CB Financial Services, Inc. - FORM 10-Q

Attached files

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EX-32.2 - EXHIBIT 32.2 - CB Financial Services, Inc.	exh_322.htm
EX-31.1 - EXHIBIT 31.1 - CB Financial Services, Inc.	exh_311.htm
EX-32.1 - EXHIBIT 32.1 - CB Financial Services, Inc.	exh_321.htm
EX-31.2 - EXHIBIT 31.2 - CB Financial Services, Inc.	exh_312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2015

£ 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)

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 T 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 T No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 T

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

As of August 7, 2015, the number of shares outstanding of the Registrant’s Common Stock was 4,071,462.

FORM 10-Q

INDEX

Page

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.	1
Consolidated Statement of Financial Condition	1
Consolidated Statement of Income (Unaudited)	2
Consolidated Statement of Comprehensive Income (Unaudited)	3
Consolidated Statement of Changes In Stockholders’ Equity (Unaudited)	3
Consolidated Statement of Cash Flows (Unaudited)	4
Notes to Unaudited Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24
Item 3. Quantitative and Qualitative Disclosure about Market Risk.	33
Item 4. Controls and Procedures.	33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.	33
Item 1A. Risk Factors.	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	34
Item 3. Defaults Upon Senior Securities.	34
Item 4. Mine Safety Disclosures.	34
Item 5. Other Information.	34
Item 6. Exhibits	34
SIGNATURES	35

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

	(Unaudited)
(Dollars in thousands, except share data)	June 30, 2015			December 31, 2014

ASSETS
Cash and Due From Banks:
Interest Bearing	$	25,257		$	5,933
Non-Interest Bearing		10,173			5,818
Total Cash and Due From Banks		35,430			11,751

Investment Securities:
Available-for-Sale		97,391			105,449
Held-to-Maturity		-			504
Loans, Net		657,464			680,451
Premises and Equipment, Net		10,385			10,593
Bank-Owned Life Insurance		17,970			17,735
Goodwill		5,632			5,632
Core Deposit Intangible		4,621			4,888
Accrued Interest and Other Assets		7,874			9,311
TOTAL ASSETS	$	836,767		$	846,314

LIABILITIES
Deposits:
Demand Deposits	$	152,954		$	163,488
NOW Accounts		95,948			98,919
Money Market Accounts		153,352			160,747
Savings Accounts		124,207			118,332
Time Deposits		153,869			151,594
Brokered Deposits		15,125			4,414
Total Deposits		695,455			697,494

Short-Term Borrowings		22,817			46,684
Other Borrowed Funds		29,024			15,136
Accrued Interest and Other Liabilities		4,779			5,088
TOTAL LIABILITIES		752,075			764,402

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 4,071,462 Shares Outstanding at June 30, 2015 and December 31, 2014, Respectively		1,818			1,818
Capital Surplus		41,762			41,762
Retained Earnings		45,591			42,766
Treasury Stock, at Cost (291,884 Shares at June 30, 2015 and December 31, 2014, Respectively)		(4,999	)		(4,999	)
Accumulated Other Comprehensive Income		520			565
TOTAL STOCKHOLDERS' EQUITY		84,692			81,912
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	836,767		$	846,314

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

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except share and per share data)	2015			2014			2015			2014

INTEREST AND DIVIDEND INCOME
Loans, Including Fees	$	7,385		$	4,022		$	14,866		$	7,990
Federal Funds Sold		6			8			7			11
Investment Securities:
Taxable		225			214			467			446
Exempt From Federal Income Tax		274			348			570			703
Other Interest and Dividend Income		49			33			204			53
TOTAL INTEREST AND DIVIDEND INCOME		7,939			4,625			16,114			9,203

INTEREST EXPENSE
Deposits		594			405			1,192			834
Federal Funds Purchased		-			-			1			1
Short-Term Borrowings		15			11			45			20
Other Borrowed Funds		62			27			152			58
TOTAL INTEREST EXPENSE		671			443			1,390			913

NET INTEREST INCOME		7,268			4,182			14,724			8,290
Provision For Loan Losses		375			-			675			-
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		6,893			4,182			14,049			8,290

NONINTEREST INCOME
Service Fees on Deposit Accounts		625			508			1,202			963
Insurance Commissions		937			2			1,868			5
Other Commissions		116			104			237			191
Net (Losses) Gains on Sale of Loans		(28	)		112			43			198
Income from Bank-Owned Life Insurance		117			58			235			116
Other		39			(10	)		47			25
TOTAL NONINTEREST INCOME		1,806			774			3,632			1,498

NONINTEREST EXPENSE
Salaries and Employee Benefits		3,187			1,875			6,335			3,749
Occupancy		427			272			898			591
Equipment		399			255			804			527
FDIC Assessment		115			96			253			192
PA Shares Tax		165			87			348			184
Contracted Services		147			91			284			187
Legal Fees		110			115			241			274
Advertising		221			91			446			180
Bankcard Processing Expense		116			66			227			128
Other Real Estate Owned Income		(262	)		(18	)		(242	)		(18	)
Amortization of Core Deposit Intangible		133			-			267			-
Merger-Related		-			665			-			665
Other		777			452			1,421			845
TOTAL NONINTEREST EXPENSE		5,535			4,047			11,282			7,504

Income Before Income Taxes		3,164			909			6,399			2,284
Income Taxes		924			170			1,864			466
NET INCOME	$	2,240		$	739		$	4,535		$	1,818

EARNINGS PER SHARE
Basic	$	0.55		$	0.31		$	1.11		$	0.77
Diluted		0.55			0.31			1.11			0.77

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		4,071,462			2,349,047			4,071,462			2,346,643
Diluted		4,071,462			2,352,214			4,071,462			2,353,891

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2015			2014		2015			2014

Net Income	$	2,240		$	739	$	4,535		$	1,818

Other Comprehensive (Loss) Income:
Unrealized (Losses) Gains on Available-for-Sale Securities Net of Income Tax of $(194) and $266 for the Three Months Ended June 30, 2015 and 2014, Respectively, and $(22) and $661 for the Six Months Ended June 30, 2015 and 2014, Respectively		(376	)		516		(45	)		1,283
Other Comprehensive Income, Net of Income Tax		(376	)		516		(45	)		1,283
Total Comprehensive Income	$	1,864		$	1,255	$	4,490		$	3,101

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except share and per share data)	Shares Issued		Common Stock		Capital Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity

December 31, 2013		2,626,864	$	1,095	$	5,969	$	40,807		$	(2,103	)	$	(763	)	$	45,005
Comprehensive income:
Net income		-		-		-		1,818			-			-			1,818
Other comprehensive income		-		-		-		-			-			1,283			1,283
Exercise of stock options		14,515		6		200		-			-			-			206
Purchase of common stock, at cost (133,000 shares)		-		-		-		-			(2,896	)		-			(2,896	)
Dividends paid ($0.42 per share)		-		-		-		(984	)		-			-			(984	)
June 30, 2014		2,641,379	$	1,101	$	6,169	$	41,641		$	(4,999	)	$	520		$	44,432

(Dollars in thousands, except share and per share data)	Shares Issued		Common Stock		Capital Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total Stockholders' Equity
December 31, 2014		4,363,346	$	1,818	$	41,762	$	42,766		$	(4,999	)	$	565		$	81,912
Comprehensive income (loss):
Net income		-		-		-		4,535			-			-			4,535
Other comprehensive loss		-		-		-		-			-			(45	)		(45	)
Dividends paid ($0.42 per share)		-		-		-		(1,710	)		-			-			(1,710	)
June 30, 2015		4,363,346	$	1,818	$	41,762	$	45,591		$	(4,999	)	$	520		$	84,692

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

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
(Dollars in thousands)	2015			2014

OPERATING ACTIVITIES
Net Income	$	4,535		$	1,818
Αdjustmеnts to Rеconcilе Net Income to Net Cash Provided By Operating Activities:
Net Amortization on Investments		366			687
Depreciation and Amortization		1,221			280
Provision for Loan Losses		675			-
Income from Bank-Owned Life Insurance		(235	)		(116	)
Proceeds From Mortgage Loans Sold		45,801			8,645
Originations of Mortgage Loans for Sale		(7,509	)		(8,447	)
Gains on Sale of Loans		(43	)		(198	)
Gains on Sales of Other Real Estate Owned and Repossessed Assets		(284	)		(5	)
Decrease in Accrued Interest Receivable		135			135
Decrease in Taxes Payable		(91	)		(119	)
Increase (Decrease) in Accrued Interest Payable		13			(33	)
Receipt of Federal Income Tax Refund		1,218			-
Other, Net		223			(736	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		46,025			1,911

INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities		21,418			33,362
Purchases of Securities		(13,789	)		(9,396	)
Investment Securities Held-to-Maturity:
Proceeds From Principal Repayments and Maturities		500			495
Net Increase in Loans		(16,845	)		(9,746	)
Purchase of Premises and Equipment		(237	)		(186	)
Proceeds From Sale of Other Real Estate Owned and Repossessed Assets		15			59
Decrease (Increase) in Restricted Equity Securities		320			(204	)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(8,618	)		14,384

FINANCING ACTIVITIES
Net Decrease in Deposits		(2,039	)		(5,653	)
Net Decrease in Short-Term Borrowings		(23,867	)		(471	)
Principal Payments on Other Borrowed Funds		(1,112	)		(1,000	)
Proceeds from Other Borrowed Funds		15,000			-
Cash Dividends Paid		(1,710	)		(984	)
Treasury Stock, Purchases at Cost		-			(2,896	)
Exercise of Stock Options		-			206
NET CASH USED IN FINANCING ACTIVITIES		(13,728	)		(10,798	)

INCREASE IN CASH AND CASH EQUIVALENTS		23,679			5,497
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR		11,751			16,417
CASH AND DUE FROM BANKS AT END OF PERIOD	$	35,430		$	21,914

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $1,198 and $864 respectively)		1,378			946
Income taxes		203			-

Real estate acquired in settlement of loans		431			-

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

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”). 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 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 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, 2014. Interim results are not necessarily indicative of results for a full year.

The Company evaluated subsequent events through the date the consolidated financial statements were filed with the Securities and Exchange Commission and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification (“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.

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. 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.

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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which establishes a comprehensive revenue recognition standard for virtually all industries under U.S. 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. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption not permitted. In July 2015, the FASB approved to defer for one year the effective date of this ASU to December 15, 2017 and to also allow entities to early adopt the standard, but not before the December 31, 2016. The Company is evaluating the provisions of ASU 2014-09, but does not believe that its adoption will have a material impact on the Company’s financial condition and results of operations.

In January 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates the requirement in ASC Subtopic 225-20 to consider whether an underlying event or transaction is extraordinary, and if so, to separately present the item in the income statement net of tax, after income from continuing operations. Items that are either unusual in nature or infrequently occurring will continue to be reported as a separate component of income from continuing operations. Alternatively, these amounts may still be disclosed in the notes to the financial statements. The same requirement has been expanded to include items that are both unusual and infrequent. ASU 2015-01 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted from the beginning of the fiscal year of adoption. The Company is evaluating the provisions of ASU 2015-01, but does not believe that its adoption will have a material impact on the Company’s financial condition and 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 June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Weighted-Average Common Shares Outstanding		4,363,346			2,639,115			4,363,346			2,637,057
Average Treasury Stock Shares		(291,884	)		(290,068	)		(291,884	)		(290,414	)
Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Basic Earnings Per Share		4,071,462			2,349,047			4,071,462			2,346,643
Additional Common Stock Equivalents (Stock Options) Used to Calculate Diluted Earnings Per Share		-			3,167			-			7,248
Weighted-Average Common Shares and Common Stock Equivalents Used to Calculate Diluted Earnings Per Share		4,071,462			2,352,214			4,071,462			2,353,891

Earnings per share:
Basic	$	0.55		$	0.31		$	1.11		$	0.77
Diluted		0.55			0.31			1.11			0.77

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, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

U.S. Government Agencies	$	48,724	$	170	$	(71	)	$	48,823
Obligations of States and Political Subdivisions		43,003		785		(206	)		43,582
Mortgage-Backed Securities - Government-Sponsored Enterprises		3,787		28		-			3,815
Equity Securities - Mutual Funds		500		13		-			513
Equity Securities - Other		588		71		(1	)		658
Total	$	96,602	$	1,067	$	(278	)	$	97,391

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

U.S. Government Agencies	$	57,669	$	139	$	(157	)	$	57,651
Obligations of States and Political Subdivisions		41,611		886		(116	)		42,381
Mortgage-Backed Securities - Government-Sponsored Enterprises		4,240		33		-			4,273
Equity Securities - Mutual Funds		500		14		-			514
Equity Securities - Other		573		58		(1	)		630
Total	$	104,593	$	1,130	$	(274	)	$	105,449

The following table presents the amortized cost and fair value of investment securities held-to-maturity at the date indicated:

	(Dollars in thousands)
	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of States and Political Subdivisions	$	504	$	-	$	-	$	504

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, 2015
	Less than 12 months							12 Months or Greater							Total
	Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses
U.S. Government Agencies		9	$	19,865	$	(71	)		-	$	-	$	-			9	$	19,865	$	(71	)
Obligations of States and Political Subdivisions		18		10,901		(139	)		13		7,297		(67	)		31		18,198		(206	)
Equity Securities - Other		1		41		(1	)		-		-		-			1		41		(1	)
Total		28	$	30,807	$	(211	)		13	$	7,297	$	(67	)		41	$	38,104	$	(278	)

	December 31, 2014
	Less than 12 months							12 Months or Greater							Total
	Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses			Number of Securities		Fair Value		Gross Unrealized Losses
U.S. Government Agencies		10	$	26,101	$	(144	)		1	$	2,987	$	(13	)		11	$	29,088	$	(157	)
Obligations of States and Political Subdivisions		5		2,123		(9	)		22		13,590		(107	)		27		15,713		(116	)
Equity Securities - Other		1		48		(1	)		-		-		-			1		48		(1	)
Total		16	$	28,272	$	(154	)		23	$	16,577	$	(120	)		39	$	44,849	$	(274	)

For debt securities, the Company does not believe any individual unrealized loss as of June 30, 2015 and December 31, 2014 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, 2015 and December 31, 2014 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, 2015
	Available-for-Sale
	Amortized Cost		Fair Value
Due in One Year or Less	$	2,283	$	2,296
Due after One Year through Five Years		35,464		35,519
Due after Five Years through Ten Years		44,592		44,949
Due after Ten Years		14,263		14,627
Total	$	96,602	$	97,391

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.

Note 4. Loans and Related Allowance for Loan Loss

The Company’s loan portfolio is made up of four segments: 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, 2015						December 31, 2014
	Amount			Percent			Amount			Percent
Originated Loans
Real estate:
Residential	$	152,356			35.2	%	$	161,719			39.4	%
Commercial		116,356			26.9			104,994			25.7
Construction		10,785			2.5			10,039			2.5
Commercial and Industrial		58,474			13.5			53,238			13.0
Consumer		90,058			20.8			76,242			18.6
Other		4,820			1.1			3,099			0.8
Total Originated Loans		432,849			100.0	%		409,331			100.0	%
Allowance for Loan Losses		(5,686	)					(5,195	)
Loans, Net	$	427,163					$	404,136

Loans Acquired at Fair Value
Real estate:
Residential	$	124,251			53.9	%	$	161,561			58.4	%
Commercial		79,036			34.3			77,864			28.2
Construction		6,192			2.7			12,158			4.4
Commercial and Industrial		20,180			8.8			23,363			8.5
Consumer		642			0.3			1,369			0.5
Total Loans Acquired at Fair Value	$	230,301			100.0	%	$	276,315			100.0	%

Total Loans
Real estate:
Residential	$	276,607			41.6	%	$	323,280			47.1	%
Commercial		195,392			29.5			182,858			26.7
Construction		16,977			2.6			22,197			3.2
Commercial and Industrial		78,654			11.9			76,601			11.2
Consumer		90,700			13.7			77,611			11.3
Other		4,820			0.7			3,099			0.5
Total Loans		663,150			100.0	%		685,646			100.0	%
Allowance for Loan Losses		(5,686	)					(5,195	)
Loans, Net	$	657,464					$	680,451

Total unamortized net deferred loan fees were $589,000 and $322,000 at June 30, 2015 and December 31, 2014, respectively.

Real estate loans serviced for others, which are not included in the Consolidated Statement of Financial Condition, totaled $65.4 million and $62.3 million at June 30, 2015 and December 31, 2014, respectively.

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

	(Dollars in thousands)
	June 30, 2015
	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans
Real Estate:
Residential	$	151,855	$	231	$	264	$	6	$	152,356
Commercial		100,929		10,002		4,320		1,105		116,356
Construction		9,730		-		759		296		10,785
Commercial and Industrial		54,757		1,970		1,747		-		58,474
Consumer		90,057		-		1		-		90,058
Other		4,820		-		-		-		4,820
Total Originated Loans	$	412,148	$	12,203	$	7,091	$	1,407	$	432,849

Loans Acquired at Fair Value
Real Estate:
Residential	$	121,864	$	-	$	2,387	$	-	$	124,251
Commercial		73,723		3,233		2,080		-		79,036
Construction		6,192		-		-		-		6,192
Commercial and Industrial		18,757		1,378		45		-		20,180
Consumer		642		-		-		-		642
Total Loans Acquired at Fair Value	$	221,178	$	4,611	$	4,512	$	-	$	230,301

Total Loans
Real Estate:
Residential	$	273,719	$	231	$	2,651	$	6	$	276,607
Commercial		174,652		13,235		6,400		1,105		195,392
Construction		15,922		-		759		296		16,977
Commercial and Industrial		73,514		3,348		1,792		-		78,654
Consumer		90,699		-		1		-		90,700
Other		4,820		-		-		-		4,820
Total Loans	$	633,326	$	16,814	$	11,603	$	1,407	$	663,150

	December 31, 2014
	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans
Real Estate:
Residential	$	161,191	$	194	$	315	$	19	$	161,719
Commercial		89,721		10,761		3,820		692		104,994
Construction		8,805		101		789		344		10,039
Commercial and Industrial		49,612		2,941		383		302		53,238
Consumer		76,238		-		4		-		76,242
Other		3,099		-		-		-		3,099
Total Originated Loans	$	388,666	$	13,997	$	5,311	$	1,357	$	409,331

Loans Acquired at Fair Value
Real Estate:
Residential	$	159,633	$	-	$	1,928	$	-	$	161,561
Commercial		73,280		2,429		2,155		-		77,864
Construction		12,158		-		-		-		12,158
Commercial and Industrial		21,913		1,450		-		-		23,363
Consumer		1,369		-		-		-		1,369
Total Loans Acquired at Fair Value	$	268,353	$	3,879	$	4,083	$	-	$	276,315

Total Loans
Real Estate:
Residential	$	320,824	$	194	$	2,243	$	19	$	323,280
Commercial		163,001		13,190		5,975		692		182,858
Construction		20,963		101		789		344		22,197
Commercial and Industrial		71,525		4,391		383		302		76,601
Consumer		77,607		-		4		-		77,611
Other		3,099		-		-		-		3,099
Total Loans	$	657,019	$	17,876	$	9,394	$	1,357	$	685,646

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, 2015
	Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
Originated Loans
Real Estate:
Residential	$	151,994	$	96	$	-	$	-	$	96	$	266	$	152,356
Commercial		113,647		187		2,015		-		2,202		507		116,356
Construction		10,488		-		-		-		-		297		10,785
Commercial and Industrial		58,429		-		-		-		-		45		58,474
Consumer		89,520		492		45		-		537		1		90,058
Other		4,820		-		-		-		-		-		4,820
Total Originated Loans	$	428,898	$	775	$	2,060	$	-	$	2,835	$	1,116	$	432,849

Loans Acquired at Fair Value
Real Estate:
Residential	$	121,964	$	166	$	438	$	232	$	836	$	1,451	$	124,251
Commercial		78,606		-		-		-		-		430		79,036
Construction		6,024		168		-		-		168		-		6,192
Commercial and Industrial		20,025		-		155		-		155		-		20,180
Consumer		642		-		-		-		-		-		642
Total Loans Acquired at Fair Value	$	227,261	$	334	$	593	$	232	$	1,159	$	1,881	$	230,301

Total Loans
Real Estate:
Residential	$	273,958	$	262	$	438	$	232	$	932	$	1,717	$	276,607
Commercial		192,253		187		2,015		-		2,202		937		195,392
Construction		16,512		168		-		-		168		297		16,977
Commercial and Industrial		78,454		-		155		-		155		45		78,654
Consumer		90,162		492		45		-		537		1		90,700
Other		4,820		-		-		-		-		-		4,820
Total Loans	$	656,159	$	1,109	$	2,653	$	232	$	3,994	$	2,997	$	663,150

	December 31, 2014
	Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
Originated Loans
Real Estate:
Residential	$	161,145	$	249	$	16	$	-	$	265	$	309	$	161,719
Commercial		102,016		2,397		-		-		2,397		581		104,994
Construction		9,695		-		-		-		-		344		10,039
Commercial and Industrial		53,234		-		-		-		-		4		53,238
Consumer		75,839		369		24		10		403		-		76,242
Other		3,099		-		-		-		-		-		3,099
Total Originated Loans	$	405,028	$	3,015	$	40	$	10	$	3,065	$	1,238	$	409,331

Loans Acquired at Fair Value
Real Estate:
Residential	$	158,576	$	1,364	$	18	$	369	$	1,751	$	1,234	$	161,561
Commercial		77,252		128		-		-		128		484		77,864
Construction		12,158		-		-		-		-		-		12,158
Commercial and Industrial		23,356		7		-		-		7		-		23,363
Consumer		1,341		28		-		-		28		-		1,369
Total Loans Acquired at Fair Value	$	272,683	$	1,527	$	18	$	369	$	1,914	$	1,718	$	276,315

Total Loans
Real Estate:
Residential	$	319,721	$	1,613	$	34	$	369	$	2,016	$	1,543	$	323,280
Commercial		179,268		2,525		-		-		2,525		1,065		182,858
Construction		21,853		-		-		-		-		344		22,197
Commercial and Industrial		76,590		7		-		-		7		4		76,601
Consumer		77,180		397		24		10		431		-		77,611
Other		3,099		-		-		-		-		-		3,099
Total Loans	$	677,711	$	4,542	$	58	$	379	$	4,979	$	2,956	$	685,646

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, 2015			December 31, 2014
Nonaccrual Loans:
Real estate:
Residential	$	1,717		$	1,543
Commercial		937			1,065
Construction		297			344
Commercial and Industrial		45			4
Consumer		1			-
Total Nonaccrual Loans		2,997			2,956

Accruing Loans Past Due 90 Days or More:
Real Estate
Residential		232			369
Consumer		-			10
Total Accruing Loans 90 Days or More Past Due		232			379
Total Nonaccrual Loans and Accruing Loans 90 Days or More Past Due		3,229			3,335

Troubled Debt Restructurings, Accruing
Originated Loans:
Real Estate - Commercial		1,129			246
Commercial and Industrial		8			310
Total Originated Loans		1,137			556
Loans Acquired at Fair Value:
Real Estate - Residential		1,315			1,337
Real Estate - Commercial		1,734			1,800
Total Loans Acquired at Fair Value		3,049			3,137
Total Troubled Debt Restructurings, Accruing		4,186			3,693

Total Nonperforming Loans		7,415			7,028

Real Estate Owned:
Residential		151			104
Other		174			174
Total Real Estate Owned		325			278

Total Nonperforming Assets	$	7,740		$	7,306

Nonperforming Loans to Total Loans		1.12	%		1.03	%
Nonperforming Assets to Total Assets		0.92			0.86

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 $2.2 million and $2.7 million at June 30, 2015 and December 31, 2014, 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 our 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 12 loans totaling $4.5 million and 13 loans totaling $4.0 million at June 30, 2015 and December 31, 2014, respectively. Originated loans classified as TDRs consisted of 4 loans totaling $1.4 million and $830,000, respectively, at June 30, 2015 and December 31, 2014. Loans acquired at fair value as TDRs consisted of 8 loans and 9 loans, respectively, totaling $3.1 million at June 30, 2015 and December 31, 2014.

During the three months ended June 30, 2015, one commercial loan previously identified as an originated TDR and two other commercial loans were consolidated into one loan in a new TDR transaction. During the six months ended June 30, 2015, two commercial loans previously identified as originated TDRs were refinanced in new TDR transactions. During the three and six months ended June 30, 2015, one commercial TDR acquired at fair value paid off. No TDRs have subsequently defaulted during the three or six months ended June 30, 2015 and 2014, 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 in a TDR during the three and six month ended June 30, 2014.

	(Dollars in thousands)
	Three Months Ended June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
Originated Loans
Real Estate
Commercial		1	$	675	$	705	$	108
Total		1	$	675	$	705	$	108

	Six Months Ended June 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
Originated Loans
Real Estate
Commercial		2	$	912	$	1,135	$	108
Total		2	$	912	$	1,135	$	108

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

	(Dollars in thousands)
	June 30, 2015
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Originated Loans
Real Estate:
Residential	$	10	$	-	$	22	$	21	$	1
Commercial		4,127		-		4,127		4,210		88
Construction		759		-		759		774		16
Commercial and Industrial		1,345		-		1,345		1,291		23
Total With No Related Allowance Recorded	$	6,241	$	-	$	6,253	$	6,296	$	128

Loans Acquired at Fair Value
Real Estate:
Residential	$	936	$	-	$	936	$	941	$	25
Commercial		2,080		-		2,134		2,129		51
Commercial and Industrial		45		-		45		49		1
Total With No Related Allowance Recorded	$	3,061	$	-	$	3,115	$	3,119	$	77

Total Loans
Real Estate:
Residential	$	946	$	-	$	958	$	962	$	26
Commercial		6,207		-		6,261		6,339		139
Construction		759		-		759		774		16
Commercial and Industrial		1,390		-		1,390		1,340		24
Total With No Related Allowance Recorded	$	9,302	$	-	$	9,368	$	9,415	$	205

With A Related Allowance Recorded:
Originated Loans
Real Estate:
Commercial	$	1,461	$	370	$	1,472	$	1,468	$	9
Construction		296		5		296		325		-
Commercial and Industrial		239		159		239		263		7
Total With A Related Allowance Recorded	$	1,996	$	534	$	2,007	$	2,056	$	16

Total Impaired Loans:
Originated Loans
Real Estate:
Residential	$	10	$	-	$	22	$	21	$	1
Commercial		5,588		370		5,599		5,678		97
Construction		1,055		5		1,055		1,099		16
Commercial and Industrial		1,584		159		1,584		1,554		30
Total Impaired Loans	$	8,237	$	534	$	8,260	$	8,352	$	144

Loans Acquired at Fair Value
Real Estate:
Residential	$	936	$	-	$	936	$	941	$	25
Commercial		2,080		-		2,134		2,129		51
Commercial and Industrial		45		-		45		49		1
Total Impaired Loans	$	3,061	$	-	$	3,115	$	3,119	$	77

Total Loans
Real Estate:
Residential	$	946	$	-	$	958	$	962	$	26
Commercial		7,668		370		7,733		7,807		148
Construction		1,055		5		1,055		1,099		16
Commercial and Industrial		1,629		159		1,629		1,603		31
Total Impaired Loans	$	11,298	$	534	$	11,375	$	11,471	$	221

	December 31, 2014
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Originated Loans
Real Estate:
Residential	$	45	$	-	$	70	$	55	$	-
Commercial		3,352		-		3,366		4,300		149
Commercial and Industrial		369		-		369		426		17
Total With No Related Allowance Recorded	$	3,766	$	-	$	3,805	$	4,781	$	166

Loans Acquired at Fair Value
Real Estate:
Residential	$	947	$	-	$	947	$	957	$	51
Commercial		1,846		-		1,885		1,926		93
Total With No Related Allowance Recorded	$	2,793	$	-	$	2,832	$	2,883	$	144

Total Loans
Real Estate:
Residential	$	992	$	-	$	1,017	$	1,012	$	51
Commercial		5,198		-		5,251		6,226		242
Commercial and Industrial		369		-		369		426		17
Total With No Related Allowance Recorded	$	6,559	$	-	$	6,637	$	7,664	$	310

With A Related Allowance Recorded:
Originated Loans
Real Estate:
Commercial	$	1,382	$	519	$	1,389	$	1,427	$	51
Construction		1,133		100		1,133		1,366		41
Commercial and Industrial		317		254		317		319		17
Total With A Related Allowance Recorded	$	2,832	$	873	$	2,839	$	3,112	$	109

Total Loans
Originated Loans
Real Estate:
Residential	$	45	$	-	$	70	$	55	$	-
Commercial		4,734		519		4,755		5,727		200
Construction		1,133		100		1,133		1,366		41
Commercial and Industrial		686		254		686		745		34
Total Impaired Loans	$	6,598	$	873	$	6,644	$	7,893	$	275

Loans Acquired at Fair Value
Real Estate:
Residential	$	947	$	-	$	947	$	957	$	51
Commercial		1,846		-		1,885		1,926		93
Total Impaired Loans	$	2,793	$	-	$	2,832	$	2,883	$	144

Total Loans
Real Estate:
Residential	$	992	$	-	$	1,017	$	1,012	$	51
Commercial		6,580		519		6,640		7,653		293
Construction		1,133		100		1,133		1,366		41
Commercial and Industrial		686		254		686		745		34
Total Impaired Loans	$	9,391	$	873	$	9,476	$	10,776	$	419

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)
	Real Estate Residential			Real Estate Commercial			Real Estate Construction			Commercial and Industrial			Consumer			Unallocated			Total
March 31, 2015	$	2,513		$	608		$	145		$	913		$	1,011		$	288		$	5,478
Charge-offs		(111	)		(12	)		-			-			(69	)		-			(192	)
Recoveries		2			1			-			10			12			-			25
Provision		(737	)		1,149			(58	)		(6	)		384			(357	)		375
June 30, 2015	$	1,667		$	1,746		$	87		$	917		$	1,338		$	(69	)	$	5,686

December 31, 2014	$	2,690		$	582		$	122		$	684		$	1,015		$	102		$	5,195
Charge-offs		(111	)		(18	)		-			-			(116	)		-			(245	)
Recoveries		5			3			-			10			43			-			61
Provision		(917	)		1,179			(35	)		223			396			(171	)		675
June 30, 2015	$	1,667		$	1,746		$	87		$	917		$	1,338		$	(69	)	$	5,686

Originated Loans
Individually Evaluated for Impairment	$	-		$	370		$	5		$	159		$	-		$	-		$	534
Collectively Evaluated for Potential Impairment	$	1,667		$	1,376		$	82		$	758		$	1,338		$	(69	)	$	5,152

	Real Estate Residential			Real Estate Commercial		Real Estate Construction			Commercial and Industrial		Consumer			Unallocated		Total
March 31, 2014	$	1,481		$	1,703	$	355		$	1,014	$	580		$	239	$	5,372
Charge-offs		(10	)		-		-			-		(30	)		-		(40	)
Recoveries		-			-		-			1		7			-		8
Provision		7			9		(62	)		12		14			20		-
June 30, 2014	$	1,478		$	1,712	$	293		$	1,027	$	571		$	259	$	5,340

December 31, 2013	$	1,481		$	1,703	$	355		$	1,013	$	592		$	238	$	5,382
Charge-offs		(10	)		-		-			-		(66	)		-		(76	)
Recoveries		1			-		-			2		31			-		34
Provision		6			9		(62	)		12		14			21		-
June 30, 2014	$	1,478		$	1,712	$	293		$	1,027	$	571		$	259	$	5,340

Originated Loans
Individually Evaluated for Impairment	$	-		$	493	$	201		$	248	$	-		$	-	$	942
Collectively Evaluated for Potential Impairment	$	1,478		$	1,219	$	92		$	779	$	571		$	259	$	4,398

December 31, 2014	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Unallocated		Total
Originated Loans
Individually Evaluated for Impairment	$	-	$	519	$	100	$	254	$	-	$	-	$	873
Collectively Evaluated for Potential Impairment	$	2,690	$	63	$	22	$	430	$	1,015	$	102	$	4,322

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, 2014	$	4,359
Accretable yield		(477	)
Nonaccretable premium		78
Balance at June 30, 2015	$	3,960

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, 2015
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
Originated Loans
Individually Evaluated for Impairment	$	10	$	5,588	$	1,055	$	1,584	$	-	$	-	$	8,237
Collectively Evaluated for Potential Impairment		152,346		110,768		9,730		56,890		90,058		4,820		424,612
	$	152,356	$	116,356	$	10,785	$	58,474	$	90,058	$	4,820	$	432,849

Loans Acquired at Fair Value
Individually Evaluated for Impairment	$	936	$	2,080	$	-	$	45	$	-	$	-	$	3,061
Collectively Evaluated for Potential Impairment		123,315		76,956		6,192		20,135		642		-		227,240
	$	124,251	$	79,036	$	6,192	$	20,180	$	642	$	-	$	230,301

Total Loans
Individually Evaluated for Impairment	$	946	$	7,668	$	1,055	$	1,629	$	-	$	-	$	11,298
Collectively Evaluated for Potential Impairment		275,661		187,724		15,922		77,025		90,700		4,820		651,852
	$	276,607	$	195,392	$	16,977	$	78,654	$	90,700	$	4,820	$	663,150

	December 31, 2014
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
Originated Loans
Individually Evaluated for Impairment	$	45	$	4,734	$	1,133	$	686	$	-	$	-	$	6,598
Collectively Evaluated for Potential Impairment		161,674		100,260		8,906		52,552		76,242		3,099		402,733
	$	161,719	$	104,994	$	10,039	$	53,238	$	76,242	$	3,099	$	409,331

Loans Acquired at Fair Value
Individually Evaluated for Impairment	$	947	$	1,846	$	-	$	-	$	-	$	-	$	2,793
Collectively Evaluated for Potential Impairment		160,614		76,018		12,158		23,363		1,369		-		273,522
	$	161,561	$	77,864	$	12,158	$	23,363	$	1,369	$	-	$	276,315

Total Loans
Individually Evaluated for Impairment	$	992	$	6,580	$	1,133	$	686	$	-	$	-	$	9,391
Collectively Evaluated for Potential Impairment		322,288		176,278		21,064		75,915		77,611		3,099		676,255
	$	323,280	$	182,858	$	22,197	$	76,601	$	77,611	$	3,099	$	685,646

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).

Maturity Period:	June 30, 2015
One Year or Less	$	61,487
Over One Through Two Years		31,633
Over Two Through Three Years		15,767
Over Three Through Four Years		13,016
Over Four Through Five Years		20,451
Over Five Years		11,515
Total	$	153,869

The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $35.6 million and $26.9 million as of June 30, 2015 and December 31, 2014, respectively.

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, 2015					December 31, 2014
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Short-term Borrowings
Federal Funds Purchased:
Average Balance Outstanding During the Period	$	414		0.49	%	$	375		0.46	%
Maximum Amount Outstanding at any Month End		100					1,850
FHLB Borrowings:
Balance at Period End		-		-			25,800		0.32
Average Balance Outstanding During the Period		10,944		0.35			4,283		0.31
Maximum Amount Outstanding at any Month End		30,950					25,800
Securities Sold Under Agreements to Repurchase:
Balance at Period End		22,817		0.18			20,884		0.17
Average Balance Outstanding During the Period		22,162		0.24			17,525		0.26
Maximum Amount Outstanding at any Month End		24,013					25,893
Securities Collaterizing the Agreements at Year-End:
Carrying Value		26,039					23,244
Market Value		26,085					23,243

Note 7. Other Borrowed Funds

Other borrowed funds consist of fixed rate advances from the FHLB. The following table sets forth the scheduled maturities of other borrowed funds at the dates indicated.

	(Dollars in thousands)
	June 30, 2015					December 31, 2014
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Due in One Year	$	14,024		3.84	%	$	15,136		3.78	%
Due After One Year to Two Years		3,500		0.94			-		-
Due After Two Years to Three Years		3,500		1.35			-		-
Due After Three Years to Four Years		3,000		1.68			-		-
Due After Four Years to Five Years		3,000		1.88			-		-
Due After Five Years		2,000		2.12			-		-
Total	$	29,024		2.64		$	15,136		3.78

As of June 30, 2015, the Company maintained a credit arrangement with a maximum borrowing limit of approximately $331.9 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 $20.0 million as of June 30, 2015 and December 31, 2014.

The Company also maintains a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank for $40.0 million. This credit agreement requires quarterly certification of collateral, is subject to annual renewal, incurs no service charge and is secured by Commercial and Consumer Indirect Loans. As of June 30, 2015 and December 31, 2014, no draws had been taken on this facility.

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.

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, 2015		December 31, 2014
Standby Letters of Credit	$	25,485	$	18,260
Performance Letters of Credit		2,224		2,986
Construction Mortgages		19,865		12,241
Personal Lines of Credit		5,885		5,675
Overdraft Protection Lines		6,279		6,505
Home Equity Lines of Credit		13,840		13,253
Commercial Lines of Credit		62,787		54,301
	$	136,365	$	113,221

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 market 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.

	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)
	Valuation Technique	June 30, 2015		December 31, 2014
Available for Sales Securities:
U.S. Government Agencies	Level II	$	48,823	$	57,651
Obligations of States and Political Subdivisions	Level II		43,582		42,381
Mortgage-Backed Securities - Government-Sponsored Enterprises	Level II		3,815		4,273
Equity Securities - Mutual Funds	Level I		513		514
Equity Securities - Other	Level I		658		630
Total Available for Sale Securities		$	$97,391	$	105,449

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; 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

Financial Asset

Valuation

Technique

June 30,

2015

December 31,

2014

Valuation

Techniques

Significant

Unobservable

Inputs

Significant

Unobservable

Input Value

Impaired Loans

Level III

1,462

1,959

Market Comparable Properties

Marketability Discount

10%

30%

⁽¹⁾

OREO

Level III

431

Market Comparable Properties

Marketability Discount

10%

50%

⁽¹⁾

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

Impaired loans are evaluated when the 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, 2015 and December 31, 2014, the fair value of impaired loans consists of the loan balance of $2.0 million and $2.8 million, less their specific valuation allowances of $534,000 and $873,000, respectively.

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, credit card 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.

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

		(Dollars in thousands)
		June 30, 2015				December 31, 2014
	Valuation Method Used	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and Due From Banks:
Interest Bearing	Level I	$	25,257	$	25,257	$	5,933	$	5,933
Non-Interest Bearing	Level I		10,173		10,173		5,818		5,818
Investment Securities:
Available for Sale	See Above		97,391		97,391		105,449		105,449
Held-to-Maturity	Level II		-		-		504		504
Loans, Net	Level III		657,464		674,746		680,451		695,844
Restricted Stock	Level II		3,070		3,070		3,390		3,390
Bank-Owned Life Insurance	Level II		17,970		17,970		17,735		17,735
Accrued Interest Receivable	Level II		2,400		2,400		2,535		2,535

Financial Liabilities:
Deposits	Level II		695,455		696,040		697,494		698,418
Short-term Borrowings	Level II		22,817		22,817		46,684		46,684
Other Borrowed Funds	Level III		29,024		29,101		15,136		15,305
Accrued Interest Payable	Level II		361		361		348		348

Off-Balance Sheet Instruments:
Commitments to Extend Credit	Level III		-		-		-		-

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, 2014.

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 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;

CB Financial’s ability to control costs and expenses;

Changes in federal and state legislation and regulation (i.e. the effect of new capital standards to be imposed by banking regulators and the implementation of the Dodd-Frank Act).

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. (“CB Financial”) 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”). CB Financial and the Bank are collectively referred to as the “Company.” All significant intercompany transactions have been eliminated.

The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. Community 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.

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, 2015 compared to the financial condition as of December 31, 2014 and the consolidated results of operations for the three and six months ended June 30, 2015 and 2014.

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 where we have seen moderate growth in recent years.

Balance Sheet Analysis

Assets. Total assets decreased $9.5 million, or 1.1%, to $836.8 million at June 30, 2015 compared to $846.3 million at December 31, 2014.

Cash and due from banks increased $23.7 million to $35.4 million at June 30, 2015 compared to $11.8 million at December 31, 2014 primarily due to the receipt of $45.8 million from residential loan sales in the current quarter, which included proceeds of $38.2 million from the sale of residential loans acquired in the merger.

Investment securities classified as available-for-sale decreased $8.1 million, or 7.6%, to $97.4 million at June 30, 2015 compared to $105.4 million at December 31, 2014. This decrease was primarily the result of calls and maturities of U.S. government agencies and obligations of states and political subdivisions that were utilized to pay down borrowings and were partially reinvested in U.S. government agencies and obligations of states and political subdivisions.

Loans, net, decreased $23.0 million, or 3.4%, to $657.5 million at June 30, 2015 compared to $680.5 million at December 31, 2014 primarily due to $38.2 million of residential loan sales partially offset by increases of $13.1 million in consumer loans (mainly indirect auto loans) and $12.5 million in commercial real estate loans. The loan sales were primarily comprised of 30-year fixed rate mortgage loans that were acquired in the merger and were secured by properties located outside the Bank’s normal lending area within the five counties it conducts business. The Company is planning to utilize the proceeds from the loan sale to fund commercial loan originations and to payoff a $12.0 million borrowing in the third quarter.

Other assets decreased $1.4 million, or 15.4%, primarily due to the receipt of a $1.2 million federal income tax refund.

Liabilities. Total liabilities decreased $12.3 million, or 1.6%, to $752.1 million at June 30, 2015 compared to $764.4 million at December 31, 2014.

Total deposits decreased $2.0 million, or 0.3%, to $695.5 million at June 30, 2015 compared to $697.5 million at December 31, 2014. There were decreases of $10.5 million in demand deposits, $7.4 million in money market accounts and $3.0 million in NOW accounts, partially offset by increases of $10.7 million in broker deposits, $5.9 million in savings accounts, and $2.3 million in time deposits. The decrease in deposit balances is partly attributable to a decline in school district deposits, which is a seasonal fluctuation. Broker deposits increased primarily due to the Bank participating in a reciprocal deposit network, which allows participating institutions to both send and receive identical amounts simultaneously and provides increased FDIC insurance coverage on customer deposit amounts greater than $250,000. The reciprocal deposit network does not share the same characteristics of traditional broker deposits because they are based on actual customer relationships. Due to the low 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.

Short-term borrowings decreased $23.9 million, or 51.1%, to $22.8 million at June 30, 2015 compared to $46.7 million at December 31, 2014. Conversely, other borrowed funds increased $13.9 million, or 91.8%, to $29.0 million at June 30, 2015 compared to $15.1 million at December 31, 2014. Funds generated from loan sales and security maturities and calls were utilized to payoff all remaining FHLB short-term borrowings whereas another portion of short-term borrowings were replaced with long-term borrowings with laddered maturities designed to mitigate the Company’s interest rate risk in the event of rising interest rates.

Stockholders’ Equity. Stockholders’ equity increased $2.8 million, or 3.4%, to $84.7 million at June 30, 2015 compared to $81.9 million at December 31, 2014. During the period, net income was $4.5 million and the Company paid $1.7 million in dividends to stockholders.

Results of Operations for the Three Months Ended June 30, 2015 and 2014

Overview. Net income increased $1.5 million to $2.2 million for the three months ended June 30, 2015 compared to $739,000 for the three months ended June 30, 2014. The increase is primarily due to the merger in the fourth quarter of 2014 as well by $665,000 of merger-related expenses in the prior period.

Net Interest Income. Net interest income increased $3.1 million, or 73.8%, to $7.3 million for the three months ended June 30, 2015 compared to $4.2 million for the three months ended June 30, 2014.

Interest and dividend income increased $3.3 million, or 71.7%, to $7.9 million for the three months ended June 30, 2015 compared to $4.6 million for the three months ended June 30, 2014. Interest income on loans increased $3.4 million due to an increase in average loans outstanding of $294.9 million primarily due to the merger. Other interest and dividend income increased $16,000 primarily due to an increase in FHLB stock dividends. Interest income on securities exempt from federal tax decreased $74,000 due to deploying proceeds from security calls and maturities into loans and for merger-related funding purposes in the prior period. There was a decrease of $6.8 million in the average balance on securities exempt from federal tax and a decrease of 36 basis points in yield as a result of purchasing securities with lower prevailing yields.

Interest expense increased $228,000, or 51.5%, to $671,000 for the three months ended June 30, 2015 compared to $443,000 for the three months ended June 30, 2014. Interest expense on deposits increased $189,000 due to an increase in average interest-bearing deposits of $188.3 million primarily due to the merger. Despite the increase in average balances, the average cost of interest-bearing deposits decreased 2 basis points, primarily related to the repricing of maturing certificates of deposit to lower rates. Interest expense on other borrowed funds and short-term borrowings increased $35,000 and $4,000, respectively, primarily due to an increase in average borrowings of $34.7 million.

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 and are expressed in annualized rates.

	(Dollars in thousands)
	Three Months Ended June 30,
	2015							2014
			Interest							Interest
	Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Cost ⁽¹⁾			Balance		Dividends		Cost ⁽¹⁾
Assets:
Interest-Earning Assets:
Loans	$	673,922	$	7,413		4.41	%	$	379,008	$	4,036		4.27	%
Investment Securities
Taxable		54,705		225		1.65			66,892		214		1.28
Exempt From Federal Tax		41,776		408		3.91			48,609		519		4.27
Other Interest-Earning Assets		18,912		55		1.17			20,523		41		0.80
Total Interest-Earning Assets		789,315		8,101		4.12			515,032		4,810		3.75
Noninterest-Earning Assets		55,577							29,763
Total Assets	$	844,892						$	544,795

Liabilities and
Stockholders' equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits	$	105,367		38		0.14	%	$	71,352		35		0.20	%
Savings		124,267		56		0.18			89,426		41		0.18
Money Market		157,657		91		0.23			106,145		72		0.27
Time Deposits		152,430		409		1.08			84,541		257		1.22
Total Interest-Bearing Deposits		539,721		594		0.44			351,464		405		0.46

Borrowings		54,212		77		0.57			19,515		38		0.78
Total Interest-Bearing Liabilities		593,933		671		0.45			370,979		443		0.48

Noninterest-Bearing Demand Deposits		160,705							126,115
Other Liabilities		5,701							3,238
Total Liabilities		760,339							500,332

Stockholders' Equity		84,553							44,463
Total Liabilities and
Stockholders' Equity	$	844,892						$	544,795

Net Interest Income			$	7,430						$	4,367

Net Interest Rate Spread ⁽²⁾						3.67	%						3.27	%
Net Interest-Earning Assets ⁽³⁾	$	195,382						$	144,053
Net Interest Margin ⁽⁴⁾						3.78							3.40
Return on Average Assets						1.06							0.54
Return on Average Equity						10.63							6.67
Average Equity to Average Assets						10.01							8.16
Average Interest-Earning Assets to
Average Interest-Bearing Liabilities						132.90							138.83

(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.

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the years 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, 2015
	Compared To
	Three Months Ended June 30, 2014
	Increase (Decrease) Due to
	Volume			Rate			Total

Interest and Dividend Income:
Loans, net	$	3,241		$	136		$	3,377
Investment Securities:
Taxable		(44	)		55			11
Exempt From Federal Tax		(69	)		(42	)		(111	)
Other Interest-Earning Assets		(4	)		18			14
Total Interest-Earning Assets		3,124			167			3,291

Interest Expense:
Deposits		208			(19	)		189
Borrowings		51			(12	)		39
Total Interest-Bearing Liablities		259			(31	)		228
Change in Net Interest Income	$	2,865		$	198		$	3,063

Provision for Loan Losses. The provision for loan losses was $375,000 for the three months ended June 30, 2015. There was no provision for loan losses in the three months ended June 30, 2014. Net charge-offs for the three months ended June 30, 2015 were $167,000 compared to $32,000 for the three months ended June 30, 2014. 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 and determined the current quarter provision was necessary due to quarterly charge-offs, commercial and indirect auto loan growth and an increase in substandard loans.

Noninterest Income. Noninterest income increased $1.0 million to $1.8 million for the three months ended June 30, 2015 compared to $774,000 for the three months ended June 30, 2014 primarily due to a $935,000 increase in insurance commission from the acquisition of Exchange Underwriters as part of the merger. Included in insurance commissions are $127,000 of contingency fees, which 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 $117,000 primarily due to check card fees from deposit accounts acquired in the merger. In addition, income from bank owned life insurance increased $59,000 due to the acquisition of policies in the merger. The Company incurred net losses on the sales of loans of $28,000 for the three months ended June 30, 2015 compared to net gains of $112,000 for the three months ended June 30, 2014 primarily due to losses on the sales of $38.2 million of residential loans that were acquired in the merger.

Noninterest Expense. Noninterest expense increased $1.5 million, or 36.8%, to $5.5 million for the three months ended June 30, 2015 compared to $4.0 million for the three months ended June 30, 2014. Salaries and employee benefits increased $1.3 million primarily due employees retained as a result of the merger as well as normal salary increases. Occupancy and equipment increased $155,000 and $144,000, respectively, primarily due to the acquisition of branches in the merger and increased costs associated with the prior year upgrade of the data processing system to accommodate additional account activity. Amortization of core deposit intangible increased $133,000 due to amortization of the core deposit intangible from the merger. Advertising increased $130,000 related to a cooperative marketing agreement at Exchange Underwriters and advertising initiatives to promote the merger. PA shares tax increased $78,000 due to an increase in stockholders’ equity as a result of the merger. Bankcard processing expense increased $50,000 due to the increase in the number of accounts resulting from the merger. Contracted services increased $56,000 primarily due to increases in data processing expenses and fees associated with becoming a publicly traded company. Other noninterest expense increased $325,000 primarily due to an increase in various miscellaneous expenses due to the merger, such as telephone, supplies, postage, director fees, and business travel. Merger expenses decreased $665,000 due to merger-related expenses incurred in the prior period. Other real estate owned income increased $244,000 due to gains recognized on the sale of properties in the current period.

Income Tax Expense. Income taxes increased $754,000 to $924,000 for the three months ended June 30, 2015 compared to $170,000 for the three months ended June 30, 2014. The effective tax rate for the three months ended June 30, 2015 was 29.2% compared to 18.7% for the three months ended June 30, 2014. The increase in income taxes and effective tax rate was due to an increase of $2.3 million in net income before income tax expense.

Results of Operations for the Six Months Ended June 30, 2015 and 2014

Overview. Net income increased $2.7 million to $4.5 million for the six months ended June 30, 2015 compared to $1.8 million for the six months ended June 30, 2014. The increase is primarily due to the merger in the fourth quarter of 2014 as well by $665,000 of merger-related expenses in the prior period.

Net Interest Income. Net interest income increased $6.4 million, or 77.6%, to $14.7 million for the six months ended June 30, 2015 compared to $8.3 million for the six months ended June 30, 2014.

Interest and dividend income increased $6.9 million, or 75.1%, to $16.1 million for the six months ended June 30, 2015 compared to $9.2 million for the six months ended June 30, 2014. Interest income on loans increased $6.9 million due to an increase in average loans outstanding of $299.8 million primarily due to the merger. Other interest and dividend income increased $151,000 primarily due to an increase in FHLB stock dividends which included the payment of a special dividend in the first quarter of 2015 of $56,000. Interest income on securities exempt from federal tax decreased $133,000 due to deploying proceeds from security calls and maturities into loans and for merger-related funding purposes. There was a decrease of $7.7 million in the average balance on securities exempt from federal tax and a decrease of 17 basis points in yield as a result of purchasing securities with lower prevailing yields.

Interest expense increased $477,000, or 52.2%, to $1.4 million for the six months ended June 30, 2015 compared to $913,000 for the six months ended June 30, 2014. Interest expense on deposits increased $358,000 due to an increase in average interest-bearing deposits of $183.3 million primarily due to the merger. Despite the increase in average balances, the average cost of interest-bearing deposits decreased 2 basis points, primarily related to the repricing of maturing certificates of deposit to lower rates. Interest expense on other borrowed funds and short-term borrowings increased $94,000 and $25,000, respectively, primarily due to an increase in average borrowings of $39.3 million.

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)
	Six Months Ended June 30,
	2015							2014
			Interest							Interest
	Average		and		Yield/			Average		and		Yield/
(Dollars in thousands)	Balance		Dividends		Cost ⁽¹⁾			Balance		Dividends		Cost ⁽¹⁾
Assets:
Interest-Earning Assets:
Loans	$	678,084	$	14,917		4.44	%	$	378,254	$	8,021		4.28	%
Investment Securities
Taxable		57,985		467		1.61			72,356		446		1.23
Exempt From Federal Tax		41,924		850		4.05			49,668		1,048		4.22
Other Interest-Earning Assets		13,964		211		3.05			14,896		64		0.87
Total Interest-Earning Assets		791,957		16,445		4.19			515,174		9,579		3.75
Noninterest-Earning Assets		55,967							28,934
Total Assets	$	847,924						$	544,108

Liabilities and
Stockholders' equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits	$	103,979		77		0.15	%	$	73,329		72		0.20	%
Savings		122,623		110		0.18			88,499		81		0.18
Money Market		158,375		181		0.23			107,285		146		0.27
Time Deposits		152,443		824		1.09			85,032		535		1.27
Total Interest-Bearing Deposits		537,420		1,192		0.45			354,145		834		0.47

Borrowings		58,436		198		0.68			19,120		79		0.83
Total Interest-Bearing Liabilities		595,856		1,390		0.47			373,265		913		0.49

Noninterest-Bearing Demand Deposits		161,969							123,812
Other Liabilities		6,257							3,120
Total Liabilities		764,082							500,197

Stockholders' Equity		83,842							43,911
Total Liabilities and
Stockholders' Equity	$	847,924						$	544,108

Net interest income			$	15,055						$	8,666

Net Interest Rate Spread ⁽²⁾						3.72	%						3.26	%
Net Interest-Earning Assets ⁽³⁾	$	196,101						$	141,909
Net Interest Margin ⁽⁴⁾						3.83							3.39
Return on Average Assets						1.08							0.67
Return on Average Equity						10.91							8.35
Average Equity to Average Assets						9.89							8.07
Average Interest-Earning Assets to
Average Interest-Bearing Liabilities						132.91							138.02

(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%.

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the years 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, 2015
	Compared To
	Six Months Ended June 30, 2014
	Increase (Decrease) Due to
(Dollars in thousands)	Volume			Rate			Total

Interest and Dividend Income:
Loans, net	$	6,585		$	311		$	6,896
Investment Securities:
Taxable		(100	)		121			21
Exempt From Federal Tax		(157	)		(41	)		(198	)
Other Interest-Earning Assets		(4	)		151			147
Total Interest-Earning Assets		6,324			542			6,866

Interest Expense:
Deposits		394			(36	)		358
Borrowings		135			(16	)		119
Total Interest-Bearing Liablities		529			(52	)		477
Change in Net Interest Income	$	5,795		$	594		$	6,389

Provision for Loan Losses. The provision for loan losses was $675,000 for the six months ended June 30, 2015. There was no provision for loan losses in the six months ended June 30, 2014. Net charge-offs for the six months ended June 30, 2015 were $184,000 compared to net charge-offs of $42,000 for the six months ended June 30, 2014. 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 and determined the current provision was necessary due to current period charge-offs, commercial and indirect auto loan growth, and an increase in substandard loans.

Noninterest Income. Noninterest income increased $2.1 million to $3.6 million for the six months ended June 30, 2015 compared to $1.5 million for the six months ended June 30, 2014 primarily due to a $1.9 million increase in insurance commission from the acquisition of Exchange Underwriters as part of the merger. Included in insurance commissions are $338,000 of contingency fees, which 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 $239,000 primarily due to check card fees from deposit accounts acquired in the merger. In addition, income from bank owned life insurance increased $119,000 due to the acquisition of policies in the merger. Net gains on sale of loans decreased $155,000 primarily due to losses on the sales of $38.2 million of residential loans that were acquired in the merger.

Noninterest Expense. Noninterest expense increased $3.8 million, or 50.3%, to $11.3 million for the six months ended June 30, 2015 compared to $7.5 million for the six months ended June 30, 2014. Salaries and employee benefits increased $2.6 million primarily due to employees retained as a result of the merger as well as normal salary increases. Occupancy and equipment increased $307,000 and $277,000 , respectively, primarily due to the acquisition of branches in the merger and increased costs associated with the prior year upgrade of the data processing system to accommodate additional account activity. Amortization of core deposit intangible increased $267,000 due to amortization of the core deposit intangible from the merger. Advertising increased $266,000 related to a cooperative marketing agreement at Exchange Underwriters and advertising initiatives to promote the merger. PA shares tax increased $164,000 due to an increase in stockholders’ equity as a result of the merger. Bankcard processing expense increased $99,000 due to the increase in the number of accounts resulting from the merger. Contracted services increased $97,000 primarily due to increases in data processing expenses and fees associated with becoming a publicly traded company. FDIC assessment increased $61,000 due to the increase in deposits from the merger. Other noninterest expense increased $576,000 primarily due to an increase in various miscellaneous expenses due to the merger, such as telephone, supplies, postage, director fees, and business travel. Merger expenses decreased $665,000 due to merger-related expenses incurred in the prior period. Other real estate owned income increased $224,000 due to gains recognized on the sale of properties in the current period.

Income Tax Expense. Income taxes increased $1.4 million to $1.9 million for the six months ended June 30, 2015 compared to $466,000 for the six months ended June 30, 2014. The effective tax rate for the six months ended June 30, 2015 was 29.1% compared to 20.4% for the six months ended June 30, 2014. The increase in income taxes and effective tax rate was due to an increase of $4.1 million in net income before income tax expense.

Off-Balance Sheet Arrangements.

Other than loan commitments, 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, 2015.

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, 2015 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 $35.4 million at June 30, 2015. 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 $24.4 million. In addition, at June 30, 2015, the Company had the ability to borrow up to $331.9 million from the FHLB of Pittsburgh, of which $29.0 million was outstanding, and up to $40.0 million from the Federal Reserve Bank of Cleveland, none of which was outstanding.

At June 30, 2015, time deposits due within one year of that date totaled $61.5 million, or 40.0% 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.

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, 2015, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $781,000.

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 Federal Home Loan Bank, 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 Federal Home Loan Bank 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.

At June 30, 2015 and December 31, 2014, 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, 2015					December 31, 2014
	Amount		Ratio			Amount		Ratio
Common Equity Tier 1 (to risk weighted assets)
Actual	$	75,780		12.84	%		N/A		N/A
For Capital Adequacy Purposes		26,553		4.50			N/A		N/A
To Be Well Capitalized		38,354		6.50			N/A		N/A

Tier 1 Capital (to risk weighted assets)
Actual		75,780		12.84		$	69,340		11.63	%
For Capital Adequacy Purposes		35,404		6.00			23,840		4.00
To Be Well Capitalized		47,205		8.00			35,760		6.00

Total Capital (to risk weighted assets)
Actual		81,466		13.81			74,484		12.50
For Capital Adequacy Purposes		47,205		8.00			47,680		8.00
To Be Well Capitalized		59,007		10.00			59,600		10.00

Tier 1 Leverage (to adjusted total assets)
Actual		75,780		9.06			69,340		9.33
For Capital Adequacy Purposes		33,460		4.00			29,719		4.00
To Be Well Capitalized		41,825		5.00			37,149		5.00

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

The Company believes that as of June 30, 2015, there was no material change in the quantitative and qualitative disclosure about market risk data as of December 31, 2014, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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 the 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, 2015, 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.

On April 21, 2014, a class action complaint, captioned Sutton v. FedFirst Financial Corp., et al., was filed under Case No. 24C14002331, in the Circuit Court in Baltimore City, Maryland (the “Court”), against FedFirst Financial Corp., each of FedFirst Financial’s directors, and CB Financial. The complaint alleged, among other things, that the FedFirst Financial directors breached their fiduciary duties to FedFirst Financial and its stockholders by agreeing to sell to CB Financial without first taking steps to ensure that FedFirst Financial stockholders would obtain adequate, fair and maximum consideration under the circumstances, by agreeing to terms with CB Financial that benefit themselves and/or CB Financial without regard for the FedFirst Financial stockholders and by agreeing to terms with CB Financial that discourages other bidders. The plaintiff also alleged that CB Financial aided and abetted the FedFirst Financial directors’ breaches of fiduciary duties. The complaint sought, among other things, an order declaring the Merger Agreement unenforceable and rescinding and invalidating the Merger Agreement, an order enjoining the defendants from consummating the merger, as well as attorneys’ and experts’ fees and certain other damages. On June 20, 2014, FedFirst Financial and the individual defendants filed a Motion to Dismiss the complaint. On July 29, 2014, the plaintiff filed an amended complaint adding an additional claim that the Form S-4 filed by CB Financial in connection with the merger contained material misstatements and omissions. On September 22, 2014, the Court dismissed all claims as to all defendants with prejudice, including claims against FedFirst Financial and its directors as well as claims against CB Financial. The plaintiff has appealed the dismissal of the complaint. Oral argument is expected to be held in October 2015. CB Financial continues to believe that the factual allegations in the complaint, as amended, are without merit.

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, 2014, 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

31.1

Rule 13a-14(a) / 15d-14(a) Certification (President and Chief Executive Officer)

31.2

Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer)

32.1

Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Chief Financial Officer Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.0

The following materials for the quarter ended June 30, 2015, 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

SIGNATURES

In accordance with 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 7, 2015	/s/ Barron P. McCune, Jr.
		Barron P. McCune, Jr.
		President and Chief Executive Officer

Date:	August 7, 2015	/s/ Kevin D. Lemley
		Kevin D. Lemley
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

CB Financial Services, Inc. - FORM 10-Q - August 7, 2015

Attached files

CB Financial Services, Inc. Reports