Company Quick10K Filing
CB Financial Services
Price27.46 EPS2
Shares5 P/E12
MCap150 P/FCF12
Net Debt-88 EBIT23
TTM 2019-09-30, in MM, except price, ratios
10-K 2020-12-31 Filed 2021-03-17
10-Q 2020-09-30 Filed 2020-11-09
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-11
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-18
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-28
10-Q 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-13
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-11
10-K 2015-12-31 Filed 2016-03-14
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-03-26
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-11-05
8-K 2020-11-03
8-K 2020-11-02
8-K 2020-08-19
8-K 2020-08-13
8-K 2020-07-28
8-K 2020-07-24
8-K 2020-06-29
8-K 2020-06-17
8-K 2020-06-08
8-K 2020-05-20
8-K 2020-05-20
8-K 2020-05-04
8-K 2020-03-19
8-K 2020-02-19
8-K 2020-01-31
8-K 2020-01-15
8-K 2020-01-08
8-K 2019-12-06
8-K 2019-11-20
8-K 2019-11-15
8-K 2019-10-28
8-K 2019-08-30
8-K 2019-08-21
8-K 2019-07-29
8-K 2019-07-29
8-K 2019-05-22
8-K 2019-05-15
8-K 2019-05-15
8-K 2019-05-07
8-K 2019-04-30
8-K 2019-02-20
8-K 2019-01-31
8-K 2018-12-19
8-K 2018-11-21
8-K 2018-10-31
8-K 2018-08-15
8-K 2018-07-30
8-K 2018-07-30
8-K 2018-07-30
8-K 2018-06-20
8-K 2018-05-16
8-K 2018-05-08
8-K 2018-05-04
8-K 2018-04-30
8-K 2018-04-30
8-K 2018-04-27
8-K 2018-04-27
8-K 2018-04-12
8-K 2018-03-30
8-K 2018-03-22
8-K 2018-03-06
8-K 2018-02-21
8-K 2018-02-12
8-K 2018-01-17

CBFV 10K Annual Report

Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10 - K Summary
Note 1 - Summary of Significant Accounting Policies
Note 2 - (Loss) Earnings per Share
Note 3 - Securities
Note 4 - Loans and Related Allowance for Loan Losses
Note 5 - Premises and Equipment
Note 6 - Goodwill and Intangible Assets
Note 7 - Deposits
Note 8 - Short - Term Borrowings
Note 9 - Other Borrowed Funds
Note 10 - Income Taxes
Note 11 - Employee Benefits
Note 12 - Commitments and Contingent Liabilities
Note 13 - Regulatory Capital
Note 14 - Operating Leases
Note 15 - Mortgage Servicing Rights
Note 16 - Fair Value Disclosure
Note 17 - Other Noninterest Expense
Note 18 - Condensed Financial Statements of Parent Company
Note 19 - Segment Reporting and Related Information
Note 20 - Quarterly Financial Information (Unaudited)
EX-4.2_DESCRIPTION_O cbfv-20201231xex42descript.htm
EX-21.SUBSIDIARIES cbfv-20201231xex21subsidia.htm
EX-23._CONSENT cbfv-20201231xex23consent.htm
EX-31.1_CEO_CERTIFIC cbfv-20201231xex311ceocert.htm
EX-31.2_CFO_CERTIFIC cbfv-20201231xex312cfocert.htm
EX-32.1_SECTION_906_ cbfv-20201231xex321ceoandc.htm

CB Financial Services Earnings 2020-12-31

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin


Washington, D.C. 20549
(Mark One)
For the fiscal year ended December 31, 2020
For the transition period from __________ to __________
Commission file number: 001-36706
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
100 North Market Street, Carmichaels, Pennsylvania
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (724) 966-5041
Securities registered pursuant to Section 12(b) of the Act:
Common stock, par value $0.4167 per shareCBFVThe Nasdaq Stock Market, LLC
(Title of each class)(Trading symbol)(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐    No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐    No
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, a 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).Yes    No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last sale price on June 30, 2020, as reported by the Nasdaq Global Market, was approximately $108.5 million.
As of March 17, 2021, the number of shares outstanding of the Registrant’s Common Stock was 5,434,374.
Proxy Statement for the 2021 Annual Meeting of Stockholders of the Registrant (Part III)

ITEM 6. Selected Financial Data

ITEM 1.    Business
Forward-Looking Statements
This Annual Report on Form 10-K (“Report”) contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:
statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the asset quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations, and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
our ability to manage our operations under the current economic conditions nationally and in our market area, including the scope and duration of economic contraction as a result of the COVID-19 pandemic ("COVID-19") and its effects on the Company’s business and that of the Company’s customers;
adverse changes in the financial industry, securities, credit, and national and local real estate markets (including real estate values);
changes in consumer spending, borrowing and savings habits;
changes in interest rates generally, including changes in the relative differences between short-term and long-term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;
declines in the yield on our interest-earning assets resulting from the current low interest rate environment;
significant increases in our loan losses, including our inability to resolve classified and nonperforming assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;
credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;
loan delinquencies and changes in the underlying cash flows of our borrowers;
our success in increasing our commercial real estate and commercial business lending;
our ability to maintain/improve our asset quality even as we increase our commercial real estate and commercial business lending;
risks related to a high concentration of loans secured by real estate located in our market area;
fluctuations in the demand for loans;
competitive products and pricing among depository and other financial institutions;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate the operations of businesses we have acquired;
our ability to attract and maintain deposits and our success in introducing new financial products;
changes in our compensation and benefit plans, and our ability to attract and retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;
our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;
technological changes that may be more difficult or expensive than expected;
the failure or security breaches of computer systems on which we depend;

the ability of preventing or detecting cybersecurity attacks on customer credentials, developing multiple layers of security controls that defend against malicious use of customer internet-based products and services of Community Bank, and our business continuity plan to recover from a malware or other cybersecurity attack;
the ability of key third-party service providers to perform their obligations to us; and
changes in laws or government regulations or policies affecting financial institutions, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, and the resources we have available to address such changes;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
exploration and drilling of natural gas reserves in our market area may be affected by federal, state and local laws and regulations affecting production, permitting, environmental protection and other matters, which could materially and adversely affect our customers, loan and deposit volume, and asset quality;
our customers who depend on the exploration and drilling of natural gas reserves may be materially and adversely affected by decreases in the market prices for natural gas;
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this Report.
Given the numerous unknowns and risks that are heavily weighted to the downside due to COVID-19, our forward-looking statements are subject to the risk that conditions will be substantially different than we currently expect. If efforts to contain COVID-19 are unsuccessful and government restriction 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.
The ability to predict the impact of the COVID-19 pandemic on the Company’s future operating results with any precision is difficult and depends on many factors beyond our control. The Company's market area was impacted in 2020 by state-wide shelter-in-place orders and closing all but essential businesses. Certain government restrictions remain in effect. The far-reaching consequences of these actions and the crisis is unknown and will largely depend on the extent and length of the recession combined with how quickly the economy can re-open. For example:
While specific actions have been taken to protect employees through work-at-home arrangements and social distancing measures for those working in our offices, outbreak among employees could result in closure of branches or back office operations for quarantine purposes and result in the unavailability of key employees and disruption of services provided to customers.
The lack of economic activity may curtail lending opportunities, especially from a commercial perspective, and impact our customers involved in vulnerable industries such as hospitality, retail, office space, senior housing, oil and gas, and restaurants.
Forbearance activity and any additional forbearance that may be needed could impact cash flows and liquidity.
Delinquencies, nonperforming loans, charge-offs and the related provision for loan losses, and foreclosures may significantly increase after forbearance period ends, if economic stimulus does not have the intended outcome, and/or if the economy does not fully re-open allowing people to return to work.
A sustained economic downturn may result in a decrease in the Company’s value and result in potential material impairment to its intangible assets, and/or long-lived assets or additional impairment to goodwill.
The Federal Reserve Board’s decision in March 2020 to drop the benchmark interest rate from a range of 1.5% to 1.75% to a range of 0% to 0.25% as part of a wide-ranging emergency action to protect the economy from the COVID-19 outbreak may result in an influx of loan refinances that could impact the Company’s net interest income and cause margin compression.
The lack of economic activity may negatively impact our noninterest income through less fee activity, such as from customer debit card swipes for purchases.
Insurance commissions may decline because workers compensation policies are mainly determined based on payroll figures, which could decrease due to job loss.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the expected results indicated by these forward-looking statements.
In this Report, the terms “we,” “our,” and “us” refer to CB Financial Services, Inc., and Community Bank, unless the context indicates another meaning. In addition, we sometimes refer to CB Financial Services, Inc., as “CB,” or the “Company” and to Community Bank as the “Bank.”
CB Financial Services, Inc.
CB Financial Services, Inc. (the “Company”), a Pennsylvania corporation, is a bank holding company headquartered in Carmichaels, Pennsylvania. The Company’s common stock is traded on the Nasdaq Global Market under the symbol “CBFV.” The Company conducts its operations primarily through its wholly owned subsidiary, Community Bank, a Pennsylvania-chartered commercial bank. At December 31, 2020, the Company, on a consolidated basis, had total assets of $1.42 billion, total liabilities of $1.28 billion and stockholders’ equity of $134.5 million.
Copies of the Company's reports, proxy and information statements, and other information filed electronically with the Securities and Exchange Commission (the “SEC”) are available free of charge through the SEC’s website address at and through the Bank’s website address at
Community Bank
Community Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from 15 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania; six offices in Brooke, Marshall, Ohio, Upshur and Wetzel Counties in West Virginia; and one office in Belmont County in Ohio. On September 30, 2020, the Bank completed the closure of the Monessen office in Westmoreland County, Pennsylvania and the Bethlehem office in Ohio County, West Virginia reducing the total number of branches to 22. The Bank also has two loan production offices in Fayette and Allegheny County, a corporate center in Washington County and an operations center in Greene County in Pennsylvania. 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. In addition, the Bank is the sole shareholder of Exchange Underwriters, Inc. ("Exchange Underwriters" or “EU”), a wholly-owned subsidiary located in Washington County that is a full-service, independent insurance agency that offers property and casualty, commercial liability, surety and other insurance products. Exchange Underwriters' independent insurance agents shop from over 50 of the nation’s leading insurance providers to find the policy that fits their client's needs.
The Bank was originally chartered in 1901 as The First National Bank of Carmichaels. In 1987, the Bank changed its name to Community Bank, National Association. In December 2006, the Bank completed a charter conversion from a national bank to a Pennsylvania-chartered commercial bank wholly-owned by the Company. The Bank is a member of the Federal Home Loan Bank (“FHLB”) System. Our deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”).
Our principal executive office is located at 100 North Market Street, Carmichaels, Pennsylvania, and our telephone number at that address is (724) 966-5041. Our website address is Information on this website is not and should not be considered to be a part of this Report.
Recently Announced Branch Optimization Initiative
On February 23, 2021, the Company announced the implementation of strategic initiatives to improve the Bank’s financial performance and to position the Bank for continued profitable growth. The Bank intends to optimize its current branch network through the consolidation of six branches and the possible divestiture of others, while expanding technology and infrastructure investments in its remaining locations. The decision was the result of a comprehensive internal study that measured branch performance by comparing financial and non-financial indicators to growth opportunities, while evolving changes in consumer preferences, largely driven by the global pandemic, led to an acceleration of branch optimization efforts. The Bank plans to provide affected customers with details to ensure a seamless transition with minimal disruption to their daily banking needs.
Management believes this initiative is an important first step to improve the Bank’s operations, and to provide enhanced efficiency and production capabilities. The Bank has also engaged with third-party workflow optimization experts to assist in implementing a number of robotic process automations and more effective sales management that it expects will improve operational efficiencies in the near and long-term. These efforts will likely result in additional innovations designed to improve growth prospects for the Bank as customer preferences for mobile and other technology-based services evolve.
In connection with the branch consolidations and the other branch optimization initiatives, the Company anticipates non-recurring pre-tax costs during 2021 of up to $6.1 million. This estimated cost excludes the impact of any premium from sale of branches, and assumes no salvage value, lease termination, severance, and other costs associated with the consolidations or sales; however, the Company does anticipate some recovery of these costs over time. The Company expects an annual

reduction in pre-tax operating expenses in 2021 of approximately $1.5 million, along with $3.0 million of ongoing pre-tax cost savings as a result of the implementation of the branch optimization initiatives.
Past Mergers
Effective October 31, 2014, the Company completed a merger with FedFirst Financial Corporation (“FedFirst”), the holding company for First Federal Savings Bank (“FFSB”), a federally chartered stock savings bank. As part of the merger, the Company also acquired FFSB's subsidary, Exchange Underwriters. The merger expanded the Company’s reach into Fayette and Westmoreland counties in southwestern Pennsylvania.
Effective April 30, 2018, the Company completed its merger with First West Virginia Bancorp (“FWVB”), the holding company for Progressive Bank, N.A. (“PB”), a national association. The FWVB merger enhanced the Bank’s exposure into the core of the Tri-State region with the addition of branches in West Virginia and Eastern Ohio.
Effective August 1, 2018, Exchange Underwriters merged with Beynon Insurance Agency to become one of the largest insurance agencies in the Pittsburgh Region. The merger brought together two long-standing, locally owned and operated Southwestern Pennsylvania independent insurance agencies both built upon the same values and culture of serving their customers.
Business Strategy
We intend to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our customers. We believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace and our long-standing history of providing superior, relationship-based customer service. We will continue to grow and create value for our shareholders. Our employees will be treated fairly and given opportunities for personal growth. We will be closely involved in improving our communities.Our business strategies emphasize building on core strengths and are discussed below.
Create a sales and service culture to build full relationships with our customers and utilize technology investments to enhance speed of process to improve our customer experience. We have successfully grown valuable core deposits (demand deposits, NOW accounts, money market accounts and savings accounts) that represent longer-term customer relationships and provide a lower cost of funding compared to certificates of deposit and borrowings. Empowering our experienced, high quality employees to provide superior customer service in all aspects of our business which is further supported by the use of technology and a wide array of modern financial products can lead to stronger customer relationships, enhance fee revenue and allow the Bank to be the bank of choice across our footprint for residents and small and medium sized businesses.
Evolve toward more electronic/digital products and processes driving greater efficiency and expand our brand awareness in our market. We intend to focus on building our mobile and online capabilities through an improved mobile banking platform and product offering, omnichannel experience that is consistent with quick results and interactive alerts.
Enhance profitability and efficiency while continuing to invest for future growth. Margin compression is a challenge as a result of pandemic-induced interest rate reductions. To combat this potential impact on core earnings, we view cost reduction as a key part of a company-wide efficiency effort. Short-term targeted cost reductions combined with long-term strategic initiatives will better position the Company for high performance. In addition, this strategy aligns with our efforts to simplify processes while utilizing technology to improve efficiency and build capabilities that supports future growth and high performance.
Continue our track record of opportunistic growth in the robust Pittsburgh metropolitan area and across our footprint. We believe we have competed effectively by leveraging a steadily growing branch network and a full assortment of banking products to facilitate deposit and loan growth in our core locations, including southwestern Pennsylvania, Ohio River Valley, and central West Virginia.
Leverage our credit culture and strong loan underwriting to uphold our asset quality metrics. We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards that we believe are conservative. Although we intend to continue our efforts to originate commercial real estate and commercial and industrial loans, we intend to continue our philosophy of managing loan exposures through our conservative, yet reasonable, approach to lending.
Increase fee and other non-interest income, primarily through our insurance operations, as well as mortgage banking and small business lending. Fee income earned through our insurance agency, Exchange Underwriters, supplements our income from banking operations. We intend to pursue opportunities to grow this line of business, including hiring insurance producers with established books of business and through acquisitions.

Human Capital
The Bank's culture is defined by our mission of being an exceptional, independent financial institution. We value our employees by investing in a healthy work-life balance, competitive compensation and benefit packages and a vibrant, team-oriented environment centered on professional service and open communication. We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees. The success of our business is highly dependent on our employees, who provide value to our clients and communities through their dedication to helping clients achieve the American dream of home ownership and financial security.
Demographics. As of December 31, 2020, we employed 254 full-time and 6 part-time employees across our three-state footprint. None of these employees are represented by a collective bargaining agreement. During 2020, we hired 41 employees and our voluntary turnover rate was 17.5%.
Diversity and Inclusion. We strive toward having a powerful and diverse team of employees, knowing we are better together with our combined wisdom and intellect. With a commitment to equality, inclusion, and workplace diversity, we focus on understanding, accepting, and valuing the differences between people. We continued our commitment to equal employment opportunity through a robust affirmative action plan which includes annual compensation analyses and ongoing reviews of our selection and hiring practices alongside a continued focus on building and maintaining a diverse workforce.
Compensation and Benefits. We provide a competitive compensation and benefits program to help meet the needs of our employees. In addition to salaries, these programs include opportunity for annual bonuses, a 401(k) Plan with an employer matching contribution in addition to an employer annual contribution, an equity incentive plan, healthcare and insurance benefits, health savings, flexible spending accounts, paid time off, family leave and an employee assistance program.
Learning and Development. We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our colleagues. Our employees receive continuing education courses that are relevant to the banking industry and their job function within the Company. In addition, we have created learning paths for specific positions that are designed to encourage an employee’s advancement and growth within our organization. We support and encourage managers to hire from within. We also offer a peer mentor program, leadership, and customer service training. These resources provide employees with the skills they need to achieve their career goals, build management skills, and become leaders within our Company.
The safety, health and wellness of our employees is a top priority. The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations. Through teamwork and the adaptability of our management and staff, we were able to transition, over a short period of time, 25% of our employees to effectively working from remote locations. Additionally, we developed a safely distanced working environment for employees performing client facing activities, at branches and operations centers. We further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, keeping the employee portion of health care premiums to a minimum and sponsoring various wellness programs.
Market Area
The Company’s southwestern Pennsylvania market area consists of Allegheny, Greene, Fayette, Washington and Westmoreland Counties. Greene County is a significantly more rural county compared to the counties in which we have our other branches. Our offices located in Allegheny, Washington, Fayette, and Westmoreland Counties are in the southern suburban area of metropolitan Pittsburgh. Our branches from the FWVB merger extend the Company’s market area into West Virginia with six offices in Brooke, Marshall, Ohio, Upshur and Wetzel Counties; and one office in Belmont County in eastern Ohio.

The following table sets forth certain economic statistics for our market area.
Population (1)
Unemployment Rate (2)
Average Annual Wage (3)
Pennsylvania12,801,989 6.4$60,840 
Allegheny1,216,045 6.365,884 
Fayette129,274 8.843,368 
Greene36,233 7.054,132 
Washington206,865 6.957,564 
Westmoreland348,899 6.648,464 
West Virginia1,792,147 6.148,516 
Brooke21,939 7.148,308 
Marshall30,531 7.254,756 
Ohio41,411 6.247,216 
Upshur24,176 7.741,704 
Wetzel15,065 8.540,092 
Ohio11,689,100 5.253,612 
Belmont67,006 6.540,560 
(1)Based on the latest data published by the U.S. Census Bureau (July 2019)
(2)Based on the latest data published by the U.S. Bureau of Labor Statistics (December 2020)
(3)Based on the latest data published by the U.S. Bureau of Labor Statistics (Second Quarter 2020)
The market area has been impacted by the energy industry through the extraction of untapped natural gas reserves in the Marcellus Shale Formation. The Marcellus Shale Formation extends throughout much of the Appalachian Basin and most of Pennsylvania, West Virginia and Eastern Ohio and is located near high-demand markets along the East Coast. The proximity to these markets makes it an attractive target for energy development and has resulted in significant job creation through the development of gas wells and transportation of gas.
We encounter significant competition both in attracting deposits and in originating real estate and other loans. Our most direct competition for deposits historically has come from other commercial banks, savings banks, savings associations and credit unions in our market area, and we expect continued strong competition from such financial institutions in the foreseeable future. The Company faces additional competition for deposits from online financial institutions and non-depository competitors, such as the mutual fund industry, securities and brokerage firms, and insurance companies. We compete for deposits by offering depositors a high level of personal service and expertise together with a wide range of financial services. Our deposit sources are primarily concentrated in the communities surrounding our banking offices. As of June 30, 2020, our FDIC-insured deposit market share in the counties we serve, out of 59 bank and thrift institutions, was 0.65%. Such data does not reflect deposits held by credit unions.
The competition for real estate and other loans comes principally from other commercial banks, mortgage banking companies, government-sponsored entities, savings banks and savings associations. This competition for loans has increased substantially in recent years. We compete for loans primarily through the interest rates, prepayment penalties, and loan fees we charge and the efficiency and quality of services we provide to borrowers. Factors that affect competition include general and local economic conditions, current interest rate levels and the volatility of the mortgage markets.
Lending Activities
General. Our principal lending activity has been the origination in our local market area of residential one- to four-family, commercial real estate, construction, commercial and industrial, and consumer loans. At December 31, 2020, our total loans receivable, which excludes the allowance for loan losses, was $1.04 billion compared to $952.5 million at December 31, 2019. Our overall loan growth was $92.3 million, or 9.7%.

Loan Portfolio Composition. The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated. When the Company sells loans, the loans are sold upon origination. Therefore, the Company did not have loans held for sale at any of the dates indicated below.
December 31,AmountPercentAmountPercentAmountPercentAmountPercentAmountPercent
(Dollars in Thousands)
Real Estate:
Residential$344,142 32.9 %$347,766 36.6 %$326,769 35.9 %$273,438 36.7 %$271,588 39.8 %
Commercial373,555 35.9 351,360 36.9 307,064 33.6 209,037 28.1 201,010 29.5 
Construction72,600 6.9 35,605 3.7 48,824 5.3 36,149 4.9 10,646 1.6 
Commercial and Industrial126,813 12.1 85,586 9.0 91,463 10.0 107,835 14.5 80,812 11.9 
Consumer113,854 10.9 113,637 11.9 122,241 13.4 114,557 15.4 114,204 16.7 
Other13,789 1.3 18,542 1.9 16,511 1.8 3,376 0.4 3,637 0.5 
Total Loans1,044,753 100.0 %952,496 100.0 %912,872 100.0 %744,392 100.0 %681,897 100.0 %
Allowance for Loan Losses(12,771)(9,867)(9,558)(8,796)(7,803)
Loans, Net$1,031,982 $942,629 $903,314 $735,596 $674,094 
Residential Real Estate Loans. Residential real estate loans are comprised of loans secured by one- to four-family residential properties. Included in residential real estate loans are traditional one- to four-family mortgage loans, home equity installment loans, and home equity lines of credit. We generate loans through our marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. At December 31, 2020, $344.1 million, or 32.9%, of our total loan portfolio was invested in residential loans.
One- to Four-Family Mortgage Loans. One of our primary lending activities is the origination of fixed-rate, one- to four-family, owner-occupied, residential mortgage loans with terms up to 30 years secured by property located in our market area. At December 31, 2020, one- to four-family mortgage loans totaled $251.4 million. Our one- to four-family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. We generally originate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency, which, for 2020, is typically $510,400 for single-family homes, except in certain high-cost areas in the United States. At December 31, 2020, one- to four-family residential mortgage loans with principal balances in excess of $510,400, commonly referred to as jumbo loans, totaled $38.5 million. Our mortgage loans amortize monthly with principal and interest due each month. These loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option without a prepayment penalty.
When underwriting one- to four-family mortgage loans, we review and verify each loan applicant’s income and credit history. Management believes that stability of income and past credit history are integral parts in the underwriting process. Written appraisals are generally required on real estate property offered to secure an applicant’s loan. We generally limit the loan-to-value ratios of one- to four-family residential mortgage loans to 80% of the purchase price or appraised value of the property, whichever is less. For one- to four-family real estate loans with loan-to-value ratios of over 80%, we generally require private mortgage insurance. We require fire and casualty insurance on all properties securing real estate loans. We require title insurance, or an attorney’s title opinion, as circumstances warrant.
Our one- to four-family mortgage loans customarily include due-on-sale clauses, which give us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan.
Fixed-rate one- to four-family residential mortgage loans with terms of 15 years or more are originated for resale to the secondary market. During the years ended December 31, 2020 and 2019, we originated $32.1 million and $10.7 million of fixed-rate residential mortgage loans, respectively, which were subsequently sold in the secondary mortgage market.
The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, our interest rate risk position and our competitors’ loan products. Adjustable-rate mortgage loans secured by one- to four-family residential real estate totaled $40.3 million at December 31, 2020. Adjustable-rate mortgage loans make our loan portfolio more interest rate sensitive. However, as the interest income earned on adjustable-rate mortgage loans varies with prevailing interest rates, such loans do not offer predictable cash flows in the same manner as long-term, fixed-rate loans. Adjustable-rate mortgage loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase. It is possible that during periods of rising interest rates that the risk of delinquencies and defaults on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrower, resulting in increased loan losses.

We do not offer an “interest only” mortgage loan product on one- to four-family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. We do not offer a “subprime loan” program (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation). We may originate loans to consumers with a credit score below 660. This may be defined as subprime loans, however there are typically mitigating circumstances that according to FDIC guidance and our opinion would not designate such loans as “subprime.”
Home Equity Loans. At December 31, 2020, home equity loans totaled $92.7 million. Our home equity loans and lines of credit are generally secured by the borrower’s principal residence. The maximum amount of a home equity loan or line of credit is generally 85% of the appraised value of a borrower’s real estate collateral less the amount of any prior mortgages or related liabilities. Home equity loans and lines of credit are approved with both fixed and adjustable interest rates, which we determine based upon market conditions. Such loans are fully amortized over the life of the loan. Generally, the maximum term for home equity loans is 20 years.
Our underwriting standards for home equity loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
We primarily originate home equity loans secured by first lien mortgages. Home equity loans in a junior lien position totaled $12.1 million at December 31, 2020 and entail greater risks than one- to four-family residential mortgage loans or home equity loans secured by first lien mortgages. In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage or depreciation in the value of the property or loss of equity to the first lien position. Further, home equity loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Finally, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans in the event of a default.
Commercial Real Estate Loans. We originate commercial real estate loans that are secured primarily by improved properties, such as retail facilities, office buildings and other non-residential buildings as well as multifamily properties. At December 31, 2020, $373.6 million, or 35.9% of our total loan portfolio, consisted of commercial real estate loans.
Our commercial real estate loans generally have adjustable interest rates with terms of up to 15 years and amortization periods up to 25 years. The adjustable rate loans are typically fixed for the first five years and adjust every five years thereafter. The maximum loan-to-value ratio of our commercial real estate loans is generally 75% to 80% of the lower of cost or appraised value of the property securing the loan.
We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including project-level and global cash flows and debt service coverage, credit history and management expertise, as well as the value and condition of the property, securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with the Bank and other financial institutions. In evaluating the property securing the loan, the factors considered include the net operating income of the mortgaged property before debt service and depreciation, and the ratio of the loan amount to the appraised value of the property. We generally will not lend to high volatility commercial real estate projects. All commercial real estate loans are appraised by outside independent state certified general appraisers. Personal guarantees are generally obtained from the principals of commercial real estate loan borrowers, although this requirement may be waived in limited circumstances depending upon the loan-to-value ratio and the debt-service ratio associated with the loan. The Bank requires property and casualty insurance and flood insurance if the property is in a flood zone area.
We underwrite commercial real estate loan participations to the same standards as loans originated by us. In addition, we consider the financial strength and reputation of the lead lender. We require the lead lender to provide a full closing package as well as annual financial statements for the borrower and related entities so that we can conduct an annual loan review for all loan participations. Loans secured by commercial real estate generally involve a greater degree of credit risk than residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the effects of general economic conditions on income producing properties and the successful operation or management of the properties securing the loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the

successful operation of the related business and real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.
Construction Loans. We originate construction loans to individuals to finance the construction of residential dwellings and also originate loans for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. At December 31, 2020, $72.6 million, or 6.9% of our total loan portfolio, consisted of construction loans. Our construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Loans generally can be made with a maximum loan-to-value ratio of 80% on both residential and commercial construction. Before making a commitment to fund a construction loan, we require a pro forma appraisal of the property, as completed by an independent licensed appraiser. We also will require an inspection of the property before disbursement of funds during the term of the construction loan. We typically do not lend to developers unless they maintain a 15% cash equity position in the project.
Commercial and Industrial Loans. We originate commercial and industrial loans and lines of credit to borrowers located in our market area that are generally secured by collateral other than real estate, such as equipment, accounts receivable, inventory, and other business assets. At December 31, 2020, $126.8 million, or 12.1% of our total loan portfolio, consisted of commercial and industrial loans, of which $55.1 million are Payroll Protection Program ("PPP") loans.
Exclusive of PPP loans, commercial and industrial loans generally have terms of maturity from five to seven years with adjustable interest rates tied to the prime rate, LIBOR or the weekly average of the FHLB of Pittsburgh three- to ten-year fixed rates. We generally obtain personal guarantees from the borrower or a third party as a condition to originating the loan. On a limited basis, we will originate unsecured business loans in those instances where the applicant’s financial strength and creditworthiness has been established. Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default because their repayment is generally dependent on the successful operation of the borrower’s business.
Our underwriting standards for commercial business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business. We assess the financial strength of each applicant through the review of financial statements and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. We periodically review business loans following origination. We request financial statements at least annually and review them for substantial deviations or changes that might affect repayment of the loan. Our loan officers may also visit the premises of borrowers to observe the business premises, facilities, and personnel and to inspect the pledged collateral. Lines of credit secured with accounts receivable and inventory typically require that the customer provide a monthly borrowing base certificate that is reviewed prior to each draw request. Underwriting standards for business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security. All commercial loans are assigned a risk rating, which is reviewed internally, as well as by independent loan review professionals, annually.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic, which included authorizing the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the PPP. On April 16, 2020, the original $349 billion funding cap was reached. On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was signed into law and included an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP.
PPP was designed to help small businesses keep their workforce employed and cover expenses during the COVID-19 crisis. Under the PPP, participating SBA and other qualifying lenders originated loans to eligible businesses that are fully guaranteed by the SBA as to principal and accrued interest, have more favorable terms than traditional SBA loans and may be forgiven if the proceeds are used by the borrower for certain eligible purposes. PPP loans have an interest rate of 1% per annum. Loans issued prior to June 5, 2020 have a term to maturity of two-years and loans issued after June 5, 2020 have a term to maturity of five-years. Loan payments were deferred for six months. The Bank received a processing fee from the SBA ranging from 1% to 5% depending on the size of the loan, which was offset by a 0.75% third-party servicing agent fee.
In 2020, the Bank originated 639 loans totaling $71.0 million. Among the largest sectors impacted were $15.6 million in loans for health care and social assistance, $12.6 million for construction and specialty-trade contractors, $6.1 million for professional and technical services, $6.1 million for retail trade, $5.1 million for wholesale trade, $4.6 million for manufacturing and $3.4 million for restaurant and food services. Net deferred origination fees were $2.2 million, of which $1.1 million was recognized during year ended December 31, 2020. Processing of PPP loan forgiveness began in the fourth quarter of 2020 and at December 31, 2020, PPP loans totaled $55.1 million. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

Consumer Loans. We originate consumer loans that primarily consist of indirect auto loans and, to a lesser extent, secured and unsecured loans and lines of credit. As of December 31, 2020, consumer loans totaled $113.9 million, or 10.9%, of our total loan portfolio, of which $106.4 million were indirect auto loans. Consumer loans are generally offered on a fixed-rate basis. Our underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Indirect auto loans are loans that are sold by auto dealerships to third parties, such as banks or other types of lenders. We work with various auto dealers throughout our lending area. The dealer collects information from the applicant and transmits it to us electronically for review, where we can either accept or reject the applicant without ever meeting the applicant. If the Bank approves the applicant’s request for financing, the Bank purchases the dealership-originated installment sales contract and is known as the holder in due course that is entitled to receive principal and interest payments from a borrower. As compensation for generating the loan, a portion of the rate is advanced to the dealer and accrued in a prepaid dealer reserve account. As a result, the Bank’s yield is below the contractual interest rate because the Bank must wait for the stream of loan payments to be repaid. The Bank will receive a pro rata refund of the amount prepaid to the dealer only if the loan prepays within the first six months or if the collateral for the loan is repossessed. The Bank is responsible for pursuing repossession if the borrower defaults on payments.
Consumer loans entail greater risks than one- to four-family residential mortgage loans, particularly consumer loans secured by rapidly depreciating assets, such as automobiles, or loans that are unsecured. In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage, loss or depreciation. Further, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Such events would increase our risk of loss on unsecured loans. Finally, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans in the event of a default.
Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2020. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Consumer loans consist primarily of indirect automobile loans whereby a portion of the rate is prepaid to the dealer and accrued in a prepaid dealer reserve account. Therefore, the true yield for the portfolio is significantly less than the note rate disclosed below.
Real Estate
ResidentialCommercialConstructionCommercial and Industrial
Due During the YearsAmountWeighted Average RateAmountWeighted Average RateAmountWeighted Average RateAmountWeighted Average Rate
Ending December 31,
(Dollars in Thousands)
2021$16,731 3.62 %$14,085 3.73 %$7,734 4.03 %$27,839 3.28 %
2022855 4.69 1,550 4.82 7,983 3.26 57,217 1.29 
20231,120 5.17 22,890 4.34 9,421 3.70 6,219 4.26 
2024 to 20254,042 4.45 20,241 3.75 19,064 3.01 11,802 3.75 
2026 to 203049,774 3.90 178,733 3.75 17,486 3.38 12,306 3.05 
2031 to 203573,244 3.98 121,281 4.02 3,727 3.88 2,995 3.89 
2036 and Beyond198,376 4.00 14,775 4.04 7,185 3.52 8,435 2.89 
Total$344,142 3.97 %$373,555 3.89 %$72,600 3.42 %$126,813 2.43 %

Due During the YearsWeighted Average RateWeighted Average RateWeighted Average Rate
Ending December 31,AmountAmountAmount
(Dollars in Thousands)
2021$6,622 4.84 %$1,666 2.99 %$74,677 3.65 %
20228,392 4.16 132 3.41 76,129 1.91 
202317,290 4.52 35 4.22 56,975 4.28 
2024 to 202545,259 4.76 461 4.62 100,869 4.09 
2026 to 203034,323 4.70 1,833 3.03 294,455 3.83 
2031 to 2035— — 7,184 3.00 208,431 3.97 
2036 and Beyond1,968 5.32 2,478 4.00 233,217 3.95 
Total$113,854 4.67 %$13,789 3.24 %$1,044,753 3.78 %
The following table sets forth at December 31, 2020, the dollar amount of all fixed-rate and adjustable-rate loans due after December 31, 2021.
Due After December 31, 2021
(Dollars in Thousands)
Real Estate:
Residential$285,097 $42,314 $327,411 
Commercial165,146 194,324 359,470 
Construction44,020 20,846 64,866 
Commercial and Industrial89,057 9,917 98,974 
Consumer107,139 93 107,232 
Other8,577 3,546 12,123 
Total Loans$699,036 $271,040 $970,076 
Loan Approval Procedures and Authority
Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors (the “Board”). In the approval process for residential loans, we assess the borrower’s ability to repay the loan and the value of the property securing the loan. To assess the borrower’s ability to repay, we review the borrower’s income and expenses and employment and credit history. In the case of commercial loans, we also review projected income, expenses and the viability of the project being financed. We generally require appraisals of all real property securing loans. Appraisals are performed by independent licensed appraisers. The Bank’s loan approval policies and limits are also established by its Board. All loans originated by the Bank are subject to its underwriting guidelines. Loan approval authorities vary based on loan size in the aggregate. Individual officer loan approval authority generally applies to loans of up $1.0 million. Loans above that amount and up to 65% of the Bank’s legal lending limit may be approved by the Loan Committee. Loans in the aggregate over 65% of the Bank’s legal lending limit must be approved by the Board.
Delinquencies and Classified Assets
When a borrower fails to remit a required loan payment, a courtesy notice is sent to the borrower prior to the end of their appropriate grace period stressing the importance of paying the loan current. If a payment is not paid within the appropriate grace period, then a late notice is mailed. In addition, telephone calls are made and additional letters may be sent. Collection efforts continue until it is determined that the debt is uncollectable.
For loans secured by real estate, a Homeownership Counseling Notice is mailed when the loan is 45 days delinquent. In Pennsylvania, an Act 91 Notice is mailed to the borrower stating that they have 33 days to cure the default before foreclosure is initiated. In West Virginia, a Notice of Default is mailed and in Ohio, a demand letter is mailed when a loan is 60 days delinquent. When a loan becomes 90 or more days delinquent, it is forwarded to the Bank’s attorney to pursue other remedies. An official mortgage foreclosure complaint typically occurs at 120 days delinquent. In the event collection efforts have not succeeded, the property will proceed to a Sheriff Sale to be sold.
For commercial loans, the borrower is contacted in an attempt to reestablish the loan to current payment status and ensure timely payments continue. Collection efforts continue until the loan is 60 days past due, at which time demand payment,

default, and/or foreclosure procedures are initiated. We may consider loan workout arrangements with certain borrowers under certain circumstances.
Nonperforming Assets and Delinquent Loans. The Company reviews its loans on a regular basis and generally places loans on nonaccrual status when either principal or interest is 90 days or more past due. In addition, the Company places loans on nonaccrual status when we do not expect to receive full payment of interest, principal or both. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Loans that are 90 days or more past due may still accrue interest if they are well secured and in the process of collection. Payments received on nonaccrual loans are applied against principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and current and future payments are reasonably assured.
Management monitors all past due loans and nonperforming assets. Such loans are placed under close supervision, with consideration given to the need for additions to the allowance for loan losses and (if appropriate) partial or full charge-off. At December 31, 2020, we had $8,000 of loans 90 days or more past due that were still accruing interest. Nonperforming assets increased $9.1 million to $14.7 million at December 31, 2020, compared to $5.6 million at December 31, 2019. The increase in nonperforming loans at December 31, 2020 compared to December 31, 2019 is primarily related to two commercial real estate loans in the hospitality industry with a total principal balance of $6.9 million that were impacted by the CVOID-19 pandemic due to insufficient cash flows and occupancy rates as well as a $1.3 million commercial and industrial loan relationship.
Management believes the volume of nonperforming assets can be partially attributed to unique borrower circumstances as well as the economy in general. We have an experienced chief credit officer, collections and credit departments that monitor the loan portfolio and seek to prevent any deterioration of asset quality.
Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan, or its fair market value, less estimated selling expenses. Any further write-down of real estate owned is charged against earnings. At December 31, 2020, we owned $208,000 of property classified as real estate owned.

Nonperforming Assets. 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, which are loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties.
December 31,20202019201820172016
(Dollars in Thousands)
Nonaccrual loans:
Real Estate:
Residential$1,841 $1,817 $2,154 $1,423 $1,873 
Commercial7,102 234 — 288 420 
Construction— — — 43 107 
Commercial and Industrial1,897 740 1,044 2,095 1,829 
Consumer49 110 83 71 160 
Total Nonaccrual Loans10,889 2,901 3,281 3,920 4,389 
Accruing loans past due 90 days or more:
Real Estate:
Residential— 196 324 142 343 
Consumer26 26 
Total Accruing Loans 90 Days or More Past Due222 327 168 351 
Total Nonaccrual Loans and Accruing Loans 90 Days or More Past Due10,897 3,123 3,608 4,088 4,740 
Troubled Debt Restructurings, Accruing
Real Estate
Residential650 511 1,238 1,287 1,299 
Commercial2,861 1,648 1,313 1,697 1,985 
Commercial and Industrial80 100 154 178 399 
Total Troubled Debt Restructurings, Accruing3,591 2,259 2,705 3,163 3,687 
Total Nonperforming Loans14,488 5,382 6,313 7,251 8,427 
Real Estate Owned:
Residential— 41 46 152 — 
Commercial208 192 871 174 174 
Total Real Estate Owned208 233 917 326 174 
Total Nonperforming Assets$14,696 $5,615 $7,230 $7,577 $8,601 
Nonaccrual Loans to Total Loans1.04 %0.30 %0.36 %0.53 %0.64 %
Nonperforming Loans to Total Loans1.39 0.57 0.69 0.97 1.24 
Nonperforming Assets to Total Assets1.04 0.42 0.56 0.81 1.02 
For the year ended December 31, 2020, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was $233,000. For the year ended December 31, 2020, interest income recorded on nonaccrual loans and accruing troubled debt restructurings was $338,000.
At December 31, 2020, we had no loans that were not classified as nonaccrual, 90 days past due or troubled debt restructurings where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.
Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the “distinct possibility” that the Company will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the

weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets is not warranted. The Company designates an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.
The Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first four categories are not considered criticized and are aggregated as “pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as loss are considered uncollectable and of such little value that continuance as an asset is not warranted.
As part of the periodic exams of the Bank by the FDIC and the Pennsylvania Department of Banking and Securities, the staff of such agencies reviews our classifications and determines whether such classifications are adequate. Such agencies have, in the past, and may in the future require us to classify certain assets which management has not otherwise classified or require a classification more severe than established by management. The following table shows the principal amount of special mention and classified loans at December 31, 2020 and 2019.
December 31,20202019
(Dollars in Thousands)
Special Mention$46,515 $24,585 
Substandard27,042 7,383 
Doubtful609 719 
Loss— — 
Total$74,166 $32,687 
The total amount of special mention and classified loans increased $41.5 million, or 126.90%, to $74.2 million at December 31, 2020, compared to $32.7 million at December 31, 2019. The increase of $21.9 million in the special mention loan category and $19.7 million in the substandard category as of December 31, 2020 compared to December 31, 2019 was mainly from the downgrade of the hospitality portfolio due to the economic conditions in that industry caused by the COVID-19 pandemic.
Allowance for Loan Losses. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance based on losses in the current loan portfolio, which includes an assessment of economic conditions, changes in the nature and volume of the loan portfolio, loan loss experience, volume and severity of past due, classified and nonaccrual loans as well as other loan modifications, quality of the Company’s loan review system, the degree of oversight by the Company’s Board, existence and effect of any concentrations of credit and changes in the level of such concentrations, effect of external factors, such as competition and legal and regulatory requirements and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making evaluations. Additions are made to the allowance through periodic provisions charged to income and recovery of principal and interest on loans previously charged-off. Losses of principal are charged directly to the allowance when a loss occurs or when a determination is made that the specific loss is probable. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due for principal and interest according to the original contractual terms of the loan agreement. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured based on the present value of expected future cash flows discounted at a loan’s effective interest rate, or as a practical expedient, the observable market price, or, if the loan is collateral dependent, the fair value of the underlying collateral. When the measurement of an impaired loan is less than the recorded investment in the loan, the impairment is recorded in a specific valuation allowance through a charge to the provision for loan losses. Any reserve for unfunded lending

commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in the allowance for loan losses on the consolidated Statement of Condition.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, we do not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The general component covers non-classified loans and is based on historical charge-off experience and expected loss given our internal risk rating process. The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for other qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio. The other qualitative factors considered by management include, but are not limited to, the following:
changes in lending policies and procedures, including underwriting standards and collection practices;
changes in national and local economic and business conditions and developments, including the condition of various market segments;
changes in the nature and volume of the loan portfolio;
changes in the experience, ability and depth of management and the lending staff;
changes in the trend of the volume and severity of the past due, nonaccrual, and classified loans;
the existence of any concentrations of credit, and changes in the level of such concentrations; and
the effect of external factors, such as competition and legal and regulatory requirements on the level of estimated credit losses in our current portfolio.
Commercial real estate loans generally have higher credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project, and this may be subject, to a greater extent, to adverse conditions in the real estate market and in the general economy.
Commercial and industrial business loans involve a greater risk of default than one- to four-residential mortgage loans of like duration because their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any.
This specific valuation allowance is periodically adjusted for significant changes in the amount or timing of expected future cash flows, observable market price or fair value of the collateral. The specific valuation allowance, or allowance for impaired loans, is part of the total allowance for loan losses. Cash payments received on impaired loans that are considered non-accrual are recorded as a direct reduction of the recorded investment in the loan. When the recorded investment has been fully collected, receipts are recorded as recoveries to the allowance for loan losses until the previously charged-off principal is fully recovered. Subsequent amounts collected are recognized as interest income. If no charge-off exists, then once the recorded investment has been fully collected, any future amounts collected would be recognized as interest income. Impaired loans are not returned to accrual status until all amounts due, both principal and interest, are current and a sustained payment history has been demonstrated. Troubled Debt Restructuring (TDR) loans are generally considered impaired loans until such loans are performing in accordance with their modified terms. Once a TDR loan establishes a consistent payment history under the modified terms, then it is considered to return to accrual status. A consistent payment history is generally demonstrated by payment under the modified terms for a period of least six consecutive months. The general component covers pools of loans by loan class, including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate and consumer loans. An unallocated component, which is a part of the general allowance component, is maintained to cover uncertainties that could affect the Company’s estimate of probable losses. Generally, management considers all nonaccrual and TDR loans and certain renegotiated debt, when it exists, for impairment. The maximum period without payment that typically can occur before a loan is considered for impairment is 90 days. The past due status of loans receivable is determined based on contractual due dates for loan payments.
The allowance for loan losses increased $2.9 million, or 29.4%, to $12.8 million at December 31, 2020, compared to $9.9 million at December 31, 2019. Allowance for loan losses to total loans increased 19 basis points to 1.22% at December 31, 2020 compared to 1.04% at December 31, 2019. The COVID-19 pandemic has resulted in an increase in unemployment and recessionary economic conditions in 2020. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis were increased in 2020 primarily related to economic trends and industry conditions as a result of the pandemic and vulnerable industries such as hospitality and retail. In addition, an increase in commercial real estate loans combined with an increase in the historical loss factor primarily related to a $931,000 commercial real estate loan charge-

off resulted in an increase commercial real estate loan reserves. The combination of these factors primarily resulted in a $4.0 million provision for loan losses for the year ended December 31, 2020.
The ratio of allowance for loan losses to nonaccrual loans ratio decreased to 117.28% at December 31, 2020, compared to 340.12% at December 31, 2019. Nonaccrual loans increased $8.0 million to $10.9 million at December 31, 2020 compared to $2.0 million at December 31, 2019. Nonaccrual commercial real estate loans increased $6.9 million to $7.1 million at December 31, 2020 compared to $234,000 at December 31, 2019 primarily related to two hospitality loans with a total principal balance of $6.9 million that were impacted by the pandemic due to insufficient cash flows and occupancy rates. Nonaccrual commercial and industrial loans increased to $1.2 million to $1.9 million at December 31, 2020 compared to $740,000 at December 31, 2019 primarily related to a $1.3 million relationship impacted by the pandemic due to an inability to hold social events.
The following table presents the components of the ratio of nonaccrual loans to total loans at the dates indicated.
December 31,Nonaccrual LoansTotal LoansNonaccrual Loans to Total LoansNonaccrual LoansTotal LoansNonaccrual Loans to Total Loans
(Dollars in Thousands)
Real Estate:
Residential$1,841 $344,142 0.53 %$1,817 $347,766 0.52 %
Commercial7,102 373,555 1.90 234 351,360 0.07 
Construction— 72,600 — — 35,605 — 
Commercial and Industrial1,897 126,813 1.50 740 85,586 0.86 
Consumer49 113,854 0.04 110 113,637 0.10 
Other— 13,789 — — 18,542 — 
Total$10,889 $1,044,753 1.04 %$2,901 $952,496 0.30 %
Net charge-offs were $1.1 million during 2020 compared to $416,000 during 2019. The increase was primarily related to the $931,000 commercial real estate loan charge-off of a hotel loan partially offset by a decrease in net charge-offs on consumer loans, mainly in indirect auto loans. The following table presents the ratio of net charge-offs (recoveries) as a percent of average loans for the periods indicated.
Year Ended December 31,20202019
Real Estate:
Residential0.02 %0.03 %
Commercial0.25 (0.02)
Construction— — 
Commercial and Industrial(0.03)(0.07)
Consumer0.14 0.41 
Other— — 
Total Loans0.11 %0.05 %
Although we maintain our allowance for loan losses at a level that we consider to be adequate to provide for potential losses, there can be no assurance that such losses will not exceed the estimated amounts or that we will not be required to make additions to the allowance for loan losses in the future. Future additions to our allowance for loan losses and changes in the related ratio of the allowance for loan losses to nonperforming loans are dependent upon the economy, changes in real estate values and interest rates, the view of the regulatory authorities toward adequate loan loss reserve levels, and inflation. Management will continue to periodically review the entire loan portfolio to determine the extent, if any, to which further additional loan loss provisions may be deemed necessary.

Analysis of the Allowance for Loan Losses. The following table summarizes changes in the allowance for loan losses by loan categories for each year indicated and additions to the allowance for loan losses, which have been charged to operations. Loans acquired in connection with mergers were recorded at their estimated fair value at the acquisition date and did not include a carryover of the pre-merger allowance for loan losses.
Year Ended December 31,20202019201820172016
(Dollars in Thousands)
Balance at Beginning of Year$9,867 $9,558 $8,796 $7,803 $6,490 
Provision for Loan Losses4,000 725 2,525 1,870 2,040 
Real Estate:
Commercial(931)— — (132)(191)
Construction— — — — — 
Commercial and Industrial— (16)(1,456)— — 
Other— — — — (49)
Total Charge-offs(1,325)(721)(2,117)(1,182)(1,012)
Real estate:
Residential12 28 62 17 
Commercial28 73 168 98 
Construction— — — — — 
Commercial and Industrial33 85 37 — 
Consumer162 135 153 203 147 
Other— — — — 23 
Total Recoveries229 305 354 305 285 
Net Charge-offs(1,096)(416)(1,763)(877)(727)
Balance at End of Year$12,771 $9,867 $9,558 $8,796 $7,803 
Allowance for Loan Losses to Nonperforming Loans88.15 %183.33 %151.41 %121.31 %92.60 %
Allowance for Loan Losses to Nonaccrual Loans117.28 340.12 291.32 224.39 177.79 
Allowance for Loan Losses to Total Loans1.22 1.04 1.05 1.18 1.14 
Net Charge-offs to Average Loans0.11 0.05 0.21 0.13 0.11 

Allocation of Allowance for Loan Losses. The following table sets forth the allocation of allowance for loan losses by loan category at the dates indicated. The table reflects the allowance for loan losses as a percentage of total loans receivable. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
December 31,Amount
Percent of
Percent of
Percent of
Percent of
Percent of
(Dollars in Thousands)
Real Estate:
Residential$2,249 32.9 %$2,023 36.6 %$1,050 35.9 %$891 36.7 %$1,106 39.8 %
Commercial6,010 35.9 3,210 36.9 2,693 33.6 2,289 28.1 2,307 29.5 
Construction889 6.9 285 3.7 395 5.3 276 4.9 65 1.6 
Commercial and Industrial1,423 12.1 2,412 9.0 2,807 10.0 2,544 14.5 1,699 11.9 
Consumer1,283 10.9 1,417 11.9 2,027 13.4 2,358 15.4 2,463 16.7 
Other— 1.3 — 1.9 — 1.8 — 0.4 — 0.5 
Total Allocated Allowance11,854 100.0 9,347 100.0 8,972 100.0 8,358 100.0 7,640 100.0 
Unallocated917 — 520 — 586 — 438 — 163 — 
Total Allowance for Loan Losses$12,771 100.0 %$9,867 100.0 %$9,558 100.0 %$8,796 100.0 %$7,803 100.0 %
(1)Represents percentage of loans in each category to total loans
Investment Activities
General. The Company’s investment policy is established by its Board. The policy emphasizes safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with the Company’s interest rate risk management strategy.
Our current investment policy permits us to invest in U.S. treasuries, federal agency securities, mortgage-backed securities, investment grade corporate bonds, municipal bonds, short-term instruments, and other securities. The investment policy also permits investments in certificates of deposit, securities purchased under an agreement to resell, banker’s acceptances, commercial paper and federal funds. Our current investment policy generally does not permit investment in stripped mortgage-backed securities, short sales, derivatives, or other high-risk securities. Federal and Pennsylvania state laws generally limit our investment activities to those permissible for a national bank.
The accounting rules require that, at the time of purchase, we designate a security as held to maturity, available-for-sale, or trading, depending on our ability and intent. Securities available for sale are reported at fair value, while securities held to maturity are reported at amortized cost. Our entire portfolio is designated as available-for-sale.
The portfolio consists primarily of U.S. government and agency securities, municipal bonds, and mortgage-backed securities. We expect the composition of our investment portfolio to continue to change based on liquidity needs associated with loan origination activities. During the year ended December 31, 2020, we had no securities that were deemed to be other than temporarily impaired.
We also invest in equity securities, which consist primarily of mutual funds and a portfolio of bank stocks. This portfolio is valued at fair value with changes in market price recognized through noninterest income.
We maintain a minimum amount of liquid assets that may be invested in specified short-term securities and certain other investments. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management’s judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of the level of yield that will be available in the future, as well as management’s projections as to the short-term demand for funds to be used in our loan originations and other activities.
U.S. Government and Agency Securities. At December 31, 2020, we held U.S. Government and agency securities with a fair value of $41.4 million compared to $48.1 million at December 31, 2019. At December 31, 2020, these securities had an average expected life of 0.6 years. While these securities generally provide lower yields than other investments, such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity and pledging purposes, as collateral for borrowings, and for prepayment protection.

Municipal Bonds. At December 31, 2020, we held available-for-sale municipal bonds with a fair value of $22.0 million compared to $25.8 million at December 31, 2019. 52% of our municipal bonds are issued by local municipalities or school districts located in Pennsylvania. Municipal bonds may be general obligation of the issuer or secured by specific revenues. The majority of our municipal bonds are general obligation bonds, which are backed by the full faith and credit of the municipality, paid off with funds from taxes and other fees, and have ratings (when available) of A or above. We also invest in a limited amount of special revenue municipal bonds, which are used to fund projects that will eventually create revenue directly, such as a toll road or lease payments for a new building.
Mortgage-Backed Securities. We invest in mortgage-backed (“MBS”) and collateralized mortgage obligation (“CMO”) securities insured or guaranteed by the United States government or government-sponsored enterprises. These securities, which consist of MBS’s issued by Ginnie Mae, Fannie Mae and Freddie Mac, had an amortized cost of $75.9 million and $118.3 million at December 31, 2020 and 2019, respectively. The fair value of our MBS portfolio was $79.5 million and $120.8 million at December 31, 2020 and 2019, respectively. At December 31, 2020, all MBS’s had fixed rates of interest.
MBS’s are created by pooling mortgages and issuing a security with an interest rate that is less than the interest rate on the underlying mortgages. CMO’s generally are a specific class of MBS’s that are divided based on risk assessments and maturity dates. These mortgage classes are pooled into a special purpose entity, where tranches are created and sold to investors. Investors in a CMO are purchasing bonds issued by the entity, and then receive payments based on the income derived from the pooled mortgages. The various pools are divided into tranches are then securitized and sold to the investor. MBS’s typically represent a participation interest in a pool of one- to four-family or multifamily mortgages, although we invest primarily in MBS’s backed by one- to four-family mortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors. Some security pools are guaranteed as to payment of principal and interest to investors. MBS’s generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, MBS’s are more liquid than individual mortgage loans because there is an active trading market for such securities. In addition, MBS’s may be used to collateralize our specific liabilities and obligations. Finally, MBS’s are assigned lower risk-weightings for purposes of calculating our risk-based capital level.
Investments in MBS’s involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may result in adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities.
Securities Portfolio. The following table sets forth the composition of our securities portfolio at the dates indicated. securities do not include FHLB of Pittsburgh and Atlantic Community Bankers’ Bank stock totaling $4.0 million, $3.7 million, and $3.9 million at December 31, 2020, 2019 and 2018, respectively.
December 31,Amortized
(Dollars in Thousands)
Available-for-Sale Debt Securities:
U.S. Government Agencies$41,994 $41,411