What changed in this filing

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Item 9A. Controls and Procedures

2021-03-17 compared with 2020-03-11 · 1254 added, 1595 removed, 513 unchanged (85% of the section changed)

1 unchanged sentence

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer

and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019.

The term “disclosure controls and procedures,”

as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange

Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to

ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is

recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be

disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s

management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding

required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide

only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost

benefit relationship of possible controls and procedures.

Based on this evaluation, management concluded that the Company’s

disclosure controls and procedures were effective as of December 31, 2019.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.

Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC

(1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

(b) Internal Control Over Financial Reporting

The Company’s management is responsible

for establishing and maintaining adequate internal control over financial reporting.

The internal control process has been designed

under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the

Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted

in the United States of America.

Management conducted an assessment of the effectiveness of the Company’s

internal control over financial reporting as of December 31, 2019, utilizing the framework established in the 2013 Internal Control

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on management’s

assessment, the Company concluded that the Company’s internal control over financial reporting was effective as of December

31, 2019, based on that framework.

The Company’s independent registered

public accounting firm that audited the Company’s consolidated financial statements included in this annual report has issued

an attestation report on the Company’s internal control over financial reporting as of December 31, 2019.

This attestation

report appears under Part II, Item 8 of this annual report.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.

The internal control process has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, utilizing the framework established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on management’s assessment, the Company concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020, based on that framework.

There have been no changes in the Company’s internal control

over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the three months

ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal

control over financial reporting.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Other Information

Directors, Executive Officers and Corporate Governance

Information required by this item is incorporated

by reference in the Proxy Statement for the 2020 Annual Meeting.

Information required by this item is incorporated by reference in the Proxy Statement for the 2021 Annual Meeting.

Executive Compensation

Information required by this item is incorporated

by reference in the Proxy Statement for the 2020 Annual Meeting.

Information required by this item is incorporated by reference in the Proxy Statement for the 2021 Annual Meeting.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by this item is incorporated

by reference in the Proxy Statement for the 2020 Annual Meeting.

Information required by this item is incorporated by reference in the Proxy Statement for the 2021 Annual Meeting.

Certain Relationships and Related Transactions and Director Independence

Information required by this item is incorporated

by reference in the Proxy Statement for the 2020 Annual Meeting.

Information required by this item is incorporated by reference in the Proxy Statement for the 2021 Annual Meeting.

Principal Accountant Fees and Services

Information required by this item is incorporated

by reference in the Proxy Statement for the 2020 Annual Meeting.

Information required by this item is incorporated by reference in the Proxy Statement for the 2021 Annual Meeting.

Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The financial statements filed

as a part of this Form 10-K are:

of Independent Registered Public Accounting Firm;

(B) Consolidated

Statement of Financial Condition at December 31, 2019 and 2018;

Statement of Income for the Years Ended December 31, 2019 and 2018;

The financial statements filed as a part of this Form 10-K are:

(A) Report of Independent Registered Public Accounting Firm;

(B) Consolidated Statement of Financial Condition at December 31, 2020 and 2019;

(D) Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2020 and 2019;

(E) Consolidated Statement of Changes in Stockholders’

Equity for the Years Ended December 31, 2019 and 2018;

(F) Consolidated

Statement of Cash Flows for the Years Ended December 31, 2019 and 2018;

to Consolidated Financial Statements.

(E) Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2020 and 2019;

(F) Consolidated Statement of Cash Flows for the Years Ended December 31, 2020 and 2019;

(G) Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules

All financial statement schedules

have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.

All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.

(a)(3) Exhibits

2 unchanged sentences

4.1 Form of Stock Certificate of CB Financial Services, Inc.

10.1 Employment Agreement by and among CB Financial Services, Inc., Community Bank and Barron P.

4.2 Description of Registrant's Securities

10.1 Employment Agreement by and between Community Bank and John H.

Montgomery (3 )

10.2 Employment Agreement by and between Community Bank and Ralph Burchianti ( 4 )

10.3 Employment Agreement by and between Community Bank and Ralph J.

10.3 Employment Agreement by and between Community Bank and Jamie L.

10.5 Separation and Release Agreement by and among CB Financial Services, Inc., between Community Bank and Patrick G.

O’Brien

10.4 Employment Agreement by and among Community Bank, Exchange Underwriters, Inc., and Richard B.

Boyer dated April 14, 2014 (1)

10.7 Split Dollar Life Insurance Agreement by and between Community Bank and Barron P.

McCune, Jr., dated April 1, 2005 (1)

10.5 Employment Agreement by and between Community Bank and Ralph J.

10.6 E xecutive Consultant Agreement by and among CB Financial Services, Inc., Community Bank and Barron P.

10.7 Separation and Release Agreement by and among CB Financial Services, Inc., between Community Bank and Patrick G.

O’Brien ( 8 )

10.8 Split Dollar Life Insurance Agreement by and between Community Bank and John H.

Montgomery , dated November 2, 2020 ( 9 )

10.9 Split Dollar Life Insurance Agreement by and between Community Bank and Ralph Burchianti dated April 1, 2005 (1)

10.10 Split Dollar Life Insurance Agreement dated as of June 1, 2002, by and between First Federal Savings Bank and Richard B.

10.11 Amendment dated as of July 19, 2002, to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between First Federal Savings Bank and Richard B.

10.12 Amendment dated as of September 13, 2005, to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between First Federal Savings Bank and Richard B.

10.13 Split Dollar Life Insurance Agreement by and between Community Bank and Ralph J.

Sommers, Jr., dated April 1, 2005 (1)

10.10 Split Dollar Life Insurance Agreement dated as of June 1, 2002, by and between First Federal Savings Bank and Richard

10.11 Amendment dated as of July 19, 2002, to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between

First Federal Savings Bank and Richard B.

10.12 Amendment dated as of September 13, 2005, to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and

between First Federal Savings Bank and Richard B.

10.14 Split Dollar Life Insurance Agreement by and between Community Bank and Barron P.

McCune, Jr., dated April 1, 2005 (1)

10.15 CB Financial Services, Inc., 2015 Equity Incentive Plan (1 3 )

10.14 Agreement and Plan of Merger by and between CB Financial Services, Inc.

and First West Virginia Bancorp, Inc.

21 Subsidiaries

23 Consent of Baker Tilly Virchow Krause LLP

23 Consent of Baker Tilly US , LLP

31.1 Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

2 unchanged sentences

101.0 The following materials for the year ended December 31, 2020, formatted in XBRL (Extensible Business Reporting Language):

the Consolidated Statement of Financial Condition, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement

of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’

Equity, (v) the Consolidated Statement

of Cash Flows and (vi) the Notes to the Audited Consolidated Financial Statements.

(1) Incorporated herein by reference

to the Exhibits to the Company’s Registration Statement on Form S-4 filed with

the Securities and Exchange Commission on June 13, 2014 (File No.

(2) Incorporated herein by reference

to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on January 9,

(3) Incorporated herein by reference

to Exhibit 10.3 to the Company’s Form 10-K for the year ended December 31, 2014,

filed on March 26, 2015.

(4) Incorporated herein by reference

to Exhibit 10.4 to the Company’s Form 10-K for the year ended December 31, 2014,

filed on March 26, 2015.

(5) Incorporated herein by reference

to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 24, 2020.

(6) Incorporated by reference to

Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 9, 2020.

(7) Incorporated herein by reference

to Exhibit 10.11 to FedFirst Financial Corporation’s Registration Statement on

Form SB-2, as amended (File No.

(i) the Consolidated Statement of Financial Condition, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to the Audited Consolidated Financial Statements.

104 Cover Page Interactive Data File (embedded in Inline XBRL contained in Exhibit 101)

(1) Incorporated herein by reference to the Exhibits to the Company’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on June 13, 2014 (File No.

(2) Incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 20, 2020.

(3) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on August 14, 2020.

(4) Incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-K for the year ended December 31, 2014, filed on March 26, 2015.

(5) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 24, 2020.

(6) Incorporated herein by reference to Exhibit 10.4 to the Company’s Form 10-K for the year ended December 31, 2014, filed on March 26, 2015.

(7) Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on August 14, 2020.

(8) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 9, 2020.

(9) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 6, 2020.

(10) Incorporated herein by reference to Exhibit 10.11 to FedFirst Financial Corporation’s Registration Statement on Form SB-2, as amended (File No.

333-121405), initially filed on December 17, 2004.

(8) Incorporated herein by reference

to Exhibit 10.2 to FedFirst Financial Corporation’s Quarterly Report on Form 10-Q

for the quarter ended March 31, 2008, filed on May 9, 2008.

(9) Incorporated herein by reference

to Exhibit 10.4 to FedFirst Financial Corporation’s Quarterly Report on Form 10-Q

for the quarter ended March 31, 2008, filed on May 9, 2008.

(10) Incorporated herein by reference

to Appendix A to the Company’s Definitive Proxy Statement, filed on April 16, 2015.

(11) Incorporated herein by reference

to the Company’s Current Report on Form 8-K, filed on November 16, 2017.

(11) Incorporated herein by reference to Exhibit 10.2 to FedFirst Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 9, 2008.

(12) Incorporated herein by reference to Exhibit 10.4 to FedFirst Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 9, 2008.

(13) Incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement, filed on April 16, 2015.

Form 10-K Summary

Not applicable.

Pursuant to the requirements of Section

13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the

undersigned, thereunto duly authorized.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

CB FINANCIAL SERVICES, INC.

March 11, 2020

/s/ Barron P.

March 17, 2021 By:

President and Chief Executive Officer

(Principal Executive Officer)

Pursuant to the requirements of the Securities

Exchange of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities

and on the dates indicated.

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

March 11, 2020

Director (Chairman of the Board)

Pursuant to the requirements of the Securities Exchange of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Montgomery By:

Montgomery Jamie L.

President and Chief Executive Officer and Executive Vice President and Chief Financial Officer

Director (Principal Financial Officer)

March 17, 2021 Date:

March 17, 2021

/s/ Charles R.

Fox Charles R.

Director (Chairman of the Board) Director (Vice Chairman of the Board)

March 17, 2021 Date:

March 17, 2021

/s/ Jonathan A.

/s/ Richard B.

Baily Jonathan A.

Director Director

March 17, 2021 Date:

March 17, 2021

/s/ Richard B.

/s/ Ralph Burchianti

Ralph Burchianti

Senior Executive Vice President and

Chief Credit Officer and Director

March 11, 2020

/s/ Charles R.

Director (Vice Chairman of the Board)

March 11, 2020

Boyer Ralph Burchianti

Director Senior Executive Vice President and

March 17, 2021 Chief Credit Officer and Director

March 17, 2021

Robinson Olejasz

Roberta Robinson Olejasz

/s/ William C.

/s/ Joseph N.

Groves Joseph N.

Director Director

March 17, 2021 Date:

March 17, 2021

/s/ Roberta Robinson Olejasz

LaCarte Roberta Robinson Olejasz

Director Director

March 17, 2021 Date:

March 17, 2021

/s/ William G.

March 11, 2020

Petroplus By:

Petroplus David F.

Director Director

March 17, 2021 Date:

March 17, 2021

Director Director

March 17, 2021 Date:

March 17, 2021

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

Consolidated Statement of Financial Condition at December 31, 2019 and 2018

Consolidated Statement of Income for the Years Ended December 31, 2019 and 2018

Consolidated Statement of F inancia l Condition a t December 31, 2020 and 2019

Consolidated Statement of Operations for the Years Ended December 31, 2020 and 2019

Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2020 and 2019

2 unchanged sentences

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

CB Financial Services, Inc.

Opinions on the Financial Statements and Internal Controls Over

Financial Reporting

We have audited the accompanying consolidated statements of financial

condition of CB Financial Services, Inc.

and Subsidiary (the "Company") as of December 31, 2019 and 2018, and the related

consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows, for the years then ended,

and the related notes (collectively referred to as the "consolidated financial statements").

We also have audited the

Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal

Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission

In our opinion, the consolidated financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations

and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting

as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by

Basis for Opinions

The Company’s management is responsible for these consolidated

financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness

of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial

Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the

Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with

the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect

to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and

Exchange Commission and the PCAOB.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of CB Financial Services, Inc.

and Subsidiary (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders' equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial

statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial

reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures

to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing

procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and

disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,

assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal

control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the

circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process

designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements

for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial

reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately

and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions

are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,

and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors

of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,

or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial

reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject

to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies

or procedures may deteriorate.

/s/ Baker Tilly Virchow Krause, LLP

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance For Loan Losses – Qualitative Factors – Refer to Notes 1 and 4 to the Consolidated Financial Statements

Critical Audit Matter Description

As disclosed in Note 4 to the Company's consolidated financial statements, the Company's loan portfolio totaled $1,044,753,000 as of December 31, 2020, and the related allowance for loan losses was $12,771,000.

As described in Note 1 and 4, the allowance for loan losses consists of two components:

(1) the specific component, consisting of the valuation allowance for loans individually evaluated for impairment (“specific component”), representing $649,000;

and (2) the general component, consisting of the valuation allowance for pools of loans with similar risk characteristics collectively evaluated for impairment (“general component”), representing $12,122,000.

The general component is further broken down between reserves assigned to each pool of loans based on both historical net charge-off experience ($2,098,000), and qualitative and environmental factors ($10,024,000) (“qualitative factors”) for changes not reflected in the historical loss experience.

The determination of the qualitative factors adjustments involves significant estimates based on subjective assumptions that require a high degree of management judgment relating to how those assumptions impact probable incurred credit losses within the loan portfolio.

Management has designed and evaluated the following qualitative factors:

(1) levels and trends in delinquency and impaired loans;

(2) levels and trends in net charge-offs, (3) trends in volume and terms of loans;

(4) change in underwriting, policies, procedures, practices and key personnel;

(5) national and local economic trends;

(6) industry conditions,

and (7) effects of changes in high-risk credit circumstances.

Changes in these assumptions could have a material effect on the allowance for loan losses.

The allowance for loan losses is an accounting estimate with significant measurement uncertainty and involves the application of significant judgment by management.

Therefore, a high degree of auditor judgment and significant auditor effort was required in evaluating the audit evidence obtained related to the qualitative factor adjustments used by management in the calculation.

We identified the estimate of the general reserves qualitative factors of the allowance for loan losses as a critical audit matter as it involved especially subjective auditor judgment.

How the Critical Audit Matter was Addressed in the Audit

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of internal controls relating to the evaluation of the assumptions and inputs used to evaluate the qualitative loss factors, including controls addressing:

◦ Management's review of the underlying data inputs used in the determination of qualitative loss factor adjustments for completeness and accuracy.

◦ Management's determination of impaired loans that have been excluded from the general reserve component of the allowance for loan losses.

◦ Management's review of the conclusions reached related to the qualitative and quantitative loss factors and the resulting allocation to the allowance for loan losses.

• Substantively testing the appropriateness of the judgments and assumptions used in management's estimation process for developing the qualitative loss factor adjustments, including:

◦ Assessing whether all relevant factors have been considered that affect the collectability of the loan portfolio.

◦ Evaluating the completeness, accuracy, and relevance of underlying internal and external data inputs used as a basis for the qualitative loss factor adjustments and corroborating these inputs by comparing to the Company's lending practices, historical loan portfolio performance, and third-party macroeconomic data.

◦ Evaluating the propriety of impaired loans excluded from the general reserve component of the allowance for loan losses.

◦ Testing the mathematical accuracy of the allocation of qualitative loss factors to the appropriate loan categories.

Goodwill Impairment Evaluation – Refer to Notes 1 and 6 to the Consolidated Financial Statements

Critical Audit Matter Description

For the year ended December 31, 2020, the Company recorded a pre-tax goodwill impairment charge of $18.7 million, which relates to the Company's community banking reporting unit.

As discussed in Notes 1 and 6 to the consolidated financial statements, goodwill is tested for impairment on the basis of community banking reporting unit at least annually, or more frequently as events occur or circumstances change.

In the third quarter of fiscal year 2020, the Company assessed relevant events and circumstances and determined it was appropriate to perform an impairment test.

In performing the test, management used both a market capitalization approach and discounted cash flow approach to determine the estimated fair value of the community banking reporting unit.

The results of these two approaches were equally weighted at 50% each.

As a result of this analysis, management determined that the carrying value of the community banking reporting unit exceeded its fair value resulting in the recognition of a goodwill impairment charge.

Auditing management's goodwill impairment test was complex and highly judgmental due to the significant estimation required to determine the estimated fair value of the community banking reporting unit.

In particular, the fair value estimate was sensitive to significant assumptions, such as changes in the Company's financial forecast, the discount rate, cost synergies and terminal growth rate, which are affected by expectations about future market or economic conditions, including uncertainty resulting from the COVID-19 pandemic.

How the Critical Audit Matter was Addressed in the Audit

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of internal controls relating to the evaluation of the assumptions and inputs used to estimate the fair value of the Company's community banking reporting unit, including controls addressing:

◦ Management's review of the accuracy and reasonableness of the prospective financial information used in the discounted cash flow analysis.

◦ Management's evaluation of the key assumptions and inputs used by a third-party valuation specialist, including discount rate, terminal growth rate, control premium, and market comparable entities, as well as the weighting assigned to each of the valuation methodologies used to determine fair value.

• Substantively testing, with the support of auditor employed valuation specialists, the appropriateness of the judgments and assumptions used in management's estimation process for determining the fair value of the Company's community banking reporting unit including:

◦ Testing the mathematical accuracy of the calculations performed.

◦ Assessing the historical accuracy of management's financial forecasts by comparing prior budgets to actual results.

◦ Evaluating the appropriateness of the valuation methodologies used, discount rate, cost synergies, terminal growth rate, control premium, market comparable entities and overall reasonableness of the fair value calculation.

◦ Comparing the significant assumptions used by management to current industry and economic trends, current and historical performance of the community banking reporting unit, and other relevant factors.

◦ Performing sensitivity analyses to evaluate the impact that changes in the significant assumptions used by management would have on the fair value of the reporting unit.

◦ Testing management's reconciliation of the fair value of the reporting unit to the market capitalization of the Company.

/s/ Baker Tilly US, LLP

We have served as the Company's auditor since 2006.

Baker Tilly US, LLP (formerly known as Baker Tilly Virchow Krause, LLP)

Pittsburgh, Pennsylvania

1 unchanged sentence

Consolidated Statement of Financial Condition

December 31, 2020 2019

(Dollars in Thousands, except per share and share data)

3 unchanged sentences

Total Cash and Due From Banks 160,911 80,217

Investment Securities Available-for-Sale

Loans (Net of Allowance for Loan Losses of $9,867 and $9,558 at December 31, 2019 and December 31, 2018, Respectively)

Available-for-Sale Debt Securities, at Fair Value 142,897 194,675

Equity Securities, at Fair Value 2,503 2,710

Total Securities 145,400 197,385

Loans (Net of Allowance for Loan Losses of $ 12,771 and $ 9,867 at December 31, 2020 and 2019, Respectively)

1,031,982 942,629

Premises and Equipment, Net 20,302 22,282

Bank-Owned Life Insurance 24,779 24,222

Core Deposit Intangible

Accrued Interest and Other Assets

Goodwill 9,732 28,425

Intangible Assets, Net 8,399 10,527

Accrued Interest Receivable and Other Assets 15,215 15,850

TOTAL ASSETS $ 1,416,720 $ 1,321,537

Demand Deposits $ 340,569 $ 267,152

NOW Accounts 259,870 232,099

Money Market Accounts 199,029 182,428

4 unchanged sentences

Other Borrowed Funds 8,000 14,000

Accrued Interest and Other Liabilities

Accrued Interest Payable and Other Liabilities 8,566 7,510

TOTAL LIABILITIES 1,282,190 1,170,440

3 unchanged sentences

Common Stock, $ 0.4167 Par Value;

35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,463,828 and 5,432,289 Shares Outstanding at December 31, 2019 and December 31, 2018, Respectively

35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,434,374 and 5,463,828 Shares Outstanding, Respectively

Capital Surplus 82,723 82,971

Retained Earnings 51,132 66,955

Treasury Stock, at Cost (217,165 and 248,704 Shares at December 31, 2019 and December 31, 2018, Respectively)

Accumulated Other Comprehensive Income (Loss)

Treasury Stock, at Cost ( 246,619 and 217,165 Shares, Respectively)

( 5,094 ) ( 3,842 )

Accumulated Other Comprehensive Income 3,402 2,646

TOTAL STOCKHOLDERS' EQUITY 134,530 151,097

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,416,720 $ 1,321,537

The accompanying notes are an integral part of these consolidated

financial statements

Consolidated Statement of Income

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

Consolidated Statement of Operations

Year Ended December 31, 2020 2019

(Dollars in Thousands, except per share and share data)

Years Ended December 31,

INTEREST AND DIVIDEND INCOME

Loans, Including Fees $ 42,883 $ 43,176

Investment Securities:

Taxable 3,619 5,649

Tax-Exempt 369 608

Dividends 79 86

Other Interest and Dividend Income 517 1,512

1 unchanged sentence

INTEREST EXPENSE

Deposits 5,172 7,303

Short-Term Borrowings 137 187

9 unchanged sentences

Net Gain on Sales of Loans 1,391 266

Net Loss on Sales of Investment Securities

Fair Value of Marketable Equity Securities

Net Gain on Securities 233 140

Net Gain on Purchased Tax Credits 62 35

Net Gain (Loss) on Disposal of Fixed Assets

Net (Loss) Gain on Disposal of Fixed Assets ( 61 ) 2

Income from Bank-Owned Life Insurance 557 550

Other (Loss) Income ( 274 ) 186

TOTAL NONINTEREST INCOME 9,471 8,567

1 unchanged sentence

Salaries and Employee Benefits 19,809 19,313

Occupancy 2,797 2,685

Equipment 935 1,102

Data Processing 1,843 1,583

FDIC Assessment 837 411

1 unchanged sentence

Contracted Services 2,048 1,261

Bankcard Processing Expense

Legal Fees 752 688

Advertising 664 731

Other Real Estate Owned (Income) ( 69 ) ( 103 )

Amortization of Core Deposit Intangible 2,128 2,127

Merger-Related

Goodwill Impairment 18,693 —

Writedown of Fixed Assets 1,124 —

Other 3,893 4,163

TOTAL NONINTEREST EXPENSE 56,767 34,960

Income Before Income Tax Expense

(Loss) Income Before Income Tax Expense ( 9,392 ) 16,056

Income Tax Expense 1,248 1,729

EARNINGS PER SHARE

NET (LOSS) INCOME $ ( 10,640 ) $ 14,327

(LOSS) EARNINGS PER SHARE

Basic $ ( 1.97 ) $ 2.64

Diluted ( 1.97 ) 2.63

WEIGHTED AVERAGE SHARES OUTSTANDING

The accompanying notes are an integral part of these consolidated

financial statements

Consolidated Statement of Comprehensive Income

Basic 5,406,290 5,434,649

Diluted 5,406,290 5,448,761

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

Consolidated Statement of Comprehensive (Loss) Income

Year Ended December 31, 2020 2019

(Dollars in Thousands)

Years Ended December 31,

Other Comprehensive Income (Loss):

Unrealized Gains (Losses) on Available-for-Sale Securities Net of Income

Tax Expense (Benefit) of $1,104 and ($29) for the Year Ended December 31, 2019 and 2018, Respectively

Reclassification Adjustment for Losses on Securities:

Included in Net Income, Net of Income Tax Benefit of $11 for the Year Ended December 31, 2019 (1)

Other Comprehensive Income (Loss)

Total Comprehensive Income

(1) The gross amount of loss on securities of $50 for the year ended December 31, 2019 are reported as Net Loss on Sales of Investments

on the Consolidated Statement of Income.

The income tax benefit of $11 for the year ended December 31, 2019 is included in Income

Taxes on the Consolidated Statement of Income.

The accompanying notes are an integral part of these consolidated

financial statements

Net (Loss) Income $ ( 10,640 ) $ 14,327

Other Comprehensive Income:

Change in Unrealized Gain on Available-for-Sale Debt Securities 1,446 5,151

Income Tax Effect ( 304 ) ( 1,104 )

Reclassification Adjustment for (Gain) Loss on Sale of Debt Securities Included in Net (Loss) Income (1)

Income Tax Effect (2)

Other Comprehensive Income, Net of Income Tax Effect 756 4,086

Total Comprehensive (Loss) Income $ ( 9,884 ) $ 18,413

(1) Reported in Net Gain on Securities on the Consolidated Statement of Operations.

(2) Reported in Income Taxes on the Consolidated Statement of Operations.

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

Consolidated Statement of Changes in Stockholders’ Equity

(Dollars in thousands, except per share and share data)

Issued Common

Stock Capital

Surplus Retained

Earnings Treasury

Stock Accumulated

Comprehensive

Income (Loss)

Income (Loss) Total

(Dollars in Thousands, Except Per Share and Share Data)

December 31, 2018 5,680,993 2,367 $ 83,225 57,843 $ ( 4,370 ) $ ( 1,440 ) $ 137,625

Other Comprehensive Loss

Impact of Change in Method of Accounting for Marketable Equity Securities (1)

Issuance of Common Stock (Net of Issuance Expenses of $515) (2)

Net Income — — — 14,327 — — 14,327

Other Comprehensive Income — — — — — 4,086 4,086

Restricted Stock Awards Forfeited — — 8 — ( 8 ) — —

Restricted Stock Awards Granted — — ( 590 ) — 590 — —

1 unchanged sentence

Exercise of Stock Options — — 5 — 17 — 22

Dividends Declared ($0.89 per share)

Treasury Stock Purchased, at Cost ( 2,411 shares)

— — — — ( 71 ) — ( 71 )

Dividends Declared ($ 0.96 per share)

— — — ( 5,215 ) — — ( 5,215 )

December 31, 2019 5,680,993 2,367 82,971 66,955 ( 3,842 ) 2,646 151,097

Net Loss — — — ( 10,640 ) — — ( 10,640 )

Other Comprehensive Income — — — — — 756 756

Restricted Stock Awards Granted

Restricted Stock Awards Forfeited — — 119 — ( 119 ) — —

Restricted Stock Awards Granted — — ( 869 ) — 869 — —

Stock-Based Compensation Expense — — 498 — — — 498

Exercise of Stock Options — — 4 — ( 82 ) — ( 78 )

Dividends Declared ($0.96 per share)

Treasury Stock Purchased, at Cost ( 68,434 shares)

— — — — ( 1,920 ) — ( 1,920 )

Dividends Declared ($ 0.96 per share)

— — — ( 5,183 ) — — ( 5,183 )

December 31, 2020 5,680,993 $ 2,367 $ 82,723 $ 51,132 $ ( 5,094 ) $ 3,402 $ 134,530

(1) This reclassification is the result of the Company’s adoption of FASB ASU 2016-01, Financial Instruments – Overall

(Subtopic 825-10).

See Note 1 for additional information.

(2) Issuance of common stock was related to the merger with First West Virginia Bancorp, Inc.

See Note 2 - Merger for additional

The accompanying notes are an integral part of these consolidated

financial statements

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

Consolidated Statement of Cash Flows

Year Ended December 31, 2020 2019

(Dollars in Thousands)

Years Ended December 31,

OPERATING ACTIVITIES

Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities, Net of the Effects of Acquisition:

Net (Accretion) Amortization on Investments

Net (Loss) Income $ ( 10,640 ) $ 14,327

Adjustments to Reconcile Net (Loss) Income to Net Cash Provided By Operating Activities:

Net Amortization (Accretion) on Securities 24 ( 182 )

Depreciation and Amortization 3,340 3,728

Provision for Loan Losses 4,000 725

(Gain) Loss on Marketable Equity Securities

Goodwill Impairment 18,693 —

Writedown on Fixed Assets 1,124 —

Loss (Gain) on Equity Securities 267 ( 190 )

(Gain) Loss on Securities ( 500 ) 50

Gain on Purchased Tax Credits ( 62 ) ( 35 )

3 unchanged sentences

Gain on Sales of Loans ( 1,391 ) ( 266 )

Loss on Sales of Investment Securities

Loss (Gain) on Sales of Other Real Estate Owned and Repossessed Assets

Loss on Sales of Other Real Estate Owned 18 6

Noncash Expense for Stock-Based Compensation 498 323

Decrease (Increase) in Accrued Interest Receivable

(Gain) Loss on Disposal of Fixed Assets

Increase (Decrease) in Deferred Income Tax

Increase (Decrease) in Taxes Payable

Increase in Accrued Interest Payable

(Increase) Decrease in Accrued Interest Receivable ( 575 ) 139

Loss (Gain) on Disposal of Fixed Assets 61 ( 2 )

Decrease in Deferred Income Tax ( 237 ) ( 614 )

(Decrease) Increase in Taxes Payable ( 858 ) 411

Payments on Operating Leases ( 515 ) ( 418 )

(Decrease) Increase in Accrued Interest Payable ( 220 ) 393

Other, Net 216 ( 241 )

NET CASH PROVIDED BY OPERATING ACTIVITIES 14,077 17,870

INVESTING ACTIVITIES

Investment Securities Available for Sale:

Securities Available for Sale:

Proceeds From Principal Repayments and Maturities 104,111 54,289

3 unchanged sentences

Purchase of Premises and Equipment ( 322 ) ( 48 )

Proceeds from Disposal of Premises and Equipment 26 —

Asset Acquisition of a Customer List — ( 900 )

Proceeds From a Claim on Bank-Owned Life Insurance

Proceeds From Sales of Other Real Estate Owned and Repossessed Assets

Proceeds From Sales of Other Real Estate Owned 171 1,135

Decrease in Restricted Equity Securities ( 328 ) 253

Net Cash Received from Acquisition

Acquisition of Bank-Owned Life Insurance — ( 750 )

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

NET CASH USED IN INVESTING ACTIVITIES ( 36,896 ) ( 11,035 )

FINANCING ACTIVITIES

Net Increase in Deposits 106,210 31,701

Net Decrease in Short-Term Borrowings

Net Increase (Decrease) in Short-Term Borrowings 10,484 ( 408 )

Principal Payments on Other Borrowed Funds ( 6,000 ) ( 6,000 )

2 unchanged sentences

Exercise of Stock Options ( 78 ) 22

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET CASH PROVIDED BY FINANCING ACTIVITIES 103,513 20,029

INCREASE IN CASH AND CASH EQUIVALENTS 80,694 26,864

CASH AND DUE FROM BANKS AT BEGINNING OF YEAR

CASH AND DUE FROM BANKS AT END OF YEAR

CASH AND DUE FROM BANKS AT BEGINNING OF THE YEAR 80,217 53,353

CASH AND DUE FROM BANKS AT END OF THE YEAR $ 160,911 $ 80,217

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

SUPPLEMENTAL CASH FLOW INFORMATION:

1 unchanged sentence

Interest on Deposits and Borrowings (Including Interest Credited to Deposit Accounts of $ 5,384 and $ 6,903 , Respectively)

$ 5,783 $ 7,464

Income Taxes 3,010 2,785

SUPPLEMENTAL NONCASH DISCLOSURE:

Real Estate Acquired in Settlement of Loans 165 457

Accrued Payable for an Acquisition of a Customer List

Right of Use Asset Recognized

Lease Liability Recognized

Non-cash Transaction for Income Tax Receivable 1,311 —

Non-cash Transaction Related to Loan Payoff Receivable — 3,490

Non-cash Transactions Related to FWVB Acquisition

The accompanying notes are an integral part of these consolidated

financial statements

Right of Use ("ROU") Asset Recognized 435 1,706

Lease Liability Recognized 435 1,712

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of CB Financial

Services, Inc., and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly owned subsidiary,

Exchange Underwriters, Inc.

The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc., and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly owned subsidiary, Exchange Underwriters, Inc.

(“Exchange Underwriters” or “EU”).

CB Financial Services, Inc.

and Community

Bank are collectively referred to as the “Company.” All intercompany transactions and balances have been eliminated

in consolidation.

CB Financial Services, Inc., Community Bank and Exchange Underwriters, Inc.

are collectively referred to as the “Company.” All intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations

The Company derives substantially all its income from banking and bank-related services

which include interest earnings on commercial, commercial mortgage, residential real estate and consumer loan financing, as well

as interest earnings on investment securities, insurance commissions and fees generated from deposit services to its customers.

The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered

in Carmichaels, Pennsylvania.

The Bank operates from sixteen offices in Greene, Allegheny, Washington, Fayette and Westmoreland

Counties in southwestern Pennsylvania, seven offices in Brooke, Marshall, Ohio, Upshur and Wetzel Counties in West Virginia, and

one office in Belmont County in Ohio.

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

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

in its market area.

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

Underwriters, a full-service, independent insurance agency.

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

Through the merger, the Company experienced revenue and earnings growth through expansion of the Company’s business

footprint into the Ohio Valley.

The merger added seven branches in West Virginia and one branch in Eastern Ohio.

In connection

with the merger, the Company issued 1,317,647 shares of common stock and paid cash consideration of $9.8 million.

The merger value

was $51.3 million.

See Note 2 – Merger for additional information.

The Company has evaluated events and transactions occurring subsequent to the balance

sheet date of December 31, 2019 through the date the consolidated financial statements are being issued for items that should potentially

be recognized or disclosed in these consolidated financial statements.

The Company derives substantially all its income from banking and bank-related services which include interest income on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest and dividend income on securities, insurance commissions, and fees generated from deposit services to its customers.

The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania.

The Bank operates from 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.

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

Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, a full-service, independent insurance agency.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2020 through the date the consolidated financial statements are being issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

As previously disclosed by the Company 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 evolving changes in consumer preferences, largely driven by the global pandemic, led to an acceleration of branch optimization efforts.

The branch optimization, which is expected to be completed in 2021, will result in the Company incurring restructuring related expenses predominantly from branch consolidations, lease termination and severance costs.

Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with

accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and with general practice within

the banking industry.

In preparing the financial statements, management is required to make estimates and assumptions that affect

the reported amounts of assets and liabilities as of the date of the Consolidated Statement of Financial Condition, and revenues

and expenses for the period.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and with general practice within the banking industry.

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statement of Financial Condition, and income and expenses for the period.

Actual results could differ significantly from those estimates.

Material estimates that are particularly

susceptible to significant change in the near term relate to fair value of investment securities available for sale, determination

of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction

of loans, other-than-temporary impairment evaluations of securities, the valuation of deferred tax assets and the evaluation of

goodwill and core deposit intangible impairment.

Revenue Recognition

Income on loans and investments is recognized as earned on the accrual method.

and losses on sales of mortgages are based on the difference between the selling price and the carrying value of the related mortgage

The Company generally fully satisfies its performance obligations on its contracts with

customers as services are rendered and the transaction prices are typically fixed;

charged either on a periodic basis or based

Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there

is little judgment involved in applying ASC Topic 606 that significantly affects the determination of the amount and timing of

revenue from contracts with customers.

The Company’s revenue from contracts with customers within the scope of Accounting

Standards Codification (“ASC”) Topic 606 is recognized within Noninterest Income with the exception of Other Real Estate

Owned (“OREO”) Expense (Income), which is accounted for in Noninterest Expense.

The following narrative describes the

Company’s revenue streams accounted for under the guidance of ASC Topic 606:

Material estimates that are particularly susceptible to significant change in the near term relate to fair value of securities available for sale, determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, other-than-temporary impairment evaluations of securities, the valuation of deferred tax assets and the evaluation of goodwill and core deposit intangible impairment.

Risks and Uncertainties

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.

The COVID-19 pandemic has adversely affected, and may continue to adversely affect, local, national and global economic activity.

The spread of the outbreak has caused significant disruptions to the U.S.

economy, significant reductions in the targeted federal funds rate and has disrupted banking and other financial activity in the areas in which the Company operates.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic.

On December 27, 2020, the Consolidated Appropriations Act (2021) was enacted and provides an additional $900 billion in pandemic-related relief aimed to bolster the economy, provide relief to small businesses and the unemployed, deliver additional stimulus checks to individuals and provide funding for COVID-19 testing and the administration of vaccines while also extending certain provisions of the original CARES Act stimulus package.

The reduction in interest rates and other effects of the COVID-19 pandemic may continue to materially and adversely affect the Company's financial condition and results of operations in future periods.

It is unknown how long the adverse conditions

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Service Fees on Deposits :

The Company earns fees from its deposit customers

for transaction-based, account maintenance, and overdraft services.

Transaction-based fees include services fees for ATM usage,

stop payment charges, statement production, ACH and wire fees, which are recognized into income at the occurrence of an executed

transaction and the point in time the Company fulfills the customer’s request.

Account maintenance fees, which are primarily

based on monthly maintenance activities, are earned over the course of the month, and satisfy the Company’s performance obligation.

associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company.

It is possible that estimates made in the financial statements could be materially and adversely impacted as a result of these conditions, including estimates regarding the allowance for loan losses, impairment of loans, impairment of securities and additional impairment of goodwill.

As the vaccine rollout continues, the Company continues to operate while taking steps to ensure the safety of employees and clients;

however, COVID-19 could potentially create widespread business continuity issues for the Company.

The extent to which the COVID-19 pandemic will continue to impact the Company’s business, financial condition and results of operations in future periods will depend on future developments, including the scope and duration of the pandemic and and additional actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions the Company may take as may be required by government authorities or that the Company determines is in the best interests of its employees and clients.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.

Revenue Recognition

Income on loans and securities is recognized as earned on the accrual method.

Gains and losses on sales of mortgages are based on the difference between the selling price and the carrying value of the related mortgage sold.

The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed;

charged either on a periodic basis or based on activity.

Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Accounting Standards Codification ("ASC") Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

The Company’s revenue from contracts with customers within the scope of ASC Topic 606 is recognized within Noninterest Income with the exception of Other Real Estate Owned (“OREO”) Income, which is accounted for in Noninterest Expense.

The following narrative describes the Company’s revenue streams accounted for under the guidance of ASC Topic 606:

Service Fees :

The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services.

Transaction-based fees include services fees for ATM usage, stop payment charges, statement production, ACH and wire fees, which are recognized into income at the occurrence of an executed transaction and the point in time the Company fulfills the customer’s request.

Account maintenance fees, which are primarily based on monthly maintenance activities, are earned over the course of the month, and satisfy the Company’s performance obligation.

Overdraft fees are recognized as the overdrafts on customer’s accounts are incurred.

The services fees on deposits are automatically

withdrawn from the customer’s account balance per their account agreement with the Company.

In addition, the Company earns

interchange fees from debit/credit cardholder transactions conducted through the applicable payment networks.

Interchange fees

from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently

with the transaction processing services provided to the cardholder.

The Company currently does not offer a cardholder rewards

The services fees are automatically withdrawn from the customer’s account balance per their account agreement with the Company.

In addition, the Company earns interchange fees from debit/credit cardholder transactions conducted through the applicable payment networks.

Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

The Company currently does not offer a cardholder rewards program.

Insurance Commissions :

EU derives commission and fee income from direct

and agency bill insurance policies.

EU derives commission and fee income from direct and agency bill insurance policies.

Direct bill policies are invoiced directly from the insurance company provider to the customer.

Once the customer remits payment for the policy, the insurance company provider then remits the commission or fee income to EU

on a monthly basis.

Once the customer remits payment for the policy, the insurance company provider then remits the commission or fee income to EU on a monthly basis.

Agency bill policies are invoiced from EU, the insurance underwriting agency, to the customer.

EU records the

insurance company policy payable and the commission or fee income earned on the policy.

As all insurance policies are contracts

with customers, each policy has different terms and conditions.

EU utilizes a report from their core insurance data processing program, The

Agency Manager (“TAM”), that captures all in-force policies that are active in the system and annualizes the commission

over the life of each individual contract.

The report then provides an overall commission and fee income total for the monthly

reporting financial statement period.

This income is then compared to the amount of direct and agency bill income recorded in TAM

for the reporting month and an adjustment to income is made according to the report.

This is the income recognized for the portion

of the insurance contract that has been earned by EU and subsequently the Company.

EU records the insurance company policy payable and the commission or fee income earned on the policy.

As all insurance policies are contracts with customers, each policy has different terms and conditions.

EU utilizes a report from their core insurance data processing program, The Agency Manager (“TAM”), that captures all in-force policies that are active in the system and annualizes the commission over the life of each individual contract.

The report then provides an overall commission and fee income total for the monthly reporting financial statement period.

This income is then compared to the amount of direct and agency bill income recorded in TAM for the reporting month and an adjustment to income is made according to the report.

This is the income recognized for the portion of the insurance contract that has been earned by EU and subsequently the Company.

Other Commissions :

The Company earns other commissions, such as wealth

management referral fees, check sales and safety deposit box rentals to customers.

The wealth management referral fees are earned

as a referral when a bank customer initiates a customer relationship with an associated wealth management firm.

These fees fulfill

the contract/agreement between the Company and the wealth management firm.

Check sales are recognized as customers contact the

Company for check supplies or the customer initiates the check order through the Company website to our third-party check company.

The Company earns other commissions, such as wealth management referral fees, check sales and safe deposit box rentals to customers.

The wealth management referral fees are earned as a referral when a bank customer initiates a customer relationship with an associated wealth management firm.

These fees fulfill the contract/agreement between the Company and the wealth management firm.

Check sales are recognized as customers contact the Company for check supplies or the customer initiates the check order through the Company website to our third-party check company.

These commissions are recognized as the third-party check company satisfies the contract of providing check stock to our customers.

Safe deposit box rental income is recognized on a monthly basis, per each contract agreement with our customers.

The safe deposit

box income is automatically withdrawn from the customer’s deposit account on a monthly basis as this revenue is earned by

the contract.

Safe deposit box rental income is recognized on a monthly basis, per each contract agreement with our

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The safe deposit box income is automatically withdrawn from the customer’s deposit account on a monthly basis as this revenue is earned by the contract.

Gains (Losses) on Sales of OREO :

The Company records a gain or loss

from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.

It is not common policy that the Company will finance an OREO property with the buyer.

It is the Company’s practice to sell

loan collateral recognized as an OREO property to free the Company of any additional loss exposure.

It is the Company’s practice to sell loan collateral recognized as an OREO property to free the Company of any additional loss exposure.

Operating Segments

An operating segment is defined as a component of an enterprise that engages in business

activities which generate revenue and incur expense, and the operating results of which are reviewed by management.

31, 2019, the Company’s business activities are comprised of two operating segments, which are community banking and insurance

brokerage services.

The Company has evaluated the provisions of ASC Topic 280, Segment Reporting, and determined that segment

reporting information related to EU (Insurance Brokerage Services segment) is required to be presented because the segment has

adopted a board of directors that conducts board meetings independent from the Company.

In addition, the segment comprises a significant

amount to total noninterest income, even though the segment is less than 10% of the combined assets of the Company.

– Segment Reporting for more information.

Cash and Due From Banks

Included in Cash and Due From Banks are required federal reserves of $554,000 and $1.7

million at December 31, 2019 and 2018, respectively, for facilitating the implementation of monetary policy by the Federal Reserve

The required reserves are computed by applying prescribed ratios to the classes of average deposit balances.

held in the form of cash on hand and/or balances maintained directly with the Federal Reserve Bank.

Investment Securities

Investment securities are classified at the time of purchase, based on management’s

intentions and ability, as securities held to maturity or securities available-for-sale.

Debt securities acquired with the intent

and the ability to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount, which are

computed using a level yield method and recognized as adjustments to interest income.

Unrealized holding gains and losses for available-for-sale

debt securities are reported as a separate component of stockholders’ equity, net of tax, until realized.

Unrealized holding

gains and losses for available-for-sale equity securities are recognized in earnings.

Realized securities gains and losses, if

any, are computed using the specific identification method.

Interest and dividends on investment securities are recognized as income

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Declines in the fair value of individual securities below amortized cost that are other-than-temporary

result in write-downs of the individual securities to their fair value.

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

An operating segment is defined as a component of an enterprise that engages in business activities which generate revenue and incur expense, and the operating results of which are reviewed by management.

At December 31, 2020, the Company’s business activities are comprised of two operating segments, which are community banking and insurance brokerage services.

The Company has evaluated the provisions of ASC Topic 280, Segment Reporting, and determined that segment reporting information related to EU (Insurance Brokerage Services segment) is required to be presented because the segment has adopted a board of directors that conducts board meetings independent from the Company.

In addition, the segment comprises a significant amount to total noninterest income, even though the segment is less than 10% of the combined assets of the Company.

See Note 19 – Segment Reporting and Related Information for more information.

Securities are classified at the time of purchase, based on management’s intentions and ability, as securities held to maturity or securities available-for-sale.

Debt securities acquired with the intent and the ability to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount, which are computed using a level yield method and recognized as adjustments to interest income.

Unrealized holding gains and losses for available-for-sale debt securities are reported as a separate component of stockholders’ equity, net of tax, until realized.

Equity securities are measured at fair value with the change in fair value recognized in Net Gain on Securities of the noninterest income category in the Consolidated Statement of Operations.

Realized securities gains and losses, if any, are computed using the specific identification method.

Interest and dividends on securities are recognized as income when earned.

Declines in the fair value of individual securities below amortized cost that are other-than-temporary result in write-downs of the individual securities to their fair value.

In estimating other-than-temporary impairment of 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 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).

Common stock of the Federal Home Loan Bank (“FHLB”) and of Atlantic Community

Bankers’ Bank (“ACBB”) represent ownership in organizations that are wholly owned by other financial institutions.

These restricted equity securities are accounted for based on industry guidance in ASC Sub-Topic 325-20, which requires the investment

to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

Included in accrued interest

and other assets are FHLB stock of $3.6 million and $3.8 million at December 31, 2019 and 2018, respectively, and ACBB stock of

$85,000 at December 31, 2019 and 2018.

The Company periodically evaluates its FHLB investment for possible impairment based

on, among other things, the capital adequacy of the FHLB and its overall financial condition.

The Company believes its holdings

in the stock are ultimately recoverable at par value at December 31, 2019, and, therefore, determined that FHLB stock was not impaired.

The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss).

Common stock of the Federal Home Loan Bank (“FHLB”) and of Atlantic Community Bankers’ Bank (“ACBB”) represent ownership in organizations that are wholly owned by other financial institutions.

These restricted equity securities are accounted for based on industry guidance in ASC Sub-Topic 325-20, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

Included in accrued interest and other assets are FHLB stock of $ 3.9 million and $ 3.6 million at December 31, 2020 and 2019, respectively, and ACBB stock of $ 85,000 at December 31, 2020 and 2019.

The Company periodically evaluates its FHLB restricted stock for possible impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition.

The Company believes its holdings in the stock are ultimately recoverable at par value at December 31, 2020, and, therefore, determined that FHLB stock was not impaired.

In addition, the Company has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future.

Loans Receivable and Allowance for Loan Losses

Loans receivable that management has the intent and ability to hold for the foreseeable

future or until maturity or payoff are stated at the principal amount outstanding, net of deferred loan fees and the allowance

for loan losses.

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the principal amount outstanding, net of deferred loan fees and the allowance for loan losses.

The Company’s loan portfolio is segmented to enable management to monitor risk and performance.

estate loans are further segregated into three classes.

Residential mortgages include those secured by residential properties and

include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate.

The real estate loans are further segregated into three classes.

Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate.

Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate.

commercial and industrial segment consists of loans to finance the activities of commercial customers.

The consumer segment consists

primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit.

Residential mortgage loans are typically longer-term loans and, therefore, generally

present greater interest rate risk than the consumer and commercial loans.

Under certain economic conditions, housing values may

decline, which may increase the risk that the collateral values are not sufficient.

Commercial real estate loans generally present

a higher level of risk than loans secured by residences.

This greater risk is due to several factors, including the concentration

of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties,

and the increased difficulty in evaluating and monitoring these types of loans.

Furthermore, the repayment of commercial real estate

loans is typically dependent upon the successful operation of the related real estate project.

If the cash flow from the project

is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is

unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.

Construction loans are

originated to individuals to finance the construction of residential dwellings and are also originated for the construction of

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

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

The commercial and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

industrial segment consists of loans to finance the activities of commercial customers.

The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit.

Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans.

Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient.

Commercial real estate loans generally present a higher level of risk than loans secured by residences.

This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans.

Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project.

If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.

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

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

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

Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization

after project completion.

Commercial and industrial loans are generally secured by business assets, inventories, accounts receivable,

etc., which present collateral risk.

Consumer loans generally have higher interest rates and shorter terms than residential mortgage

Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion.

Commercial and industrial loans are generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk.

Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans;

however, they have additional credit risk due to the type of collateral securing the loan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accrual of interest on loans is generally discontinued when it is determined that a reasonable

doubt exists as to the collectability of principal, interest, or both.

Payments received on nonaccrual loans are applied against

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.

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”

Accrual of interest on loans is generally discontinued when it is determined that a reasonable doubt exists as to the collectability of principal, interest, or both.

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.

The Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan portfolio.

The first four categories are not considered criticized and are aggregated as “pass” rated.

The criticized rating categories used by management generally follow bank regulatory definitions.

The special mention category

includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point

of justifying a substandard classification.

Loans in the substandard category have well-defined weaknesses that jeopardize the

liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.

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.

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.

In the normal course of business, the Company modifies loan terms for various reasons.

These reasons may include a retention strategy to compete in the current interest rate environment, and to extend a loan term and

re-amortize to better match the loan’s payment stream with the borrower’s cash flows.

A modified loan is considered

a troubled debt restructuring (“TDR”) when the Company has determined that the borrower is experiencing financial difficulties

and the Company grants a concession to the borrower.

The Company evaluates the probability that the borrower will be in payment

default on any of its debt in the foreseeable future without modification.

To make this determination a credit review is performed

to assess the ability of the borrower to meet their obligations.

When the Company restructures a loan for a troubled borrower, the loan terms (i.e., interest

rate, payment, amortization period and/or maturity date) are modified in such a way to enable the borrower to cover the modified

debt service payments based on current financials and cash flow adequacy.

If the hardship is thought to be temporary, then modified

terms are offered only for that time period.

Where possible, the Company obtains additional collateral and/or secondary payment

sources at the time of the restructure.

These reasons may include a retention strategy to compete in the current interest rate environment, and to extend a loan term and re-amortize to better match the loan’s payment stream with the borrower’s cash flows.

A modified loan is considered a troubled debt restructuring (“TDR”) when the Company has determined that the borrower is experiencing financial difficulties and the Company grants a concession to the borrower, except for an insignificant delay in payment.

TDRs typically are the result of loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral.

The Company evaluates the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification.

To make this determination a credit review is performed to assess the ability of the borrower to meet their obligations.

When the Company restructures a loan for a troubled borrower, the loan terms (i.e., interest rate, payment, amortization period and/or maturity date) are modified in such a way to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy.

If the hardship is thought to be temporary, then modified terms are offered only for that time period.

Where possible, the Company obtains additional collateral and/or secondary payment sources at the time of the restructure.

To date, the Company has not forgiven any principal as a restructuring concession.

Company will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default.

All loans designated as TDRs are considered impaired loans and may be in either accruing

or non-accruing status.

The Company’s policy for recognizing interest income on TDRs does not differ from its overall policy

for interest recognition.

TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred

to nonaccrual status.

A loan may be removed from nonaccrual TDR status if it has performed according to its modified terms for

at least six consecutive months.

The performance and credit quality of the loan portfolio are also monitored by analyzing

the age of the loans receivable as determined by the length of time a recorded payment is past due.

The past due status of all

classes of loans receivable is determined based on contractual due dates for loan payments.

Loan origination and commitment fees as well as certain direct loan origination costs

are deferred and the net amount either accreted or amortized as an adjustment to the related loan’s yield over the contractual

lives of the related loans.

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 of directors, 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 Company will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default.

All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status.

The Company’s policy for recognizing interest income on TDRs does not differ from its overall policy for interest recognition.

TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to nonaccrual status.

A loan may be removed from nonaccrual TDR status if it has performed according to its modified terms for at least six consecutive months.

Section 4013 of the CARES Act and regulatory guidance promulgated by federal banking regulators provide temporary relief from accounting and financial reporting requirements for TDRs regarding certain short-term loan modifications related to COVID-19.

Specifically, the CARES Act provides that the Bank may elect to suspend the requirements under GAAP for

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The allowance consists of specific, general and unallocated components.

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 nonaccrual are recorded as a direct reduction of the recorded investment in the loan.

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.

certain loan modifications that would otherwise be categorized as a TDR and suspend any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes.

Any modification involving a loan that was not more than 30 days past due as of December 31, 2019 and that occurs beginning on March 1, 2020 and ends on the earlier of January 1, 2022 (as extended by the Consolidated Appropriations Act, 2021) or the date that is 60 days after the termination date of the national emergency related to the COVID-19 outbreak qualify for this exception, including a forbearance arrangement, interest rate modification, repayment plan or any other similar arrangement that defers or delays the payment of principal or interest.

Bank regulatory agencies released an interagency statement that offers practical expedients for modifications that occur in response to the COVID-19 pandemic, but it differs with the CARES Act in certain areas.

The expedients require a lender to conclude that a borrower is not experiencing financial difficulty if either short-term (e.g., six months or less) modifications are made, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented or the modification or deferral program is mandated by the federal government or a state government.

The bank regulatory agencies have subsequently confirmed that their guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act.

Both Section 4013 of the CARES Act and the interagency statement can be applied to a second modification that occurs after the first modification provided that the second modification does not qualify as a TDR under Section 4013 of the CARES Act or the interagency statement.

In its evaluation of whether a payment deferral qualifies as short-term under the interagency statement, an entity should assess multiple payment deferrals collectively (i.e., the cumulative deferrals cannot exceed six months).

The Bank offered forbearance options for borrowers impacted by COVID-19 that provide a short-term delay in payment by primarily allowing:

(a) deferral of three to six months of payments;

or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months .

During the forbearance period, the borrower is not considered delinquent for credit bureau reporting purposes.

The Company has elected the practical expedients related to TDRs that are available in the CARES Act and interagency guidance as an entity-wide accounting policy and does not consider any of the forbearance agreements TDRs, delinquent, or nonaccrual.

The performance and credit quality of the loan portfolio are also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.

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

Loan origination and commitment fees as well as certain direct loan origination costs are deferred and the net amount either accreted or amortized as an adjustment to the related loan’s yield over the contractual lives of the related loans.

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 of directors, 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 nonaccrual 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 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.

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.

The general allowance component covers pools of homogeneous loans by loan class.

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;

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;

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

national and local economic trends;

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.

Loans that were acquired in previous mergers, were recorded at fair value with no carryover

of the related allowance for credit losses.

The fair value of the acquired loans was estimated by management with the assistance

of a third-party valuation specialist.

For performing loans acquired in a merger, the excess of cash flows expected at acquisition

over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining

life of the loan.

The difference between contractually required payments at acquisition and the cash flows expected to be collected

at acquisition is referred to as the nonaccretable discount.

The nonaccretable discount represents estimated future credit losses

expected to be incurred over the life of the loan.

Subsequent decreases to the expected cash flows require an evaluation to determine

the need for an allowance.

Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the

nonaccretable discount, which is then reclassified as accretable discount that is recognized into interest income over the remaining

life of the loan using the interest method.

The evaluation of the amount of future cash flows that is expected to be collected

is performed in a similar manner as that used to determine our allowance.

Charge-offs of the principal amount on acquired loans

would be first applied to the nonaccretable discount portion of the fair value adjustment.

The Company grants commercial, residential, and other consumer loans to customers throughout

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

West Virginia in Brooke, Marshall,

Ohio, Upshur and Wetzel Counties;

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

Loans that were acquired in previous mergers, were recorded at fair value with no carryover of the related allowance for credit losses.

The fair value of the acquired loans was estimated by management with the assistance of a third-party valuation specialist.

For performing loans acquired in a merger, the excess of expected cash flows over the estimated fair value, at acquisition, is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.

The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount.

The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan.

Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance.

Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount, which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method.

The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance.

Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.

The Company grants commercial, residential, and other consumer loans to customers throughout southwestern Pennsylvania in Greene, Washington, Allegheny, Fayette and Westmoreland Counties;

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

and Belmont County in Ohio.

Although the Company had a diversified loan portfolio at December

31, 2019 and 2018, a substantial portion of its debtors’ ability to honor their contracts is determined by the economic environment

of these counties within the tri-state region footprint.

Although the Company had a diversified loan portfolio at December 31, 2020 and 2019, a substantial portion of its debtors’ ability to honor their contracts is determined by the economic environment of these counties within the tri-state region footprint.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation.

is principally computed on the straight-line method over the estimated useful lives of the related assets, which range from three

to seven years for furniture, fixtures and equipment, and 27.5 to 40 years for building premises.

Leasehold improvements are amortized

over the shorter of their estimated useful lives or their respective lease terms, which range from seven to fifteen years.

for maintenance and repairs are charged to expense when incurred while costs of major additions and improvements are capitalized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Depreciation is principally computed on the straight-line method over the estimated useful lives of the related assets, which range from three to seven years for furniture, fixtures and equipment, and 27.5 to 40 years for building premises.

Leasehold improvements are amortized over the shorter of their estimated useful lives or their respective lease terms, which range from seven to fifteen years .

Expenditures for maintenance and repairs are charged to expense when incurred while costs of major additions and improvements are capitalized.

Bank-Owned Life Insurance

The Company is the owner and beneficiary of bank-owned life insurance (“BOLI”)

policies on certain employees.

The Company is the owner and beneficiary of bank-owned life insurance (“BOLI”) policies on certain employees.

The earnings from the BOLI policies are recognized as a component of noninterest income.

policies are an asset that can be liquidated, if necessary, with associated tax costs.

However, the Company intends to hold these

policies and, accordingly, the Company has not provided for deferred income taxes on the earnings from the increase in cash surrender

The BOLI policies are an asset that can be liquidated, if necessary, with associated tax costs.

However, the Company intends to hold these policies and, accordingly, the Company has not provided for deferred income taxes on the earnings from the increase in cash surrender value.

Real Estate Owned

Real estate owned acquired in settlement of foreclosed loans is carried as a component

of other assets at the lower of cost or fair value, minus estimated cost to sell.

Prior to foreclosure, the estimated collectible

value of the collateral is evaluated to determine if a partial charge-off of the loan balance is necessary.

After transfer to real

estate owned, any subsequent write-downs are charged against noninterest expense.

Direct costs incurred in the foreclosure process

and subsequent holding costs incurred on such properties are recorded as expenses of current operations.

Real estate owned was

$233,000 and $917,000 at December 31, 2019 and 2018, respectively.

Of these amounts, $53,000 and $46,000 represent residential

loans at December 31, 2019 and 2018, respectively.

Residential loans in process of foreclosure were $1.1 and $1.4 million at December

31, 2019 and 2018, respectively.

The Company accounts for income taxes in accordance with income tax accounting guidance

in ASC Topic 740, Income Taxes .

Real estate owned acquired in settlement of foreclosed loans is carried as a component of Other Assets at the lower of cost or fair value, less estimated cost to sell.

Prior to foreclosure, the estimated collectible value of the collateral is evaluated to determine if a partial charge-off of the loan balance is necessary.

After transfer to real estate owned, any subsequent write-downs are charged against noninterest expense.

Direct costs incurred in the foreclosure process and subsequent holding costs incurred on such properties are recorded as expenses of current operations.

Real estate owned was $ 208,000 and $ 233,000 at

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 and 2019, respectively.

Of these amounts, $ 0 and $ 41,000 represent residential loans at December 31, 2020 and 2019, respectively.

Residential loans in process of foreclosure were $ 806,000 and $ 1.1 million at December 31, 2020 and 2019, respectively.

The Company accounts for income taxes in accordance with income tax accounting guidance in ASC Topic 740, Income Taxes .

The income tax accounting guidance results in two components of income tax expense:

and deferred.

Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions

of the enacted tax law to the taxable income or excess of deductions over revenues.

The Company determines deferred income taxes

using the balance sheet method.

Under this method, the net deferred tax asset or liability is based on the tax effects of the differences

between book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in

which they occur.

Deferred 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%;

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.

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 be realized.

The Company recognizes interest and penalties on income taxes as a component of income

current and deferred.

Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.

The Company determines deferred income taxes using the balance sheet method.

Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred 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 be realized.

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

Goodwill and Intangible Assets

Goodwill 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 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 6.5 to nine years on the straight-line method.

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 as of October 31, 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.

In 2019, the Company adopted Accounting Standards Update (“ASU”)

2017-04 whereby the Company applies a one-step quantitative test and records the amount of goodwill impairment as the excess of

a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The Company has the option of performing a qualitative assessment to determine whether any further quantitative testing for impairment

is necessary.

The option of whether or not to perform a qualitative assessment is made annually.

The quantitative test primarily

utilizes market comparisons and recent transactions to determine whether there is goodwill impairment.

The Company did not have

goodwill impairment as of December 31, 2019 and 2018.

However, future events could cause us to conclude that goodwill

or other intangibles have become impaired, which would result in recording an impairment.

Any resulting impairment could have a

material adverse impact on the Company’s financial condition and results of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company operates two reporting units – Community Banking segment and Insurance

Brokerage Services segment.

The Company has assigned 100 percent of the goodwill to the Community Banking reporting unit.

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

Deemed to have an indefinite life and not subject to amortization, goodwill is instead tested for impairment at the reporting unit level at least annually on October 31 or more frequently if triggering events occur or impairment indicators exist.

The Company operates two reporting units – Community Banking segment and Insurance Brokerage Services segment.

The Company has assigned 100 % of the goodwill to the Community Banking reporting unit.

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.

In 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-04 whereby the Company applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a step one impairment test is unnecessary.

An entity also has the option to bypass the qualitative assessment for any reporting unit and proceed directly to the first step of impairment testing.

The Company recorded goodwill impairment of $ 18.7 million for the year ended December 31, 2020 and did no t record any goodwill impairment for the year ended December 31, 2019.

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 acquired in mergers, customer relationship intangibles and renewal lists, are amortized over their estimated useful lives and subject to periodic impairment testing at last annually.

The amortization expense represents the estimated decline in value of the underlying asset.

Core deposit intangibles are primarily amortized over 6.5 to 9 years on the straight-line method.

Customer renewal lists are amortized over their estimated useful lives of 9.5 years.

We monitor other intangibles for impairment and evaluate carrying amounts, as necessary.

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

There were no events or changes in circumstances indicating impairment of other intangible assets at December 31, 2020.

Future events could cause us to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment.

Any resulting impairment could have a material adverse impact on the Company’s financial condition and results of operations.

Refer to Note 6—Goodwill and Intangible Assets for additional details.

Mortgage Servicing Rights (“MSRs”)

The Company has agreements for the express purpose of selling loans in the secondary

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled

$100.0 and $99.0 million at December 31, 2019 and 2018, respectively.

The Company has agreements for the express purpose of selling loans in the secondary market.

The Company maintains all servicing rights for these loans.

MSRs are recognized when commitments are made to fund a loan to be sold and are recorded by allocating total costs incurred between

the loan and servicing rights based on their relative fair values.

MSRs are amortized in proportion to sold mortgages that are

serviced and are included in other assets on the accompanying Consolidated Statement of Financial Condition.

The carrying value

of MSRs was $930,000 and $921,000 at December 31, 2019 and 2018, respectively.

MSRs are recognized when commitments are made to fund a loan to be sold and are recorded by allocating total costs incurred between the loan and servicing rights based on their relative fair values.

MSRs are amortized

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in proportion to sold mortgages that are serviced and are included in Accrued Interest Receivable and Other Assets on the accompanying Consolidated Statement of Financial Condition.

Servicing fee income is recorded for fees earned for servicing loans.

The fees are based

on contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.

The amortization

of MSRs is netted against servicing fee income in other noninterest income in the Consolidated Statement of Income.

of MSRs was $28,000 and $101,000 for the years ended December 31, 2019 and 2018 respectively.

The fees are based on contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.

The amortization of MSRs is netted against servicing fee income in Other (Loss) Income of the noninterest income category in the Consolidated Statement of Operations.

MSRs are evaluated for impairment based on the estimated fair value of the MSRs.

are stratified by certain risk characteristics, primarily loan term and note rate.

If temporary impairment exists within a risk

stratification tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying

value exceeds the estimated fair value.

If it is later determined that all or a portion of the temporary impairment no longer exists

for a particular tranche, the valuation allowance is reduced.

For the year ended December 31, 2019, there was temporary impairment

There was no impairment for the year ended December 31, 2018.

MSRs are stratified by certain risk characteristics, primarily loan term and note rate.

If temporary impairment exists within a risk stratification tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the estimated fair value.

If it is later determined that all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced.

Treasury Stock

The purchase of the Company’s common stock is recorded at cost.

At the date of

subsequent reissue, the treasury stock account is reduced by the cost of such stock on the average cost basis, with any excess

proceeds being credited to capital surplus.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss).

comprehensive income (loss) is comprised of unrealized holding gains (losses) on available-for-sale debt securities, net of tax.

At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the average cost basis, with any excess proceeds being credited to capital surplus.

Comprehensive (Loss) Income

Comprehensive (loss) income consists of net (loss) income and other comprehensive income.

Other comprehensive income is comprised of unrealized holding gains on available-for-sale debt securities, net of tax.

Earnings Per Share

The Company provides dual presentation of basic and diluted earnings per share.

earnings per share is calculated utilizing the reported net income as the numerator and weighted average shares outstanding as

the denominator.

The computation of diluted earnings per share differs in that the denominator is adjusted for the dilutive effects

of any options and convertible securities.

Basic earnings per share is calculated utilizing the reported net income as the numerator and weighted average shares outstanding as the denominator.

The computation of diluted earnings per share differs in that the denominator is adjusted for the dilutive effects of any options and convertible securities.

Treasury shares are not deemed outstanding for earnings per share calculations.

Stock-Based Compensation

In 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the

The purpose of the Plan is to promote the long-term financial success of the Company by providing a means

to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the

Company’s stockholders through the ownership of additional common stock of the Company.

The effective date of the Plan is

May 20, 2015, which was the date the Plan satisfied the applicable stockholder approval requirement.

The Plan shall remain in effect

as long as any awards are outstanding, provided, however, that no awards may be granted under the Plan after the day immediately

prior to the ten-year anniversary of the effective date of May 20, 2015.

All of the Company’s directors and employees are

eligible to participate in the Plan.

The Plan authorizes the granting of options to purchase shares of the Company’s stock,

which may be non-qualified stock options or incentive stock options, restricted stock awards or restricted stock units.

reserved an aggregate number of 407,146 shares, of which two-thirds of the shares (271,431) may be issued as stock options and

one-third of the shares (135,715) may be issued as restricted stock awards or units.

Restricted stock awards or units can be issued

above the one-third threshold provided that the number of shares reserved for stock options is reduced by three shares for each

restricted stock award or unit granted above the one-third threshold.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASC Topic 718, Compensation – Stock Compensation, requires recognizing the

compensation cost in the financial statements for stock-based payment transactions.

Stock option expense is measured based on the

grant date fair value of the stock options issued.

The per share fair value of stock options granted is calculated using the Black-Scholes-Merton

option pricing model, using assumptions for expected life, expected dividend rate, risk-free interest rate and an expected volatility.

The Company uses the simplified method to determine the expected term because it does not have sufficient historical exercise data

to provide a reasonable basis upon which to estimate expected term.

The stock option exercise price is equal to the market value

on the date of grant.

Restricted stock award expense is measured based on the market price of the Company’s common stock

at the date of the grant.

Unrecognized compensation expense is recognized ratably over the remaining service period, generally

defined as the vesting period, for all nonvested restricted stock awards and stock options.

Restricted stock awards and stock options

are typically granted with a five-year vesting period at a vesting rate of 20% per year.

The contractual life of stock options

is typically 10 years from the date of grant.

In 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the “Plan”).

The purpose of the Plan is to promote the long-term financial success of the Company by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s stockholders through the ownership of additional common stock of the Company.

The effective date of the Plan is May 20, 2015, which was the date the Plan satisfied the applicable stockholder approval requirement.

The Plan shall remain in effect as long as any awards are outstanding, provided, however, that no awards may be granted under the Plan after the day immediately prior to the ten-year anniversary of the effective date of May 20, 2015.

All of the Company’s directors and employees are eligible to participate in the Plan.

The Plan authorizes the granting of options to purchase shares of the Company’s stock, which may be non-qualified stock options or incentive stock options, restricted stock awards or restricted stock units.

The Plan reserved an aggregate number of 407,146 shares, of which two-thirds of the shares ( 271,431 ) may be issued as stock options and one-third of the shares ( 135,715 ) may be issued as restricted stock awards or units.

Restricted stock awards or units can be issued above the one-third threshold provided that the number of shares reserved for stock options is reduced by three shares for each restricted stock award or unit granted above the one-third threshold.

ASC Topic 718, Compensation – Stock Compensation, requires recognizing the compensation cost in the financial statements for stock-based payment transactions.

Stock option expense is measured based on the grant date fair value of the stock options issued.

The per share fair value of stock options granted is calculated using the Black-Scholes-Merton option pricing model, using assumptions for expected life, expected dividend yield, risk-free interest rate and an expected volatility.

The Company uses the simplified method to determine the expected term because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

The stock option exercise price is equal to the market value on the date of grant.

Restricted stock award expense is measured based on the market price of the Company’s common stock at the date of the grant.

Unrecognized compensation expense is recognized ratably over the remaining service period, generally defined as the vesting period, for all nonvested restricted stock awards and stock options.

Restricted stock awards and stock options are typically granted with a five years vesting period at a vesting rate of 20 % per year.

The contractual life of stock options is typically 10 years from the date of grant.

Cash Flow Information

The Company has defined cash equivalents as those amounts due from depository institutions,

interest-bearing deposits with other banks with maturities of less than 90 days, and federal funds sold.

The Company has defined cash equivalents as those amounts due from depository institutions, interest-bearing deposits with other banks with maturities of less than 90 days, and federal funds sold.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising Costs

Advertising costs are expensed as incurred.

Recognition of a Prior Period Error

In April 2018, the Company discovered an error with the collateral position on a commercial

and industrial classified loan relationship that had occurred in April 2017.

This error resulted in the loss of the Company’s

first lien position, leaving the loan with insufficient collateral.

The Company corrected the error by recording a specific reserve

and recognizing an additional $300,000 (pre-tax) of provision for loan losses for 2018.

As a result of this error, the Company’s

2018 pre-tax income was understated by $300,000, income tax expense was understated by $63,000, net income was understated by $237,000,

and earnings per share were understated by $0.06 per share.

The Company’s 2017 results were overstated by these same amounts.

Management of the Company evaluated this error under the accounting guidance Financial Accounting Standards Board (“FASB”)

ASC Topic 250, Accounting Changes and Error Corrections and concluded that the effect of the error was immaterial to the

Company’s 2018 and 2017 consolidated financial statements.

In March 2019, the Company discovered an error in loan classifications within the commercial

and industrial segment of the loan portfolio.

The loan reclassifications were due to term loans and revolving lines of credit that

were classified as commercial and industrial loans but were partially or primarily secured by commercial and residential real estate.

The error resulted in loan reclassifications of $21.7 million from commercial and industrial segment to commercial real estate

and residential real estate segments as of and for the year ended December 31, 2018.

In addition, as a result of the loan segment

reclassifications, the allocated components of the allowance for loan losses were adjusted to reflect the revised loan balances

with the residual of $257,000 added to the unallocated component of the allowance for loan loss as of December 31, 2018.

of the Company has evaluated the loan reclassification error and determined that, based on quantitative and qualitative analysis,

this error was not material to the December 31, 2018 consolidated financial statements as presented.

Reclassifications

Certain comparative amounts for prior periods have been reclassified to conform to the

current year presentation.

Certain comparative amounts for prior periods have been reclassified to conform to the current year presentation.

Such reclassifications did not affect net income or stockholders’ equity.

Recent Accounting Standards

In August 2018, the FASB issued ASU 2018-15 , Intangibles – Goodwill and Other

– Internal-Use Software (Subtopic 350-40) .

ASU 2018-15 was issued to help entities evaluate the accounting for fees paid

by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement

includes a software license.

The amendments align the requirements for capitalizing implementation costs incurred in a hosting

arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

internal-use software (and hosting arrangements that include an internal-use software license).

The accounting for the service

element of a hosting arrangement that is a service contract is not affected by the amendments.

This guidance will become effective

for the Company beginning in the first quarter 2020, with early adoption permitted.

The Company does not expect adoption of this

ASU to have a material impact on the Company's consolidated statement of financial condition or results of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2020, the Financial Accounting Standard Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.

The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate.

The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition.

The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt).

The ASU is intended to help stakeholders during the global market-wide reference rate transition period.

ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022.

While the LIBOR reform may require extensive changes to the contracts that govern LIBOR based products, as well as our systems and processes, we cannot yet determine whether the Company will be able to use the optional expedient for the changes to contract terms that may be required by LIBOR reform and therefore, the Company cannot yet determine the magnitude of the impact or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

In December 2019, FASB issued ASU 2019-12, Income taxes (Topic 740);

Simplifying the Accounting for Income Taxes .

ASU 2019-12 provides amendments intended to reduce the cost and complexity in accounting for income taxes while maintaining or improving the usefulness of the information provided to users of financial statements.

ASU 2019-12 removes the following exceptions from ASC 740, Income Taxes:

(i) exceptions to the incremental approach for intraperiod tax allocation;

(ii) exceptions to accounting for basis differences when a foreign subsidiary becomes an equity method investment or a foreign equity method investment become a subsidiary;

and (iii) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

ASU 2019-12 provides the following amendments that simplify and improve guidance with Topic 740:

(i) franchise taxes that are based partially on income;

(ii) transactions that result in a step up in the tax basis of goodwill;

(iii) separate financial statements of legal entities that are not subject to tax;

(iv) enacted changes in tax laws in interim periods;

and (v) employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15 , Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) .

ASU 2018-15 was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.

The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments.

This guidance became effective for the Company beginning in the first quarter 2020 and the adoption of this ASU did not have a material impact on the Company's consolidated statement of financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) .

ASU 2018-13 modifies disclosure requirements on fair value measurements.

This ASU removes requirements to disclose the amount of

and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels

and the valuation processes for Level 3 fair value measurements.

ASU 2018-13 clarifies that disclosure regarding measurement uncertainty

is intended to communicate information about the uncertainty in measurement as of the reporting date.

ASU 2018-13 adds certain

disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive

income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average

of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this ASU are effective for

the Company beginning in the first quarter 2020.

The amendments on changes in unrealized gains and losses, the range and weighted

average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement

uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented.

The Company does not expect adoption of this ASU to have a material impact on the Company's consolidated statement of financial

condition or results of operations.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), Land Easement Practical

Expedient for Transition to Topic 842.

ASU 2018-01 is effective with ASU 2016-02, as amended.

The amendments in ASU 2018-01

are as follows:

provide an optional transition practical expedient for the adoption of ASU 2016-02 that, if elected, would not

require an organization to reconsider their accounting for existing land easements that are not currently accounted for under the

old lease standards;

and clarify that new or modified land easements should be evaluated under ASU 2016-02, once an entity has

adopted the new standard.

ASU 2016-02 will require lessees to recognize a right-of-use (“ROU”) asset for its right

to use the underlying asset and a lease liability for the corresponding lease obligation for leases with terms of more than twelve

Both the ROU asset and lease liability are initially measured at the present value of the future minimum lease payments

over the lease term.

Subsequent measurement, including the presentation of expenses and cash flows, depends on the classification

of the lease as either a finance or an operating lease.

Accounting by lessors remains largely unchanged from current U.S.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early

adoption permitted, and is applied as of the beginning of the earliest period presented using a modified retrospective approach.

The Company adopted the provisions of ASU 2016-02 effective January 1, 2019 using an optional transition method, which increased

assets and liabilities approximately $1.7 million at the time of adoption.

The ROU assets are reported on the accrued interest

and other assets line and the related lease liabilities on the accrued interest and other liabilities line on the Consolidated

Statement of Financial Condition.

The current period adoption recognized the use of practical measures that permitted the Company

not to reevaluate prior assumptions regarding the identification and classification of leases.

In addition, the Company elected

the practical expedient of not separating lease and nonlease components.

The operating leases have a fixed payment for rent and,

in some cases, the Company shares in the variable payment for common area maintenance, such as property taxes, utilities and general

upkeep, which is considered a nonlease component.

See Note 15 – Operating Leases for additional details.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260);

Distinguishing

Liabilities from Equity (Topic 480);

Derivatives and Hedging (Topic 815):

(Part I) Accounting for Certain Financial Instruments

with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of

Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.

amendments simplify the accounting for certain financial instruments with down round features.

The amendments require companies

to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining

liability or equity classification.

Companies that provide earnings per share (“EPS”) data are required to adjust their

basic EPS calculation for the effect of the feature when triggered and must also recognize the effect of the trigger within equity.

ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years.

adopted the provisions of ASU 2017-11 effective January 1, 2019 and the adoption did not have a material impact on the Company's

consolidated financial condition or results of operations.

In March 2017, the FASB issued ASU 2017-08, Receivables- Nonrefundable Fees and Other

Costs (Subtopic 310-20):

Premium Amortization on Purchases of Callable Debt Securities.

ASU 2017-08 amends guidance on the

amortization period of premiums on certain purchases of callable debt securities.

The amendments shorten the amortization period

of premiums on certain purchases of callable debt securities to the earliest call date.

ASU 2017-08 is effective for fiscal years

beginning after December 15, 2018, and interim periods within those annual periods.

The Company adopted the provisions of ASU 2017-08

effective January 1, 2019 and the adoption did not have a material impact on the Company's consolidated statement of financial

condition or results of operations.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other

Simplifying the Test for Goodwill Impairment .

ASU 2017-04 simplifies the accounting for goodwill impairments

by eliminating the second step of the goodwill impairment test.

Instead, an entity applies a one-step quantitative test and

records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to

exceed the total amount of goodwill allocated to the reporting unit.

The new guidance does not amend the optional qualitative

assessment of goodwill impairment.

ASU 2017-04 is effective for public business entities for annual periods beginning after

December 15, 2019, and interim periods within those annual periods, with early adoption permitted, and is to be applied on a

prospective basis.

The Company elected to early adopt the provisions of ASU 2017-04 effective October 31, 2019 and the

adoption did not have a material impact on the Company's consolidated statement of financial condition or results of

This ASU removes requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements.

ASU 2018-13 clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date.

ASU 2018-13 adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this ASU are effective for the Company beginning in the first quarter 2020.

The amendments on changes in unrealized gains and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit

Losses (Topic 326):

losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented.

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

In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 amends guidance on reporting credit

losses for assets held at amortized cost basis and available for sale debt securities.

For assets held at amortized cost basis,

ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP;

and instead requires an entity to reflect its

current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the

amortized cost basis of the financial assets to present the net amount expected to be collected.

For available-for-sale debt securities,

credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented

as an allowance rather than as a write-down.

ASU 2016-13 affects companies holding financial assets and net investment in leases

that are not accounted for at fair value through net income.

The ASU 2016-13 amendments affect loans, debt securities, trade receivables,

net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded

from the scope that have the contractual right to receive cash.

ASU 2016-13 was originally effective for fiscal years beginning

after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.

In November 2019, the FASB

approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting

in a required implementation date for the Company of January 1, 2023.

ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.

For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP;

and instead requires an entity to reflect its current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.

For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented as an allowance rather than as a write-down.

ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at fair value through net income.

The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

ASU 2016-13 was originally effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.

In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting in a required implementation date for the Company of January 1, 2023.

Early adoption will continue to be permitted.

is evaluating the impact of this ASU and expects to recognize a one-time adjustment to the allowance for loan losses upon adoption,

but we cannot yet determine the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s

consolidated financial condition or results of operation.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall

(Subtopic 825-10) , which enhances the reporting model for financial instruments regarding certain aspects of recognition,

measurement, presentation, and disclosure.

ASU 2016-01 (i) requires equity investments (except those accounted for under the equity

method or that are consolidated) to be measured at fair value with changes in fair value recognized in net income;

(ii) simplifies

the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment

to identify impairment;

(iii) eliminates the requirement for an entity to disclose the methods and significant assumptions used

to estimate the fair value of financial instruments measured at amortized cost;

(iv) requires an entity to use the exit price

notion when measuring the fair value of financial instruments for disclosure purposes;

and (v) requires separate presentation

of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the

accompanying notes to the financial statements.

ASU 2016-01 is effective for fiscal years, and interim periods within those years,

beginning after December 15, 2017, and is applied using a cumulative-effect adjustment to the balance sheet as of the beginning

of the fiscal year of adoption.

The Company adopted the provisions of ASU 2016-01 in the first quarter of 2018.

As of January

1, 2018, there was a one-time $40,000 net cumulative fair value adjustment that was reclassified within the Statement of Changes

in Stockholders’ Equity.

This fair value adjustment will fluctuate between reporting periods and is based on market conditions.

The fair value adjustment recognized for equity securities was a net gain of $190,000 and net loss of $63,000 for the years ended

December 31, 2019 and 2018, respectively.

NOTE 2—MERGER

Effective April 30, 2018, the Company completed the merger with

First West Virginia Bancorp, Inc.

(“FWVB”), the holding company for Progressive Bank, N.A.

(“PB”), a national

In addition, effective April 30, 2018, PB merged into the Bank.

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.

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.

Merger-related expenses are recorded in the Consolidated Statement of Income and include

costs relating to the Company’s acquisition of FWVB, as described above.

These charges represent one-time costs associated

with acquisition activities and do not represent ongoing costs of the fully integrated combined organization.

Accounting guidance

requires that acquisition-related transactional and restructuring costs incurred by the Company be charged to expense as incurred.

There were approximately $1.2 million of cumulative merger-related expenses, of which $854,000 was recorded in the Consolidated

Statement of Income for the year ended December 31, 2018.

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.

After the merger, the Company stockholders

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The FWVB merger was accounted for as an acquisition in accordance with the acquisition

method of accounting as detailed in 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 did 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.

Goodwill 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.

of $23.5 million is included in the Community Banking segment.

In addition, the goodwill is not deductible for income tax purposes,

as the acquisition is accounted for as a tax-free exchange.

The fair values of major classes of assets acquired and liabilities assumed in the FWVB

merger are as follows (dollars in thousands):

Consideration Paid:

Cash Paid for Redemption of FWVB Common Stock

CB Financial Common Stock Issued in Exchange for FWVB Common Stock

Total Consideration Paid

Assets Acquired:

Cash and Cash Equivalents

Investment Securities

Premises and Equipment

Bank Owned Life Insurance

Core Deposit Intangible

Deferred Tax Assets

Total Assets Acquired

Liabilities Assumed:

Other Liabilities

Total Liabilities Assumed

Total Identifiable Net Assets

Goodwill Recognized

The operating results of FWVB have been included in the Company’s Consolidated

Statement of Income since the April 30, 2018, acquisition date.

Total income of the acquired operations of FWVB consisted of net

interest income of approximately $7.4 million, noninterest income of approximately $620,000, noninterest expense of approximately

$6.0 million and net income of approximately $1.5 million from May 1, 2018 through December 31, 2018.

As part of the FWVB merger agreement, the Company identified employees from FWVB who

would be retained and estimated a severance cost of $100,000 if those employees were terminated without cause within the first

year of the merger.

For the year ended December 31, 2019, the Company incurred $52,000 in severance cost.

In accordance with U.S.

GAAP, the $48,000 severance accrual that was remaining as of the one-year anniversary of the merger was reversed and recorded as

an offset to compensation expense.

The Company is evaluating the impact of this ASU and expects to recognize a one-time adjustment to the allowance for loan losses upon adoption, but we cannot yet determine the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

NOTE 2— (LOSS) EARNINGS PER SHARE

There are no convertible securities, which would affect the numerator in calculating basic and diluted earnings per share;

therefore, net (loss) income as presented on the Consolidated Statement of Operations is used as the numerator.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

Year Ended December 31, 2020 2019

(Dollars in Thousands, Except Share and Per Share Data)

Net (Loss) Income $ ( 10,640 ) $ 14,327

Weighted-Average Basic Common Shares Outstanding 5,406,290 5,434,649

Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock) — 14,112

Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding 5,406,290 5,448,761

(Loss) Earnings per share:

Basic $ ( 1.97 ) $ 2.64

Diluted ( 1.97 ) 2.63

The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock.

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

Year Ended December 31, 2020 2019

Stock Options 218,683 87,071

Restricted Stock 76,190 33,350

When there is a net loss for the period, the exercise or conversion of any potential shares increases the number of shares in the denominator and results in a lower loss per share.

In that situation, the potential shares are antidilutive and not included in the Company's loss per share calculation.

Therefore, if there is a net loss, diluted loss per share is the same as basic loss per share.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3—EARNINGS PER SHARE

There are no convertible securities, which would affect the numerator in calculating

basic and diluted earnings per share;

therefore, net income as presented on the Consolidated Statement of Income is used as the

The following table sets forth the composition of the weighted-average common shares

(denominator) used in the basic and diluted earnings per share computation.

Years Ended December 31,

Weighted-Average Common Shares Outstanding

Average Treasury Stock Shares

Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Basic Earnings Per Share

Additional Common Stock Equivalents Used to Calculate Diluted Earnings Per Share

Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Diluted Earnings Per Share

Earnings per share:

The dilutive effect on average shares outstanding is the result of stock options outstanding

and restricted stock.

Options to purchase 246,153 and 248,006 shares of common stock at a weighted average exercise price of $24.36

and $24.39 were outstanding at December 31, 2019 and 2018, respectively.

As of December 31, 2019 and 2018, options to purchase

87,071 and 39,403 shares of common stock, respectively were outstanding but were not included in the computation of diluted earnings

per share because the options’ exercise price was greater than the average market price of the common shares for the period,

therefore the effect would be antidilutive.

On April 30, 2018, the Company issued 1,317,647 shares of common stock to complete the

These shares are included in weighted average common shares outstanding beginning on that date.

NOTE 4—INVESTMENT SECURITIES

The amortized cost and fair value of investment securities available-for-sale as of December

31, 2019 and 2018, are as follows:

NOTE 3— SECURITIES

The amortized cost and fair value of securities available-for-sale as of the dates indicated are as follows:

December 31, Amortized

(Dollars in Thousands)

Debt Securities

Available-for-Sale Debt Securities:

Government Agencies $ 41,994 $ 12 $ ( 595 ) $ 41,411

1 unchanged sentence

Mortgage-Backed Securities - Government-Sponsored Enterprises 75,900 3,593 — 79,493

Total Debt Securities

Marketable Equity Securities

Total Marketable Equity Securities

Total Available-for-Sale Securities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt Securities

Total Available-for-Sale Debt Securities $ 138,566 $ 4,926 $ ( 595 ) 142,897

Equity Securities:

Mutual Funds 1,019

Total Equity Securities 2,503

Total Securities $ 145,400

December 31, Amortized

(Dollars in Thousands)

Available-for-Sale Debt Securities:

Government Agencies $ 47,993 $ 227 $ ( 164 ) $ 48,056

1 unchanged sentence

Mortgage-Backed Securities - Government-Sponsored Enterprises 118,282 2,601 ( 107 ) 120,776

Total Debt Securities

Marketable Equity Securities

Total Marketable Equity Securities

Total Available-for-Sale Securities

The following tables show the Company’s gross unrealized losses and fair value,

aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position

at December 31, 2019 and 2018:

Total Available-for-Sale Debt Securities $ 191,301 $ 3,647 $ ( 273 ) 194,675

Equity Securities:

Mutual Funds 997

Total Equity Securities 2,710

Total Securities $ 197,385

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

Less than 12 months 12 Months or Greater Total

December 31, Number

Securities Fair

Losses Number

Securities Fair

Losses Number

Securities Fair

(Dollars in Thousands)

Less than 12 months

12 Months or Greater

Government Agencies 7 $ 32,399 $ ( 595 ) — $ — $ — 7 $ 32,399 $ ( 595 )

Obligations of States and Political Subdivisions

Mortgage-Backed Securities - Government Sponsored Enterprises

Less than 12 months

12 Months or Greater

Total 7 $ 32,399 $ ( 595 ) — $ — $ — 7 $ 32,399 $ ( 595 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Less than 12 months 12 Months or Greater Total

December 31, Number

Securities Fair

Losses Number

Securities Fair

Losses Number

Securities Fair

(Dollars in Thousands)

Government Agencies 6 $ 16,116 $ ( 83 ) 6 $ 13,938 $ ( 81 ) 12 $ 30,054 $ ( 164 )

1 unchanged sentence

Mortgage-Backed Securities - Government Sponsored Enterprises 7 20,003 ( 104 ) 1 1,711 ( 3 ) 8 21,714 ( 107 )

For debt securities, the Company does not believe any individual unrealized loss as of

December 31, 2019, represents an other-than-temporary impairment.

The securities that are temporarily impaired at December 31,

2019 and 2018, relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

does not intend to sell or it is not more likely than not that it will be required to sell any of the securities in an unrealized

loss position before recovery of its amortized cost or maturity of the security.

Investment securities available-for-sale with a carrying value of $151.2 million and

$126.1 million at December 31, 2019 and 2018, respectively, are pledged to secure public deposits, short-term borrowings and for

other purposes as required or permitted by law.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The scheduled maturities of investment securities available-for-sale at December 31,

2019, are summarized as follows:

Total 13 $ 36,119 $ ( 187 ) 8 $ 16,158 $ ( 86 ) 21 $ 52,277 $ ( 273 )

For debt securities, the Company does not believe any individual unrealized loss as of December 31, 2020 or 2019, represents an other-than-temporary impairment.

The securities that are temporarily impaired at December 31, 2020 and 2019, relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

The Company does not intend to sell or it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

Securities available-for-sale with a fair value of $ 119.7 million and $ 151.2 million at December 31, 2020 and 2019, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law.

The scheduled maturities of securities available-for-sale are summarized as follows:

December 31, Amortized

(Dollars in Thousands)

Available-for-Sale

Due in One Year or Less

Due after One Year through Five Years $ 4,301 $ 4,366

1 unchanged sentence

Due after Ten Years 78,264 81,606

Sales of available-for-sale investment securities in 2019 resulted in gross gains of

$62,000 and gross losses for $112,000.

The realized loss on the sale of securities was by design to mitigate investment-credit

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

Sales of available-for-sale investments due to the FWVB merger were $80.3 million and

sold at their fair market value on the day of the merger and according to purchase accounting guidance and ASC Topic 805 –

Business Combinations , no gain or loss on sale was recognized.

The following table shows the Company’s available-for-sale obligations of states,

municipalities, and political subdivisions and their sources of repayment as of December 31, 2019 and 2018, respectively:

Total $ 138,566 $ 142,897

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

Year Ended December 31, 2020 2019

(Dollars in Thousands)

General Obligation:

Pennsylvania Municipalities:

Public Improvement

Other State Municipalities:

Public Improvement

Total General Obligation

Special Revenue

Pennsylvania Political Subdivisions:

Other State Political Subdivisions:

Public Improvement

Total Special Revenue

Total Obligations of States and Political Subdivisions

Despite sales in the current year, the Company still maintains a concentration of obligations

of municipal and political subdivisions in the Commonwealth of Pennsylvania (“Commonwealth”), primarily in obligations

of school districts.

These investments are not concentrated geographically within any region of the Commonwealth as they are disbursed

over the entire Commonwealth.

School district bonds are backed by the individual school districts and also by the Commonwealth

via an enhanced rating under the State Aid Withholding Program, Intercept Program or Act 50 in the Commonwealth.

In addition, most

investments in this area also have credit support from various insuring agencies.

In addition, due to the FWVB merger, obligations

of municipal and political subdivisions in other states outside the Commonwealth were acquired.

The main concentration of out of

state obligations of municipal and political subdivisions are in Texas, Ohio, Minnesota, and New York.

Debt Securities

Gross Realized Gain $ 489 $ 62

Gross Realized Loss — ( 112 )

Net Gain (Loss) on Debt Securities $ 489 $ ( 50 )

Equity Securities

Net Unrealized (Loss) Gain Recognized on Securities Held $ ( 267 ) $ 190

Net Realized Gain Recognized on Securities Sold 11 —

Net (Loss) Gain on Equity Securities ( 256 ) 190

Net Gain on Securities $ 233 $ 140

In 2020, the gross realized gain on the sale of debt securities of $ 489,000 was by design to recognize gains on higher-interest mortgage-backed securities that were paying down quicker than expected.

In 2019, the realized loss on the sale of debt securities was recognized to mitigate 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company evaluates its investments in states, municipalities, and political subdivisions

both on a pre-purchase and subsequently on a quarterly basis.

The evaluation includes a review of fund balances, outstanding pension

liabilities, operating revenues and expenses for the most recent five years, if available, and the trends of those metrics.

addition to this financial review, other pertinent criteria are reviewed, such as population growth in the area, median family

income, poverty rates, and debt service expenditures as a percent of expenditures.

Based upon these criteria, the creditworthiness

of the investments is determined.

Upon completion of the review, the results are compared to the published credit ratings.

result of the Company’s review, there were no investments in states, municipalities and political subdivisions that differed

significantly from the published credit ratings.

NOTE 4— LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

The following table summarizes the major classifications of loans as of December 31,

2019 and 2018:

The following table summarizes the major classifications of loans as of the dates indicated:

December 31, 2020 2019

(Dollars in Thousands)

Residential $ 344,142 $ 347,766

Commercial 373,555 351,360

Construction 72,600 35,605

Commercial and Industrial 126,813 85,586

Consumer 113,854 113,637

Other 13,789 18,542

Total Loans 1,044,753 952,496

Allowance for Loan Losses ( 12,771 ) ( 9,867 )

Total unamortized net deferred loan fees were $907,000 and $926,000 at December 31, 2019

and 2018, respectively.

Loans summarized by the aggregate pass and the criticized categories of special mention,

substandard and doubtful within the internal risk rating system as of December 31, 2019 and 2018, are as follows:

Loans, Net $ 1,031,982 $ 942,629

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

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

On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was 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.

The PPP Flexibility Act of 2020 extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

Previously the deferral period could end after 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 PPP 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.

All PPP loans are classified as commercial and industrial loans.

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.

The SBA reopened the PPP the week of January 11, 2021 and began accepting applications for both First Draw and Second Draw PPP Loans.

Second Draw PPP Loans are available for certain eligible borrowers that previously received a PPP loan.

A Second Draw PPP Loan has the same general terms as the First Draw PPP Loan.

A borrower is generally eligible for a Second Draw PPP Loan if the borrower previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses, has no more than 300 employees, and can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

For most borrowers, the maximum amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2.0 million.

Loan payments will be deferred for borrowers who apply for loan forgiveness until the SBA remits the borrower's loan forgiveness amount to the lender.

If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).

For PPP loans made on or after December 27, 2020, the lender’s processing fee from the SBA is the lesser of 50% or $2,500 for loans up to $50,000, 5% for loans greater than $50,000 and up to $350,000, 3% for loans greater than $350,000 and less than $2.0 million and 1% for loans of at least $2.0 million.

As of February 28, 2021, the Bank received 181 applications totaling $ 26.7 million with total estimated processing fees of $ 1.2 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total unamortized net deferred loan fees were $ 2.0 million and $ 906,618 at December 31, 2020 and 2019, respectively.

$ 1.1 million of net deferred PPP loan origination fees were unearned as of December 31, 2020.

The following table presents loans summarized by the aggregate pass and the criticized categories of special mention, substandard and doubtful within the internal risk rating system as of dates indicated.

At December 31, 2020 and 2019, there were no loans in the criticized category of loss.

December 31, Pass Special

Mention Substandard Doubtful Total

(Dollars in Thousands)

Residential $ 340,573 $ 1,115 $ 2,454 $ — $ 344,142

Commercial 320,358 37,482 15,715 — 373,555

Construction 68,343 53 4,204 — 72,600

Commercial and Industrial 113,797 7,787 4,620 609 126,813

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consumer 113,805 — 49 — 113,854

Other 13,711 78 — — 13,789

Total Loans $ 970,587 $ 46,515 $ 27,042 $ 609 $ 1,044,753

December 31, Pass Special

Mention Substandard Doubtful Total

(Dollars in Thousands)

Residential $ 343,851 $ 1,997 $ 1,918 $ — $ 347,766

Commercial 335,436 12,260 3,664 — 351,360

Construction 33,342 2,263 — — 35,605

Commercial and Industrial 75,201 7,975 1,691 719 85,586

At December 31, 2019 and 2018, there were no loans in the criticized category of loss.

The following tables present the classes of the loan portfolio summarized by the aging

categories of performing loans and nonaccrual loans as of December 31, 2019 and 2018:

Consumer 113,527 — 110 — 113,637

Other 18,452 90 — — 18,542

Total Loans $ 919,809 $ 24,585 $ 7,383 $ 719 $ 952,496

The increase of $ 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated:

Current 30-59

Past Due 60-89

Past Due 90 Days

Past Due Total

Past Due Non-

Accrual Total

(Dollars in Thousands)

Residential $ 339,067 $ 2,919 $ 315 $ — $ 3,234 $ 1,841 $ 344,142

Commercial 365,712 1 740 — 741 7,102 373,555

Construction 72,600 — — — — — 72,600

Commercial and Industrial 124,916 — — — — 1,897 126,813

Consumer 112,952 784 61 8 853 49 113,854

Other 13,789 — — — — — 13,789

Total Loans $ 1,029,036 $ 3,704 $ 1,116 $ 8 $ 4,828 $ 10,889 $ 1,044,753

Current 30-59

Past Due 60-89

Past Due 90 Days

Past Due Total

Past Due Non-

Accrual Total

(Dollars in Thousands)

Residential $ 342,010 $ 3,462 $ 281 $ 196 $ 3,939 $ 1,817 $ 347,766

Commercial 351,104 22 — — 22 234 351,360

Construction 35,605 — — — — — 35,605

Commercial and Industrial 84,280 388 178 — 566 740 85,586

Total unrecorded interest income related to nonaccrual loans was $74,000 and $66,000

for year ended December 31, 2019 and 2018, respectively.

Consumer 112,438 923 140 26 1,089 110 113,637

Other 18,542 — — — — — 18,542

Total Loans $ 943,979 $ 4,795 $ 599 $ 222 $ 5,616 $ 2,901 $ 952,496

The increase in nonaccrual commercial real estate loans at December 31, 2020 compared to December 31, 2019 is 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.

The increase in nonaccrual commercial and industrial loans is primarily related to a $ 1.3 million relationship.

Total unrecorded interest income related to nonaccrual loans was $ 233,000 and $ 74,000 for the year ended December 31, 2020 and 2019, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the loans considered impaired and evaluated for impairment as of December

31, 2019 and 2018, are as follows:

A summary of the loans considered impaired and evaluated for impairment as of the dates indicated are as follows:

Investment Related

Allowance Unpaid

Balance Average

Investment Interest

(Dollars in Thousands)

With No Related Allowance Recorded:

Residential $ 1,183 $ — $ 1,187 $ 1,194 $ 46

Commercial 31,865 — 32,887 37,443 1,418

Construction 4,204 — 4,204 4,013 159

Commercial and Industrial 3,296 — 3,506 3,426 89

1 unchanged sentence

With A Related Allowance Recorded:

Residential $ — $ — $ — $ — $ —

Commercial 1,524 293 1,524 1,585 72

Construction — — — — —

Commercial and Industrial 2,069 356 2,069 2,114 57

1 unchanged sentence

Total Impaired Loans:

Residential $ 1,183 $ — $ 1,187 $ 1,194 $ 46

Commercial 33,389 293 34,411 39,028 1,490

Construction 4,204 — 4,204 4,013 159

Commercial and Industrial 5,365 356 5,575 5,540 146

Total Impaired Loans $ 44,141 $ 649 $ 45,377 $ 49,775 $ 1,841

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Related

Allowance Unpaid

Balance Average

Investment Interest

(Dollars in Thousands)

With No Related Allowance Recorded:

Residential $ 549 $ — $ 553 $ 494 $ 20

Commercial 3,058 — 3,077 3,335 177

Construction — — — — —

Commercial and Industrial 133 — 135 156 6

1 unchanged sentence

With A Related Allowance Recorded:

Residential $ — $ — $ — $ — $ —

Commercial 1,646 274 1,646 1,702 81

Construction — — — — —

Commercial and Industrial 2,378 610 2,529 2,448 113

1 unchanged sentence

Total Impaired Loans:

Residential $ 549 $ — $ 553 $ 494 $ 20

Commercial 4,704 274 4,723 5,037 258

Construction — — — — —

Commercial and Industrial 2,511 610 2,664 2,604 119

Total Impaired Loans $ 7,764 $ 884 $ 7,940 $ 8,135 $ 397

TDRs typically are the result of loss mitigation activities whereby concessions are granted

to minimize loss and avoid foreclosure or repossession of collateral.

The concessions granted for the TDRs in the portfolio primarily

consist of, but are not limited to, modification of payment or other terms and extension of maturity date.

Loans classified as

TDRs consisted of 16 and 12 loans totaling $3.0 and $3.6 million as of December 31, 2019 and 2018, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2019, one residential real estate TDR loan paid off.

During the year ended December 31, 2018, one commercial and industrial TDR loan was fully charged-off due to declining financial

In addition, two commercial real estate TDR loans, a commercial and industrial TDR loan, a residential mortgage loan

acquired as part of the FWVB merger, and a consumer TDR loan paid off in-full.

Other than the one commercial and industrial TDR loan that was fully charged-off due

to declining financial information during the year ended December 31, 2018, no TDRs subsequently defaulted during the years ended

December 31, 2019 and 2018, respectively.

The following table presents information at the time of modification related to loans

modified as TDRs during the periods indicated.

The increase in commercial real estate loans and construction loans evaluated for impairment at December 31, 2020 compared to December 31, 2019 is primarily due to the Company evaluating the hospitality portfolio for impairment in light of the industry conditions caused by the COVID-19 pandemic.

The following table provides details of loans in forbearance at the date indicated.

December 31, Number

Loans Amount % of Portfolio

(Dollars in Thousands)

Year Ended December 31, 2019

Year Ended December 31, 2018

Residential 4 $ 749 0.2 %

Commercial 8 19,818 5.3 %

Construction 1 1,958 2.7 %

Commercial and Industrial 5 1,219 1.0 %

Loans acquired in connection with the previous mergers were recorded at their estimated

fair value at the acquisition date and did not include a carryover of the allowance for loan losses because the determination of

the fair value of acquired loans incorporated credit risk assumptions.

The loans acquired with evidence of deterioration in credit

quality since origination for which it was probable that all contractually required payments would not be collected were not significant

to the consolidated financial statements of the Company.

The following table presents changes in the accretable discount on the loans acquired

at fair value for the dates indicated (dollars in thousands).

Accretable Discount

Balance at December 31, 2017

Accretable Discount Related to FWVB Merger

Accretable Yield

Adjustment due to Unexpected Early Payoffs

Nonaccretable Premium

Balance at December 31, 2018

Accretable Yield

Balance at December 31, 2019

Consumer 13 356 0.3 %

Other — — — %

Total Loans in Forbearance 31 $ 24,100 2.3 %

Loans on deferral at December 31, 2020 include the following:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain directors and executive officers of the Company, including family members or

companies in which they are principal owners, are loan customers of the Company.

Such loans are made in the normal course of business,

and summarized as follows:

• Hospitality - three commercial real estate loans totaling $ 8.2 million and a $ 2.0 million construction loan.

• Office and retail space - two commercial real estate loans totaling $ 8.3 million.

• One commercial relationship that rents equipment, supplies and other materials for events comprised three commercial real estate loans totaling $ 3.3 million, and five commercial and industrial loans totaling $ 1.2 million.

The majority of the commercial real estate loans, construction loans and commercial and industrial loans in the above table are on deferral for six months with regular payments scheduled to begin in July 2021.

The concessions granted for the TDRs in the portfolio primarily consist of, but are not limited to, modification of payment or other terms and extension of maturity date.

Loans classified as TDRs consisted of 17 and 18 loans totaling $ 4.2 million and $ 3.6 million as of December 31, 2020 and 2019, respectively.

During the year ended December 31, 2020, two residential real estate loan totaling $ 83,000 and one commercial and industrial loan totaling $ 1,000 modified in TDRs paid off.

During the year ended December 31, 2019, one residential real estate loan modified in a TDR totaling $ 851,000 paid off.

No TDRs subsequently defaulted during the years ended December 31, 2020 and 2019, respectively.

The following table presents information at the time of modification related to loans modified as TDRs during the periods indicated.

Year Ended December 31, 2020 Number

Contracts Pre-

Investment Post-

Investment Related

(Dollars in Thousands)

Balance, January 1

Balance, December 31

The activity in the allowance for loan loss summarized by primary segments and segregated

into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated

for potential impairment as of December 31, 2019 and 2018 is summarized below:

Residential 1 $ 234 $ 234 $ —

Commercial 2 1,248 1,263 —

Commercial and Industrial 1 38 38 —

Total 4 $ 1,520 $ 1,535 $ —

Year Ended December 31, 2019 Number

Contracts Pre-

Investment Post-

Investment Related

(Dollars in Thousands)

Beginning Balance

Ending Balance

Residential 3 $ 175 $ 175 —

Commercial 2 426 426 —

Total 5 $ 601 $ 601 —

Loans acquired in connection with the previous mergers were recorded at their estimated fair value at the acquisition date and did not include a carryover of the allowance for loan losses because the determination of the fair value of acquired loans incorporated credit risk assumptions.

The loans acquired with evidence of deterioration in credit quality since origination for which it was probable that all contractually required payments would not be collected were not significant to the consolidated financial statements of the Company.

The activity in the allowance for loan loss summarized by primary segments and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment as of December 31, 2020 and 2019 is summarized below:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Residential Real

Commercial Real

Construction Commercial

Industrial Consumer Other Unallocated Total

)Dollars in Thousands)

December 31, 2019 $ 2,023 $ 3,210 $ 285 $ 2,412 $ 1,417 $ — $ 520 $ 9,867

Charge-offs ( 65 ) ( 931 ) — — ( 329 ) — — ( 1,325 )

Recoveries 6 28 — 33 162 — — 229

Provision 285 3,703 604 ( 1,022 ) 33 — 397 4,000

December 31, 2020 $ 2,249 $ 6,010 $ 889 $ 1,423 $ 1,283 $ — $ 917 $ 12,771

Individually Evaluated for Impairment $ — $ 293 $ — $ 356 $ — $ — $ — $ 649

Collectively Evaluated for Potential Impairment $ 2,249 $ 5,717 $ 889 $ 1,067 $ 1,283 $ — $ 917 $ 12,122

Beginning Balance

Ending Balance

Residential Real

Commercial Real

Construction Commercial

Industrial Consumer Other Unallocated Total

(Dollars in Thousands)

December 31, 2018 $ 1,050 $ 2,693 $ 395 $ 2,807 $ 2,027 $ — $ 586 $ 9,558

Charge-offs ( 96 ) — — ( 16 ) ( 609 ) — — ( 721 )

Recoveries 12 73 — 85 135 — — 305

Provision 1,057 444 ( 110 ) ( 464 ) ( 136 ) — ( 66 ) 725

December 31, 2019 $ 2,023 $ 3,210 $ 285 $ 2,412 $ 1,417 $ — $ 520 $ 9,867

Individually Evaluated for Impairment $ — $ 274 $ — $ 610 $ — $ — $ — $ 884

Collectively Evaluated for Potential Impairment $ 2,023 $ 2,936 $ 285 $ 1,645 $ 1,574 $ — $ 520 $ 8,983

The increase in the allowance for loan loss in the residential and commercial real estate

categories was primarily driven by volume as well as an increase in qualitative factors related to changes in trends and concentrations

within the segments.

In addition, while the majority of the charge-offs in the current year were related to indirect loans in the

consumer portfolio, the allowance for loan loss in the consumer category declined from a year-over-year decrease in segment balance

and a decrease in qualitative factors primarily from instituting more conservative indirect underwriting standards to improve the

credit quality of the portfolio.

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.

Prior to 2020, management determined historical loss experience for each segment of loans using a two-year rolling average of the net charge-off data within each loan segment, which was then used in combination with qualitative factors to calculate the general allowance component that covers pools of homogeneous loans that are not specifically evaluated for impairment.

Starting in 2020, the Company began using a five-year rolling average of the net charge-off data within each segment.

This change was driven by no net charge-off experience in the commercial real estate and commercial and industrial segments in the prior two-year rolling period as of March 31, 2020, which the Company determined did not represent the inherent risks in those segments.

In the first quarter of 2018, the Company incurred $ 1.4 million of commercial and industrial charge-offs, however this period would have been removed from the lookback period as of March 31, 2020 if continuing to use a two-year history.

In addition, moving to a five-year history is expected to improve the calculation moving forward by capturing economic ebbs and flows over a longer period while also not heavily weighting one period of charge-off activity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the major classifications of loans summarized by individually

evaluated for impairment and collectively evaluated for potential impairment as of December 31, 2019 and 2018:

The following tables present the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of December 31, 2020 and 2019:

December 31, Real

Residential Real

Commercial Real

Construction Commercial

Industrial Consumer Other Total

(Dollars in Thousands)

1 unchanged sentence

Collectively Evaluated for Potential Impairment 342,959 340,166 68,396 121,448 113,854 13,789 1,000,612

Total Loans $ 344,142 $ 373,555 $ 72,600 $ 126,813 $ 113,854 $ 13,789 $ 1,044,753

Residential Real

Commercial Real

Construction Commercial

Industrial Consumer Other Total

)Dollars in Thousands)

Individually Evaluated for Impairment $ 549 $ 4,704 $ — $ 2,511 $ — $ — $ 7,764

Collectively Evaluated for Potential Impairment 347,217 346,656 35,605 83,075 113,637 18,542 944,732

Total Loans $ 347,766 $ 351,360 $ 35,605 $ 85,586 $ 113,637 $ 18,542 $ 952,496

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

Accretable Discount

(Dollars in Thousands)

Balance at December 31, 2018

Accretable Yield ( 284 )

Balance at December 31, 2019

Accretable Yield ( 434 )

Balance at December 31, 2020

Certain directors and executive officers of the Company, including family members or companies in which they are principal owners, are loan customers of the Company.

Such loans are made in the normal course of business, and summarized as follows:

December 31, 2020 2019

(Dollars in Thousands)

Balance, January 1 $ 10,802 $ 6,234

Additions 505 5,875

Payments ( 414 ) ( 1,307 )

Balance, December 31 $ 10,893 $ 10,802

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5— PREMISES AND EQUIPMENT

1 unchanged sentence

(Dollars in Thousands)

Land $ 3,699 $ 3,833

Building 23,299 25,172

Leasehold Improvements 1,148 1,624

1 unchanged sentence

Fixed Assets in Process 45 65

Less Accumulated Depreciation and Amortization

Total Premises and Equipment 39,295 42,294

Depreciation and amortization expense on premises and equipment was $1.2 million and

$1.3 million for the years ended December 31, 2019 and 2018, respectively.

NOTE 7—CORE DEPOSIT INTANGIBLE & GOODWILL

A summary of core deposit intangible assets is as follows (dollars in thousands):

Balance at December 31, 2017

Addition of Core Deposit Intangible from FWVB Merger

Amortization Expense

Balance at December 31, 2018

Amortization Expense

Balance at December 31, 2019

Core deposit intangible assets related to the FWVB merger totaled $9.1 million, with

an estimated life of approximately 6.5 years, and the FedFirst merger totaled $5.0 million, with an estimated life of approximately

Amortization expense on the core deposit intangible is expected to be approximately $1.9 million per year and is expected

to total approximately $9.7 million over the next five years.

Accumulated Depreciation and Amortization ( 18,993 ) ( 20,012 )

Premises and Equipment, Net $ 20,302 $ 22,282

Depreciation and amortization expense on premises and equipment was $ 1.1 million and $ 1.2 million for the years ended December 31, 2020 and 2019, respectively.

NOTE 6— GOODWILL AND INTANGIBLE ASSETS

The COVID-19 pandemic that has impacted the U.S.

and most of the world along with government response to curtail the spread of the virus beginning in March 2020 has significantly impacted our market area.

These restrictions have resulted in significant adverse effects on macroeconomic conditions, and stock market valuations have decreased substantially for most companies in the banking sector, including the Company.

In light of the adverse circumstances resulting from COVID-19, management determined it was necessary to quantitatively evaluate goodwill for impairment at September 30, 2020.

Determining the fair value of a reporting unit under a quantitative goodwill impairment test is judgmental and involves the use of significant estimates and assumptions.

The methodology used to assess impairment was a combination of the income approach (i.e.

discounted cash flow (“DCF”) method) and the market approach (i.e.

Guideline Public Company ("GPC") method) to determine the fair value.

In the application of the income approach, the Company determined the fair value of the reporting unit using a DCF analysis.

The income approach uses valuation techniques to convert future earnings or cash flows to present value to arrive at a value that is indicated by market expectations about future amounts.

The income approach relies on Level 3 inputs along with a market-derived cost of capital when measuring fair value.

Fair value is determined by converting anticipated benefits into a present single value.

Once the benefit or benefits are selected, an appropriate discount or capitalization rate is applied to each benefit.

These rates are calculated using the appropriate measure for the size and type of company, using financial models and market data as required.

The discount rate was derived based on the modified capital asset pricing model.

The discount rate applied is comprised of a risk-free rate of return, an equity risk premium, a size premium and a factor covering the systemic market risk and a company specific risk premium.

The values for the factors applied are determined primarily using external sources of information.

The discount rate was estimated at 13.3 %.

Using the discount rate derived from the above components, the Company subtracted an expected sustainable long-term growth estimate of 3.0 % given expected growth in the geographic market and the overall long-term economy to arrive at a capitalization rate of 10.3 %.

The DCF model also used prospective financial information.

For purposes of the impairment test, the Company’s financial plans for the remainder of 2020 through 2024 were updated for the projected impact of COVID-19 on the net revenue growth and asset utilization.

Estimating future earnings and capital requirements involves judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments.

The market approach uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities.

The fair value measure is based on the value that those transactions indicate.

Under the market approach, the Company utilized Level 1 and 2 inputs when measuring fair value.

In the application of the market approach, the GPC method of appraisal is based on the premise that pricing multiples of publicly traded companies can be used as a tool to be applied in valuing a closely held entity.

A value multiple or ratio relates a stock’s market price to the reported accounting data such as revenue, earnings, and book value.

These ratios provide an objective basis for measuring the market’s perception of a stock’s fair value.

Value ratios generally reflect the trends in growth, performance and stability of the financial results of operations.

In this way, the business and financial risks exhibited by an industry or group of companies can be viewed in relation to market values.

Value ratios also reflect the market’s outlook for the economy as a whole.

Guideline companies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows a reconciliation of the changes in goodwill (dollars in thousands):

Balance at December 31, 2017

Goodwill from the FWVB merger

Balance at December 31, 2018 and 2019

The total amount of goodwill above has been allocated solely to the Community Banking

provide a reasonable basis for comparison to the relative investment characteristics of the company being valued.

Utilizing publicly traded companies located in Pennsylvania and surrounding states with assets between $1.0 billion and $2.5 billion and return on assets greater than 0.5%, the Company analyzed the relationships between the guideline companies' asset size, profitability, asset quality and capital ratios and applied a control premium of 34 % to the selected guideline company multiples.

The control premium is management's estimate of how much a market participant would be willing to pay over the fair market value in consideration of synergies and other benefits that flow from control of the entity.

The Company also considered the GPC method using trading activity of publicly traded companies that are most similar to the Company.

While the banking industry typically has a sufficient level of mergers and acquisitions activity to rely on this method under the market approach, there were only seven transactions involving target institutions with assets greater than $1 billion announced since March 1, 2020 (post-COVID) through the September 30, 2020 assessment date.

Of these, only two have closed.

Therefore, the Company was unable to rely on this method in our analysis.

The Company then placed equal consideration on the results of the income and market approaches to determine the concluded fair value of the reporting unit.

The weighting is judgmental and is based on the perceived level of appropriateness of the valuation methodology.

Estimating the fair value involves the use of estimates and significant judgments that are based on a number of factors including actual operating results.

If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods and require management to further evaluate goodwill for impairment.

As a result of the quantitative goodwill impairment test and in connection with the preparation of the consolidated financial statements, the Company concluded that goodwill was impaired.

Accordingly, the Company recorded a goodwill impairment charge of $ 18.7 million for the year ended December 31, 2020 as the Company's estimated fair value was less than its book value.

This was a non-cash charge to earnings and had no impact on regulatory capital, cash flows or liquidity position.

The Company performed a qualitative assessment for the annual impairment goodwill test completed as of October 31, 2020 and December 31, 2020 to determine if there was a material change in the most recent quantitative assessment that was performed at September 30, 2020.

The Company determined there were not significant changes in macroeconomic conditions, stock price performance, overall financial performance and other relevant or entity-specific events since the most recent quantitative assessment that it is not more likely than not that goodwill was further impaired.

The following table presents the changes in the Company's carrying amount of goodwill at the dates indicated.

(Dollars in Thousands)

December 31, 2018 and 2019

Goodwill Impairment ( 18,693 )

December 31, 2020

Intangible Assets

The following table presents a summary of intangible assets subject to amortization at the dates indicated.

December 31, Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value

(Dollars in Thousands)

Core Deposit Intangible $ 14,103 $ ( 7,047 ) $ 7,056 $ 14,103 $ ( 5,108 ) $ 8,995

Customer List 1,800 ( 457 ) 1,343 1,800 ( 268 ) 1,532

Total Intangible Assets $ 15,903 $ ( 7,504 ) $ 8,399 $ 15,903 $ ( 5,376 ) $ 10,527

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization of other intangible assets totaled $ 2.1 million for the years ended December 31, 2020 and 2019.

The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets.

Estimated amortization expense of intangible assets in subsequent fiscal years is as follows.

(Dollars in Thousands)

2026 and Thereafter 396

Total Estimated Intangible Asset Amortization Expense $ 8,399

NOTE 7— DEPOSITS

The following table shows the maturities of time deposits for the next five years and

beyond as of December 31, 2019 (dollars in thousands):

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000

totaled $69.3 million and $68.0 million as of December 31, 2019 and 2018, respectively.

Certain directors and executive officers of the Company, including family members or

companies in which they are principal owners, are deposit customers of the Company.

The total deposits of directors and executive

officers was $5.7 and $5.4 million as of December 31, 2019 and 2018, respectively.

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

December 31, 2020

(Dollars in Thousands)

One Year or Less $ 87,638

Over One Through Two Years 35,507

Over Two Through Three Years 43,257

Over Three Through Four Years 7,595

Over Four Through Five Years 11,900

Over Five Years 4,116

Total $ 190,013

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $ 59.2 million and $ 69.3 million as of December 31, 2020 and 2019, respectively.

The aggregate amount of demand deposits that are overdrawn and have been reclassified as loans was $ 231,000 and $ 1.7 million as of as of December 31, 2020 and 2019, respectively.

Certain directors and executive officers of the Company, including family members or companies in which they are principal owners, are deposit customers of the Company.

The total deposits of directors and executive officers was $ 6.0 million and $ 5.7 million as of December 31, 2020 and 2019, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8— SHORT-TERM BORROWINGS

The following table sets forth the components of short-term borrowings for the years

The following table sets forth the components of short-term borrowings for the years indicated.

December 31, Amount Weighted

Rate Amount Weighted

(Dollars in Thousands)

Federal Funds Purchased:

Average Balance Outstanding During the Period

Maximum Amount Outstanding at any Month End

FHLB Borrowings:

Average Balance Outstanding During the Period

Maximum Amount Outstanding at any Month End

Securities Sold Under Agreements to Repurchase:

4 unchanged sentences

Carrying Value $ 46,312 $ 37,584

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Market Value 47,283 37,873

NOTE 9— OTHER BORROWED FUNDS

Other borrowed funds consist of fixed rate, long-term advances from the FHLB with remaining

maturities as follows:

Other borrowed funds consist of fixed rate, long-term advances from the FHLB with remaining maturities as follows:

December 31, Amount Weighted

Rate Amount Weighted

(Dollars in Thousands)

2 unchanged sentences

Due After Two Years to Three Years 3,000 2.41 3,000 2.41

Due After Three Years to Four Years

The Bank maintains a credit arrangement with the FHLB with a maximum borrowing limit

of approximately $374.8 and $373.4 million as of December 31, 2019 and 2018, respectively.

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 stock.

Under this arrangement the Bank had available a variable rate line of credit

in the amount of $147.0 million as of December 31, 2019 and 2018, respectively, of which, there was no outstanding balance as of

December 31, 2019 and 2018.

The Bank maintains a Borrower-In-Custody of Collateral line of credit agreement with

the Federal Reserve Bank (“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 and 2018, respectively.

In 2018, there was a total increase of $20.0 million in multiple line of credit agreements due to the FWVB merger.

As of December

31, 2019 and 2018, no draws had been taken on these credit facilities.

Total $ 8,000 2.27 $ 14,000 2.14

The Bank maintained a credit arrangement with the FHLB with a maximum borrowing limit of approximately $ 421.5 million and $ 374.8 million as of December 31, 2020 and 2019, respectively, and available borrowing capacity of $ 320.8 million at December 31, 2020.

This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $ 564.7 million of residential and commercial mortgage loans and the Bank’s investment in FHLB stock.

Under this arrangement the Bank had available a variable rate line of credit in the amount of $ 150.0 million as of December 31, 2020 and 2019, respectively, of which, there was no outstanding balance as of December 31, 2020 and 2019.

As an alternative to pledging securities, the FHLB periodically provides standby letters of credit on behalf of the Bank to secure certain public deposits in excess of the level insured by the FDIC.

If the FHLB is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to the Bank.

Standby letters of credit issued on our behalf by the FHLB to secure public deposits were $ 90.3 million and $ 41.7 million as of December 31, 2020 and 2019.

The Bank maintains a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $ 91.5 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $ 133.8 million of 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, 2020 and 2019, respectively, of which no draws had been taken.

The Company is not a party to any credit arrangements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10— INCOME TAXES

Reconciliation of income tax provision for the years ended December 31, 2019 and 2018

are as follows:

Reconciliation of income tax provision for the periods indicated are as follows:

Year Ended December 31, 2020 2019

(Dollars in Thousands)

Current Payable $ 1,485 $ 2,343

Deferred (Benefit) Expense

Deferred Benefit ( 237 ) ( 614 )

Total Provision $ 1,248 $ 1,729

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of deductible and taxable temporary differences that gave rise to significant

portions of the net deferred tax assets and liabilities are as follows:

in thousands)

The tax effects of deductible and taxable temporary differences that gave rise to significant portions of the net deferred tax assets and liabilities are as follows:

December 31, 2020 2019

(Dollars in Thousands)

Deferred Tax Assets:

5 unchanged sentences

Postretirement Benefits 25 27

Net Unrealized Loss on Securities

Net Unrealized Loss on Equity Securities 71 —

Stock-Based Compensation Expense 74 42

Gas Lease - Deferred Revenue 102 130

Accrued Payroll

Purchase Accounting Adjustments - Acquired Loans 255 348

Lease Liability 260 278

Deferred Compensation

Gross Deferred Tax Assets Before Valuation Allowance

100% Valuation Allowance - AMT Tax Credit Carryforward (1)

Gross Deferred Tax Assets 4,570 5,064

2 unchanged sentences

Discount Accretion 37 52

Depreciation 1,292 892

Net Unrealized Gain on Securities 933 725

1 unchanged sentence

Mortgage Servicing Rights 141 199

ROU Asset 259 277

Purchase Accounting Adjustment - Core Deposit Intangible 1,513 1,930

1 unchanged sentence

Purchase Accounting Adjustments - Certificates of Deposit — 16

Goodwill 74 413

Gross Deferred Tax Liabilities 4,636 5,159

Net Deferred Tax Assets (Liabilities)

(1) 100% valuation allowance for AMT tax credit carryforward acquired in the FWVB merger.

See below narrative for further explanation.

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.

Net Deferred Tax Liabilities $ ( 66 ) $ ( 95 )

Deferred taxes at December 31, 2020 and 2019, are included in Accrued Interest Receivable and Other Assets in the accompanying Consolidated Statement of Financial Condition.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

This 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.

Deferred taxes at December 31, 2019 and 2018, are included in other assets in the accompanying

Consolidated Statement of Financial Condition.

A reconciliation of the federal income tax expense at statutory income tax rates and

the actual income tax expense on income before taxes is shown below:

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.

This is 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.

This 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, for the year ended December 31, 2019, 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, 2020 and 2019.

A reconciliation of the federal income tax expense at statutory income tax rates and the actual income tax expense on income before taxes for the periods indicated is as follows:

Year Ended December 31, Amount Percent of Pre-tax Income Amount Percent of Pre-tax Income

(Dollars in Thousands)

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Tax-Free Income ( 276 ) 2.9 ( 324 ) ( 2.0 )

Merger Expenses

BOLI Income ( 123 ) 1.3 ( 118 ) ( 0.7 )

Stock Options - ISO 29 ( 0.3 ) 35 0.2

Goodwill Impairment 3,594 ( 38.3 ) — —

Reversal of the AMT Tax Credit Carryforward VA — — ( 1,311 ) ( 8.2 )

Other ( 120 ) 1.3 ( 80 ) ( 0.5 )

Actual Tax Expense and Effective Rate $ 1,248 ( 13.3 ) % $ 1,729 10.8 %

The Company’s federal, Pennsylvania and West Virginia income tax returns are no

longer subject to examination by applicable tax authorities for years before 2016.

As of December 31, 2019 and 2018, there were

no unrecognized tax benefits.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense

and penalties in operating expenses.

The Company’s federal, Pennsylvania and West Virginia income tax returns are no longer subject to examination by applicable tax authorities for years before 2017.

As of December 31, 2020 and 2019, there were no unrecognized tax benefits.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

There were no interest or penalties accrued at December 31, 2020 and 2019.

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Savings and Profit Sharing Plan

The Company maintains a Cash or Deferred Profit-sharing Section 401(k) Plan with contributions

matching those by eligible employees for the first 4% of an employee’s contribution at the rate of $0.25 on the dollar.

employees who are over the age of 18 and completed six months of employment are eligible to participate in the plan.

made contributions of $199,000 and $172,000 for the years ended December 31, 2019 and 2018, respectively, to this plan.

Plan includes a “safe harbor” provision and a discretionary retirement contribution.

The Company made contributions

of $706,000 and $752,000 for the “safe harbor” provision and discretionary retirement contribution for the years ended

December 31, 2019 and 2018, respectively.

The Company maintains a Cash or Deferred Profit-sharing Section 401(k) Plan with contributions matching those by eligible employees for the first 4 % of an employee’s contribution at the rate of $ 0.25 on the dollar.

All employees who are over the age of 18 and completed six months of employment are eligible to participate in the plan.

The Company made contributions of $ 234,000 and $ 199,000 for the years ended December 31, 2020 and 2019, respectively, to this plan.

The 401(k) Plan includes a “safe harbor” provision and a discretionary retirement contribution.

The Company made contributions of $ 620,000 and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2015 EQUITY INCENTIVE PLAN AND STOCK OPTION PLANS

Details of the restricted stock awards and stock option grant under the 2015 Equity Incentive

Plan are summarized as follows for the years ended December 31, 2019 and 2018 as follows.

$ 706,000 for the “safe harbor” provision and discretionary retirement contribution for the years ended December 31, 2020 and 2019, respectively.

2015 Equity Incentive Plan

Details of the restricted stock award and stock option grants under the 2015 Equity Incentive Plan are summarized for the years ended December 31, 2020 and 2019 as follows.

Number of Restricted Shares Granted 42,100 33,350

3 unchanged sentences

Stock Options Market Value Before Tax $ 31,000 $ 18,000

Stock option pricing assumptions

Summary of Significant Assumptions for Newly Issued Stock Options

Expected Life in Years 6.5 6.5

3 unchanged sentences

Weighted Average Grant Date Fair Value $ 2.08 $ 3.52

The Company generally recognizes expense over a five-year vesting period for the restricted

stock awards and stock options.

Stock-based compensation expense related to restricted stock awards and stock options was $323,000

and $482,000 for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019 and 2018, total unrecognized

compensation expense was $363,000 and $596,000, respectively, related to stock options, and $1.4 million and $473,000 related to

restricted stock awards.

The Company accrued tax benefit for non-qualified stock options of $11,000 and $12,000 for the years ended

December 31, 2019 and 2018, respectively.

Intrinsic value represents the amount by which the fair value of the underlying stock

at December 31, 2019 and 2018, exceeds the exercise price of the stock options.

The intrinsic value of stock options was $1.4 million

and $409,000 at December 31, 2019 and 2018, respectively.

At December 31, 2019 and 2018, respectively, there were 13,359 and 12,306 shares available

under the Plan to be issued in connection with the exercise of stock options, and 60,124 and 93,074 shares that may be issued as

restricted stock awards or units.

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 Company generally recognizes expense over a five-year vesting period for the restricted stock awards and stock options.

Stock-based compensation expense related to restricted stock awards and stock options was $ 498,000 and $ 323,000 for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020 and 2019, total unrecognized compensation expense was $ 148,000 and $ 363,000 , respectively, related to stock options, and $ 1.8 million and $ 1.4 million related to restricted stock awards.

The Company accrued tax benefit for non-qualified stock options of $ 11,000 and $ 11,000 for the years ended December 31, 2020 and 2019, respectively.

Intrinsic value represents the amount by which the fair value of the underlying stock at December 31, 2020 and 2019, exceeds the exercise price of the stock options.

The intrinsic value of stock options was $ 21,000 and $ 1.4 million at December 31, 2020 and 2019, respectively.

At December 31, 2020 and 2019, respectively, there were 19,723 and 13,359 shares available under the Plan to be issued in connection with the exercise of stock options, and 22,144 and 60,124 shares that may be issued as restricted stock awards or units.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents stock option data for the years indicated:

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual

Life in Years

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual

Life in Years Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual

Life in Years

Outstanding at beginning of year 245,153 $ 24.36 6.5 248,006 $ 24.39 7.5

Granted 15,000 18.60 5,000 23.60

Exercised ( 20,106 ) 22.69 ( 1,800 ) 22.25

Forfeited ( 21,364 ) 26.55 ( 6,053 ) 25.57

Outstanding at end of year 218,683 23.91 5.8 245,153 24.36 6.5

Exercisable at end of year 180,241 $ 23.80 5.4 166,974 $ 23.71 6.3

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Service Period in Years

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Service Period in Years

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years

Nonvested at end of year 38,442 $ 24.40 8.0 78,179 $ 25.76 7.0

The following table presents restricted stock award data at the dates indicated.

Number of Shares

Weighted Average Grant Date Fair Value Price

Weighted Average Remaining Service Period in Years

Number of Shares Weighted Average Grant Date Fair Value Price Weighted Average Remaining Service Period in Years

Nonvested at December 31, 2018 18,750 $ 25.45 5.0

Granted 33,350 30.32 9.9

Vested ( 3,670 ) 25.45 4.0

Forfeited ( 400 ) 25.45

Nonvested at December 31, 2019 48,030 $ 28.83 8.1

Granted 42,100 20.17 5.5

Vested ( 9,820 ) 28.45 6.6

Forfeited ( 4,120 ) 29.08

Nonvested at December 31, 2020 76,190 $ 24.08 6.3

NOTE 12— COMMITMENTS AND CONTINGENT LIABILITIES

The Company is a party to financial instruments with off-balance-sheet risk in the normal

course of business primarily to meet the financing needs of its customers.

These financial instruments include commitments to extend

credit and standby and performance letters of credit.

Those instruments involve, to varying degrees, elements of credit and interest

rate risk in excess of the amount recognized in the Statement of Financial Condition.

The contract amounts of those instruments

reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other

party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented

by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments and conditional

obligations as it does for on-balance-sheet instruments.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers.

These financial instruments include commitments to extend credit and standby and performance letters of credit.

Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Statement of Financial Condition.

The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The unused and available credit balances of financial instruments whose contracts represent

credit risk at December 31, 2019 and 2018 are as follows:

The unused and available credit balances of financial instruments whose contracts represent credit risk are as follows:

December 31, 2020 2019

(Dollars in Thousands)

1 unchanged sentence

Performance Letters of Credit 2,947 2,521

Commitments to Extend Credit

Construction Mortgages 60,312 59,689

3 unchanged sentences

Commercial Lines of Credit 69,738 102,422

Commitments to extend credit are agreements to lend to a customer as long as there is

no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Because many of the commitments are expected to expire without being drawn upon, the

total commitment amounts do not necessarily represent future cash requirements.

The Company evaluates each customer’s creditworthiness

on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based

on management’s credit evaluation of the counterparty.

Collateral held varies, but may include accounts receivable, inventory,

property, plant and equipment, and income-producing commercial properties.

Performance letters of credit represent conditional commitments issued by the Company

to guarantee the performance of a customer to a third party.

These instruments are issued primarily to support bid or performance-related

The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior

approval by management.

Total $ 168,444 $ 198,438

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty.

Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

These instruments are issued primarily to support bid or performance-related contracts.

The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management.

Fees earned from the issuance of these letters are recognized upon expiration of the letter.

letters of credit, the collateral is typically Company deposit instruments or customer business assets.

The Company has recorded

no liability associated with standby letters of credit as of December 31, 2019 and 2018.

For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets.

The Company recorded no liability associated with standby letters of credit as of December 31, 2020 and 2019.

NOTE 13— REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by the federal

banking agencies.

Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary

actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines

that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory

accounting practices.

The capital amounts and classification are also subject to qualitative judgments by the regulators about

components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the

Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average

Management believes, as of December 31, 2019, that the Bank met all capital adequacy requirements to which it was subject

at that date.

As of December 31, 2019, the Bank was considered well capitalized under the regulatory

framework for prompt corrective action.

There are no conditions or events since that notification that management believes have

changed the institution’s category.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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

As of December 31, 2020 and 2019, the Bank was considered "well capitalized" under the regulatory framework for prompt corrective action.

At December 31, 2020, the Bank's capital ratios were not affected by loans modified in accordance with Section 4013 of the CARES Act.

In addition, PPP loans received a zero-percent risk weight under the regulatory capital rules regardless of whether they were pledged as collateral to the Federal Reserve Bank's PPP lending facility, but were included in the Bank's leverage ratio requirement due to the Bank not pledging the loans as collateral to the PPP lending facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Bank’s actual capital ratios are presented in the following table, which shows

that it met all regulatory capital requirements at December 31, 2019 and 2018.

The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios

required to be well capitalized at December 31, 2020 and 2019.

December 31, Amount Ratio Amount Ratio

(Dollars in Thousands)

December 31, 2019

December 31, 2018

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

Actual $ 108,950 11.79 % $ 101,703 11.43 %

For Capital Adequacy Purposes 41,598 4.50 40,050 4.50

1 unchanged sentence

Tier I Capital (to Risk-Weighted Assets)

Actual 108,950 11.79 101,703 11.43

For Capital Adequacy Purposes 55,464 6.00 53,401 6.00

1 unchanged sentence

Total Capital (to Risk-Weighted Assets)

Actual 120,520 13.04 111,570 12.54

For Capital Adequacy Purposes 73,952 8.00 71,201 8.00

1 unchanged sentence

Tier I Leverage Capital (to Adjusted Total Assets)

Actual 108,950 7.81 101,703 7.85

For Capital Adequacy Purposes 55,765 4.00 51,838 4.00

3 unchanged sentences

In accordance with ASC Topic 842, leases are defined as either operating or finance leases.

The Company identified 12 lease contracts

as of ASC Topic 842 adoption date, January 1, 2019.

All lease contracts were classified as operating leases and created operating

ROU assets and corresponding lease liabilities on the balance sheet.

The leases are ROU assets of land and building for branch

and loan production locations.

The Company adopted ASC Topic 842 using the prospective method approach to all identified lease

contracts or agreements, which permitted the Company to not restate comparative periods.

In addition, since there were no readily

determinable rates implicit in the operating leases, the incremental borrowing rate based on the lease term was used upon lease

inception or as of the January 1, 2019 transition date.

Rental expense was $808,000 for the year ended December 31, 2018.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the ROU assets, lease expense, weighted average term, discount

rate and maturity analysis of lease liabilities for operating leases for the periods indicated (dollars in thousands).

The Company's lease contracts are classified as operating leases and create operating ROU assets and corresponding lease liabilities on the balance sheet.

The leases are ROU assets of land and building for branch and loan production locations.

The Company adopted ASC Topic 842 using the prospective method approach to all identified lease contracts or agreements, which permitted the Company to not restate comparative periods.

In addition, since there were no readily determinable rates implicit in the operating leases, the incremental borrowing rate based on the lease term was used upon lease inception or as of the January 1, 2019 transition date.

ROU assets are reported in Accrued Interest Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated Statement of Financial Condition.

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

Year Ended December 31, 2020 2019

(Dollars in Thousands)

Operating Lease Expense $ 547 $ 459

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Total Lease Expense $ 583 $ 497

December 31, 2020 2019

(Dollars in Thousands

Operating Leases:

Operating Cash Flows

ROU Assets $ 1,206 $ 1,289

Weighted Average Lease Term in Years 6.95 7.06

Weighted Average Discount Rate 2.39 % 2.89 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

(Dollars in Thousands)

Maturity Analysis:

5 unchanged sentences

Due After Five Years 364

Total $ 1,334

Present Value Discount 125

Lease Liabilities $ 1,209

NOTE 15— MORTGAGE SERVICING RIGHTS

The following table presents MSR activity and net carrying values for the periods indicated.

Servicing Rights Valuation Allowance Net Carrying Value

(Dollars in Thousands)

December 31, 2018 $ 921 $ — $ 921

Additions 108 — 108

Amortization ( 28 ) — ( 28 )

Temporary impairment — ( 71 ) ( 71 )

December 31, 2019 1,001 ( 71 ) 930

Additions 280 — 280

Amortization ( 252 ) — ( 252 )

Temporary impairment — ( 302 ) ( 302 )

December 31, 2020 $ 1,029 $ ( 373 ) $ 656

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $ 105.8 million and $ 100.0 million at December 31, 2020 and 2019, respectively.

NOTE 16— FAIR VALUE DISCLOSURE

ASC Topic 820 “Fair Value Measurement” defines fair value and provides the

framework for measuring fair value and required disclosures about fair value measurements.

Fair value is defined as the price that

would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal

or most advantageous market for the asset or liability at the transaction date.

ASC 820 establishes a fair value hierarchy that

prioritizes the inputs used in valuation methods to determine fair value.

ASC Topic 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements.

Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date.

ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.

The three levels of fair value hierarchy are as follows:

Level 1 - Fair value is based on unadjusted quoted prices in active markets that are

accessible to the Company for identical assets.

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

value whenever available.

Level 2 - Fair value is based on significant inputs, other than Level 1 inputs, that

are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable

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 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 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.

Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the financial assets measured at fair value on a recurring

basis and reported on the Consolidated Statement of Financial Condition as of December 31, 2019 and 2018, by level within the fair

value hierarchy.

This hierarchy requires the use of observable market data when available.

The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated Statement of Financial Condition as of the dates indicated, by level within the fair value hierarchy.

The majority of the Company’s securities are included in Level 2 of the fair value hierarchy.

for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets,

when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments

with similar prepayment speeds and default interest rates.

The standard inputs that are normally used include benchmark yields

of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers,

and reference data including market research publications.

There were no transfers from Level 1 to Level 2 and no transfers into

or out of Level 3 during the years ended December 31, 2019 and 2018, respectively.

Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates.

The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

There were no transfers from Level 1 to Level 2 and no transfers into or out of Level 3 during the years ended December 31, 2020 and 2019, respectively.

December 31, Fair Value Hierarchy 2020 2019

(Dollars in Thousands)

Available for Sale Securities:

Debt Securities

Government Agencies

Obligations of States and Political Subdivisions

Mortgage-Backed Securities - Government-Sponsored Enterprises

Total Debt Securities

Marketable Equity Securities

Total Marketable Equity Securities

Total Available for Sale Securities

The following table presents the financial assets measured at fair value on a nonrecurring

basis on the Consolidated Statement of Financial Condition as of the dates indicated by level within the fair value hierarchy.

Available-for-Sale Debt Securities

Government Agencies Level 2 $ 41,411 $ 48,056

Obligations of States and Political Subdivisions Level 2 21,993 25,843

Mortgage-Backed Securities - Government-Sponsored Enterprises Level 2 79,493 120,776

Total Available-for-Sale Debt Securities 142,897 194,675

Equity Securities

Mutual Funds Level 1 1,019 997

Other Level 1 1,484 1,713

Total Equity Securities 2,503 2,710

Total Securities $ 145,400 $ 197,385

The following table presents the financial assets measured at fair value on a nonrecurring basis on the Consolidated Statement of Financial Condition as of the dates indicated by level within the fair value hierarchy.

The table also presents the significant unobservable inputs used in the fair value measurements.

Impaired loans that are collateral

dependent are written down to fair value through the establishment of specific reserves.

Techniques used to value the collateral

that secure the impaired loans include quoted market prices for identical assets classified as Level 1 inputs or observable inputs,

employed by certified appraisers, for similar assets classified as Level 2 inputs.

In cases where valuation techniques included

inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available

under each circumstance, the asset valuation is classified as Level 3 inputs.

Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves.

Techniques used to value the collateral that secure the impaired loans include quoted market prices for identical assets classified as Level 1 inputs or observable inputs, employed by certified appraisers, for similar assets classified as Level 2 inputs.

In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level 3 inputs.

Fair Significant

Value Fair Value at December 31, Valuation Unobservable Weighted

Financial Asset Hierarchy 2020 2019 Technique Inputs Range Average

(Dollars in Thousands)

Fair Value at December 31,

Financial Asset

Unobservable Inputs

Impaired Loans

Market Comparable Properties

Marketability Discount

Market Comparable Properties

Marketability Discount

includes discounts taken since appraisal and estimated values.

Impaired loans are evaluated and valued at the time the loan is identified as impaired,

at the lower of cost or fair value.

Fair value is measured based on the value of the collateral securing these loans and is classified

as Level 3 in the fair value hierarchy.

At December 31, 2019 and 2018, the fair value of impaired loans consists of the loan balance

of $4.0 million and $1.8 million less their specific valuation allowances of $884,000 and $1.0 million, respectively.

OREO properties are evaluated at the time of acquisition and recorded at fair value,

less estimated selling costs.

Impaired Loans Individually Assessed Level 3 $ 2,944 $ 3,140 Appraisal of Collateral (1)

Appraisal Adjustments (2)

0 % to 50 % —

MSRs Level 3 656 930 Discounted Cash Flow Discount Rate 9 % to 11 % 10.0 %

Prepayment Speed 12 % to 27 % 18.7 %

OREO Level 3 34 58 Appraisal of Collateral (1)

Liquidation Expenses (2)

10 % to 30 % —

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value.

Fair value is measured based on the value of the collateral securing the loans and is classified as Level 3 in the fair value hierarchy.

At December 31, 2020 and 2019, the fair value of impaired loans consists of the loan balance of $ 3.6 million and $ 4.0 million less their specific valuation allowances of $ 649,000 and $ 884,000 , respectively.

The fair value of MSRs is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions.

The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs.

MSRs are considered impaired if the carrying value exceeds fair value.

Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3.

OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs.

After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs.

The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair

value hierarchy.

During the year ended December 31, 2019, one commercial real estate OREO property with a fair value of $697,000

was sold at a $33,000 gain and one residential real estate property with a fair value of $46,000 was sold at a loss of $3,000.

In addition, four residential real estate loans with a fair value of $439,000 and one commercial real estate loan with a fair value

of $18,000 transferred into OREO, of which two properties with a fair value of $387,000 were subsequently sold at a net loss of

$36,000 and one property with a fair value of $12,000 was donated.

The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

During the year ended December 31, 2020, one commercial real estate OREO property with a fair value of $ 18,000 was sold at a $ 4,000 gain and one residential real estate property with a fair value of $ 40,000 was sold at a $ 20,000 loss.

In addition, three residential real estate loans with a fair value of $ 131,000 and one commercial real estate loan with a fair value of $ 34,000 transferred into OREO, of which the three residential properties were subsequently sold at a net loss of $ 2,000 .

During the year ended December 31, 2019, one commercial real estate OREO property with a fair value of $ 697,000 was sold at a $ 33,000 gain and one residential real estate property with a fair value of $ 46,000 was sold at a loss of $ 3,000 .

In addition, four residential real estate loans with a fair value of $ 439,000 and one commercial real estate loan with a fair value of $ 18,000 transferred into OREO, of which two properties with a fair value of $ 387,000 were subsequently sold at a net loss of $ 36,000 and one property with a fair value of $ 12,000 was donated.

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

Fair value is the price that would be received to sell an asset or paid to transfer a libility in an orderly transaction between market participants at the measurement date.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling.

As many of these assumptions result from judgments made by management based upon estimates that are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument.

In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2018, one commercial real estate OREO property with

a $697,000 fair value was acquired as part of the FWVB merger, one residential real estate loan for $46,000 transferred to OREO,

and one residential real estate OREO property was sold at a gain of $19,000.

Financial instruments are defined as cash, evidence of an ownership in an entity, or

a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity

on potentially favorable or unfavorable terms.

Fair value is the price that would be received to sell an asset or paid to transfer a

liability in an orderly transaction between market participants at the measurement date.

If no readily available market exists,

the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic

conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option

pricing formulas or simulation modeling.

As many of these assumptions result from judgments made by management based upon estimates

that are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of

a particular financial instrument.

In addition, changes in the assumptions on which the estimated fair values are based may have

significant impact on the resulting estimated fair values.

The estimated fair values of the Company’s financial instruments at December 31,

2019 and 2018, are as follows:

The estimated fair values of the Company’s financial instruments at the dates indicated are as follows:

December 31, Valuation Method Used Carrying Value Fair Value Carrying Value Fair Value

(Dollars in Thousands)

1 unchanged sentence

Cash and Due From Banks:

Interest Bearing

Non-Interest Bearing

Investment Securities:

Available for Sale

Restricted Stock

Bank-Owned Life Insurance

Accrued Interest Receivable

Interest Bearing Level 1 $ 145,636 $ 145,636 $ 68,798 $ 68,798

Non-Interest Bearing Level 1 15,275 15,275 11,419 11,419

Securities, Available for Sale See Above 145,400 145,400 197,385 197,385

Loans, Net Level 3 1,031,982 1,073,633 942,629 961,110

Restricted Stock Level 2 3,984 3,984 3,656 3,656

Bank-Owned Life Insurance Level 2 24,779 24,779 24,222 24,222

Mortgage Servicing Rights Level 3 656 656 930 930

Accrued Interest Receivable Level 2 3,872 3,872 3,297 3,297

Financial Liabilities:

Short-term Borrowings

Other Borrowed Funds

Accrued Interest Payable

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deposits Level 2 1,224,569 1,231,606 1,118,359 1,128,078

Short-term Borrowings Level 2 41,055 41,055 30,571 30,571

Other Borrowed Funds Level 2 8,000 8,067 14,000 15,380

Accrued Interest Payable Level 2 767 767 987 987

NOTE 17— OTHER NONINTEREST EXPENSE

The details for other noninterest expense for the Company’s consolidated statement

of income for the years ended December 31, 2019 and 2018, are as follows:

The details for other noninterest expense for the Company’s Consolidated Statement of Operations are as follows:

Year Ended December 31, 2020 2019

(Dollars in Thousands)

1 unchanged sentence

Printing and supplies 493 402

Postage 244 264

Telephone 521 622

Charitable contributions 128 194

2 unchanged sentences

Meals and entertainment 64 166

Travel 109 214

Training 37 58

Bank Assessment 175 172

Insurance 232 224

Miscellaneous 549 666

TOTAL OTHER NONINTEREST EXPENSE $ 3,893 $ 4,163

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18— CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

1 unchanged sentence

Statement of Financial Condition

December 31, 2020 2019

(Dollars in Thousands)

Cash and Due From Banks $ 3,466 $ 6,447

Investment Securities Available-for-Sale

Equity Securities, at Fair Value 1,484 1,713

Investment in Community Bank 128,985 142,242

Other Assets 611 722

TOTAL ASSETS $ 134,546 $ 151,124

LIABILITIES AND STOCKHOLDERS' EQUITY

2 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 134,546 $ 151,124

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statement of Income

Statement of Operations

Year Ended December 31, 2020 2019

(Dollars in Thousands)

Years Ended December 31,

Interest and Dividend Income $ 61 $ 63

2 unchanged sentences

Noninterest Expense 11 8

Income Before Undistributed Net Income of Subsidiary and Income Tax Expense (Benefit)

Undistributed Net Income of Subsidiary

Income Before Income Tax Expense (Benefit)

Income Tax Expense (Benefit)

Income Before Undistributed Net (Loss) Income of Subsidiary and Income Tax (Benefit) Expense 3,655 10,430

Undistributed Net (Loss) Income of Subsidiary ( 14,342 ) 3,936

(Loss) Income Before Income Tax (Benefit) Expense ( 10,687 ) 14,366

Income Tax (Benefit) Expense ( 47 ) 39

NET (LOSS) INCOME $ ( 10,640 ) $ 14,327

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statement of Cash Flows

Year Ended December 31, 2020 2019

(Dollars in Thousands)

Years Ended December 31,

OPERATING ACTIVITIES

Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities:

Undistributed Net Income of Subsidiary

Net (Loss) Income $ ( 10,640 ) $ 14,327

Adjustments to Reconcile Net (Loss) Income to Net Cash Provided By Operating Activities:

Undistributed Net (Loss) Income of Subsidiary 14,342 ( 3,936 )

Noncash Expense for Stock-Based Compensation 498 323

Loss on Equity Securities 279 —

Other, net ( 229 ) 34

NET CASH PROVIDED BY OPERATING ACTIVITIES 4,250 10,748

INVESTING ACTIVITIES

Purchases of Securities

Net Cash Received from Acquisition

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

Purchases of Equity Securities ( 159 ) ( 63 )

Proceeds from Sales of Equity Securities 109 —

NET CASH USED IN INVESTING ACTIVITIES ( 50 ) ( 63 )

FINANCING ACTIVITIES

3 unchanged sentences

NET CASH USED IN FINANCING ACTIVITIES ( 7,181 ) ( 5,264 )

INCREASE IN CASH AND EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS AT END OF YEAR

The Parent Company's Statement of Comprehensive Income and Statement of Changes in Stockholders'

Equity are identical to the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Changes in Stockholders'

Equity and are not presented.

(DECREASE) INCREASE IN CASH AND EQUIVALENTS ( 2,981 ) 5,421

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 6,447 1,026

CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 3,466 $ 6,447

The Parent Company's Statement of Comprehensive (Loss) Income and Statement of Changes in Stockholders' Equity are identical to the Consolidated Statement of (Loss) Comprehensive Income and the Consolidated Statement of Changes in Stockholders' Equity and are not presented.

NOTE 19— SEGMENT REPORTING AND RELATED INFORMATION

At December 31, 2020, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services.

CB Financial Services, Inc.

is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank.

Exchange Underwriters has an independent board of directors from the Company and is managed separately from the banking and related financial services that the Company offers.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19—SEGMENT AND RELATED INFORMATION

At December 31, 2019, the Company’s business activities were comprised of two operating

segments, which are community banking and insurance brokerage services.

The following table represents selected financial data for the Company’s subsidiaries and consolidated results for 2020 and 2019.

Community Bank Exchange Underwriters, Inc.

CB Financial Services, Inc.

is the parent company of the

Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank.

Exchange Underwriters has an independent board of directors

from the Company and is managed separately from the banking and related financial services that the Company offers.

to the segment reporting requirement for EU, was the August 1, 2018, acquisition of certain intangible assets from Beynon Insurance,

headquartered in Pittsburgh, Pennsylvania, for approximately $1.8 million.

Acquired assets consist primarily of a customer list

and was accounted for as an asset purchase as the acquisition was comprised of a single asset class.

The acquired customer list

was recorded on the Company’s balance sheet as an intangible asset included within “accrued interest and other assets”

and is amortized over the average life of the customer list in accordance with U.S.

The Company’s analysis of the estimated

average life for this customer list is approximately 9.5 years.

The following table represents selected financial data for the Company’s subsidiaries

and consolidated results for 2019 and 2018.

Net Eliminations Consolidated

(Dollars in Thousands)

Community Bank

Exchange Underwriters, Inc.

CB Financial Services, Inc.

Net Eliminations

December 31, 2020

Assets $ 1,416,132 $ 5,379 $ 134,546 $ ( 139,337 ) $ 1,416,720

Liabilities 1,287,148 2,325 16 ( 7,299 ) 1,282,190

Stockholders' Equity 128,984 3,054 134,530 ( 132,038 ) 134,530

December 31, 2019

Assets $ 1,321,001 $ 4,076 $ 151,124 $ ( 154,664 ) $ 1,321,537

Liabilities 1,178,759 1,194 27 ( 9,540 ) 1,170,440

Stockholders' Equity 142,242 2,882 151,097 ( 145,124 ) 151,097

7 unchanged sentences

Noninterest Expense 52,998 3,758 11 — 56,767

Undistributed net income of subsidiary

Income before income tax expense

Income tax expense

Undistributed Net Income (Loss) of Subsidiary 780 — ( 14,342 ) 13,562 —

(Loss) Income Before Income Tax Expense (Benefit) ( 9,455 ) 1,072 ( 10,687 ) 9,678 ( 9,392 )

Income Tax Expense (Benefit) 1,003 292 ( 47 ) — 1,248

Net (Loss) Income $ ( 10,458 ) $ 780 $ ( 10,640 ) $ 9,678 $ ( 10,640 )

Year Ended December 31, 2019

7 unchanged sentences

Undistributed Net Income of Subsidiary 608 — 3,936 ( 4,544 ) —

Income before income tax expense (benefit)

Income tax expense (benefit)

Income Before Income Tax Expense 15,568 882 14,366 ( 14,760 ) 16,056

Income Tax Expense 1,416 274 39 — 1,729

Net Income $ 14,152 $ 608 $ 14,327 $ ( 14,760 ) $ 14,327

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20— QUARTERLY FINANCIAL INFORMATION (Unaudited)

The following tables summarize selected information regarding the Company’s results

of operations for the periods indicated (dollars in thousands, except per share data).

Quarterly earnings per share data may vary

from annual earnings per share due to rounding.

The following tables summarize selected information regarding the Company’s results of operations for the periods indicated.

Quarterly earnings per share data may vary from annual earnings per share due to rounding.

Three Months Ended

2020 June 30,

2020 September 30,

2020 December 31, 2020

(Dollars in Thousands, Except Per Share Data)

Interest Income $ 12,329 $ 11,727 $ 11,656 $ 11,755

5 unchanged sentences

Noninterest Expense 9,003 9,071 28,968 9,725

Income before Income Tax Expense (Benefit)

Income (Loss) Before Income Tax Expense (Benefit) 902 3,598 ( 17,579 ) 3,687

Income Tax Expense (Benefit) 129 695 ( 184 ) 608

Earnings Per Share - Basic

Earnings Per Share - Diluted

Net Income (Loss) $ 773 $ 2,903 $ ( 17,395 ) $ 3,079

Earnings (Loss) Per Share - Basic $ 0.14 $ 0.54 $ ( 3.22 ) $ 0.57

Earnings (Loss) Per Share - Diluted 0.14 0.54 ( 3.22 ) 0.57

Dividends Per Share 0.24 0.24 0.24 0.24

Three Months Ended

2019 June 30,

2019 September 30,

2019 December 31, 2019

(Dollars in Thousands, Except Per Share Data)

Interest Income $ 12,296 $ 12,669 $ 13,098 $ 12,968

5 unchanged sentences

Noninterest Expense 8,880 8,797 8,257 9,026

Income before Income Tax Expense

Income Tax Expense

Income Before Income Tax Expense (Benefit) 3,643 3,723 4,630 4,060

Income Tax Expense (Benefit) 718 744 884 ( 617 )

Net Income $ 2,925 $ 2,979 $ 3,746 $ 4,677

Earnings Per Share - Basic 0.54 0.55 0.69 0.86

2 unchanged sentences

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 9A. Controls and Procedures