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CB Financial Services, Inc. - Quarter Report: 2017 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2017

 

OR

 

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

 

For the transition period from __________ to __________

 

 

Commission file number: 001-36706

 

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

 

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

 

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

 

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

 

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

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

 

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

 

Large accelerated filer   ☐   Accelerated filer  ☐
Non-accelerated filer  ☐ (Do not check if a smaller reporting company) Smaller reporting company  ☐
Emerging growth company  ☒    

 

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

 

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

 

As of August 7, 2017, the number of shares outstanding of the Registrant’s Common Stock was 4,088,025.

 

 

 

FORM 10-Q

 

INDEX

 

Page

PART I – FINANCIAL INFORMATION  
Item 1.  Financial Statements (Unaudited). 1
Consolidated Statement of Financial Condition 1
Consolidated Statement of Income 2
Consolidated Statement of Comprehensive Income 3
Consolidated Statement of Changes In Stockholders’ Equity 3
Consolidated Statement of Cash Flows 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations. 31
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 40
Item 4. Controls and Procedures. 41
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings. 41
Item 1A. Risk Factors. 41
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. 41
Item 3.  Defaults Upon Senior Securities. 41
Item 4. Mine Safety Disclosures. 41
Item 5. Other Information. 41
Item 6. Exhibits 41
SIGNATURES 42

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

 

   (Unaudited)   
   June 30,  December 31,
(Dollars in thousands, except share data)  2017  2016
ASSETS          
Cash and Due From Banks:          
Interest Bearing  $17,464   $7,699 
Non-Interest Bearing   11,209    6,583 
Total Cash and Due From Banks   28,673    14,282 
           
Investment Securities:          
Available-for-Sale   116,545    106,208 
Loans, Net   674,262    674,094 
Premises and Equipment, Net   16,544    14,132 
Bank-Owned Life Insurance   18,919    18,687 
Goodwill   4,953    4,953 
Core Deposit Intangible, Net   3,551    3,819 
Accrued Interest and Other Assets   8,942    9,900 
TOTAL ASSETS  $872,389   $846,075 
           
LIABILITIES          
Deposits:          
Demand Deposits  $180,991   $165,400 
NOW Accounts   121,615    105,962 
Money Market Accounts   132,510    141,674 
Savings Accounts   131,174    121,520 
Time Deposits   157,351    155,028 
Brokered Deposits   3,418    8,634 
Total Deposits   727,059    698,218 
           
Short-Term Borrowings   25,450    27,027 
Other Borrowed Funds   24,500    28,000 
Accrued Interest and Other Liabilities   3,480    3,361 
TOTAL LIABILITIES   780,489    756,606 
           
STOCKHOLDERS' EQUITY          
Preferred Stock, No Par Value; 5,000,000 Shares Authorized   -    - 
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 4,363,346 Shares Issued and 4,088,025 and 4,086,625 Shares Outstanding at June 30, 2017 and December 31, 2016, Respectively   1,818    1,818 
Capital Surplus   42,041    41,863 
Retained Earnings   53,420    51,713 
Treasury Stock, at Cost (275,321 and 276,721 Shares at June 30, 2017 and December 31, 2016, Respectively)   (4,722)   (4,746)
Accumulated Other Comprehensive Loss   (657)   (1,179)
TOTAL STOCKHOLDERS' EQUITY   91,900    89,469 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $872,389   $846,075 

 

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

1

 

 

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
(Dollars in thousands, except share and per share data)  2017  2016  2017  2016
INTEREST AND DIVIDEND INCOME                    
Loans, Including Fees  $7,229   $7,323   $14,371   $14,820 
Federal Funds Sold   41    8    56    13 
Investment Securities:                    
Taxable   386    307    747    631 
Exempt From Federal Income Tax   219    266    436    526 
Other Interest and Dividend Income   74    46    130    83 
TOTAL INTEREST AND DIVIDEND INCOME   7,949    7,950    15,740    16,073 
                     
INTEREST EXPENSE                    
Deposits   675    560    1,330    1,121 
Federal Funds Purchased   -    -    -    1 
Short-Term Borrowings   20    15    39    29 
Other Borrowed Funds   119    127    241    254 
TOTAL INTEREST EXPENSE   814    702    1,610    1,405 
                     
NET INTEREST INCOME   7,135    7,248    14,130    14,668 
Provision For Loan Losses   300    300    720    1,150 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   6,835    6,948    13,410    13,518 
                     
NONINTEREST INCOME                    
Service Fees on Deposit Accounts   625    606    1,209    1,192 
Insurance Commissions   842    743    1,928    1,615 
Other Commissions   107    112    211    229 
Net Gains on Sales of Loans   162    185    252    309 
Net Gains on Sales of Investments   70    58    122    58 
Net Gains on Purchased Tax Credits   15    -    29    - 
Income from Bank-Owned Life Insurance   116    119    232    239 
Other   29    45    59    73 
TOTAL NONINTEREST INCOME   1,966    1,868    4,042    3,715 
                     
NONINTEREST EXPENSE                    
Salaries and Employee Benefits   3,424    3,285    6,913    6,654 
Occupancy   604    438    1,152    912 
Equipment   473    432    912    854 
FDIC Assessment   82    115    163    241 
PA Shares Tax   186    203    376    405 
Contracted Services   157    156    289    289 
Legal and Professional Fees   102    114    243    255 
Advertising   182    189    307    354 
Bankcard Processing Expense   131    122    254    234 
Other Real Estate Owned Expense (Income)   1    10    6    (535)
Amortization of Core Deposit Intangible   133    133    267    267 
Other   829    891    1,639    1,672 
TOTAL NONINTEREST EXPENSE   6,304    6,088    12,521    11,602 
                     
Income Before Income Taxes   2,497    2,728    4,931    5,631 
Income Taxes   696    790    1,426    1,648 
NET INCOME  $1,801   $1,938   $3,505   $3,983 
                     
EARNINGS PER SHARE                    
Basic  $0.44   $0.48   $0.86   $0.98 
Diluted   0.44    0.48    0.85    0.98 
                     
WEIGHTED AVERAGE SHARES OUTSTANDING                    
Basic   4,088,025    4,081,017    4,087,659    4,081,017 
Diluted   4,105,338    4,084,695    4,101,861    4,083,313 

 

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

2

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
(Dollars in thousands)  2017  2016  2017  2016
             
Net Income  $1,801   $1,938   $3,505   $3,983 
                     
Other Comprehensive Income:                    
Unrealized Gains on Available-for-Sale Securities Net of Income Tax of $198 and $28 for the Three Months Ended June 30, 2017 and 2016, Respectively, and $309 and $164 for the Six Months Ended June 30, 2017 and 2016, Respectively   385    55    603    316 
                     
Reclassification Adjustment for Gains on Securities:                    
Included in Net Income, Net of Income Tax of $23 and $20 for the Three Months Ended June 30, 2017 and 2016, Respectively, and $41 and $20 for the Six Months Ended June 30, 2017 and 2016, Respectively (1)   (47)   (38)   (81)   (38)
Other Comprehensive Income, Net of Income Tax   338    17    522    278 
Total Comprehensive Income  $2,139   $1,955   $4,027   $4,261 

 

(1) The gross amount of gains on securities of $70 and $58 for the Three Months Ended June 30, 2017 and 2016, Respectively and $122 and $58 for the Six Months Ended June 30, 2017 and 2016, Respectively are reported as Net Gains on Sales of Investments on the Consolidated Statement of Income. The income tax effect is included in Income Taxes on the Consolidated Statement of Income.

 

 

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

                  Accumulated   
                  Other  Total
   Shares  Common  Capital  Retained  Treasury  Comprehensive  Stockholders'
(Dollars in thousands, except share and per share data)  Issued  Stock  Surplus  Earnings  Stock  Income  Equity
                      
December 31, 2015   4,363,346   $1,818   $41,614   $47,725   $(4,836)  $575   $86,896 
Comprehensive Income:                                   
Net Income   -    -    -    3,983    -    -    3,983 
Other Comprehensive Income   -    -    -    -    -    278    278 
Stock-Based Compensation Expense   -    -    174    -    -    -    174 
Dividends Paid ($0.22 Per Share)   -    -    -    (1,796)   -    -    (1,796)
June 30, 2016   4,363,346   $1,818   $41,788   $49,912   $(4,836)  $853   $89,535 

 

                  Accumulated   
                  Other  Total
   Shares  Common  Capital  Retained  Treasury  Comprehensive  Stockholders'
(Dollars in thousands, except share and per share data)  Issued  Stock  Surplus  Earnings  Stock  Loss  Equity
                      
December 31, 2016   4,363,346   $1,818   $41,863   $51,713   $(4,746)  $(1,179)  $89,469 
Comprehensive Income:                                   
Net Income   -    -    -    3,505    -    -    3,505 
Other Comprehensive Income   -    -    -    -    -    522    522 
Stock-Based Compensation Expense   -    -    171    -    -    -    171 
Exercise of stock options   -    -    7    -    24    -    31 
Dividends Paid ($0.22 Per Share)   -    -    -    (1,798)   -    -    (1,798)
June 30, 2017   4,363,346   $1,818   $42,041   $53,420   $(4,722)  $(657)  $91,900 

 

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

3

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

 

   Six Months Ended
   June 30,
(Dollars in thousands)  2017  2016
       
OPERATING ACTIVITIES          
Net Income  $3,505   $3,983 
Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities:          
Net Amortization on Investments   171    116 
Depreciation and Amortization   1,305    1,510 
Provision for Loan Losses   720    1,150 
Income from Bank-Owned Life Insurance   (232)   (239)
Proceeds From Mortgage Loans Sold   10,620    11,574 
Originations of Mortgage Loans for Sale   (10,368)   (11,265)
Gains on Sales of Loans   (252)   (309)
Gains on Sales of Investment Securities   (122)   (58)
Gains on Sales of Other Real Estate Owned and Repossessed Assets   -    (49)
Noncash Expense for Stock-Based Compensation   171    174 
Decrease in Accrued Interest Receivable   91    32 
Valuation Adjustment on Foreclosed Real Estate   -    (566)
(Decrease) Increase in Taxes Payable   (1,743)   1,605 
Increase (Decrease) in Accrued Interest Payable   4    (19)
Net Payment of Federal/State Income Taxes   (1,495)   (1,450)
Other, Net   4,078    237 
NET CASH PROVIDED BY OPERATING ACTIVITIES   6,453    6,426 
           
INVESTING ACTIVITIES          
Investment Securities Available for Sale:          
Proceeds From Principal Repayments and Maturities   4,588    36,894 
Purchases of Securities   (17,787)   (35,388)
Proceeds from Sales of Securities   3,603    302 
Net Increase in Loans   (1,502)   (79)
Purchase of Premises and Equipment   (3,150)   (281)
Retirements of Premises and Equipment   152    - 
Proceeds From Sales of Other Real Estate Owned and Repossessed Assets   -    175 
Decrease in Restricted Equity Securities   37    571 
NET CASH USED IN INVESTING ACTIVITIES   (14,059)   2,194 
           
FINANCING ACTIVITIES          
Net Increase (Decrease) in Deposits   28,841    (4,033)
Net Decrease in Short-Term Borrowings   (1,577)   (918)
Principal Payments on Other Borrowed Funds   (3,500)   - 
Cash Dividends Paid   (1,798)   (1,796)
Treasury Stock, Purchases at Cost   24    - 
Exercise of Stock Options   7    - 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   21,997    (6,747)
           
INCREASE IN CASH AND CASH EQUIVALENTS   14,391    1,873 
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR   14,282    11,340 
CASH AND DUE FROM BANKS AT END OF PERIOD  $28,673   $13,213 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for:          
Interest on deposits and borrowings (including interest credited to deposit accounts of $1,323 and $1,137 respectively)  $1,606   $1,423 
Income taxes   1,495    1,450 
           
Real estate acquired in settlement of loans   155    3,236 
Transfer of real estate acquired in settlement of loans to premise and equipment   -    2,350 
Securities sold not settled   -    (70)
Securities purchased not settled   -    60 

 

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

4

 

 

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 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 of 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, 2016. Interim results are not necessarily indicative of results for a full year.

 

The Company will continue to evaluate the provisions of Accounting Standards Codification (“ASC”) Topic 280 for segment reporting information related to Exchange Underwriters. During the prior quarter, Exchange Underwriters insurance commissions comprised of approximately 11% of combined interest and noninterest income but less than 10% of the combined assets of the Company. While EU exceeded the 10% threshold of combined interest and noninterest income, this was primarily related to a unique income event of increased contingency income. Contingency fees are commissions that are contingent upon several factors including, but not limited to, eligible written premiums, earned premiums, incurred losses and stop loss charges. During the current quarter, Exchange Underwriters fell below the 10% threshold of combined interest and noninterest income.

 

Except as disclosed in Note 4 on page 24, the Company evaluated subsequent events through the date the consolidated financial statements were filed with the Securities and Exchange Commission and incorporated into the consolidated financial statements the effect of all material known events determined by ASC Topic 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 primarily to communities in Greene, Allegheny, Washington, Fayette, and Westmoreland Counties located in southwestern Pennsylvania. The Company also conducts insurance brokerage activities through Exchange Underwriters.

 

Acquired Loans

 

Loans that were acquired in the merger with FedFirst Financial Corporation were recorded at fair value with no carryover of the related allowance for credit losses. The fair value of the acquired loans was estimated by management with the assistance of a third party valuation specialist.

 

For performing loans acquired in the merger, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. For purchased credit impaired (“PCI”) loans acquired in the merger, the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance for loan losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method. The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance for credit losses. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.

 

5

 

 

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.

 

Recent Accounting Standards

 

In July 2017, the FASB issued Accounting Standards Update ("ASU") 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 amendments simplify the accounting for certain financial instruments with down round features. The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered and will also recognize the effect of the trigger within equity. ASU 2017-11 is effective for public business entities that are SEC filers for annual periods beginning after December 15, 2018, and interim periods within those annual periods, for public entities that are not SEC filers for annual periods beginning after December 15, 2019 and for all other entities for annual periods beginning after December 15, 2020 with early adoption permitted. The Company is evaluating the provisions of ASU 2017-11 but believes that its adoption will not have a material impact on the Company's consolidated financial condition or results of operations.

 

In May 2017, the FASB issued ASU 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services. ASU 2017-10 amendments clarify that the grantor in a service concession arrangement is the customer of the operation services in all cases for those arrangements. ASU 2017-10 is effective for public business entities that are SEC filers for annual periods beginning after December 15, 2017, and interim periods within those annual periods, for public entities that are not SEC filers for annual periods beginning after December 15, 2018 and for all other entities for annual periods beginning after December 15, 2019 with early adoption permitted, including within an interim period, subject to specific transition requirements depending on whether an entity adopted Topic 606 before or after the issuance of ASU 2017-10. The Company is evaluating the provisions of ASU 2017-10 but believes that its adoption will not have a material impact on the Company's consolidated financial condition or results of operations.

 

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under ASU Topic 718. ASU 2017-09 is effective for all entities for annual periods, including interim periods within those annual periods beginning after December 15, 2017 with early adoption permitted. The Company is evaluating the provisions of ASU 2017-09 but believes that its adoption will not have a material impact on the Company's consolidated financial condition or results of operations.

 

In March 2017, the FASB issued ASU 2017-08, Receivables- Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchases of Callable Debt Securities. ASU 2017-08 amends guidance on the amortization period of premiums on certain purchases of callable debt securities. The amendments shorten the amortization period of premiums on certain purchases of callable debt securities to the earliest call date. ASU 2017-08 is effective for public business entities that are SEC filers for annual periods beginning after December 15, 2018, and interim periods within those annual periods, for public entities that are not SEC filers for annual periods beginning after December 15, 2019 and for all other entities for annual periods beginning after December 15, 2020 with early adoption permitted. The Company is evaluating the provisions of ASU 2017-08 but believes that its adoption will not have a material impact on the Company's consolidated 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 will apply a one-step quantitative test and record 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 that are SEC filers 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 is currently evaluating the provisions of ASU 2017-04, but does not believe that its adoption will have a material impact on the Company's consolidated financial condition or results of operations.

 

6

 

 

Recent Accounting Standards (continued)

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted and the amendments should be applied using a retrospective transition method to each period presented.  The Company is currently evaluating the provisions of ASU 2016-15, but does not believe that its adoption will have a material impact on the Company's consolidated financial condition or results of operations.

 

In June 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 will require 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 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the provisions of ASU 2016-13, but does not believe that its adoption will have a material impact on the Company's consolidated financial condition or results of operations.

 

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 introduces amendments intended to simplify the accounting for stock compensation.  ASU 2016-09 requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement.  The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur.  An entity should also recognize excess tax benefits and assess the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period.  The ASU also requires excess tax benefits be classified along with other income tax cash flows as an operating activity in the statement of cash

flows.  ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted.  The adoption of ASU 2016-09 as of January 1, 2017, had no effect on the Company's consolidated financial condition or results of operations.

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet, and disclosing key information about leasing arrangements. ASU 2016-02 will require lessees to recognize a right-of-use (ROU) asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation for leases with terms of more than twelve months. Both the ROU asset and lease liability will initially be measured at the

present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. Accounting by lessors will remain largely unchanged from current U.S. GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted, and is to be applied as of the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the provisions of ASU 2016-02, but expects to report increased assets and liabilities as a result of reporting additional leases on the Company's consolidated statement of financial condition or results of operations.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10), which enhances the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. ASU 2016-01 (i) requires equity investments (except those accounted for under the equity method or that are consolidated) to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for an entity to disclose the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost; (iv) requires an entity to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (v) requires separate

 

7

 

 

Recent Accounting Standards (continued)

 

presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently evaluating the provisions of ASU 2016-01, but does not believe that its adoption will have a material impact on the Company's consolidated financial condition or results of operations.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which establishes a comprehensive revenue recognition standard for virtually all industries under GAAP, including those that previously followed industry-specific guidance, such as the real estate, construction and software industries. ASU 2014-09 specifies that an entity shall recognize revenue when, or as, the entity satisfies a performance obligation by transferring a promised good or service (i.e., an asset) to a customer. An asset is transferred when, or as, the customer obtains control of the asset. Entities are required to disclose qualitative and quantitative information on the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09. The guidance is effective for the Company’s financial statements beginning January 1, 2018. The guidance allows an entity to apply the new standard either retrospectively or through a cumulative effect adjustment as of January 1, 2018. This guidance does not apply to revenue associated with financial instruments, including loans, securities, and derivatives that are accounted for under other U.S. GAAP guidance. For that reason, we do not expect it to have a material impact on our consolidated results of operations for elements of the statement of income associated with financial instruments, including securities gains, interest income, and interest expense. However, we do believe the new standard will result in new disclosure requirements. We are currently in the process of reviewing contracts to assess the impact of the new guidance on our service offerings that are in the scope of the guidance included in non-interest income, such as insurance commission fees, service charges, payment processing fees, trust services fees and brokerage services fees. The Company is continuing to evaluate the effect of the new guidance on revenue sources other than financial instruments on its consolidated financial position or results of operations.

 

 

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  Six Months Ended
   June 30,  June 30,
   2017  2016  2017  2016
Weighted-Average Common Shares Outstanding   4,363,346    4,363,346    4,363,346    4,363,346 
Average Treasury Stock Shares   (275,321)   (282,329)   (275,687)   (282,329)
Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Basic Earnings Per Share   4,088,025    4,081,017    4,087,659    4,081,017 
Additional Common Stock Equivalents (Stock Options and Restricted Stock) Used to Calculate Diluted Earnings Per Share   17,313    3,678    14,202    2,296 
Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Diluted Earnings Per Share   4,105,338    4,084,695    4,101,861    4,083,313 
                     
Earnings per share:                    
Basic  $0.44   $0.48   $0.86   $0.98 
Diluted   0.44    0.48    0.85    0.98 

 

 

8

 

 

Note 3. Investment Securities

 

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

 

   (Dollars in thousands)
   June 30, 2017
      Gross  Gross   
   Amortized  Unrealized  Unrealized  Fair
   Cost  Gains  Losses  Value
             
U.S. Government Agencies  $66,620   $1   $(1,335)  $65,286 
Obligations of States and Political Subdivisions   36,423    394    (90)   36,727 
Mortgage-Backed Securities - Government-Sponsored Enterprises   12,907    9    (33)   12,883 
Equity Securities - Mutual Funds   500    7    -    507 
Equity Securities - Other   1,091    74    (23)   1,142 
Total  $117,541   $485   $(1,481)  $116,545 

 

   December 31, 2016
      Gross  Gross   
   Amortized  Unrealized  Unrealized  Fair
   Cost  Gains  Losses  Value
             
U.S. Government Agencies  $67,944   $18   $(1,806)  $66,156 
Obligations of States and Political Subdivisions   35,856    366    (487)   35,735 
Mortgage-Backed Securities - Government-Sponsored Enterprises   2,588    31    -    2,619 
Equity Securities - Mutual Funds   500    7    -    507 
Equity Securities - Other   1,106    91    (6)   1,191 
Total  $107,994   $513   $(2,299)  $106,208 

 

 

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:

 

   (Dollars in thousands)
   June 30, 2017
   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
U.S. Government Agencies   21   $57,265   $(1,335)   -   $-   $-    21   $57,265   $(1,335)
Obligations of States and
Political Subdivisions
   18    9,097    (78)   4    1,629    (12)   22    10,726    (90)
Mortgage-Backed Securities -
Government Sponsored Enterprises
   5    10,639    (33)   -    -    -    5    10,639    (33)
Equity Securities - Other   5    373    (23)   -    -    -    5    373    (23)
Total   49   $77,374   $(1,469)   4   $1,629   $(12)   53   $79,003   $(1,481)

 

 

9

 

 

 

   December 31, 2016
   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
U.S. Government Agencies   23   $62,853   $(1,806)   -   $-   $-    23   $62,853   $(1,806)
Obligations of States and
Political Subdivisions
   39    19,749    (485)   1    260    (2)   40    20,009    (487)
Equity Securities - Other   2    160    (6)   -    -    -    2    160    (6)
Total   64   $82,762   $(2,297)   1   $260   $(2)   65   $83,022   $(2,299)

 

For debt securities, the Company does not believe any individual unrealized loss as of June 30, 2017 and December 31, 2016 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 June 30, 2017 and December 31, 2016 relate principally to changes in interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell or it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

 

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

 

   (Dollars in thousands)
   June 30, 2017
   Available-for-Sale
   Amortized  Fair
   Cost  Value
Due in One Year or Less  $1,576   $1,588 
Due after One Year through Five Years   17,826    17,898 
Due after Five Years through Ten Years   84,604    83,467 
Due after Ten Years   13,535    13,592 
Total  $117,541   $116,545 

 

Equity Securities – Mutual Funds and Equity Securities – Other do not have a scheduled maturity date, but have been included in the Due After Ten Years category.

 

10

 

 

Note 4. Loans and Related Allowance for Loan Loss

 

The Company’s loan portfolio is made up of four classifications: real estate loans, commercial and industrial loans, consumer loans and other loans. These segments are further segregated between loans accounted for under the amortized cost method (“Originated Loans”) and acquired loans that were originally recorded at fair value with no carryover of the related pre-merger allowance for loan losses (“Loans Acquired at Fair Value”). The following table presents the major classifications of loans as of the dates indicated.

 

   (Dollars in thousands)
   June 30, 2017  December 31, 2016
   Amount  Percent  Amount  Percent
Originated Loans                    
Real Estate:                    
Residential  $189,189    35.0%  $186,077    35.4%
Commercial   140,652    26.1    139,894    26.7 
Construction   20,186    3.7    10,646    2.0 
Commercial and Industrial   75,665    14.1    71,091    13.5 
Consumer   110,113    20.4    114,007    21.7 
Other   3,508    0.7    3,637    0.7 
Total Originated Loans   539,313    100.0%   525,352    100.0%
Allowance for Loan Losses   (7,468)        (7,283)     
Loans, Net  $531,845        $518,069      
                     
Loans Acquired at Fair Value                    
Real Estate:                    
Residential  $78,358    54.8%  $85,511    54.7%
Commercial   55,628    39.0    61,116    39.0 
Commercial and Industrial   8,849    6.1    9,721    6.2 
Consumer   197    0.1    197    0.1 
Total Loans Acquired at Fair Value   143,032    100.0%   156,545    100.0%
Allowance for Loan Losses   (615)        (520)     
Loans, Net  $142,417        $156,025      
                     
Total Loans                    
Real Estate:                    
Residential  $267,547    39.2%  $271,588    39.8%
Commercial   196,280    28.8    201,010    29.5 
Construction   20,186    2.9    10,646    1.6 
Commercial and Industrial   84,514    12.4    80,812    11.9 
Consumer   110,310    16.2    114,204    16.7 
Other   3,508    0.5    3,637    0.5 
Total Loans   682,345    100.0%   681,897    100.0%
Allowance for Loan Losses   (8,083)        (7,803)     
Loans, Net  $674,262        $674,094      

 

Total unamortized net deferred loan fees were $872,000 and $818,000 at June 30, 2017 and December 31, 2016, respectively.

 

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $90.4 million and $83.9 million at June 30, 2017 and December 31, 2016, respectively.

 

11

 

 

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 June 30, 2017 and December 31, 2016, there were no loans in the criticized category of Loss within the internal risk rating system.

 

   (Dollars in thousands)
   June 30, 2017
      Special         
   Pass  Mention  Substandard  Doubtful  Total
Originated Loans                         
Real Estate:                         
Residential  $187,741   $1,061   $387   $-   $189,189 
Commercial   123,544    14,037    2,821    250    140,652 
Construction   19,562    -    565    59    20,186 
Commercial and Industrial   62,712    10,189    1,312    1,452    75,665 
Consumer   110,084    -    29    -    110,113 
Other   3,508    -    -    -    3,508 
Total Originated Loans  $507,151   $25,287   $5,114   $1,761   $539,313 
                          
Loans Acquired at Fair Value                         
Real Estate:                         
Residential  $76,342   $-   $2,016   $-   $78,358 
Commercial   52,920    1,997    511    200    55,628 
Commercial and Industrial   8,418    13    320    98    8,849 
Consumer   197    -    -    -    197 
Total Loans Acquired at Fair Value  $137,877   $2,010   $2,847   $298   $143,032 
                          
Total Loans                         
Real Estate:                         
Residential  $264,083   $1,061   $2,403   $-   $267,547 
Commercial   176,464    16,034    3,332    450    196,280 
Construction   19,562    -    565    59    20,186 
Commercial and Industrial   71,130    10,202    1,632    1,550    84,514 
Consumer   110,281    -    29    -    110,310 
Other   3,508    -    -    -    3,508 
Total Loans  $645,028   $27,297   $7,961   $2,059   $682,345 

 

 

12

 

 

 

   December 31, 2016
      Special         
   Pass  Mention  Substandard  Doubtful  Total
Originated Loans                         
Real Estate:                         
Residential  $184,721   $1,050   $306   $-   $186,077 
Commercial   122,811    14,118    2,035    930    139,894 
Construction   9,944    -    595    107    10,646 
Commercial and Industrial   65,612    2,720    1,322    1,437    71,091 
Consumer   113,847    -    160    -    114,007 
Other   3,637    -    -    -    3,637 
Total Originated Loans  $500,572   $17,888   $4,418   $2,474   $525,352 
                          
Loans Acquired at Fair Value                         
Real Estate:                         
Residential  $83,044   $-   $2,467   $-   $85,511 
Commercial   58,411    2,358    347    -    61,116 
Commercial and Industrial   9,117    42    441    121    9,721 
Consumer   197    -    -    -    197 
Total Loans Acquired at Fair Value  $150,769   $2,400   $3,255   $121   $156,545 
                          
Total Loans                         
Real Estate:                         
Residential  $267,765   $1,050   $2,773   $-   $271,588 
Commercial   181,222    16,476    2,382    930    201,010 
Construction   9,944    -    595    107    10,646 
Commercial and Industrial   74,729    2,762    1,763    1,558    80,812 
Consumer   114,044    -    160    -    114,204 
Other   3,637    -    -    -    3,637 
Total Loans  $651,341   $20,288   $7,673   $2,595   $681,897 

 

 

 

13

 

 

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.

 

   (Dollars in thousands)
   June 30, 2017
      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
Originated Loans                                   
Real Estate:                                   
Residential  $188,747   $-   $17   $66   $83   $359   $189,189 
Commercial   140,364    -    -    -    -    288    140,652 
Construction   20,127    -    -    -    -    59    20,186 
Commercial and Industrial   73,241    532    -    -    532    1,892    75,665 
Consumer   108,813    1,179    75    17    1,271    29    110,113 
Other   3,508    -    -    -    -    -    3,508 
Total Originated Loans  $534,800   $1,711   $92   $83   $1,886   $2,627   $539,313 
                                    
Loans Acquired at Fair Value                                   
Real Estate:                                   
Residential  $76,978   $165   $-   $88   $253   $1,127   $78,358 
Commercial   55,428    -    -    -    -    200    55,628 
Commercial and Industrial   8,832    -    -    -    -    17    8,849 
Consumer   197    -    -    -    -    -    197 
Total Loans Acquired at Fair Value  $141,435   $165   $-   $88   $253   $1,344   $143,032 
                                    
Total Loans                                   
Real Estate:                                   
Residential  $265,725   $165   $17   $154   $336   $1,486   $267,547 
Commercial   195,792    -    -    -    -    488    196,280 
Construction   20,127    -    -    -    -    59    20,186 
Commercial and Industrial   82,073    532    -    -    532    1,909    84,514 
Consumer   109,010    1,179    75    17    1,271    29    110,310 
Other   3,508    -    -    -    -    -    3,508 
Total Loans  $676,235   $1,876   $92   $171   $2,139   $3,971   $682,345 

 


14

 

 

 

   December 31, 2016
      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
Originated Loans                     
Real Estate:                                   
Residential  $183,939   $1,638   $72   $120   $1,830   $308   $186,077 
Commercial   139,821    -    -    -    -    73    139,894 
Construction   10,539    -    -    -    -    107    10,646 
Commercial and Industrial   68,310    952    -    -    952    1,829    71,091 
Consumer   112,232    1,311    296    8    1,615    160    114,007 
Other   3,637    -    -    -    -    -    3,637 
Total Originated Loans  $518,478   $3,901   $368   $128   $4,397   $2,477   $525,352 
                                    
Loans Acquired at Fair Value                                   
Real Estate:                                   
Residential  $82,523   $893   $307   $223   $1,423   $1,565   $85,511 
Commercial   60,437    332    -    -    332    347    61,116 
Commercial and Industrial   9,577    121    23    -    144    -    9,721 
Consumer   197    -    -    -    -    -    197 
Total Loans Acquired at Fair Value  $152,734   $1,346   $330   $223   $1,899   $1,912   $156,545 
                                    
Total Loans                                   
Real Estate:                                   
Residential  $266,462   $2,531   $379   $343   $3,253   $1,873   $271,588 
Commercial   200,258    332    -    -    332    420    201,010 
Construction   10,539    -    -    -    -    107    10,646 
Commercial and Industrial   77,887    1,073    23    -    1,096    1,829    80,812 
Consumer   112,429    1,311    296    8    1,615    160    114,204 
Other   3,637    -    -    -    -    -    3,637 
Total Loans  $671,212   $5,247   $698   $351   $6,296   $4,389   $681,897 

 

 

 

15

 

 

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.

 

   (Dollars in Thousands)
   June 30,  December 31,
   2017  2016
Nonaccrual Loans:          
Originated Loans:          
Real Estate:          
Residential  $359   $308 
Commercial   288    73 
Construction   59    107 
Commercial and Industrial   1,892    1,829 
Consumer   29    160 
Total Originated Nonaccrual Loans   2,627    2,477 
           
Loans Acquired at Fair Value:          
Real Estate:          
Residential   1,127    1,565 
Commercial   200    347 
Commercial and Industrial   17    - 
Total Loans Acquired at Fair Value Nonaccrual Loans   1,344    1,912 
Total Nonaccrual Loans   3,971    4,389 
           
Accruing Loans Past Due 90 Days or More:          
Originated Loans:          
Real Estate:          
Residential   66    120 
Consumer   17    8 
Total Originated Accruing Loans 90 Days or More Past Due   83    128 
           
Loans Acquired at Fair Value:          
Real Estate:          
Residential   88    223 
Total Loans Acquired at Fair Value Accruing Loans 90 Days or More Past Due   88    223 
Total Accruing Loans 90 Days or More Past Due   171    351 
Total Nonaccrual Loans and Accruing Loans 90 Days or More Past Due   4,142    4,740 
           
Troubled Debt Restructurings, Accruing:          
Originated Loans:          
Real Estate - Commercial   1,298    1,325 
Commercial and Industrial   5    6 
Other   3    4 
Total Originated Loans   1,306    1,335 
Loans Acquired at Fair Value:          
Real Estate - Residential   1,279    1,299 
Real Estate - Commercial   457    660 
Commercial and Industrial   303    393 
Total Loans Acquired at Fair Value   2,039    2,352 
Total Troubled Debt Restructurings, Accruing   3,345    3,687 
           
Total Nonperforming Loans   7,487    8,427 
           
Real Estate Owned:          
Residential   208    - 
Commercial   174    174 
Total Real Estate Owned   382    174 
Total Nonperforming Assets  $7,869   $8,601 
           
Nonperforming Loans to Total Loans   1.10%   1.24%
Nonperforming Assets to Total Assets   0.90    1.02 

 

 

16

 

 

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction was $795,000 and $2.2 million at June 30, 2017 and December 31, 2016, respectively.

 

TDRs typically are the result of our loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral. The concessions granted for the TDRs in the portfolio primarily consist of, but are not limited to, modification of payment or other terms, temporary rate modification and extension of maturity date. Loans classified as TDRs consisted of 14 loans totaling $4.3 million and 15 loans totaling $4.7 million at June 30, 2017 and December 31, 2016, respectively. Originated loans classified as TDRs consisted of 6 loans totaling $2.3 million at June 30, 2017 and December 31, 2016, respectively. Loans acquired at fair value classified as TDRs consisted of 8 loans totaling $2.0 million and 9 loans totaling $2.4 million at June 30, 2017 and December 31, 2016, respectively.

 

During the six months ended June 30, 2016, one commercial loan previously identified as an acquired loan at fair value TDR paid off, an originated consumer loan modified terms in a new TDR transaction and one commercial and one residential real estate loan that were acquired at fair value modified terms into new TDR transactions. No TDRs have subsequently defaulted during the three or six months ended June 30, 2017 and 2016, respectively.

 

The following table presents information at the time of modification related to loans modified as TDRs during the periods indicated. No loans were modified for the three and six months ended June 30, 2017 and the three months ended June 30, 2016. The following table presents information at the time of modification related to loans modified in a TDR during the six months ended June 30, 2016.

 

   (Dollars in thousands)
   Six Months Ended June 30, 2016
      Pre-  Post-   
      Modification  Modification   
   Number  Outstanding  Outstanding   
   of  Recorded  Recorded  Related
   Contracts  Investment  Investment  Allowance
Originated Loans                    
Real Estate                    
Other   1   $7   $7   $- 
Total   1   $7   $7   $- 
                     
Loans Acquired at Fair Value                    
Real Estate                    
Residential   1   $37   $45   $- 
Commercial   1    539    539      
Total   2   $576   $584   $- 

 

 

17

 

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

 

   (Dollars in thousands)
   June 30, 2017
         Unpaid  Average  Interest
   Recorded  Related  Principal  Recorded  Income
   Investment  Allowance  Balance  Investment  Recognized
With No Related Allowance Recorded:                         
Originated Loans                         
Real Estate:                         
Residential  $101   $-   $102   $104   $2 
Commercial   1,947    -    1,947    2,003    46 
Construction   624    -    624    652    13 
Commercial and Industrial   664    -    664    666    17 
Other   3    -    3    3    - 
Total With No Related Allowance Recorded  $3,339   $-   $3,340   $3,428   $78 
                          
Loans Acquired at Fair Value                         
Real Estate:                         
Residential  $1,279   $-   $1,279   $1,289   $33 
Commercial   1,168    -    1,168    1,317    23 
Commercial and Industrial   320    -    320    380    8 
Total With No Related Allowance Recorded  $2,767   $-   $2,767   $2,986   $64 
                          
Total Loans                         
Real Estate:                         
Residential  $1,380   $-   $1,381   $1,393   $35 
Commercial   3,115    -    3,115    3,320    69 
Construction   624    -    624    652    13 
Commercial and Industrial   984    -    984    1,046    25 
Other   3    -    3    3    - 
Total With No Related Allowance Recorded  $6,106   $-   $6,107   $6,414   $142 
                          
With A Related Allowance Recorded:                         
Originated Loans                         
Real Estate:                         
Commercial  $1,508   $425   $1,508   $1,523   $33 
Commercial and Industrial   2,105    815    2,155    2,271    52 
Total With A Related Allowance Recorded  $3,613   $1,240   $3,663   $3,794   $85 
                          
Loans Acquired at Fair Value                         
Commercial and Industrial  $98   $16   $98   $109   $3 
Total With A Related Allowance Recorded  $98   $16   $98   $109   $3 
                          
Total Loans                         
Real Estate:                         
Commercial  $1,508   $425   $1,508   $1,523   $33 
Commercial and Industrial   2,203    831    2,253    2,380    55 
Total With A Related Allowance Recorded  $3,711   $1,256   $3,761   $3,903   $88 

 

 

18

 

 

 

   June 30, 2017 (cont.)
         Unpaid  Average  Interest
   Recorded  Related  Principal  Recorded  Income
   Investment  Allowance  Balance  Investment  Recognized
Total Impaired Loans:                         
Originated Loans                         
Real Estate:                         
Residential  $101   $-   $102   $104   $2 
Commercial   3,455    425    3,455    3,526    79 
Construction   624    -    624    652    13 
Commercial and Industrial   2,769    815    2,819    2,937    69 
Other   3    -    3    3    - 
Total Impaired Loans  $6,952   $1,240   $7,003   $7,222   $163 
                          
Loans Acquired at Fair Value                         
Real Estate:                         
Residential  $1,279   $-   $1,279   $1,289   $33 
Commercial   1,168    -    1,168    1,317    23 
Commercial and Industrial   418    16    418    489    11 
Total Impaired Loans  $2,865   $16   $2,865   $3,095   $67 
                          
Total Loans                         
Real Estate:                         
Residential  $1,380   $-   $1,381   $1,393   $35 
Commercial   4,623    425    4,623    4,843    102 
Construction   624    -    624    652    13 
Commercial and Industrial   3,187    831    3,237    3,426    80 
Other   3    -    3    3    - 
Total Impaired Loans  $9,817   $1,256   $9,868   $10,317   $230 

 

 

19

 

 

 

   December 31, 2016
         Unpaid  Average  Interest
   Recorded  Related  Principal  Recorded  Income
   Investment  Allowance  Balance  Investment  Recognized
With No Related Allowance Recorded:                         
Originated Loans                         
Real Estate:                         
Commercial  $2,112   $-   $2,112   $2,228   $100 
Construction   702    -    702    843    28 
Commercial and Industrial   825    -    825    891    45 
Other   4    -    4    6    1 
Total With No Related Allowance Recorded  $3,643   $-   $3,643   $3,968   $174 
                          
Loans Acquired at Fair Value                         
Real Estate:                         
Residential  $1,300   $-   $1,300   $1,320   $68 
Commercial   660    -    660    763    47 
Commercial and Industrial   441    -    441    543    21 
Total With No Related Allowance Recorded  $2,401   $-   $2,401   $2,626   $136 
                          
Total Loans                         
Real Estate:                         
Residential  $1,300   $-   $1,300   $1,320   $68 
Commercial   2,772    -    2,772    2,991    147 
Construction   702    -    702    843    28 
Commercial and Industrial   1,266    -    1,266    1,434    66 
Other   4    -    4    6    1 
Total With No Related Allowance Recorded  $6,044   $-   $6,044   $6,594   $310 
                          
With A Related Allowance Recorded:                         
Originated Loans                         
Real Estate:                         
Commercial  $1,249   $360   $1,249   $1,277   $66 
Commercial and Industrial   1,940    655    1,946    1,951    27 
Total With A Related Allowance Recorded  $3,189   $1,015   $3,195   $3,228   $93 
                          
Loans Acquired at Fair Value                         
Real Estate:                         
Commercial  $347   $114   $437   $367   $- 
Commercial and Industrial   121    31    121    141    6 
Total With A Related Allowance Recorded  $468   $145   $558   $508   $6 
                          
Total Loans                         
Real Estate:                         
Commercial  $1,596   $474   $1,686   $1,644   $66 
Commercial and Industrial   2,061    686    2,067    2,092    33 
Total With A Related Allowance Recorded  $3,657   $1,160   $3,753   $3,736   $99 

 

 

20

 

 

   December 31, 2016 (cont.)
         Unpaid  Average  Interest
   Recorded  Related  Principal  Recorded  Income
   Investment  Allowance  Balance  Investment  Recognized
Total Impaired Loans                         
Originated Loans                         
Real Estate:                         
Commercial  $3,361   $360   $3,361   $3,505   $166 
Construction   702    -    702    843    28 
Commercial and Industrial   2,765    655    2,771    2,842    72 
Other   4    -    4    6    1 
Total Impaired Loans  $6,832   $1,015   $6,838   $7,196   $267 
                          
Loans Acquired at Fair Value                         
Real Estate:                         
Residential  $1,300   $-   $1,300   $1,320   $68 
Commercial   1,007    114    1,097    1,130    47 
Commercial and Industrial   562    31    562    684    27 
Total Impaired Loans  $2,869   $145   $2,959   $3,134   $142 
                          
Total Loans                         
Real Estate:                         
Residential  $1,300   $-   $1,300   $1,320   $68 
Commercial   4,368    474    4,458    4,635    213 
Construction   702    -    702    843    28 
Commercial and Industrial   3,327    686    3,333    3,526    99 
Other   4    -    4    6    1 
Total Impaired Loans  $9,701   $1,160   $9,797   $10,330   $409 

 

 

21

 

 

The following table presents the activity in the allowance for loan losses 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 for the periods indicated.

 

   (Dollars in thousands)
   June 30, 2017
   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
Originated Loans                                        
March 31, 2017  $1,089   $1,898   $83   $1,598   $2,256   $-   $282   $7,206 
Charge-offs   -    -    -    -    (118)   -    -    (118)
Recoveries   1    -    -    25    53    -    -    79 
Provision   (150)   119    59    137    32    -    103    300 
June 30, 2017  $940   $2,017   $142   $1,760   $2,223   $-   $385   $7,467 
                                         
Loans Acquired at Fair Value                                        
March 31, 2017  $-   $471   $-   $114   $-   $-   $(6)  $579 
Charge-offs   -    (3)   -    -    -    -    -    (3)
Recoveries   38    1    -    -    1    -    -    40 
Provision   (38)   144    -    (5)   (1)   -    (100)   - 
June 30, 2017  $-   $613   $-   $109   $-   $-   $(106)  $616 
                                         
Total Allowance for Loan Losses                                        
March 31, 2017  $1,089   $2,369   $83   $1,712   $2,256   $-   $276   $7,785 
Charge-offs   -    (3)   -    -    (118)   -    -    (121)
Recoveries   39    1    -    25    54    -    -    119 
Provision   (188)   263    59    132    31    -    3    300 
June 30, 2017  $940   $2,630   $142   $1,869   $2,223   $-   $279   $8,083 
                                         
Originated Loans                                        
December 31, 2016  $1,106   $1,942   $65   $1,579   $2,463   $-   $128   $7,283 
Charge-offs             -    -    (445)   -    -    (445)
Recoveries   5         -    36    118    -    -    159 
Provision   (171)   75    77    145    87    -    257    470 
June 30, 2017  $940   $2,017   $142   $1,760   $2,223   $-   $385   $7,467 
                                         
Loans Acquired at Fair Value                                        
December 31, 2016  $-   $365   $-   $120   $-   $-   $35   $520 
Charge-offs   (64)   (132)   -    -         -    -    (196)
Recoveries   38    1    -    -    3    -    -    42 
Provision   26    379    -    (11)   (3)   -    (141)   250 
June 30, 2017  $-   $613   $-   $109   $-   $-   $(106)  $616 
                                         
Total Allowance for Loan Losses                                        
December 31, 2016  $1,106   $2,307   $65   $1,699   $2,463   $-   $163   $7,803 
Charge-offs   (64)   (132)   -    -    (445)   -    -    (641)
Recoveries   43    1    -    36    121    -    -    201 
Provision   (145)   454    77    134    84    -    116    720 
June 30, 2017  $940   $2,630   $142   $1,869   $2,223   $-   $279   $8,083 

 

 

   June 30, 2017
   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
Originated Loans                                        
Individually Evaluated for Impairment  $-   $425   $-   $815   $-   $-   $-   $1,240 
Collectively Evaluated for
Potential Impairment
  $940   $1,592   $142   $945   $2,223   $-   $385   $6,227 
                                         
Loans Acquired at Fair Value                                        
Individually Evaluated for Impairment  $-   $-   $-   $16   $-   $-   $-   $16 
Collectively Evaluated for
Potential Impairment
  $-   $613   $-   $93   $-   $-   $(106)  $600 
                                         
Total Allowance for Loan Losses                                        
Individually Evaluated for Impairment  $-   $425   $-   $831   $-   $-   $-   $1,256 
Collectively Evaluated for
Potential Impairment
  $940   $2,205   $142   $1,038   $2,223   $-   $279   $6,827 

 

 

22

 

 

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

 

   June 30, 2016
   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
Originated Loans                                        
March 31, 2016  $1,259   $2,036   $117   $1,103   $2,176   $2   $244   $6,937 
Charge-offs   -    -    -    -    (120)   (14)   -    (134)
Recoveries   3    -    -    -    53    5    -    61 
Provision   (152)   (80)   (35)   365    34    8    51    191 
June 30, 2016  $1,110   $1,956   $82   $1,468   $2,143   $1   $295   $7,055 
                                         
Loans Acquired at Fair Value                                        
March 31, 2016  $-   $-   $-   $-   $-   $-   $36   $36 
Charge-offs   (14)   -    -    -    -    -    -    (14)
Recoveries   3    1    -    -    1    -    -    5 
Provision   11    10    -    115    (1)   -    (26)   109 
June 30, 2016  $-   $11   $-   $115   $-   $-   $10   $136 
                                         
Total Allowance for Loan Losses                                        
March 31, 2016  $1,259   $2,036   $117   $1,103   $2,176   $2   $280   $6,973 
Charge-offs   (14)   -    -    -    (120)   (14)   -    (148)
Recoveries   6    1    -    -    54    5    -    66 
Provision   (141)   (70)   (35)   480    33    8    25    300 
June 30, 2016  $1,110   $1,967   $82   $1,583   $2,143   $1   $305   $7,191 
                                         
Originated Loans                                        
December 31, 2015  $1,623   $2,045   $137   $784   $1,887   $-   $14   $6,490 
Charge-offs   (20)   -    -    -    (310)   (26)   -    (356)
Recoveries   4    -    -    -    80    11    -    95 
Provision   (497)   (89)   (55)   684    486    16    281    826 
June 30, 2016  $1,110   $1,956   $82   $1,468   $2,143   $1   $295   $7,055 
                                         
Loans Acquired at Fair Value                                        
December 31, 2015  $-   $-   $-   $-   $-   $-   $-   $- 
Charge-offs   (16)   (180)   -    -    (4)   -    -    (200)
Recoveries   5    2    -    -    5    -    -    12 
Provision   11    189    -    115    (1)   -    10    324 
June 30, 2016  $-   $11   $-   $115   $-   $-   $10   $136 
                                         
Total Allowance for Loan Losses                                        
December 31, 2015  $1,623   $2,045   $137   $784   $1,887   $-   $14   $6,490 
Charge-offs   (36)   (180)   -    -    (314)   (26)   -    (556)
Recoveries   9    2    -    -    85    11    -    107 
Provision   (486)   100    (55)   799    485    16    291    1,150 
June 30, 2016  $1,110   $1,967   $82   $1,583   $2,143   $1   $305   $7,191 

 

 

   June 30, 2016
   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
Originated Loans                                        
Individually Evaluated for Impairment  $-   $392   $-   $647   $-   $-   $-   $1,039 
Collectively Evaluated for Potential Impairment  $1,110   $1,564   $82   $821   $2,143   $1   $295   $6,016 
                                         
Loans Acquired at Fair Value                                        
Individually Evaluated for Impairment  $81   $133   $-   $-   $-   $-   $-   $214 
Collectively Evaluated for Potential Impairment  $(81)  $(122)  $-   $115   $-   $-   $10   $(78)
                                         
Total Allowance for Loan Losses                                        
Individually Evaluated for Impairment  $81   $525   $-   $647   $-   $-   $-   $1,253 
Collectively Evaluated for Potential Impairment  $1,029   $1,442   $82   $936   $2,143   $1   $305   $5,938 

 

 

23

 

 

 

   December 31, 2016
   Real  Real  Real  Commercial            
   Estate  Estate  Estate  and            
   Residential  Commercial  Construction  Industrial  Consumer  Other  Unallocated  Total
Originated Loans                                        
Individually Evaluated for Impairment  $-   $360   $-   $655   $-   $-   $-   $1,015 
Collectively Evaluated for Potential Impairment  $1,106   $1,582   $65   $924   $2,463   $-   $128   $6,268 
                                         
Loans Acquired at Fair Value                                        
Individually Evaluated for Impairment  $-   $114   $-   $31   $-   $-   $-   $145 
Collectively Evaluated for Potential Impairment  $-   $251   $-   $89   $-   $-   $35   $375 
                                         
Total Allowance for Loan Losses                                        
Individually Evaluated for Impairment  $-   $474   $-   $686   $-   $-   $-   $1,160 
Collectively Evaluated for Potential Impairment  $1,106   $1,833   $65   $1,013   $2,463   $-   $163   $6,643 

 

 

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

 

   Accretable
Discount
 
Balance at December 31, 2016  $1,640 
Accretable Yield   (407)
Nonaccretable Discount   (194)
Balance at June 30, 2017  $1,039 

 

On August 4, 2017, the Company received mortgage insurance proceeds related to an acquired loan that was previously paid-off as of June 30, 2017 from the Mortgage Guaranty Insurance Corporation ("MGIC") for approximately $218,000. This gain contingency will be recorded in the 2017 third quarter consolidated financial statements.

 

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.

 

   (Dollars in thousands)
   June 30, 2017
   Real  Real  Real  Commercial         
   Estate  Estate  Estate  and         
   Residential  Commercial  Construction  Industrial  Consumer  Other  Total
Originated Loans                                   
Individually Evaluated for Impairment  $101   $3,455   $624   $2,769   $-   $3   $6,952 
Collectively Evaluated for Potential Impairment   189,088    137,197    19,562    72,896    110,113    3,505    532,361 
   $189,189   $140,652   $20,186   $75,665   $110,113   $3,508   $539,313 
                                    
Loans Acquired at Fair Value                                   
Individually Evaluated for Impairment  $1,279   $1,168   $-   $418   $-   $-   $2,865 
Collectively Evaluated for Potential Impairment   77,079    54,460    -    8,431    197    -    140,167 
   $78,358   $55,628   $-   $8,849   $197   $-   $143,032 
                                    
Total Loans                                   
Individually Evaluated for Impairment  $1,380   $4,623   $624   $3,187   $-   $3   $9,817 
Collectively Evaluated for Potential Impairment   266,167    191,657    19,562    81,327    110,310    3,505    672,528 
   $267,547   $196,280   $20,186   $84,514   $110,310   $3,508   $682,345 

 

 

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   December 31, 2016
   Real  Real  Real  Commercial         
   Estate  Estate  Estate  and         
   Residential  Commercial  Construction  Industrial  Consumer  Other  Total
Originated Loans                                   
Individually Evaluated for Impairment  $-   $3,361   $702   $2,765   $-   $4   $6,832 
Collectively Evaluated for Potential Impairment   186,077    136,533    9,944    68,326    114,007    3,633    518,520 
   $186,077   $139,894   $10,646   $71,091   $114,007   $3,637   $525,352 
                                    
Loans Acquired at Fair Value                                   
Individually Evaluated for Impairment  $1,300   $1,007   $-   $562   $-   $-   $2,869 
Collectively Evaluated for Potential Impairment   84,211    60,109    -    9,159    197    -    153,676 
   $85,511   $61,116   $-   $9,721   $197   $-   $156,545 
                                    
Total Loans                                   
Individually Evaluated for Impairment  $1,300   $4,368   $702   $3,327   $-   $4   $9,701 
Collectively Evaluated for Potential Impairment   270,288    196,642    9,944    77,485    114,204    3,633    672,196 
   $271,588   $201,010   $10,646   $80,812   $114,204   $3,637   $681,897 

 

 

Note 5. Deposits

 

The following table shows the maturities of time deposits for the next five years and beyond at the date indicated (dollars in thousands).

 

   June 30,
Maturity Period:  2017
One Year or Less  $46,093 
Over One Through Two Years   60,182 
Over Two Through Three Years   20,309 
Over Three Through Four Years   12,893 
Over Four Through Five Years   9,156 
Over Five Years   8,718 
Total  $157,351 

 

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $45.0 million and $46.0 million as of June 30, 2017 and December 31, 2016, respectively.

 

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Note 6. Short-Term Borrowings

 

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

 

   (Dollars in thousands)
   June 30, 2017  December 31, 2016
      Weighted     Weighted
      Average     Average
   Amount  Rate  Amount  Rate
Short-term Borrowings                    
Federal Funds Purchased:                    
Average Balance Outstanding During the Period  $17    -%  $307    0.65%
Maximum Amount Outstanding at any Month End   550         6,000      
                     
FHLB Borrowings:                    
Balance at Period End   -    -    -    - 
Average Balance Outstanding During the Period   -    -    596    0.67 
Maximum Amount Outstanding at any Month End   -         6,160      
                     
Securities Sold Under Agreements to Repurchase:                    
Balance at Period End   25,450    0.25    27,027    0.24 
Average Balance Outstanding During the Period   26,332    0.30    26,311    0.26 
Maximum Amount Outstanding at any Month End   26,460         30,095      
                     
Securities Collaterizing the Agreements at Period-End:                    
Carrying Value   32,499         33,785      
Market Value   31,834         32,931      

 

 

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.

 

   (Dollars in thousands)
   June 30, 2017  December 31, 2016
      Weighted     Weighted
      Average     Average
   Amount  Rate  Amount  Rate
Due in One Year  $3,500    1.35%  $-    -% 
Due After One Year to Two Years   4,000    1.67    3,500    0.94 
Due After Two Years to Three Years   6,000    1.88    4,500    1.41 
Due After Three Years to Four Years   5,000    2.09    6,000    1.78 
Due After Four Years to Five Years   3,000    2.23    6,000    1.97 
Due After Five Years   3,000    2.41    8,000    2.27 
Total  $24,500    1.92   $28,000    1.80 

 

As of June 30, 2017, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $285.0 million with the FHLB. 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 $143.1 million and $148.5 million as of June 30, 2017 and December 31, 2016, respectively.

 

The Company maintains a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $87.9 million that requires quarterly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by commercial and consumer indirect auto loans. The Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling $40.0 million. As of June 30, 2017 and December 31, 2016, no draws had been taken on these facilities.

 

26

 

 

Note 8. Commitments and Contingent Liabilities

 

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

 

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

 

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.

 

   (Dollars in thousands)
   June 30,  December 31,
   2017  2016
Standby Letters of Credit  $41,147   $36,657 
Performance Letters of Credit   4,396    2,471 
Construction Mortgages   32,485    21,363 
Personal Lines of Credit   6,139    5,905 
Overdraft Protection Lines   6,183    5,680 
Home Equity Lines of Credit   15,286    14,722 
Commercial Lines of Credit   64,303    51,725 
   $169,939   $138,523 

 

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 9. 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 I – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.

 

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Level II –Fair value is based on significant inputs, other than Level I inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level II 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 III –Fair value would be based on significant unobservable inputs. Examples of valuation methodologies that would result in Level III 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 II of the fair value hierarchy. Fair values for Level II 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.

 

      (Dollars in thousands)
   Fair Value  June 30,  December 31,
   Hierarchy  2017  2016
Available for Sales Securities:               
U.S. Government Agencies   Level II   $65,286   $66,156 
Obligations of States and Political Subdivisions   Level II    36,727    35,735 
Mortgage-Backed Securities - Government-Sponsored Enterprises   Level II    12,883    2,619 
Equity Securities - Mutual Funds   Level I    507    507 
Equity Securities - Other   Level I    1,142    1,191 
Total Available for Sale Securities       $116,545   $106,208 

 

 

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 I inputs or observable inputs, employed by certified appraisers, for similar assets classified as Level II 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 III inputs.

 

      (Dollars in thousands)         
      Fair Value at        Significant
Financial Asset  Fair Value
Hierarchy
  June 30,
2017
  December 31,
2016
  Valuation
Techniques
  Significant
Unobservable Inputs
  Unobservable 
Input Value
Impaired Loans  Level III  $2,455   $2,497   Market Comparable Properties  Marketability Discount  10% to 30% (1)
OREO  Level III   155    -   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 III in the fair value hierarchy. At June 30, 2017 and December 31, 2016, the fair value of impaired loans consists of the loan balances of $3.7 million and $3.7 million, respectively, less their specific valuation allowances of $1.3 million and $1.2 million, respectively.

 

Other real estate owned (OREO) properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, other real estate owned is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an other real estate owned property is determined from a qualified independent appraisal and is classified as Level III in the fair value hierarchy. During the six months ended June 30, 2017, one residential real estate loan for $155,000 moved into OREO. During the six months ended June 30, 2016, two commercial real estate properties for $3.2 million were foreclosed on, moved into OREO, evaluated for fair value and recorded a prior first quarter gain on the valuation adjustment on foreclosed real estate for approximately $566,000. This recognized gain on the valuation adjustment was supported by independent appraisals of the two properties. One property was subject to a tentative sales agreement with a current customer which closed in the prior year. The other property was transferred into premises and equipment of the Company due to its location and the Company’s need of a new headquarters location.

 

28

 

 

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 Company employs simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices are not available, based upon the following assumptions:

 

Cash and Due From Banks, Restricted Stock, Bank-Owned Life Insurance, Accrued Interest Receivable, Short-Term Borrowings, and Accrued Interest Payable

 

The fair value is equal to the current carrying value.

 

Investment Securities

 

The fair value of investment securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted prices.

 

Loans Receivable

 

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans are estimated using discounted cash flow analyses, using market interest rates for comparable loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

 

Deposit Liabilities

 

The fair values disclosed for demand deposits, are, by definition, equal to the amount payable on demand at the reporting date. The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

 

Borrowed Funds

 

Fair values of borrowed funds are estimated using discounted cash flow analyses based on current market rates for similar types of borrowing arrangements.

 

Commitments to Extend Credit

 

These financial instruments are generally not subject to sale and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 8.

 

29

 

 

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

 

      (Dollars in thousands)
      June 30, 2017  December 31, 2016
   Fair Value  Carrying  Fair  Carrying  Fair
   Hierarchy  Value  Value  Value  Value
Financial Assets:                         
Cash and Due From Banks:                         
Interest Bearing   Level I   $17,464   $17,464   $7,699   $7,699 
Non-Interest Bearing   Level I    11,209    11,209    6,583    6,583 
Investment Securities:                         
Available for Sale   See Above    116,545    116,545    106,208    106,208 
Loans, Net   Level III    674,262    685,730    674,094    684,777 
Restricted Stock   Level II    3,628    3,628    3,665    3,665 
Bank-Owned Life Insurance   Level II    18,919    18,919    18,687    18,687 
Accrued Interest Receivable   Level II    2,350    2,350    2,441    2,441 
                          
Financial Liabilities:                         
Deposits   Level II    727,059    706,817    698,218    697,806 
Short-term Borrowings   Level II    25,450    25,450    27,027    27,027 
Other Borrowed Funds   Level II    24,500    24,644    28,000    28,098 
Accrued Interest Payable   Level II    338    338    334    334 

 

 

Note 10. Other Noninterest Expense

 

In accordance with SEC Regulation S-X, other noninterest expense that exceeds 10% of total noninterest expense is required to be disclosed by detailed expenses. The details for other noninterest expense for the Company’s consolidated statement of income for the three and six months ended June 30, 2017 and 2016, are as follows:

 

   (Dollars in thousands)
   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2017  2016  2017  2016
Other Noninterest Expense                    
Non-employee compensation  $100   $134   $200   $267 
Printing and supplies   100    134    202    208 
Postage   64    44    130    103 
Telephone   99    97    188    181 
Charitable contributions   56    41    80    69 
Dues and subscriptions   55    46    118    93 
Loan expenses   86    73    160    143 
Meals and entertainment   43    34    68    58 
Travel   43    40    69    70 
Training   9    6    20    18 
Miscellaneous   174    242    404    462 
Total Other Noninterest Expense  $829   $891   $1,639   $1,672 

 

 

30

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

Forward-Looking Statements

 

This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:

 

·General and local economic conditions;
·Changes in interest rates, deposit flows, demand for loans, real estate values and competition;
·Competitive products and pricing;
·The ability of our customers to make scheduled loan payments;
·Loan delinquency rates;
·Our ability to manage the risks involved in our business;
·Our ability to integrate the operations of businesses we acquire;
·Inflation, market and monetary fluctuations;
·Our ability to control costs and expenses; and
·Changes in federal and state legislation and regulation (i.e. the effect of new capital standards imposed by banking regulators and the implementation of the Dodd-Frank Act).

 

The Company uses the current statutory tax rate of 34.0% to value its deferred tax assets and liabilities. On April 26, 2017, the Trump Administration announced a comprehensive tax reform proposal that includes a reduction in the U.S. corporate income tax rate to 15.0%. If corporate tax rates were reduced, management expects the Company would be required to record an initial charge against earnings to lower the carrying amount of its net deferred tax asset, and then, going forward, would record lower tax provisions on an ongoing basis. The proposal is at the beginning stages of negotiations and will need to be addressed by both houses of Congress. It is too early in the process to determine if any of the proposals are actionable. Accordingly, management cannot assess the effect a change in the corporate tax rate would have on Company’s operating results or financial position at the present time.

 

The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

 

General

 

CB Financial Services, Inc. is a bank holding company established in 2006. CB Financial’s business activity is conducted through its wholly owned banking subsidiary Community Bank.

 

The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from 16 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern 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. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, Inc., the Bank’s wholly-owned subsidiary that is a full-service, independent insurance agency.

 

On October 31, 2014, the Company completed its merger with FedFirst Financial Corporation (“FedFirst” or the “merger”), the holding company for First Federal Savings Bank, a community bank based in Monessen, Pennsylvania. The merger resulted in the addition of five branches and expanded the Company’s reach into Fayette and Westmoreland counties in southwestern Pennsylvania.

 

The Bank’s website address is www.communitybank.tv. Information on the website is not and should not be considered a part of this Form 10-Q.

 

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Overview

 

The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of June 30, 2017 compared to the financial condition as of December 31, 2016 and the consolidated results of operations for the three months ended June 30, 2017 and 2016.

 

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, fees and charges on loans, insurance commissions, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, contracted services, legal fees, other real estate owned, advertising and promotion, stationery and supplies, deposit and general insurance and other expenses.

 

Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in the southwestern Pennsylvania market area.

 

Statement of Financial Condition Analysis

 

Assets. Total assets increased $26.3 million, or 3.1%, to $872.4 million at June 30, 2017 compared to $846.1 million at December 31, 2016.

 

Investment securities classified as available-for-sale increased $10.3 million, or 9.7%, to $116.5 million at June 30, 2017 compared to $106.2 million at December 31, 2016. This increase was primarily the result of security purchases funded by deposit growth.

 

Loans, net, increased $168,000, or 0.02%, to $674.3 million at June 30, 2017 compared to $674.1 million at December 31, 2016. This was primarily due to net loan originations of $9.5 million of construction loans and $3.7 million of commercial and industrial loans, partially offset by net loan payoffs of $4.7 million on commercial real estate loans, $4.0 million on residential mortgage loans and $3.9 million on consumer loans (mainly indirect auto loans). The net loan originations offset normal loan payoffs throughout the current period.

 

Premises and equipment, net, increased $2.4 million, or 17.1%, to $16.5 million at June 30, 2017 compared to $14.1 million at December 31, 2016. This is due to the additions related to the new Operations Center that was placed into service in the current period.

 

Liabilities. Total liabilities increased $23.9 million, or 3.2%, to $780.5 million at June 30, 2017 compared to $756.6 million at December 31, 2016.

 

Total deposits increased $28.8 million, or 4.1%, to $727.1 million at June 30, 2017 compared to $698.2 million at December 31, 2016. There were increases of $15.7 million in NOW accounts, $15.6 million in demand deposits, $9.7 in savings accounts and $2.3 million in time deposits, partially offset by decreases of $9.2 million in money market accounts and $5.2 million in brokered deposits. Due to the rising interest rate environment, the Bank has been selective on offering promotional interest rates and has concentrated its efforts on increasing noninterest-bearing accounts by building strong customer relationships. In addition, school district and municipal deposits increased $9.0 million due to building stronger customer relationships with these depositors and new accounts.

 

Short-term borrowings decreased $1.6 million, or 5.8%, to $25.5 million at June 30, 2017 compared to $27.0 million at December 31, 2016. At June 30, 2017, short-term borrowings were comprised of $25.5 million of securities sold under agreements to repurchase compared to $27.0 million at December 31, 2016. The decrease is related to business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase. Other borrowed funds decreased by $3.5 million due to a maturing FHLB long-term borrowing that was retired in the current period. As a result of current period activity, the weighted average interest rate on long-term borrowings increased by 12 basis points to 1.92%.

 

Stockholders’ Equity. Stockholders’ equity increased $2.4 million, or 2.7%, to $91.9 million at June 30, 2017 compared to $89.5 million at December 31, 2016. During the period, net income was $3.5 million and the Company paid $1.8 million in dividends to stockholders.

 

32

 

 

Results of Operations for the Three Months Ended June 30, 2017 and 2016

 

Overview. Net income decreased $137,000, to $1.8 million, for the three months ended June 30, 2017 compared to $1.9 million for the three months ended June 30, 2016. The quarterly results benefited from an increase in noninterest income related to continued insurance commissions and additional contingency fees received by Exchange Underwriters in the current quarter. Detracting from the quarterly results were an increase in noninterest expense and a decrease in net interest income. In addition, a charitable donation of a former Bank building to a local municipality resulted in additional tax benefit in the current quarter. Quarterly pre-tax income decreased by $231,000 due in part by the pre-tax gain recognized in the first quarter of 2016 because of the successful resolution of two problem commercial real estate loans. In the case of each of these loans, the Bank took ownership of the collateral, then sold one property at a gain and took the other property into fixed assets based on an appraised fair market value. As a result of these two events OREO expense decreased by $566,000 in the first quarter of 2016.

 

Net Interest Income. Net interest income decreased $113,000, or 1.6%, to $7.1 million for the three months ended June 30, 2017 compared to $7.2 million for the three months ended June 30, 2016.

 

Interest and dividend income decreased $1,000, or 0.01%, to $7.9 million for the three months ended June 30, 2017 compared to $8.0 million for the three months ended June 30, 2016. Interest income on loans decreased $94,000 for the three months ended June 30, 2017 compared to the three months ended June 30, 2016. Despite the overall increase in average loans of $697,000, the loan portfolio had a decrease of 8 basis points in yield. Contributing to the yield decrease this quarter was the accretion on the acquired loan portfolio credit mark. The positive impact of the accretion for the three months ended June 30, 2017 was $173,000, or 10 basis points compared to $381,000, or 23 basis points for the three months ended June 30, 2016. The remaining credit mark balance for acquired loans was $1.0 million as of June 30, 2017. Loan payoffs within the entire loan portfolio have also been a factor in the interest income on loans decrease. Interest income on securities exempt from federal tax decreased $47,000 due to deploying proceeds from security calls and maturities into higher yielding taxable security purchases in the current period. There was a decrease of $3.5 million in the average balance on securities exempt from federal tax and a decrease of 40 basis points in yield as a result of security calls and maturities that had higher yields. Interest income on taxable securities increased $79,000 mainly due to an increase of $27.7 million in the average balance for taxable securities in the current period. The increase in the average balance offset a decrease of 39 basis points in yield on taxable securities. This is a result of new purchases with lower prevailing yields replacing security calls and maturities with higher yields within the portfolio. Interest income on Federal funds sold increased to $41,000 for the three months ended June 30, 2017 compared to $8,000 for the three months ended June 30, 2016. This is the result of the increase in interest rates in the last year and the increases in the average interest-earning balances of $14.1 million for the three months ended June 30, 2017. In addition, other interest and dividend income increased $28,000 as a result of increased interest earned with correspondent deposit banks and FHLB dividends in the current period.

 

Interest expense increased $112,000, or 16.0%, to $814,000 for the three months ended June 30, 2017 compared to $702,000 for the three months ended June 30, 2016. Interest expense on deposits increased $115,000 due to an increase in average interest-bearing deposits of $30.4 million, primarily due to increases in time deposits, interest-bearing demand deposit and savings accounts. The average cost of interest-bearing deposits increased 6 basis points collectively. This was related to the multiple interest rate hikes over the last year by the Federal Reserve Board (“FRB”). Interest expense on short-term borrowings increased $5,000 mainly due to increased interest rates on securities sold under agreements to repurchase. Interest expense on other borrowed funds decreased $8,000 primarily due to a FHLB long-term borrowing for $3.5 million that matured in the prior quarter.

 

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Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 34%. As such, amounts will not agree to income as reported in the consolidated financial statements. Average balances for loans are net of the allowance for loan losses, but include non-accrual loans. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented.

 

   (Dollars in thousands) (Unaudited) 
   Three Months Ended June 30, 
   2017   2016 
       Interest           Interest     
   Average   and   Yield/   Average   and   Yield/ 
   Balance   Dividends   Cost (1)   Balance   Dividends   Cost (1) 
Assets:                              
Interest-Earning Assets:                              
Loans, Net  $670,231   $7,251    4.34%  $669,534   $7,352    4.42%
Investment Securities                              
Taxable   81,409    386    1.90    53,716    307    2.29 
Exempt From Federal Tax   35,529    325    3.66    39,016    396    4.06 
Other Interest-Earning Assets   30,666    115    1.50    16,579    54    1.31 
Total Interest-Earning Assets   817,835    8,077    3.96    778,845    8,109    4.19 
Noninterest-Earning Assets   57,904              52,616           
Total Assets  $875,739             $831,461           
                               
Liabilities and Stockholders' equity:                              
Interest-Bearing Liabilities:                              
Interest-Bearing Demand Deposits  $125,695    78    0.25%  $114,549    49    0.17%
Savings   129,719    60    0.19    124,473    57    0.18 
Money Market   136,026    88    0.26    144,195    91    0.25 
Time Deposits   159,309    449    1.13    137,174    363    1.06 
Total Interest-Bearing Deposits   550,749    675    0.49    520,391    560    0.43 
                               
Borrowings   51,070    139    1.09    53,443    142    1.07 
Total Interest-Bearing Liabilities   601,819    814    0.54    573,834    702    0.49 
                               
Noninterest-Bearing Demand Deposits   178,478              164,750           
Other Liabilities   3,617              3,765           
Total Liabilities   783,914              742,349           
                               
Stockholders' Equity   91,825              89,112           
Total Liabilities and                              
Stockholders' Equity  $875,739             $831,461           
                               
Net Interest Income       $7,263             $7,407      
                               
Net Interest Rate Spread (2)             3.42%             3.70%
Net Interest-Earning Assets (3)  $216,016             $205,011           
Net Interest Margin (4)             3.56              3.82 
Return on Average Assets             0.82              0.94 
Return on Average Equity             7.87              8.75 
Average Equity to Average Assets             10.49              10.72 
Average Interest-Earning Assets to Average Interest-Bearing Liabilities             135.89              135.73 

 

(1)Annualized.
(2)Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)Net interest margin represents net interest income divided by average total interest-earning assets. Interest income and yields are on a fully tax equivalent basis utilizing a marginal tax rate of 34%.

 

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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 34%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.

 

   (Dollars in thousands) 
   Three Months Ended June 30, 2017 
   Compared To 
   Three Months Ended June 30, 2016 
   Increase (Decrease) Due to 
   Volume   Rate   Total 
             
Interest and Dividend Income:               
Loans, net  $33   $(134)  $(101)
Investment Securities:               
Taxable   138    (59)   79 
Exempt From Federal Tax   (34)   (37)   (71)
Other Interest-Earning Assets   52    9    61 
Total Interest-Earning Assets   189    (221)   (32)
                
Interest Expense:               
Deposits   33    82    115 
Borrowings   (6)   3    (3)
Total Interest-Bearing Liabilities   27    85    112 
Change in Net Interest Income  $162   $(306)  $(144)

 

Provision for Loan Losses. The provision for loan losses was $300,000 for the three months ended June 30, 2017 and for the three months ended June 30, 2016. Net charge-offs for the three months ended June 30, 2017 were $2,000, which included $49,000 of net charge-offs on automobile loans, compared to $83,000 of net charge-offs, which included $66,000 of net charge-offs on automobile loans for the three months ended June 30, 2016. The decrease in net charge-offs during the current period was due to recoveries of $46,000 on automobile loans, $39,000 for residential mortgages and $25,000 for a commercial and industrial loan relationship. Management analyzes the loan portfolio on a quarterly basis to determine the adequacy of the allowance for loan losses and the need for additional provisions for loan losses. It was determined that the current quarter provision remained constant for the three months ended June 30, 2017 and 2016. This was due to improvements in the loan department along with loan personnel experience, and the local economy which had a positive impact on the qualitative factors within the allowance calculation. In addition, average loans increased marginally during the current period compared to the prior period, which was a contributing factor in keeping the provision constant.

 

Noninterest Income. Noninterest income increased $98,000, or 5.2% to $2.0 million for the three months ended June 30, 2017 compared to $1.9 million for the three months ended June 30, 2016. Insurance commissions from Exchange Underwriters increased $99,000 due to increased commercial lines commission and fee income and contingency fees received in the current period. Contingency fees are commissions that are contingent upon several factors including, but not limited to, eligible written premiums, earned premiums, incurred losses and stop loss charges. Service fees on deposit accounts increased $19,000 due to increased non sufficient funds (“NSF”) fees due to customer overdrafts of deposit accounts. Net gains on purchased tax credits increased $15,000 due to the purchased Pennsylvania shares tax credits being recognized in the current period. Net gains on the sales of investments increased $12,000 due to the sale of equity securities. These sales were transacted to recognize capital gains that will be offset by a capital loss carry forward deferred tax asset that was acquired in the merger with FedFirst. The capital loss carry forward deferred tax asset has been has been fully recognized in the current period. Partially offsetting these increases was a decrease in the net gains on the sales of residential mortgage loans of $23,000. The decrease in gains was primarily due to a decrease in the number of loans originated and subsequently sold to the FHLB as part of the Mortgage Partnership Finance® (“MPF®”) program. The MPF® program enables member financial institutions to offer competitive interest rates for fixed-rate mortgage loans without assuming any of the interest rate risk associated with a long-term asset. In addition, there was a decrease of $16,000 in other income due to FHLB sold loan services fees recognized in the current quarter.

 

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Noninterest Expense. Noninterest expense increased $216,000, or 3.5%, to $6.3 million for the three months ended June 30, 2017 compared to $6.1 million for the three months ended June 30, 2016. Occupancy increased $166,000 primarily due to accelerated depreciation taken on leasehold improvements in the Bank’s former operations center that did not transfer over to the new Ralph J. Sommers Jr. Operations Center (“Operations Center”). The new Operations Center was completed and placed into bank operations during the current quarter. Other increases in occupancy were related to property insurance, moving and landscaping expenses. Salaries and employee benefits increased $139,000 primarily due to normal salary increases, retirement benefits expense and employee stock options. This increase was partially offset by decreases in restricted stock awards and miscellaneous compensation expenses. Equipment increased $41,000 due to equipment purchases and new maintenance contracts for the Operations Center. This was partially offset by other noninterest expense which decreased $62,000 primarily due to reduced overdraft and debit card fraud losses, customer supplies and non-employee restricted stock awards. The Federal Deposit Insurance Corporation (“FDIC”) assessment expense decreased $33,000 due to an assessment factor reduction by the FDIC in the computation of the insurance assessment. Pennsylvania shares tax decreased $17,000 due to the prior period shares tax accrual that anticipated a shares tax rate increase in 2016 that subsequently became effective in 2017.

 

Income Tax Expense. Income taxes decreased $94,000 to $696,000 for the three months ended June 30, 2017 compared to $790,000 for the three months ended June 30, 2016. The effective tax rate for the three months ended June 30, 2017 was 27.9% compared to 29.0% for the three months ended June 30, 2016. The decrease in income taxes was partially due to a decrease of $231,000 in pre-tax income. The decrease in the effective tax rate was related to a favorable tax preference charitable donation of a former First Federal Savings Bank building to the City of Monessen, Pennsylvania that was acquired in the merger with FedFirst.

 

Results of Operations for the Six Months Ended June 30, 2017 and 2016

 

Overview. Net income decreased $478,000, to $3.5 million, for the three months ended June 30, 2017 compared to $4.0 million for the three months ended June 30, 2016.

 

Net Interest Income. Net interest income decreased $538,000 , or 3.7%, to $14.1 million for the six months ended June 30, 2017 compared to $14.7 million for the six months ended June 30, 2016.

 

Interest and dividend income decreased $333,000, or 2.1%, to $15.7 million for the six months ended June 30, 2017 compared to $16.1 million for the six months ended June 30, 2016. Interest income on loans decreased $449,000 primarily due to a decrease in average loans outstanding of $5.9 million. The decrease in average loans was due to loan runoff within the commercial and installment loan portfolios, partially offset by increases in indirect auto, line of credit, student and mortgage loans mainly due to loan originations. The accretion on the acquired loan portfolio credit mark for the six months ended June 30, 2017 was $406,000, or 12 basis points compared to $773,000, or 23 basis points for the six months ended June 30, 2016. Interest income on securities exempt from federal tax decreased $90,000 due to deploying proceeds from security calls and maturities into purchasing taxable securities with higher earning yields in the current year. There was a decrease of $3.1 million in the average balance on securities exempt from federal tax and a decrease of 42 basis points in yield as a result of security calls and maturities that had higher yields. Interest income on taxable securities increased $116,000 despite a decrease of 41 basis points in yield from new purchases and from higher yields on the existing securities in the portfolio. The average balance for taxable securities increased $24.1 million for the six months ended June 30, 2017. Other interest and dividend income increased $47,000 primarily due to increased interest earned with correspondent deposit banks and FHLB dividends in the current period. Federal Funds sold increased $43,000 for the six months ended June 30, 2017. This is the direct result of the end of the historically low interest rates in the last year and the increases in the average interest-earning balances to $12.5 million for the six months ended June 30, 2017.

 

Interest expense increased $205,000, or 14.6%, to $1.6 million for the six months ended June 30, 2017 compared to $1.4 million for the six months ended June 30, 2016. Interest expense on deposits increased $209,000 due to increases in the discount interest rate by the FRB and average interest-bearing deposits of $21.6 million which we attribute primarily to time deposits, interest-bearing demand deposits and savings accounts. The average cost of interest-bearing deposits increased 6 basis points. In addition, short-term borrowings increased $10,000 in the current period due to increased interest rates on securities sold under agreements to repurchase. Interest expense on other borrowed funds decreased $13,000 due to a decrease in long-term borrowings as a result of a FHLB long-term borrowing for $3.5 million that matured in the current period.

 

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Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Tax-equivalent yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal tax rate of 34%. Average balances for loans are net of the allowance for loan losses, but include non-accrual loans. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented and are expressed in annualized rates.

 

   (Dollars in thousands) (Unaudited) 
   Six Months Ended June 30, 
   2017   2016 
       Interest           Interest     
   Average   and   Yield/   Average   and   Yield/ 
(Dollars in thousands)  Balance   Dividends   Cost (1)   Balance   Dividends   Cost (1) 
Assets:                        
Interest-Earning Assets:                              
Loans, Net  $668,606   $14,415    4.35%  $674,513   $14,878    4.44%
Investment Securities                              
Taxable   78,741    747    1.90    54,651    631    2.31 
Exempt From Federal Tax   35,561    648    3.64    38,636    784    4.06 
Other Interest-Earning Assets   25,147    186    1.49    12,664    96    1.52 
Total Interest-Earning Assets   808,055    15,996    3.99    780,464    16,389    4.22 
Noninterest-Earning Assets   57,107              53,463           
Total Assets  $865,162             $833,927           
                               
Liabilities and Stockholders' equity:                              
Interest-Bearing Liabilities:                              
Interest-Bearing Demand Deposits  $122,141    147    0.24%  $116,112    97    0.17%
Savings   127,141    116    0.18    123,908    113    0.18 
Money Market   139,273    181    0.26    145,240    181    0.25 
Time Deposits   158,610    886    1.13    140,260    730    1.05 
Total Interest-Bearing Deposits   547,165    1,330    0.49    525,520    1,121    0.43 
                               
Borrowings   51,894    280    1.09    52,886    284    1.08 
Total Interest-Bearing Liabilities   599,059    1,610    0.54    578,406    1,405    0.49 
                               
Noninterest-Bearing Demand Deposits   171,507              163,002           
Other Liabilities   3,550              4,028           
Total Liabilities   774,116              745,436           
                               
Stockholders' Equity   91,046              88,491           
Total Liabilities and Stockholders' Equity  $865,162             $833,927           
                               
Net interest income       $14,386             $14,984      
                               
Net Interest Rate Spread (2)             3.45%             3.73%
Net Interest-Earning Assets (3)  $208,996             $202,058           
Net Interest Margin (4)             3.59              3.86 
Return on Average Assets             0.82              0.96 
Return on Average Equity             7.76              9.05 
Average Equity to Average Assets             10.52              10.61 
Average Interest-Earning Assets to Average Interest-Bearing Liabilities             134.89              134.93 

 

(1)Annualized.
(2)Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)Net interest margin represents net interest income divided by average total interest-earning assets. Interest income and yields are on a fully tax equivalent basis utilizing a marginal tax rate of 34%.

 

37

 

 

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.

 

   (Dollars in thousands)
   Six Months Ended June 30, 2017
   Compared To
   Six Months Ended June 30, 2016
   Increase (Decrease) Due to
(Dollars in thousands)  Volume   Rate   Total 
             
Interest and Dividend Income:               
Loans, net  $(164)  $(299)  $(463)
Investment Securities:               
Taxable   242    (126)   116 
Exempt From Federal Tax   (58)   (78)   (136)
Other Interest-Earning Assets   92    (2)   90 
Total Interest-Earning Assets   112    (505)   (393)
                
Interest Expense:               
Deposits   48    161    209 
Borrowings   (7)   3    (4)
Total Interest-Bearing Liabilities   41    164    205 
Change in Net Interest Income  $71   $(669)  $(598)

 

 

Provision for Loan Losses. The provision for loan losses decreased $430,000 to $720,000, for the six months ended June 30, 2017, of which $250,000 was attributed to the acquired loan portfolio, compared to $1.2 million of provision for loan losses for the six months ended June 30, 2016. Net charge-offs for the six months ended June 30, 2017 were $440,000, which included $287,000 of net charge-offs on automobile loans, compared to net charge-offs of $450,000, which included $229,000 of net charge-offs on automobile loans, for the six months ended June 30, 2016. Management analyzes the loan portfolio on a quarterly basis to determine the adequacy of the allowance for loan losses and the need for an increase or reduction in provision for loan losses for the six months ended June 30, 2017. There was minimal loan growth and increased loan portfolio performance compared to the prior year. As the acquired loan portfolio has loan payoffs, paydowns and accretion of the credit mark, the need for additional provision may be required based on our loan loss analysis.

 

Noninterest Income. Noninterest income increased $327,000, or 8.8%, to $4.0 million for the six months ended June 30, 2017 compared to $3.7 million at June 30, 2016. There was a $313,000 increase in insurance commissions from Exchange Underwriters due to additional contingency fees received and an increase in commercial commission and fee income received in the current period. Net gains on the sales of investments increased $64,000 due to the sale of equity securities. These sales were transacted to recognize capital gains that will be offset by a capital loss carry forward deferred tax asset that was acquired in the merger. The capital loss carry forward deferred tax asset has been fully recognized in the current period. Net gains on purchased tax credits increased $29,000 due to purchased Pennsylvania shares tax credits being recognized in the current period. Service fees on deposit accounts increased $17,000 primarily due to increased NSF fees due to customer overdrafts of deposit accounts. There was a decrease in the net gains on sales of residential mortgage loans of $57,000. The decrease in gains was primarily due to a decrease in the number of loans originated and subsequently sold to the FHLB as part of the MPF® programs. Other commissions decreased $18,000 primarily due to decreases in merchant services and check sales fees in the current period. Other miscellaneous income decreased $14,000 primarily due to increases in amortization on mortgage servicing rights related to loans sold to the FHLB. This was partially offset by an increase in the servicing income received from mortgage loans sold to the FHLB as part of the MPF® program.

 

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Noninterest Expense. Noninterest expense increased $919,000, or 7.9%, to $12.5 million for the six months ended June 30, 2017 compared to $11.6 million for the six months ended June 30, 2016. Salaries and employee benefits increased $259,000, primarily due to additional employees, normal salary increases, retirement benefits and employee stock options. This was partially offset by decreases in group health insurance expense and restricted stock awards expense. Occupancy and equipment increased $240,000 and $58,000, respectively, primarily due to accelerated depreciation taken on leasehold improvements in the Bank’s former operations center that will not transfer over to the new Operations Center that was placed into service in the current period. Other increases for occupancy were related to real estate taxes, moving expenses, utilities and property insurance. Equipment expense increases were mainly due to equipment purchases and new maintenance contracts for the Operations Center. Other real estate owned expense was $6,000 in the current period compared to $535,000 of income in the prior period resulting in an increase of $541,000 in expense. This change is primarily due to the $566,000 pre-tax gain recognized due to the foreclosure procedures on two commercial real estate loans that moved into other real estate owned properties in the first quarter of 2016. The FDIC assessment decreased $78,000 due to an assessment factor reduction by the FDIC in the computation of the insurance assessment. Advertising decreased $47,000 related to decreases in print/media advertising and promotional items as a cost savings initiative. Other noninterest expense decreased $33,000 primarily due to decreases in various miscellaneous expenses, such as donations, non-employee restricted stock awards and a Pennsylvania state sales tax refund as a result of a Bank initiated reverse audit. Pennsylvania shares tax, which is calculated based on the Bank’s stockholders’ equity, decreased $29,000 due to the prior period shares tax accrual that anticipated a shares tax rate increase in 2016 that subsequently became effective in 2017.

 

Income Tax Expense. Income taxes decreased $222,000 to $1.4 million for the six months ended June 30, 2017 compared to $1.6 million for the six months ended June 30, 2016. The effective tax rate for the six months ended June 30, 2017 was 28.9% compared to 29.3% for the six months ended June 30, 2016. The decrease in income taxes was primarily due to a decrease of $700,000 in pre-tax income. The decrease in the effective tax rate was related to the favorable tax preference charitable donation of a former First Federal Savings Bank building to the City of Monessen, Pennsylvania, partially offset by the decrease in tax exempt income and the expiration of the low income housing tax credit program in the current period.

 

Off-Balance Sheet Arrangements.

Other than loan commitments and standby and performance letters of credit, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a significant current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Refer to Note 8 in the Notes to Consolidated Financial Statements for a summary of commitments outstanding as of June 30, 2017.

 

Liquidity and Capital Management

 

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

 

The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity at June 30, 2017 to satisfy its short- and long-term liquidity needs at that date.

 

The Company’s most liquid assets are cash and due from banks, which totaled $28.7 million at June 30, 2017. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Unpledged securities, which provide an additional source of liquidity, totaled $36.0 million at June 30, 2017. In addition, at June 30, 2017, the Company had the ability to borrow up to $285.0 million from the FHLB of Pittsburgh, of which $24.5 million was outstanding and $39.9 million was utilized toward standby letters of credit. The Company also has the ability to borrow up to $87.9 million from the FRB through its Borrower-In-Custody line of credit agreement and $40.0 million from multiple line of credit arrangements with various banks, none of which were outstanding.

 

At June 30, 2017, time deposits due within one year of that date totaled $46.1 million, or 29.3% of total time deposits. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these certificates of deposit. The Company believes, however, based on past experience that a significant portion of its certificates of deposit will remain with it, either as certificates of deposit or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered.

 

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CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank’s ability to pay dividends to CB Financial is subject to regulatory limitations. At June 30, 2017, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $1.8 million.

 

We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLB, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the FHLB in the future.

 

Capital Management. The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

 

Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The capital conservation buffer, which is composed of common equity Tier I capital, began on January 1, 2017 at the 0.625% level and will be phased in over a three year period (increasing by that amount on each January 1, until it reaches 2.5% on January 1, 2019).

 

At June 30, 2017 and December 31, 2016, the Company was categorized as well capitalized under the regulatory framework for prompt corrective action. The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized as of the dates indicated.

 

   (Dollars in thousands)
   June 30, 2017   December 31, 2016
   Amount   Ratio   Amount   Ratio
Common Equity Tier 1 (to risk weighted assets)                    
Actual  $83,099    13.44%  $81,845    13.38%
For Capital Adequacy Purposes   27,822    4.50    27,533    4.50 
To Be Well Capitalized   40,188    6.50    39,770    6.50 
                     
Tier 1 Capital (to risk weighted assets)                    
Actual   83,099    13.44    81,845    13.38 
For Capital Adequacy Purposes   37,097    6.00    36,711    6.00 
To Be Well Capitalized   49,462    8.00    48,947    8.00 
                     
Total Capital (to risk weighted assets)                    
Actual   90,834    14.69    89,497    14.63 
For Capital Adequacy Purposes   49,462    8.00    48,947    8.00 
To Be Well Capitalized   61,828    10.00    61,184    10.00 
                     
Tier 1 Leverage (to adjusted total assets)                    
Actual   83,099    9.58    81,845    9.80 
For Capital Adequacy Purposes   34,710    4.00    33,390    4.00 
To Be Well Capitalized   43,387    5.00    41,738    5.00 

 

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

 

The Company believes that as of June 30, 2017, there was no material change in the quantitative and qualitative disclosure about market risk data as of December 31, 2016, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

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Item 4. Controls and Procedures.

 

CB Financial’s management, including CB Financial’s principal executive officer and principal financial officer, have evaluated the effectiveness of CB Financial’s “disclosure controls and procedures” as such term is defined in Rule 13a-15(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, CB Financial’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that CB Financial files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to CB Financial’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

 

There have been no changes in CB Financial’s internal control over financial reporting during the quarter ended June 30, 2017, that has materially affected, or is reasonably likely to materially affect, CB Financial’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, claims seeking damages for improper collection procedures or misrepresentations, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any other pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

 

31.1Rule 13a-14(a) / 15d-14(a) Certification (Chief Executive Officer)
31.2Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer)
32.1Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Chief Financial Officer Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0The following materials for the quarter ended June 30, 2017, formatted in XBRL (Extensible Business Reporting Language); (i) the Consolidated Statement of Financial Condition, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Stockholders’ Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to the Unaudited Consolidated Financial Statements

 

 

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SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

      CB FINANCIAL SERVICES, INC.
      (Registrant)
       
Date:   August 9, 2017   /s/ Barron P. McCune, Jr.
      Barron P. McCune, Jr.
      Chief Executive Officer
       
Date:   August 9, 2017   /s/ Kevin D. Lemley
      Kevin D. Lemley
      Executive Vice President and Chief Financial Officer
      (Principal Financial Officer and Chief Accounting Officer)

 

 

 

 

 

 

 

 

 

 

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