What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-09 · 282 added, 493 removed, 659 unchanged (54% of the section changed)

Financial Statements.

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

(Unaudited) September 30,

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited) March 31,

2021 December 31,

4 unchanged sentences

Total Cash and Due From Banks 230,000 160,911

Investment Securities:

Available-for-Sale 158,956 197,385

Loans, Net of Allowance for Loan Losses of $ 13,780 and $ 9,867 at September 30, 2020 and December 31, 2019, Respectively

Available-for-Sale Debt Securities, at Fair Value 139,406 142,897

Equity Securities, at Fair Value 2,750 2,503

Total Securities 142,156 145,400

Loans, Net of Allowance for Loan Losses of $ 12,725 and $ 12,771 at March 31, 2021 and December 31, 2020, Respectively

1,028,972 1,031,982

4 unchanged sentences

Intangible Assets, Net

Accrued Interest and Other Assets

20,905 15,850

Accrued Interest Receivable and Other Assets 12,938 15,215

$ 1,476,821 $ 1,416,720

8 unchanged sentences

Other Borrowings

11,000 14,000

Accrued Interest and Other Liabilities

Accrued Interest Payable and Other Liabilities 7,230 8,566

TOTAL LIABILITIES

4 unchanged sentences

Common Stock, $ 0.4167 Par Value;

35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,398,712 and 5,463,828 Shares Outstanding at September 30, 2020 and December 31, 2019, Respectively

35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,434,374 and 5,434,374 Shares Outstanding at March 31, 2021 and December 31, 2020, Respectively

Capital Surplus

2 unchanged sentences

52,673 51,132

Treasury Stock, at Cost ( 282,281 and 217,165 Shares at September 30, 2020 and December 31, 2019, Respectively)

Treasury Stock, at Cost ( 246,619 and 246,619 Shares at March 31, 2021 and December 31, 2020, Respectively)

( 5,094 ) ( 5,094 )

5 unchanged sentences

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

CONSOLIDATED STATEMENT OF (LOSS) INCOME (UNAUDITED)

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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

20 unchanged sentences

Net Gain on Sales of Loans 86 127

Net Gain (Loss) on Sales of Investment Securities — 3 489 ( 50 )

Change in Fair Value of Marketable Equity Securities ( 59 ) ( 25 ) ( 469 ) 104

Net Gain (Loss) on Securities 447 ( 438 )

Net Gain on Purchased Tax Credits 18 15

Net (Loss) Gain on Disposal of Fixed Assets ( 65 ) — ( 48 ) 2

Net Gain on Disposal of Fixed Assets — 17

Income from Bank-Owned Life Insurance 137 139

Other (Loss) Income ( 2 ) 67 ( 240 ) 203

Other Income 180 14

TOTAL NONINTEREST INCOME 3,174 1,872

11 unchanged sentences

Amortization of Intangible Assets 532 532

Goodwill Impairment 18,693 — 18,693 —

Writedown of Fixed Assets 884 — 884 —

Other 919 984 2,977 3,064

Other Expense 982 1,113

TOTAL NONINTEREST EXPENSE 9,395 9,003

(Loss) Income Before Income Tax (Benefit) Expense ( 17,579 ) 4,630 ( 13,079 ) 11,996

Income Tax (Benefit) Expense ( 184 ) 884 640 2,346

NET (LOSS) INCOME $ ( 17,395 ) $ 3,746 $ ( 13,719 ) $ 9,650

(LOSS) EARNINGS PER SHARE

Income Before Income Tax Expense 3,756 902

Income Tax Expense 911 129

NET INCOME $ 2,845 $ 773

EARNINGS PER SHARE

Basic $ 0.52 $ 0.14

4 unchanged sentences

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(Dollars in thousands)

Net (Loss) Income $ ( 17,395 ) $ 3,746 $ ( 13,719 ) $ 9,650

Net Income $ 2,845 $ 773

Other Comprehensive (Loss) Income:

2 unchanged sentences

Income Tax Effect 612 ( 739 )

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

— ( 3 ) ( 489 ) 50

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

Income Tax Effect (2)

— 1 103 ( 11 )

Other Comprehensive (Loss) Income, Net of Income Tax Expense (Benefit)

( 516 ) 72 1,425 4,482

Total Comprehensive (Loss) Income $ ( 17,911 ) $ 3,818 $ ( 12,294 ) $ 14,132

(1) The gross amount of gain (loss) on sales of investment securities is reported as Net Gain (Loss) on Sales of Investments Securities on the Consolidated Statement of (Loss) Income.

The income tax effect (benefit) is included in Income Tax Expense on the Consolidated Statement of (Loss) Income.

Other Comprehensive (Loss) Income, Net of Income Tax Effect ( 2,416 ) 2,779

Total Comprehensive Income $ 429 $ 3,552

(1) Reported in Net Gain (Loss) on Securities on the Consolidated Statements of Income.

(2) Reported in Income Tax Expense on the Consolidated Statements of Income.

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

7 unchanged sentences

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

June 30, 2020 5,680,993 $ 2,367 $ 83,327 $ 68,039 $ ( 5,928 ) $ 4,587 $ 152,392

Comprehensive Loss:

Net Loss — — — ( 17,395 ) — — ( 17,395 )

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

Comprehensive Income:

Net Income — — — 2,845 — — 2,845

Other Comprehensive Loss — — — — — ( 2,416 ) ( 2,416 )

Restricted Stock Awards Granted

— — ( 103 ) — 103 — —

Stock-Based Compensation Expense

2 unchanged sentences

— — — ( 1,304 ) — — ( 1,304 )

September 30, 2020 5,680,993 $ 2,367 $ 83,338 $ 49,348 $ ( 5,825 ) $ 4,071 $ 133,299

March 31, 2021 5,680,993 $ 2,367 $ 82,844 $ 52,673 $ ( 5,094 ) $ 986 $ 133,776

Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other

1 unchanged sentence

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

June 30, 2019 5,680,993 $ 2,367 $ 83,380 $ 61,140 $ ( 4,350 ) $ 2,970 $ 145,507

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

Comprehensive Income:

1 unchanged sentence

Other Comprehensive Income — — — — — 2,779 2,779

Stock-Based Compensation Expense — — 77 — — — 77

Dividends Paid ($ 0.24 Per Share)

— — — ( 1,304 ) — — ( 1,304 )

September 30, 2019 5,680,993 $ 2,367 $ 83,457 $ 63,582 $ ( 4,350 ) $ 3,042 $ 148,098

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

Shares Issued

Capital Surplus

Retained Earnings

Treasury Stock

Accumulated Other

Comprehensive Income

Total Stockholders' Equity

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

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

Comprehensive (Loss) Income:

Net Loss — — — ( 13,719 ) — — ( 13,719 )

Other Comprehensive Income

— — — — — 1,425 1,425

Restricted Stock Awards Granted

— — ( 103 ) — 103 — —

Restricted Stock Awards Forfeited — — 96 — ( 96 ) — —

Stock-Based Compensation Expense — — 145 — — — 145

— — 370 — — — 370

Exercise of Stock Options — — 4 — ( 68 ) — ( 64 )

— — 4 — ( 82 ) — ( 78 )

Treasury Stock Purchased, at cost ( 67,816 shares)

2 unchanged sentences

— — — ( 1,297 ) — — ( 1,297 )

September 30, 2020 5,680,993 $ 2,367 $ 83,338 $ 49,348 $ ( 5,825 ) $ 4,071 $ 133,299

Shares Issued

Capital Surplus

Retained Earnings

Treasury Stock

Accumulated Other

Comprehensive Income (Loss) Total Stockholders' Equity

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

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

Comprehensive Income:

Net Income — — — 9,650 — — 9,650

Other Comprehensive Income — — — — — 4,482 4,482

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

Restricted Stock Awards Granted — — ( 11 ) — 11 — —

Stock-Based Compensation Expense — — 230 — — — 230

Exercise of Stock Options — — 5 — 17 — 22

Dividends Paid ($ 0.72 Per Share)

— — — ( 3,911 ) — — ( 3,911 )

September 30, 2019 5,680,993 $ 2,367 $ 83,457 $ 63,582 $ ( 4,350 ) $ 3,042 $ 148,098

March 31, 2020 5,680,993 $ 2,367 $ 83,216 $ 66,431 $ ( 5,914 ) $ 5,425 $ 151,525

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

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2020 2019

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31, 2021 2020

(Dollars in thousands)

OPERATING ACTIVITIES

Net (Loss) Income $ ( 13,719 ) $ 9,650

Αdjustmеnts to Rеconcilе Net (Loss) Income to Net Cash Provided By Operating Activities:

Net Accretion on Investments ( 9 ) ( 145 )

Net Income $ 2,845 $ 773

Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities

Amortization (Accretion) on Securities 31 ( 70 )

Depreciation and Amortization 562 941

Provision for Loan Losses — 2,500

Goodwill impairment 18,693 —

Writedown on Fixed Assets 884 —

Change in Fair Value of Marketable Equity Securities 469 ( 104 )

Net Gain on Purchased Tax Credits ( 46 ) ( 27 )

(Gain) Loss on Securities ( 447 ) 438

Gain on Purchased Tax Credits ( 18 ) ( 15 )

Income from Bank-Owned Life Insurance ( 137 ) ( 139 )

1 unchanged sentence

Originations of Mortgage Loans for Sale ( 2,165 ) ( 4,644 )

Net Gain on Sales of Loans ( 1,003 ) ( 190 )

Net (Gain) Loss on Sales of Investment Securities ( 489 ) 50

Net Loss on Sales of Other Real Estate Owned and Repossessed Assets 26 6

Gain on Sale of Loans ( 86 ) ( 127 )

Gain on Sale of Other Real Estate Owned and Repossessed Assets — ( 4 )

Noncash Expense for Stock-Based Compensation 121 145

(Increase) Decrease in Accrued Interest Receivable ( 944 ) 33

Net Loss (Gain) on Disposal of Fixed Assets 48 ( 2 )

(Decrease) Increase in Taxes Payable ( 253 ) 259

Decrease in Accrued Interest Receivable 134 23

Net Gain on Disposal of Fixed Assets — ( 17 )

Increase (Decrease) in Taxes Payable 893 ( 1,165 )

Payments on Operating Leases ( 88 ) ( 110 )

(Decrease) Increase in Accrued Interest Payable ( 252 ) 331

Decrease in Accrued Interest Payable ( 141 ) ( 124 )

Refund of Federal and State Income Taxes 1,311 —

Other, Net ( 597 ) 414

3 unchanged sentences

Proceeds From Principal Repayments and Maturities 10,953 46,498

Purchases of Debt and Marketable Equity Securities ( 68,851 ) ( 50,185 )

Proceeds from Sales of Securities 17,893 29,460

Net Increase in Loans ( 100,436 ) ( 21,531 )

Purchases of Securities ( 22,299 ) ( 19,824 )

Proceeds from Sale of Securities 11,930 —

Net Decrease (Increase) in Loans 3,148 ( 18,861 )

Purchase of Premises and Equipment ( 199 ) ( 17 )

Proceeds from Disposal of of Premises and Equipment 26 —

Asset Acquisition of a Customer List — ( 900 )

Proceeds From Sales of Other Real Estate Owned and Repossessed Assets 99 1,123

(Increase) Decrease in Restricted Equity Securities ( 305 ) 214

Acquisition of Bank Owned Life Insurance — ( 750 )

NET CASH USED IN INVESTING ACTIVITIES ( 60,539 ) ( 8,145 )

Proceeds From Sale of Other Real Estate Owned — 22

Decrease in Restricted Equity Securities 200 66

NET CASH PROVIDED BY INVESTING ACTIVITIES 3,733 7,884

FINANCING ACTIVITIES

Net Increase in Deposits 80,677 39,250

Net Increase (Decrease) in Short-Term Borrowings 11,490 ( 1,861 )

Net Increase (Decrease) in Deposits 59,894 ( 11,719 )

Net Increase in Short-Term Borrowings 4,297 4,396

Principal Payments on Other Borrowed Funds ( 2,000 ) ( 3,000 )

2 unchanged sentences

Exercise of Stock Options — ( 64 )

NET CASH PROVIDED BY FINANCING ACTIVITIES 83,293 30,500

INCREASE IN CASH AND CASH EQUIVALENTS 31,952 35,060

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 60,887 ( 13,592 )

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 69,089 ( 2,118 )

CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 160,911 80,217

1 unchanged sentence

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

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2020 2020 2019

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31, 2021 2021 2020

(Dollars in thousands)

1 unchanged sentence

Cash Paid For:

Interest on deposits and borrowings (including interest credited to deposit accounts of $ 4,382 and $ 5,070 , respectively)

Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $ 1,084 and $ 1,799 , Respectively)

$ 1,153 $ 1,920

Income taxes 1,785 2,260

SUPPLEMENTAL NONCASH DISCLOSURE:

Real estate acquired in settlement of loans 115 427

Income tax refund receivable 1,002 —

Loan payoff receivable 5,628 1,644

Other Real Estate Acquired in Settlement of Loans — 76

Securities Sold Not Settled — 2,450

Right of Use Asset Recognized — 23

1 unchanged sentence

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Summary of Significant Accounting Policies

3 unchanged sentences

(“Exchange Underwriters” or “EU”).

CB Financial and the Bank are collectively referred to as the “Company”.

CB Financial, the Bank and Exchange Underwriters are collectively referred to as the “Company”.

All intercompany transactions and balances have been eliminated in consolidation.

9 unchanged sentences

The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events , to be recognizable events.

Branch Optimization and Operational Efficiency Update

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.

The Bank also completed a comprehensive review of its branch network and operating environment to identify solutions to improve operating performance.

This review prioritized profitability, efficiency, infrastructure and client experience improvements, automation in operations, and digital marketing and technology investments.

Nature of Operations

6 unchanged sentences

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

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

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

Recent Accounting Standards

5 unchanged sentences

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.

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 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.

1 unchanged sentence

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

In August 2018, the FASB issued ASU 2018-15 , Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) .

ASU 2018-15 was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.

The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

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

This guidance became effective for the Company beginning in the first quarter 2020 and the adoption of this ASU did not have a material impact on the Company's consolidated statement of financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) .

ASU 2018-13 modifies disclosure requirements on fair value measurements.

This ASU removes requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements.

ASU 2018-13 clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date.

ASU 2018-13 adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this ASU were effective for the Company beginning in the first quarter 2020.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented.

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

In January 2017, the FASB issued ASU 2017-04, Intangibles Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment .

ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the second step of the goodwill impairment test.

Instead, an entity applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The new guidance does not amend the optional qualitative assessment of goodwill impairment.

ASU 2017-04 is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted, and is to be applied on a prospective basis.

The Company elected to early adopt the provisions of ASU 2017-04 effective October 31, 2019 and the adoption did not have a material impact on the Company's consolidated statement of financial condition or results of operations.

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

Simplifying the Accounting for Income Taxes .

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

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

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

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

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

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

(i) franchise taxes that are based partially on income;

(ii) transactions that result in a step up in the tax basis of goodwill;

(iii) separate financial statements of legal entities that are not subject to tax;

(iv) enacted changes in tax laws in interim periods;

and (v) employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The adoption of this ASU did not have a material impact on the Company's consolidated statements of financial condition or results of operation.

In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

11 unchanged sentences

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.

(Loss) Earnings Per Share

There are no convertible securities which would affect the numerator in calculating basic and diluted (loss) earnings per share;

therefore, net (loss) income as presented on the Consolidated Statement of (Loss) Income is used as the numerator.

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 Statements of Income is used as the numerator.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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

Net (Loss) Income $ ( 17,395 ) $ 3,746 $ ( 13,719 ) $ 9,650

Net Income $ 2,845 $ 773

Weighted-Average Basic Common Shares Outstanding

1 unchanged sentence

Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)

— 25,434 — 18,409

Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding

5,436,881 5,456,867

(Loss) Earnings Per Share:

$ ( 3.22 ) $ 0.69 $ ( 2.54 ) $ 1.78

Earnings Per Share:

$ 0.52 $ 0.14

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Stock Options 201,662 78,545

3 unchanged sentences

Therefore, if there is a net loss, diluted loss per share is the same as basic loss per share.

Investment Securities

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

September 30, 2020

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

March 31, 2021

(Dollars in thousands)

Debt Securities:

Available-for-Sale Debt Securities:

Government Agencies

4 unchanged sentences

66,495 2,673 ( 177 ) 68,991

Total Debt Securities

151,490 5,355 ( 178 ) 156,667

Marketable Equity Securities:

Total Marketable Equity Securities

Total Available-for-Sale Securities

Total Available-for-Sale Debt Securities 138,151 3,736 ( 2,481 ) 139,406

Equity Securities:

Total Equity Securities 2,750

Total Securities $ 142,156

December 31, 2020

(Dollars in thousands)

Debt Securities:

Available-for-Sale Debt Securities:

Government Agencies

4 unchanged sentences

75,900 3,593 — 79,493

Total Debt Securities

191,301 3,647 ( 273 ) 194,675

Marketable Equity Securities:

Total Marketable Equity Securities

Total Available-for-Sale Securities

Total Available-for-Sale Debt Securities 138,566 4,926 ( 595 ) 142,897

Equity Securities:

Total Equity Securities 2,503

Total Securities $ 145,400

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:

September 30, 2020

March 31, 2021

Less than 12 months

3 unchanged sentences

12 $ 48,688 $ ( 2,304 ) — $ — $ — 12 $ 48,688 $ ( 2,304 )

Mortgage Backed Securities- Government Sponsored Enterprises

3 13,097 ( 177 ) — — — 3 13,097 ( 177 )

Total 15 $ 61,785 $ ( 2,481 ) — $ — $ — 15 $ 61,785 $ ( 2,481 )

5 unchanged sentences

7 $ 32,399 $ ( 595 ) — $ — $ — 7 $ 32,399 $ ( 595 )

Obligations of States and Political Subdivisions

7 $ 32,399 $ ( 595 ) — $ — $ — 7 $ 32,399 $ ( 595 )

Mortgage Backed Securities- Government Sponsored Enterprises

7 20,003 ( 104 ) 1 1,711 ( 3 ) 8 21,714 ( 107 )

13 $ 36,119 $ ( 187 ) 8 $ 16,158 $ ( 86 ) 21 $ 52,277 $ ( 273 )

For debt securities, the Company does not believe that any individual unrealized loss as of September 30, 2020 or December 31, 2019, represents an other-than-temporary impairment.

For debt securities, the Company does not believe that any individual unrealized loss as of March 31, 2021 or December 31, 2020, represents an other-than-temporary impairment.

The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate an other-than-temporary impairment.

The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer.

The securities that are temporarily impaired at September 30, 2020 and December 31, 2019 relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

The Company does not intend to sell, or it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

The securities that are temporarily impaired at March 31, 2021 and December 31, 2020 relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

The Company does not intend to sell, and it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

Securities available-for-sale with a fair value of $ 129.1 million and $ 119.7 million at March 31, 2021 and December 31, 2020, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law.

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

September 30, 2020

March 31, 2021

(Dollars in thousands)

6 unchanged sentences

$ 138,151 $ 139,406

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

The following table presents the gross realized gain and loss on sales of debt securities, as well as gain and loss on equity securities from both sales and market adjustments for the periods indicated.

All gains and losses presented in the table below are reported in net gain (loss) on securities on the Consolidated Statements of Income.

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(Dollars in thousands)

Debt Securities

Gross Gain $ — $ 50 $ 489 $ 62

Gross Loss — ( 47 ) — ( 112 )

Net Gain (Loss) on Sales of Investment Securities $ — $ 3 $ 489 $ ( 50 )

Marketable equity securities are measured at fair value with changes in fair value included in Change in Fair Value of Marketable Equity Securities on the Consolidated Statement of (Loss) Income.

Realized gains and losses on sales of marketable equity securities are included in Net Gain (Loss) on Sales of Investment Securities on the Consolidated Statement of (Loss) Income.

There were no sales of marketable equity securities for the three and nine months ended September 30, 2020 and 2019, respectively.

Gross Realized Gain $ 225 $ —

Gross Realized Loss — —

Net Gain on Debt Securities $ 225 $ —

Equity Securities

Net Unrealized Gain (Loss) Recognized on Securities Held $ 222 $ ( 438 )

Net Realized Gain Recognized on Securities Sold — —

Net Gain (Loss) on Equity Securities $ 222 $ ( 438 )

Net Gain (Loss) on Securities $ 447 $ ( 438 )

Loans and Allowance for Loan Losses

The Company’s loan portfolio consists of four classifications:

real estate loans, commercial and industrial loans, consumer loans, and other loans.

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

Real estate loans are further segregated into three classes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following table presents the classifications of loans as of the dates indicated.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(Dollars in thousands)

10 unchanged sentences

$ 1,028,972 $ 1,031,982

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

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

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

The second round of the PPP began on April 27, 2020.

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

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

These loans have a two- or five-year loan term to maturity, an interest rate of 1% per annum and loan payments are deferred for six months.

The SBA will guarantee 100% of the PPP loans made to eligible borrowers.

The entire principal amount of a PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.

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

As of September 30, 2020, the Bank originated 638 PPP loans totaling $ 71.0 million, with a median loan balance of $ 35,000 .

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 SBA origination fees as of September 30, 2020 were $ 2.2 million, of which $ 274,000 was recognized for the three months ended September 30, 2020 and $ 465,000 for the nine months ended September 30, 2020.

The Small Business Administration reopened the Payroll Protection Program ("PPP") the week of January 11, 2021 and began accepting applications for both First Draw and Second Draw PPP Loans.

As of March 31, 2021, as part of this round of PPP, the Bank funded 156 PPP loans totaling $ 25.0 million with net deferred origination fees of $ 984,000 .

Combined with $ 19.7 million of loan forgiveness processed in the first quarter of 2021, total PPP loans increased $ 5.3 million to $ 60.4 million at March 31, 2021 compared to $ 55.1 million at December 31, 2020.

At March 31, 2021, the largest sectors of PPP loans were $ 15.2 million for construction and specialty-trade contractors, $ 10.1 million in loans for health care and social assistance, $ 8.2 million for professional and technical services, $ 3.5 million for retail trade, $ 5.0 million for restaurant and food services, $ 4.9 million for manufacturing, and $ 4.5 million for wholesale trade.

Net unamortized PPP loan origination fees as of March 31, 2021 and December 31, 2020 were $ 1.5 million and $ 1.1 million, respectively.

$ 535,000 of net PPP loan origination fees were earned for the three months ended March 31, 2021.

All PPP loans are classified as commercial and industrial loans held for investment.

No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

Total unamortized net deferred loan fees were $ 2.5 million and $ 907,000 at September 30, 2020 and December 31, 2019, respectively.

The increase in unamortized net deferred loan fees is primarily due to PPP loans.

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $ 106.0 million and $ 100.0 million at September 30, 2020 and December 31, 2019, respectively.

Total unamortized net deferred loan fees were $ 2.5 million and $ 2.0 million at March 31, 2021 and December 31, 2020, respectively.

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

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

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

The special mention category includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point of justifying a substandard classification.

Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.

Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.

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

The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated.

At September 30, 2020 and December 31, 2019, there were no loans in the criticized category of Loss within the internal risk rating system.

September 30, 2020

At March 31, 2021 and December 31, 2020, there were no loans in the criticized category of Loss within the internal risk rating system.

March 31, 2021

(Dollars in Thousands)

17 unchanged sentences

$ 970,587 $ 46,515 $ 27,042 $ 609 $ 1,044,753

The increase of $ 13.5 million in the special mention loan category and $ 10.8 million in the substandard category as of September 30, 2020 compared to December 31, 2019 was mainly from the downgrade of the hospitality portfolio due to the economic conditions in that industry caused by the COVID-19 pandemic.

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

September 30, 2020

March 31, 2021

(Dollars in Thousands)

17 unchanged sentences

$ 1,029,036 $ 3,704 $ 1,116 $ 8 $ 4,828 $ 10,889 $ 1,044,753

The increase in nonaccrual commercial real estate loans is primarily related to two hotel loans with a total principal balance of $ 7.9 million that were impacted by the pandemic and determined to be impaired due to insufficient cash flows and occupancy rates.

The increase in nonaccrual commercial and industrial loans is primarily related to a $ 1.4 million relationship with collateral and income shortfalls.

Total unrecorded interest income related to nonaccrual loans was $ 61,000 and $ 11,000 for the three months ended March 31, 2021 and 2020, respectively.

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

2 unchanged sentences

Nonperforming loans do not include loans modified under Section 4013 of the CARES Act and interagency guidance as further explained below.

September 30,

2021 December 31,

4 unchanged sentences

Total Nonaccrual Loans

10,777 10,889

Accruing Loans Past Due 90 Days or More:

1 unchanged sentence

Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More

10,777 10,897

Troubled Debt Restructurings, Accruing:

2 unchanged sentences

Total Nonperforming Loans

14,252 14,488

Other Real Estate Owned:

5 unchanged sentences

Nonperforming Assets to Total Assets

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 805,000 and $ 1.1 million at September 30, 2020 and December 31, 2019, respectively.

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 754,000 and $ 806,000 at March 31, 2021 and December 31, 2020, respectively.

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

For a loan modification to be considered a TDR, the borrower must be experiencing financial difficulty and a concession must be granted, except for an insignificant delay in payment.

Section 4013 of the CARES Act provides temporary relief from accounting and financial reporting requirements for TDRs regarding certain loan modifications related to COVID-19.

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

Specifically, the CARES Act provides that the Bank may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and suspend any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes.

Any modification involving

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

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.

2 unchanged sentences

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 months of payments;

(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 .

1 unchanged sentence

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

The following table provides details of loans in forbearance and the forbearance end dates as of the dates indicated.

September 30, 2020 June 30, 2020

The following table provides details of loans in forbearance as of the dates indicated.

March 31, 2021 December 31, 2020

Loans Amount % of Portfolio Number

6 unchanged sentences

Consumer 5 106 0.1 % 13 356 0.3 %

Other — — — % 1 2,504 11.2 %

Total Loans in Forbearance 25 $ 18,440 1.8 % 31 $ 24,100 2.3 %

The commercial real estate loans remaining in deferral at September 30, 2020 include five hotel loans totaling $ 10.3 million and the construction loan is a retail project.

The loans are scheduled to exit their deferral period in the fourth quarter.

Loans in deferral at March 31, 2021 include two commercial real estate loans totaling $ 4.6 million and one construction loan totaling $ 2.0 million that are all secured by hotels, one commercial real estate loan totaling $ 5.5 million secured by office space and a business relationship that rents equipment, supplies and other materials for events comprised of three commercial real estate loans totaling $ 3.3 million, and five commercial and industrial loans totaling $ 1.2 million.

All loans will have exited their deferral periods by 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, temporary rate modification and extension of maturity date.

Loans classified as TDRs consisted of 18 loans totaling $ 3.6 million at September 30, 2020 and 16 loans totaling $ 3.0 million at December 31, 2019, respectively.

During the nine months ended September 30, 2020, there was one residential real estate loan modified in a TDR totaling $ 60,000 that paid off.

During the nine months ended September 30, 2019, one residential real estate loan modified in a TDR totaling $ 851,000 paid off.

No TDRs subsequently defaulted during the three and nine months ended September 30, 2020 and 2019, respectively.

The following tables present information at the time of modification related to loans modified in a TDR during the three and nine months ended September 30, 2020 and 2019.

Three Months Ended September 30, 2020

(Dollars in thousands)

Commercial 1 $ 504 $ 519 $ —

Commercial and Industrial 1 38 38 —

Total 2 $ 542 $ 557 $ —

Nine Months Ended September 30, 2020

(Dollars in thousands)

1 $ 234 $ 234 $ —

Commercial 1 504 519 —

Commercial and Industrial 1 38 38 —

Total 3 $ 776 $ 791 $ —

Three Months Ended June 30, 2019

Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Related Allowance

(Dollars in thousands)

Residential 1 $ 10 $ 10 $ —

Total 1 $ 10 10 $ —

Nine Months Ended September 30, 2019

(Dollars in thousands)

Residential 2 $ 71 $ 71 $ —

Commercial and Industrial 1 114 114 —

Total 3 $ 185 $ 185 $ —

Loans classified as TDRs consisted of 16 loans totaling $ 4.1 million at March 31, 2021 and 17 loans totaling $ 4.2 million at December 31, 2020, respectively.

During the three months ended March 31, 2021, there were no loans that were modified that were considered a TDR and one residential real estate loan modified in a TDR totaling $ 3,000 that paid off.

During the three months ended March 31, 2020, there were no loans that were modified that were considered a TDR and no loans modified in a TDR that paid off.

No TDRs subsequently defaulted during the three months ended March 31, 2021 and 2020, respectively.

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

September 30, 2020

March 31, 2021

(Dollars in thousands)

9 unchanged sentences

$ — $ — $ — $ — $ —

571 269 571 576 6

Commercial and Industrial

15 unchanged sentences

31,865 — 32,887 37,443 1,418

Construction 4,204 — 4,204 4,013 159

Commercial and Industrial

4 unchanged sentences

$ — $ — $ — $ — $ —

1,524 293 1,524 1,585 72

Construction — — — — —

Commercial and Industrial

5 unchanged sentences

33,389 293 34,411 39,028 1,490

Construction 4,204 — 4,204 4,013 159

Commercial and Industrial

2 unchanged sentences

$ 44,141 $ 649 $ 45,377 $ 49,775 $ 1,841

The $ 26.9 million increase in recorded investment of loans evaluated for impairment, primarily in the commercial real estate category, is mainly due to evaluating the hotel portfolio for potential impairment.

$ 16.1 million of hotel loans were evaluated for impairment and determined to not require specific reserves.

Two hotel loans with a total principal balance of $ 7.9 million were determined to be impaired due to insufficient cash flows and occupancy rates.

The following tables present the activity in the allowance for loan losses (“ALLL”) summarized by major classifications and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated.

(Dollars in thousands)

June 30, 2020 $ 2,688 $ 5,160 $ 820 $ 1,566 $ 1,714 $ — $ 700 $ 12,648

( 11 ) — — — ( 103 ) — — ( 114 )

1 1 — 6 38 — — 46

( 506 ) 1,711 71 170 ( 290 ) — 44 1,200

September 30, 2020 $ 2,172 $ 6,872 $ 891 $ 1,742 $ 1,359 $ — $ 744 $ 13,780

The following tables present the activity in the allowance for loan losses summarized by primary segments and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated.

(Dollars in thousands)

3 unchanged sentences

( 283 ) ( 93 ) 50 108 ( 113 ) — 331 —

September 30, 2020 $ 2,172 $ 6,872 $ 891 $ 1,742 $ 1,359 $ — $ 744 $ 13,780

September 30, 2020

March 31, 2021 $ 1,975 $ 5,917 $ 939 $ 1,543 $ 1,103 $ — $ 1,248 $ 12,725

March 31, 2021

(Dollars in thousands)

10 unchanged sentences

(Dollars in thousands)

June 30, 2019 $ 1,096 $ 3,446 $ 488 $ 2,718 $ 1,500 $ — $ 443 $ 9,691

( 28 ) — — ( 16 ) ( 165 ) — — ( 209 )

1 35 — 5 52 — — 93

582 ( 508 ) 49 ( 278 ) 76 — 254 175

September 30, 2019 $ 1,651 $ 2,973 $ 537 $ 2,429 $ 1,463 $ — $ 697 $ 9,750

(Dollars in thousands)

December 31, 2019 $ 2,023 $ 3,210 $ 285 $ 2,412 $ 1,417 $ — $ 520 $ 9,867

2 unchanged sentences

685 1,651 379 ( 829 ) 507 — 107 2,500

September 30, 2019 $ 1,651 $ 2,973 $ 537 $ 2,429 $ 1,463 $ — $ 697 $ 9,750

September 30, 2019

March 31, 2020 $ 2,685 $ 4,875 $ 664 $ 1,592 $ 1,879 $ — $ 627 $ 12,322

March 31, 2020

(Dollars in thousands)

3 unchanged sentences

$ 2,685 $ 4,483 $ 664 $ 1,333 $ 1,879 $ — $ 627 $ 11,671

The COVID-19 pandemic has resulted in a dramatic increase in unemployment and recessionary economic conditions.

Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis related to economic trends and industry conditions, specifically because of vulnerable industries such as hospitality, oil and gas, retail and restaurants, were adjusted in the current year for these circumstances.

In addition, the Company has an exposure of hotel loans that have been greatly impacted by the COVID-19 pandemic and were evaluated for impairment in the current quarter.

Two hotel loans with a total principal balance of $ 7.9 million were determined to be impaired due to insufficient cash flows and occupancy rates.

The combination of these factors primarily resulted in a $ 1.2 million provision for loan losses for the three months ended September 30, 2020 and $ 4.0 million provision for loan losses for the nine months ended September 30, 2020.

Prior to the quarter ended March 31, 2020, management determined historical loss experience for each segment of loans using a two-year rolling average of the net charge-off data within each loan segment, which was then used in combination with qualitative factors to calculate the general allowance component that covers pools of homogeneous loans that are not specifically evaluated for impairment.

For the quarter ended March 31, 2020, the Company began using a five-year rolling average of the net charge-off data within each segment.

This change was driven by no net charge-off experience in the commercial real estate and commercial and industrial segments in the prior two-year rolling period as of March 31, 2020, which the Company believes does not represent the inherent risks in those segments.

In the first quarter of 2018, the Company incurred $ 1.4 million of commercial and industrial charge-offs, however this period would have been removed from the lookback period as of March 31, 2020 if continuing to use a two-year history.

In addition, moving to a five-year history is expected to improve the calculation moving forward by capturing economic ebbs and flows over a longer period while also not heavily weighting one period of charge-off activity.

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

Accretable Discount

(Dollars in Thousands)

December 31, 2019 $ 1,628

Accretable Yield

September 30, 2020 $ 1,335

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

September 30, 2020

At March 31, 2021 and December 31, 2020, commercial and industrial loans include $ 60.4 million and $ 55.1 million, respectively, of PPP loans collectively evaluated for potential

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.

March 31, 2021

(Dollars in thousands)

4 unchanged sentences

$ 339,596 $ 370,118 $ 77,714 $ 128,931 $ 111,650 $ 13,688 $ 1,041,697

At September 30, 2020, commercial and industrial contains $ 71.0 million of PPP loans collectively evaluated for potential impairment.

No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

December 31, 2020

5 unchanged sentences

Total Loans $ 344,142 $ 373,555 $ 72,600 $ 126,813 $ 113,854 $ 13,789 $ 1,044,753

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

Accretable Discount

(Dollars in Thousands)

December 31, 2020 $ 1,194

Accretable Yield

March 31, 2021 $ 1,056

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

September 30,

(Dollars in thousands)

5 unchanged sentences

Over Five Years

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $ 61.6 million and $ 69.3 million as of September 30, 2020 and December 31, 2019, respectively.

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $ 53.9 million and $ 59.2 million as of March 31, 2021 and December 31, 2020, respectively.

The aggregate amount of demand deposits that are overdrawn and have been reclassified as loans was $ 181,000 and $ 231,000 as of March 31, 2021 and December 31, 2020, respectively.

Short-Term Borrowings

Borrowings with original maturities of one year or less are classified as short-term and may consist of borrowings with the Federal Home Loan Bank ("FHLB"), securities sold under agreements to repurchase or borrowings on revolving lines of credit with the Federal Reserve Bank or other correspondent banks, Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are overnight sweep accounts with next-day maturities utilized by commercial customers to earn interest on their funds.

Securities are pledged as collateral under these agreements in an amount at least equal to the outstanding balance and the collateral pledging requirements are monitored on a daily basis.

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Amount Weighted

9 unchanged sentences

Other Borrowed Funds

Other borrowed funds consist of fixed rate advances from the Federal Home Loan Bank of Pittsburgh (“FHLB”).

Other borrowed funds consist of fixed rate advances from the FHLB.

The following table sets forth the scheduled maturities of other borrowed funds at the dates indicated.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(Dollars in thousands)

6 unchanged sentences

$ 6,000 2.32 % $ 8,000 2.27 %

As of September 30, 2020, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $ 430.7 million with the FHLB and available borrowing capacity of $ 416.9 million.

As of March 31, 2021, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $ 433.0 million with the FHLB and available borrowing capacity of $ 332.7 million.

This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $ 580.9 million of residential and commercial mortgage loans and the Company’s investment in FHLB stock.

Under this arrangement the Company had available a variable rate Line of Credit in the amount of $ 150.0 million as of September 30, 2020, of which there was no outstanding balance as of September 30, 2020.

At September 30, 2020, the Company maintained a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $ 95.7 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $ 145.3 million of commercial and industrial and consumer indirect auto loans.

Under this arrangement the Company had available a variable rate Line of Credit in the amount of $ 150.0 million as of March 31, 2021, of which there was no outstanding balance.

As an alternative to pledging securities, the FHLB periodically provides standby letters of credit on behalf of the Bank to secure certain public deposits in excess of the level insured by the FDIC.

If the FHLB is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to the Bank.

Standby letters of credit issued on our behalf by the FHLB to secure public deposits were $ 99.6 million and $ 90.3 million as of March 31, 2021 and December 31, 2020, respectively.

At March 31, 2021, the Company maintained a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $ 84.4 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by $ 131.7 million of commercial and industrial and consumer indirect auto loans.

In addition, the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling $ 50.0 million of which no draws had been taken.

7 unchanged sentences

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 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.

2 unchanged sentences

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 following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated Statements of Financial Condition as of the dates indicated, by level within the fair value hierarchy.

The majority of the Company’s securities are included in Level 2 of the fair value hierarchy.

1 unchanged sentence

The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

There were no transfers into or out of Level 3 during the nine months ended September 30, 2020 or year ended December 31, 2019.

September 30,

There were no transfers into or out of Level 3 during the three months ended March 31, 2021 or year ended December 31, 2020.

2021 December 31

(Dollars in thousands)

Available for Sales Securities:

Debt Securities:

Government Agencies

$ 41,832 $ 48,056

Obligations of States and Political Subdivisions

22,051 25,843

Mortgage-Backed Securities - Government-Sponsored Enterprises

Available-for-Sale Debt Securities

Government Agencies Level 2

$ 48,688 $ 41,411

Total Debt Securities

Obligations of States and Political Subdivisions Level 2

21,727 21,993

Marketable Equity Securities:

Total Marketable Equity Securities

Total Available-for-Sale Securities

Mortgage-Backed Securities - Government-Sponsored Enterprises Level 2

68,991 79,493

The following table presents the financial assets on the Consolidated Statement of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount.

Total Available-for-Sale Debt Securities 139,406 142,897

Equity Securities

Mutual Funds Level 1

Other Level 1

Total Equity Securities 2,750 2,503

Total Securities $ 142,156 $ 145,400

The following table presents the financial assets on the Consolidated Statements of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount.

The table also presents the significant unobservable inputs used in the fair value measurements.

Fair Value at

Financial Asset Fair Value

Hierarchy September 30,

2020 December 31,

Financial Asset Fair Value Hierarchy March 31,

2021 Valuation

Techniques Significant

Unobservable Inputs Range

Techniques Significant Unobservable Inputs Range Weighted Average

(Dollars in thousands)

Impaired Loans Level 3 $ 8,171 $ 3,140 Market Comparable Properties Marketability Discount 10 % to 30 % (1)

Premises and Equipment, Net Level 3 240 — Market Comparable Properties Price Per Square Footage $ 26.88 to $ 34.79

Impaired Loans Individually Assessed Level 3 $ 2,287 Appraisal of Collateral (1)

Appraisal Adjustments (2)

0 % to 50 % —

Mortgage Servicing Rights Level 3 766 Discounted Cash Flow Discount Rate 9 % to 11 % 9.8 %

Prepayment Rate 15.7 % to 21.4 %

OREO Level 3 34 58 Market Comparable Properties Marketability Discount 10 % to 30 % (1)

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

Prepayment Speed 8 % to 23 % 13.8 %

Financial Asset Fair Value Hierarchy December 31,

2020 Valuation

Techniques Significant Unobservable Inputs Range Weighted Average

(Dollars in thousands)

Impaired Loans Individually Assessed Level 3 $ 2,944 Appraisal of Collateral (1)

Appraisal Adjustments (2)

0 % to 50 % —

Mortgage Servicing Rights Level 3 656 Discounted Cash Flow Discount Rate 9 % to 11 % 10.0 %

Prepayment Speed 12 % to 27 % 18.7 %

OREO Level 3 34 Appraisal of Collateral (1)

Liquidation Expenses (2)

10 % to 30 % —

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal.

Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time.

1 unchanged sentence

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 September 30, 2020 and December 31, 2019, the fair value of impaired loans consists of the loan balances of $ 11.0 million and $ 4.0 million, respectively, less their specific valuation allowances of $ 2.9 million and $ 884,000 , respectively.

Given the change in business purpose of the Monessen branch due to closure, an appraisal was obtained to determine the property value and, as a result, the property was written down to fair value based on market comparable properties.

The fair value was determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

At March 31, 2021 and December 31, 2020, the fair value of impaired loans consists of the loan balances of $ 3.1 million and $ 3.6 million, respectively, less their specific valuation allowances of $ 771,000 and $ 649,000 , respectively.

The fair value of mortgage servicing rights ("MSRs") is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions.

2 unchanged sentences

Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3.

MSRs are reported in other assets in the Consolidated Statement of Financial Condition and are amortized into mortgage servicing income in Other (Loss) Income in the Consolidated Statement of (Loss) Income.

MSRs are reported in Other Assets in the Consolidated Statements of Financial Condition and are amortized into mortgage servicing income in Other Income in the Consolidated Statements of Income.

OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs.

1 unchanged sentence

The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

For the nine months ended September 30, 2020, one commercial real estate OREO property with a fair value of $ 18,000 sold at a gain of $ 4,000 and two residential real estate OREO properties with a fair value of $ 108,000 sold at a loss of $ 30,000 .

In addition, two residential real estate loans with a fair value of $ 81,000 and one commercial real estate loan with a fair value of $ 34,000 transferred to OREO.

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

In addition, three residential real estate loans with a fair value of $ 427,000 transferred into OREO, of which two properties with a fair value of $ 386,000 were subsequently sold at a net loss of $ 36,000 .

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.

2 unchanged sentences

As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument.

changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.

In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.

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

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(Dollars in thousands)

5 unchanged sentences

13,247 13,247 15,275 15,275

Investment Securities:

Available for Sale

Securities See Above

142,156 142,156 145,400 145,400

2 unchanged sentences

3,784 3,784 3,984 3,984

Bank-Owned Life Insurance

24,639 24,639 24,222 24,222

Mortgage Servicing Rights Level 3 766 766 656 656

3 unchanged sentences

1,284,463 1,287,325 1,224,569 1,231,606

Short-term Borrowings

Short-Term Borrowings Level 2

45,352 45,352 41,055 41,055

6 unchanged sentences

These financial instruments include commitments to extend credit and standby and performance letters of credit.

Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statement of Financial Condition.

Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.

The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

5 unchanged sentences

The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated.

September 30,

2021 December 31,

1 unchanged sentence

Standby Letters of Credit

$ 80,369 $ 42,041

Performance Letters of Credit

23 unchanged sentences

The leases are primarily ROU assets of land and building for branch and loan production locations.

ROU assets are reported in accrued interest and other assets and the related lease liabilities in accrued interest and other liabilities on the Consolidated Statement of Financial Condition.

ROU assets are reported in Accrued Interest Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(Dollars in thousands)

Operating Lease Expense $ 95 $ 116

Short-Term Lease Expense 8 —

Variable Lease Expense 8 9

Total Lease Expense $ 111 $ 125

September 30,

2021 December 31,

(Dollars in thousands)

Operating Leases:

2 unchanged sentences

Weighted Average Discount Rate 2.42 % 2.39 %

September 30,

(Dollars in throusands)

Maturity Analysis:

9 unchanged sentences

Other Noninterest Expense

The details of other noninterest expense for the Company’s Consolidated Statement of (Loss) Income for the three and nine months ended September 30, 2020 and 2019, are as follows:

The details of other noninterest expense for the Company’s Consolidated Statements of Income for the periods indicated are as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(Dollars in thousands)

7 unchanged sentences

Meals and Entertainment 34 40

Travel 13 50 87 147

Training 17 7

4 unchanged sentences

Segment and Related Information

At September 30, 2020, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services.

At March 31, 2021, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services.

CB Financial is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank.

6 unchanged sentences

(Dollars in thousands)

September 30, 2020

March 31, 2021

Assets $ 1,477,053 $ 5,207 $ 133,797 $ ( 139,236 ) $ 1,476,821

5 unchanged sentences

Stockholders' Equity 128,984 3,054 134,530 ( 132,038 ) 134,530

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021

Interest and Dividend Income $ 10,971 $ 1 $ 1,320 $ ( 1,304 ) $ 10,988

5 unchanged sentences

Noninterest Expense 8,390 1,001 4 — 9,395

Undistributed net income (loss) of subsidiary 73 — ( 18,694 ) 18,621 —

(Loss) income before income tax (benefit) expense ( 17,566 ) 106 ( 17,446 ) 17,327 ( 17,579 )

Income tax (benefit) expense ( 166 ) 33 ( 51 ) — ( 184 )

Net (loss) income $ ( 17,400 ) $ 73 $ ( 17,395 ) $ 17,327 $ ( 17,395 )

Nine Months Ended September 30, 2020

Interest and dividend income $ 35,664 $ 3 $ 2,634 $ ( 2,589 ) $ 35,712

Interest expense 4,442 — — — 4,442

Net interest income 31,222 3 2,634 ( 2,589 ) 31,270

Provision for loan losses 4,000 — — — 4,000

Net interest and dividend income after provision for loan losses 27,222 3 2,634 ( 2,589 ) 27,270

Noninterest income (loss) 3,760 3,426 ( 493 ) — 6,693

Noninterest expense 44,227 2,806 9 — 47,042

Undistributed net (loss) income of subsidiary 433 — ( 15,991 ) 15,558 —

(Loss) income before income tax expense (benefit) ( 12,812 ) 623 ( 13,859 ) 12,969 ( 13,079 )

Income tax expense (benefit) 590 190 ( 140 ) — 640

Net (loss) income $ ( 13,402 ) $ 433 $ ( 13,719 ) $ 12,969 $ ( 13,719 )

Community Bank Exchange Underwriters, Inc.

CB Financial Services, Inc.

Net Eliminations Consolidated

(Dollars in thousands)

Three Months Ended September 30, 2019

Undistributed Net Income of Subsidiary 407 — 1,301 ( 1,708 ) —

Income Before Income Tax Expense 3,320 591 2,857 ( 3,012 ) 3,756

Income Tax Expense 715 184 12 — 911

Net Income $ 2,605 $ 407 $ 2,845 $ ( 3,012 ) $ 2,845

Three Months Ended March 31, 2020

Interest and Dividend Income $ 12,313 $ 1 $ 15 $ — $ 12,329

9 unchanged sentences

Net Income $ 1,123 $ 213 $ 773 $ ( 1,336 ) $ 773

Nine Months Ended September 30, 2019

Interest and dividend income $ 38,018 $ 2 $ 3,955 $ ( 3,912 ) $ 38,063

Interest expense 5,828 — — — 5,828

Net interest and dividend income 32,190 2 3,955 ( 3,912 ) 32,235

Provision for loan losses 550 — — — 550

Net interest and dividend income after provision for loan losses 31,640 2 3,955 ( 3,912 ) 31,685

Noninterest income 2,966 3,212 67 — 6,245

Noninterest expense 23,209 2,716 9 — 25,934

Undistributed net income of subsidiary 340 — 5,654 ( 5,994 ) —

Income before income tax expense 11,737 498 9,667 ( 9,906 ) 11,996

Income tax expense 2,171 158 17 — 2,346

Net income $ 9,566 $ 340 $ 9,650 $ ( 9,906 ) $ 9,650

Goodwill and Intangible Assets

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.

In 2019, the Company adopted 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 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 our Company.

In light of the adverse circumstances resulting from COVID-19, management determined it was necessary to evaluate goodwill for impairment.

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

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, we 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, we 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 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%, we 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.

We 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 have only been seven transactions involving target institutions with assets greater than $1 billion announced since March 1, 2020 (post-COVID).

Of these, only two have closed.

Therefore, we were unable to rely on this method in our analysis.

We 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 goodwill impairment test and in connection with the preparation of the consolidated financial statements included in this Quarterly Report on Form 10-Q, the Company concluded that goodwill was impaired.

Accordingly, the Company recorded a goodwill impairment charge of $ 18.7 million for the three and nine months ended September 30, 2020 as our estimated fair value was less than our book value.

This was a non-cash charge to earnings and had no impact on regulatory capital, cash flows or liquidity position.

No goodwill impairment charge was recognized for the three and nine months ended September 30, 2019.

The following table presents the changes in the Company's carrying amount of goodwill for the period indicated.

(Dollars in thousands)

December 31, 2019 $ 28,425

Goodwill Impairment ( 18,693 )

September 30, 2020 $ 9,732

Intangible Assets

Intangible assets with definite lives are amortized over their respective estimated useful lives.

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

The following table presents a summary of intangible assets subject to amortization at the dates indicated.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value

9 unchanged sentences

Total Estimated Intangible Asset Amortization Expense $ 7,867

Stock Based Compensation

The following table presents stock option information for the periods indicated.

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual

Life in Years

Outstanding at December 31, 2019 245,153 $ 24.36 6.5

Granted 15,000 18.60

Exercised ( 20,106 ) 22.69

Forfeited ( 19,776 ) 26.64

Outstanding at September 30, 2020 220,271 $ 23.92 6.1

Exercisable at September 30, 2020 139,548 $ 23.67 5.6

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years

Nonvested at September 30, 2020 80,723 $ 24.36 6.9

Summary of Significant Assumptions for Newly Issued Stock Options

Expected Term in Years 6.5

Expected Volatility 25.8 %

Expected Dividends $ 0.96

Risk Free Rate of Return 0.28 %

The following table presents restricted stock award information for the periods indicated

Number of Shares Weighted Average Grant Date Fair Value Price Weighted Average Remaining Service Period in Years

Nonvested at December 31, 2019 48,030 $ 28.83 8.1

Granted 5,000 18.60

Vested ( 600 ) 25.08

Forfeited ( 3,300 ) 29.23

Nonvested at September 30, 2020 49,130 $ 27.81 7.6

The Company 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 $ 114,000 and $ 78,000 for the three months ended September 30, 2020 and 2019, respectively and $ 370,000 and $ 232,000 for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and December 31, 2019, total unrecognized compensation expense was $ 195,000 and $ 363,000 , respectively, related to stock options, and $ 1.1 million and $ 1.4 million, respectively, related to restricted stock awards.

Intrinsic value represents the amount by which the fair value of the underlying stock at September 30, 2020 and December 31, 2019 exceeds the exercise price of the stock options.

The intrinsic value of stock options was $ 7,200 and $ 1.4 million at September 30, 2020 and December 31, 2019, respectively.

At September 30, 2020 and December 31, 2019, respectively, there were 18,135 and 13,359 shares available under the Plan to be issued in connection with the exercise of stock options, and 58,424 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.

Mortgage Servicing Rights

The following table presents MSR activity and net carrying values for the periods indicated.

Three Months Ended

(Dollars in thousands)

Mortgage Servicing Rights:

Balance, Beginning of Period $ 1,029 $ 1,001

Additions 17 45

Amortization ( 79 ) ( 54 )

Balance, End of Period $ 967 $ 992

Valuation Allowance:

Balance, Beginning of Period $ ( 373 ) $ ( 71 )

Valuation Allowance Adjustment 172 —

Balance, End of Period $ ( 201 ) $ ( 71 )

Mortgage Servicing Rights, Net Carrying Value $ 766 $ 921

Amortization of MSRs and the period change in the valuation allowance are reported in Other Income on the Consolidated Statements of Income.

Real estate loans serviced for others, which are not included in the Consolidated Statements of Financial Condition, totaled $ 101.6 million and $ 105.8 million at March 31, 2021 and December 31, 2020, respectively.

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-Q

Item 1. Financial Statements