six Months Ended June 30, 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net $ 829 $ (2,106) $ (1,277)
Debt Securities:
Taxable (316) (544) (860)
Exempt From Federal Tax (45) (21) (66)
Marketable Equity Securities 1 3 4
Other Interest-Earning Assets 251 (324) (73)
Total Interest-Earning Assets 720 (2,992) (2,272)
Interest Expense:
Deposits 151 (1,363) (1,212)
Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase 24 (61) (37)
Other Borrowings (61) 5 (56)
Total Interest-Bearing Liabilities 114 (1,419) (1,305)
Change in Net Interest and Dividend Income $ 606 $ (1,573) $ (967)
Provision for Loan Losses. The provision for loan losses had a $1.2 million recovery for the six months ended June 30, 2021, compared to a $2.8 million provision for the six months ended June 30, 2020. The pandemic resulted in a dramatic increase in unemployment and recessionary economic conditions in the prior year. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis were increased at the onset of the pandemic, primarily related to economic trends and industry conditions, because of vulnerable industries such as hospitality, oil and gas, retail and restaurants and resulted in the prior year provision. Those qualitative factors have been decreased as the economic impact of the pandemic have eased. In addition, a $14.2 million decrease in net reservable loans compared to June 30, 2020, which excludes PPP loan activity, combined with a decrease in specific reserves on impaired loans and improving economic and industry condition contributed to the recovery of provision in the current period.
Net charge-offs were $27,000 for the six months ended June 30, 2021, or 0.01% net charge-offs to average loans on an annualized basis. Net charge-offs were $19,000 for the six months ended June 30, 2020, or 0.00% net charge-offs to average loans on an annualized basis. Net charge-offs were primarily driven by automobile loans in the consumer loan category in both periods.
Noninterest Income. Noninterest income increased $873,000, or 19.3%, to $5.4 million for the six months ended June 30, 2021, compared to $4.5 million for the six months ended June 30, 2020.
• Service fees increased $68,000 to $1.2 million for the six months ended June 30, 2021, compared to $1.1 million for the six months ended June 30, 2020 due to an increase in customer usage compared to the prior year period when shelter-in-place orders occurred at the onset of the COVID-19 pandemic.
• Insurance commissions increased $408,000, or 17.0%, to $2.8 million for the six months ended June 30, 2021, compared to $2.4 million for the six months ended June 30, 2020 due to an increase contingency fees. Contingency fees are profit sharing commissions that are contingent upon several factors including, but not limited to, eligible written premiums, incurred losses, policy cancellations and stop loss charges.
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• Net gain on sales of loans was $117,000 for the six months ended June 30, 2021 compared to $568,000 for the six months ended June 30, 2020 primarily due to decreased mortgage loan production from refinances, which are sold to reduce interest rate risk on lower yielding, long-term assets.
• Net gain on investment securities was $458,000 for the six months ended June 30, 2021 compared to $79,000 for the six months ended June 30, 2020. In the current period, the Company recognized a $225,000 net gain on sale of debt securities from sales of higher-interest securities with faster prepayment speeds combined with a $233,000 increase in fair value on the equity securities portfolio, primarily comprised of bank stocks, which experienced a recovery in fair value from pandemic related losses. In the prior year, there was a net gain of $489,000 on sales of investment securities from sales of higher-interest securities with faster prepayment speeds that was offset by a $410,000 decrease in fair value in the equity securities portfolio, which is primarily comprised of bank stocks, due to the COVID-19 impacts on the banking industry.
• Other Income was $211,000 for the six months ended June 30, 2021 compared to Other Loss of $238,000 in the six months ended June 30, 2020. In the current period there was a $160,000 reduction in the valuation allowance on mortgage servicing rights compared to a $269,000 valuation allowance adjustment from temporary impairment in the prior period caused by a decline in the interest rate environment that increased prepayment speeds and resulted in a decrease in fair value of the serviced mortgage portfolio. In addition, there was a $53,000 increase in amortization on mortgage servicing rights in the current period.
Noninterest Expense. Noninterest expense increased $5.0 million, or 27.9%, to $23.1 million for the six months ended June 30, 2021 compared to $18.1 million for the six months ended June 30, 2020. This was primarily impacted by a $2.3 million writedown on fixed assets and $1.2 million intangible asset impairment as previously noted. Excluding the impact of these non-cash charges, noninterest expense increased $1.6 million, or 8.8%, to $19.7 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The current period was also impacted by $1.6 million of other branch optimization and operational efficiency strategic expenses.
• Salaries and employee benefits increased $411,000 for the six months ended June 30, 2021 compared to $9.6 million for the six months ended June 30, 2020. The increase is primarily due to an increase in employee benefit expenses due to the prior period impact from a $407,000 one-time payment that offset employee benefits related to the transition from a self-funded to a fully insured plan. The current period was impacted by the recognition of $335,000 in severance related to the branch optimization initiative whereas in the period the Company incurred costs associated with the Community Bank Cares 10% premium pay during the pandemic and the recognition of approximately $236,000 of one-time payments related to the search for a permanent CEO.
• Occupancy expense increased $302,000 to $1.7 million for the six months ended June 30, 2021 compared to $1.4 million for the six months ended June 30, 2020. The increase is due to the recognition of a $227,000 lease impairment related to the consolidation of a branch as part of the branch optimization initiative.
• Equipment expense increased $96,000 to $577,000 for the six months ended June 30, 2021 compared to $481,000 for the six months ended June 30, 2020 as the result of an increase in repairs and maintenance.
• Data processing increased $240,000 to $1.1 million for the six months ended June 30, 2021 compared to $885,000 for the six months ended June 30, 2020 primarily due to $110,000 in deconversion costs associated with the branch sales as well as other technology investments.
• Contracted services increased $497,000 to $1.4 million for the six months ended June 30, 2021 compared to $940,000 for the six months ended June 30, 2020, primarily due to $702,000 of expenses associated with the engagement of a third-party workflow optimization expert to assist in implementing robotic process automations and more effective sales management designed to improve operational efficiencies in the near and long-term and engagement of other third party specialists to assist in core platform improvements and efficiencies. The prior period included expense related to the hiring of temporary employees to assist with PPP loan processing and consultants used to assist in infrastructure improvements.
• FDIC assessment expense increased $178,000 to $499,000 for the six months ended June 30, 2021 compared to $321,000 for the six months ended June 30, 2020.The increase in assessment was due to the net loss recognized for the three months ended September 30, 2020 primarily due to goodwill impairment negatively impacting the assessment rate in the current period.
• Legal fees and professional fees increased $202,000 to $608,000 for the six months ended June 30, 2021 compared to $406,000 for the six months ended June 30, 2020 due to a $209,000 investment banker success-based fee and legal fees related to the Agreement with Citizens Bank for the branch sales.
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• Other noninterest expense decreased $131,000 to $1.9 million for the six months ended June 30, 2021 compared to $2.1 million for the six months ended June 30, 2020 due to a decrease in loan-related expenses from the increased volume of refinancing in the prior period.
Income Taxes. Income tax expense decreased $59,000 to $765,000 for the six months ended June 30, 2021 compared to $824,000 for the six months ended June 30, 2020. This change was primarily due to a decrease in pretax income in the current period as a result of expenses incurred due to branch optimization and operational efficiency strategic initiatives. Branch optimization expenses during the current period were deferred for tax purposes and these items will be recognized in future periods.
Off-Balance Sheet Arrangements.
Other than loan commitments and standby and performance letters of credit, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a significant current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Refer to Note 10 in the Notes to Consolidated Financial Statements of this report for a summary of commitments outstanding as of June 30, 2021 and December 31, 2020.
Liquidity and Capital Management
Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are typically predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
The 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, 2021 to satisfy its short- and long-term liquidity needs.
The Company’s most liquid assets are cash and due from banks, which totaled $172.0 million at June 30, 2021. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Unpledged securities, which provide an additional source of liquidity, totaled $42.4 million at June 30, 2021. In addition, at June 30, 2021, the Company had the ability to borrow up to $430.7 million from the FHLB of Pittsburgh, of which $317.8 million is available. The Company also has the ability to borrow up to $79.8 million million from the FRB through its Borrower-In-Custody line of credit agreement and the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling $50.0 million as of both June 30, 2021 and December 31, 2020.
At June 30, 2021, $70.9 million, or 41.0% of total time deposits mature within one year. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these time deposits. The Company believes, however, based on past experience that a significant portion of its time deposits will remain with it, either as time deposits or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered.
We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLB, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the FHLB in the future.
CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank’s ability to pay dividends to CB Financial is subject to regulatory limitations. At June 30, 2021, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $9.2 million. The ability to pay future dividends or conduct stock repurchases may be limited under applicable banking regulations and regulatory policies due to expected losses for future periods and/or the inability to upstream funds from the Bank to the Company as a result of lower income or regulatory capital levels.
Capital Management. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
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Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.
At June 30, 2021 and December 31, 2020, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. At June 30, 2021, the Bank's capital ratios were not affected by loans modified in accordance with Section 4013 of the CARES Act. In addition, PPP loans received a zero-percent risk weight under the regulatory capital rules regardless of whether they were pledged as collateral to the Federal Reserve Bank's PPP lending facility, but were included in the Bank's leverage ratio requirement due to the Bank not pledging the loans as collateral to the PPP lending facility.
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, 2021 December 31, 2020
Amount Ratio Amount Ratio
(Dollars in thousands)
Common Equity Tier 1 (to risk weighted assets)
Actual $ 106,207 11.67 % $ 108,950 11.79 %
For Capital Adequacy Purposes 40,945 4.50 41,598 4.50
To Be Well Capitalized 59,143 6.50 60,086 6.50
Tier 1 Capital (to risk weighted assets)
Actual 106,207 11.67 108,950 11.79
For Capital Adequacy Purposes 54,593 6.00 55,464 6.00
To Be Well Capitalized 72,791 8.00 73,952 8.00
Total Capital (to risk weighted assets)
Actual 117,582 12.92 120,520 13.04
For Capital Adequacy Purposes 72,791 8.00 73,952 8.00
To Be Well Capitalized 90,989 10.00 92,440 10.00
Tier 1 Leverage (to adjusted total assets)
Actual 106,207 7.23 108,950 7.81
For Capital Adequacy Purposes 58,728 4.00 55,765 4.00
To Be Well Capitalized 73,410 5.00 69,706 5.00
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
Management of Interest Rate Risk. The majority of the Company’s assets and liabilities are monetary in nature. Consequently, the Company’s most significant form of market risk is interest rate risk and a principal part of its business strategy is to manage interest rate risk by reducing the exposure of net interest income to changes in market interest rates. Accordingly, the Company’s Board has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in the Company’s assets and liabilities, for determining the level of risk that is appropriate given the Company’s business strategy, operating environment, capital, liquidity and performance objectives; and for managing this risk consistent with the guidelines approved by the Board. Senior management monitors the level of interest rate risk and the Asset/Liability Management Committee meets on a quarterly basis to review its asset/liability policies and position and interest rate risk position, and to discuss and implement interest rate risk strategies.
The Company monitors interest rate risk through the use of a simulation model. The quarterly reports developed in the simulation model assist the Company in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within the Company’s policy guidelines. This quantitative analysis measures interest rate risk from both a capital and earnings perspective. With regard to earnings, movements in interest rates and the shape of the yield curve significantly influence the amount of net interest income that is recognized. Movements in market interest rates significantly influence the spread between the interest earned on our interest-earning assets and the interest paid on our interest-bearing liabilities. Our internal interest rate risk analysis calculates the sensitivity of our projected net interest income over a one year period utilizing a static balance sheet assumption
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through which incoming and outgoing asset and liability cash flows are reinvested into similar instruments. Product pricing and earning asset prepayment speeds are adjusted for each rate scenario.
With regard to capital, our internal interest rate risk analysis calculates the sensitivity of our economic value of equity (“EVE”) ratio to movements in interest rates. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. EVE attempts to quantify our economic value using a discounted cash flow methodology while the EVE ratio reflects that value as a form of capital ratio. The degree to which the EVE ratio changes for any hypothetical interest rate scenario from its base case measurement is a reflection of an institution’s sensitivity to interest rate risk.
For both net interest income and capital at risk, our interest rate risk analysis calculates a base case scenario that assumes no change in interest rates. The model then measures changes throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up and down 100, 200 and 300 basis points with additional scenarios modeled where appropriate. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates such as that experienced in the current rate environment at June 30, 2021
The table below sets forth, as of June 30, 2021, the estimated changes in EVE and net interest income at risk that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.
EVE EVE as a Percent of Portfolio Value of Assets Net Interest
Earnings at Risk
Change in Interest Rates in Basis Points Dollar Amount Dollar Change Percent Change NPV Ratio Basis Point Change Dollar Amount Dollar Change Percent Change
(Dollars in thousands)
+300 $ 152,158 $ 9,568 6.7 % 11.34 % 153 $ 45,462 $ 8,749 23.8 %
+200 151,459 8,869 6.2 10.99 118 43,071 6,358 17.3
+100 148,374 5,784 4.1 10.47 66 39,676 2,963 8.1
Flat 142,590 — — 9.81 — 36,713 — —
-100 136,941 (5,649) (4.0) 9.26 (55) 33,808 (2,905) (7.9)
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE and net interest income require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the table presented assumes that the composition of the Company’s interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and net interest income and will differ from actual results. EVE calculations also may not reflect the fair values of financial instruments. For example, changes in market interest rates can increase the fair values of the Company’s loans, deposits and borrowings.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how
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well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.
Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.
(b) Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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, 2020, which could materially affect our business, financial condition or future results. The risks described in such Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company made the following purchases of its common stock during the three months ended June 30, 2021.
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share Total Number of Shares Purchased as
Part of the Publicly Announced Program 		Approximate Dollar Value of Shares That
May Yet Be Purchased Under the Program
April 1-30, 2021 — $ — — $ —
May 1-31, 2021 — — — $ —
June 1-30, 2021 25,297 22.16 25,297 $ 6,939,518
Total
25,297 $ 22.16 25,297
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
3.1
3.2
31.1
31.2
32.1
101
The following materials for the quarter ended June 30, 2021, formatted in XBRL (Extensible Business Reporting Language); the (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of (Loss) Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements (Unaudited)
104 Cover Page Interactive Data File (Embedded within Inline XBRL contained in Exhibit 101)
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CB FINANCIAL SERVICES, INC.
(Registrant)
Date:
August 9, 2021 /s/ John H. Montgomery
John H. Montgomery
President and Chief Executive Officer
Date:
August 9, 2021
/s/ Jamie L. Prah
Jamie L. Prah
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer)
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TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1. Summary Of Significant Accounting PoliciesNote 2. Impairment Of Long-lived Assets and Assets and Liabilities Of Branches Held For SaleNote 3. (loss) Earnings Per ShareNote 4. SecuritiesNote 5. Loans and Allowance For Loan LossesNote 6. Time DepositsNote 7. Short-term BorrowingsNote 8. Other Borrowed FundsNote 9. Fair Value DisclosureNote 10. Commitments and Contingent LiabilitiesNote 11. LeasesNote 12. Other Noninterest ExpenseNote 13. Segment and Related InformationNote 14. Intangible AssetsNote 15. Mortgage Servicing RightsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosure About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 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 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 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002