What changed in this filing

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Item 1. Business

2021-03-17 compared with 2020-03-11 · 824 added, 1270 removed, 219 unchanged (91% of the section changed)

Forward-Looking Statements

This Annual Report on Form 10-K (“Report”)

contains forward-looking statements, which can be identified by the use of words such as “estimate,”

“project,”

“believe,”

“intend,”

“anticipate,”

“assume,”

“plan,”

“seek,”

“expect,”

“will,”

“may,”

“should,”

“indicate,”

“would,”

“contemplate,”

“continue,”

“target”

and words of similar meaning.

These forward-looking statements

include, but are not limited to:

This Annual Report on Form 10-K (“Report”) contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” and words of similar meaning.

These forward-looking statements include, but are not limited to:

• statements of our goals, intentions and expectations;

2 unchanged sentences

• estimates of our risks and future costs and benefits.

These forward-looking statements are based

on our current beliefs and expectations, and are inherently subject to significant business, economic and competitive uncertainties

and contingencies, many of which are beyond our control.

In addition, these forward-looking statements are subject to assumptions

with respect to future business strategies and decisions that are subject to change.

We are under no duty to and do not take any

obligation to update any forward-looking statements after the date of this Report.

The following factors, among others, could

cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

our ability to manage our operations under the current economic conditions nationally and in our market area;

exploration and drilling of natural gas reserves in our market area may be affected by federal, state and local laws and regulations

affecting production, permitting, environmental protection and other matters, which could materially and adversely affect our customers,

loan and deposit volume, and asset quality;

our customers who depend on the exploration and drilling of natural gas reserves may be materially and adversely affected by

decreases in the market prices for natural gas;

adverse changes in the financial industry, securities, credit, and national and local real estate markets (including real estate

significant increases in our loan losses, including our inability to resolve classified and nonperforming assets or reduce

risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;

credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our

allowance for loan losses and provision for loan losses;

competition among depository and other financial institutions;

our ability to successfully integrate the operations of businesses we have acquired;

our success in increasing our commercial real estate and commercial business lending;

our ability to attract and maintain deposits and our success in introducing new financial products;

our ability to maintain/improve our asset quality even as we increase our commercial real estate and commercial business lending;

changes in interest rates generally, including changes in the relative differences between short-term and long-term interest

rates and in deposit interest rates, that may affect our net interest margin and funding sources;

fluctuations in the demand for loans;

technological changes that may be more difficult or expensive than expected;

These forward-looking statements are based on our current beliefs and expectations, and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.

In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• our ability to manage our operations under the current economic conditions nationally and in our market area, including the scope and duration of economic contraction as a result of the COVID-19 pandemic ("COVID-19") and its effects on the Company’s business and that of the Company’s customers;

• adverse changes in the financial industry, securities, credit, and national and local real estate markets (including real estate values);

• changes in consumer spending, borrowing and savings habits;

• changes in interest rates generally, including changes in the relative differences between short-term and long-term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;

• declines in the yield on our interest-earning assets resulting from the current low interest rate environment;

• significant increases in our loan losses, including our inability to resolve classified and nonperforming assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;

• credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;

• loan delinquencies and changes in the underlying cash flows of our borrowers;

• our success in increasing our commercial real estate and commercial business lending;

• our ability to maintain/improve our asset quality even as we increase our commercial real estate and commercial business lending;

• risks related to a high concentration of loans secured by real estate located in our market area;

• fluctuations in the demand for loans;

• competitive products and pricing among depository and other financial institutions;

• our ability to enter new markets successfully and capitalize on growth opportunities;

changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the

JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements,

regulatory fees and compliance costs, particularly the new capital regulations, and the resources we have available to address

such changes;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards

Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

changes in our compensation and benefit plans, and our ability to attract and retain key members of our senior management team

and to address staffing needs in response to product demand or to implement our strategic plans;

loan delinquencies and changes in the underlying cash flows of our borrowers;

• our ability to successfully integrate the operations of businesses we have acquired;

• our ability to attract and maintain deposits and our success in introducing new financial products;

• changes in our compensation and benefit plans, and our ability to attract and retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;

• our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;

• technological changes that may be more difficult or expensive than expected;

• the failure or security breaches of computer systems on which we depend;

the ability of preventing or detecting cybersecurity attacks on customer credentials, developing multiple layers of security

controls that defend against malicious use of customer internet-based products and services of Community Bank, and our business

continuity plan to recover from a malware or other cybersecurity attack;

• the ability of preventing or detecting cybersecurity attacks on customer credentials, developing multiple layers of security controls that defend against malicious use of customer internet-based products and services of Community Bank, and our business continuity plan to recover from a malware or other cybersecurity attack;

• the ability of key third-party service providers to perform their obligations to us;

other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and

services described elsewhere in this Report.

Because of these and a wide variety of

other uncertainties, our actual future results may be materially different from the expected results indicated by these forward-looking

In this Report, the terms “we,”

“our,”

and “us”

refer to CB Financial Services, Inc., and Community Bank, unless the context indicates

another meaning.

In addition, we sometimes refer to CB Financial Services, Inc., as “CB,”

or the “Company”

and to Community Bank as the “Bank.”

• changes in laws or government regulations or policies affecting financial institutions, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, and the resources we have available to address such changes;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

• exploration and drilling of natural gas reserves in our market area may be affected by federal, state and local laws and regulations affecting production, permitting, environmental protection and other matters, which could materially and adversely affect our customers, loan and deposit volume, and asset quality;

• our customers who depend on the exploration and drilling of natural gas reserves may be materially and adversely affected by decreases in the market prices for natural gas;

• other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this Report.

Given the numerous unknowns and risks that are heavily weighted to the downside due to COVID-19, our forward-looking statements are subject to the risk that conditions will be substantially different than we currently expect.

If efforts to contain COVID-19 are unsuccessful and government restriction last longer than expected, the recession would be much longer and much more severe and damaging.

Ineffective fiscal stimulus, or an extended delay in implementing it, are also major risks.

The deeper the recession and the longer it lasts, the more it will damage consumer fundamentals and sentiment.

This could both prolong the recession and make any recovery weaker.

Similarly, the recession could damage business fundamentals.

As a result, the outbreak and its consequences, including responsive measures to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting, possibly materially, the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.

The ability to predict the impact of the COVID-19 pandemic on the Company’s future operating results with any precision is difficult and depends on many factors beyond our control.

The Company's market area was impacted in 2020 by state-wide shelter-in-place orders and closing all but essential businesses.

Certain government restrictions remain in effect.

The far-reaching consequences of these actions and the crisis is unknown and will largely depend on the extent and length of the recession combined with how quickly the economy can re-open.

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

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

• Forbearance activity and any additional forbearance that may be needed could impact cash flows and liquidity.

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

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

• The Federal Reserve Board’s decision in March 2020 to drop the benchmark interest rate from a range of 1.5% to 1.75% to a range of 0% to 0.25% as part of a wide-ranging emergency action to protect the economy from the COVID-19 outbreak may result in an influx of loan refinances that could impact the Company’s net interest income and cause margin compression.

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

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

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the expected results indicated by these forward-looking statements.

In this Report, the terms “we,” “our,” and “us” refer to CB Financial Services, Inc., and Community Bank, unless the context indicates another meaning.

In addition, we sometimes refer to CB Financial Services, Inc., as “CB,” or the “Company” and to Community Bank as the “Bank.”

CB Financial Services, Inc.

(the “Company”), a Pennsylvania

corporation, is a bank holding company headquartered in Carmichaels, Pennsylvania.

The Company’s common stock is traded on

the Nasdaq Global Market under the symbol “CBFV.”

The Company conducts its operations primarily through its wholly

owned subsidiary, Community Bank, a Pennsylvania-chartered commercial bank.

At December 31, 2019, the Company, on a consolidated

basis, had total assets of $1.3 billion, total deposits of $1.1 billion and stockholders’

equity of $151.6 million.

Copies of the reports the Company files electronically with the

Securities and Exchange Commission (the “SEC”) are available free of charge through the SEC’s website address

at https://www.sec.gov and through the Bank’s website address at https://www.communitybank.tv .

(the “Company”), a Pennsylvania corporation, is a bank holding company headquartered in Carmichaels, Pennsylvania.

The Company’s common stock is traded on the Nasdaq Global Market under the symbol “CBFV.” The Company conducts its operations primarily through its wholly owned subsidiary, Community Bank, a Pennsylvania-chartered commercial bank.

At December 31, 2020, the Company, on a consolidated basis, had total assets of $1.42 billion, total liabilities of $1.28 billion and stockholders’ equity of $134.5 million.

Copies of the Company's reports, proxy and information statements, and other information filed electronically with the Securities and Exchange Commission (the “SEC”) are available free of charge through the SEC’s website address at https://www.sec.gov and through the Bank’s website address at https://www.communitybank.tv .

Community Bank

Community Bank is a Pennsylvania-chartered

commercial bank headquartered in Carmichaels, Pennsylvania.

The Bank is a community-oriented institution that conducts its business

from its main office and 23 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania;

Brooke, Marshall, Ohio, Upshur and Wetzel Counties in West Virginia;

and one office in Belmont County in Ohio by 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.

Community Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania.

The Bank operates from 15 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania;

six offices in Brooke, Marshall, Ohio, Upshur and Wetzel Counties in West Virginia;

and one office in Belmont County in Ohio.

On September 30, 2020, the Bank completed the closure of the Monessen office in Westmoreland County, Pennsylvania and the Bethlehem office in Ohio County, West Virginia reducing the total number of branches to 22.

The Bank also has two loan production offices in Fayette and Allegheny County, a corporate center in Washington County and an operations center in Greene County in Pennsylvania.

The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area.

In addition, the Bank is the sole shareholder of Exchange Underwriters, Inc.

("Exchange Underwriters"

or “EU”), a wholly-owned subsidiary that is a full-service, independent insurance

agency that offers property and casualty, commercial liability, surety and other insurance products.

The Bank was originally chartered in 1901

as The First National Bank of Carmichaels.

("Exchange Underwriters" or “EU”), a wholly-owned subsidiary located in Washington County that is a full-service, independent insurance agency that offers property and casualty, commercial liability, surety and other insurance products.

Exchange Underwriters' independent insurance agents shop from over 50 of the nation’s leading insurance providers to find the policy that fits their client's needs.

The Bank was originally chartered in 1901 as The First National Bank of Carmichaels.

In 1987, the Bank changed its name to Community Bank, National Association.

2006, the Bank completed a charter conversion from a national bank to a Pennsylvania-chartered commercial bank wholly-owned by

The Bank is a member of the Federal Home Loan Bank (“FHLB”) System.

Our deposits are insured by the Federal

Deposit Insurance Corporation (“FDIC”).

Our principal executive office is located at 100 North Market Street,

Carmichaels, Pennsylvania, and our telephone number at that address is (724) 966-5041.

In December 2006, the Bank completed a charter conversion from a national bank to a Pennsylvania-chartered commercial bank wholly-owned by the Company.

The Bank is a member of the Federal Home Loan Bank (“FHLB”) System.

Our deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”).

Our principal executive office is located at 100 North Market Street, Carmichaels, Pennsylvania, and our telephone number at that address is (724) 966-5041.

Our website address is https://www.communitybank.tv .

Information on this website is not and should not be considered to be a part of this Report.

Effective April 30, 2018, the Company completed

its merger with First West Virginia Bancorp (“FWVB”), the holding company for Progressive Bank, N.A.

(“PB”),

a national association.

The FWVB merger enhanced the Bank’s exposure into the core of the Tri-State region with the addition

of seven branches in West Virginia and one branch in Eastern Ohio.

The FWVB merger value was approximately $51.3 million.

In connection

with the FWVB merger, the Company issued 1,317,647 shares of common stock based on the Company’s closing stock price on April

30, 2018, of $31.9068, and paid cash consideration of $9.8 million in exchange for all the outstanding shares of FWVB common stock.

As of the date of merger, FWVB had approximately

$334.0 million of assets, $96.8 million of loans, and $282.9 million of deposits held across a network of 8 branches.

merger, the Company stockholders and FWVB stockholders owned approximately 76% and 24% of the combined company, respectively.

The merger was accounted for as an acquisition

in accordance with the acquisition method of accounting as detailed in Accounting Standards Codification ("ASC") Topic

805, Business Combinations.

The acquisition method of accounting requires an acquirer to recognize the assets acquired and the

liabilities assumed based on their fair values as of the date of acquisition.

This process is heavily reliant on measuring and

estimating the fair values of all the assets and liabilities of the acquired entity.

To the extent we do not have the requisite

expertise to determine the fair values of the assets acquired and liabilities assumed, we engaged third-party valuation specialists

to assist us in determining such values.

The results of the fair value evaluation generated goodwill and intangible assets.

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

Other intangible assets represent

purchased assets that lack physical substance but can be distinguished from goodwill because of contractual obligations or other

legal rights.

The assets acquired and liabilities assumed

of FWVB were recorded on the Company’s Consolidated Statement of Financial Condition at their estimated fair values as of

April 30, 2018.

Based on a purchase price allocation, the Company recorded $23.5 million in goodwill and $9.1 million in core deposit

intangibles related to FWVB acquisition.

The Company’s southwestern Pennsylvania

market area consists of Greene, Allegheny, Washington, Fayette and Westmoreland Counties.

Our branches located in Allegheny, Washington,

Fayette, and Westmoreland Counties are in the southern suburban area of metropolitan Pittsburgh.

Our acquired branches from the

FWVB merger extend the Company’s market area into West Virginia with seven branch locations in Brooke, Marshall, Ohio, Upshur

and Wetzel Counties;

and one branch location in Belmont County in eastern Ohio.

The following table sets forth certain economic

statistics for our market area.

Recently Announced Branch Optimization Initiative

On February 23, 2021, the Company announced the implementation of strategic initiatives to improve the Bank’s financial performance and to position the Bank for continued profitable growth.

The Bank intends to optimize its current branch network through the consolidation of six branches and the possible divestiture of others, 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 e volving changes in consumer preferences, largely driven by the global pandemic, led to an acceleration of branch optimization efforts.

The Bank plans to provide affected customers with details to ensure a seamless transition with minimal disruption to their daily banking needs.

Management believes this initiative is an important first step to improve the Bank’s operations, and to provide enhanced efficiency and production capabilities.

The Bank has also engaged with third-party workflow optimization experts to assist in implementing a number of robotic process automations and more effective sales management that it expects will improve operational efficiencies in the near and long-term.

These efforts will likely result in additional innovations designed to improve growth prospects for the Bank as customer preferences for mobile and other technology-based services evolve.

In connection with the branch consolidations and the other branch optimization initiatives, the Company anticipates non-recurring pre-tax costs during 2021 of up to $6.1 million.

This estimated cost excludes the impact of any premium from sale of branches, and assumes no salvage value, lease termination, severance, and other costs associated with the consolidations or sales;

however, the Company does anticipate some recovery of these costs over time.

The Company expects an annual

reduction in pre-tax operating expenses in 2021 of approximately $1.5 million, along with $3.0 million of ongoing pre-tax cost savings as a result of the implementation of the branch optimization initiatives.

Effective October 31, 2014, the Company completed a merger with FedFirst Financial Corporation (“FedFirst”), the holding company for First Federal Savings Bank (“FFSB”), a federally chartered stock savings bank.

As part of the merger, the Company also acquired FFSB's subsidary, Exchange Underwriters.

The merger expanded the Company’s reach into Fayette and Westmoreland counties in southwestern Pennsylvania.

Effective April 30, 2018, the Company completed its merger with First West Virginia Bancorp (“FWVB”), the holding company for Progressive Bank, N.A.

(“PB”), a national association.

The FWVB merger enhanced the Bank’s exposure into the core of the Tri-State region with the addition of branches in West Virginia and Eastern Ohio.

Effective August 1, 2018, Exchange Underwriters merged with Beynon Insurance Agency to become one of the largest insurance agencies in the Pittsburgh Region.

The merger brought together two long-standing, locally owned and operated Southwestern Pennsylvania independent insurance agencies both built upon the same values and culture of serving their customers.

Business Strategy

We intend to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our customers.

We believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace and our long-standing history of providing superior, relationship-based customer service.

We will continue to grow and create value for our shareholders.

Our employees will be treated fairly and given opportunities for personal growth.

We will be closely involved in improving our communities.Our business strategies emphasize building on core strengths and are discussed below.

• Create a sales and service culture to build full relationships with our customers and utilize technology investments to enhance speed of process to improve our customer experience.

We have successfully grown valuable core deposits (demand deposits, NOW accounts, money market accounts and savings accounts) that represent longer-term customer relationships and provide a lower cost of funding compared to certificates of deposit and borrowings.

Empowering our experienced, high quality employees to provide superior customer service in all aspects of our business which is further supported by the use of technology and a wide array of modern financial products can lead to stronger customer relationships, enhance fee revenue and allow the Bank to be the bank of choice across our footprint for residents and small and medium sized businesses.

• Evolve toward more electronic/digital products and processes driving greater efficiency and expand our brand awareness in our market.

We intend to focus on building our mobile and online capabilities through an improved mobile banking platform and product offering, omnichannel experience that is consistent with quick results and interactive alerts.

• Enhance profitability and efficiency while continuing to invest for future growth.

Margin compression is a challenge as a result of pandemic-induced interest rate reductions.

To combat this potential impact on core earnings, we view cost reduction as a key part of a company-wide efficiency effort.

Short-term targeted cost reductions combined with long-term strategic initiatives will better position the Company for high performance.

In addition, this strategy aligns with our efforts to simplify processes while utilizing technology to improve efficiency and build capabilities that supports future growth and high performance.

• Continue our track record of opportunistic growth in the robust Pittsburgh metropolitan area and across our footprint.

We believe we have competed effectively by leveraging a steadily growing branch network and a full assortment of banking products to facilitate deposit and loan growth in our core locations, including southwestern Pennsylvania, Ohio River Valley, and central West Virginia.

• Leverage our credit culture and strong loan underwriting to uphold our asset quality metrics.

We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards that we believe are conservative.

Although we intend to continue our efforts to originate commercial real estate and commercial and industrial loans, we intend to continue our philosophy of managing loan exposures through our conservative, yet reasonable, approach to lending.

• Increase fee and other non-interest income, primarily through our insurance operations, as well as mortgage banking and small business lending.

Fee income earned through our insurance agency, Exchange Underwriters, supplements our income from banking operations.

We intend to pursue opportunities to grow this line of business, including hiring insurance producers with established books of business and through acquisitions.

Human Capital

The Bank's culture is defined by our mission of being an exceptional, independent financial institution.

We value our employees by investing in a healthy work-life balance, competitive compensation and benefit packages and a vibrant, team-oriented environment centered on professional service and open communication.

We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees.

The success of our business is highly dependent on our employees, who provide value to our clients and communities through their dedication to helping clients achieve the American dream of home ownership and financial security.

Demographics.

As of December 31, 2020, we employed 254 full-time and 6 part-time employees across our three-state footprint.

None of these employees are represented by a collective bargaining agreement.

During 2020, we hired 41 employees and our voluntary turnover rate was 17.5%.

Diversity and Inclusion.

We strive toward having a powerful and diverse team of employees, knowing we are better together with our combined wisdom and intellect.

With a commitment to equality, inclusion, and workplace diversity, we focus on understanding, accepting, and valuing the differences between people.

We continued our commitment to equal employment opportunity through a robust affirmative action plan which includes annual compensation analyses and ongoing reviews of our selection and hiring practices alongside a continued focus on building and maintaining a diverse workforce.

Compensation and Benefits.

We provide a competitive compensation and benefits program to help meet the needs of our employees.

In addition to salaries, these programs include opportunity for annual bonuses, a 401(k) Plan with an employer matching contribution in addition to an employer annual contribution, an equity incentive plan, healthcare and insurance benefits, health savings, flexible spending accounts, paid time off, family leave and an employee assistance program.

Learning and Development.

We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our colleagues.

Our employees receive continuing education courses that are relevant to the banking industry and their job function within the Company.

In addition, we have created learning paths for specific positions that are designed to encourage an employee’s advancement and growth within our organization.

We support and encourage managers to hire from within.

We also offer a peer mentor program, leadership, and customer service training.

These resources provide employees with the skills they need to achieve their career goals, build management skills, and become leaders within our Company.

The safety, health and wellness of our employees is a top priority.

The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations.

Through teamwork and the adaptability of our management and staff, we were able to transition, over a short period of time, 25% of our employees to effectively working from remote locations.

Additionally, we developed a safely distanced working environment for employees performing client facing activities, at branches and operations centers.

We further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, keeping the employee portion of health care premiums to a minimum and sponsoring various wellness programs.

The Company’s southwestern Pennsylvania market area consists of Allegheny, Greene, Fayette, Washington and Westmoreland Counties.

Greene County is a significantly more rural county compared to the counties in which we have our other branches.

Our offices located in Allegheny, Washington, Fayette, and Westmoreland Counties are in the southern suburban area of metropolitan Pittsburgh.

Our branches from the FWVB merger extend the Company’s market area into West Virginia with six offices in Brooke, Marshall, Ohio, Upshur and Wetzel Counties;

and one office in Belmont County in eastern Ohio.

The following table sets forth certain economic statistics for our market area.

Population (1)

Unemployment Rate (2)

Average Annual Wage (3)

Pennsylvania 12,801,989 6.4 $ 60,840

Allegheny 1,216,045 6.3 65,884

Fayette 129,274 8.8 43,368

Greene 36,233 7.0 54,132

Washington 206,865 6.9 57,564

Westmoreland 348,899 6.6 48,464

West Virginia 1,792,147 6.1 48,516

(1) Based on the latest data published

Brooke 21,939 7.1 48,308

Marshall 30,531 7.2 54,756

Ohio 41,411 6.2 47,216

Upshur 24,176 7.7 41,704

Wetzel 15,065 8.5 40,092

Ohio 11,689,100 5.2 53,612

Belmont 67,006 6.5 40,560

(1) Based on the latest data published by the U.S.

Census Bureau (July 2019)

(2) Based on the latest data published

(2) Based on the latest data published by the U.S.

Bureau of Labor Statistics (December 2020)

(3) Based on the latest data published

(3) Based on the latest data published by the U.S.

Bureau of Labor Statistics (Second Quarter 2020)

The market area has been impacted by the

energy industry through the extraction of untapped natural gas reserves in the Marcellus Shale Formation.

The Marcellus Shale Formation

extends throughout much of the Appalachian Basin and most of Pennsylvania, West Virginia and Eastern Ohio and is located near high-demand

markets along the East Coast.

The proximity to these markets makes it an attractive target for energy development and has resulted

in significant job creation through the development of gas wells and transportation of gas.

Greene County is a significantly more

rural county compared to the counties in which we have our other branches.

We encounter significant competition both in attracting deposits

and in originating real estate and other loans.

Our most direct competition for deposits historically has come from other commercial

banks, savings banks, savings associations and credit unions in our market area, and we expect continued strong competition from

such financial institutions in the foreseeable future.

The Company faces additional competition for deposits from online financial

institutions and non-depository competitors, such as the mutual fund industry, securities and brokerage firms, and insurance companies.

We compete for deposits by offering depositors a high level of personal service and expertise together with a wide range of financial

Our deposit sources are primarily concentrated in the communities surrounding our banking offices located in Greene,

Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania;

Brooke, Marshall, Ohio, Upshur and Wetzel

Counties in West Virginia;

and Belmont County in eastern Ohio.

As of June 30, 2019, our FDIC-insured deposit market share in the

counties we serve, out of 58 bank and thrift institutions, was 0.75%.

The market area has been impacted by the energy industry through the extraction of untapped natural gas reserves in the Marcellus Shale Formation.

The Marcellus Shale Formation extends throughout much of the Appalachian Basin and most of Pennsylvania, West Virginia and Eastern Ohio and is located near high-demand markets along the East Coast.

The proximity to these markets makes it an attractive target for energy development and has resulted in significant job creation through the development of gas wells and transportation of gas.

We encounter significant competition both in attracting deposits and in originating real estate and other loans.

Our most direct competition for deposits historically has come from other commercial banks, savings banks, savings associations and credit unions in our market area, and we expect continued strong competition from such financial institutions in the foreseeable future.

The Company faces additional competition for deposits from online financial institutions and non-depository competitors, such as the mutual fund industry, securities and brokerage firms, and insurance companies.

We compete for deposits by offering depositors a high level of personal service and expertise together with a wide range of financial services.

Our deposit sources are primarily concentrated in the communities surrounding our banking offices.

As of June 30, 2020, our FDIC-insured deposit market share in the counties we serve, out of 59 bank and thrift institutions, was 0.65%.

Such data does not reflect deposits held by credit unions.

The competition for real estate and other

loans comes principally from other commercial banks, mortgage banking companies, government-sponsored entities, savings banks and

savings associations.

The competition for real estate and other loans comes principally from other commercial banks, mortgage banking companies, government-sponsored entities, savings banks and savings associations.

This competition for loans has increased substantially in recent years.

We compete for loans primarily through

the interest rates, prepayment penalties, and loan fees we charge and the efficiency and quality of services we provide to borrowers.

Factors that affect competition include general and local economic conditions, current interest rate levels and the volatility

of the mortgage markets.

We compete for loans primarily through the interest rates, prepayment penalties, and loan fees we charge and the efficiency and quality of services we provide to borrowers.

Factors that affect competition include general and local economic conditions, current interest rate levels and the volatility of the mortgage markets.

Lending Activities

Our principal lending

activity has been the origination in our local market area of residential one- to four-family, commercial real estate, construction,

commercial and industrial, and consumer loans.

At December 31, 2019, our net loans receivable totaled $942.6 million compared to

$903.3 million at December 31, 2018.

Our overall net loan growth was $39.3 million, or 4.4%.

Our principal lending activity has been the origination in our local market area of residential one- to four-family, commercial real estate, construction, commercial and industrial, and consumer loans.

At December 31, 2020, our total loans receivable, which excludes the allowance for loan losses, was $1.04 billion compared to $952.5 million at December 31, 2019.

Our overall loan growth was $92.3 million, or 9.7%.

Loan Portfolio Composition.

The Company primarily originates residential real estate, commercial real estate, construction, commercial and industrial, consumer

and other loans.

The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates

When the Company sells loans, the loans are sold immediately upon origination.

Therefore, the Company did not have loans

held for sale at any of the dates indicated below.

The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated.

When the Company sells loans, the loans are sold upon origination.

Therefore, the Company did not have loans held for sale at any of the dates indicated below.

2020 2019 2018 2017 2016

December 31, Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

(Dollars in Thousands)

Residential $ 344,142 32.9 % $ 347,766 36.6 % $ 326,769 35.9 % $ 273,438 36.7 % $ 271,588 39.8 %

Commercial 373,555 35.9 351,360 36.9 307,064 33.6 209,037 28.1 201,010 29.5

Construction 72,600 6.9 35,605 3.7 48,824 5.3 36,149 4.9 10,646 1.6

Commercial and Industrial 126,813 12.1 85,586 9.0 91,463 10.0 107,835 14.5 80,812 11.9

Allowance for

Consumer 113,854 10.9 113,637 11.9 122,241 13.4 114,557 15.4 114,204 16.7

Other 13,789 1.3 18,542 1.9 16,511 1.8 3,376 0.4 3,637 0.5

Total Loans 1,044,753 100.0 % 952,496 100.0 % 912,872 100.0 % 744,392 100.0 % 681,897 100.0 %

Allowance for Loan Losses (12,771) (9,867) (9,558) (8,796) (7,803)

Loans, Net $ 1,031,982 $ 942,629 $ 903,314 $ 735,596 $ 674,094

Residential Real Estate Loans .

real estate loans are comprised of loans secured by one- to four-family residential properties.

Included in residential real estate

loans are traditional one- to four-family mortgage loans, home equity installment loans, and home equity lines of credit.

loans through our marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses.

31, 2019, $347.8 million, or 36.5%, of our total loan portfolio was invested in residential loans.

Residential real estate loans are comprised of loans secured by one- to four-family residential properties.

Included in residential real estate loans are traditional one- to four-family mortgage loans, home equity installment loans, and home equity lines of credit.

We generate loans through our marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses.

At December 31, 2020, $344.1 million, or 32.9%, of our total loan portfolio was invested in residential loans.

One- to Four-Family Mortgage Loans .

Historically our primary

lending activity has been the origination of fixed-rate, one- to four-family, owner-occupied, residential mortgage loans with terms

up to 30 years secured by property located in our market area.

At December 31, 2019, one- to four-family mortgage loans totaled

$246.1 million.

Our one- to four-family residential mortgage loans are generally conforming loans, underwritten according to secondary

market guidelines.

We generally originate mortgage loans in amounts up to the maximum conforming loan limits established by the

Federal Housing Finance Agency, which, for 2019, is typically $484,350 for single-family homes, except in certain high-cost areas

in the United States.

At December 31, 2019, one- to four-family residential mortgage loans with principal balances in excess of

$484,350, commonly referred to as jumbo loans, totaled $27.4 million.

Our mortgage loans amortize monthly with principal and interest

due each month.

These loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers

may refinance or prepay loans at their option without a prepayment penalty.

When underwriting one- to four-family mortgage loans, we review

and verify each loan applicant’s income and credit history.

Management believes that stability of income and past credit

history are integral parts in the underwriting process.

Written appraisals are generally required on real estate property offered

to secure an applicant’s loan.

We generally limit the loan-to-value ratios of one- to four-family residential mortgage loans

to 80% of the purchase price or appraised value of the property, whichever is less.

For one- to four-family real estate loans with

loan-to-value ratios of over 80%, we generally require private mortgage insurance.

We require fire and casualty insurance on all

properties securing real estate loans.

We require title insurance, or an attorney’s title opinion, as circumstances warrant.

Our one- to four-family mortgage loans customarily include due-on-sale

clauses, which give us the right to declare a loan immediately due and payable in the event, among other things, that the borrower

sells or otherwise disposes of the underlying real property serving as collateral for the loan.

Fixed-rate one- to four-family residential mortgage loans with terms

of 15 years or more are originated for resale to the secondary market.

During the years ended December 31, 2019 and 2018, we originated

$10.7 and $10.3 million of fixed-rate residential mortgage loans, respectively, which were subsequently sold in the secondary mortgage

The origination of fixed-rate mortgage loans versus adjustable-rate

mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference,

our interest rate risk position and our competitors’

loan products.

Adjustable-rate mortgage loans secured by one- to four-family

residential real estate totaled $35.5 million at December 31, 2019.

Adjustable-rate mortgage loans make our loan portfolio more

interest rate sensitive.

However, as the interest income earned on adjustable-rate mortgage loans varies with prevailing interest

rates, such loans do not offer predictable cash flows in the same manner as long-term, fixed-rate loans.

Adjustable-rate mortgage

loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates

It is possible that during periods of rising interest rates that the risk of delinquencies and defaults on adjustable-rate

mortgage loans may increase due to the upward adjustment of interest costs to the borrower, resulting in increased loan losses.

We do not offer an “interest only”

mortgage loan product

on one- to four-family residential properties (where the borrower pays interest for an initial period, after which the loan converts

to a fully amortizing loan).

We also do not offer loans that provide for negative amortization of principal, such as “Option

loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance

during the life of the loan.

We do not offer a “subprime loan”

program (loans that generally target borrowers with

weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers

with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally

defined as loans having less than full documentation).

One of our primary lending activities is the origination of fixed-rate, one- to four-family, owner-occupied, residential mortgage loans with terms up to 30 years secured by property located in our market area.

At December 31, 2020, one- to four-family mortgage loans totaled $251.4 million.

Our one- to four-family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines.

We generally originate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency, which, for 2020, is typically $510,400 for single-family homes, except in certain high-cost areas in the United States.

At December 31, 2020, one- to four-family residential mortgage loans with principal balances in excess of $510,400, commonly referred to as jumbo loans, totaled $38.5 million.

Our mortgage loans amortize monthly with principal and interest due each month.

These loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option without a prepayment penalty.

When underwriting one- to four-family mortgage loans, we review and verify each loan applicant’s income and credit history.

Management believes that stability of income and past credit history are integral parts in the underwriting process.

Written appraisals are generally required on real estate property offered to secure an applicant’s loan.

We generally limit the loan-to-value ratios of one- to four-family residential mortgage loans to 80% of the purchase price or appraised value of the property, whichever is less.

For one- to four-family real estate loans with loan-to-value ratios of over 80%, we generally require private mortgage insurance.

We require fire and casualty insurance on all properties securing real estate loans.

We require title insurance, or an attorney’s title opinion, as circumstances warrant.

Our one- to four-family mortgage loans customarily include due-on-sale clauses, which give us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan.

Fixed-rate one- to four-family residential mortgage loans with terms of 15 years or more are originated for resale to the secondary market.

During the years ended December 31, 2020 and 2019, we originated $32.1 million and $10.7 million of fixed-rate residential mortgage loans, respectively, which were subsequently sold in the secondary mortgage market.

The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, our interest rate risk position and our competitors’ loan products.

Adjustable-rate mortgage loans secured by one- to four-family residential real estate totaled $40.3 million at December 31, 2020.

Adjustable-rate mortgage loans make our loan portfolio more interest rate sensitive.

However, as the interest income earned on adjustable-rate mortgage loans varies with prevailing interest rates, such loans do not offer predictable cash flows in the same manner as long-term, fixed-rate loans.

Adjustable-rate mortgage loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase.

It is possible that during periods of rising interest rates that the risk of delinquencies and defaults on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrower, resulting in increased loan losses.

We do not offer an “interest only” mortgage loan product on one- to four-family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan).

We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan.

We do not offer a “subprime loan” program (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).

We may originate loans to consumers with a credit score below 660.

may be defined as subprime loans, however there are typically mitigating circumstances that according to FDIC guidance and our

opinion would not designate such loans as “subprime.”

This may be defined as subprime loans, however there are typically mitigating circumstances that according to FDIC guidance and our opinion would not designate such loans as “subprime.”

Home Equity Loans.

At December 31, 2019, home equity loans

totaled $101.7 million.

Our home equity loans and lines of credit are generally secured by the borrower’s principal residence.

The maximum amount of a home equity loan or line of credit is generally 85% of the appraised value of a borrower’s real estate

collateral less the amount of any prior mortgages or related liabilities.

Home equity loans and lines of credit are approved with

both fixed and adjustable interest rates, which we determine based upon market conditions.

Such loans are fully amortized over

the life of the loan.

At December 31, 2020, home equity loans totaled $92.7 million.

Our home equity loans and lines of credit are generally secured by the borrower’s principal residence.

The maximum amount of a home equity loan or line of credit is generally 85% of the appraised value of a borrower’s real estate collateral less the amount of any prior mortgages or related liabilities.

Home equity loans and lines of credit are approved with both fixed and adjustable interest rates, which we determine based upon market conditions.

Such loans are fully amortized over the life of the loan.

Generally, the maximum term for home equity loans is 20 years.

Our underwriting standards for home equity loans include a determination

of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments

on the proposed loan.

The stability of the applicant’s monthly income may be determined by verification of gross monthly

income from primary employment, and additionally from any verifiable secondary income.

We also consider the length of employment

with the borrower’s present employer.

Our underwriting standards for home equity loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.

The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income.

We also consider the length of employment with the borrower’s present employer.

Creditworthiness of the applicant is of primary consideration;

however, the underwriting

process also includes a comparison of the value of the collateral in relation to the proposed loan amount.

however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.

We primarily originate home equity loans secured by first lien mortgages.

Home equity loans in a junior lien position totaled $13.4 million at December 31, 2019 and entail greater risks than one- to four-family

residential mortgage loans or home equity loans secured by first lien mortgages.

In such cases, collateral repossessed after a

default may not provide an adequate source of repayment of the outstanding loan balance because of damage or depreciation in the

value of the property or loss of equity to the first lien position.

Further, home equity loan payments are dependent on the borrower’s

continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal

Finally, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws,

may limit the amount that can be recovered on such loans in the event of a default.

Home equity loans in a junior lien position totaled $12.1 million at December 31, 2020 and entail greater risks than one- to four-family residential mortgage loans or home equity loans secured by first lien mortgages.

In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage or depreciation in the value of the property or loss of equity to the first lien position.

Further, home equity loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Finally, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans in the event of a default.

Commercial Real Estate Loans.

We originate commercial

real estate loans that are secured primarily by improved properties, such as retail facilities, office buildings and other non-residential

buildings as well as multifamily properties.

At December 31, 2019, $351.4 million, or 37.0% of our total loan portfolio, consisted

of commercial real estate loans.

Our commercial real estate loans generally have adjustable

interest rates with terms of up to 15 years and amortization periods up to 25 years.

The adjustable rate loans are typically fixed

for the first five years and adjust every five years thereafter.

The maximum loan-to-value ratio of our commercial real

estate loans is generally 75% to 80% of the lower of cost or appraised value of the property securing the loan.

We consider a number of factors in originating commercial real estate

We evaluate the qualifications and financial condition of the borrower, including project-level and global cash flows and

debt service coverage, credit history and management expertise, as well as the value and condition of the property, securing the

When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s

experience in owning or managing similar property and the borrower’s payment history with the Bank and other financial institutions.

In evaluating the property securing the loan, the factors considered include the net operating income of the mortgaged property

before debt service and depreciation, and the ratio of the loan amount to the appraised value of the property.

We generally will

not lend to High Volatility Commercial Real Estate (HVCRE) projects.

All commercial real estate loans are appraised by outside

independent state certified general appraisers.

Personal guarantees are generally obtained from the principals of commercial real

estate loan borrowers, although this requirement may be waived in limited circumstances depending upon the loan-to-value ratio

and the debt-service ratio associated with the loan.

The Bank requires property and casualty insurance and flood insurance if the

property is in a flood zone area.

We underwrite commercial real estate loan participations to the

same standards as loans originated by us.

We originate commercial real estate loans that are secured primarily by improved properties, such as retail facilities, office buildings and other non-residential buildings as well as multifamily properties.

At December 31, 2020, $373.6 million, or 35.9% of our total loan portfolio, consisted of commercial real estate loans.

Our commercial real estate loans generally have adjustable interest rates with terms of up to 15 years and amortization periods up to 25 years.

The adjustable rate loans are typically fixed for the first five years and adjust every five years thereafter.

The maximum loan-to-value ratio of our commercial real estate loans is generally 75% to 80% of the lower of cost or appraised value of the property securing the loan.

We consider a number of factors in originating commercial real estate loans.

We evaluate the qualifications and financial condition of the borrower, including project-level and global cash flows and debt service coverage, credit history and management expertise, as well as the value and condition of the property, securing the loan.

When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with the Bank and other financial institutions.

In evaluating the property securing the loan, the factors considered include the net operating income of the mortgaged property before debt service and depreciation, and the ratio of the loan amount to the appraised value of the property.

We generally will not lend to high volatility commercial real estate projects.

All commercial real estate loans are appraised by outside independent state certified general appraisers.

Personal guarantees are generally obtained from the principals of commercial real estate loan borrowers, although this requirement may be waived in limited circumstances depending upon the loan-to-value ratio and the debt-service ratio associated with the loan.

The Bank requires property and casualty insurance and flood insurance if the property is in a flood zone area.

We underwrite commercial real estate loan participations to the same standards as loans originated by us.

In addition, we consider the financial strength and reputation of the lead lender.

require the lead lender to provide a full closing package as well as annual financial statements for the borrower and related entities

so that we can conduct an annual loan review for all loan participations.

Loans secured by commercial real estate generally involve

a greater degree of credit risk than residential mortgage loans and carry larger loan balances.

This increased credit risk is a

result of several factors, including the effects of general economic conditions on income producing properties and the successful

operation or management of the properties securing the loans.

Furthermore, the repayment of loans secured by commercial real estate

is typically dependent upon the successful operation of the related business and real estate property.

If the cash flow from the

project is reduced, the borrower’s ability to repay the loan may be impaired.

We require the lead lender to provide a full closing package as well as annual financial statements for the borrower and related entities so that we can conduct an annual loan review for all loan participations.

Loans secured by commercial real estate generally involve a greater degree of credit risk than residential mortgage loans and carry larger loan balances.

This increased credit risk is a result of several factors, including the effects of general economic conditions on income producing properties and the successful operation or management of the properties securing the loans.

Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the

successful operation of the related business and real estate property.

If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

Construction Loans.

We originate construction loans

to individuals to finance the construction of residential dwellings and also originate loans for the construction of commercial

properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses.

December 31, 2019, $35.6 million, or 3.7% of our total loan portfolio, consisted of construction loans.

Our construction loans

generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months.

of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan.

Loans generally

can be made with a maximum loan-to-value ratio of 80% on both residential and commercial construction.

Before making a commitment

to fund a construction loan, we require a pro forma appraisal of the property, as completed by an independent licensed appraiser.

We originate construction loans to individuals to finance the construction of residential dwellings and also originate loans for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses.

At December 31, 2020, $72.6 million, or 6.9% of our total loan portfolio, consisted of construction loans.

Our 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.

Loans generally can be made with a maximum loan-to-value ratio of 80% on both residential and commercial construction.

Before making a commitment to fund a construction loan, we require a pro forma appraisal of the property, as completed by an independent licensed appraiser.

We also will require an inspection of the property before disbursement of funds during the term of the construction loan.

do not lend to developers unless they maintain a 15% cash equity position in the project.

We typically do not lend to developers unless they maintain a 15% cash equity position in the project.

Commercial and Industrial Loans.

We originate commercial

and industrial loans and lines of credit to borrowers located in our market area that are generally secured by collateral other

than real estate, such as equipment, accounts receivable, inventory, and other business assets.

At December 31, 2019, $85.6 million,

or 9.0% of our total loan portfolio, consisted of commercial and industrial loans.

The loans generally have terms of maturity from

five to seven years with adjustable interest rates tied to the prime rate, LIBOR or the weekly average of the FHLB of Pittsburgh

three- to ten-year fixed rates.

We generally obtain personal guarantees from the borrower or a third party as a condition to originating

On a limited basis, we will originate unsecured business loans in those instances where the applicant’s financial

strength and creditworthiness has been established.

Commercial business loans generally bear higher interest rates than residential

loans, but they also may involve a higher risk of default because their repayment is generally dependent on the successful operation

of the borrower’s business.

Our underwriting standards for commercial business loans include

a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash

flows generated in the applicant’s business.

We assess the financial strength of each applicant through the review of financial

statements and tax returns provided by the applicant.

The creditworthiness of an applicant is derived from a review of credit reports

as well as a search of public records.

We originate commercial and industrial loans and lines of credit to borrowers located in our market area that are generally secured by collateral other than real estate, such as equipment, accounts receivable, inventory, and other business assets.

At December 31, 2020, $126.8 million, or 12.1% of our total loan portfolio, consisted of commercial and industrial loans, of which $55.1 million are Payroll Protection Program ("PPP") loans.

Exclusive of PPP loans, commercial and industrial loans generally have terms of maturity from five to seven years with adjustable interest rates tied to the prime rate, LIBOR or the weekly average of the FHLB of Pittsburgh three- to ten-year fixed rates.

We generally obtain personal guarantees from the borrower or a third party as a condition to originating the loan.

On a limited basis, we will originate unsecured business loans in those instances where the applicant’s financial strength and creditworthiness has been established.

Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default because their repayment is generally dependent on the successful operation of the borrower’s business.

Our underwriting standards for commercial business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business.

We assess the financial strength of each applicant through the review of financial statements and tax returns provided by the applicant.

The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records.

We periodically review business loans following origination.

We request financial statements

at least annually and review them for substantial deviations or changes that might affect repayment of the loan.

Our loan officers

may also visit the premises of borrowers to observe the business premises, facilities, and personnel and to inspect the pledged

Lines of credit secured with accounts receivable and inventory typically require that the customer provide a monthly

borrowing base certificate that is reviewed prior to each draw request.

Underwriting standards for business loans are different

for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.

commercial loans are assigned a risk rating, which is reviewed internally, as well as by independent loan review professionals,

We request financial statements at least annually and review them for substantial deviations or changes that might affect repayment of the loan.

Our loan officers may also visit the premises of borrowers to observe the business premises, facilities, and personnel and to inspect the pledged collateral.

Lines of credit secured with accounts receivable and inventory typically require that the customer provide a monthly borrowing base certificate that is reviewed prior to each draw request.

Underwriting standards for business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.

All commercial loans are assigned a risk rating, which is reviewed internally, as well as by independent loan review professionals, annually.

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

On April 16, 2020, the original $349 billion funding cap was reached.

On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was signed into law and included an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP.

PPP was designed to help small businesses keep their workforce employed and cover expenses during the COVID-19 crisis.

Under the PPP, participating SBA and other qualifying lenders originated loans to eligible businesses that are fully guaranteed by the SBA as to principal and accrued interest, have more favorable terms than traditional SBA loans and may be forgiven if the proceeds are used by the borrower for certain eligible purposes.

PPP loans have an interest rate of 1% per annum.

Loans issued prior to June 5, 2020 have a term to maturity of two-years and loans issued after June 5, 2020 have a term to maturity of five-years.

Loan payments were deferred for six months.

The Bank received a processing fee from the SBA ranging from 1% to 5% depending on the size of the loan, which was offset by a 0.75% third-party servicing agent fee.

In 2020, the Bank originated 639 loans totaling $71.0 million.

Among the largest sectors impacted were $15.6 million in loans for health care and social assistance, $12.6 million for construction and specialty-trade contractors, $6.1 million for professional and technical services, $6.1 million for retail trade, $5.1 million for wholesale trade, $4.6 million for manufacturing and $3.4 million for restaurant and food services.

Net deferred origination fees were $2.2 million, of which $1.1 million was recognized during year ended December 31, 2020.

Processing of PPP loan forgiveness began in the fourth quarter of 2020 and at December 31, 2020, PPP loans totaled $55.1 million.

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.

Consumer Loans.

We originate consumer loans that primarily

consist of indirect auto loans and, to a lesser extent, secured and unsecured loans and lines of credit.

As of December 31, 2019,

consumer loans totaled $113.6 million, or 11.9%, of our total loan portfolio, of which $105.2 million were indirect auto loans.

We originate consumer loans that primarily consist of indirect auto loans and, to a lesser extent, secured and unsecured loans and lines of credit.

As of December 31, 2020, consumer loans totaled $113.9 million, or 10.9%, of our total loan portfolio, of which $106.4 million were indirect auto loans.

Consumer loans are generally offered on a fixed-rate basis.

Our underwriting standards for consumer loans include a determination

of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments

on the proposed loan.

The stability of the applicant’s monthly income may be determined by verification of gross monthly

income from primary employment, and additionally from any verifiable secondary income.

We also consider the length of employment

with the borrower’s present employer as well as the amount of time the borrower has lived in the local area.

Creditworthiness

of the applicant is of primary consideration;

however, the underwriting process also includes a comparison of the value of the

collateral in relation to the proposed loan amount.

Indirect auto loans are loans that are sold by auto dealerships

to third parties, such as banks or other types of lenders.

Our underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.

The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income.

We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area.

Creditworthiness of the applicant is of primary consideration;

however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.

Indirect auto loans are loans that are sold by auto dealerships to third parties, such as banks or other types of lenders.

We work with various auto dealers throughout our lending area.

collects information from the applicant and transmits it to us electronically for review, where we can either accept or reject

the applicant without ever meeting the applicant.

If the Bank approves the applicant’s request for financing, the Bank purchases

the dealership-originated installment sales contract and is known as the holder in due course that is entitled to receive principal

and interest payments from a borrower.

As compensation for generating the loan, a portion of the rate is advanced to the dealer

and accrued in a prepaid dealer reserve account.

As a result, the Bank’s yield is below the contractual interest rate because

the Bank must wait for the stream of loan payments to be repaid.

The Bank will receive a pro rata refund of the amount prepaid

to the dealer only if the loan prepays within the first six months or if the collateral for the loan is repossessed.

responsible for pursuing repossession if the borrower defaults on payments.

Consumer loans entail greater risks than one- to four-family residential

mortgage loans, particularly consumer loans secured by rapidly depreciating assets, such as automobiles, or loans that are unsecured.

In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance

because of damage, loss or depreciation.

Further, consumer loan payments are dependent on the borrower’s continuing financial

stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

would increase our risk of loss on unsecured loans.

Finally, the application of various federal and state laws, including federal

and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans in the event of a default.

The dealer collects information from the applicant and transmits it to us electronically for review, where we can either accept or reject the applicant without ever meeting the applicant.

If the Bank approves the applicant’s request for financing, the Bank purchases the dealership-originated installment sales contract and is known as the holder in due course that is entitled to receive principal and interest payments from a borrower.

As compensation for generating the loan, a portion of the rate is advanced to the dealer and accrued in a prepaid dealer reserve account.

As a result, the Bank’s yield is below the contractual interest rate because the Bank must wait for the stream of loan payments to be repaid.

The Bank will receive a pro rata refund of the amount prepaid to the dealer only if the loan prepays within the first six months or if the collateral for the loan is repossessed.

The Bank is responsible for pursuing repossession if the borrower defaults on payments.

Consumer loans entail greater risks than one- to four-family residential mortgage loans, particularly consumer loans secured by rapidly depreciating assets, such as automobiles, or loans that are unsecured.

In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage, loss or depreciation.

Further, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Such events would increase our risk of loss on unsecured loans.

Loan Portfolio Maturities and Yields.

The following

table summarizes the scheduled repayments of our loan portfolio at December 31, 2019.

Demand loans, loans having no stated repayment

schedule or maturity, and overdraft loans are reported as being due in one year or less.

Consumer loans consist primarily of indirect

automobile loans whereby a portion of the rate is prepaid to the dealer and accrued in a prepaid dealer reserve account.

the true yield for the portfolio is significantly less than the note rate disclosed below.

in thousands)

Due During the Years

Ending December 31,

2035 and Beyond

Due During the Years

The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2020.

Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

Consumer loans consist primarily of indirect automobile loans whereby a portion of the rate is prepaid to the dealer and accrued in a prepaid dealer reserve account.

Therefore, the true yield for the portfolio is significantly less than the note rate disclosed below.

Residential Commercial Construction Commercial and Industrial

Due During the Years Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate Amount Weighted Average Rate

Ending December 31,

(Dollars in Thousands)

2021 $ 16,731 3.62 % $ 14,085 3.73 % $ 7,734 4.03 % $ 27,839 3.28 %

2022 855 4.69 1,550 4.82 7,983 3.26 57,217 1.29

2023 1,120 5.17 22,890 4.34 9,421 3.70 6,219 4.26

2024 to 2025 4,042 4.45 20,241 3.75 19,064 3.01 11,802 3.75

2026 to 2030 49,774 3.90 178,733 3.75 17,486 3.38 12,306 3.05

2031 to 2035 73,244 3.98 121,281 4.02 3,727 3.88 2,995 3.89

2036 and Beyond 198,376 4.00 14,775 4.04 7,185 3.52 8,435 2.89

The following table sets forth at December 31, 2019, the dollar

amount of all fixed-rate and adjustable-rate loans due after December 31, 2020.

Total $ 344,142 3.97 % $ 373,555 3.89 % $ 72,600 3.42 % $ 126,813 2.43 %

Consumer Other Total

Due During the Years Weighted Average Rate Weighted Average Rate Weighted Average Rate

Ending December 31, Amount Amount Amount

(Dollars in Thousands)

2021 $ 6,622 4.84 % $ 1,666 2.99 % $ 74,677 3.65 %

2022 8,392 4.16 132 3.41 76,129 1.91

2023 17,290 4.52 35 4.22 56,975 4.28

2024 to 2025 45,259 4.76 461 4.62 100,869 4.09

2026 to 2030 34,323 4.70 1,833 3.03 294,455 3.83

2031 to 2035 — — 7,184 3.00 208,431 3.97

2036 and Beyond 1,968 5.32 2,478 4.00 233,217 3.95

Total $ 113,854 4.67 % $ 13,789 3.24 % $ 1,044,753 3.78 %

The following table sets forth at December 31, 2020, the dollar amount of all fixed-rate and adjustable-rate loans due after December 31, 2021.

Due After December 31, 2021

Fixed Adjustable Total

(Dollars in Thousands)

Residential $ 285,097 $ 42,314 $ 327,411

Commercial 165,146 194,324 359,470

Construction 44,020 20,846 64,866

Commercial and Industrial 89,057 9,917 98,974

Consumer 107,139 93 107,232

Other 8,577 3,546 12,123

Total Loans $ 699,036 $ 271,040 $ 970,076

Loan Approval Procedures and Authority

Our lending activities follow written, non-discriminatory underwriting

standards and loan origination procedures established by the Board of Directors (the “Board”).

In the approval process

for residential loans, we assess the borrower’s ability to repay the loan and the value of the property securing the loan.

To assess the borrower’s ability to repay, we review the borrower’s income and expenses and employment and credit history.

Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors (the “Board”).

In the approval process for residential loans, we assess the borrower’s ability to repay the loan and the value of the property securing the loan.

To assess the borrower’s ability to repay, we review the borrower’s income and expenses and employment and credit history.

In the case of commercial loans, we also review projected income, expenses and the viability of the project being financed.

generally require appraisals of all real property securing loans.

We generally require appraisals of all real property securing loans.

Appraisals are performed by independent licensed appraisers.

The Bank’s loan approval policies and limits are also established by its Board.

All loans originated by the Bank are subject

to its underwriting guidelines.

The Bank’s loan approval policies and limits are also established by its Board.

All loans originated by the Bank are subject to its underwriting guidelines.

Loan approval authorities vary based on loan size in the aggregate.

Individual officer loan approval

authority generally applies to loans of up to $500,000.

Loans above that amount and up to $2.0 million may be approved by the Loan

Loans between $2.0 million and $5.0 million may be approved by the Discount Committee, which includes five directors

Loans in the aggregate over $5.0 million must be approved by the Board.

Individual officer loan approval authority generally applies to loans of up $1.0 million.

Loans above that amount and up to 65% of the Bank’s legal lending limit may be approved by the Loan Committee.

Loans in the aggregate over 65% of the Bank’s legal lending limit must be approved by the Board.

Delinquencies and Classified Assets

When a borrower fails to remit a required loan payment, a courtesy

notice is sent to the borrower prior to the end of their appropriate grace period stressing the importance of paying the loan current.

When a borrower fails to remit a required loan payment, a courtesy notice is sent to the borrower prior to the end of their appropriate grace period stressing the importance of paying the loan current.

If a payment is not paid within the appropriate grace period, then a late notice is mailed.

In addition, telephone calls are made

and additional letters may be sent.

In addition, telephone calls are made and additional letters may be sent.

Collection efforts continue until it is determined that the debt is uncollectable.

For loans secured by real estate, a Homeownership Counseling Notice

is mailed when the loan is 45 days delinquent.

In Pennsylvania, an Act 91 Notice is mailed to the borrower stating that they have

33 days to cure the default before foreclosure is initiated.

In West Virginia, a Notice of Default is mailed and in Ohio, a demand

letter is mailed when a loan is 60 days delinquent.

When a loan becomes 90 or more days delinquent, it is forwarded to the Bank’s

attorney to pursue other remedies.

For loans secured by real estate, a Homeownership Counseling Notice is mailed when the loan is 45 days delinquent.

In Pennsylvania, an Act 91 Notice is mailed to the borrower stating that they have 33 days to cure the default before foreclosure is initiated.

In West Virginia, a Notice of Default is mailed and in Ohio, a demand letter is mailed when a loan is 60 days delinquent.

When a loan becomes 90 or more days delinquent, it is forwarded to the Bank’s attorney to pursue other remedies.

An official mortgage foreclosure complaint typically occurs at 120 days delinquent.

collection efforts have not succeeded, the property will proceed to a Sheriff Sale to be sold.

For commercial loans, the borrower is contacted in an attempt to

reestablish the loan to current payment status and ensure timely payments continue.

Collection efforts continue until the loan

is 60 days past due, at which time demand payment, default, and/or foreclosure procedures are initiated.

We may consider loan workout

arrangements with certain borrowers under certain circumstances.

In the event collection efforts have not succeeded, the property will proceed to a Sheriff Sale to be sold.

For commercial loans, the borrower is contacted in an attempt to reestablish the loan to current payment status and ensure timely payments continue.

Collection efforts continue until the loan is 60 days past due, at which time demand payment,

default, and/or foreclosure procedures are initiated.

We may consider loan workout arrangements with certain borrowers under certain circumstances.

Nonperforming Assets and Delinquent Loans.

reviews its loans on a regular basis and generally places loans on nonaccrual status when either principal or interest is 90 days

or more past due.

In addition, the Company places loans on nonaccrual status when we do not expect to receive full payment of interest,

principal or both.

The Company reviews its loans on a regular basis and generally places loans on nonaccrual status when either principal or interest is 90 days or more past due.

In addition, the Company places loans on nonaccrual status when we do not expect to receive full payment of interest, principal or both.

Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income.

Loans that are 90 days or more past due may still accrue interest if they are well secured and in the process of collection.

received on nonaccrual loans are applied against principal.

Loans are returned to accrual status when all the principal and interest

amounts contractually due are brought current, and current and future payments are reasonably assured.

Payments received on nonaccrual loans are applied against principal.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and current and future payments are reasonably assured.

Management monitors all past due loans and nonperforming assets.

Such loans are placed under close supervision, with consideration given to the need for additions to the allowance for loan losses

and (if appropriate) partial or full charge-off.

At December 31, 2019, we had $222,000 of loans 90 days or more past due that were

still accruing interest.

Nonperforming assets decreased $1.6 million to $5.6 million at December 31, 2019, compared to $7.2 million

at December 31, 2018.

The decrease in the level of nonperforming assets was primarily due to an $851,000 full payoff of a residential

troubled debt restructuring and disposition of other real estate owned properties.

Management believes the volume of nonperforming assets can be partially

attributed to unique borrower circumstances as well as the economy in general.

We have an experienced chief credit officer, collections

and credit departments that monitor the loan portfolio and seek to prevent any deterioration of asset quality.

Real estate acquired through foreclosure or by deed-in-lieu of foreclosure

is classified as real estate owned until such time as it is sold.

When real estate owned is acquired, it is recorded at the lower

of the unpaid principal balance of the related loan, or its fair market value, less estimated selling expenses.

Any further write-down

of real estate owned is charged against earnings.

At December 31, 2019, we owned $245,000 of property classified as real estate

Such loans are placed under close supervision, with consideration given to the need for additions to the allowance for loan losses and (if appropriate) partial or full charge-off.

At December 31, 2020, we had $8,000 of loans 90 days or more past due that were still accruing interest.

Nonperforming assets increased $9.1 million to $14.7 million at December 31, 2020, compared to $5.6 million at December 31, 2019.

The increase in nonperforming loans at December 31, 2020 compared to December 31, 2019 is primarily related to two commercial real estate loans in the hospitality industry with a total principal balance of $6.9 million that were impacted by the CVOID-19 pandemic due to insufficient cash flows and occupancy rates as well as a $1.3 million commercial and industrial loan relationship.

Management believes the volume of nonperforming assets can be partially attributed to unique borrower circumstances as well as the economy in general.

We have an experienced chief credit officer, collections and credit departments that monitor the loan portfolio and seek to prevent any deterioration of asset quality.

Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold.

When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan, or its fair market value, less estimated selling expenses.

Any further write-down of real estate owned is charged against earnings.

At December 31, 2020, we owned $208,000 of property classified as real estate owned.

Nonperforming Assets.

The following table sets forth

the amounts and categories of our nonperforming assets at the dates indicated.

Included in nonperforming loans and assets are troubled

debt restructurings, which are loans whose contractual terms have been restructured in a manner that grants a concession to a borrower

experiencing financial difficulties.

The following table sets forth the amounts and categories of our nonperforming assets at the dates indicated.

Included in nonperforming loans and assets are troubled debt restructurings, which are loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties.

December 31, 2020 2019 2018 2017 2016

(Dollars in Thousands)

Nonaccrual loans:

Residential $ 1,841 $ 1,817 $ 2,154 $ 1,423 $ 1,873

Commercial 7,102 234 — 288 420

Construction — — — 43 107

Commercial and Industrial 1,897 740 1,044 2,095 1,829

Consumer 49 110 83 71 160

Total Nonaccrual Loans 10,889 2,901 3,281 3,920 4,389

Accruing loans past due 90 days or more:

Residential — 196 324 142 343

Consumer 8 26 3 26 8

Total Accruing Loans 90 Days or More Past Due 8 222 327 168 351

Total Nonaccrual Loans and Accruing

Loans 90 Days or More Past Due

Total Nonaccrual Loans and Accruing Loans 90 Days or More Past Due 10,897 3,123 3,608 4,088 4,740

Troubled Debt Restructurings, Accruing

Residential 650 511 1,238 1,287 1,299

Commercial 2,861 1,648 1,313 1,697 1,985

Commercial and Industrial 80 100 154 178 399

2 unchanged sentences

Real Estate Owned:

Residential — 41 46 152 —

Commercial 208 192 871 174 174

Total Real Estate Owned 208 233 917 326 174

Total Nonperforming Assets $ 14,696 $ 5,615 $ 7,230 $ 7,577 $ 8,601

Nonaccrual Loans to Total Loans 1.04 % 0.30 % 0.36 % 0.53 % 0.64 %

Nonperforming Loans to Total Loans 1.39 0.57 0.69 0.97 1.24

Nonperforming Assets to Total Assets 1.04 0.42 0.56 0.81 1.02

For the year ended December 31, 2019, gross interest income that

would have been recorded had our non-accruing loans been current in accordance with their original terms was $74,000.

ended December 31, 2019, interest income recorded on nonaccrual loans and accruing troubled debt restructurings was $131,000.

At December 31, 2019, we had no loans that were not classified as

nonaccrual, 90 days past due or troubled debt restructurings, but where known information about possible credit problems of borrowers

caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that

may result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.

For the year ended December 31, 2020, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was $233,000.

For the year ended December 31, 2020, interest income recorded on nonaccrual loans and accruing troubled debt restructurings was $338,000.

At December 31, 2020, we had no loans that were not classified as nonaccrual, 90 days past due or troubled debt restructurings where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.

Classified Assets.

Federal regulations provide that

loans and other assets of lesser quality should be classified as “substandard,”

“doubtful”

or “loss”

An asset is considered “substandard”

if it is inadequately protected by the current net worth and paying capacity

of the obligor or of the collateral pledged, if any.

Substandard assets include those characterized by the “distinct possibility”

that the Company will sustain “some loss”

if the deficiencies are not corrected.

Assets classified as “doubtful”

have all of the weaknesses inherent in those classified “substandard,”

with the added characteristic that the weaknesses

present make “collection or liquidation in full,”

on the basis of currently existing facts, conditions, and values,

“highly questionable and improbable.”

Assets classified as “loss”

are those considered “uncollectible”

and of such little value that their continuance as assets is not warranted.

The Company designates an asset as “special mention”

if the asset has a potential weakness that warrants management’s close attention.

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”

Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets.

An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

Substandard assets include those characterized by the “distinct possibility” that the Company will sustain “some loss” if the deficiencies are not corrected.

Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the

weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets is not warranted.

The Company designates an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.

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.

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.

classified as loss are considered uncollectable and of such little value that continuance as an asset is not warranted.

As part of the periodic exams of the Bank by the FDIC and the Pennsylvania

Department of Banking and Securities, the staff of such agencies reviews our classifications and determines whether such classifications

are adequate.

Such agencies have, in the past, and may in the future require us to classify certain assets which management has

not otherwise classified or require a classification more severe than established by management.

The following table shows the

principal amount of special mention and classified loans at December 31, 2019 and 2018.

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.

As part of the periodic exams of the Bank by the FDIC and the Pennsylvania Department of Banking and Securities, the staff of such agencies reviews our classifications and determines whether such classifications are adequate.

Such agencies have, in the past, and may in the future require us to classify certain assets which management has not otherwise classified or require a classification more severe than established by management.

The following table shows the principal amount of special mention and classified loans at December 31, 2020 and 2019.

December 31, 2020 2019

(Dollars in Thousands)

Special Mention $ 46,515 $ 24,585

The total amount of special mention and classified loans increased

$1.0 million, or 3.2%, to $32.7 million at December 31, 2019, compared to $31.7 million at December 31, 2018.

While special mention

loans remained relatively consistent, the increase in substandard loans was partially due to relationship downgrades from annual

loan reviews that noted declining financial condition as well as due to upgrade of doubtful loans from improved financial condition.

Substandard 27,042 7,383

Doubtful 609 719

Total $ 74,166 $ 32,687

The total amount of special mention and classified loans increased $41.5 million, or 126.90%, to $74.2 million at December 31, 2020, compared to $32.7 million at December 31, 2019.

The increase of $21.9 million in the special mention loan category and $19.7 million in the substandard category as of December 31, 2020 compared to December 31, 2019 was mainly from the downgrade of the hospitality portfolio due to the economic conditions in that industry caused by the COVID-19 pandemic.

Allowance for Loan Losses.

The allowance for loan losses

is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.

Management performs a quarterly

evaluation of the adequacy of the allowance based on losses in the current loan portfolio, which includes an assessment of economic

conditions, changes in the nature and volume of the loan portfolio, loan loss experience, volume and severity of past due, classified

and nonaccrual loans as well as other loan modifications, quality of the Company’s loan review system, the degree of oversight

by the Company’s Board, existence and effect of any concentrations of credit and changes in the level of such concentrations,

effect of external factors, such as competition and legal and regulatory requirements and other relevant factors.

While management

uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic

conditions differ substantially from the assumptions used in making evaluations.

Additions are made to the allowance through periodic

provisions charged to income and recovery of principal and interest on loans previously charged-off.

Losses of principal are charged

directly to the allowance when a loss occurs or when a determination is made that the specific loss is probable.

This evaluation

is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available.

The allowance consists of specific, general and unallocated components.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.

Management performs a quarterly evaluation of the adequacy of the allowance based on losses in the current loan portfolio, which includes an assessment of economic conditions, changes in the nature and volume of the loan portfolio, loan loss experience, volume and severity of past due, classified and nonaccrual loans as well as other loan modifications, quality of the Company’s loan review system, the degree of oversight by the Company’s Board, existence and effect of any concentrations of credit and changes in the level of such concentrations, effect of external factors, such as competition and legal and regulatory requirements and other relevant factors.

While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making evaluations.

Additions are made to the allowance through periodic provisions charged to income and recovery of principal and interest on loans previously charged-off.

Losses of principal are charged directly to the allowance when a loss occurs or when a determination is made that the specific loss is probable.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available.

The allowance consists of specific and general components.

The specific component relates to loans that are classified as impaired.

A loan is considered impaired when, based upon current

information and events, it is probable that the Company will be unable to collect all amounts due for principal and interest according

to the original contractual terms of the loan agreement.

Management determines the significance of payment delays and payment shortfalls

on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the

length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation

to the principal and interest owed.

Impairment is measured based on the present value of expected future cash flows discounted

at a loan’s effective interest rate, or as a practical expedient, the observable market price, or, if the loan is collateral

dependent, the fair value of the underlying collateral.

When the measurement of an impaired loan is less than the recorded investment

in the loan, the impairment is recorded in a specific valuation allowance through a charge to the provision for loan losses.

reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments

and is recorded in the allowance for loan losses on the consolidated Statement of Condition.

Groups of loans with similar risk characteristics are collectively

evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other

relevant factors that affect repayment of the loans.

Accordingly, we do not separately identify individual consumer and residential

loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties

of the borrower.

The general component covers non-classified loans and is based on

historical charge-off experience and expected loss given our internal risk rating process.

The loan portfolio is stratified into

homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for other qualitative

factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio.

The other qualitative

factors considered by management include, but are not limited to, the following:

• changes in lending policies and procedures, including underwriting

standards and collection practices;

• changes in national and local economic and business conditions

and developments, including the condition of various market segments;

A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due for principal and interest according to the original contractual terms of the loan agreement.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured based on the present value of expected future cash flows discounted at a loan’s effective interest rate, or as a practical expedient, the observable market price, or, if the loan is collateral dependent, the fair value of the underlying collateral.

When the measurement of an impaired loan is less than the recorded investment in the loan, the impairment is recorded in a specific valuation allowance through a charge to the provision for loan losses.

Any reserve for unfunded lending

commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in the allowance for loan losses on the consolidated Statement of Condition.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

Accordingly, we do not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

The general component covers non-classified loans and is based on historical charge-off experience and expected loss given our internal risk rating process.

The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for other qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio.

The other qualitative factors considered by management include, but are not limited to, the following:

• changes in lending policies and procedures, including underwriting standards and collection practices;

• changes in national and local economic and business conditions and developments, including the condition of various market segments;

• changes in the nature and volume of the loan portfolio;

• changes in the experience, ability and depth of management and the lending staff;

• changes in the trend of the volume and severity of the past due, nonaccrual, and classified

• the existence of any concentrations of credit, and changes in the

level of such concentrations;

• the effect of external factors, such as competition and legal and regulatory requirements

on the level of estimated credit losses in our current portfolio.

Commercial real estate loans generally have higher credit risks

compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single

borrowers or groups of related borrowers.

In addition, payment experience on loans secured by income-producing properties typically

depends on the successful operation of the related real estate project, and this may be subject, to a greater extent, to adverse

conditions in the real estate market and in the general economy.

Commercial and industrial business loans involve a greater risk

of default than one- to four-residential mortgage loans of like duration because their repayment generally depends on the successful

operation of the borrower’s business and the sufficiency of collateral, if any.

This specific valuation allowance is periodically adjusted for significant

changes in the amount or timing of expected future cash flows, observable market price or fair value of the collateral.

valuation allowance, or allowance for impaired loans, is part of the total allowance for loan losses.

Cash payments received on

impaired loans that are considered non-accrual are recorded as a direct reduction of the recorded investment in the loan.

the recorded investment has been fully collected, receipts are recorded as recoveries to the allowance for loan losses until the

previously charged-off principal is fully recovered.

• changes in the trend of the volume and severity of the past due, nonaccrual, and classified loans;

• the existence of any concentrations of credit, and changes in the level of such concentrations;

• the effect of external factors, such as competition and legal and regulatory requirements on the level of estimated credit losses in our current portfolio.

Commercial real estate loans generally have higher credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers.

In addition, payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project, and this may be subject, to a greater extent, to adverse conditions in the real estate market and in the general economy.

Commercial and industrial business loans involve a greater risk of default than one- to four-residential mortgage loans of like duration because their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any.

This specific valuation allowance is periodically adjusted for significant changes in the amount or timing of expected future cash flows, observable market price or fair value of the collateral.

The specific valuation allowance, or allowance for impaired loans, is part of the total allowance for loan losses.

Cash payments received on impaired loans that are considered non-accrual are recorded as a direct reduction of the recorded investment in the loan.

When the recorded investment has been fully collected, receipts are recorded as recoveries to the allowance for loan losses until the previously charged-off principal is fully recovered.

Subsequent amounts collected are recognized as interest income.

If no charge-off

exists, then once the recorded investment has been fully collected, any future amounts collected would be recognized as interest

Impaired loans are not returned to accrual status until all amounts due, both principal and interest, are current and a

sustained payment history has been demonstrated.

Troubled Debt Restructuring (TDR) loans are generally considered impaired loans

until such loans are performing in accordance with their modified terms.

Once a TDR loan establishes a consistent payment history

under the modified terms, then it is considered to return to accrual status.

A consistent payment history is generally demonstrated

by payment under the modified terms for a period of least six consecutive months.

The general component covers pools of loans by

loan class, including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential

real estate and consumer loans.

An unallocated component is maintained to cover uncertainties that could affect the Company’s

estimate of probable losses.

Generally, management considers all nonaccrual and TDR loans and certain renegotiated debt, when it

exists, for impairment.

The maximum period without payment that typically can occur before a loan is considered for impairment

If no charge-off exists, then once the recorded investment has been fully collected, any future amounts collected would be recognized as interest income.

Impaired loans are not returned to accrual status until all amounts due, both principal and interest, are current and a sustained payment history has been demonstrated.

Troubled Debt Restructuring (TDR) loans are generally considered impaired loans until such loans are performing in accordance with their modified terms.

Once a TDR loan establishes a consistent payment history under the modified terms, then it is considered to return to accrual status.

A consistent payment history is generally demonstrated by payment under the modified terms for a period of least six consecutive months.

The general component covers pools of loans by loan class, including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate and consumer loans.

An unallocated component, which is a part of the general allowance component, is maintained to cover uncertainties that could affect the Company’s estimate of probable losses.

Generally, management considers all nonaccrual and TDR loans and certain renegotiated debt, when it exists, for impairment.

The maximum period without payment that typically can occur before a loan is considered for impairment is 90 days.

The past due status of loans receivable is determined based on contractual due dates for loan payments.

The allowance for loan losses increased $309,000, or 3.2%, to $9.9

million at December 31, 2019, compared to $9.6 million at December 31, 2018, primarily due to portfolio loan growth.

for loan losses to total loans decreased 1 basis point to 1.04% at December 31, 2019 compared to 1.05% at December 31, 2018.

charge-offs were $416,000 during 2019 compared to $1.8 million during 2018, which were primarily due to charge-offs of $1.2 million

for three commercial and industrial relationships.

The allowance for loan losses to nonperforming loans ratio increased to 183.33%

at December 31, 2019, compared to 151.40% at December 31, 2018, primarily due to a $931,000 decrease in nonperforming loans.

Although we maintain our allowance for loan losses at a level that

we consider to be adequate to provide for potential losses, there can be no assurance that such losses will not exceed the estimated

amounts or that we will not be required to make additions to the allowance for loan losses in the future.

Future additions to our

allowance for loan losses and changes in the related ratio of the allowance for loan losses to nonperforming loans are dependent

upon the economy, changes in real estate values and interest rates, the view of the regulatory authorities toward adequate loan

loss reserve levels, and inflation.

Management will continue to periodically review the entire loan portfolio to determine the

extent, if any, to which further additional loan loss provisions may be deemed necessary.

The allowance for loan losses increased $2.9 million, or 29.4%, to $12.8 million at December 31, 2020, compared to $9.9 million at December 31, 2019.

Allowance for loan losses to total loans increased 19 basis points to 1.22% at December 31, 2020 compared to 1.04% at December 31, 2019.

The COVID-19 pandemic has resulted in an increase in unemployment and recessionary economic conditions in 2020.

Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis were increased in 2020 primarily related to economic trends and industry conditions as a result of the pandemic and vulnerable industries such as hospitality and retail.

In addition, an increase in commercial real estate loans combined with an increase in the historical loss factor primarily related to a $931,000 commercial real estate loan charge-

off resulted in an increase commercial real estate loan reserves.

The combination of these factors primarily resulted in a $4.0 million provision for loan losses for the year ended December 31, 2020.

The ratio of allowance for loan losses to nonaccrual loans ratio decreased to 117.28% at December 31, 2020, compared to 340.12% at December 31, 2019.

Nonaccrual loans increased $8.0 million to $10.9 million at December 31, 2020 compared to $2.0 million at December 31, 2019.

Nonaccrual commercial real estate loans increased $6.9 million to $7.1 million at December 31, 2020 compared to $234,000 at December 31, 2019 primarily related to two hospitality loans with a total principal balance of $6.9 million that were impacted by the pandemic due to insufficient cash flows and occupancy rates.

Nonaccrual commercial and industrial loans increased to $1.2 million to $1.9 million at December 31, 2020 compared to $740,000 at December 31, 2019 primarily related to a $1.3 million relationship impacted by the pandemic due to an inability to hold social events.

The following table presents the components of the ratio of nonaccrual loans to total loans at the dates indicated.

December 31, Nonaccrual Loans Total Loans Nonaccrual Loans to Total Loans Nonaccrual Loans Total Loans Nonaccrual Loans to Total Loans

(Dollars in Thousands)

Residential $ 1,841 $ 344,142 0.53 % $ 1,817 $ 347,766 0.52 %

Commercial 7,102 373,555 1.90 234 351,360 0.07

Construction — 72,600 — — 35,605 —

Commercial and Industrial 1,897 126,813 1.50 740 85,586 0.86

Consumer 49 113,854 0.04 110 113,637 0.10

Other — 13,789 — — 18,542 —

Total $ 10,889 $ 1,044,753 1.04 % $ 2,901 $ 952,496 0.30 %

Net charge-offs were $1.1 million during 2020 compared to $416,000 during 2019.

The increase was primarily related to the $931,000 commercial real estate loan charge-off of a hotel loan partially offset by a decrease in net charge-offs on consumer loans, mainly in indirect auto loans.

The following table presents the ratio of net charge-offs (recoveries) as a percent of average loans for the periods indicated.

Year Ended December 31, 2020 2019

Residential 0.02 % 0.03 %

Commercial 0.25 (0.02)

Construction — —

Commercial and Industrial (0.03) (0.07)

Consumer 0.14 0.41

Total Loans 0.11 % 0.05 %

Although we maintain our allowance for loan losses at a level that we consider to be adequate to provide for potential losses, there can be no assurance that such losses will not exceed the estimated amounts or that we will not be required to make additions to the allowance for loan losses in the future.

Future additions to our allowance for loan losses and changes in the related ratio of the allowance for loan losses to nonperforming loans are dependent upon the economy, changes in real estate values and interest rates, the view of the regulatory authorities toward adequate loan loss reserve levels, and inflation.

Management will continue to periodically review the entire loan portfolio to determine the extent, if any, to which further additional loan loss provisions may be deemed necessary.

Analysis of the Allowance for Loan Losses.

The following

table summarizes changes in the allowance for loan losses by loan categories for each year indicated and additions to the allowance

for loan losses, which have been charged to operations.

Loans acquired in connection with mergers were recorded at their estimated

fair value at the acquisition date and did not include a carryover of the pre-merger allowance for loan losses.

The following table summarizes changes in the allowance for loan losses by loan categories for each year indicated and additions to the allowance for loan losses, which have been charged to operations.

Loans acquired in connection with mergers were recorded at their estimated fair value at the acquisition date and did not include a carryover of the pre-merger allowance for loan losses.

Year Ended December 31, 2020 2019 2018 2017 2016

(Dollars in Thousands)

Years Ended December 31,

Balance at Beginning of Year $ 9,867 $ 9,558 $ 8,796 $ 7,803 $ 6,490

Provision for Loan Losses 4,000 725 2,525 1,870 2,040

Residential (65) (96) (64) (131) (48)

Commercial (931) — — (132) (191)

Construction — — — — —

Commercial and Industrial — (16) (1,456) — —

Consumer (329) (609) (597) (919) (724)

Other — — — — (49)

Total Charge-offs (1,325) (721) (2,117) (1,182) (1,012)

Residential 6 12 28 62 17

Commercial 28 73 168 3 98

Construction — — — — —

Commercial and Industrial 33 85 5 37 —

Consumer 162 135 153 203 147

Other — — — — 23

Total Recoveries 229 305 354 305 285

2 unchanged sentences

Allowance for Loan Losses to Nonperforming Loans 88.15 % 183.33 % 151.41 % 121.31 % 92.60 %

Allowance for Loan Losses to Nonaccrual Loans 117.28 340.12 291.32 224.39 177.79

Allowance for Loan Losses to Total Loans 1.22 1.04 1.05 1.18 1.14

1 unchanged sentence

Allocation of Allowance for Loan Losses.

The following

table sets forth the allocation of allowance for loan losses by loan category at the dates indicated.

The table reflects the allowance

for loan losses as a percentage of total loans receivable.

Management believes that the allowance can be allocated by category

only on an approximate basis.

The allocation of the allowance by category is not necessarily indicative of future losses and does

not restrict the use of the allowance to absorb losses in any category.

The following table sets forth the allocation of allowance for loan losses by loan category at the dates indicated.

The table reflects the allowance for loan losses as a percentage of total loans receivable.

Management believes that the allowance can be allocated by category only on an approximate basis.

The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

2020 2019 2018 2017 2016

December 31, Amount Percent of

Amount Percent of

(Dollars in Thousands)

Residential $ 2,249 32.9 % $ 2,023 36.6 % $ 1,050 35.9 % $ 891 36.7 % $ 1,106 39.8 %

Commercial 6,010 35.9 3,210 36.9 2,693 33.6 2,289 28.1 2,307 29.5

Construction 889 6.9 285 3.7 395 5.3 276 4.9 65 1.6

Commercial and Industrial 1,423 12.1 2,412 9.0 2,807 10.0 2,544 14.5 1,699 11.9

Consumer 1,283 10.9 1,417 11.9 2,027 13.4 2,358 15.4 2,463 16.7

Other — 1.3 — 1.9 — 1.8 — 0.4 — 0.5

Total Allocated Allowance 11,854 100.0 9,347 100.0 8,972 100.0 8,358 100.0 7,640 100.0

Unallocated 917 — 520 — 586 — 438 — 163 —

Total Allowance for Loan Losses $ 12,771 100.0 % $ 9,867 100.0 % $ 9,558 100.0 % $ 8,796 100.0 % $ 7,803 100.0 %

(1) Represents percentage of loans in

each category to total loans

(1) Represents percentage of loans in each category to total loans

Investment Activities

The Company’s investment policy is

established by its Board.

The policy emphasizes safety of the investment, liquidity requirements, potential returns, cash flow

targets, and consistency with the Company’s interest rate risk management strategy.

The Company’s investment policy is established by its Board.

The policy emphasizes safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with the Company’s interest rate risk management strategy.

Our current investment policy permits us to invest in U.S.

federal agency securities, mortgage-backed securities, investment grade corporate bonds, municipal bonds, short-term instruments,

and other securities.

The investment policy also permits investments in certificates of deposit, securities purchased under an

agreement to resell, banker’s acceptances, commercial paper and federal funds.

Our current investment policy generally does

not permit investment in stripped mortgage-backed securities, short sales, derivatives, or other high-risk securities.

and Pennsylvania state laws generally limit our investment activities to those permissible for a national bank.

The accounting rules require that, at the time of purchase, we designate

a security as held to maturity, available-for-sale, or trading, depending on our ability and intent.

Securities available for sale

are reported at fair value, while securities held to maturity are reported at amortized cost.

Our entire portfolio is designated

as available-for-sale.

treasuries, federal agency securities, mortgage-backed securities, investment grade corporate bonds, municipal bonds, short-term instruments, and other securities.

The investment policy also permits investments in certificates of deposit, securities purchased under an agreement to resell, banker’s acceptances, commercial paper and federal funds.

Our current investment policy generally does not permit investment in stripped mortgage-backed securities, short sales, derivatives, or other high-risk securities.

Federal and Pennsylvania state laws generally limit our investment activities to those permissible for a national bank.

The accounting rules require that, at the time of purchase, we designate a security as held to maturity, available-for-sale, or trading, depending on our ability and intent.

Securities available for sale are reported at fair value, while securities held to maturity are reported at amortized cost.

Our entire portfolio is designated as available-for-sale.

The portfolio consists primarily of U.S.

government and agency securities,

municipal bonds, and mortgage-backed securities.

We expect the composition of our investment portfolio to continue to change based

on liquidity needs associated with loan origination activities.

During the year ended December 31, 2019, we had no investment securities

that were deemed to be other than temporarily impaired.

We also invest in marketable equity securities, which consist primarily

of mutual funds and a portfolio of bank stocks.

This portfolio is valued at fair value with changes in market price recognized

through noninterest income.

We maintain a minimum amount of liquid assets that may be invested

in specified short-term securities and certain other investments.

Liquidity levels may be increased or decreased depending upon

the yields on investment alternatives and upon management’s judgment as to the attractiveness of the yields then available

in relation to other opportunities and its expectation of the level of yield that will be available in the future, as well as management’s

projections as to the short-term demand for funds to be used in our loan originations and other activities.

government and agency securities, municipal bonds, and mortgage-backed securities.

We expect the composition of our investment portfolio to continue to change based on liquidity needs associated with loan origination activities.

During the year ended December 31, 2020, we had no securities that were deemed to be other than temporarily impaired.

We also invest in equity securities, which consist primarily of mutual funds and a portfolio of bank stocks.

This portfolio is valued at fair value with changes in market price recognized through noninterest income.

We maintain a minimum amount of liquid assets that may be invested in specified short-term securities and certain other investments.

Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management’s judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of the level of yield that will be available in the future, as well as management’s projections as to the short-term demand for funds to be used in our loan originations and other activities.

Government and Agency Securities.

31, 2019, we held U.S.

At December 31, 2020, we held U.S.

Government and agency securities with a fair value of $41.4 million compared to $48.1 million at December 31, 2019.

At December 31, 2020, these securities had an average expected life of 0.6 years.

While these securities generally provide

lower yields than other investments, such as mortgage-backed securities, our current investment strategy is to maintain investments

in such instruments to the extent appropriate for liquidity and pledging purposes, as collateral for borrowings, and for prepayment

While these securities generally provide lower yields than other investments, such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity and pledging purposes, as collateral for borrowings, and for prepayment protection.

Municipal Bonds.

At December 31, 2019, we held available-for-sale

municipal bonds with a fair value of $25.8 million compared to $44.6 million at December 31, 2018.

60% of our municipal bonds are

issued by local municipalities or school districts located in Pennsylvania.

Municipal bonds may be general obligation of the issuer

or secured by specific revenues.

The majority of our municipal bonds are general obligation bonds, which are backed by the full

faith and credit of the municipality, paid off with funds from taxes and other fees, and have ratings (when available) of A or

We also invest in a limited amount of special revenue municipal bonds, which are used to fund projects that will eventually

create revenue directly, such as a toll road or lease payments for a new building.

At December 31, 2020, we held available-for-sale municipal bonds with a fair value of $22.0 million compared to $25.8 million at December 31, 2019.

52% of our municipal bonds are issued by local municipalities or school districts located in Pennsylvania.

Municipal bonds may be general obligation of the issuer or secured by specific revenues.

The majority of our municipal bonds are general obligation bonds, which are backed by the full faith and credit of the municipality, paid off with funds from taxes and other fees, and have ratings (when available) of A or above.

We also invest in a limited amount of special revenue municipal bonds, which are used to fund projects that will eventually create revenue directly, such as a toll road or lease payments for a new building.

Mortgage-Backed Securities.

We invest in mortgage-backed

(“MBS”) and collateralized mortgage obligation (“CMO”) securities insured or guaranteed by the United States

government or government-sponsored enterprises.

These securities, which consist of MBS’s issued by Ginnie Mae, Fannie Mae

and Freddie Mac, had an amortized cost of $118.3 million and $97.5 million at December 31, 2019 and 2018, respectively.

value of our MBS portfolio was $120.8 million and $97.8 million at December 31, 2019 and 2018, respectively.

At December 31, 2019,

all MBS’s had fixed rates of interest.

MBS’s are created by pooling mortgages and issuing a security

with an interest rate that is less than the interest rate on the underlying mortgages.

CMO’s generally are a specific class

of MBS’s that are divided based on risk assessments and maturity dates.

These mortgage classes are pooled into a special

purpose entity, where tranches are created and sold to investors.

Investors in a CMO are purchasing bonds issued by the entity,

and then receive payments based on the income derived from the pooled mortgages.

The various pools are divided into tranches are

then securitized and sold to the investor.

MBS’s typically represent a participation interest in a pool of one- to four-family

or multifamily mortgages, although we invest primarily in MBS’s backed by one- to four-family mortgages.

The issuers of such

securities pool and resell the participation interests in the form of securities to investors.

Some security pools are guaranteed

as to payment of principal and interest to investors.

MBS’s generally yield less than the loans that underlie such securities

because of the cost of payment guarantees and credit enhancements.

However, MBS’s are more liquid than individual mortgage

loans because there is an active trading market for such securities.

In addition, MBS’s may be used to collateralize our

specific liabilities and obligations.

Finally, MBS’s are assigned lower risk-weightings for purposes of calculating our risk-based

capital level.

Investments in MBS’s involve a risk that actual payments will

be greater or less than the prepayment rate estimated at the time of purchase, which may result in adjustments to the amortization

of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities.

Investment Securities Portfolio.

The following table

sets forth the composition of our investment securities portfolio at the dates indicated.

Investment securities do not include

FHLB of Pittsburgh and Atlantic Community Bankers’

Bank stock totaling $3.7 million, $3.9 million, and $4.3 million at December

31, 2019, 2018 and 2017, respectively.

We invest in mortgage-backed (“MBS”) and collateralized mortgage obligation (“CMO”) securities insured or guaranteed by the United States government or government-sponsored enterprises.

These securities, which consist of MBS’s issued by Ginnie Mae, Fannie Mae and Freddie Mac, had an amortized cost of $75.9 million and $118.3 million at December 31, 2020 and 2019, respectively.

The fair value of our MBS portfolio was $79.5 million and $120.8 million at December 31, 2020 and 2019, respectively.

At December 31, 2020, all MBS’s had fixed rates of interest.

MBS’s are created by pooling mortgages and issuing a security with an interest rate that is less than the interest rate on the underlying mortgages.

CMO’s generally are a specific class of MBS’s that are divided based on risk assessments and maturity dates.

These mortgage classes are pooled into a special purpose entity, where tranches are created and sold to investors.

Investors in a CMO are purchasing bonds issued by the entity, and then receive payments based on the income derived from the pooled mortgages.

The various pools are divided into tranches are then securitized and sold to the investor.

MBS’s typically represent a participation interest in a pool of one- to four-family or multifamily mortgages, although we invest primarily in MBS’s backed by one- to four-family mortgages.

The issuers of such securities pool and resell the participation interests in the form of securities to investors.

Some security pools are guaranteed as to payment of principal and interest to investors.

MBS’s generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements.

However, MBS’s are more liquid than individual mortgage loans because there is an active trading market for such securities.

In addition, MBS’s may be used to collateralize our specific liabilities and obligations.

Finally, MBS’s are assigned lower risk-weightings for purposes of calculating our risk-based capital level.

Investments in MBS’s involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may result in adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities.

Securities Portfolio.

The following table sets forth the composition of our securities portfolio at the dates indicated.

securities do not include FHLB of Pittsburgh and Atlantic Community Bankers’ Bank stock totaling $4.0 million, $3.7 million, and $3.9 million at December 31, 2020, 2019 and 2018, respectively.

2020 2019 2018

December 31, Amortized

Value Amortized

(Dollars in Thousands)

Securities available-for-sale

Debt Securities

Available-for-Sale Debt Securities:

Government Agencies $ 41,994 $ 41,411 $ 47,993 $ 48,056 $ 82,506 $ 80,579

Obligations of States and Political

Mortgage-Backed

Government-Sponsored Enterprises

Total Debt Securities

Marketable Equity Securities

Total Marketable Equity Securities

Total Securities Available-for-Sale

Obligations of States and Political Subdivisions 20,672 21,993 25,026 25,843 44,737 44,601

Mortgage-Backed Securities - Government-Sponsored Enterprises 75,900 79,493 118,282 120,776 97,535 97,771

Total Available-for-Sale Debt Securities 138,566 142,897 191,301 194,675 224,778 222,951

Equity Securities:

Mutual Funds 1,019 997 968

Other 1,484 1,713 1,490

Total Equity Securities 2,503 2,710 2,458

Total Securities $ 145,400 $ 197,385 $ 225,409

Portfolio Maturities and Yields.

The composition and

maturities of the debt securities portfolio at December 31, 2019, are summarized in the following table.

Maturities are based on

the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.

in thousands)

More than One

More Than Five

Than Ten Years

of States and Political Subdivisions

Mortgage-Backed

Government-Sponsored Enterprises

debt securities

The composition and maturities of the available-for-sale debt securities portfolio at December 31, 2020, are summarized in the following table.

Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.

One Year or Less More than One Year Through

Five Years More than Five Years Through

Ten Years More than

Ten Years Total

Value Weighted

Yield Carrying

Value Weighted

Yield Carrying

Value Weighted

Yield Carrying

Value Weighted

Yield Carrying

Value Weighted

(Dollars in Thousands)

Government Agencies $ — — % $ — — % $ 37,000 1.07 % $ 4,994 1.26 % $ 41,994 1.09 %

Obligations of States and Political Subdivisions — — 4,301 2.12 8,104 3.18 8,266 3.10 20,672 2.93

Mortgage-Backed Securities - Government-Sponsored Enterprises — — — — 10,896 3.00 65,004 2.62 75,900 2.68

Total Debt Securities $ — — % $ 4,301 2.12 % $ 56,001 1.75 % $ 78,264 2.59 % $ 138,566 2.23 %

Sources of Funds

Deposits have traditionally been the Company’s

primary source of funds for use in lending and investment activities.

The Company also uses borrowings, primarily FHLB of Pittsburgh

advances, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and manage the

cost of funds.

In addition, funds are derived from scheduled loan payments, investment maturities, loan prepayments, loan sales,

retained earnings and income on earning assets.

While scheduled loan payments and income on earning assets are relatively stable

sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions

and levels of competition.

Deposits are generated primarily from residents

within the Company’s market area.

Deposits have traditionally been the Company’s primary source of funds for use in lending and investment activities.

The Company also uses borrowings, primarily FHLB of Pittsburgh advances, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and manage the cost of funds.

In addition, funds are derived from scheduled loan payments, investment maturities, loan prepayments, loan sales, retained earnings and income on earning assets.

While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposits are generated primarily from residents within the Company’s market area.

The Company offers a variety of deposit accounts.

Deposit account terms vary, with the

principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest

Interest rates paid, maturity terms, service fees and withdrawal

penalties are established on a periodic basis.

Deposit rates and terms are based primarily on current operating strategies and

market rates, liquidity requirements, rates paid by competitors and growth goals.

The flow of deposits is influenced significantly by general economic

conditions, changes in money market and other prevailing interest rates and competition.

The variety of deposit accounts offered

allows the Company to be competitive in obtaining funds and responding to changes in consumer demand.

Based on experience, the

Company believes that its deposits are relatively stable.

However, the ability to attract and maintain deposits and the rates paid

on these deposits has been and will continue to be significantly affected by market conditions.

The following table sets forth the distribution of our average deposit

accounts, by account type, for the years indicated.

Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis.

Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition.

The variety of deposit accounts offered allows the Company to be competitive in obtaining funds and responding to changes in consumer demand.

Based on experience, the Company believes that its deposits are relatively stable.

However, the ability to attract and maintain deposits and the rates paid on these deposits has been and will continue to be significantly affected by market conditions.

The following table sets forth the distribution of our average deposit accounts, by account type, for the years indicated.

2020 2019 2018

Year Ended December 31, Average

Balance Percent Weighted

(Dollars in Thousands)

Years Ended December 31,

Non-Interest Bearing

Demand Deposits

$ 313,858 26.8 % — % $ 267,311 24.1 % — % $ 232,872 24.3 % — %

NOW Accounts 240,372 20.5 0.25 222,148 20.0 0.53 174,653 18.3 0.36

Savings Accounts 227,277 19.4 0.08 215,798 19.5 0.23 184,093 19.3 0.26

2 unchanged sentences

Total Deposits $ 1,171,730 100.0 % 0.44 % $ 1,109,146 100.0 % 0.66 % $ 955,969 100.0 % 0.52 %

The following table sets forth time deposits classified by interest

rate as of the dates indicated.

The following table sets forth time deposits classified by interest rate as of the dates indicated.

December 31, 2020 2019 2018

(Dollars in Thousands)

Interest Rate Range:

Less than 0.25% $ 14,818 $ 3,833 $ 11,638

5 unchanged sentences

2.49% to 2.99% 19,037 24,344 7,419

3.00% to 3.99%

3.00% or Greater 25,293 24,665 13,524

Total Time Deposits $ 190,013 $ 219,756 $ 216,376

The following table sets forth, by interest rate ranges and scheduled

maturity, information concerning our time deposits at December 31, 2019.

(Dollars in thousands)

December 31, 2019

The following table sets forth, by interest rate ranges and scheduled maturity, information concerning our time deposits at the date indicated.

Period to Maturity

Interest Rate Range:

December 31, 2020 Less Than Or Equal to One Year More Than One to Two Years More Than Two to Three Years More Than Three to Four Years More Than Four to Five Years More Than Five Years Total Percent of Total

(Dollars in Thousands)

Less than 0.25% $ 11,332 $ 3,376 $ 23 $ 7 $ 80 $ — $ 14,818 7.8 %

5 unchanged sentences

2.49% to 2.99% 2,904 1,104 14,536 96 397 — 19,037 10.0

3.00% to 3.99%

3.00% or Greater 3,978 5,657 15,244 345 69 — 25,293 13.3

As of December 31, 2019, the aggregate amount of outstanding time

deposits in amounts greater than or equal to $100,000 was approximately $126.5 million, of which $44.6 million were deposits from

public entities.

Total $ 87,638 $ 35,507 $ 43,257 $ 7,595 $ 11,900 $ 4,116 $ 190,013 100.0 %

As of December 31, 2020, the aggregate amount of outstanding time deposits in amounts greater than or equal to $100,000 was approximately $107.9 million, of which $42.3 million were deposits from public entities.

The following table sets forth the maturity of those time deposits as of December 31, 2020.

(Dollars in Thousands)

December 31, 2020

(Dollars in Thousands)

Three Months or Less $ 13,004

3 unchanged sentences

Over Three Years 10,172

Deposits are our primary source of funds

for lending and investment activities.

If the need arises, we may rely upon borrowings to supplement our supply of available funds

and to fund deposit withdrawals.

Our borrowings may consist of advances from the FHLB, funds borrowed under repurchase agreements

and federal funds purchased.

The FHLB functions as a central reserve bank providing credit for

us and other member savings associations and financial institutions.

As a member, we are required to own capital stock in the FHLB

and are authorized to apply for advances on the security of such stock and certain of our home mortgages, provided certain standards

related to creditworthiness have been met.

We typically secure advances from the FHLB with one- to four-family residential mortgage

and commercial real estate loans.

Total $ 107,915

Deposits are our primary source of funds for lending and investment activities.

If the need arises, we may rely upon borrowings to supplement our supply of available funds and to fund deposit withdrawals.

Our borrowings may consist of advances from the FHLB, funds borrowed under repurchase agreements and federal funds purchased.

The FHLB functions as a central reserve bank providing credit for us and other member savings associations and financial institutions.

As a member, we are required to own capital stock in the FHLB and are authorized to apply for advances on the security of such stock and certain of our home mortgages, provided certain standards related to creditworthiness have been met.

We typically secure advances from the FHLB with one- to four-family residential mortgage and commercial real estate loans.

Advances are made pursuant to several different programs.

Each credit program has its own interest

rate and range of maturities.

Depending on the program, limitations on the amount of advances are based either on a fixed percentage

of a member institution’s stockholders’

equity or on the FHLB’s assessment of the institution’s creditworthiness.

At December 31, 2019, we had a maximum borrowing capacity with the FHLB of up to $374.8 million.

At December 31, 2019, we had $14.0

million in FHLB advances outstanding, of which all were long-term borrowings.

Securities sold under agreements to repurchase represent business

deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment

account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase.

We may be required

to provide additional collateral based on the fair value of the underlying securities.

Short-term borrowings may also consist of

federal funds purchased.

At December 31, 2019, the Bank maintained a Borrower-In-Custody

of Collateral line of credit agreement with the FRB for $90.9 million that requires monthly certification of collateral, is subject

to annual renewal, incurs no service charge and is secured by commercial and consumer indirect auto loans.

The Bank also maintains

multiple line of credit arrangements with various unaffiliated banks totaling $60.0 million.

At December 31, 2019, we did not have

any outstanding balances under any of these borrowing relationships.

The following table sets forth information concerning balances and

interest rates on our repurchase agreements at the dates and for the periods indicated.

(Dollars in thousands)

Each credit program has its own interest rate and range of

Depending on the program, limitations on the amount of advances are based either on a fixed percentage of a member institution’s stockholders’ equity or on the FHLB’s assessment of the institution’s creditworthiness.

At December 31, 2020, we had a maximum borrowing capacity with the FHLB of up to $421.5 million and available borrowing capacity of $320.8 million.

At December 31, 2020, we had $8.0 million in FHLB advances outstanding, of which all were long-term borrowings.

As an alternative to pledging securities, the facility is also used for standby letters of credit to collateralize public deposits in excess of the level insured by the FDIC.

Commitments for standby letters of credit to secure public deposits were $90.3 million and $41.7 million as of December 31, 2020 and 2019.

Securities sold under agreements to repurchase represent business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase.

We may be required to provide additional collateral based on the fair value of the underlying securities.

Short-term borrowings may also consist of federal funds purchased.

At December 31, 2020, the Bank maintained a Borrower-In-Custody of Collateral line of credit agreement with the FRB for $91.5 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by commercial and consumer indirect auto loans.

The Bank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $60.0 million.

At December 31, 2020, we did not have any outstanding balances under any of these borrowing relationships.

The following table sets forth information concerning balances and interest rates on our repurchase agreements at the dates and for the periods indicated.

At or For the Years Ended December 31, 2020 2019 2018

(Dollars in Thousands)

Balance at End of Period $ 41,055 $ 30,571 $ 30,979

3 unchanged sentences

Average Interest Rate During the Period 0.36 0.62 0.53

The following table sets forth information concerning balances and

interest rates on our federal funds purchased at the dates and for the periods indicated.

(Dollars in thousands)

The following table sets forth information concerning balances and interest rates on our federal funds purchased at the dates and for the periods indicated.

At or For the Years Ended December 31, 2020 2019 2018

(Dollars in Thousands)

Balance at End of Period $ — $ — $ —

3 unchanged sentences

Average Interest Rate During the Period — — 2.70

The following table sets forth information concerning balances and

interest rates on our short-term FHLB advances at the dates and for the periods indicated.

(Dollars in thousands)

The following table sets forth information concerning balances and interest rates on our short-term FHLB advances at the dates and for the periods indicated.

At or For the Years Ended December 31, 2020 2019 2018

(Dollars in Thousands)

Balance at End of Period $ — $ — $ —

3 unchanged sentences

Average Interest Rate During the Period — — 1.86

The following table sets forth information concerning balances and

interest rates on our long-term FHLB advances at the dates and for the periods indicated.

(Dollars in thousands)

The following table sets forth information concerning balances and interest rates on our long-term FHLB advances at the dates and for the periods indicated.

At or For the Years Ended December 31, 2020 2019 2018

(Dollars in Thousands)

Balance at End of Period $ 8,000 $ 14,000 $ 20,000

5 unchanged sentences

Community Bank is the only subsidiary of the Company.

The Bank wholly-owns

Exchange Underwriters, Inc., a full-service, independent insurance agency.

As of December 31, 2019, the Company and the Bank had a total of

266 full-time equivalent employees.

The Bank wholly-owns Exchange Underwriters, Inc., a full-service, independent insurance agency.

REGULATION AND SUPERVISION

CB Financial Services, Inc., is a bank holding company within the

meaning of the Bank Holding Company Act of 1956, as amended.

As such, it is registered with, subject to examination and supervision

by, and otherwise required to comply with the rules and regulations of the Federal Reserve Board.

Community Bank is a Pennsylvania-chartered commercial bank subject

to extensive regulation by the Pennsylvania Department of Banking and Securities and the FDIC.

The Bank’s deposit accounts

are insured up to applicable limits by the FDIC.

The Bank must file reports with the Pennsylvania Department of Banking and Securities

and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering

into certain transactions, such as mergers or acquisitions with other depository institutions.

There are periodic examinations

of the Bank by the Pennsylvania Department of Banking and Securities and the FDIC to review the Bank’s compliance with various

regulatory requirements.

CB Financial Services, Inc., is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended.

As such, it is registered with, subject to examination and supervision by, and otherwise required to comply with the rules and regulations of the Federal Reserve Board.

Community Bank is a Pennsylvania-chartered commercial bank subject to extensive regulation by the Pennsylvania Department of Banking and Securities and the FDIC.

The Bank’s deposit accounts are insured up to applicable limits by the FDIC.

The Bank must file reports with the Pennsylvania Department of Banking and Securities and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions, such as mergers or acquisitions with other depository institutions.

There are periodic examinations of the Bank by the Pennsylvania Department of Banking and Securities and the FDIC to review the Bank’s compliance with various regulatory requirements.

The Bank is also subject to certain reserve requirements established by the Federal Reserve Board.

regulation and supervision establishes a comprehensive framework of activities in which a commercial bank can engage and is intended

primarily for the protection of the FDIC and depositors.

The regulatory structure also gives the regulatory authorities extensive

discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect

to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.

Any change in such

regulation, whether by the Pennsylvania Department of Banking and Securities, the FDIC, the Federal Reserve Board or Congress could

have a material impact on the operations of the Bank.

Set forth below is a brief description of material regulatory requirements

that are or will be applicable to CB Financial Services, Inc., and Community Bank.

The description is limited to certain material

aspects of the statutes and regulations addressed, is not intended to be a complete description of such statutes and regulations

and their effects on CB Financial Services, Inc.

and Community Bank, and is qualified in its entirety by reference to the actual

statutes and regulations involved.

This regulation and supervision establishes a comprehensive framework of activities in which a commercial bank can engage and is intended primarily for the protection of the FDIC and depositors.

The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.

Any change in such regulation, whether by the Pennsylvania Department of Banking and Securities, the FDIC, the Federal Reserve Board or Congress could have a material impact on the operations of the Bank.

Set forth below is a brief description of material regulatory requirements that are or will be applicable to CB Financial Services, Inc., and Community Bank.

The description is limited to certain material aspects of the statutes and regulations addressed, is not intended to be a complete description of such statutes and regulations and their effects on CB Financial Services, Inc.

and Community Bank, and is qualified in its entirety by reference to the actual statutes and regulations involved.

Federal Legislation

The Dodd-Frank Act made significant changes to the regulatory structure

for depository institutions and their holding companies.

However, the Dodd-Frank Act’s changes go well beyond that and affect

the lending, investments and other operations of all depository institutions.

The Dodd-Frank Act requires the Federal Reserve to

set minimum capital levels for bank holding companies that are as stringent as those required for the insured depository subsidiaries,

and the components of Tier 1 capital for holding companies are restricted to capital instruments that are currently considered

to be Tier 1 capital for insured depository institutions.

The legislation also establishes a floor for capital of insured depository

institutions that cannot be lower than the standards in effect upon passage, and directs the federal banking regulators to implement

new leverage and capital requirements that take into account off-balance sheet activities and other risks, including risks relating

to securitized products and derivatives.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau

with broad powers to supervise and enforce consumer protection laws.

The Consumer Financial Protection Bureau has broad rule-making

authority for a wide range of consumer protection laws that apply to all banks, such as the Bank, including the authority to prohibit

“unfair, deceptive or abusive”

acts and practices.

The Consumer Financial Protection Bureau has examination and enforcement

authority over all banks with more than $10 billion in assets.

Banks with $10 billion or less in assets are still examined for

compliance by their applicable bank regulators.

The new legislation also gave state attorney generals the ability to enforce applicable

federal consumer protection laws.

The Dodd-Frank Act made significant changes to the regulatory structure for depository institutions and their holding companies.

However, the Dodd-Frank Act’s changes go well beyond that and affect the lending, investments and other operations of all depository institutions.

The Dodd-Frank Act requires the Federal Reserve to set minimum capital levels for bank holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital for holding companies are restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions.

The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect upon passage, and directs the federal banking regulators to implement new leverage and capital requirements that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws.

The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks, such as the Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices.

The Consumer Financial Protection Bureau has examination and enforcement authority over all banks with more than $10 billion in assets.

Banks with $10 billion or less in assets are still examined for compliance by their applicable bank regulators.

The new legislation also gave state attorney generals the ability to enforce applicable federal consumer protection laws.

The Dodd-Frank Act broadened the base for FDIC insurance assessments.

Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution.

legislation also increased the maximum amount of deposit insurance for banks to $250,000 per depositor, retroactive to January

The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders

a non-binding vote on executive compensation and so called “golden parachute”

The legislation also directs

the Federal Reserve to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless

of whether the company is publicly traded or not.

Further, the legislation requires that originators of securitized loans retain

a percentage of the risk for transferred loans, directs the Federal Reserve to regulate pricing of certain debit card interchange

fees and contains a number of reforms related to mortgage origination.

The Dodd Frank Act has resulted in an increased regulatory burden

and compliance, operating and interest expense for the Company and the Bank.

The legislation also increased the maximum amount of deposit insurance for banks to $250,000 per depositor, retroactive to January 1, 2008.

The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a non-binding vote on executive compensation and so called “golden parachute” payments.

The legislation also directs the Federal Reserve to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

Further, the legislation requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination.

The Dodd Frank Act has resulted in an increased regulatory burden and compliance, operating and interest expense for the Company and the Bank.

Bank Regulation

Business Activities.

The Bank derives its lending

and investment powers from the applicable Pennsylvania law, federal law and applicable state and federal regulations.

laws and regulations, The Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business

and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits.

The Bank derives its lending and investment powers from the applicable Pennsylvania law, federal law and applicable state and federal regulations.

Under these laws and regulations, The Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits.

Capital Requirements.

Federal regulations require

state banks to meet three minimum capital standards:

a 1.5% tangible capital ratio, a 4% core capital to assets leverage ratio

(3% for savings associations receiving the highest rating on the composite, or “CAMELS,”

rating system for capital

adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk), and an 8% risk-based capital ratio.

The risk-based capital standard for state banks requires the maintenance

of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least

4% and 8%, respectively.

In determining the amount of risk weighted assets, all assets, including certain off-balance sheet assets,

are multiplied by a risk-weight factor of 0% to 1250%, assigned by the regulations, based on the risks believed inherent in the

type of asset.

Core capital is defined as common shareholders’

equity (including retained earnings), certain noncumulative

perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles

other than certain mortgage servicing rights and credit card relationships.

The components of supplementary capital include cumulative

preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred

stock, the allowance for loan losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net unrealized gains

on available-for-sale securities with readily determinable fair market values.

Overall, the amount of supplementary capital included

as part of total capital cannot exceed 100% of core capital.

Additionally, an institution that retains credit risk in connection

with an asset sale is required to maintain additional regulatory capital because of the purchaser’s recourse against the

In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors,

but qualitative factors as well and has the authority to establish higher capital requirements for individual associations where

At December 31, 2019, the Bank’s capital exceeded all applicable

requirements.

The risk-based capital rule and the method for calculating risk-weighted

assets by the FDIC and the other federal bank regulators are consistent with agreements that were reached by the Basel Committee

on Banking Supervision and certain provisions of the Dodd-Frank Act.

The rule applies to all depository institutions (such as the

Bank) and top-tier bank holding companies with total consolidated assets of $3.0 billion or more.

Among other things, the rule

established a common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital

to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures

that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the

acquisition, development or construction of real property.

The rule also requires unrealized gains and losses on certain available-for-sale

securities to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised.

The Bank elected the one-time opt-out election for accumulated other comprehensive income (“AOCI”) to be excluded from

the regulatory capital calculation.

The rule limits a banking organization’s capital distributions and certain discretionary

bonus payments if the banking organization does not hold a capital conservation buffer consisting of 2.5% of common equity Tier

1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

capital conservation buffer requirement was phased in at 0.625% per year beginning January 1, 2016 and ended January 1, 2019, when

the full 2.5% capital conservation buffer requirement became effective.

Federal regulations require state banks to meet three minimum capital standards:

a 1.5% tangible capital ratio, a 4% core capital to assets leverage ratio (3% for savings associations receiving the highest rating on the composite, or “CAMELS,” rating system for capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk), and an 8% risk-based capital ratio.

The risk-based capital standard for state banks requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively.

In determining the amount of risk weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 1250%, assigned by the regulations, based on the risks believed inherent in the type of asset.

Core capital is defined as common shareholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships.

The components of supplementary capital include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net unrealized gains on available-for-sale securities with readily determinable fair market values.

Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

Additionally, an institution that retains credit risk in connection with an asset sale is required to maintain additional regulatory capital because of the purchaser’s recourse against the institution.

In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well and has the authority to establish higher capital requirements for individual associations where necessary.

At December 31, 2020, the Bank’s capital exceeded all applicable requirements.

The risk-based capital rule and the method for calculating risk-weighted assets by the FDIC and the other federal bank regulators are consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.

The rule applies to all depository institutions (such as the Bank) and top-tier bank holding companies with total consolidated assets of $3.0 billion or more.

Among other things, the rule established a common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.

The rule also requires unrealized gains and losses on certain available-for-sale securities to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised.

The Bank elected the one-time opt-out election for accumulated other comprehensive income (“AOCI”) to be excluded from the regulatory capital calculation.

The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a capital conservation buffer consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

The capital conservation buffer requirement was phased in at 0.625% per year beginning January 1, 2016 and ended January 1, 2019, when the full 2.5% capital conservation buffer requirement became effective.

Loans-to-One Borrower.

Generally, a Pennsylvania-chartered

commercial bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of capital.

additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral,

which generally does not include real estate.

As of December 31, 2019, the Bank was in compliance with the loans-to-one borrower

Generally, a Pennsylvania-chartered commercial bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of capital.

An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate.

As of December 31, 2020, the Bank was in compliance with the loans-to-one borrower limitations.

Capital Distributions.

The Pennsylvania Banking Code

states, in part, that dividends may be declared and paid only out of accumulated net earnings and may not be declared or paid unless

surplus is at least equal to capital.

Dividends may not reduce surplus without the prior consent of the Pennsylvania Department

of Banking and Securities.

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not

make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory

capital requirement.

The Pennsylvania Banking Code states, in part, that dividends may be declared and paid only out of accumulated net earnings and may not be declared or paid unless surplus is at least equal to capital.

Dividends may not reduce surplus without the prior consent of the Pennsylvania Department of Banking and Securities.

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement.

Community Reinvestment Act and Fair Lending Laws.

All insured institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit

needs of their communities, including low- and moderate-income borrowers.

The FDIC is required to assess the Bank’s record

of compliance with the Community Reinvestment Act.

Failure to comply with the provisions of the Community Reinvestment Act could,

at a minimum, result in denial of certain corporate applications, such as branches or mergers, or in restrictions on its activities.

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices

on the basis of characteristics specified in those statutes.

The failure to comply with the Equal Credit Opportunity Act and the

Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department

The Community Reinvestment Act requires all institutions insured

by the FDIC to publicly disclose their rating.

The Bank received a “satisfactory”

rating in its most recent federal

All insured institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers.

The FDIC is required to assess the Bank’s record of compliance with the Community Reinvestment Act.

Failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications, such as branches or mergers, or in restrictions on its activities.

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes.

The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice.

The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating.

The Bank received a “satisfactory” rating in its most recent federal examination.

Transactions with Related Parties.

A state-chartered

bank’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve

Act and federal regulation.

An affiliate is generally a company that controls or is under common control with an insured depository

institution, such as the Bank.

A state-chartered bank’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation.

An affiliate is generally a company that controls or is under common control with an insured depository institution, such as the Bank.

The Company is an affiliate of the Bank because of its control of the Bank.

In general, transactions

between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements.

In addition, federal regulations prohibit a state-chartered bank from lending to any of its affiliates that are engaged in activities

that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary.

Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality

assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

The Bank’s authority to extend credit to its directors, executive

officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of

Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve.

Among other things, these provisions

generally require that extensions of credit to insiders be made on terms that are substantially the same as, and follow credit

underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons

and that do not involve more than the normal risk of repayment or present other unfavorable features;

and not exceed certain limitations

on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount

of the Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved by the Bank’s

In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements.

In addition, federal regulations prohibit a state-chartered bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary.

Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

The Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve.

Among other things, these provisions generally require that extensions of credit to insiders be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features;

and not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board.

Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

Standards for Safety and Soundness.

Federal law requires

each federal banking agency to prescribe certain standards for all insured depository institutions.

These standards relate to,

among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest

rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate.

Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address

problems at insured depository institutions before capital becomes impaired.

If the appropriate federal banking agency determines

that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to

the agency an acceptable plan to achieve compliance with the standard.

If an institution fails to meet these standards, the appropriate

federal banking agency may require the institution to implement an acceptable compliance plan.

Failure to implement such a plan

can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.

These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate.

Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.

If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan.

Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

Prompt Corrective Action Regulations.

Under the Federal

Prompt Corrective Action statute, the FDIC is required to take supervisory actions against undercapitalized state-chartered banks

under its jurisdiction, the severity of which depends upon the institution’s level of capital.

An institution that has total

risk-based capital of less than 8% or a leverage ratio or a Tier 1 risk-based capital ratio that generally is less than 4% is considered

to be “undercapitalized”.

An institution that has total risk-based capital less than 6%, a Tier 1 core risk-based capital

ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized.”

An institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.”

Generally, the Pennsylvania Department of Banking and Securities

(the “Pennsylvania Department of Banking”

or “PDBS”) is required to appoint a receiver or conservator for

a state-chartered bank that is “critically undercapitalized”

within specific time frames.

The regulations also provide

that a capital restoration plan must be filed with the FDIC within 45 days of the date that an institution is deemed to have received

notice that it is “undercapitalized,”

“significantly undercapitalized”

or “critically undercapitalized.”

Any bank holding company of an institution that is required to submit a capital restoration plan must guarantee performance under

the plan in an amount of up to the lesser of 5% of the institution’s assets at the time it was deemed to be undercapitalized

by the FDIC or the amount necessary to restore the institution to adequately capitalized status.

This guarantee remains in place

until the FDIC notifies the institution that it has maintained adequately capitalized status for each of four consecutive calendar

Institutions that are undercapitalized become subject to certain mandatory measures, such as restrictions on capital

distributions and asset growth.

The PDBS may also take any one of a number of discretionary supervisory actions against undercapitalized

institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At December 31, 2019, the Bank met the criteria for being considered

“well capitalized.”

In addition, the final capital rule adopted in July 2013 revises

the prompt corrective action categories to incorporate the revised minimum capital requirements of that rule.

The Pennsylvania Department of Banking

maintains enforcement authority over the Bank, including the power to issue cease and desist orders and civil money penalties and

to remove directors, officers or employees.

It also has the power to appoint a conservator or receiver for a bank upon insolvency,

imminent insolvency, unsafe or unsound condition or certain other situations.

The FDIC has primary federal enforcement responsibility

over non-Federal Reservice Bank (“FRB”)-member state banks and has authority to bring actions against the institution

and all institution-affiliated parties, including shareholders, and any attorneys, appraisers and accountants who knowingly or

recklessly participate in wrongful actions likely to have an adverse effect on the bank.

Formal enforcement action may range from

the issuance of a capital directive or cease and desist order to removal of officers and/or directors.

Civil penalties cover a

wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases.

regulatory enforcement actions occur with respect to situations involving unsafe or unsound practices or conditions, violations

of law or regulation or breaches of fiduciary duty.

Federal and Pennsylvania laws also establish criminal penalties for certain

Under the Federal Prompt Corrective Action statute, the FDIC is required to take supervisory actions against undercapitalized state-chartered banks under its jurisdiction, the severity of which depends upon the institution’s level of capital.

An institution that has total risk-based capital of less than 8% or a leverage ratio or a Tier 1 risk-based capital ratio that generally is less than 4% is considered to be “undercapitalized”.

An institution that has total risk-based capital less than 6%, a Tier 1 core risk-based capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized.” An institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.”

Generally, the Pennsylvania Department of Banking and Securities (the “Pennsylvania Department of Banking” or “PDBS”) is required to appoint a receiver or conservator for a state-chartered bank that is “critically undercapitalized” within specific time frames.

The regulations also provide that a capital restoration plan must be filed with the FDIC within 45 days of the date that an institution is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Any bank holding company of an institution that is required to submit a capital restoration plan

must guarantee performance under the plan in an amount of up to the lesser of 5% of the institution’s assets at the time it was deemed to be undercapitalized by the FDIC or the amount necessary to restore the institution to adequately capitalized status.

This guarantee remains in place until the FDIC notifies the institution that it has maintained adequately capitalized status for each of four consecutive calendar quarters.

Institutions that are undercapitalized become subject to certain mandatory measures, such as restrictions on capital distributions and asset growth.

The PDBS may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At December 31, 2020, the Bank met the criteria for being considered “well capitalized.”

In addition, the final capital rule adopted in July 2013 revises the prompt corrective action categories to incorporate the revised minimum capital requirements of that rule.

The Pennsylvania Department of Banking maintains enforcement authority over the Bank, including the power to issue cease and desist orders and civil money penalties and to remove directors, officers or employees.

It also has the power to appoint a conservator or receiver for a bank upon insolvency, imminent insolvency, unsafe or unsound condition or certain other situations.

The FDIC has primary federal enforcement responsibility over non-Federal Reservice Bank (“FRB”)-member state banks and has authority to bring actions against the institution and all institution-affiliated parties, including shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful actions likely to have an adverse effect on the bank.

Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors.

Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases.

In general, regulatory enforcement actions occur with respect to situations involving unsafe or unsound practices or conditions, violations of law or regulation or breaches of fiduciary duty.

Federal and Pennsylvania laws also establish criminal penalties for certain violations.

Insurance of Deposit Accounts.

The Deposit Insurance

Fund (“DIF”) of the FDIC insures deposits at FDIC-insured financial institutions, such as the Bank.

Deposit accounts

in the Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a maximum

of $250,000 for self-directed retirement accounts.

The Deposit Insurance Fund (“DIF”) of the FDIC insures deposits at FDIC-insured financial institutions, such as the Bank.

Deposit accounts in the Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts.

The FDIC charges insured depository institutions premiums to maintain the DIF.

The Dodd-Frank Act increased the minimum target DIF ratio from 1.15%

to 1.35% of estimated insured deposits.

The FDIC was required to seek to achieve the 1.35% ratio by September 30, 2020, and insured

institutions with assets of $10 billion or more were supposed to fund the increase.

On September 30, 2018, the 1.35% ratio was

exceeded, reaching 1.36%.

Insured institutions of less than $10 billion of assets will receive credits for the portion of their

assessments that contributed to raising the reserve ratio between 1.15% and 1.35% effective when the fund rate achieves 1.38%.

The fund rate achieved 1.40% as of June 30, 2019, and the FDIC first applied small bank credits on the September 30, 2019 assessment

invoice (for the second quarter of 2019).

The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% to 1.35% of estimated insured deposits.

The FDIC was required to seek to achieve the 1.35% ratio by September 30, 2020, and insured institutions with assets of $10 billion or more were supposed to fund the increase.

On September 30, 2018, the 1.35% ratio was exceeded, reaching 1.36%.

Insured institutions of less than $10 billion of assets will receive credits for the portion of their assessments that contributed to raising the reserve ratio between 1.15% and 1.35% effective when the fund rate achieves 1.38%.

The fund rate achieved 1.40% as of June 30, 2019, and the FDIC first applied small bank credits on the September 30, 2019 assessment invoice (for the second quarter of 2019).

The FDIC will continue to apply small bank credits so long as the ratio is at least 1.35%.

After applying small bank credits for four quarters, the FDIC will remit to banks the value of any remaining small bank credits

in the next assessment period in which the ratio is at least 1.35%.

A total of $308,000 of DIF credits were recognized in the third

and fourth quarters of 2019.

After applying small bank credits for four quarters, the FDIC will remit to banks the value of any remaining small bank credits in the next assessment period in which the ratio is at least 1.35%.

A total of $308,000 of DIF credits were recognized in the third and fourth quarters of 2019.

All DIF credits available to the Bank have been utilized.

The Dodd-Frank Act eliminated the 1.5% maximum

fund ratio, instead leaving it to the discretion of the FDIC to establish a maximum fund ratio.

The FDIC has exercised that discretion

by establishing a long-range fund ratio of 2%.

In addition to the FDIC assessments, the Financing Corporation (“FICO”)

is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial

fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation.

issued by the FICO matured in 2019.

The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC to establish a maximum fund ratio.

The FDIC has exercised that discretion by establishing a long-range fund ratio of 2%.

The FDIC announced that the ratio had declined to 1.30% at September 30, 2020 due largely to consequences of the COVID-19 pandemic.

The FDIC adopted a plan to restore the fund to the 1.35% ratio within eight years but did not change its assessment schedule.

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980's to recapitalize the former Federal Savings and Loan Insurance Corporation.

The bonds issued by the FICO matured in 2019.

The FDIC has authority to increase insurance assessments.

Any significant

increases would have an adverse effect on the operating expenses and results of operations of the Bank.

Management cannot predict

what assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding

that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or

has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

The Bank does not currently know of

any practice, condition or violation that may lead to termination of its deposit insurance.

Any significant increases would have an adverse effect on the operating expenses and results of operations of the Bank.

Management cannot predict what assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

The Bank does not currently know of any practice, condition or violation that may lead to termination of its deposit insurance.

Prohibitions Against Tying Arrangements.

State-chartered

banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying

the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from

the institution or its affiliates or not obtain services of a competitor of the institution.

The Bank is a member of the FHLB System,

which consists of 12 regional FHLBs.

The FHLB System provides a central credit facility primarily for member institutions as well

as other entities involved in home mortgage lending.

As a member of the FHLB of Pittsburgh, The Bank is required to acquire and

hold shares of capital stock in the FHLB.

State-chartered banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

The Bank is a member of the FHLB System, which consists of 12 regional FHLBs.

The FHLB System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending.

As a member of the FHLB of Pittsburgh, The Bank is required to acquire and hold shares of capital stock in the FHLB.

As of December 31, 2020, the Bank was in compliance with this requirement.

The Bank also

is able to borrow from the FHLB of Pittsburgh, which provides an additional source of liquidity for the Bank.

The Bank also is able to borrow from the FHLB of Pittsburgh, which provides an additional source of liquidity for the Bank.

Federal Reserve System.

The FRB regulations require

banks to maintain reserves against their transaction accounts (primarily Negotiable Order of Withdrawal, or NOW and regular checking

The FRB regulations require banks to maintain reserves against their transaction accounts (primarily Negotiable Order of Withdrawal, or NOW and regular checking accounts).

The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows for 2020:

a 3% reserve ratio is assessed on net transaction accounts up to and including $124.2 million;

a 10% reserve ratio is applied

above $124.2 million.

The first $16.3 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board)

are exempted from the reserve requirements.

a 10% reserve ratio is applied above $124.2 million.

The first $16.3 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements.

The Bank complies with the foregoing requirements.

The amounts are adjusted annually

and, for 2020, establish a 3% reserve ratio for aggregate transaction accounts up to $127.5 million, a 10% ratio above $127.5 million,

and an exemption of $16.9 million.

The amounts are adjusted annually and, for 2021, establish a 3% reserve ratio for aggregate transaction accounts up to $182.9 million, a 10% ratio above $182.9 million, and an exemption of $21.1 million.

However, effective March 26, 2020, the FRB reduced reserve requirement ratios on all net transaction accounts to 0%, eliminating reserve requirements for all depository institutions, in response to the COVID-19 pandemic.

Other Regulations

Interest and other charges collected or contracted by the Bank are

subject to state usury laws and federal laws concerning interest rates.

The Bank’s operations are also subject to federal

and state laws applicable to credit transactions, such as the:

Interest and other charges collected or contracted by the Bank are subject to state usury laws and federal laws concerning interest rates.

The Bank’s operations are also subject to federal and state laws applicable to credit transactions, such as the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

• Home Mortgage Disclosure Act, requiring financial institutions to provide information

to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet

the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed

or other prohibited factors in extending credit;

• Fair Credit Reporting Act, governing the use and provision of information to credit

reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected

by collection agencies;

• Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

• Truth in Savings Act;

• Rules and regulations of the various federal and state agencies charged with the responsibility

of implementing such laws.

• Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such laws.

The operations of the Bank also are subject to the:

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of

consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern

automatic deposits to and withdrawals from deposit accounts and customers’

rights and liabilities arising from the use of

automated teller machines and other electronic banking services;

• Check Clearing for the 21st Century Act (also known as “Check 21”), which

gives “substitute checks,”

such as digital check images and copies made from that image, the same legal standing as

the original paper check;

• The USA PATRIOT Act, which requires banks operating to, among other things, establish

broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting

of money laundering.

Such required compliance programs are intended to supplement existing compliance requirements, also applicable

to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations;

• The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial

information by financial institutions with unaffiliated third parties.

Specifically, the Gramm-Leach-Bliley Act requires all financial

institutions offering financial products or services to retail customers to provide such customers with the financial institution’s

of the sharing of certain personal financial

information with unaffiliated third parties.

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

• Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

• The USA PATRIOT Act, which requires banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering.

Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations;

• The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties.

Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

The Company is a bank holding company within

the meaning of the Bank Holding Company Act of 1956, as amended.

As such, the Company is registered with the Federal Reserve and

is subject to regulations, examinations, supervision and reporting requirements applicable to bank holding companies.

the Federal Reserve has enforcement authority over the Company and its non-bank subsidiaries.

Among other things, this authority

permits the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to the subsidiary banking

The Dodd-Frank Act requires the Federal Reserve

to establish for all depository institution holding companies minimum consolidated capital requirements that are as stringent as

those required for the insured depository subsidiaries.

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended.

As such, the Company is registered with the Federal Reserve and is subject to regulations, examinations, supervision and reporting requirements applicable to bank holding companies.

In addition, the Federal Reserve has enforcement authority

over the Company and its non-bank subsidiaries.

Among other things, this authority permits the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to the subsidiary banking institution.

The Dodd-Frank Act requires the Federal Reserve to establish for all depository institution holding companies minimum consolidated capital requirements that are as stringent as those required for the insured depository subsidiaries.

Source of Strength.

The Dodd-Frank Act requires that

all bank holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity

and other support in times of financial stress.

The Federal Reserve has issued a policy

statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies.

the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention

by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition.

Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances,

such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is

insufficient to fully fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s

capital needs and overall financial condition.

The ability of a holding company to pay dividends may be restricted if a subsidiary

depository institution becomes undercapitalized.

The policy statement also states that a holding company should inform the Federal

Reserve supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is

experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, as of the end of a quarter,

in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase

These regulatory policies may affect the Company’s ability to pay dividends, repurchase shares of common stock

or otherwise engage in capital distributions.

Under the Change in Bank Control Act,

a federal statute, a notice must be submitted to the Federal Reserve if any person (including a company), or group acting in concert,

seeks to acquire direct or indirect “control”

of a bank holding company.

Under certain circumstances, a change of control

may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless

the Federal Reserve has found that the acquisition will not result in control of the company.

A change in control definitively

occurs upon the acquisition of 25% or more of the company’s outstanding voting stock.

Under the Change in Bank Control Act, the Federal Reserve generally

has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and

managerial resources of the acquirer and the competitive effects of the acquisition.

The Dodd-Frank Act requires that all bank holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The Federal Reserve has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies.

In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition.

Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances, such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition.

The ability of a holding company to pay dividends may be restricted if a subsidiary depository institution becomes undercapitalized.

The policy statement also states that a holding company should inform the Federal Reserve supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, as of the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred.

These regulatory policies may affect the Company’s ability to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

Under the Change in Bank Control Act, a federal statute, a notice must be submitted to the Federal Reserve if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a bank holding company.

Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless the Federal Reserve has found that the acquisition will not result in control of the company.

A change in control definitively occurs upon the acquisition of 25% or more of the company’s outstanding voting stock.

Under the Change in Bank Control Act, the Federal Reserve generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.

Federal Securities Laws.

The Company’s common

stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

the Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities

Exchange Act of 1934.

The Company’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

As a result, the Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act

of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties

at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant

to the federal securities laws.

The Company has policies, procedures and systems designed to comply with these regulations,

and the Company reviews and documents these policies, procedures and systems to ensure continued compliance with these regulations.

The Company and the Bank are subject to federal

income taxation in the same general manner as other corporations, with some exceptions discussed below.

The following discussion

of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description

of the tax rules applicable to the Company and the Bank.

The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the federal securities laws.

The Company has policies, procedures and systems designed to comply with these regulations, and the Company reviews and documents these policies, procedures and systems to ensure continued compliance with these regulations.

The Company and the Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below.

The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company and the Bank.

Method of Accounting.

For federal income tax purposes,

the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31

for filing its federal and state income tax returns.

For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Federal Taxation.

The federal income tax laws apply

to the Company in the same manner as to other corporations with some exceptions.

The Company may exclude from income 100% of dividends

received from the Bank as members of the same affiliated group of corporations.

For federal income tax purposes, corporations may

carryforward net operating losses indefinitely, but the deduction is limited to 80% of taxable income.

For its 2019 and 2018 fiscal

year, the Company’s maximum federal income tax rate was 21%.

The federal income tax laws apply to the Company in the same manner as to other corporations with some exceptions.

The Company may exclude from income 100% of dividends received from the Bank as members of the same affiliated group of corporations.

For federal income tax purposes, corporations may carryforward net operating losses indefinitely, but the deduction is limited to 80% of taxable income.

For its 2020 and 2019 fiscal year, the Company’s maximum federal income tax rate was 21%.

State Taxation.

The Bank is subject to the Pennsylvania

Bank and Trust Company Shares Tax (“Shares Tax”) rate of 0.95%.

The tax is imposed on the Bank’s adjusted equity.

The Company and Exchange Underwriters are subject to the Pennsylvania Corporate Net Income Tax, otherwise known as “CNI tax.”

The CNI tax rate in 2018 and 2019 was 9.99%.

The tax is imposed on income or loss from the federal income tax return on a separate-company

basis for the Company and Exchange Underwriters.

The federal return income or loss is adjusted for various items treated differently

by the Pennsylvania Department of Revenue.

The FWVB merger has exposed the Company to additional state tax

filing requirements in West Virginia and Ohio.

West Virginia imposes a state income tax at the rate 6.5% on the consolidated net

income of the Company.

The multi-state revenue generating activities are apportioned according to state nexus rules.

of Ohio imposes an equity-based tax similar to the PA Shares Tax called Financial Institutions Tax (“FIT”) at a minimum

tax of $1,000 or a rate of 0.8% for the first $200 million of Ohio based-equity, and then a declining rate thereafter.

The Bank is subject to the Pennsylvania Bank and Trust Company Shares Tax (“Shares Tax”) rate of 0.95%.

The tax is imposed on the Bank’s adjusted equity.

The Company and Exchange Underwriters are subject to the Pennsylvania Corporate Net Income Tax, otherwise known as “CNI tax.” The CNI tax rate in 2020 and 2019 was 9.99%.

The tax is imposed on income or loss from the federal income tax return on a separate-company basis for the Company and

Exchange Underwriters.

The federal return income or loss is adjusted for various items treated differently by the Pennsylvania Department of Revenue.

The FWVB merger has exposed the Company to additional state tax filing requirements in West Virginia and Ohio.

The West Virginia Corporation Net Income Tax imposes a state income tax at the rate 6.5% based on the Company's consolidated taxable federal net income or loss on the Company's federal tax return, adjusted for various items treated differently by the West Virginia State Tax Department.

The State of Ohio imposes an equity-based tax similar to the PA Shares Tax called Financial Institutions Tax (“FIT”) at a minimum tax of $1,000 or a rate of 0.8% for the first $200 million of Ohio based-equity, and then a declining rate thereafter.

All state taxation is apportioned to states where nexus exists based on different metrics of the Company's consolidated statement of financial condition and consolidated statement of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business