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.
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.
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
|
|
|
|
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.
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.
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.
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
|
|
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).
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
|
|
|
$
|
-
|
|
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.
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.
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.
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.
|
|
|
|
|
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.
|
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.
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.
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
|
|
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.
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
|
)
|
|
|
-
|
|
Income before income tax expense (benefit)
|
|
|
1,253
|
|
|
|
307
|
|
|
|
678
|
|
|
|
(1,336
|
)
|
|
|
902
|
|
Income tax expense (benefit)
|
|
|
130
|
|
|
|
94
|
|
|
|
(95
|
)
|
|
|
-
|
|
|
|
129
|
|
Net income
|
|
$
|
1,123
|
|
|
$
|
213
|
|
|
$
|
773
|
|
|
$
|
(1,336
|
)
|
|
$
|
773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
12,281
|
|
|
$
|
1
|
|
|
$
|
1,318
|
|
|
$
|
(1,304
|
)
|
|
$
|
12,296
|
|
Interest expense
|
|
|
1,862
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,862
|
|
Net interest income
|
|
|
10,419
|
|
|
|
1
|
|
|
|
1,318
|
|
|
|
(1,304
|
)
|
|
|
10,434
|
|
Provision for loan losses
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Net interest income after provision for loan losses
|
|
|
10,394
|
|
|
|
1
|
|
|
|
1,318
|
|
|
|
(1,304
|
)
|
|
|
10,409
|
|
Noninterest income
|
|
|
958
|
|
|
|
1,147
|
|
|
|
8
|
|
|
|
-
|
|
|
|
2,113
|
|
Noninterest expense
|
|
|
7,901
|
|
|
|
975
|
|
|
|
3
|
|
|
|
-
|
|
|
|
8,879
|
|
Undistributed net income of subsidiary
|
|
|
118
|
|
|
|
-
|
|
|
|
1,604
|
|
|
|
(1,722
|
)
|
|
|
-
|
|
Income before income tax expense
|
|
|
3,569
|
|
|
|
173
|
|
|
|
2,927
|
|
|
|
(3,026
|
)
|
|
|
3,643
|
|
Income tax expense
|
|
|
661
|
|
|
|
55
|
|
|
|
2
|
|
|
|
-
|
|
|
|
718
|
|
Net income
|
|
$
|
2,908
|
|
|
$
|
118
|
|
|
$
|
2,925
|
|
|
$
|
(3,026
|
)
|
|
$
|
2,925
|
|