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Item 5. Market for Registrant’s Common Equity

2021-03-17 compared with 2020-03-11 · 69 added, 735 removed, 43 unchanged (95% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

The Company’s common stock is traded

on the NASDAQ Global Market under the symbol “CBFV.”

The approximate number of holders of record of the Company’s

common stock as of March 3, 2020, was 657.

Certain shares of Company common stock are held in “nominee”

or “street”

name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock is traded on the NASDAQ Global Market under the symbol “CBFV.” The approximate number of holders of record of the Company’s common stock as of March 12, 2021, was 658.

Certain shares of Company common stock are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

Equity Compensation Plans

The following table provides information at December

31, 2019, for compensation plans under which equity securities may be issued.

Number of securities

remaining available

Number of securities

future issuance

Weighted-average

equity compensation

exercise price

plans (excluding

The following table provides information at December 31, 2020, for compensation plans under which equity securities may be issued.

Plan Category Number of securities

to be issued upon

outstanding options

warrants and rights Weighted-average

exercise price of

outstanding options

securities reflected

Plan Category

warrants and rights Number of securities

remaining available for

future issuance under

equity compensation

plans (excluding securities

reflected in column (A))

Equity compensation plans:

1 unchanged sentence

Not approved by stockholders — — —

(1) Represents 60,124 shares available

under the 2015 Equity Incentive Plan that can be issued as restricted stock awards or

units and 13,359 shares that can be issued as stock options.

Restricted stock awards

or units may be issued above this amount provided that the number of shares reserved

for stock options is reduced by three shares for each restricted stock award or unit

share granted.

The following table provides information

relating to our purchase of shares of our common stock during the three months ended December 31, 2019.

Purchased (1)

Total Number of

Shares Purchased as

Part of the Publicly

Announced Program

Approximate Dollar

Value of Shares That

May Yet Be Purchased

Under the Program

October 1-31, 2019

November 1-30, 2019

December 1-31, 2019

(1) On November 20, 2019, the Company

announced that the Board had approved a program commencing on November 25, 2019 to repurchase

up to $5.0 million of the Company’s outstanding common stock, which was approximately

3.2% of outstanding common shares.

This repurchase program is scheduled to expire on

November 24, 2020.

Total 218,683 $ 23.91 41,867

(1) Represents 22,144 shares available under the 2015 Equity Incentive Plan that can be issued as restricted stock awards or units and 19,723 shares that can be issued as stock options.

Restricted stock awards or units may be issued above this amount provided that the number of shares reserved for stock options is reduced by three shares for each restricted stock award or unit share granted.

Issuer Purchases of Equity Securities

The Company did not purchase shares of its common stock as part of a publicly announced program during the three months ended December 31, 2020.

On November 20, 2019, the Company announced that the Board had approved a program commencing on November 25, 2019 to repurchase up to $5.0 million of the Company’s outstanding common stock, which was approximately 3.2% of outstanding common shares.

On March 19, 2020, the Company announced that the stock repurchase program was suspended until further notice.

As of March 19, 2020, the Company had repurchased 69,966 shares.

This repurchase program expired on November 24, 2020.

Selected Financial Data

The following tables set forth selected

historical financial and other data of the Company at and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

information at December 31, 2019 and 2018, and for the years ended December 31, 2019 and 2018 is derived in part from, and should

be read together with, the audited financial statements and notes thereto beginning at page 50 of this Report.

The information

at December 31, 2017, 2016 and 2015 and for the years ended December 31, 2017, 2016 and 2015 is derived in part from audited financial

statements that are not included in this Report.

The following tables set forth selected historical financial and other data of the Company at and for the years ended December 31, 2020, 2019, 2018, 2017 and 2016.

The information at December 31, 2020 and 2019, and for the years ended December 31, 2020 and 2019 is derived in part from, and should be read together with, the Company's audited consolidated financial statements and notes included in this Report and should be read together therewith.

The information at December 31, 2018, 2017 and 2016 and for the years ended December 31, 2018, 2017 and 2016 is derived in part from audited financial statements that are not included in this Report.

December 31, 2020 2019 2018 2017 2016

(Dollars in Thousands)

Selected Financial Condition Data:

Assets $ 1,416,720 $ 1,321,537 $ 1,281,701 $ 934,486 $ 846,075

Cash and Due From Banks 160,911 80,217 53,353 20,622 14,282

Investment Securities Available-for-Sale

Securities 145,400 197,385 225,409 123,583 106,208

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

Deposits 1,224,569 1,118,359 1,086,658 773,344 698,218

Short-Term Borrowings 41,055 30,571 30,979 39,605 27,027

Other Borrowings 8,000 14,000 20,000 24,500 28,000

Stockholders’

Stockholders’ Equity 134,530 151,097 137,625 93,256 89,469

Year Ended December 31, 2020 2019 2018 2017 2016

(Dollars in Thousands)

Years Ended December 31,

Selected Operating Data:

1 unchanged sentence

Interest Expense 5,563 7,857 5,949 3,374 2,870

Net Interest Income

Net Interest and Dividend Income 41,904 43,174 37,677 29,060 29,148

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

Net Interest Income After Provision for Loan Losses

Net Interest and Dividend Income After Provision for Loan Losses 37,904 42,449 35,152 27,190 27,108

Noninterest Income 9,471 8,567 7,686 7,264 6,864

1 unchanged sentence

Noninterest Expense 56,767 34,960 33,394 24,280 23,280

Income Before Income Taxes

Years Ended December 31,

(Loss) Income Before Income Tax Expense (9,392) 16,056 8,590 9,818 10,692

Income Tax Expense 1,248 1,729 1,538 2,874 3,112

Net (Loss) Income $ (10,640) $ 14,327 $ 7,052 $ 6,944 $ 7,580

At or For the Year Ended December 31, 2020 2019 2018 2017 2016

Per Common Share Data:

Earnings Per Common Share - Basic

Earnings Per Common Share - Diluted

Dividends Paid Per Common Share

(Loss) Earnings Per Common Share - Basic $ (1.97) $ 2.64 $ 1.42 $ 1.70 $ 1.86

(Loss) Earnings Per Common Share - Diluted (1.97) 2.63 1.40 1.69 1.86

Dividends Per Common Share 0.96 0.96 0.89 0.88 0.88

Dividend Payout Ratio (5)

(0.49) % 0.37 % 0.64 % 0.52 % 0.47 %

Book Value Per Common Share $ 24.76 $ 27.65 $ 25.33 $ 22.77 $ 21.89

Common Shares Outstanding 5,434,374 5,463,828 5,432,289 4,095,957 4,086,625

Years Ended December 31,

At or For the Year Ended December 31, 2020 2019 2018 2017 2016

Performance Ratios:

1 unchanged sentence

Return on Average Equity (7.18) 9.89 5.91 7.53 8.48

Interest Rate Spread (1)(3)

Net Interest Margin (2)(3)

Average Interest-Earning Assets to Average Interest-Bearing Liabilities

139.89 134.08 133.39 134.79 135.12

Average Equity to Average Assets 10.75 11.05 10.35 10.40 10.71

Net Interest Rate Spread (Non-GAAP) (1)(3)

3.15 3.42 3.40 3.44 3.68

Net Interest Margin (Non-GAAP) (2)(3)

3.32 3.64 3.59 3.58 3.82

Noninterest Expense to Average Assets 4.12 2.67 2.97 2.78 2.79

Efficiency Ratio (4)

Average Interest-Earning Assets to

Average Interest-Bearing Liabilities

Average Equity to Average Assets

110.50 67.57 75.50 67.82 64.65

Capital Ratios:

Common Equity Tier 1 Capital to Risk-Weighted Assets (6)

11.79 % 11.43 % 11.44 % 12.22 % 13.37 %

Tier 1 Capital to Risk-Weighted Assets (6)

11.79 11.43 11.44 12.22 13.37

Total Capital to Risk-Weighted Assets (6)

13.04 12.54 12.57 13.47 14.62

Tier 1 Leverage Capital to Adjusted Total Assets (6)

7.81 7.85 7.85 9.27 9.80

Asset Quality Ratios:

Allowance for Loan Losses to Total Loans (7)

1.22 % 1.04 % 1.05 % 1.18 % 1.14 %

Allowance for Loan Losses to Nonperforming Loans (7)

88.15 183.33 151.40 121.31 92.60

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

Delinquent and Nonaccrual Loans to Total Loans 1.50 0.89 0.83 1.18 1.57

Net Charge-Offs to Average Loans 0.11 0.05 0.21 0.13 0.11

2 unchanged sentences

Nonperforming Assets to Total Assets 1.04 0.42 0.56 0.81 1.02

Number of Offices

Number of Branch Offices 22 24 24 16 16

Number of Full-Time Equivalent Employees

257 266 269 201 200

(1) Represents

the difference between the weighted average yield on average interest-earning assets

and the weighted average cost of average interest-bearing liabilities.

(2) Represents

net interest income as a percentage of average interest-earning assets.

taxable-equivalent (FTE) yield adjustments have been made for tax exempt loan and securities

income utilizing a marginal federal tax rate of 21% for the years ended December 31,

2019 and 2018, and 34% for the years ended December 31, 2017, 2016, and 2015.

Explanation of Use of Non-GAAP Financial Measures in this Report.

(4) Represents

noninterest expense divided by the sum of net interest income and noninterest income.

(5) Represents

dividends declared per share divided by net income per share.

ratios are for Community Bank only.

acquired in connection with previous mergers were recorded at their estimated fair value

at the acquisition date and did not include a carryover of the pre-merger allowance for

Explanation of Use of Non-GAAP Financial Measures

In addition to traditional measures presented

in accordance with generally accepted accounting principles (“GAAP”), we use, and this Report contains or references,

certain non-GAAP financial measures.

We believe these non-GAAP financial measures provide useful information in understanding our

underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with

the performance of other companies in the financial services industry.

Although we believe that these non-GAAP financial measures

enhance the understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative

to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily

comparable with non-GAAP measures which may be presented by other companies.

Where non-GAAP financial measures are used, the comparable

GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

We believe the presentation of net interest

income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent

with industry practice.

Interest income per the Consolidated Statements of Net Income is reconciled to net interest income adjusted

to a FTE basis in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations"

in this Report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis reflects our

consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial

condition and results of operations.

The information in this section has been derived from the audited consolidated financial statements,

which appear beginning on page 50 of this Report.

You should read the information in this section in conjunction with the business

and financial information the Company provided in this Report.

Community Bank is a Pennsylvania-chartered

commercial bank headquartered in Carmichaels, Pennsylvania.

The Bank operates from 24 offices 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.

The Bank is a community-oriented institution offering residential and commercial real

estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and

businesses in its market area.

Property and casualty, commercial liability, surety and other insurance products are offered through

Exchange Underwriters, Inc., the Bank’s wholly-owned subsidiary that is a full-service, independent insurance agency.

The Bank invests primarily in United States

Government agency securities, bank-qualified, general obligation and special revenue municipal issues, and MBS’s issued or

guaranteed by the United States Government or agencies thereof.

Our principal sources of funds are customer

deposits, proceeds from the sale of loans, funds received from the repayment and prepayment of loans and MBS’s, and the sale,

call, or maturity of investment securities.

Principal sources of income are interest income on loans and investments, sales of

loans and securities, service charges, commissions, loan servicing fees and other fees.

Our principal expenses are interest paid

on deposits, employee compensation and benefits, occupancy and equipment expense, contracted services, and advertising.

Our results of operations depend primarily

on our net interest income.

Net interest income is the difference between the interest income we earn on our interest-earning assets

and the interest we pay on our interest-bearing liabilities.

Our results of operations also are affected by our provisions for

loan losses, noninterest income and noninterest expense.

Noninterest income currently consists primarily of fees and service charges

on deposit accounts, fees and charges on loans, gain on sales of other real estate owned, income from bank-owned life insurance

and other income.

We continue to expect our noninterest income to increase in future periods as a result of the insurance commissions

generated from the Bank’s subsidiary, Exchange Underwriters.

Noninterest expense currently consists primarily of expenses

related to salaries and employee benefits, occupancy and equipment, contracted services, legal fees, other real estate owned, advertising

and promotion, stationery and supplies, deposit and general insurance and other expenses.

Our results of operations also may be affected

significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies

and actions of regulatory authorities.

We expect our return on equity to remain relatively low until we are able to leverage the

additional capital we received from the stock offering associated with the merger.

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.

Our core business strategies are discussed below.

Improve earnings through asset diversification .

Loan diversification improves our earnings because commercial real estate

and commercial and industrial loans generally have higher interest rates than residential mortgage loans.

Another benefit of commercial

lending is that it improves the sensitivity of our interest-earning assets because commercial loans typically have shorter terms

than residential mortgage loans and frequently have variable interest rates.

Earnings growth helps ensure we not only remain well-capitalized,

but also enhances our ability to increase dividends.

Use sound underwriting practices to maintain asset quality .

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.

Maintain our funding mix that emphasizes growth in core deposits .

Core deposits (demand deposits, NOW accounts, money

market accounts and savings accounts) comprised 80.4% of our total deposits at December 31, 2019.

We value core deposits because

they represent longer-term customer relationships and a lower cost of funding compared to certificates of deposit.

We have succeeded

in growing core deposits by promoting a sales culture in our branch offices that is supported by the use of technology and by offering

a variety of products for our customers, such as sweep and insured money sweep services, remote electronic deposit, online banking

with bill pay, mobile banking, and automated clearinghouse.

Competent and modern deposit operations are one of our key competencies,

leading to increased customer service and fee revenue.

Supplement fee income through our insurance operations .

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.

Critical Accounting Policies

Critical accounting policies are those

that involve significant judgments and assumptions by management and that have, or could have, a material impact on the Company’s

income or the carrying value of its assets.

Allowance for Loan Losses.

The allowance for loan losses (“allowance”) 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 potential 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 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.

Generally, management considers all substandard-, doubtful-, and loss-rated

loans, nonaccrual loans, and TDRs for impairment.

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.

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

impairment is 90 days.

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.

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.

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.

The general allowance component covers

pools of homogeneous loans by loan class.

Management determines historical loss experience for each segment of loans using the

two-year rolling average of the net charge-off data within each segment.

Qualitative and environmental factors are also considered

that are likely to cause estimated credit losses associated with the Bank’s existing portfolio to differ from historical

loss experience, and include levels and trends in delinquency and impaired loans;

levels and trends in net charge-offs, trends

in volume and terms of loans;

change in underwriting, policies, procedures, practices and key personnel;

national and local economic

industry conditions, and effects of changes in high-risk credit circumstances.

The qualitative and environmental factors

are reviewed on a quarterly basis to ensure they are reflective of current conditions in the portfolio and economy.

An unallocated

component is maintained to cover uncertainties that could affect the Company’s estimate of probable losses.

Goodwill and Intangible Assets.

Goodwill represents

the excess of the cost of an acquisition over the fair value of the net assets acquired and was recorded in connection with previous

Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill

because of contractual or other legal rights.

Intangible assets that have finite lives, such as core deposit intangibles, customer

relationship intangibles and renewal lists, are amortized over their estimated useful lives and subject to periodic impairment

Core deposit intangibles are primarily amortized over six to ten years using straight-line methods.

Customer renewal lists

are amortized over their estimated useful lives which range from eight to thirteen years.

Goodwill and other intangibles are subject

to impairment testing at the reporting unit level, which must be conducted at least annually.

We perform impairment testing during

the fourth quarter of each year, or more frequently if impairment indicators exist.

We also continue to monitor other intangibles

for impairment and to evaluate carrying amounts, as necessary.

Determining the fair value of a reporting unit under the goodwill

impairment test is judgmental and often involves the use of significant estimates and assumptions.

Similarly, estimates and assumptions

are used in determining the fair value of other intangible assets.

Estimates of fair value are primarily determined using discounted

cash flows, market comparisons and recent transactions.

These approaches use significant estimates and assumptions including projected

future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation

of appropriate market comparables.

However, future events could cause us to conclude that goodwill or other intangibles have become

impaired, which would result in recording an impairment loss.

Any resulting impairment loss could have a material adverse impact

on our financial condition and results of operations.

Other-Than-Temporary Impairment.

In estimating other-than-temporary impairment of investment securities, securities are evaluated on at least a quarterly basis

to determine whether a decline in their value is other-than-temporary.

In estimating other-than temporary impairment losses, management

considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and

near-term prospects of the issuer, and (3) whether or not the Company intends to sell or expect that it is more likely than not

that it will be required to sell the investment security before an anticipated recovery in fair value.

Once a decline in value

for a debt security is determined to be other than temporary, the other-than-temporary impairment is separated in (a) the amount

of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the

credit loss) and (b) the amount of other-than-temporary impairment related to all other factors.

The amount of the total other-than-temporary

impairment related to credit loss is recognized in earnings.

The amount of other-than-temporary impairment related to other factors

is recognized in other comprehensive income (loss).

Deferred Tax Assets.

income tax expense results from changes in deferred tax assets and liabilities between periods.

Deferred tax assets are recognized

if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination,

the term more likely than not means a likelihood of more than 50%;

the terms examined and upon examination also include resolution

of the related appeals or litigation processes, if any.

A tax position that meets the more-likely-than-not recognition threshold

is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized

upon settlement with a taxing authority that has full knowledge of all relevant information.

The determination of whether a tax

position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at

the reporting date, and is subject to management’s judgment.

Deferred tax assets are reduced by a valuation allowance if,

based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not

Fair Value Measurements.

Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction

between market participants in the principal or most advantageous market for the asset or liability at the transaction date.

techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

three-level of fair value hierarchy prioritizes the inputs used to measure fair value:

Level 1 –

Fair value is based on unadjusted quoted prices in active markets that are

accessible to the Company for identical assets.

These generally provide the most reliable evidence and are used to measure fair

value whenever available.

Level 2 –

Fair value is based on significant inputs, other than Level 1 inputs, that are observable

either directly or indirectly for substantially the full term of the asset through corroboration with observable market data.

Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are

not active for identical or similar assets, and other observable inputs.

Level 3 –

Fair value is based on significant unobservable inputs.

Examples of valuation methodologies

that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar

This hierarchy requires the use of observable

market data when available.

The level in the fair value hierarchy within which the fair value measurement falls is determined based

on the lowest level input that is significant to the fair value measurement.

Recent Accounting Pronouncements and Developments

New accounting pronouncements that were

adopted in the current period or will be adopted in a future period are discussed in Note 1 –

Summary of Significant Accounting

Policies in the Notes to Consolidated Financial Statements, which is included in Part IV, Item 15 of this Report.

Comparison of Financial Condition at December 31, 2019, and December 31, 2018

Total assets increased $39.8 million, or 3.1%,

to over $1.32 billion at December 31, 2019 compared to $1.28 billion at December 31, 2018.

• Cash and due from banks increased $26.9 million, or 50.4%, to $80.2 million at December

31, 2019, compared to $53.4 million at December 31, 2018.

This is primarily the result of an increase in deposits as well as investment

security activity that was not fully repurposed through loan production.

• Investment securities classified as available-for-sale decreased $28.0 million, or 12.4%,

to $197.4 million at December 31, 2019, compared to $225.4 million at December 31, 2018.

This was primarily the result of $83.7

million of security sales, repayments and calls partially offset by $50.2 million of purchases and an increase in market value

of the portfolio.

A portion of the portfolio was restructured in the current year to mitigate deteriorating investment-credit risk

and to reinvest in higher yielding, longer-term investments as well as to mitigate call risk in a declining interest rate environment.

• Net loans increased $39.3 million, or 4.4%, to $942.6 million at December 31, 2019,

compared to $903.3 million at December 31, 2018.

This was primarily due to net loan originations of $56.4 million in commercial

real estate loans and $25.7 million in residential real estate loans partially offset by a decrease of $11.2 million in construction

loans, $7.1 million in consumer loans and $5.4 million in commercial and industrial loans.

There was also $10.7 million of residential

real estate loans that were originated and subsequently sold to the FHLB as part of the Mortgage Partnership Finance®

(“MPF®”)

program enables member financial institutions to offer competitive interest rates for fixed-rate mortgage

loans without assuming any of the interest rate risk associated with a long-term asset.

The bank typically recognizing a gain on

the sale of these loans while also collecting fee income from the FHLB from retention of the loan servicing.

• Nonperforming loans, which includes nonaccrual loans, accruing loans past due 90 days

or more and troubled debt restructurings, decreased $931,000 to $5.4 million at December 31, 2019 primarily due to an $851,000

payoff of a residential troubled debt restructuring.

As a result, nonperforming loans to total loans ratio decreased 12 basis points

to 0.57% at December 31, 2019, compared to 0.69% at December 31, 2018.

• Accrued interest and other assets increased $3.5 million to $17.4 million primarily

due to a receivable for a loan payoff.

Total liabilities increased $26.4 million,

or 2.3%, to $1.17 billion at December 31, 2019 compared to $1.14 billion at December 31, 2018.

• Total deposits increased $31.7 million, or 2.9%, to $1.12 billion at December 31, 2019

compared to $1.09 billion at December 31, 2018.

There were increases of $15.0 million in noninterest-bearing demand deposits, $11.6

million in NOW accounts, $6.9 million in savings accounts, $5.2 million in money market accounts, and $3.4 million in time deposits.

The increase is largely the result of cyclical tax deposits received on municipal demand deposit and NOW accounts as well as an

increase in time deposits with balances greater than $100,000.

• Other borrowed funds decreased $6.0 million, due to FHLB advances that matured in the

current period and were not replaced because of available cash.

Stockholders’

increased $13.5 million, or 9.8%, to $151.1 million at December 31, 2019, compared to $137.6 million at December 31, 2018.

income was $14.3 million for the year ended December 31, 2019.

The Company paid $5.2 million in dividends to stockholders and accumulated

other comprehensive income increased $4.1 million primarily due to improved market interest rate conditions in the current period

on the Company’s available-for-sale debt securities.

Comparison of Operating Results for the Years Ended December 31, 2019, and December

Net income increased $7.3 million, or 103.2%, to

$14.3 million for the year ended December 31, 2019 compared to $7.1 million for the year ended December 31, 2018.

Results for the

year ended December 31, 2019 were largely impacted by the full period effect of the FWVB merger that was completed on April 30,

Net Interest Income.

The interest income on interest-earning

assets, net interest rate spread and net interest margin are presented on a FTE basis.

The FTE basis adjusts for the tax benefit

of income on certain tax-exempt loans and securities using the federal statutory tax rate of 21 percent for 2019 and 2018.

the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and

tax-exempt sources and is consistent with industry practice.

The following table reconciles net interest income per the Consolidated

Statements of Net Income to net interest income, net interest spread and net interest margin on a FTE basis for the periods indicated:

(Dollars in thousands)

Interest Income per Consolidated Statement of Income

Adjustment to FTE Basis

Interest Income (FTE) (non-GAAP)

Interest Expense per Consolidated Statement of Income

Net Interest Income (FTE) (non-GAAP)

Net Interest Rate Spread

Adjustment to FTE Basis

Net Interest Rate Spread (FTE) (non-GAAP)

Net Interest Margin

Adjustment to FTE Basis

Net Interest Margin (FTE) (non-GAAP)

Net interest income increased $5.5 million, or 14.6%, to $43.2 million

for the year ended December 31, 2019, compared to $37.7 million for the year ended December 31, 2018.

Interest and dividend income increased $7.4 million, or 17.0%, to $51.0 million

for the year ended December 31, 2019, compared to $43.6 million for the year ended December 31, 2018.

Interest income on loans increased $5.2 million due to an increase in average loans outstanding of $69.7 million, primarily

commercial and residential real estate, and an increase of 23 basis points in loan yield.

Accretable yield from the acquired loan

portfolios was 3 basis points due to $284,000 of accretion in the current period and was comparable to the prior period.

Interest income on taxable securities increased $1.7 million in the current period.

The average balance for taxable securities

increased $44.7 million combined with an increase of 29 basis points in yield.

A portion of the portfolio was restructured in the

current year to increase net yields.

Interest income on tax-exempt securities decreased $362,000 due to a decrease of $15.8 million in the average balance.

the average balance decrease, there was an increase of 10 basis points in yield as a result of calls and sales of securities with

lower prevailing yields.

A portion of the portfolio was restructured in the current year to increase net yields and to mitigate

Other interest and dividend income increased $817,000 as a result of an increase of $33.9 million in average deposits with

correspondent banks.

Interest expense increased $1.9 million, or 32.1%, to $7.9 million for the

year ended December 31, 2019, compared to $5.9 million for the year ended December 31, 2018.

Interest expense on deposits increased $2.3 million due to an increase in average interest-bearing deposits of $118.7 million.

The average cost of interest-bearing deposits increased 18 basis points in the current period driven by higher cost municipal and

time deposits.

Although recent interest rate cuts have occurred, higher cost certificates of deposit will continue to impact interest

expense until maturity.

Interest expense on short-term borrowings decreased $334,000 in the current period primarily due to retired FHLB overnight

advances that had an average balance of $19.7 million and average cost of 1.86% in the prior year.

Interest expense on other borrowed funds decreased $92,000 primarily due to maturity of a FHLB long-term advances that were

not replaced, which resulted in a $5.0 million decrease in average balance.

Provision for Loan Losses.

The provision for loan losses decreased $1.8

million, to $725,000, for the year ended December 31, 2019, compared to $2.5 million for the year ended December 31, 2018.

charge-offs for the year ended December 31, 2019 were $416,000, which included $398,000 of net charge-offs on automobile loans,

compared to net charge-offs of $1.8 million for the year ended December 31, 2018, which were primarily due to charge-offs of $1.2

million for three commercial and industrial relationships in the first quarter of 2018.

Net charge-offs to average loans decreased

from 0.21% to 0.05% year-over-year with the allowance for loan losses to total loans ratio declining slightly to 1.04% at December

31, 2019 compared to 1.05% at December 31, 2018.

Noninterest Income .

Noninterest income increased $1.1 million, or 13.1%,

to $9.4 million for the year ended December 31, 2019 compared to $8.3 million for the year ended December 31, 2018.

Insurance commissions increased $761,000 to $4.5 million for the year ended December

31, 2019 due to the full year impact from the EU acquisition of the customer list of Beynon Insurance in August 2018 combined with

organic growth and a $237,000 increase in contingency fees.

The change in fair value of marketable equity securities resulted in a $253,000 increase

in income in the current period.

Service fees on deposit accounts increased $186,000 to $3.2 million for the year ended

December 31, 2019 primarily due to volume-based increase in ATM and check card fees with the FWVB a contributing factor.

In the prior period, the Company recognized a $137,000 net loss on the disposal of fixed

assets due to the write-off of the leasehold improvements of the former Washington Business Center that was vacated on December

31, 2018 and accelerated depreciation of select furniture and equipment acquired during the FWVB merger that did not conform to

the Company’s fixed asset capitalization policy.

Net gain on sales of residential mortgage loans increased $95,000 to $266,000 for the

year ended December 31, 2019 primarily due to an increase in the number of loans originated and subsequently sold to the FHLB as

part of the MPF®

program and a stabilization in mortgage rates.

Other commissions income decreased $371,000 to $576,000 for the year ended December

31, 2019, primarily due to prior period receipt of $331,000 of insurance proceeds from a claim on a bank-owned life insurance policy.

Noninterest Expense.

Noninterest expense increased $927,000, or 2.7%, to

$35.8 million for the year ended December 31, 2019, compared to $34.9 million for the year ended December 31, 2018.

The FWVB merger

was the primary reason for the changes to various noninterest expenses year over year.

Salaries and employee benefits increased $1.2 million to $19.3 million for the year

ended December 31, 2019, primarily due to additional employees, salary increases, and employee group health insurance as a direct

result of the FWVB merger.

Amortization of core deposit intangible increased $462,000 to $1.9 million for the year

ended December 31, 2019 due to the core deposit intangible recorded for the FWVB merger.

Contracted services increased $429,000 to $1.3 million for the year ended December 31,

2019, due to the additional branch locations acquired in the FWVB merger.

Bankcard processing expense increased $223,000 to $853,000 for the year ended December

31, 2019, due to an increase in volume of ATM and debit card transactions as a result of the FWVB merger.

PA shares tax expense increased $209,000 to $999,000 for the year ended December 31,

2019 due to the increase in stockholders’

equity primarily based on the FWVB merger.

Advertising increased $120,000 to $875,000 for the year ended December 31, 2019 due

to the Bank’s expanded marketing territory from the FWVB merger and related initiatives, primarily through internet-based

advertising and various media outlets.

Merger-related expenses decreased $854,000 due to the prior year FWVB merger.

Occupancy decreased $262,000 to $2.7 million for the year ended December 31, 2019 primarily

due $287,000 of lease termination costs associated with the former FWVB corporate center and former Washington Business Center

as the Bank moved into the BPMCC in the prior period.

This was partially offset by an increase in general occupancy expenses from

branches acquired in the FWVB merger.

Although deposits increased $31.7 million in the current period, FDIC assessment expense

decreased $173,000 to $411,000.

The FDIC notified banks that its DIF reached the required minimum reserve ratio of 1.38% that permitted

the FDIC to offset current bank assessments with prior credits from 2016 through 2018 earned by banks with less than $10 billion

A total of $308,000 of credits were recognized in the third and fourth quarters of 2019.

All DIF credits available

to the Bank have been utilized.

OREO expense decreased $118,000 and resulted in $103,000 of income for the year ended

December 31, 2019, primarily due to recognized income for the leasing of mineral rights partially offset by expenses related to

properties placed in OREO in the current period.

Other noninterest expense decreased $319,000, primarily due to a decrease in office

supplies and director-related restricted stock-based compensation expense from a change to a five-year vesting period starting

with the December 2018 grant.

The decrease in expense was also the result of losses from fraudulent phishing transactions on customer

accounts in the prior period and decrease in dues and subscriptions expense.

This was partially offset by an increase in amortization

related to the Exchange Underwriters acquisition of the Beynon Insurance customer list and increased telephone and Company-related

insurance cost due to the FWVB merger.

Income Tax Expense.

Income taxes increased $191,000

to $1.7 million for the year ended December 31, 2019, compared to $1.5 million for the year ended December 31, 2018.

increase of $7.5 million in pre-tax income, the effective tax rate for the year ended December 31, 2019 was 10.8% compared to 17.9%

for the year ended December 31, 2018.

While the Tax Cuts and Jobs Act (“Tax Act”) enacted in 2017 was the first major

overhaul of the Internal Revenue Code (“IRC”) in the last 30 years, it had many items that were left unaddressed once

certain tax deadlines passed and for which no formal regulations had been issued as of December 31, 2018.

One of these unaddressed

tax deadlines was the expiration of the alternative minimum tax (“AMT”) credit carryforward after the 2021 tax year.

Pre–Tax Act regulations allowed for AMT credits to carryforward infinitely.

As of December 31, 2018, it was determined that

an AMT credit carryforward of approximately $1.3 million, acquired in the FWVB merger on April 30, 2018, would remain unutilized

as of December 31, 2021 as a result of IRC Section 382 and 383 annual limitations.

As a result of the uncertainty of the utilization

of the AMT credit carryforwards post-2021, a valuation allowance (“VA”) was established for the AMT credit carryforward

deferred tax asset (“DTA”) balance of $1.3 million, which was offset against goodwill at December 31, 2018.

in accordance with ASC Topic 805 –

Business Combinations , due to the AMT credit carryforward being realized under

current tax law and minimal possibility of utilization as of the 2021 tax year, deemed to have no current value and offset into

goodwill as a purchase accounting adjustment.

During the fourth quarter of the year ended December 31, 2019,

the IRS issued clarifying guidance under IRC Section 382(h) that provided an alternative approach to calculating unrealized

built-in gains (“UBIGs”) related to the FWVB acquisition that impact annual Section 382 limitations.

approach is referred to as the “Section 338”

approach and allows for the “realization”

of UBIGs based

on a “deemed asset acquisition”

method, rather than “actual realization”, which accelerates UBIGs

utilization and increases the annual Section 382 limitations.

The Company performed an analysis of its built-in gains

associated with the FWVB acquisition and elected to change its approach from the Section 1374 approach to the Section 338

approach in determining its annual limitations under section 382 and 383.

As a result of this analysis as well as

consideration of a number of factors, including the Company's current profitability, its forecast of future profitability,

and evaluation of existing tax regulations related to NOL and AMT credit carryforwards, the Company concluded that it was

more likely than not that it will generate sufficient taxable income within the applicable carryforward periods to realize

its net operating loss (“NOL”) and AMT credit carryforwards by December 31, 2021.

Therefore, the Company recognized an income tax

benefit of $1.3 million related to the reversal of 100% of the VA for the AMT credit carryforward.

No other VA was

established against the remaining DTA in view of the Company’s cumulative history of earnings and anticipated future

taxable income as evidenced by the Company’s earnings potential at December 31, 2019 and 2018.

Average Balances and Yields.

following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated.

Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate

of 21% for 2019 and 2018 and 34% for 2017.

All average balances are daily average balances.

Non-accrual loans are included in the

computation of average balances only.

The yields set forth below include the effect of deferred fees, discounts, and premiums that

are amortized or accreted to interest income or interest expense.

(Dollars in thousands)

Years Ended December 31,

Interest-Earning Assets:

Investment Securities

Other Interest-Earning Assets

Total Interest-Earning Assets

Noninterest-Earning Assets

Liabilities and Stockholders' equity:

Interest-Bearing Liabilities:

Interest-Bearing Demand Deposits

Time Deposits

Total Interest-Bearing Deposits

Total Interest-Bearing Liabilities

Noninterest-Bearing Liabilities

Total Liabilities

Stockholders' Equity

Total Liabilities and Stockholders' Equity

Net Interest Income

Net Interest Rate Spread (1)

Net Interest-Earning Assets (2)

Net Interest Margin (3)

Average Interest-Earning Assets to

Average Interest-Bearing Liabilities

________________

interest rate spread represents the difference between the weighted average yield on

interest-earning assets and the weighted average cost of interest-bearing liabilities.

interest-earning assets represent total interest-earning assets less total interest-bearing

interest margin represents net interest income divided by average total interest-earning

Rate/Volume Analysis

The following table presents the effects

of changing rates and volumes on our net interest income for the years indicated.

The rate column shows the effects attributable

to changes in rate (changes in rate multiplied by prior volume).

The volume column shows the effects attributable to changes in

volume (changes in volume multiplied by prior rate).

The total column represents the sum of the prior columns.

For purposes of

this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based

on the changes due to rate and the changes due to volume.

(Dollars in thousands)

Year Ended December 31, 2019

Year Ended December 31, 2018

Year Ended December 31, 2017

Increase (Decrease) Due to

Interest and Dividend Income:

Investment Securities:

Other Interest-Earning Assets

Total Interest-Earning Assets

Interest Expense:

Total Interest-Bearing Liabilities

Change in Net Interest Income

Liquidity and Capital Resources

Liquidity is the ability to meet current

and future financial obligations of a short-term nature.

The Bank’s primary sources of funds consist of deposit inflows,

loan repayments, and maturities and sales of securities.

While maturities and scheduled amortization of loans and securities are

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

conditions and competition.

The Bank regularly adjusts its investments

in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning

deposits and securities, and the objectives of its asset/liability management program.

Excess liquid assets are invested generally

in interest-earning deposits with other banks and short- and intermediate-term securities.

The Bank believes that it had sufficient

liquidity at December 31, 2019, to satisfy its short- and long-term liquidity needs at that date.

The Bank’s most liquid assets are

cash and due, from banks, which totaled $80.2 million at December 31, 2019.

Unpledged securities, which provide an additional source

of liquidity, totaled $44.5 million.

In addition, the Bank maintains a credit arrangement with the FHLB with a maximum borrowing

limit of approximately $374.8 million as of December 31, 2019, of which $41.7 million was utilized toward standby letters of credit

and $14.0 million was utilized for advances.

This arrangement is subject to annual renewal, incurs no service charge, and is secured

by a blanket security agreement on outstanding residential and commercial mortgage loans and the Bank’s investment in FHLB

The Bank also maintains 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 as of December 31, 2019.

At December 31, 2019, the Bank had funding

commitments totaling $240.1 million, consisting primarily of commitments to originate loans, unused lines of credit and letters

At December 31, 2019, certificates of deposit

due within one year of that date totaled $83.6 million, or 38.1% of total certificates of deposit.

If these certificates of deposit

do not remain with the Bank, the Bank will be required to seek other sources of funds.

Depending on market conditions, the Bank

may be required to pay higher rates on such deposits or other borrowings than it currently pays on these certificates of deposit.

The Bank believes, however, based on past experience that a significant portion of its certificates of deposit will remain with

it, either as certificates of deposit or as other deposit products.

The Bank can attract and retain deposits by adjusting the interest

rates offered.

The Bank’s primary investing activities

are the origination of loans and the purchase of securities.

For the year ended December 31, 2019, the Bank originated $357.4 million

in loans compared to $383.7 million for the year ended December 31, 2018.

The Company is a separate legal entity

from the Bank and must provide for its own liquidity to pay dividends to stockholders and for other corporate purposes.

31, 2019, the Company (on an unconsolidated basis) had liquid assets of $6.4 million.

We are committed to maintaining a strong

liquidity position.

We monitor our liquidity position daily and anticipate that we will have sufficient funds to meet our current

funding commitments.

Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion

of maturing time deposits will be retained.

At December 31, 2019 and 2018, respectively,

the Bank was categorized as well-capitalized.

Management is not aware of any conditions or events that would change our category.

The Bank’s actual capital ratios are presented in the following table.

The Company’s capital ratios are comparable

to those shown for the Bank.

(Dollars in thousands)

December 31, 2019

December 31, 2018

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

For Capital Adequacy Purposes

To Be Well Capitalized

Tier I Capital (to Risk-Weighted Assets)

For Capital Adequacy Purposes

To Be Well Capitalized

Total Capital (to Risk-Weighted Assets)

For Capital Adequacy Purposes

To Be Well Capitalized

Tier I Leverage Capital (to Adjusted Total Assets)

For Capital Adequacy Purposes

To Be Well Capitalized

Off-Balance Sheet Arrangements and Contractual Obligations

As a financial

services provider, the Company routinely is a party to various financial instruments with off-balance-sheet risks, such as commitments

to extend credit, commitments under unused lines of credit, and commitments under letters of credit.

While these contractual obligations

represent potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn

Such commitments are subject to the same credit policies and approval process accorded to loans the Company makes.

the Company enters into commitments to sell mortgage loans.

Contractual Obligations.

In the ordinary course of its operations, the Company enters into certain contractual obligations.

Such obligations include operating

leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities and agreements with respect

to investments.

The following tables present certain of

our contractual obligations at December 31, 2019.

(Dollars in thousands)

Payment Due by Period

Certificates of deposit

Operating lease obligations

Impact of Inflation and Changing Price

The consolidated financial statements and

related notes of the Company have been prepared in accordance with GAAP.

GAAP generally requires the measurement of financial position

and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money

over time due to inflation.

The impact of inflation is reflected in the increased cost of the Company’s operations.

industrial companies, the Company’s assets and liabilities are primarily monetary in nature.

As a result, changes in market

interest rates have a greater impact on performance than the effects of inflation.

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

(2) Represents net interest income as a percentage of average interest-earning assets.

(3) Fully taxable-equivalent (FTE) yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21% for the years ended December 31, 2020, 2019 and 2018, and 34% for the years ended December 31, 2017, 2016.

Refer to Explanation of Use of Non-GAAP Financial Measures in Item 7 of this Report.

(4) Represents noninterest expense divided by the sum of net interest income and noninterest income.

(5) Represents dividends per share divided by net income per share.

(6) Capital ratios are for Community Bank only.

(7) Loans acquired in connection with previous 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.

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 5. Market for Registrant’s Common Equity