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Cb Financial Services, Inc. (CBFV) SEC Filing 10-Q Quarterly report for the period ending Tuesday, March 31, 2020

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Cb Financial Services, Inc.

CIK: 1605301 Ticker: CBFV

EXHIBIT 99.1

CB Financial Services, Inc. Announces First Quarter 2020 Financial Results

WASHINGTON, Pa., May 04, 2020 (GLOBE NEWSWIRE) -- CB Financial Services, Inc. (“CB” or the “Company”) (NASDAQGM: CBFV), the holding company of Community Bank (the “Bank”) and Exchange Underwriters, Inc. (“EU”), a wholly-owned insurance subsidiary of the Bank, today announced its first quarter 2020 financial results.


The COVID-19 pandemic and government response to curtail the spread of the virus through shelter-in-place orders and mandatory closures of all but essential businesses beginning in March 2020 is significantly impacting the economy and unemployment in our market area. These conditions did not exist at the beginning of the year and continue to worsen after the end of the March 31, 2020 reporting period. A $2.2 trillion emergency stimulus package, the largest in U.S. history, was implemented by the federal government through the enactment of the Coronavirus Aid, Relief, and Economic Security  Act (the “CARES Act”) to aid businesses and consumers from the COVID-19 impact. The Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was also signed into law and includes an additional $484 billion in COVID-19 relief. As such, the economic impact from the pandemic is not significantly reflected in these March 31, 2020 operating results.

“After reporting record earnings in the prior year and with expectations for another strong year in 2020, we have entered an extraordinary time of uncertainty,” said Barron P. “Pat” McCune, Jr., President and Chief Executive Officer. “The pandemic will be an enormous test of the determination and resolve of all financial institutions, including Community Bank. Where there is great challenge there is also an incredible opportunity to be a part of the solution. The Bank was founded on the principle of “Neighbor Helping Neighbor” and throughout our history, we have helped our customers safeguard their financial health during periods of crisis and market volatility. We have endured as an institution by relying on the dedication of our employees and their commitment to our customers. Fortunately, the Bank’s high levels of capital and liquidity, as well as its conservative credit culture, will allow us to continue to serve our customers and communities. The economic indicators are troubling; the Bank is doing all it can to help our customers defer loan payments, obtain CARES Act stimulus, and navigate the financial impacts of the virus. It is evident that the economy will take time to recover in the best of circumstances. In order to be proactive and prudent, we determined to significantly increase our loan loss reserve, which dramatically lowered our first quarter profit. We are aware that these are troubling times, but we are confident that we are up to the challenge and together will persevere as we have done for the past 119 years.”

The Company is committed to its customers and employees during the COVID-19 crisis. Among the measures taken include:

  • Facilitating government stimulus through participation in the Payroll Protection Program (“PPP”) administered by the Small Business Administration (“SBA”). The CARES Act authorized the SBA to temporarily guarantee loans under a new 7(a) loan program called the PPP. 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-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 75% of the loan proceeds are used for payroll expenses, with the remaining 25% 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. The PPP launched on April 3, 2020 and the $349 billion funding cap was reached on April 16, 2020. On April 23, 2020, the PPP Enhancement Act allocated an additional $310 billion to replenish the PPP and a second round of the PPP began on April 27, 2020.

    As part of the first round of the PPP, the Bank originated 181 loans totaling $38.6 million and generated approximately $1.2 million from processing fees. The total originated loans will impact 3,081 small business employees. The Bank is also participating in the second round of the PPP and as of April 29, 2020, we expect to submit approximately 315 applications totaling $27.6 million and generate an additional $1.0 million in processing fees. All PPP loan originations occurred after the end of the March 31, 2020 reporting period and will be classified as commercial and industrial loans held for investment.
  • Forbearance options that provide borrowers a short-term delay in payment by primarily allowing: (a) deferral of three 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 following table provides details of loans in forbearance as of April 29, 2020.
CB Financial Services
Forbearance Loans By Category
      
   Number  
   of  
   Loans Amount
(Dollars in thousands)    
      
Real Estate:    
 Residential 170 $21,998 
 Commercial 98  94,101 
 Construction 1  7,109 
Commercial and Industrial 44  13,119 
Consumer 201  4,051 
Other 1  2,504 
 Total Loans in Forbearance 515 $142,882 

Forbearance in the commercial real estate category includes, but is not limited to, $24.2 million of retail space, $17.9 million of nonowner occupied multi-family apartments, $15.8 million in hotels, $11.9 million of warehouse space, and $4.7 million in various business that are dependent on the oil and gas industry, which includes $3.1 million of hotels in proximity to oil and gas related activity.

  • Specific actions protecting employees through work-at-home arrangements as well as social distancing measures for those working in our offices that limits branch traffic to drive-thru and special appointments with minimal disruption to our customers or employee productivity.

  • No employee layoffs and 10% premium pay program and additional paid time off for all employees to remain in effect until shelter-in-place orders have been lifted.

  • “Lunch on Us” program that purchases lunch once a week for onsite staff, which supports local restaurants.

  • Ensuring the Company is well-positioned to support the liquidity needs of its customers with borrowing capacity of $369.8 million available from the Federal Home Loan Bank, a $98.0 million borrower-in-custody of collateral line of credit with the Federal Reserve Bank, and $60.0 million from multiple line of credit arrangements, as well as $18.7 million in unpledged securities and $78.1 million in cash and cash equivalents. The cash available at the end of the quarter is available to help fund the PPP loans. In addition, the Company announced on March 19, 2020 a temporary suspension of its common stock repurchase program until further notice to preserve the Company’s excess capital in support of the Bank’s business of providing financial services to its customers and communities. Prior to the suspension, the Company had repurchased 69,966 shares totaling $2.0 million of the $5.0 million authorized for repurchase under the program.

Quarterly Highlights

Net income for the three months ended March 31, 2020 was $773,000, compared to $2.9 million for the three months ended March 31, 2019, a decrease of $2.2 million, or 73.6%. This was also a decrease of $3.9 million, or 83.5%, compared to the three months ended December 31, 2019. Diluted earnings per share for the three months ended March 31, 2020 was $0.14 compared to $0.54 for the three months ended March 31, 2019 and $0.85 for the three months ended December 31, 2019.

  • Quarterly results for the three months ended March 31, 2020 were significantly impacted by a $2.5 million provision for loan losses and significant decline in market value of the Company’s marketable equities portfolio.

    • The COVID-19 pandemic, which led to state-wide shelter in place orders and mandatory closures of all but essential business has resulted in a dramatic increase in unemployment and recessionary economic conditions. Based on evaluation of the current 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 for these circumstances and resulted in a $2.5 million provision for loan losses for the current quarter compared to $175,000 for the three months ended December 31, 2019 and $25,000 for the three months ended March 31, 2019.

    • The fair value of the Company’s marketable equity securities declined $438,000 in the first quarter of 2020 and was a $458,000 decline in income compared to the first quarter of 2019 from the impact of COVID-19 on the stock market. The Company’s marketable equity securities are primarily comprised of bank stocks.

  • Quarterly results for the three months ended December 31, 2019 were significantly impacted from the recognition of a one-time income tax benefit of $1.3 million related to the reversal of a valuation allowance (“VA”) for an alternative minimum tax (“AMT”) credit carryforward.

  • Loan growth to start the new year continued its positive trend. Total loans increased $22.2 million to $974.7 million at March 31, 2020 and represented a 9.3% annualized growth rate compared to an 8.7% annualized growth rate in the fourth quarter of 2019.

  • Net interest income increased $99,000 to $10.5 million for the three months ended March 31, 2020 compared to $10.4 million for the three months ended March 31, 2019. However, this was a decrease of $406,000 compared to $10.9 million the three months ended December 31, 2019. Despite the decrease in net interest income compared to the quarter ended December 31, 2019, the net interest margin remained stable at 3.57%.

    • Interest income decreased $639,000 for the three months ended March 31, 2020 compared to the three months ended December 31, 2019. Although average loans increased $20.3 million compared to the three months ended December 31, 2019, the average yield decreased 17 bps and was impacted by the 150 bps decline in the Wall Street Journal Prime Rate in March 2020 which resulted in immediate decrease in interest rates on adjustable rate loans linked to that index. Interest from other interest-bearing assets, which primarily consist of interest-bearing cash, decreased $177,000 compared to the three months ended December 31, 2019 due to declines on interest rates earned on deposits at other financial institutions. In addition, the Federal Reserve’s decision to drop the benchmark interest rate resulted in the call of $41.4 million in U.S. government agency securities during the quarter and an overall $27.2 million decrease in the average balance of the security portfolio. The funds were partially maintained in cash or reinvested in lower rate securities. These funds will primarily be used to fund PPP loan activity in the second quarter of 2020.

    • Interest expense on deposits decreased $215,000 for the three months ended March 31, 2020 compared to the three months ended December 31, 2019. Efforts to control pricing on certificates of deposit helped to decrease the average cost of deposits 8 bps compared to the quarter ended December 31, 2019. In addition, average interest-bearing deposits decreased $17.5 million during the quarter primarily in time deposits and money market accounts.

  • Noninterest income decreased $243,000, or 11.5%, to $1.9 million for the three months ended March 31, 2020, compared to $2.1 million for the three months ended March 31, 2019. This was also a decrease of $449,000 compared to the three months ended December 31, 2019. The decrease was mainly attributed to the decline in the fair value of the Company’s marketable equity securities from the impact of COVID-19 on the stock market as noted previously. Insurance commissions increased $132,000, or 11.5%, to $1.3 million for the three months ended March 31, 2020 compared to $1.2 million for the three months ended March 31, 2019 and was relatively flat compared to the three months ended December 31, 2019. The increase in comparison to the three months ended March 31, 2020 was primarily due to targeted efforts to increase commercial policies.

  • Noninterest expense increased $122,000, or 1.4% to $9.0 million for the three months ended March 31, 2020 compared to $8.9 million for the three months ended March 31, 2019 and was relatively flat compared to the three months ended December 31, 2019.

    • Salaries and employee benefits decreased $206,000 to $4.7 million for the three months ended March 31, 2020 compared to $4.9 million for the three months ended March 31, 2019 and $5.0 million for the three months ended December 31, 2019. The decrease compared to both prior periods was primarily due to a $407,000 one-time payment received from health insurance claims exceeding our stop-loss limit for the 2019 plan year and change from a self-funded to a fully insured plan. Final calculation of the stop loss payment was completed 90 days after the end of the plan year. This was offset by approximately $70,000 of one-time payments related to the CEO transition in the first quarter of 2020 and increase in expense on restricted stock from the December 2019 grants.

    • Contracted services increased in the current quarter compared to the quarter ended December 31, 2019 and March 31, 2019 primarily due to $116,000 in consulting fees associated with the search for a new CEO. Legal fees increased in the first quarter of 2020 due to fees associated with the CEO transition.

    • The Federal Deposit Insurance Corporation (“FDIC”) assessment expense increased $115,000 to $158,000 for the three months ended March 31, 2020 compared to the three months ended December 31, 2019. The Bank’s assessment returned to normal levels after utilizing the remaining deposit insurance fund (“DIF”) credits in the prior quarter. In 2019, the FDIC notified banks that its deposit insurance fund (“DIF”) reached the required minimum reserve ratio of 1.38% that permitted the FDIC to offset current bank assessments with prior credits from 2016 through 2018 earned by banks with less than $10 billion in assets. A total of $308,000 of credits were recognized in the third and fourth quarters of 2019.

Credit Quality

  • The allowance for loan losses was $12.3 million at March 31, 2020 compared to $9.9 million at December 31, 2019. This reflects the $2.5 million provision for loan loss due to an increase in qualitative factors to account for the adverse economic impact of COVID-19 as previously noted. As a result, the allowance for loan losses to total loans increased from 1.04% at December 31, 2019 to 1.26% at March 31, 2020.

  • Net charge-offs for the three months ended March 31, 2020 were $45,000, or 0.02% net charge-offs to average loans on an annualized basis, which was comparable to the quarter ended December 31, 2019. Net charge-offs were $171,000, or 0.08% net charge-offs to average loans on an annualized basis, for the three months ended March 31, 2019 driven by higher automobile loan charge-offs.

  • Nonperforming loans declined to $5.2 million at March 31, 2020 compared to $5.4 million at December 31, 2019 and, coupled with loan growth noted previously, resulted in the nonperforming loans to total loans ratio decreasing 3 basis points to 0.54% at March 31, 2020 compared to 0.57% at December 31, 2019.

Explanation of Use of Non-GAAP Financial Measures

In addition to financial measures presented in accordance with generally accepted accounting principles (“GAAP”), we use, and this Press Release contains or references, certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information in understanding our underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

The interest income on interest-earning assets, net interest rate spread and net interest margin are presented on a fully tax-equivalent (“FTE”) basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory income tax rate of 21 percent. We believe the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

The following table reconciles net interest income, net interest spread and net interest margin on a FTE basis for the periods indicated:

 Three Months Ended 
 March 31,
December 31, March 31,
 2020
2019 2019
(Dollars in thousands)      
       
Interest Income per Consolidated Statement of Income (GAAP)$12,329 $12,968 $12,296 
Adjustment to FTE Basis 53  51  77 
Interest Income (FTE) (Non-GAAP) 12,382  13,019  12,373 
Interest Expense per Consolidated Statement of Income 1,796  2,029  1,862 
Net Interest Income (FTE) (Non-GAAP)$10,586 $10,990 $10,511 
       
Net Interest Rate Spread (GAAP) 3.34% 3.32% 3.40%
Adjustment to FTE Basis 0.01  0.02  0.03 
Net Interest Rate Spread (FTE) (Non-GAAP) 3.35  3.34  3.43 
          
Net Interest Margin (GAAP) 3.55% 3.55% 3.62%
Adjustment to FTE Basis 0.02  0.02  0.02 
Net Interest Margin (FTE) (Non-GAAP) 3.57  3.57  3.64 

Tangible book value per common share is a non-GAAP measure and is calculated based on tangible common shareholders’ equity divided by period-end common shares outstanding. We believe this non-GAAP measure serves as a useful tool to help evaluate the strength and discipline of the Company's capital management strategies and as an additional, conservative measure of the Company’s total value.

 March 31, December 31,
  2020   2019 
(Dollars in thousands, except share and per share data)   
    
Stockholders' Equity (GAAP)$151,525  $151,097 
Goodwill and Other Instangible Assets, Net (38,420)  (38,952)
Tangible Common Stockholders' Equity$113,105  $112,145 
    
Common Shares Outstanding 5,393,712   5,463,828 
    
Tangible Book Value per Common Share (Non-GAAP)$20.97  $20.52 
    

About CB Financial Services, Inc

CB Financial Services, Inc. is the bank holding company for Community Bank, a Pennsylvania-chartered commercial bank located in Washington, Pennsylvania. Community Bank operates twenty 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. Community Bank offers a broad array of retail and commercial lending and deposit services and provides commercial and personal insurance brokerage services through Exchange Underwriters, Inc., its wholly owned subsidiary. Consolidated financial highlights of the Company are attached.

For more information about CB and Community Bank, visit our website at www.communitybank.tv. 

Statements contained in this press release that are not historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995 and such forward-looking statements are subject to significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions contained in the Act. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, general and local economic conditions, the scope and duration of economic contraction as a result of the COVID-19 pandemic and its effects on the Company’s business and that of the Company’s customers;, changes in market interest rates, deposit flows, demand for loans, real estate values and competition, competitive products and pricing, the ability of our customers to make scheduled loan payments, loan delinquency rates and trends, our ability to manage the risks involved in our business, our ability to control costs and expenses, inflation, market and monetary fluctuations, changes in federal and state legislation and regulation applicable to our business, actions by our competitors, and other factors that may be disclosed in the Company’s periodic reports as filed with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

Given the numerous unknowns and risks that are heavily weighted to the downside, our forward-looking statements are subject to the risk that conditions will be substantially different than we are currently expecting. If efforts to contain COVID-19 are unsuccessful and shelter-in-place orders last longer than expected, the recession would be much longer and much more severe and damaging. Ineffective fiscal stimulus, or an extended delay in implementing it, are also major risks. The deeper the recession and the longer it lasts, the more it will damage consumer fundamentals and sentiment. This could both prolong the recession and make any recovery weaker. Similarly, the recession could damage business fundamentals. As a result, the outbreak and its consequences, including responsive measures to manage it, have had and are likely to continue to have an adverse effect, possibly materially, on our business and financial performance by adversely affecting, possibly materially, the demand and profitability of our products and services, the valuation of assets and our ability to meet the needs of our customers.

Contact:
Barron P. McCune, Jr.
President and Chief Executive Officer
Phone: (724) 225-2400
Fax: (724) 225-4903

      
      
SELECTED CONSOLIDATED FINANCIAL INFORMATION
        
(Dollars in thousands, except share and per share data)(Unaudited)      
 March 31, December 31,    
Selected Financial Condition Data 2020   2019     
Total Assets$1,313,173  $1,321,537     
Cash and Cash Equivalents 78,099   80,217     
Securities Available-for-Sale 171,411   197,385     
            
Loans           
Real Estate:           
Residential 346,864   347,766     
Commercial 354,374   351,360     
Construction 50,017   35,605     
Commercial and Industrial 80,721   85,586     
Consumer 121,494   113,637     
Other 21,180   18,542     
Total Loans 974,650   952,496     
Allowance for Loan Losses 12,322   9,867     
Loans, Net 962,328   942,629     
            
Premises and Equipment, Net 22,037   22,282     
Goodwill 28,425   28,425     
Intangible Assets, Net 9,995   10,527     
Deposits 1,106,640   1,118,359     
Borrowings 45,967   44,571     
Stockholders' Equity 151,525   151,097     
        
 (Unaudited)
 Three Months Ended
 March 31, December 31, March 31,
Selected Operating Data 2020   2019   2019 
Interest and Dividend Income$12,329  $12,968  $12,296 
Interest Expense 1,796   2,029   1,862 
Net Interest Income 10,533   10,939   10,434 
Provision for Loan Losses 2,500   175   25 
Net Interest Income After Provision for Loan Losses 8,033   10,764   10,409 
Noninterest Income:     
Service Fees 603   640   592 
Insurance Commissions 1,283   1,305   1,151 
Other Commissions 110   79   117 
Net Gain on Sales of Loans 127   76   92 
Net Loss on Sales of Investment Securities -   -   (60)
Change in Fair Value of Marketable Equity Securities (438)  86   20 
Net Gain on Purchased Tax Credits 15   8   9 
Net Gain (Loss) on Disposal of Fixed Assets 17   -   (6)
Income from Bank-Owned Life Insurance 139   142   132 
Other Income (Loss) 14   (17)  66 
Total Noninterest Income 1,870   2,319   2,113 
            
Noninterest Expense:           
Salaries and Employee Benefits 4,731   5,040   4,937 
Occupancy 733   666   759 
Equipment 257   255   296 
Data Processing 425   425   408 
FDIC Assessment 158   43   188 
PA Shares Tax 275   256   268 
Contracted Services 378   316   272 
Legal and Professional Fees 235   230   181 
Advertising 183   186   117 
Other Real Estate Owned (Income) (17)  (22)  (63)
Amortization of Intangible Assets 532   532   532 
Other 1,111   1,096   984 
Total Noninterest Expense 9,001   9,023   8,879 
Income Before Income Tax Expense (Benefit) 902   4,060   3,643 
Income Tax Expense (Benefit) 129   (617)  718 
Net Income$773  $4,677  $2,925 
      
 (Unaudited)
 Three Months Ended
 March 31, December 31, March 31,
Per Common Share Data 2020   2019   2019 
Dividends Per Common Share$0.24  $0.24  $0.24 
Earnings Per Common Share - Basic 0.14   0.86   0.54 
Earnings Per Common Share - Diluted 0.14   0.85   0.54 
      
Weighted Average Common Shares Outstanding - Basic 5,431,199   5,438,664   5,432,856 
Weighted Average Common Shares Outstanding - Diluted 5,456,867   5,471,454   5,451,478 
      
 (Unaudited)    
 March 31, December 31,  
  2020   2019   
Common Shares Outstanding 5,393,712   5,463,828   
Book Value Per Common Share$28.09  $27.65   
Tangible Book Value per Common Share (1)$20.97  $20.52   
      
 (Unaudited)
 Three Months Ended
 March 31, December 31, March 31,
Selected Financial Ratios (2) 2020   2019   2019 
Return on Average Assets 0.24%  1.39%  0.93%
Return on Average Equity 2.04   12.40   8.53 
Average Interest-Earning Assets to Average Interest-Bearing Liabilities 135.06   134.93   133.04 
Average Equity to Average Assets 11.67   11.19   10.85 
Net Interest Rate Spread (3) 3.35   3.34   3.43 
Net Interest Margin (3) 3.57   3.57   3.64 
Net Charge-Offs to Average Loans 0.02   0.02   0.08 
Efficiency Ratio 72.57   68.06   70.77 
      
 (Unaudited)    
 March 31, December 31,  
Asset Quality Ratios 2020   2019   
Allowance For Loan Losses to Total Loans (4) 1.26%  1.04%  
Allowance For Loan Losses to Nonperforming Loans (4) (5) 235.51   183.33   
Allowance For Loan Losses to Noncurrent Loans (4) (6) 406.80   315.95   
Delinquent and Nonaccrual Loans to Total Loans (6) (7) 0.89   0.89   
Nonperforming Loans to Total Loans (5) 0.54   0.57   
Noncurrent Loans to Total Loans (6) 0.31   0.33   
Nonperforming Assets to Total Assets (8) 0.42   0.42   
      
Capital Ratios (9)     
Common Equity Tier 1 Capital (to Risk Weighted Assets) 11.60%  11.43%  
Tier 1 Capital (to Risk Weighted Assets) 11.60   11.43   
Total Capital (to Risk Weighted Assets) 12.85   12.54   
Tier 1 Leverage (to Adjusted Total Assets) 8.23   7.85   
      
(1) Refer to Explanation of Use of Non-GAAP Financial Measures in this Press Release.
(2) Interim period ratios are calculated on an annualized basis.
(3) Fully taxable-equivalent (FTE) yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 21%. Refer to Explanation of Use of Non-GAAP Financial Measures in this Press Release.
(4) Loans acquired in connection with the mergers with FedFirst Financial Corporation and First West Virginia Bancorp were recorded at their estimated fair value at the acquisition date and did not include a carryover of the pre-merger allowance for loan losses.
(5) Nonperforming loans consist of nonaccrual loans, accruing loans that are 90 days or more past due, and troubled debt restructured loans.
(6) Noncurrent loans consist of nonaccrual loans and accruing loans that are 90 days or more past due.
(7) Delinquent loans consist of accruing loans that are 30 days or more past due.
(8) Nonperforming assets consist of nonperforming loans and other real estate owned.
(9) Capital ratios are for Community Bank only.
      
Note:     
Certain items previously reported may have been reclassified to conform with the current reporting period’s format. 


AVERAGE BALANCES AND YIELDS
                        
    Three Months Ended
    March 31, 2020 December 31, 2019 March 31, 2019
    Average Balance Interest and Dividends Yield / Cost (4) Average Balance Interest and Dividends Yield / Cost (4) Average Balance Interest and Dividends Yield / Cost (4)
(Dollars in thousands) (Unaudited)                    
                        
Assets:                     
Interest-Earning Assets:                    
 Loans, Net$950,661 $10,796 4.57% $930,371 $11,116 4.74% $898,283 $10,466 4.73%
 Debt Securities                    
  Taxable 158,655  1,201 3.03   185,248  1,332 2.88   190,418  1,317 2.77 
  Exempt From Federal Tax 16,837  127 3.02   17,405  130 2.99   32,814  252 3.07 
 Marketable Equity Securities 2,568  20 3.12   2,550  26 4.08   2,507  20 3.19 
 Other Interest-Earning Assets 64,608  238 1.48   85,336  415 1.93   45,711  318 2.82 
  Total Interest-Earning Assets 1,193,329  12,382 4.17   1,220,910  13,019 4.23   1,169,733  12,373 4.29 
Noninterest-Earning Assets 114,056       115,382       111,999     
  Total Assets$1,307,385      $1,336,292      $1,281,732     
                        
Liabilities and                    
 Stockholders' equity:                    
Interest-Bearing Liabilities:                    
 Interest-Bearing Demand Deposits$226,482  267 0.47% $232,044  310 0.53% $213,210  276 0.52%
 Savings 218,328  90 0.17   215,686  94 0.17   213,115  145 0.28 
 Money Market 180,982  249 0.55   186,411  262 0.56   184,503  273 0.60 
 Time Deposits 215,449  1,075 2.01   224,602  1,230 2.17   217,289  1,025 1.91 
  Total Interest-Bearing Deposits 841,241  1,681 0.80   858,743  1,896 0.88   828,117  1,719 0.84 
 Borrowings 42,321  115 1.09   46,099  133 1.14   51,104  143 1.13 
  Total Interest-Bearing Liabilities 883,562  1,796 0.82   904,842  2,029 0.89   879,221  1,862 0.86 
Noninterest-Bearing Demand Deposits 261,504       270,889       254,460     
Other Liabilities 9,797       10,968       8,962     
  Total Liabilities 1,154,863       1,186,699       1,142,643     
                        
Stockholders' Equity 152,522       149,593       139,089     
  Total Liabilities and                    
   Stockholders' Equity$1,307,385      $1,336,292      $1,281,732     
                        
Net Interest Income (FTE) (Non-GAAP)  $10,586      $10,990      $10,511   
Net Interest Rate Spread (FTE) (Non-GAAP) (1)   3.35%     3.34%     3.43%
Net Interest-Earning Assets (2)$309,767      $316,068      $290,512     
Net Interest Margin (FTE) (Non-GAAP) (3)    3.57      3.57      3.64 
Return on Average Assets    0.24      1.39      0.93 
Return on Average Equity    2.04      12.40      8.53 
Average Equity to Average Assets    11.67      11.19      10.85 
Average Interest-Earning Assets to                    
 Average Interest-Bearing Liabilities    135.06      134.93      133.04 
                        
(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the 
  weighted average cost of interest-bearing liabilities. 
(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. 
(3) Net interest margin represents net interest income divided by average total interest-earning assets. 
(4) Annualized. 


The following information was filed by Cb Financial Services, Inc. (CBFV) on Monday, May 4, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 001-36706

 

  CB FINANCIAL SERVICES, INC.  
  (Exact name of registrant as specified in its charter)  

 

Pennsylvania   51-0534721
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

100 N. Market Street, Carmichaels, PA   15320
(Address of principal executive offices)   (Zip Code)

 

  (724) 966-5041  
  (Registrant’s telephone number, including area code)  

 

  N/A  
  (Former name, former address and former fiscal year, if changed since last report)  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common stock, par value $0.4167 per share   CBFV   The Nasdaq Stock Market, LLC
(Title of each class)   (Trading symbol)   (Name of each exchange on which registered)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐  Accelerated filer ☒
Non-accelerated filer ☐  Smaller reporting company ☒
Emerging growth company ☐   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of May 7, 2020, the number of shares outstanding of the Registrant’s Common Stock was 5,393,712.

 

 

 

FORM 10-Q

 

INDEX

 

Page

PART I – FINANCIAL INFORMATION  
Item 1.  Financial Statements (Unaudited) 1
Consolidated Statement of Financial Condition 1
Consolidated Statement of Income 2
Consolidated Statement of Comprehensive Income 3
Consolidated Statements of Changes In Stockholders’ Equity 4
Consolidated Statement of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. 24
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 34
Item 4. Controls and Procedures. 34
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings. 35
Item 1A. Risk Factors. 35
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. 37
Item 3.  Defaults Upon Senior Securities. 37
Item 4. Mine Safety Disclosures. 37
Item 5. Other Information. 37
Item 6. Exhibits 37
SIGNATURES 38

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

 

   (Unaudited)   
   March 31,  December 31,
   2020  2019
(Dollars in thousands, except per share and share data)      
       
ASSETS          
Cash and Due From Banks:          
Interest Bearing  $64,004   $68,798 
Non-Interest Bearing   14,095    11,419 
Total Cash and Due From Banks   78,099    80,217 
           
Investment Securities:          
Available-for-Sale   171,411    197,385 
Loans, Net of Allowance for Loan Losses of $12,322 and $9,867 at March 31, 2020 and December 31, 2019, Respectively   962,328    942,629 
Premises and Equipment, Net   22,037    22,282 
Bank-Owned Life Insurance   24,361    24,222 
Goodwill   28,425    28,425 
Intangible Assets, Net   9,995    10,527 
Accrued Interest and Other Assets   16,517    15,850 
TOTAL ASSETS  $1,313,173   $1,321,537 
           
LIABILITIES          
Deposits:          
Non-Interest Bearing Demand Deposits  $267,369   $267,152 
NOW Accounts   229,601    232,099 
Money Market Accounts   177,597    182,428 
Savings Accounts   220,484    216,924 
Time Deposits   211,589    219,756 
Total Deposits   1,106,640    1,118,359 
           
Short-Term Borrowings   34,967    30,571 
Other Borrowings   11,000    14,000 
Accrued Interest and Other Liabilities   9,041    7,510 
TOTAL LIABILITIES   1,161,648    1,170,440 
           
STOCKHOLDERS' EQUITY          
Preferred Stock, No Par Value; 5,000,000 Shares Authorized   -    - 
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,393,712 and 5,463,828 Shares Outstanding at March 31, 2020 and December 31, 2019, Respectively   2,367    2,367 
Capital Surplus   83,216    82,971 
Retained Earnings   66,431    66,955 
Treasury Stock, at Cost (287,281 and 217,165 Shares at March 31, 2020 and December 31, 2019, Respectively)   (5,914)   (3,842)
Accumulated Other Comprehensive Income   5,425    2,646 
TOTAL STOCKHOLDERS' EQUITY   151,525    151,097 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $1,313,173   $1,321,537 

 

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

1

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

 

   Three Months Ended
   March 31,
   2020  2019
(Dollars in thousands, except share and per share data)      
       
INTEREST AND DIVIDEND INCOME          
Loans, Including Fees  $10,764   $10,433 
Investment Securities:          
Taxable   1,201    1,317 
Tax-Exempt   106    208 
Dividends   20    20 
Other Interest and Dividend Income   238    318 
TOTAL INTEREST AND DIVIDEND INCOME   12,329    12,296 
           
INTEREST EXPENSE          
Deposits   1,681    1,719 
Short-Term Borrowings   45    46 
Other Borrowings   70    97 
TOTAL INTEREST EXPENSE   1,796    1,862 
           
NET INTEREST INCOME   10,533    10,434 
Provision For Loan Losses   2,500    25 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   8,033    10,409 
           
NONINTEREST INCOME          
Service Fees   603    592 
Insurance Commissions   1,283    1,151 
Other Commissions   110    117 
Net Gain on Sales of Loans   127    92 
Net Loss on Sales of Investment Securities   -    (60)
Change in Fair Value of Marketable Equity Securities   (438)   20 
Net Gain on Purchased Tax Credits   15    9 
Net Gain (Loss) on Disposal of Fixed Assets   17    (6)
Income from Bank-Owned Life Insurance   139    132 
Other Income   14    66 
TOTAL NONINTEREST INCOME   1,870    2,113 
           
NONINTEREST EXPENSE          
Salaries and Employee Benefits   4,731    4,937 
Occupancy   733    759 
Equipment   257    296 
Data Processing   425    408 
FDIC Assessment   158    188 
PA Shares Tax   275    268 
Contracted Services   378    272 
Legal and Professional Fees   235    181 
Advertising   183    117 
Other Real Estate Owned (Income)   (17)   (63)
Amortization of Intangible Assets   532    532 
Other   1,111    984 
TOTAL NONINTEREST EXPENSE   9,001    8,879 
           
Income Before Income Tax Expense   902    3,643 
Income Tax Expense   129    718 
NET INCOME  $773   $2,925 
           
EARNINGS PER SHARE          
Basic  $0.14   $0.54 
Diluted   0.14    0.54 
           
WEIGHTED AVERAGE SHARES OUTSTANDING          
Basic   5,431,199    5,432,856 
Diluted   5,456,867    5,451,478 

 

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

2

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

   Three Months Ended
   March 31,
   2020  2019
(Dollars in thousands)      
       
Net Income  $773   $2,925 
           
Other Comprehensive Income:          
Unrealized Gains on Available-for-Sale Securities Net of Income, Net of Income Tax          
Expense of $739 and $622 for the Three Months Ended March 31, 2020 and 2019, Respectively   2,779    2,337 
           
Reclassification Adjustment for Losses on Securities Included in Net          
Income, Net of Income Tax Benefit of ($13) for the Three Months Ended March 31, 2019 (1)    -    47 
Other Comprehensive Income, Net of Income Tax Expense (Benefit)   2,779    2,384 
Total Comprehensive Income  $3,552   $5,309 

         
(1) The gross amount of losses on securities of $(60) for the Three Months Ended March 31, 2019 is reported as Net Loss on Sales of Investments Securities on the Consolidated Statement of Income. The income tax benefit is included in Income Tax Expense on the Consolidated Statement of Income. 

 

 

 

 

 

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

3

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

   Shares Issued  Common Stock  Capital Surplus  Retained Earnings  Treasury Stock  Accumulated Other Comprehensive Income  Total Stockholders' Equity
(Dollars in thousands, except share and per share data)                     
                      
December 31, 2019   5,680,993   $2,367   $82,971   $66,955   $(3,842)  $2,646   $151,097 
Comprehensive Income:                                   
Net Income   -    -    -    773    -    -    773 
Other Comprehensive Income   -    -    -    -    -    2,779    2,779 
Restricted Stock Awards Granted   -    -    96    -    (96)   -    - 
Stock-Based Compensation Expense   -    -    145    -    -    -    145 
Exercise of Stock Options   -    -    4    -    (68)   -    (64)
Treasury stock purchased, at cost (67,816 shares)   -    -    -    -    (1,908)   -    (1,908)
Dividends Paid ($0.24 Per Share)   -    -    -    (1,297)   -    -    (1,297)
March 31, 2020   5,680,993   $2,367   $83,216   $66,431   $(5,914)  $5,425   $151,525 

 

 

   Shares Issued  Common Stock  Capital Surplus  Retained Earnings  Treasury Stock  Accumulated Other Comprehensive 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   -    -    -    2,925    -    -    2,925 
Other Comprehensive Income   -    -    -    -    -    2,384    2,384 
Stock-Based Compensation Expense   -    -    77    -    -    -    77 
Exercise of Stock Options   -    -    5    -    17    -    22 
Dividends Paid ($0.24 Per Share)   -    -    -    (1,304)   -    -    (1,304)
March 31, 2019   5,680,993   $2,367   $83,307   $59,464   $(4,353)  $944   $141,729 

 

 

 

 

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

4

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

 

Three Months Ended March 31,  2020  2019
(Dollars in thousands)      
       
OPERATING ACTIVITIES          
Net Income  $773   $2,925 
Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities:          
Net Accretion on Investments   (70)   (1)
Depreciation and Amortization   941    913 
Provision for Loan Losses   2,500    25 
Change in Fair Value of Marketable Equity Securities   438    (20)
Net Gain on Purchased Tax Credits   (15)   (9)
Income from Bank-Owned Life Insurance   (139)   (132)
Proceeds From Mortgage Loans Sold   4,771    3,995 
Originations of Mortgage Loans for Sale   (4,644)   (3,903)
Net Gain on Sales of Loans   (127)   (92)
Net Loss on Sales of Investment Securities   -    60 
Net Gain on Sales of Other Real Estate Owned and Repossessed Assets   (4)   (30)
Noncash Expense for Stock-Based Compensation   145    77 
Decrease (Increase) in Accrued Interest Receivable   23    (237)
Net (Gain) Loss on Disposal of Fixed Assets   (17)   6 
(Decrease) Increase in Taxes Payable   (1,165)   455 
Payments on Operating Leases   (110)   (103)
(Decrease) Increase in Accrued Interest Payable   (124)   176 
Net Payment of Federal and State Income Taxes   -    (15)
Other, Net   414    (2,828)
NET CASH PROVIDED BY OPERATING ACTIVITIES   3,590    1,262 
           
INVESTING ACTIVITIES          
Investment Securities Available for Sale:          
Proceeds From Principal Repayments and Maturities   46,498    3,901 
Purchases of Debt and Marketable Equity Securities   (19,824)   (10,947)
Proceeds from Sales of Securities   -    10,762 
Net Increase in Loans   (18,861)   3,845 
Purchase of Premises and Equipment   (17)   - 
Asset Acquisition of a Customer List   -    (900)
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets   22    773 
Decrease in Restricted Equity Securities   66    55 
NET CASH PROVIDED BY INVESTING ACTIVITIES   7,884    7,489 
           
FINANCING ACTIVITIES          
Net (Decrease) Increase in Deposits   (11,719)   18,807 
Net Increase (Decrease) in Short-Term Borrowings   4,396    (290)
Principal Payments on Other Borrowed Funds   (3,000)   (3,000)
Cash Dividends Paid   (1,297)   (1,304)
Treasury Stock, Purchases at Cost   (1,908)   - 
Exercise of Stock Options   (64)   22 
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES   (13,592)   14,235 
           
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS   (2,118)   22,986 
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR   80,217    53,353 
CASH AND DUE FROM BANKS AT END OF PERIOD  $78,099   $76,339 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for:          
Interest on deposits and borrowings (including interest credited to deposit accounts of $1,799 and $1,538, respectively)  $1,920   $1,686 
Income taxes   -    15 
           
SUPPLEMENTAL NONCASH DISCLOSURE:          
Real estate acquired in settlement of loans   76    - 
Securities sold not settled   2,450    - 
Right of use asset recognized   23    1,706 
Lease liability recognized   23    1,712 

 

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

5

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Summary of Significant Accounting Policies

 

Principles of Consolidation and Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters” or “EU”). CB Financial and the Bank are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation.

 

The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, evaluation of securities for other-than-temporary impairment including related cash flow projections, goodwill and intangible assets impairment, and the valuation of deferred tax assets.

 

In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations at the dates and for the periods presented. All these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Interim results are not necessarily indicative of results for a full year.

 

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

 

Nature of Operations

 

The Company derives substantially all its income from banking and bank-related services which include interest earnings on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest earnings on investment securities and fees generated from deposit services to its customers. The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from twenty 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.

 

Reclassifications

 

Certain comparative amounts for the prior year have been reclassified to conform to the current year presentation. Such reclassifications did not affect net income or stockholders’ equity.

 

Goodwill

 

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. At March 31, 2020 and December 31, 2019, the carrying value of goodwill was $28.4 million. Goodwill is subject to impairment testing at the reporting unit level, which is conducted 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 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 merger and acquisition transactions to determine whether there is goodwill impairment.

 

6

The COVID-19 pandemic that has impacted the U.S. and most of the world and government response to curtail the spread of the virus through shelter-in-place orders and mandatory closures of all but essential businesses beginning in March 2020 has significantly impacted our market area and the activities of individuals. These restrictions have resulted in significant adverse effects on macroeconomic conditions, and stock market valuations have decreased substantially for most companies, including banks. The ultimate effect of COVID-19 on the local or broader economy is not known nor is the ultimate length of the restrictions described and any accompanying effects. In light of the adverse circumstances resulting from COVID-19, management determined it was necessary to evaluate goodwill for impairment at March 31, 2020.

 

Determining the fair value of a reporting unit under a quantitative goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions. The Company utilized a market approach to determine the fair value of the Community Banking reporting unit. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, current and prospective financial information of the Bank, most recent performance of the Bank’s peers, including common banking industry performance measures and ratios, and comparable multiples from publicly traded companies in our industry. The valuation was primarily based on observable price to tangible book value bank merger and acquisition multiples for similar size community banks, which is the most widely used valuation metric in the community banking industry. As part of its analysis, the Company considered bank transactions of target banks that were comparable in asset size, risk and profitability and efficiency metrics during the “Great Recession” period from 2008 to 2010 when bank stock values were depressed and the stock market decline was similar with the current sudden and unexpected events caused by the COVID-19 pandemic.

 

Based on the analysis, management determined that goodwill was not impaired as of March 31, 2020. Future events, particularly worsening business, profitability and economic conditions as of a result of the COVID-19 pandemic, could cause additional triggering events and require management to further evaluate goodwill for impairment.

 

Recent Accounting Standards

 

In March 2020, the Financial Accounting Standard Board (“FASB”) issued ASU2020-04, 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 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.

  

7

In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP; and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 was originally effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting in a required implementation date for the Company of January 1, 2023. Early adoption will continue to be permitted. The Company is evaluating the impact of this ASU and expects to recognize a one-time adjustment to the allowance for loan losses upon adoption, but we cannot yet determine the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

 

Note 2. 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 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
   March 31,
   2020  2019
(Dollars in thousands, except share and per share data)      
       
Net income  $773   $2,925 
           
Weighted-Average Basic Common Shares Outstanding   5,431,199    5,432,856 
Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)   25,668    18,622 
Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding   5,456,867    5,451,478 
           
Earnings per share:          
Basic  $0.14   $0.54 
Diluted   0.14    0.54 

 

The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. For the three months ended March 31, 2020 and 2019, options to purchase 78,545 and 83,688 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. For the three months ended March 31, 2020, 30,250 shares of restricted stock awards 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 effect would be anti-dilutive. For the three months ended March 31, 2019, there were no anti-dilutive restricted stock awards.

 

Note 3. Investment Securities

 

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

 

   March 31, 2020
      Gross  Gross   
   Amortized  Unrealized  Unrealized  Fair
   Cost  Gains  Losses  Value
(Dollars in thousands)            
             
Debt Securities:                    
U.S. Government Agencies  $7,913   $95   $-   $8,008 
Obligations of States and Political Subdivisions   23,869    1,016    (1)   24,884 
Mortgage-Backed Securities - Government-Sponsored Enterprises   130,450    5,782    -    136,232 
Total Debt Securities  $162,232   $6,893   $(1)   169,124 
                     
Marketable Equity Securities:                    
Mutual Funds                  1,013 
Other                  1,274 
Total Marketable Equity Securities                  2,287 
Total Available-for-Sale Securities                 $171,411 

8

   December 31, 2019
      Gross  Gross   
   Amortized  Unrealized  Unrealized  Fair
   Cost  Gains  Losses  Value
(Dollars in thousands)            
             
Debt Securities:                    
U.S. Government Agencies  $47,993   $227   $(164)  $48,056 
Obligations of States and Political Subdivisions   25,026    819    (2)   25,843 
Mortgage-Backed Securities - Government-Sponsored Enterprises   118,282    2,601    (107)   120,776 
Total Debt Securities  $191,301   $3,647   $(273)   194,675 
                     
Marketable Equity Securities:                    
Mutual Funds                  997 
Other                  1,713 
Total Marketable Equity Securities                  2,710 
Total Available-for-Sale 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:

 

   March 31, 2020
   Less than 12 months  12 Months or Greater  Total
   Number     Gross  Number     Gross  Number     Gross
   of  Fair  Unrealized  of  Fair  Unrealized  of  Fair  Unrealized
   Securities  Value  Losses  Securities  Value  Losses  Securities  Value  Losses
(Dollars in thousands)                           
                            
Obligations of States and Political Subdivisions   1   $509   $(1)   -   $-   $-    1   $509   $(1)

 

 

   December 31, 2019
   Less than 12 months  12 Months or Greater  Total
   Number     Gross  Number     Gross  Number     Gross
   of  Fair  Unrealized  of  Fair  Unrealized  of  Fair  Unrealized
   Securities  Value  Losses  Securities  Value  Losses  Securities  Value  Losses
(Dollars in thousands)                           
                            
U.S. Government Agencies   6   $16,116   $(83)   6   $13,938   $(81)   12   $30,054   $(164)
Obligations of States and                                             
Political Subdivisions   -    -    -    1    509    (2)   1    509    (2)
Mortgage-Backed Securities -                                             
Government Sponsored Enterprises   7    20,003    (104)   1    1,711    (3)   8    21,714    (107)
Total   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 March 31, 2020 or December 31, 2019, 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 March 31, 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.

 

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 Income. Realized gains and losses on sales of marketable equity securities are included in Net Loss on Sales of Investment Securities on the Consolidated Statement of Income. There were no sales of marketable equity securities for the three months ended March 31, 2020 and 2019, respectively.

 

9

 

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

 

   March 31, 2020
   Amortized  Fair
   Cost  Value
(Dollars in thousands)      
       
Due in One Year or Less  $1,535   $1,536 
Due after One Year through Five Years   6,116    6,242 
Due after Five Years through Ten Years   26,051    27,152 
Due after Ten Years   128,530    134,194 
Total  $162,232   $169,124 

 

There were no sales of available-for-sale securities for the three months ended March 31, 2020. Sales of available-for-sale investment securities for the three months ended March 31, 2019 resulted in gross losses of $60,000.

 

Note 4. 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 following table presents the classifications of loans as of the dates indicated.

 

   March 31, 2020  December 31, 2019
   Amount  Percent  Amount  Percent
(Dollars in thousands)            
             
Real Estate:                    
Residential  $346,864    35.5%  $347,766    36.6%
Commercial   354,374    36.4    351,360    36.9 
Construction   50,017    5.1    35,605    3.7 
Commercial and Industrial   80,721    8.3    85,586    9.0 
Consumer   121,494    12.5    113,637    11.9 
Other   21,180    2.2    18,542    1.9 
Total Loans   974,650    100.0%   952,496    100.0%
Allowance for Loan Losses   (12,322)        (9,867)     
Loans, Net  $962,328        $942,629      

 

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic, which includes authorizing the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). 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-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 75% of the loan proceeds are used for payroll expenses, with the remaining 25% 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. 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 includes 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.

 

As part of the first round of the PPP, the Bank originated 181 loans totaling $38.6 million and generated approximately $1.2 million from processing fees. The total approved loans will impact 3,081 small business employees. The Bank is also participating in the second round of the PPP and as of April 29, 2020, we expect to submit approximately 315 applications totaling $27.6 million and generate an additional $1.0 million in processing fees. All PPP loan originations occurred after the end of the March 31, 2020 reporting period and will be classified as commercial and industrial loans held for investment.

 

10

Total unamortized net deferred loan fees were $950,000 and $907,000 at March 31, 2020 and December 31, 2019, respectively.

 

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $101.2 million and $100.0 million at March 31, 2020 and December 31, 2019, respectively.

 

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

 

   March 31, 2020
      Special         
   Pass  Mention  Substandard  Doubtful  Total
(Dollars in Thousands)               
                
Real Estate:                         
Residential  $342,785   $1,028   $3,051   $-   $346,864 
Commercial   312,089    36,496    5,789    -    354,374 
Construction   45,985    3,179    853    -    50,017 
Commercial and Industrial   74,264    4,109    1,667    681    80,721 
Consumer   121,337    -    157    -    121,494 
Other   21,094    86    -    -    21,180 
Total Loans  $917,554   $44,898   $11,517   $681   $974,650 

 

   December 31, 2019
      Special         
   Pass  Mention  Substandard  Doubtful  Total
(Dollars in Thousands)               
                
Real Estate:                         
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 
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 $20.3 million in the special mention loan category as of March 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. The increase of $4.1 million in the substandard category is primarily due to a lease dispute on a $2.3 million industrial building (commercial real estate) and $956,000 associated with two residential real estate loans which have insufficient debt service coverage from the borrower demonstrating an inability to build and sell the speculative homes at a fast enough rate that can service the interest-only debt.

 

11

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.

 

   March 31, 2020
      30-59  60-89  90 Days         
   Loans  Days  Days  Or More  Total  Non-  Total
   Current  Past Due  Past Due  Past Due  Past Due  Accrual  Loans
(Dollars in Thousands)                     
                      
Real Estate:                                   
Residential  $340,982   $3,824   $61   $-   $3,885   $1,997   $346,864 
Commercial   354,168    45    -    -    45    161    354,374 
Construction   49,177    407    433    -    840    -    50,017 
Commercial and Industrial   80,007    -    -    -    -    714    80,721 
Consumer   120,442    845    50    -    895    157    121,494 
Other   21,180    -    -    -    -    -    21,180 
Total Loans  $965,956   $5,121   $544   $-   $5,665   $3,029   $974,650 

 

   December 31, 2019
      30-59  60-89  90 Days         
   Loans  Days  Days  Or More  Total  Non-  Total
   Current  Past Due  Past Due  Past Due  Past Due  Accrual  Loans
(Dollars in Thousands)                     
                      
Real Estate:                                   
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 
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 

 

12

 

The following table sets forth the amounts and categories of our nonperforming assets at the dates indicated. Included in nonperforming loans and assets are troubled debt restructurings (“TDRs”), which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section.

 

   March 31,  December 31,
   2020  2019
(Dollars in Thousands)      
       
Nonaccrual Loans:          
Real Estate:          
Residential  $1,997   $1,817 
Commercial   161    234 
Commercial and Industrial   714    740 
Consumer   157    110 
Total Nonaccrual Loans   3,029    2,901 
           
Accruing Loans Past Due 90 Days or More:          
Real Estate:          
Residential   -    196 
Consumer   -    26 
Total Accruing Loans Past Due 90 Days or More   -    222 
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More   3,029    3,123 
           
Troubled Debt Restructurings, Accruing:          
Real Estate          
Residential   503    511 
Commercial   1,621    1,648 
Commercial and Industrial   79    100 
Total Troubled Debt Restructurings, Accruing   2,203    2,259 
           
Total Nonperforming Loans   5,232    5,382 
           
Other Real Estate Owned:          
Residential   117    41 
Commercial   174    192 
Total Other Real Estate Owned   291    233 
           
Total Nonperforming Assets  $5,523   $5,615 
           
Nonperforming Loans to Total Loans   0.54%   0.57%
Nonperforming Assets to Total Assets   0.42    0.42 

 

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $1.7 million and $1.1 million at March 31, 2020 and December 31, 2019, 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. 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.

 

Banking regulatory agencies released an interagency statement that offers practical expedients for modifications that occur in response to the COVID-19 pandemic, but they differ 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 banking 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).

 

13

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; 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. The following table provides details of loans in forbearance as of April 29, 2020.

 

   Number   
   of   
   Loans  Amount
(Dollars in thousands)      
       
Real Estate:          
Residential   170   $21,998 
Commercial   98    94,101 
Construction   1    7,109 
Commercial and Industrial   44    13,119 
Consumer   201    4,051 
Other   1    2,504 
Total Loans in Forbearance   515   $142,882 

 

Forbearance in the commercial real estate category includes, but is not limited to, $24.2 million of retail space, $17.9 million of nonowner occupied multi-family apartments, $15.8 million in hotels, $11.9 million of warehouse space, and $4.7 million in various business that are dependent on the oil and gas industry, which includes $3.1 million of hotels in proximity to oil and gas related activity.

 

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 16 loans totaling $2.9 million and $3.0 million at March 31, 2020 and December 31, 2019, respectively.

 

For the three months ended March 31, 2020, there were no loans that were modified that were considered a TDR or TDRs that paid off.

 

For the three months ended March 31, 2019, one residential real estate loan was modified in a TDR transaction by extending the term of the loan and one residential real estate TDR paid off. No TDRs subsequently defaulted during the three months ended March 31, 2020 and 2019, respectively. The following table presents information at the time of modification related to loans modified in a TDR during the three months ended March 31, 2019.

 

   Three Months Ended March 31, 2019
      Pre-  Post-   
      Modification  Modification   
   Number  Outstanding  Outstanding   
   of  Recorded  Recorded  Related
   Contracts  Investment  Investment  Allowance
(Dollars in thousands)            
             
Real Estate:                    
Residential   1   $61   $61   $- 

 

14

 

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

 

   March 31, 2020
         Unpaid  Average  Interest
   Recorded  Related  Principal  Recorded  Income
   Investment  Allowance  Balance  Investment  Recognized
(Dollars in thousands)               
                
With No Related Allowance Recorded:                         
Real Estate:                         
Residential  $1,495   $-   $1,500   $1,498   $17 
Commercial   5,187    -    5,203    5,230    54 
Construction   853    -    853    853    10 
Commercial and Industrial   792    -    957    812    1 
Total With No Related Allowance Recorded  $8,327   $-   $8,513   $8,393   $82 
                          
With A Related Allowance Recorded:                         
Real Estate:                         
Commercial  $1,619   $392   $1,619   $1,630   $19 
Commercial and Industrial   1,636    259    1,636    1,648    24 
Total With A Related Allowance Recorded  $3,255   $651   $3,255   $3,278   $43 
                          
Total Impaired Loans:                         
Real Estate:                         
Residential  $1,495   $-   $1,500   $1,498   $17 
Commercial   6,806    392    6,822    6,860    73 
Construction   853    -    853    853    10 
Commercial and Industrial   2,428    259    2,593    2,460    25 
Total Impaired Loans  $11,582   $651   $11,768   $11,671   $125 

 

   December 31, 2019
         Unpaid  Average  Interest
   Recorded  Related  Principal  Recorded  Income
   Investment  Allowance  Balance  Investment  Recognized
(Dollars in thousands)               
                
With No Related Allowance Recorded:                         
Real Estate:                         
Residential  $549   $-   $553   $494   $20 
Commercial   3,058    -    3,077    3,335    177 
Commercial and Industrial   133    -    135    156    6 
Total With No Related Allowance Recorded  $3,740   $-   $3,765   $3,985   $203 
                          
With A Related Allowance Recorded:                         
Real Estate:                         
Commercial  $1,646   $274   $1,646   $1,702   $81 
Commercial and Industrial   2,378    610    2,529    2,448    113 
Total With A Related Allowance Recorded  $4,024   $884   $4,175   $4,150   $194 
                          
Total Impaired Loans                         
Real Estate:                         
Residential  $549   $-   $553   $494   $20 
Commercial   4,704    274    4,723    5,037    258 
Commercial and Industrial   2,511    610    2,664    2,604    119 
Total Impaired Loans  $7,764   $884   $7,940   $8,135   $397 

 

The $3.8 million increase in recorded investment of loans evaluated for impairment is primarily due to a lease dispute on a $2.3 million industrial building (commercial real estate) and $956,000 and $853,000 associated with two residential real estate loans and one residential construction loan, respectively, which have insufficient debt service coverage from the borrower demonstrating an inability to build and sell the speculative homes at a fast enough rate that can service the interest-only debt. These loans were downgraded to substandard as of March 31, 2020.

 

15

The following table presents 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.

 

   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
(Dollars in thousands)                        
                         
December 31, 2019  $2,023   $3,210   $285   $2,412   $1,417   $-   $520   $9,867 
Charge-offs   (25)   -    -    -    (99)   -    -    (124)
Recoveries   2    14    -    9    54    -    -    79 
Provision   685    1,651    379    (829)   507    -    107    2,500 
March 31, 2020  $2,685   $4,875   $664   $1,592   $1,879   $-   $627   $12,322 

 

   March 31, 2020
   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
(Dollars in thousands)                        
                         
Individually Evaluated for Impairment  $-   $392   $-   $259   $-   $-   $-   $651 
Collectively Evaluated for Potential Impairment  $2,685   $4,483   $664   $1,333   $1,879   $-   $627   $11,671 

 

   December 31, 2019
   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
(Dollars in thousands)                        
                         
Individually Evaluated for Impairment  $-   $274   $-   $610   $-   $-   $-   $884 
Collectively Evaluated for Potential Impairment  $2,023   $2,936   $285   $1,802   $1,417   $-   $520   $8,983 

 

 

   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  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   -    -    -    -    (213)   -    -    (213)
Recoveries   4    13    -    1    24    -    -    42 
Provision   100    (156)   105    (255)   (105)   -    336    25 
March 31, 2019  $1,154   $2,550   $500   $2,553   $1,733   $-   $922   $9,412 

 

   March 31, 2019
   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
(Dollars in thousands)                        
                         
Individually Evaluated for Impairment  $-   $199   $-   $784   $-   $-   $-   $983 
Collectively Evaluated for Potential Impairment  $1,154   $2,351   $500   $1,769   $1,733   $-   $922   $8,429 

 

The COVID-19 pandemic, which led to state-wide shelter in place orders and mandatory closures of all but essential business has resulted in a dramatic increase in unemployment and recessionary economic conditions. Based on evaluation of the current 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 for these circumstances and resulted in a $2.5 million provision for loan losses for the three months ended March 31, 2020. This change increased the ALLL in all categories except commercial and industrial due to a decrease in the average loss history factor as further explained below.

 

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 dropped off 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.

 

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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
(Dollars in Thousands)   
    
December 31, 2019  $1,628 
Accretable Yield   (76)
March 31, 2020  $1,552 

 

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.

 

   March 31, 2020
   Real  Real  Real  Commercial         
   Estate  Estate  Estate  and         
   Residential  Commercial  Construction  Industrial  Consumer  Other  Total
(Dollars in thousands)                     
                      
Individually Evaluated for Impairment  $1,495   $6,806   $853   $2,428   $-   $-   $11,582 
Collectively Evaluated for Potential Impairment   345,369    347,568    49,164    78,293    121,494    21,180    963,068 
Total Loans  $346,864   $354,374   $50,017   $80,721   $121,494   $21,180   $974,650 

 

   December 31, 2019
   Real  Real  Real  Commercial         
   Estate  Estate  Estate  and         
   Residential  Commercial  Construction  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 

 

Note 5. Deposits

 

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

 

   March 31,
   2020
(Dollars in thousands)     
      
One Year or Less  $82,680 
Over One Through Two Years   54,134 
Over Two Through Three Years   37,995 
Over Three Through Four Years   23,340 
Over Four Through Five Years   8,173 
Over Five Years   5,267 
Total  $211,589 

 

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $67.2 million and $69.3 million as of March 31, 2020 and December 31, 2019, respectively.

 

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Note 6. Short-Term Borrowings

 

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

 

   March 31, 2020  December 31, 2019
      Weighted     Weighted
      Average     Average
   Amount  Rate  Amount  Rate
(Dollars in thousands)            
             
Securities Sold Under Agreements to Repurchase:                    
Balance at Period End  $34,967    0.57%  $30,571    0.57%
Average Balance Outstanding During the Period   29,539    0.61    29,976    0.62 
Maximum Amount Outstanding at any Month End   34,967         34,197      
                     
Securities Collaterizing the Agreements at Period-End:                    
Carrying Value   36,168         37,584      
Market Value   37,475         37,873      

 

Note 7. Other Borrowed Funds

 

Other borrowed funds consist of fixed rate advances from the Federal Home Loan Bank of Pittsburgh (“FHLB”). The following table sets forth the scheduled maturities of other borrowed funds at the dates indicated.

 

   March 31, 2020  December 31, 2019
      Weighted     Weighted
      Average     Average
   Amount  Rate  Amount  Rate
(Dollars in thousands)            
             
Due in One Year  $5,000    2.09%  $6,000    1.97%
Due After One Year to Two Years   3,000    2.23    5,000    2.18 
Due After Two Years to Three Years   3,000    2.41    3,000    2.41 
Total  $11,000    2.21   $14,000    2.14 

 

As of March 31, 2020, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $420.9 million with the FHLB and available borrowing capacity of $369.8 million. This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on outstanding residential 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 $147.0 million as of March 31, 2020 and December 31, 2019, respectively, of which, there was no outstanding balance as of March 31, 2020 and December 31, 2019.

 

At March 31, 2020, the Company maintained a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $98.0 million that requires monthly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by commercial and industrial and consumer indirect auto loans. The Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling $60.0 million as of March 31, 2020, and December 31, 2019, respectively. As of March 31, 2020, and December 31, 2019, no draws had been taken on these facilities.

 

Note 8. Fair Value Disclosure

 

FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.

 

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.
     

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  Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs.
     
  Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques.

 

This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

 

The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated 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. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the three months ended March 31, 2020 or year ended December 31, 2019.

 

   Fair Value  March 31,  December 31,
   Hierarchy  2020  2019
(Dollars in thousands)         
          
Available for Sales Securities:             
Debt Securities:             
U.S. Government Agencies  Level 2  $8,008   $48,056 
Obligations of States and Political Subdivisions  Level 2   24,884    25,843 
Mortgage-Backed Securities - Government-Sponsored Enterprises  Level 2   136,232    120,776 
Total Debt Securities      169,124    194,675 
              
Marketable Equity Securities:             
Mutual Funds  Level 1   1,013    997 
Other  Level 1   1,274    1,713 
Total Marketable Equity Securities      2,287    2,710 
Total Available-for-Sale Securities     $171,411   $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.

 

      Fair Value at           
   Fair Value  March 31,  December 31,  Valuation  Significant     
Financial Asset  Hierarchy  2020  2019  Techniques  Unobservable Inputs  Range
(Dollars in thousands)                    
                     
Impaired Loans  Level 3  $2,604   $3,140   Market Comparable Properties  Marketability Discount  10% to 30% (1)
OREO  Level 3   76    58   Market Comparable Properties  Marketability Discount  10% to 50% (1)

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

 

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Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time. 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 March 31, 2020 and December 31, 2019, the fair value of impaired loans consists of the loan balances of $3.3 million and $4.0 million, respectively, less their specific valuation allowances of $651,000 and $884,000, respectively.

 

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.

 

For the three months ended March 31, 2020, one commercial real estate OREO property with a fair value of $18,000 sold at a gain of $4,000. In addition, two residential real estate loans for $76,000 transferred to OREO.

 

For the three months ended March 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 OREO property, with a fair value of $46,000 was sold for a $3,000 loss.

 

Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.

 

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.

 

      March 31, 2020  December 31, 2019
   Fair Value  Carrying  Fair  Carrying  Fair
   Hierarchy  Value  Value  Value  Value
(Dollars in thousands)               
                
Financial Assets:                       
Cash and Due From Banks:                       
Interest Bearing  Level 1  $64,004   $64,004   $68,798   $68,798 
Non-Interest Bearing  Level 1   14,095    14,095    11,419    11,419 
Investment Securities:                       
Available for Sale  See Above   171,411    171,411    197,385    197,385 
Loans, Net  Level 3   962,328    1,004,210    942,629    961,110 
Restricted Stock  Level 2   3,590    3,590    3,656    3,656 
Bank-Owned Life Insurance  Level 2   24,361    24,361    24,222    24,222 
Accrued Interest Receivable  Level 2   3,274    3,274    3,297    3,297 
                        
Financial Liabilities:                       
Deposits  Level 2   1,106,640    1,116,037    1,118,359    1,128,078 
Short-term Borrowings  Level 2   34,967    34,967    30,571    30,571 
Other Borrowed Funds  Level 2   11,000    11,206    14,000    15,380 
Accrued Interest Payable  Level 2   863    863    987    987 

 

Note 9. Commitments and Contingent Liabilities

 

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statement of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

 

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The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

 

Commitments and conditional obligations are evaluated the same as on-balance-sheet instruments but do not have a corresponding reserve recorded. The Company’s opinion on not implementing a corresponding reserve for off-balance-sheet instruments is supported by historical factors of no losses recorded due to these items. The Company is continually evaluating these items for credit quality and any future need for the corresponding reserve.

 

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

 

   March 31,  December 31,
   2020  2019
(Dollars in thousands)      
       
Standby Letters of Credit  $40,906   $42,041 
Performance Letters of Credit   2,667    2,521 
Construction Mortgages   77,672    59,689 
Personal Lines of Credit   6,561    6,456 
Overdraft Protection Lines   6,474    6,415 
Home Equity Lines of Credit   20,459    20,560 
Commercial Lines of Credit   77,470    102,422 
Total Commitments  $232,209   $240,104 

 

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. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets.

 

 

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Note 10. Leases

 

The Company evaluates all contracts at commencement to determine if a lease is present. The Company’s lease contracts are all classified as operating leases and created operating right-of-use (“ROU”) assets and corresponding lease liabilities on the balance sheet. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported 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 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.

 

   Three Months Ended
   March 31,
   2020  2019
(Dollars in thousands)      
       
Operating Lease Expense  $116   $115 
Variable Lease Expense   9    8 
Total Lease Expense  $125   $123 

 

   March 31,  December 31,
   2020  2019
Operating Leases:          
ROU Assets  $1,205   $1,289 
Weighted Average Lease Term in Years   7.11    7.06 
Weighted Average Discount Rate   2.90%   2.89%

 

   March 31,
   2020
Maturity Analysis:     
Due in One Year  $405 
Due After One Year to Two Years   292 
Due After Two Years to Three Years   142 
Due After Three Years to Four Years   66 
Due After Four to Five Years   48 
Due After Five Years   398 
Total  $1,351 
Less: Present Value Discount   143 
Lease Liabilities  $1,208 

 

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Note 11. Other Noninterest Expense

 

The details of other noninterest expense for the Company’s consolidated statement of income for the three and nine months ended March 31, 2020 and 2019, are as follows:

 

   Three Months Ended
   March 31,
   2020  2019
(Dollars in thousands)      
       
Other Noninterest Expense          
Non-Employee Compensation  $147   $140 
Printing and Supplies   101    97 
Postage   61    72 
Telephone   167    143 
Charitable Contributions   51    41 
Dues and Subscriptions   76    52 
Loan Expenses   145    85 
Meals and Entertainment   40    55 
Travel   54    35 
Training   7    9 
Bank Assessment   44    43 
Insurance   56    53 
Miscellaneous   162    159 
Total Other Noninterest Expense  $1,111   $984 

 

Note 12. Segment and Related Information

 

At March 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. Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products.

 

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The following is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated.

 

   Community Bank  Exchange Underwriters, Inc.  CB Financial Services, Inc.  Net Eliminations  Consolidated
(Dollars in thousands)               
                
March 31, 2020               
 Assets  $1,312,732   $3,911   $151,555   $(155,025)  $1,313,173 
 Liabilities   1,166,590    1,424    30    (6,396)   1,161,648 
 Stockholders' equity   146,142    2,487    151,525    (148,629)   151,525 
                          
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 
                          
Three Months Ended March 31, 2020                         
 Interest and dividend income  $12,313   $1   $15   $-   $12,329 
 Interest expense   1,796    -    -    -    1,796 
 Net interest income   10,517    1    15    -    10,533 
 Provision for loan losses   2,500    -    -    -    2,500 
 Net interest income after provision for loan losses   8,017    1    15    -    8,033 
 Noninterest income (loss)   1,044    1,281    (455)   -    1,870 
 Noninterest expense   8,021    975    5    -    9,001 
 Undistributed net income of subsidiary   213    -    1,123    (1,336)