TABLE OF CONTENTS

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UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☑


☑	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended December 31, 2019

☐

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 001-34893

STANDARD AVB FINANCIAL CORP.

(Exact Name of Registrant as Specified in its Charter)


Maryland		27-3100949
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2640 Monroeville Boulevard, Monroeville, Pennsylvania		15146
(Address of Principal Executive Offices)		(Zip Code)

	Maryland			27-3100949
	(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

	2640 Monroeville Boulevard, Monroeville, Pennsylvania			15146
	(Address of Principal Executive Offices)			(Zip Code)

(412) 856-0363

(Telephone Number, including Area Code)

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

	~~Title of Each Class~~		~~Trading Symbol~~	~~Name of Each Exchange on Which Registered~~
	Common Stock, par value $0.01 per share		STND	The NASDAQ Stock Market, LLC
Title of Each Class		Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		STND	The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐◻ No ☑ þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐◻ No ☑ þ

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 ☑þ No ☐ ◻

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted 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 such files). Yes ☑þ No ☐ ◻

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

Large accelerated filer ☐◻ ~~ ~~ Accelerated filer ☑◻ ~~ ~~ Non-accelerated filer ☐þ ~~ ~~ Smaller reporting company ☑ Emerging growth company ☐ ~~ ~~

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

Indicate by check mark whether the registrant ishas filed a ~~shell~~report ~~company~~on ~~(as~~and ~~defined~~attention into ~~Rule 12b-2~~its management’s assessment of the ~~Act~~effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. ~~Yes~~7262(b)) ☐by Nothe ☑registered public account firm that prepared or issued its annual report. ☐

AsIndicate ofby ~~March 1,~~check ~~2020,~~mark ~~there~~whether ~~were~~the ~~issued~~registrant ~~and~~is ~~outstanding~~a ~~4,700,054~~shell ~~shares~~company (as defined in Rule 12b-2 of the ~~Registrant’s~~Act). ~~Common~~Yes ~~Stock.~~☐ No þ

~~The~~As ~~aggregate~~of ~~market~~March 29, ~~value~~2021, ofthere ~~the~~were ~~voting~~issued and ~~non-voting~~outstanding ~~common~~4,773,995 ~~equity~~shares ~~held by non-affiliates~~ of the Registrant,’s ~~computed~~Common ~~by reference to the last sales price on June 30, 2019 was $130~~Stock.~~9 million.~~

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sales price on March 29, 2021 was $155.9 million.

TABLE OF CONTENTS

Standard AVB Financial Corp. Annual Report on Form 10-K For The Year Ended December 31, 2019 Table of Contents

	PART I.
	ITEM 1. Business					1
	ITEM 1A. Risk Factors					17
	ITEM 1B. Unresolved Staff Comments					25
	ITEM 2. Properties					25
	ITEM 3. Legal Proceedings					26
	ITEM 4. Mine Safety Disclosures					26
	PART II.
	ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities					27
	ITEM 6. Selected Financial Data					28
	ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations					28
	ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk					44
	ITEM 8. Financial Statements and Supplementary Data					46
	ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure					97
	ITEM 9A. Controls and Procedures					97
	ITEM 9B. Other Information					97
	PART III.
	ITEM 10. Directors, Executive Officers and Corporate Governance					98
	ITEM 11. Executive Compensation					98
	ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters					98
	ITEM 13. Certain Relationships and Related Transactions, and Director Independence					98
	ITEM 14. Principal Accountant Fees and Services					98
	PART IV.
	ITEM 15. Exhibits and Financial Statement Schedules					99
	ITEM 16. Form 10-K Summary					100
	SIGNATURES					101

TABLE OF CONTENTS

PART I

ITEM 1. Business

Forward-Looking Statements

This annual report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•Table of Contents

statements regarding the asset quality of our loan and investment portfolios; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and unless required under the federal securities laws, we do not undertake any obligation to update any forward-looking statements after the date of this annual report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

competition among depository and other financial institutions;

•

inflation and changes in the interest rate environment that reduce our margin or reduce the fair value of financial instruments;

•

adverse changes in the securities markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

•

our ability to enter new markets successfully and capitalize on growth opportunities;

•

our ability to successfully integrate acquired entities, if any;

•

changes in consumer spending, borrowing and savings habits;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission (the “SEC”) and the Public Company Accounting Oversight Board;

•

changes in our organization, compensation and benefit plans;

•

changes in our financial condition or results of operations that reduce capital available to pay dividends; and

•

changes in the financial condition or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Standard AVB Financial Corp.

~~Standard~~Annual ~~AVB~~Report Financial Corp. (“Standard” or the “Company”), is a Maryland corporation that owns all of the outstanding shares of common stock of Standard Bank PaSB, a Pennsylvania chartered savings bank (the “Bank”). Standard’s common stock is quoted on ~~the~~Form ~~NASDAQ market place under the symbol~~ 10-K

1For The Year Ended

~~TABLE~~December OF31, ~~CONTENTS~~ 2020

~~“STND.”~~Table ~~The~~of ~~Company’s executive offices are located at 2640 Monroeville Boulevard, Monroeville, Pennsylvania 15146. The telephone number at this address is (412) 856-0363.~~ Contents

On August 29, 2016, Standard Financial Corp. and Allegheny Valley Bancorp, Inc. (“Allegheny Valley”) entered into an Agreement and Plan of Merger, which contemplated that Allegheny Valley would merge with and into Standard Financial Corp., with Standard Financial Corp. as the surviving entity to be known as “Standard AVB Financial Corp.” On April 7, 2017, Allegheny Valley merged with and into Standard Financial Corp. and the Company was renamed as “Standard AVB Financial Corp.” In conjunction with the merger and the filing of the Form S-4 Registration Statement, Standard AVB Financial Corp. became an SEC reporting company.

PART I.

ITEM 1.	Business	1

ITEM 1A.	Risk Factors	18

ITEM 1B.	Unresolved Staff Comments	27

ITEM 2.	Properties	27

ITEM 3.	Legal Proceedings	27

ITEM 4.	Mine Safety Disclosures	27

PART II.

ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28

ITEM 6.	Selected Financial Data	29

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	46

ITEM 8.	Financial Statements and Supplementary Data	48

ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	102

ITEM 9A.	Controls and Procedures	102

ITEM 9B.	Other Information	102

PART III.

ITEM 10.	Directors, Executive Officers and Corporate Governance	103

ITEM 11.	Executive Compensation	103

ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	103

ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	103

ITEM 14.	Principal Accountant Fees and Services	103

PART IV.

ITEM 15.	Exhibits and Financial Statement Schedules	104

ITEM 16.	Form 10-K Summary	105

SIGNATURES

On a consolidated basis, as of December 31, 2019, Standard AVB Financial Corp. had total assets of $984.4 million, total loans receivable, net of $713.0 million, total deposits of $734.4 million and stockholders’ equity of $141.8 million.

Standard Bank

The Bank is a Pennsylvania chartered savings bank headquartered in Murrysville, Pennsylvania with executive offices in Monroeville, Pennsylvania. The Bank was organized in 1913, and reorganized into the mutual holding company structure in 1998. Following the completion of a stock conversion, the Bank became the wholly owned subsidiary of Standard. The Bank provides financial services to individuals, families and businesses through seventeen banking offices located in Allegheny, Westmoreland and Bedford counties in Pennsylvania and Allegany County, Maryland.

The Bank’s business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in commercial real estate loans, commercial business loans, one- to four-family residential mortgage loans, home equity loans and lines of credit and investment securities. To a much lesser extent, the Bank also originates construction loans and consumer loans. The Bank offers a variety of deposit accounts, including savings accounts, certificates of deposit, money market accounts, commercial and regular checking accounts and individual retirement accounts.

Available Information

The Company maintains a website at www.standardbankpa.com. Copies of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports and proxy materials are available through that website, free of charge, as soon as is reasonably practical after the Company electronically files those materials with or furnishes them to the SEC. You may access those reports by following the links under “Investor Relations” at the Company’s website. Information on this website is not and should not be considered a part of this document.

Market Area

The Company, with total assets of $984.4 million at December 31, 2019, is the parent company of the Bank, a Pennsylvania chartered savings bank which operates seventeen offices serving individuals and small to mid-sized businesses in Allegheny, Westmoreland, and Bedford counties in Pennsylvania and Allegany County in Maryland. The Bank is a member of the Federal Deposit Insurance Corporation (“FDIC”) and an Equal Housing Lender.

The Bank’s market area has a broad range of private and public employers, and has transitioned from heavy industry to more specialized industries and service providers, including technology, health care, education, energy and finance. Westmoreland County is east of Allegheny County and is part of the Pittsburgh metropolitan area. Allegany County, Maryland is part of the Cumberland, Maryland-West Virginia metropolitan area, which is equidistant from Pittsburgh and Baltimore, and its economy includes information technology, biotechnology, medical services and manufacturing.

Unemployment rates, while still relatively low in the Bank’s market area and the state of Pennsylvania, have risen over the past year and continue to be higher than the national unemployment rate. Within the Pittsburgh PA MSA, Allegheny County continues to have the lowest unemployment rate due to the stability

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and impact of healthcare facilities, universities, and strong technology industries. The unemployment rate in Allegany County, Maryland continues to improve though still lags in comparison to the state of Maryland.

Median household income, as a percentage change since 2010, for the Bank’s market area remains strong with the addition of higher paying technology and energy jobs. While in dollar terms each of the region’s median household income is lower than their respective states and the nation, the lower cost of living in the regions continue to offset some of the disparity. The Bank’s market area continues to be one of the most affordable housing markets in the country.

The population in the Bank’s market area continues to decline in contrast to the growth in Maryland and the nation. The median age throughout the Bank’s market area is significantly older than that of the nation and respective states. Areas outside Allegheny County, Pennsylvania continue to increase in median age at a rapid rate, however, the median age has begun to decline in the greater Pittsburgh area due to neighborhood revitalization along with an influx of technology jobs that have attracted a younger demographic. Nonetheless, there remains a significant difference in the median age between most of the Bank’s market area and that of Pennsylvania, Maryland, and the nation; the largest disparity being over eight years between Westmoreland County, Pennsylvania and the nation.

Competition

The Bank faces intense competition in its market areas both in making loans and attracting deposits. The Bank competes with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies and investment banking firms. Some of the Bank’s larger competitors have greater name recognition and market presence that benefit them in attracting business, and offer certain services that the Bank does not or cannot provide.

The Bank’s deposit sources are primarily concentrated in the communities surrounding its community banking offices, located in the Pennsylvania counties of Allegheny, Westmoreland and Bedford and Allegany County, Maryland. As of December 31, 2019, the Bank ranked 16th in deposit market share out of 20 bank and thrift institutions with offices in Allegheny County, Pennsylvania with a market share of 0.3%, 9th in deposit market share out of 20 bank and thrift institutions in Westmoreland County, Pennsylvania with a market share of 2.9%, 8th in deposit market share out of 9 bank and thrift institutions in Bedford County, Pennsylvania, with a market share of 3.4% and 4th in deposit market share out of 4 bank and thrift institutions in Allegany County, Maryland with a market share of 11.5%

Lending Activities

The Bank’s primary lending activities are the origination of commercial real estate loans, commercial business loans, one- to four-family residential mortgage loans and home equity loans and lines of credit. To a lesser extent, the Bank also originates construction loans and consumer loans.

Commercial Real Estate Loans. At December 31, 2019, $323.8 million, or 45.1%, of the Bank’s total loan portfolio, consisted of commercial real estate loans. Properties securing the Bank’s commercial real estate loans primarily include loans to lessors of residential buildings and dwellings, lessors of non-residential buildings, properties for single family home construction, small office buildings and warehouse/industrial facilities. The Bank generally seeks to originate commercial real estate loans with initial principal balances not to exceed $6.0 million. Substantially all of the Bank’s commercial real estate loans are secured by properties located in its primary market area. At December 31, 2019, the Bank’s largest commercial real estate loan relationship (consisting of two separate commercial real estate loans) had a combined principal balance of $5.8 million and was secured by one commercial office building and one manufacturing facility. These loans were performing in accordance with their terms and conditions at December 31, 2019.

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obtained from commercial real estate borrowers. The Bank generally requires title insurance, fire and extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect its security interest in the underlying property. Almost all of the Bank’s commercial real estate loans are generated internally by its Commercial Relationship Managers.

Commercial real estate loans generally carry higher interest rates and have shorter terms than one- to four-family residential mortgage loans. Commercial real estate loans entail greater credit risks compared to the one- to four-family residential mortgage loans Standard originates, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in large part, on sufficient income generated from the property to cover both operating expenses and debt service. Changes in economic conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for commercial real estate than residential properties.

Commercial Business Loans. The Bank makes various types of secured and unsecured commercial business loans to customers in its market area for working capital and other general business purposes. The terms of these loans generally range from less than one year to a maximum of ten years. The loans are either negotiated on a fixed-rate basis or carry adjustable interest rates indexed to a market rate index. The Bank seeks to originate loans to small- and medium-size businesses with principal balances between $50,000 and $5.0 million. At December 31, 2019, the Bank had commercial business loans totaling $47.5 million, or 6.6% of the total loan portfolio.

Commercial credit decisions are based upon the Bank’s credit assessment of the loan applicant. The Bank evaluates the applicant’s ability to repay in accordance with the proposed terms of the loan and the Bank assesses the risks involved. Personal guarantees of the principals are typically obtained. In addition to evaluating the loan applicant’s financial statements, the Bank considers the adequacy of the primary and secondary sources of repayment for the loan and debt service coverage. Credit agency reports of the applicant’s personal credit history supplement the Bank’s analysis of the applicant’s creditworthiness. Collateral supporting a secured transaction is also analyzed to determine its value and marketability. Commercial business loans generally carry higher interest rates than residential loans of like duration due to a higher risk of default as repayment generally depends on the successful operation of the borrower’s business and the sufficiency of any collateral. At December 31, 2019, the Bank’s largest commercial business loan was to a municipality. The loan had a principal balance of $4.2 million and was secured by the full faith and credit and taxing authority of the borrower. This loan was performing in accordance with its terms and conditions at December 31, 2019.

One- to Four-Family Residential Mortgage Loans. At December 31, 2019, $234.4 million, or 32.7%, of the Bank’s total loan portfolio, consisted of one- to four-family residential mortgage loans. The Bank offers fixed-rate and adjustable-rate residential mortgage loans with maturities up to 30 years. One- to four-family residential mortgage loans are generally underwritten according to secondary market guidelines, and the Bank refers to loans that conform to such guidelines as “conforming loans.” The Bank generally originates both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which is currently $510,400 for single-family homes. However, loans in excess of $510,400 (which are referred to as “jumbo loans”) are generally originated for retention in the Bank’s loan portfolio or may be sold servicing released. The Bank’s portfolio maximum loan amount for these loans is generally $750,000. The Bank underwrites jumbo portfolio loans in the same manner as conforming loans. Most of the Bank’s one- to four-family residential mortgage loan originations are generated by its mortgage loan officers.

The Bank will originate loans with loan-to-value ratios in excess of 80%, up to and including a loan-to-value ratio of 97%. The Bank requires private mortgage insurance for loans with loan-to-value ratios in excess of 80%. During the year ended December 31, 2019, the Bank originated $5.9 million of one- to four-family residential mortgage loans with loan-to-value ratios in excess of 80%. The Bank offers special programs for low- and moderate-income home purchasers within low to moderate income census tracts. The property must be located within the Bank’s lending assessment area. Household income must be less than 80% of

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the median income of the Metropolitan Statistical Area in order to qualify for the special low-to moderate-income program. Loans under this program may be originated up to a 89% loan to value.

The Bank generally sells fixed rate conforming loans with terms greater than 15 years and retains the servicing rights on loans sold to generate fee income. For the year ended December 31, 2019, the Bank recognized loan servicing fees of $312,000. As of December 31, 2019, the principal balance of loans serviced for others totaled $69.0 million.

Other than the Bank’s loans for the construction of one- to four-family residential mortgage loans (described under “Construction Loans”) and home equity lines of credit (described under “Home Equity Loans and Lines of Credit”), the Bank does not offer “interest only” mortgage loans on one- to four-family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). The Bank also does not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. The Bank does not offer “subprime loans” (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).

Home Equity Loans and Lines of Credit. In addition to traditional one- to four-family residential mortgage loans, the Bank offers home equity loans and home equity lines of credit that are secured by the borrower’s primary residence or secondary residence. At December 31, 2019, the Bank’s home equity loans and lines of credit totaled $111.5 million and represented 15.5% of the total loan portfolio. The Bank’s home equity loans are originated with fixed rates of interest and with terms of up to 15 years. Home equity lines of credit have a maximum term of 20 years. The Bank offers interest only lines of credit with a 10-year draw period in which interest is due monthly. After the initial 10-year draw period, the borrower is required to make principal and interest payments based on a 10-year amortization. The Bank’s home equity lines of credit are currently originated with adjustable rates of interest. Home equity loans and lines of credit are generally underwritten with the same criteria that the Bank uses to underwrite one- to four-family residential mortgage loans. For a borrower’s primary residence, home equity loans and lines of credit may be underwritten with a loan-to-value ratio of 89.9% and 85.0%, respectively, when combined with the principal balance of the existing mortgage loan. At the time the Bank closes a home equity loan or line of credit, the Bank records a mortgage to protect its security interest in the underlying collateral. At December 31, 2019 the Bank’s in-house maximum limit for home equity loans and lines of credit was $750,000. Loans over $400,000 require title insurance.

Home equity loans and lines of credit entail greater credit risks compared to the one- to four-family residential mortgage loans the Bank originates, as they typically involve higher loan-to-value ratios. Therefore, any decline in real estate values may have a more detrimental effect on home equity loans and lines of credit compared to one- to four-family residential mortgage loans.

Construction Loans. The Bank makes commercial construction loans for rental properties, commercial buildings and homes built by developers on speculative, undeveloped property. The terms of commercial construction loans are made in accordance with the Bank’s commercial loan policy. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction, but are generally limited to an 80% loan-to-completed-appraised-value ratio. Repayment of construction loans on non-residential properties is normally expected from the property’s eventual rental income, income from the borrower’s operating entity or the sale of the subject property. In the case of income-producing property, repayment is usually expected from permanent financing upon completion of construction. The Bank typically provides the permanent mortgage financing on construction loans. Construction loans are interest-only loans during the construction period, which typically do not exceed 12 months, and convert to permanent, amortizing financing following the completion of construction. At December 31, 2019, commercial construction loans totaled $8.2 million and are included with commercial real estate loans. At December 31, 2019, the additional un-advanced portion of these construction loans totaled $5.7 million.

The Bank makes residential construction loans for one- to four-family owner-occupied properties. Advances on residential construction loans are made in accordance with a schedule reflecting the cost of

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construction. The terms of residential construction loans are made in accordance with the Bank’s one- to four-family residential lending policy (described under “One- to Four-Family Residential Mortgage Loans”). At December 31, 2019, residential construction loans totaled $1.2 million and are included with one-to-four family residential and construction loans. At December 31, 2019, the additional un-advanced portion of these construction loans totaled $900,000.

Generally, before making a commitment to fund a construction loan, the Bank requires an appraisal of the property by a state-certified or state-licensed appraiser. The Bank reviews and inspects properties before disbursement of funds during the term of the construction loan. Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, the Bank may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. In the event the Bank makes a land acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. Construction loans also expose the Bank to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

Loan Originations, Sales, Participations and Servicing. All loans that the Bank originates are underwritten pursuant to its policies and procedures, which incorporate standard underwriting and secondary market guidelines. The Bank originates both adjustable-rate and fixed-rate loans. The Bank’s loan origination and sales activity may be adversely affected by a rising interest rate environment that typically results in decreased loan demand.

During the year ended December 31, 2019, the Bank sold approximately 64.3% or $13.9 million of the fixed rate one-to-four family mortgage loans it originated. Of that total, 97.5% or $13.6 million had terms greater than 15 years. The loans were originated by the Bank and sold on the secondary market as well as to the Federal Home Loan Bank of Pittsburgh (“FHLB”) through its Mortgage Partnership Finance (“MPF”) program. The Bank also receives fees related to the referral of loan to a secondary market lender whereby the Bank does not originate the loan. In 2019, the Bank referred $5.0 million of fixed rate one-to-four family mortgage loans. The Bank determines on a loan by loan basis whether or not to retain the loan servicing rights. At December 31, 2019, the Bank was servicing one-to-four family mortgage loans owned by others with a principal balance of $69.0 million. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent borrowers, supervising foreclosures and property dispositions in the event of defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. The Bank retains a portion of the interest paid by the borrower on the loans it services as consideration for servicing activities.

From time to time, banks enter into participation agreements with other banks on commercial loans in order to spread credit risk and manage customer expectations. In these circumstances, the Bank will generally follow its customary loan underwriting and approval policies. At December 31, 2019, the Bank had $45.8 million in loan participations bought where another bank was the lead lender. Conversely, the Bank had $7.1 million related to loan participations sold where the Bank acted as the lead lender and serviced the loan relationship.

Loan Approval Procedures and Authority. The Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors. The loan approval process is intended to assess the borrower’s ability to repay the loan and the value of the collateral that will secure the loan. To assess the borrower’s ability to repay, the Bank reviews the borrower’s employment and credit history, and historical and projected income and expenses. The Bank requires “full documentation” on all loan applications. The Bank requires a full appraisal of all real property securing 1st lien residential mortgage loans. The Bank also requires appraisals on home equity loans and lines of credit for loans of $250,000 or greater and commercial real estate loans of $500,000 or greater. For loan amounts under these thresholds, an appraisal may be required or other objective methods of property

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valuations are utilized. All appraisers are state-licensed or state-certified appraisers, and it is Bank practice to have local appraisers approved by the Board of Directors annually.

The Bank’s policies and loan approval limits are established by the Board of Directors. The approval authority necessary to decision all loan applications regardless of loan type is based on the resulting total exposure of the relationship. Secured loan requests with a relationship exposure of $3.0 million or less can be approved by designated individual officers, officers acting together with specific lending approval authority, and/or the Officer Loan Committee. Secured loan requests with a relationship exposure in excess of $3.0 million can be approved by the Board Loan Committee. Unsecured loan requests utilize a similar authority breakdown with the Board Loan Committee decisioning transaction for relationships with unsecured exposures in excess of $750,000. The Board of Directors approves all loan requests subject to Regulation O, and those that result in a relationship exposure that exceeds the Bank’s internal House Limit. The Bank’s House Limit was $8.5 million at December 31, 2019.

Investments

The Bank’s Investment Committee, which is comprised of the Chief Executive Officer, President, Chief Financial Officer and Director of Finance, has primary responsibility for implementing the Bank’s Investment Policy, which is established by the Bank’s Audit Committee. The general investment strategies are developed and authorized by the Investment Committee in consultation with the Audit Committee. The Investment Committee is responsible for the execution of specific investment actions. These officers are authorized to execute investment transactions without the Audit Committee’s prior approval (provided the transactions are within the scope of the established Investment Policy). The Investment Policy is reviewed annually by the Investment Committee, and any changes to the policy are subject to approval by the Audit Committee. The overall objectives of the Investment Policy are to maintain a portfolio of high quality and diversified investments to maximize interest income over the long term and to minimize risk, to provide collateral for borrowings, to provide additional earnings when loan production is low, and, when appropriate, to reduce the Bank’s tax liability. The policy dictates that investment decisions give consideration to the safety of principal, liquidity requirements and interest rate risk management. All securities transactions are reported to the Board of Directors on a monthly basis.

The Bank’s current Investment Policy permits investments in securities issued by the U.S. government as well as mortgage-backed securities, municipal securities, corporate bonds and direct obligations of Fannie Mae, Freddie Mac and Ginnie Mae. The Investment Policy also permits, with certain limitations, investments in certificates of deposit, collateralized mortgage obligations, mutual funds and equity securities. The Bank’s current Investment Policy does not permit investment in stripped mortgage-backed securities or derivatives as defined in federal banking regulations or in other high-risk securities. The Bank’s Investment Policy expressly prohibits the use of the investment portfolio for market-oriented trading activities or speculative purposes unless otherwise approved by the Audit Committee. The Bank does not currently have a trading account for investment securities.

The Company designates a security as either trading, held to maturity, or available for sale, based upon the Company’s ability and intent. Securities bought and held principally for the purpose of selling them in the near term are classified as trading and are reported at fair value, with unrealized gains and losses included in earnings. Held-to-maturity securities are debt securities acquired with the intent and ability to hold to maturity and are stated at amortized cost. Available-for-sale securities are other debt and equity securities that are not classified as trading or held-to-maturity securities and serve principally as a source of liquidity. Available-for-sale debt securities are stated at fair value, with unrealized holding gains and losses reported as a separate component of stockholders’ equity, net of tax, until realized. Available-for-sale equity securities are stated at fair value, with unrealized holding gains and losses reported as equity fair value adjustments in the income statement.

A periodic review and evaluation of the available for sale and held to maturity securities portfolios is conducted to determine if the fair value of any security has declined below its carrying value and whether such decline is other-than-temporary. At December 31, 2019, all of the Company’s securities were classified as available for sale. The Company’s securities portfolio at December 31, 2019 consisted primarily of securities with the following fair values: $91.5 million of mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises; $58.8 million of municipal obligations;

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$8.5 million of U.S. government and agency obligations; $2.6 million of corporate bonds and $3.0 million of equity securities. At December 31, 2019, none of the collateral underlying the Company’s securities portfolio was considered subprime or Alt-A. See “Item 7 — Management’s Discussion of Financial Condition and Results of Operations — Balance Sheet Analysis: December 31, 2019 and December 31, 2018 — Investment Securities Portfolio” for a discussion of the recent performance of the Company’s securities portfolio.

Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools of mortgages. Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because the principal and interest of the underlying loans is “passed through” to investors, net of certain costs, including servicing and guarantee fees. Mortgage-backed securities are typically collateralized by pools of one- to four-family or multifamily (loans on properties with 5 or more units) mortgages, although the Bank invests primarily in mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors such as the Bank. The interest rate on the security is lower than the interest rates on the underlying loans to allow for payment of servicing and guaranty fees. Ginnie Mae, a U.S. government agency, and government sponsored enterprises, such as Fannie Mae and Freddie Mac, guarantee the timely payment of principal and interest to investors. Mortgage-backed securities are more liquid than individual mortgage loans since there is an active trading market for such securities. In addition, mortgage-backed securities may be used to collateralize borrowings and public deposits. Investments in mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such interests, thereby affecting the net yield on securities. Current prepayment speeds determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.

Sources of Funds

General. Deposits traditionally have been the primary source of funds for investment and lending activities. The Bank also borrows from the FHLB to supplement cash flow needs. Additional sources of funds include scheduled loan payments, maturing investments, loan repayments, customer repurchase agreements, income on other earning assets and the proceeds of loan sales.

Deposits. Deposits are accepted primarily from the areas in which the Bank’s offices are located. The Bank relies on competitive pricing and products, convenient locations and quality customer service to attract and retain deposits. The Bank offers a variety of deposit accounts with a range of interest rates and terms. The Bank’s deposit accounts consist of savings accounts, certificates of deposit and checking accounts. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and the Bank’s deposit growth goals.

Borrowings. Borrowings consist of short-term borrowings and long term advances from the FHLB, funds borrowed from customers under repurchase agreements, and financing lease liabilities. At December 31, 2019, there were no FHLB short-term borrowings and long-term advances totaled $96.0 million, or 11.4%, of total liabilities. Repurchase agreements totaled $3.7 million, or 0.4%, of total liabilities. Financing lease liabilities totaled $3.1 million, or 0.4%, of total liabilities at December 31, 2019. At December 31, 2019, the Bank had access to additional FHLB borrowings of up to $335.8 million. Short-term borrowings and long-term advances from the FHLB are collateralized by certain qualifying collateral such as loans, with weighted average collateral values determined by the FHLB equal to a least the unpaid amount of outstanding borrowings. Repurchase agreements are secured by municipal and U.S. government obligations.

Subsidiary Activities

The Bank has one active subsidiary, Westmoreland Investment Company, which is a Delaware corporation that holds residential mortgage loans originated and serviced by the Bank.

Expense and Tax Allocation

The Bank has entered into an agreement with the Company to provide it with certain administrative support services, whereby the Bank will be compensated at not less than the fair market value of the services

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provided. In addition, the Bank and the Company have entered into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability.

Personnel

As of December 31, 2019, the Bank had 146 full time and 11 part time employees. The Bank’s employees are not represented by any collective bargaining group. Management believes they have a good working relationship with their employees.

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SUPERVISION AND REGULATION

General

The Bank is supervised and examined by the Pennsylvania Department of Banking and Securities as the issuer of its charter, and by the FDIC as the insurer of its deposits and its primary federal regulator. The Bank is also regulated to a lesser extent by the Federal Reserve Board, governing reserves to be maintained against deposits and other matters. The Bank is also subject to consumer protection rules and regulations issued by the Consumer Finance Protection Bureau although, because it has less than $10.0 billion in total consolidated assets, the FDIC and Pennsylvania Department of Banking and Securities are responsible for examining and supervising the Bank’s compliance with these laws. This system of state and federal regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the FDIC’s deposit insurance fund, depositors, and other customers, and not for the protection of security holders. The Bank is periodically examined by the Pennsylvania Department of Banking and Securities and the FDIC to ensure that it satisfies applicable standards with respect to its capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following examinations, the Pennsylvania Department of Banking and Securities and the FDIC prepare reports for the consideration of the Bank’s Board of Directors on any operating deficiencies. The Bank’s relationship with its depositors is also regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of the Bank’s loan documents.

As a bank holding company, the Company. is required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of the Pennsylvania Department of Banking and Securities and the Federal Reserve Board.

Any change in the applicable laws or regulations, whether by the FDIC, the Pennsylvania Department of Banking and Securities, the Federal Reserve Board or Congress, could have a material adverse impact on the Company, the Bank and their operations.

Set forth below is a brief description of certain regulatory requirements that are applicable to the Bank and the Company. The description below is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on the Bank and the Company.

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), has significantly changed the bank regulatory structure and affected the lending, investment, trading and operating activities of depository institutions and their holding companies. See “Item 1A — Risk Factors — The Dodd-Frank Act may have a material impact on the Bank’s operations and the cost of operations.” Many of the provisions of the Dodd-Frank Act had delayed effective dates and the legislation required various federal agencies to promulgate numerous and extensive implementing regulations over a period of years. Although the effect of all of these regulations cannot be completely determined at this time, it is expected that the legislation and implementing regulations will continue to increase the Bank’s operating and compliance costs.

On May 24, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”) was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the Economic Growth Act maintained most of the regulatory structure established by the Dodd-Frank Act, it amended certain aspects of the regulatory framework for small depository institutions with assets of less than $10.0 billion and for large banks with assets of more than $50.0 billion. Many of these changes could result in meaningful regulatory changes for banks and their holding companies.

It is difficult at this time to predict when or how any new standards under the Economic Growth Act will be applied to, or what specific impact the Economic Growth Act and future regulations related thereto will have on the Company or the Bank.

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Banking Regulation

Pennsylvania Savings Bank Law. The Pennsylvania Banking Code of 1965, as amended (the “Banking Code”), contains detailed provisions governing the organization, operations, corporate powers, savings and investment authority, branching rights and responsibilities of directors, officers and employees of Pennsylvania savings banks. A Pennsylvania savings bank may locate or change the location of its principal place of business and establish an office anywhere in, or adjacent to, Pennsylvania, with the prior approval of the Pennsylvania Department of Banking and Securities. The Banking Code delegates extensive rulemaking power and administrative discretion to the Pennsylvania Department of Banking and Securities in its supervision and regulation of state-chartered savings banks. The Pennsylvania Department of Banking and Securities may order any savings bank to discontinue any violation of law or unsafe or unsound business practice and may direct any trustee, officer, attorney, or employee of a savings bank engaged in an objectionable activity, after the Pennsylvania Department of Banking and Securities has ordered the activity to be terminated, to show cause at a hearing before the Pennsylvania Department of Banking and Securities why such person should not be removed. The Department of Banking and Securities may also appoint a receiver or conservator for an institution in appropriate cases.

Capital Requirements. Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015, and are the result of a final rule implementing recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital generally is defined as common stockholders’ equity and retained earnings. Tier 1 capital generally is defined as common equity Tier 1 plus additional Tier 1 capital, such as certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and certain other items. In assessing an institution’s capital adequacy, the FDIC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions when deemed necessary.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was 2.5% of risk-weighted assets at December 31, 2019.

As a result of the Economic Growth Act, the federal banking agencies were required to develop an optional “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for depository institutions with assets of less than $10.0 billion. A “qualifying community bank” that exceeds this ratio and elects the alternative framework is deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well-capitalized” under Prompt Corrective Action regulations discussed below. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the Community Bank Leverage Ratio option. The federal banking agencies were required to set the minimum capital for the new Community Bank Leverage Ratio at not less than 8.0% and not more than 10.0%. A final rule was issued, effective January 1, 2020, establishing the ratio at 9% tier 1 capital to total consolidated assets.

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The Bank is also subject to capital guidelines of the Pennsylvania Department of Banking and Securities. The Pennsylvania Department of Banking and Securities requires 4.0% leverage capital and incorporates the federal risk-based requirements. The components of capital are substantially the same as those defined by the FDIC. At December 31, 2019, the Bank’s capital exceeded all applicable requirements.

Prompt Corrective Action. Under federal regulations, as amended to incorporate the previously referenced revised capital requirements, a bank is considered to be (i) “well capitalized” if it has total risk-based capital of 10.0% or more, Tier 1 risk-based capital of 8.0% or more, common equity Tier 1 risk-based capital of 6.5% or more and Tier 1 leverage capital of 5.0% or more and is not subject to any written capital order or directive; (ii) “adequately capitalized” if it has total risk-based capital of 8.0% or more, Tier 1 risk-based capital of 6.0% or more, common equity Tier 1 risk-based capital of 4.5% or more and Tier 1 leverage capital of 4.0% or more and does not meet the definition of “well capitalized”; (iii) “undercapitalized” if it has total risk-based capital of less than 8.0%, Tier 1 risk-based capital of less than 6.0%, common equity Tier 1 risk-based capital of 4.5% or less or Tier 1 leverage capital of less than 4.0%; (iv) “significantly undercapitalized” if it has total risk-based capital of less than 6.0%, Tier 1 risk-based capital less than 4.0% common equity Tier 1 risk-based capital of less than 3.0, or Tier 1 leverage capital of less than 3.0%; and (v) “critically undercapitalized” if its ratio of tangible equity to total assets is equal to or less than 2.0%. Federal regulations also specify circumstances under which a federal banking agency may reclassify a well capitalized institution as adequately capitalized, and may require an adequately capitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). As of December 31, 2019, the Bank was “well-capitalized” for this purpose and exceeded all applicable capital requirements.

Federal law provides for certain supervisory measures for undercapitalized institutions including restrictions on capital distributions and asset growth and the requirement that a capital restoration plan be filed with the FDIC within 45 days of the date an institution receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the institution will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the institution. Any holding company for an institution required to submit a capital restoration plan must guarantee the lesser of an amount equal to 5% of the institution’s assets at the time it was notified or deemed to be undercapitalized by the FDIC or the amount necessary to restore the institution to adequately capitalized status. This guarantee remains in place until the FDIC notifies the institution that it has maintained adequately capitalized status for each of four consecutive calendar quarters, and the FDIC has the authority to require payment and collect payment under the guarantee. The FDIC may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Generally, the FDIC is required to appoint a receiver or conservator for an institution that is “critically undercapitalized” within specific time frames.

Loans-to-One-Borrower Limitation. Under applicable regulations, with certain limited exceptions, a Pennsylvania chartered savings bank may lend to a single or related group of borrowers on an “unsecured” basis an amount equal to 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured by readily marketable collateral, which is defined to include certain financial instruments and bullion, but generally does not include real estate. As a prudent lending practice, however, Management and the Board of Directors have established an internal limitation for approval purposes based on the total exposure of a relationship. The formula to determine the Bank’s internal limitation is Tangible Capital times 15% times 50%. This limitation is a rolling number based on the Bank’s capital balance, and is measured at the end of each calendar quarter. The internal limitation as of December 31, 2019 was $8.5 million. Any new loan request that results in an exposure for approval purposes that exceeds this limitation must be presented to the full Board of Directors for decisioning.

Activities and Investments of Insured State-Chartered Banks. Federal law generally limits the types and amounts of equity investments of state-chartered banks insured by the FDIC to those that are

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permissible for national banks. An insured state bank is not prohibited from, among other things: (i) acquiring or retaining a majority interest in a subsidiary that is engaged in permissible activities; (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation, or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets; (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures liability insurance for directors, trustees or officers, or blanket bond group insurance coverage for insured depository institutions; and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met. The direct or indirect activities of a state-chartered bank are similarly generally limited to those of a national bank. Exceptions include where approval is received for the activity from the FDIC.

Capital Distributions. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the FDIC Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. Federal banking regulators have the authority to prohibit banks and bank holding companies from paying a dividend if the regulators deem such payment to be an unsafe or unsound practice. The Bank is also subject to regulatory restrictions on the payment and amounts of dividends under the Banking Code. The Banking Code states, in part, that dividends may be declared and paid by the Bank only out of accumulated net earnings.

Community Reinvestment Act and Fair Lending Laws. Under the Community Reinvestment Act of 1977 (“CRA”), the FDIC is required to assess the record of all financial institutions regulated by it to determine if such institutions are meeting the credit needs of the community (including low-and moderate-income areas) which they serve. CRA performance evaluations are based on a four-tiered rating system: Outstanding, Satisfactory, Needs to Improve and Substantial Noncompliance. CRA performance evaluations are considered in evaluating applications for such things as mergers, acquisitions and applications to open branches. The Bank has a current CRA rating of “Satisfactory.”

Transactions with Related Parties. Transactions between banks and their related parties or affiliates are limited by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the bank.

Generally, Sections 23A and 23B of the Federal Reserve Act (i) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to non-affiliates. The term “covered transaction” includes the making of a loan to, purchase of assets from, issuance of a guarantee on behalf of and similar transactions with an affiliate. In addition, loans or other extensions of credit by the institution to the affiliate must be collateralized in accordance with the requirements set forth in Section 23A of the Federal Reserve Act.

The Sarbanes-Oxley Act of 2002 generally prohibits loans by a company to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws, assuming such loans are also permitted under the law of the institution’s chartering state. Under such laws, the Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities under such person’s control, is limited. The law limits both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position and requires certain board of directors, approval procedures to be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are further limited to specific categories.

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Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action.

Insurance of Deposit Accounts. The Bank is a member of the Deposit Insurance Fund, which is administered by the FDIC. Deposit accounts in the Bank are insured by the FDIC up to a maximum of $250,000 for each separately insured depositor.

The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund. Under the FDIC’s risk-based assessment system, institutions deemed less risky pay lower assessments. Assessments for institutions with less than $10.0 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years. That system, effective July 1, 2016, replaced the previous system under which institutions were placed into risk categories.

The Dodd-Frank Act required the FDIC to revise its procedures to base assessments upon each insured institution’s total assets less tangible equity instead of deposits. The FDIC finalized a rule, effective April 1, 2011, that set the assessment range at 2.5 to 45 basis points of total assets less tangible equity. In conjunction with the Deposit Insurance Fund’s reserve ratio achieving 1.15%, the assessment range (inclusive of possible adjustments) was reduced for insured institutions of less than $10.0 billion of total assets to a range of 1.5 basis points to 30 basis points, effective July 1, 2016.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC was required to seek to achieve the 1.35% ratio by September 30, 2020. The Dodd-Frank Act required insured institutions with assets of $10.0 billion or more to fund the increase from 1.15% to 1.35% and, effective July 1, 2016, such institutions were subject to a surcharge to achieve that goal. In November 2018, the FDIC announced that the 1.35% ratio had been achieved. Institutions with less than $10 billion in assets will be receiving credits to the extent that their assessment payments contributed to raising the ratio between 1.15% and 1.35%. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC, and the FDIC has exercised that discretion by establishing a long-term fund ratio of 2.0%.

The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of by the Bank. Future insurance assessments cannot be predicted.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The Bank does not currently know of any practice, condition or violation that may lead to termination of its deposit insurance.

Enforcement. The FDIC has extensive enforcement authority over insured state savings banks, including the Bank. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and capital directives and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the Federal Home Loan Bank of Pittsburgh, the Bank is required to acquire and

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hold shares of capital stock in the Federal Home Loan Bank. As of December 31, 2019, the Bank was in compliance with this requirement.

Other Regulations

Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank’s operations are also subject to federal laws applicable to credit transactions.

Bank Holding Company Regulations. As a bank holding company, the Company is subject to regulation and examination by the Pennsylvania Department of Banking and Securities and the Federal Reserve Board. The Company is required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The BHC Act requires each bank holding company to obtain the approval of the Federal Reserve Board before it may acquire substantially all the assets of any bank, or before it may acquire ownership or control of any voting shares of any bank if, after such acquisition, it would own or control, directly or indirectly, more than five percent of the voting shares of such bank. Such a transaction may also require approval of the Pennsylvania Department of Banking and Securities.

Pursuant to provisions of the BHC Act and regulations promulgated by the Federal Reserve Board thereunder, the Company may only engage in or own companies that engage in activities deemed by the Federal Reserve Board to be so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto, and the holding company must obtain permission from the Federal Reserve Board prior to engaging in most new business activities. A bank holding company that meets certain criteria may become a “financial holding company” and thereby engage in a broader range of financial activities, including insurance underwriting and investment banking. The Company has not elected to become a financial holding company.

The Federal Reserve Board has adopted consolidated capital requirements for bank holding companies with assets of $3.0 billion or greater. The Dodd-Frank Act required the Federal Reserve Board to revise its holding company consolidated capital requirements so that they are no less stringent than those applicable to insured depository institutions. The previously referenced regulatory capital requirements applicable to banks also apply to bank holding companies with consolidated assets of $3.0 billion or more. Such capital requirements would apply to the Company at such time as its size met that threshold.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Federal Reserve Board policies require a bank holding company to consult with the agency prior to paying dividends or repurchasing its stock under certain circumstances. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory requirements and policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.

Change in Control Regulations. Under the Change in Bank Control Act, no person may acquire control of a bank holding company unless the Federal Reserve Board has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal regulations, means ownership, control of or holding more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable determination of control under

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the regulations under certain circumstances, including where the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. In addition, federal regulations provide that no company may acquire control of a bank holding company (as “control” is defined in the BHCA Act) without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve Board.

Federal Securities Laws

The Company’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. The Company is subject to the information and other requirements under the Securities Exchange Act of 1934.

The Company’s common stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, the Company’s Chief Executive Officer and Chief Financial Officer are required to certify that the Company’s quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of the Company’s internal control over financial reporting; they have made certain disclosures to the Company’s auditors and the audit committee of the Board of Directors about internal control over financial reporting; and they have included information in the Company’s quarterly and annual reports about their evaluation and whether there have been changes in the Company’s internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.

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TAXATION

Federal Taxation

General. The Company and the Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company and the Bank.

Method of Accounting. For federal income tax purposes, the Bank will file a consolidated tax return with the Company and will report income and expenses on the accrual method of accounting and use a calendar year ending December 31st for filing their consolidated federal income tax returns.

Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent alternative minimum taxable income is in excess of an exemption amount. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. At December 31, 2019, the Company had no alternative minimum tax credit carryforward.

Net Operating Loss Carryovers. At December 31, 2019, the Company had no net operating loss carryovers for federal income tax purposes.

Corporate Dividends. The Company will be able to exclude from income 100% of dividends received from the Bank as a member of the same affiliated group of corporations.

Audit of Tax Returns. The 2014 federal tax return was audited by the Internal Revenue Service in 2016 with no changes to the return as filed. There are no audits of any open tax years currently underway.

State Taxation

The Bank is subject to the Pennsylvania, Maryland and West Virginia Corporate Net Income tax which is allocated between the states and calculated at 11.50%, 8.25% and 6.50%, respectively, based on taxable income applicable to the individual states. The Company’s state income tax returns, as applicable, have not been audited in the most recent five year period.

ITEM 1A. Risk Factors

Because the Bank intends to emphasize commercial real estate and commercial business loan originations, the Company’s credit risk could increase and continued weakness in the local real estate market or economy could adversely affect its earnings.

The Bank intends to emphasize originating commercial real estate and commercial business loans. Because the repayment of commercial real estate and commercial business loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the local real estate market or economy. Commercial real estate and commercial business loans generally have more risk than one- to four-family residential real estate loans. Commercial real estate and commercial business loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. Any continued weakness or downturn in the real estate market or the local economy could adversely affect the value of properties securing the loan or the revenues from the borrower’s business, thereby increasing the risk of nonperforming loans. As the Bank’s commercial real estate portfolio increases, the corresponding risks and potential for losses from these loans may also increase.

If the Bank’s allowance for loan losses is not sufficient to cover actual loan losses, the Company’s earnings will decrease.

The Bank makes various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as

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collateral for the repayment of many of the loans. In determining the amount of the allowance for loan losses, management reviews the Bank’s loans and the loss and delinquency experience and evaluates economic conditions. If management’s assumptions are incorrect, the Bank’s allowance for loan losses may not be sufficient to cover losses inherent in the loan portfolio, resulting in additions to the Bank’s allowance. Material additions to the Bank’s allowance could materially decrease the Company’s net income.

In addition, bank regulators periodically review the Bank’s allowance for loan losses and may require the Bank to increase the allowance for loan losses or recognize further loan charge-offs. Any increase in the Bank’s allowance for loan losses or loan charge-offs as required by these regulatory authorities might have a material adverse effect on the Company’s financial condition and results of operations.

The Financial Accounting Standards Board (“FASB”) has adopted Accounting Standard Update (“ASU”) 2016-13. This standard, often referred to as “CECL” (reflecting a current expected credit loss model), will require companies to recognize an allowance for credit losses based on estimates of losses expected to be realized over the contractual lives of the loans. Under current U.S. GAAP, companies generally recognize credit losses only when it is probable that a loss has been incurred as of the balance sheet date. This new standard will require the Bank to collect and review increased types and amounts of data for management to determine the appropriate level of the allowance for loan losses, and may require the Bank to increase the allowance for loan losses. Any increase in the Bank’s allowance for loan losses or expenses may have a material adverse effect on the Company’s financial condition and results of operations. In November 2019, the FASB issued ASU 2019-10 which defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Bank’s management will continue to work through the provisions of the ASU to determine what impact it will have on the consolidated financial statements.

Future changes in interest rates could reduce the Company’s profits.

The Company’s ability to make a profit largely depends on the Company’s net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between the interest income the Company earns on interest-earning assets, such as loans and investment securities, and the interest expense the Company pays on interest-bearing liabilities, such as deposits and borrowings.

The majority of the Bank’s portfolio loans have fixed interest rates. Additionally, many of the Company’s investment securities have fixed interest rates. Like many financial institutions, the Bank’s focus on deposit accounts as a source of funds, which have no stated maturity date or short contractual maturities, results in the Company’s liabilities having a shorter duration than its assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on assets, such as loans and investments, may not increase as rapidly as the interest paid on liabilities, such as deposits. In a period of declining interest rates, the interest income earned on assets may decrease more rapidly than the interest paid on liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities and callable investment securities are called or prepaid, thereby requiring the Company to reinvest the cash flows at lower interest rates.

Changes in interest rates creates reinvestment risk, which is the risk that the Company may not be able to reinvest prepayments at rates that are comparable to the rates earned on the prepaid loans or investment securities in a declining interest rate environment. Additionally, increases in interest rates may decrease loan demand and/or make it more difficult for borrowers to repay adjustable-rate loans. Changes in interest rates also affect the current fair value of the Company’s interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2019, a “rate shock” analysis indicated that the Company’s net portfolio value (the difference between the present value of assets and the present value of liabilities) would decrease by approximately $3.8 million, or 2.42%, if there was an instantaneous 200 basis point increase in market interest rates.

Downturns in the local real estate market or economy could adversely affect the Company’s earnings.

A downturn in the real estate market or the local economy could adversely affect the value of properties securing the loan or the revenues from the borrower’s business, thereby increasing the risk of nonperforming

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loans. If the Company is required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, the earnings and shareholders’ equity could be adversely affected. The declines in real estate prices in the Company’s markets also may result in increases in delinquencies and losses in the loan portfolios. Unexpected decreases in real estate prices coupled with a prolonged economic recovery and elevated levels of unemployment could drive losses beyond that which is provided for in the Company’s allowance for loan losses. In that event, the Company’s earnings could be adversely affected.

A worsening of economic conditions could adversely affect the Company’s financial condition and results of operations.

During the financial crisis, there were dramatic declines in the housing market, where falling real estate values and increasing foreclosures, unemployment, and under-employment negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions. The Bank’s lending business is tied, in large part, to the housing market and real estate markets in general. A return to these conditions or a general decline in economic conditions could result in more limited demand for the construction of new housing, and weakness in home pricing, and could ultimately result in increased delinquencies on the Bank’s residential real estate loans, commercial real estate loans, commercial business loans, home equity loans and lines of credit and consumer loans. These conditions may also cause a further reduction in loan demand, and increases in the Bank’s non-performing assets, net charge-offs and provisions for loan losses, as well as adversely affect the Company’s liquidity and the willingness of certain counterparties and customers to do business with the Company. Negative developments in the financial services industry and the domestic and international credit markets may significantly affect the markets in which the Company does business, the market for and value of the loans and investments, and ongoing operations, costs and profitability. Moreover, declines in the stock market in general, or stock values of financial institutions and their holding companies specifically, could adversely affect the Company’s stock performance.

Acts of terrorism, severe weather, natural disasters, pandemics, public health issues and other external events could impact the Company’s ability to conduct business.

The Company’s business is subject to risk from external events that could affect the stability of the Bank’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause the Company to incur additional expenses. For example, financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising their operating and communication systems. Additionally, there could be sudden increases in electrical, telecommunications or other major physical infrastructure outages, natural disasters, the emergence of widespread health emergencies or pandemics, events arising from local or larger scale political or social matters, including terrorist acts, and cyber-attacks. Events such as these may become more common in the future and could cause significant damage, such as disrupt power and communication services, impact the stability of the Company’s facilities and result in additional expenses, impair the ability of the Bank’s borrowers to repay their loans and reduce the value of collateral securing the repayment of the Bank’s loans, which could result in the loss of revenue. While the Company has established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on the Company’s business, operations and financial condition.

Changes in the valuation of the Company’s securities portfolio could adversely affect the Company.

As of December 31, 2019, the Company’s investment securities portfolio, which includes government agency securities, mortgage-backed securities, municipal obligations, corporate bonds and marketable equity securities totaled $164.3 million, or 16.7% of the Company’s total assets. The Company’s securities portfolio may be impacted by fluctuations in market value, potentially reducing earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management evaluates securities for other-than-temporary impairment on a quarterly basis, with more frequent evaluation for selected issues. In analyzing a debt issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, industry analysts’ reports and, to a lesser extent given the relatively insignificant levels of depreciation in the Company’s debt portfolio, spread differentials between the effective

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rates on instruments in the portfolio compared to risk-free rates. Changes in interest rates can also have an adverse effect on the Company’s financial condition, as the Company’s available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. The declines in fair value could result in charges to earnings that could have a material adverse effect on the Company’s net income and capital levels.

Financial reform legislation has increased the Company’s costs of operations.

The Dodd-Frank Act has significantly changed the regulation of banks and savings institutions and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act required various federal agencies and regulators to adopt a broad range of new rules and regulations intended to place significant restrictions and requirements on financial institutions and to prepare numerous studies and reports for Congress. Almost immediately following the 2016 election, the Administration indicated they would support plans for Dodd-Frank reform. In 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act (“S. 2155”) was passed by Congress and signed by the President. While S. 2155 provided some regulatory relief for mortgage lending, regulatory reporting and length of examination cycles, capital requirements and appraisals, among others, it did not impact most of the restrictions and requirements in the Dodd-Frank Act. While there are efforts for more reform of Dodd-Frank, the Company cannot predict whether those efforts will be successful and the extent to how those changes will impact business, operations or financial condition. However, compliance with the remaining provisions of the Dodd-Frank Act and its implementing regulations and policies continue to have a significant impact on the Company’s business and operations, as well as additional costs, and have diverted management's time from other business activities, which adversely affects the Company’s financial condition and results of operations.

The short-term and long-term impact of the changing regulatory capital requirements and new capital rules may adversely affect the Company’s returns on equity and ability to pay dividends or repurchase stock.

In July 2013, the FDIC and the other federal bank regulatory agencies revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), set the leverage ratio at a uniform 4% of total assets, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to certain exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” consisting of 2.50% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital requirements. The final rule became effective January 1, 2015. The “capital conservation buffer was fully phased in at 2.50% on January 1, 2019.

The application of these more stringent capital requirements could, among other things, result in lower returns on equity, and result in regulatory actions if the Company was to be unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in the Company having to lengthen the term of funding, restructure business models, and/or increase holdings of liquid assets.

Government responses to economic conditions may adversely affect the Company’s operations, financial condition and earnings.

The Company is subject to extensive regulation, supervision and examination by the Pennsylvania Department of Banking and Securities, the FDIC and the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of the Company’s common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on the Company’s operations,

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the classification of assets and determination of the level of allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on the Company’s operations.

Financial reform legislation has changed the bank regulatory framework, created an independent consumer protection bureau that has assumed the consumer protection responsibilities of the various federal banking agencies, and established more stringent capital standards for banks and bank holding companies. The legislation has also resulted in new regulations affecting the lending, funding, trading and investment activities of banks and bank holding companies. Bank regulatory agencies also have been responding aggressively to concerns and adverse trends identified in examinations. Ongoing uncertainty regarding the effect of new legislation and regulatory actions may adversely affect the Company’s operations by restricting business activities, including the ability to originate or sell loans, modify loan terms, or foreclose on property securing loans. These measures are likely to increase the Company’s costs of doing business and may have a significant adverse effect on lending activities, financial performance and operating flexibility. In addition, these risks could affect the performance and value of the Company’s loan and investment securities portfolios, which also would negatively affect the Company’s financial performance.

In addition, there have been proposals made by members of Congress and others that would reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral. Were proposals such as these, or other proposals limiting the Company’s rights as a creditor, to be implemented, the Company could experience increased credit losses or increased expense in pursuing remedies as a creditor.

A New Accounting Standard May Require the Bank to Increase the Allowance For Loan Losses and May Have a Material Adverse Effect on the Company’s Financial Condition and Results of Operations.

The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for the Company for the 2023 fiscal year. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which may require the Bank to increase the allowance for loan losses, and to greatly increase the types of data it would need to collect and review to determine the appropriate level of the allowance for loan losses. Any increase in the Bank’s allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on the Company’s financial condition and operating results.

The Company’s Business Is Reliant on Outside Vendors.

The Company’s business is highly dependent on the use of certain outside vendors for day-to-day operations. The Company’s operations are exposed to risk that a vendor may not perform in accordance with established performance standards required in the agreements for any number of reasons including a change in their senior management, their financial condition, their product line or mix and how they support existing customers, or a simple change in their strategic focus. While the Company has comprehensive policies and procedures in place to mitigate risk at all phases of vendor management from selection, to performance monitoring and renewals, the failure of a vendor to perform in accordance with contractual agreements could be disruptive to business, which could have a material adverse effect on the financial condition and results of operations.

Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk.

The Company’s financial performance depends, in part, on the ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate products or provide cost efficiencies, while avoiding increased related expenses. This dependency is exacerbated in the current “FinTech” environment, where financial institutions are investing significantly in evaluating new technologies, such as artificial intelligence and digital delivery channels, and developing potentially industry-changing new products, services and industry standards. The introduction of new products and services can entail significant time and resources, including regulatory approvals. Substantial risks and uncertainties are associated with the

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introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry. The Company’s ability to access technical and other information from clients, the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices and the preparation of marketing, sales and other materials that fully and accurately describe the product or service and underlying risks. The Company’s failure to manage these risks and uncertainties also exposes it to enhanced risk of operational lapses which may result in the recognition of financial statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationships and shifting market preferences may also determine if such initiatives can be brought to market in a manner that is timely and attractive to the Company’s clients. Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on the Company’s business and reputation, as well as on consolidated results of operations and financial condition.

The flattening or inversion of the yield curve may adversely affect the Company’s net interest income and profitability.

In 2017 and 2018 the Federal Reserve Board increased the federal funds target rate by 200 basis points, which resulted in increased in short-term rates, such as the cost of deposits the cost of overnight borrowings, while long-term rates on loans and securities did not rise as much, resulting in a flattening of the yield curve. In 2019, the Federal Reserve decreased the federal funds target rate by 75 basis points. Nevertheless, the yield curve continued to remain flat. A flat yield curve combined with low interest rates generally leads to lower revenue and reduced margins because it tends to limit the Company’s ability to increase the spread between asset yields and funding costs. Sustained periods of time with a flat yield curve coupled with low interest rates, or an inversion of the yield curve, could have a material effect on the Company’s net interest margin and earnings.

The Company’s ability to pay dividends is subject to limitations.

The merger agreement between the Standard and Allegheny Valley contemplated that, unless 75% of the Board of Directors determines otherwise for the two years following the closing of the merger and 662∕3% of the Board of Directors for the three years thereafter, the combined company will pay a quarterly cash dividend in an amount no less than $0.221 per share for five years after the effective time of the merger, provided that sufficient funds are legally available, and that the Company and the Bank remain “well-capitalized” in accordance with applicable regulatory guidelines.

The Company’s ability to pay dividends depends on the receipt of dividends from direct and indirect subsidiaries. The Bank is the Company’s primary source of dividends. As a state-chartered bank, the Bank is subject to regulatory restrictions on the payment and amounts of dividends under the Pennsylvania Banking Code.

Further, the ability of banking subsidiaries to pay dividends is also subject to their profitability, financial condition, capital expenditures and other cash flow requirements. There is no assurance that the Company’s subsidiaries will be able to pay the dividends contemplated by the merger agreement or other dividends in the future or that the Company will generate adequate cash flow to pay dividends in the future. The Company’s failure to pay dividends on common stock could have a material adverse effect on the market price of the common stock.

The Company will continue to incur significant costs to ensure compliance with corporate governance and accounting requirements.

The Company expects to continue to incur significant costs associated with public company reporting requirements, costs associated with applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. The Company expects all of these applicable rules and regulations will continue to increase legal and financial compliance costs and to make some activities more time-consuming and costly.

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The Company’s success will depend upon the ability of management to attract and retain talent.

The business success of the Company and the Bank depends to a great extent upon the services of their directors and executive officers. Management’s ability to operate the Company profitably will require the acquisition of new knowledge and skills. In particular, if the Company expands geographically or expands to provide non-banking services through the acquisition or formation of additional subsidiaries, current management may not have the necessary experience for successful operation in these new areas. There is no guarantee that management would be able to meet these new challenges or that the Company would be able to retain new directors or personnel with the appropriate background and expertise.

Strong competition within the Company’s market areas may limit growth and profitability.

Competition in the banking and financial services industry is intense. In the Company’s market areas it competes with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Some of the Company’s competitors have greater name recognition and market presence that benefits them in attracting business, and offer certain services that the Company does not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than the Company does, which could affect the ability to grow and remain profitable on a long-term basis. The Company’s profitability depends upon its continued ability to successfully compete in its market areas. This could become increasingly difficult if some competitors in the Bank’s market areas price loans and deposits irrationally. If the Company must raise interest rates paid on deposits or lower interest rates charged on loans, the net interest margin and profitability could be adversely affected. For additional information see “Item 1 — Business — Standard Bank — Competition.”

The Company may be adversely affected by recent changes in U.S. tax laws.

Changes in tax laws contained in the Tax Cuts and Jobs Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking industry, borrowers and the market for single-family residential real estate. Changes include (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for certain home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes.

The recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in the Bank’s loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in the Bank’s provision for loan losses, which would reduce the Company’s profitability and could materially adversely affect business, financial condition and results of operations.

A failure in or breach of the Company’s operational or security systems or infrastructure, or those of third parties, could disrupt the Company’s businesses, and adversely impact the results of operations, liquidity and financial condition, as well as cause reputational harm.

The Company collects, processes and stores sensitive consumer data by utilizing computer systems and telecommunications networks operated by both the Bank and third-party service providers. The Company’s operational and security systems, infrastructure, including computer systems, data management, and internal processes, as well as those of third parties, are integral to the Company’s business. The Company relies on employees and third parties in day-to-day and ongoing operations, who may, as a result of human error, misconduct or malfeasance, or failure or breach of third- party systems or infrastructure, expose the Company to risk. The Company has taken measures to implement backup systems and other safeguards to support operations, but the ability to conduct business may be adversely affected by any significant

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disruptions to the Company or to third parties with whom it interacts. In addition, the Company’s ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with its own systems.

The Company handles a substantial volume of customer and other financial transactions every day. The Company’s financial, accounting, data processing, check processing, electronic funds transfer, loan processing, online and mobile banking, automated teller machines, or ATMs, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond its control. This could adversely affect the Company’s ability to process these transactions or provide these services. There could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale political or social matters, including terrorist acts, and cyber attacks. The Company continuously updates these systems to support operations and growth. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones. Operational risk exposures could adversely impact the Company’s results of operations, liquidity and financial condition, and cause reputational harm.

A cyber attack, information or security breach, or a technology failure of the Company’s or of a third-party could adversely affect the Company’s ability to conduct business or manage exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase the Company’s costs to maintain and update operational and security systems and infrastructure, and adversely impact the Company’s results of operations, liquidity and financial condition, as well as cause reputational harm.

The Company’s business is highly dependent on the security and efficacy of its infrastructure, computer and data management systems, as well as those of third parties with whom it interacts. Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. The Company’s operations rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in computer and data management systems and networks, and in the computer and data management systems and networks of third parties. The Company relies on digital technologies, computer, database and email systems, software, and networks to conduct operations. In addition, to access the Company’s network, products and services, customers and third parties may use personal mobile devices or computing devices that are outside of the Company’s network environment.

Financial services institutions have been subject to, and are likely to continue to be the target of, cyber attacks, including computer viruses, malicious or destructive code, phishing attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, employees or customers of third parties, or otherwise materially disrupt network access or business operations. For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers. The Company has experienced cyber security incidents in the past, although not material, and it anticipates that, as a larger bank, it could experience further incidents. There can be no assurance that the Company will not suffer material losses or other material consequences relating to technology failure, cyber attacks or other information or security breaches.

Misconduct by employees could also result in fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information. The Company may not be able to prevent employee errors or misconduct, and the precautions the Company takes to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject the Company to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on business.

In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. The recent massive breach of the systems of a credit bureau presents additional threats as criminals now have more information about a larger portion of the population of the United States

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than past breaches have involved, which could be used by criminals to pose as customers initiating transfers of money from customer accounts. Although the Company has policies and procedures in place to verify the authenticity of customers, the Company cannot assure that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to its reputation.

As cyber threats and other fraudulent activity continues to evolve, the Company may be required to expend significant additional resources to continue to modify and enhance protective measures or to investigate and remediate any information security vulnerabilities or incidents. Any of these matters could result in the Company’s loss of customers and business opportunities, significant disruption to operations and business, misappropriation or destruction of confidential information and/or that of its customers, or damage to customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs. In addition, any of the matters described above could adversely impact the Company’s results of operations and financial condition.

The Company’s stock price may be volatile due to limited trading volume.

The Company’s common stock is quoted on the NASDAQ market place. However, the average daily trading volume in the Company’s common stock has been relatively small. As a result, trades involving a relatively small number of shares may have a significant effect on the market price of the common stock, and it may be difficult for investors to acquire or dispose of large blocks of stock without significantly affecting the market price.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

The Bank operates from seventeen full service branches located in Allegheny, Westmoreland and Bedford counties in Pennsylvania and Allegany County, Maryland. The Bank considers its primary market area to be eastern Allegheny, Westmoreland, northern Fayette and southern Bedford counties in Pennsylvania and Allegany County, Maryland. The net book value of its office, properties and equipment was $9.9 million at December 31, 2019.

The following table sets forth information with respect to the full-service banking offices, including the expiration date of leases with respect to leased facilities.

Branch Name	Address	Owned or Leased
Cumberland	200 N. Mechanic Street Cumberland, MD 21502	Owned
LaVale	1275 National Highway LaVale, MD 21502	Owned
Blawnox	201 Freeport Road Pittsburgh, PA 15238	Owned
Green Tree	Four Parkway Center #100 875 Greentree Road Pittsburgh, PA 15220	Leased (expires 1/31/2020)
Greensburg	5150 Route 30 Greensburg, PA 15601	Leased (expires 4/30/2026)
Hyndman	3945 Center Street Hyndman, PA 15545	Owned
Lawrenceville	5137 Butler Street Pittsburgh, PA 15201	Owned

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Branch Name	Address	Owned or Leased
Ligonier	211 W. Main Street Ligonier, PA 15658	Owned
McKnight Road	7703 McKnight Road Pittsburgh, PA 15237	Leased (expires 6/30/2030)
Monroeville (Corporate Headquarters)	2640 Monroeville Boulevard Monroeville, PA 15146	Owned
Mount Pleasant	659 W. Main Street Mt Pleasant, PA 15666	Owned
Mt. Troy	2000 Mt. Troy Road Pittsburgh, PA 15212	Owned
Murrysville	4785 Old William Penn Highway Murrysville, PA 15668	Owned
Pittsburgh (downtown)	Lawyers Building 428 Forbes Avenue Pittsburgh, PA 15219	Leased (expires 10/31/2025)
Scottdale	100 Pittsburgh Street Scottdale, PA 15683	Owned
Shaler	900 Mt. Royal Boulevard Pittsburgh, PA 15223	Owned
Shaler Drive-Thru	1100 Mt. Royal Boulevard Pittsburgh, PA 15223	Owned

ITEM 3. Legal Proceedings

From time to time, the Company is involved as plaintiff or defendant in various legal proceedings arising in the ordinary course of business. At December 31, 2019, the Company was not involved in any legal proceedings, the outcome of which management believes would be material to the Company’s financial condition or results of operations.

ITEM 4. Mine Safety Disclosures

Not Applicable.

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PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s common stock trades on the NASDAQ market place under the symbol “STND.” As of December 31, 2019, the Company had 4,689,354 shares of common stock outstanding and 558 stockholders of record. Certain shares of the Company are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

Equity Compensation Plan Information

Set forth below is information as of December 31, 2019 regarding equity compensation plans that have been approved by stockholders. The Company has no equity based benefit plans that were not approved by stockholders.

Equity compensation plansapproved by stockholders	Number of securities to beissued upon exercise ofoutstanding options, warrants,and rights		Weighted averageexercise price(1)			Number of securities availablefor future issuance underequity compensation plans
Standard Financial Corp. 2012 Equity Incentive Plan		212,080		$	16.50		101,144
Allegheny Valley Bankcorp, Inc 2011 Stock Incentive Plan		35,701		$	20.46		72,588

(1)

Reflects exercise price of options only.

Recent Sales of Unregistered Securities

There were no unregistered sales of equity securities during the year ended December 31, 2019.

Issuer Purchases of Equity Securities

The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of common stock of the Company during the fourth quarter of 2019:

Period	Total Number ofShares Purchased		Average PricePaid Per Share			Total Number ofShares Purchased asPart of PublicallyAnnounced Plansor Programs		MaximumNumber of SharesThat May Yet BePurchased Underthe Plans or Programs(1)
October 1 – 31, 2019		6,250		$	27.47		6,250		106,211
November 1 – 30, 2019		5,000			28.00		5,000		101,211
December 1 – 31, 2019		—			—		—		101,211
Totals		11,250		$	18.49		11,250

(1)

On December 19, 2018, the Company announced that the Board of Directors authorized the repurchase of up to 240,000 shares, or approximately 5% of the Company’s outstanding common stock. The stock repurchase program may be carried out through open market purchases, block trades, negotiated private transactions or pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission rules. The stock will be repurchased on an ongoing basis and will be subject to the availability of stock, general market conditions, the trading prices of the stock, alternative uses for capital and the Company’s financial performance. The stock repurchase program has an expiration date of May 26, 2020.

On January 29, 2020, the Company announced that its Board of Directors approved a new stock repurchase program. The new stock repurchase program is to be implemented upon the completion of the

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Company’s current stock repurchase program which had 101,211 shares available for repurchased at December 31, 2019. Pursuant to the new stock repurchase program, the Company may repurchase up to an additional 230,000 shares of its common stock, or approximately 5% of its current outstanding shares.

ITEM 6. Selected Financial Data

Not applicable.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section is intended to help potential investors understand the Company’s financial performance through a discussion of the factors affecting its financial condition at December 31, 2019 and December 31, 2018, and the Company’s consolidated results of operations for the year ended December 31, 2019. This section should be read in conjunction with the audited consolidated financial statements and notes that appear elsewhere in this Annual Report.

Overview

The Company provides a wide array of consumer and commercial financial products and services to individuals, families and small to medium-sized businesses through 17 banking offices located in the Pennsylvania counties of Allegheny, Westmoreland and Bedford and Allegany County, Maryland through its wholly-owned subsidiary Standard Bank. In addition to providing traditional banking services, the Bank offers enhanced investment advisory, brokerage, and insurance services.

The primary sources of funds consist of deposit inflows, loan repayments and sales, advances and short-term borrowings from the FHLB and repurchase agreements and maturities, principal repayments and sales of available for sale securities.

Building shareholder value through consistent earnings remains the Company’s primary focus. The Company’s key performance metrics are net income, return on average assets, return on average equity, the efficiency ratio and non-performing assets to total assets.

The primary source of earnings is net interest income. Operational results can be affected by a wide range of factors including general and local economic and competitive conditions, changes in market interest rates and actions of regulatory authorities. The Company continues to focus on managing the interest rate margin and maximizing earnings from sources other than interest income, controlling non-interest expenses and maintaining strong asset quality.

Business Strategy

The Bank’s primary objective is to operate as a profitable, community-oriented financial institution serving customers in its market areas. The Bank is seeking to accomplish this objective by pursuing a business strategy that is designed to maintain core profitability, strong capital and high asset quality. This business strategy includes the following elements:

•

Remaining a community-oriented financial institution while continuing to increase the customer base of small and medium-size businesses in the market area. The Bank was established in 1913 and has operated continuously in southwestern Pennsylvania since that date. In 2017, the Bank merged with Allegheny Valley and expanded its footprint in the Pittsburgh market area. The Bank is committed to meeting the financial needs of the communities in which it operates, and is dedicated to providing quality personal service to customers. The Bank provides a broad range of business and consumer financial services from seventeen community banking offices. Relationship banking is the core focus with a strong emphasis to increase small and medium-sized businesses in the market area.

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~~Increasing~~PART commercial real estate and business lending while maintaining conservative loan underwriting standards. The largest increase in the Bank’s loan portfolio balance in recent years has been to the growth in the commercial loan portfolio. Commercial real estate and business loans totaled approximately $371.4 million, or 51.7% of the gross loan portfolio at December 31, 2019. In growing the commercial loan portfolio, the Bank has emphasized maintaining strong asset quality by I

ITEM 1. Business

28Forward-Looking Statements

~~TABLE~~This OFannual ~~CONTENTS~~ report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

~~following~~● ~~conservative~~statements ~~loan~~of ~~underwriting~~our ~~guidelines.~~goals, ~~All~~intentions ~~commercial loans are underwritten in a central location in the Lawrenceville office to ensure uniformity~~ and ~~consistency in underwriting decisions.~~ expectations;

•● statements regarding our business plans, prospects, growth and operating strategies;

~~Expanding~~● ~~the~~statements ~~product~~regarding ~~mix and capacity to sell residential loans in~~ the ~~secondary~~asset ~~mortgage~~quality ~~market. The Bank has expanded offerings~~ of ~~residential~~our ~~lending~~loan ~~products to include more saleable government sponsored loans (e.g. USDA, FHA, PHFA~~ and ~~VA).~~investment ~~These~~portfolios; ~~loans, which generally have longer terms~~ and fixed rates, can be originated and sold to avoid increasing the Bank’s interest rate risk exposure while establishing customer deposit and other relationships. Notwithstanding the emphasis on sales of residential mortgages, the Bank continues to originate fixed and adjustable rate mortgage loans for its portfolio.

● estimates of our risks and future costs and benefits.

•These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and unless required under the federal securities laws, we do not undertake any obligation to update any forward-looking statements after the date of this annual report.

~~Emphasizing~~The ~~core~~following ~~deposits~~factors, byamong ~~attracting new customers and enhancing existing customer relationships. In an effort to grow the banking franchise~~others, ~~the~~could ~~Bank~~cause ~~has~~actual ~~enhanced~~results ~~direct marketing efforts~~ to ~~local~~differ ~~businesses~~materially ~~and~~from ~~consumers and established a stronger culture of cross-selling products to existing customers. In addition,~~ the ~~Bank~~anticipated ~~has~~results ~~worked~~or toother ~~enhance~~expectations ~~treasury~~expressed ~~management~~in ~~products and services. This line of business provides higher balance, lower cost accounts which use more sophisticated electronic cash management services than~~ the ~~consumer~~forward-looking or average small business. A comprehensive strategy has been developed to attract and retain deposits by offering enhanced technology, such as mobile and online banking, remote check deposit, positive pay, People Pay and remote deposit capture, with a consistent emphasis on quality customer service. statements:

● general economic conditions, either nationally or in our market areas, that are worse than expected;

•● the scope and duration of the COVID-19 pandemic, including the effects on the Company’s credit quality and operations as well as its impact on general economic conditions;

~~Rationalizing~~● ~~delivery~~legislative ~~channels~~and asregulatory ~~customer~~changes, ~~preferences~~including ~~evolve. The~~actions ~~Bank~~taken ~~currently~~by ~~operates~~governmental ~~seventeen~~authorities ~~community banking offices. A program is~~ in ~~place~~response to ~~evaluate~~the ~~all existing locations as well as digital and web~~COVID-~~based~~19 service delivery channels. The objective is to ensure an efficient service delivery system that balances the use of technology and personal customer service. The Bank also evaluates additional community banking office expansion opportunities, primarily through purchases of offices, to enhance its presence in its current market and adjacent areas. pandemic;

● changes in interest rates, deposit flows, the cost of funds, demand for loan products and the demand for financial services, in each case as may be affected by the COVID-19 pandemic;

•● competition among depository and other financial institutions;

~~Pursuing~~● ~~future~~inflation ~~expansion~~ and ~~whole-bank~~changes ~~acquisitions,~~in ~~although~~the ~~there~~interest ~~are~~rate noenvironment ~~current~~that ~~arrangements~~reduce orour ~~agreements~~margin ~~with~~or ~~respect~~reduce tothe ~~any~~fair ~~such~~value ~~acquisitions. The Company intends to evaluate acquisitions~~ of ~~other~~ financial ~~institutions on an on-going basis as industry consolidation continues, strategic transactions are identified and other opportunities present themselves.~~ instruments;

● adverse changes in the securities markets;

~~Critical~~● ~~Accounting~~changes ~~Policies~~in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

~~The~~● ~~Company~~our ~~considers~~ability ~~accounting policies that require management~~ to ~~exercise~~enter ~~significant~~new ~~judgment~~markets orsuccessfully ~~discretion~~and orcapitalize ~~make significant assumptions that have, or could have, a material impact~~ on ~~the~~growth ~~carrying value of certain assets or on income, to be critical accounting policies. The Company considers the following to be its critical accounting policies.~~ opportunities;

~~Allowance~~● ~~for~~our ~~Loan~~ability ~~Losses. The Bank maintains an allowance for loan losses in an amount it believes is appropriate~~ to ~~absorb~~successfully ~~probable~~integrate ~~losses~~acquired ~~inherent in the portfolio at a balance sheet date. Management’s periodic determination of the adequacy of the allowance is based on the size and current risk characteristics of the loan portfolio~~entities, anif assessment of individual problem loans and actual loss experience, current economic events in relevant industries and other pertinent factors such as regulatory guidance and general economic conditions. However, this evaluation is inherently subjective, as it requires an estimate of the loss content for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an appraisal or other estimate of the value of collateral on impaired loans and estimated losses on pools of homogenous loans based on the balance of loans in each loan category, changes in the inherent credit risk due to portfolio growth, historical loss experience and consideration of current economic trends. Based on management’s estimate of the level of allowance for loan losses required, the Bank records a provision for loan losses to maintain the allowance for loan losses at an appropriate level. any;

The determination of the allowance for loan losses is based on management’s current judgments about the loan portfolio credit quality and management’s consideration of all known relevant internal and external factors that affect loan collectability, as of the reporting date. Management cannot predict with certainty the amount of loan charge-offs that will be incurred. Management does not currently determine a range of loss with respect to the allowance for loan losses. In addition, various banking regulatory agencies, as an 1

29Table of Contents

~~TABLE~~● OFchanges ~~CONTENTS~~ in consumer spending, borrowing and savings habits;

~~integral~~● ~~part~~changes ofin ~~their~~accounting ~~examination~~policies ~~processes~~and practices, ~~periodically~~as ~~review~~may ~~the~~be ~~Bank’s~~adopted ~~allowance~~by ~~for~~the ~~loan~~bank ~~losses.~~regulatory ~~Such~~ agencies, ~~may require that~~ the ~~Bank~~Financial ~~recognize~~Accounting ~~additions~~Standards toBoard, the ~~allowance~~Securities ~~for~~and ~~loan~~Exchange ~~losses~~Commission ~~based~~(the on“SEC”) ~~their~~and ~~judgments about information available to them at~~ the ~~time~~Public ofCompany ~~their~~Accounting ~~examination.~~Oversight ~~Accordingly, actual results could differ from those estimates.~~ Board;

~~Other-Than-Temporary~~● ~~Impairment. In~~changes ~~estimating other-than-temporary impairment of investment securities, securities are evaluated periodically, and at least quarterly, to determine whether a decline~~ in ~~their~~our value is other than temporary. The Company considers numerous factors when determining whether potential other-than-temporary impairment exists and the period over which a debt security is expected to recover. The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basisorganization, ~~(2) the~~compensation ~~financial condition of the issuer (~~and ~~guarantor,~~benefit if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of a security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies. plans;

~~For~~● ~~debt~~changes ~~securities,~~in ~~other-than-temporary~~our ~~impairment~~financial iscondition considered to have occurred if (1) the Company intends to sell the security, (2) it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, or ~~(3) if~~results ~~the present value~~ of ~~expected~~operations cash flows is not sufficient to recover the entire amortized cost basis. In determining the present value of expected cash flows, the Company discounts the expected cash flows at the effective interest rate implicit in the security at the date of acquisition or, for debt securities that ~~are~~reduce ~~beneficial~~capital ~~interests in securitized financial assets, at the current rate used to accrete the beneficial interest. In estimating cash flows expected to be collected, the Company uses~~ available ~~information with respect~~ to ~~security~~pay ~~prepayment~~dividends; ~~speeds, expected deferral rates~~ and ~~severity, whether subordinated interests, if any, are capable of absorbing estimated losses and the value of any underlying collateral.~~

~~Deferred~~● ~~Tax~~changes ~~Assets. The~~in ~~Company~~the ~~uses~~financial ancondition ~~estimate~~or of future ~~earnings~~prospects ~~to support the position that the benefit~~ of ~~its~~issuers ~~deferred tax assets will be realized. If future income should prove non-existent or less than the amount~~ of ~~the~~securities ~~deferred~~that ~~tax~~we ~~assets within the tax years to which they may be applied, the asset may not be realized and the Company’s net income will be reduced~~own.

~~Goodwill~~Because ~~and~~of ~~Other~~these ~~Intangible Assets. The Company must assess goodwill~~ and other ~~intangible~~uncertainties, ~~assets~~our ~~for~~actual ~~impairment.~~future ~~This~~results ~~assessment~~may ~~involves estimating the fair value of its reporting units. If the fair value of the reporting unit is less than the carrying value including goodwill, the Company would~~ be ~~required~~materially todifferent ~~take~~from ~~a charge against earnings to write down~~ the ~~assets~~results toindicated ~~the~~by ~~lower~~these ~~value.~~forward-looking statements.

~~Pension~~Standard ~~Plan. The~~AVB ~~Bank~~Financial ~~maintains a noncontributory defined benefit pension plan covering employees whose benefits were frozen effective August 1, 2005~~Corp. ~~No future benefits are accrued, however the plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Bank.~~

~~Balance~~Standard ~~Sheet~~AVB ~~Analysis:~~Financial ~~December 31~~Corp. (“Standard” or the “Company”), ~~2019~~is ~~and~~a ~~December 31~~Maryland corporation that owns all of the outstanding shares of common stock of Standard Bank PaSB, ~~2018~~a Pennsylvania chartered savings bank (the “Bank”). Standard’s common stock is quoted on the NASDAQ market place under the symbol “STND.” The Company’s executive offices are located at 2640 Monroeville Boulevard, Monroeville, Pennsylvania 15146. The telephone number at this address is (412) 856-0363.

~~General. The~~On ~~Company’s~~August ~~total~~29, ~~assets~~2016, asStandard ofFinancial ~~December 31,~~Corp. ~~2019~~and ~~increased~~Allegheny ~~$12.6 million~~Valley Bancorp, ~~or 1~~Inc.~~3%,~~ to(“Allegheny ~~$984.4 million~~Valley”) ~~from~~entered ~~$971.8 million~~into atan ~~December 31,~~Agreement ~~2018.~~and ~~The~~Plan ~~increase~~of inMerger, ~~total~~which ~~assets~~contemplated ~~included~~that anAllegheny ~~increase~~Valley inwould ~~cash~~merge with and ~~cash~~into ~~equivalents~~Standard ~~of $16~~Financial Corp.~~2 million~~, orwith ~~100~~Standard Financial Corp.~~1%,~~ ~~and~~as anthe ~~increase~~surviving inentity ~~investment~~to ~~and~~be ~~mortgage-backed~~known ~~securities~~as ~~of $13.4 million,~~“Standard orAVB 9Financial Corp.1%” On April 7, ~~partially~~2017, ~~offset~~Allegheny byValley amerged ~~decrease~~with inand ~~loans~~into ~~receivable~~Standard ~~of $16~~Financial Corp.~~0 million,~~ orand 2the Company was renamed as “Standard AVB Financial Corp.~~2%,~~” ~~for~~In conjunction with the ~~year~~merger ~~ended~~and ~~December 31~~the filing of the Form S-4 Registration Statement, ~~2019~~Standard AVB Financial Corp. became an SEC reporting company.

~~Cash~~On ~~and~~a ~~Cash~~consolidated ~~Equivalents. Cash~~basis, ~~and~~as ~~cash~~of ~~equivalents~~December ~~increased~~31, ~~$16.2 million~~2020, orStandard ~~100.1%,~~AVB toFinancial ~~$32~~Corp.~~4 million~~ athad ~~December 31,~~total ~~2019~~assets ~~from~~of $161.~~2 million~~1 ~~at December 31~~billion, ~~2018.~~total ~~The~~loans ~~increase primarily resulted from customer deposits and loan repayments~~receivable, ~~partially~~net ~~offset by purchases~~ of $734.8 ~~investment~~million, ~~and~~total ~~mortgage-backed~~deposits ~~securities and repayments~~ of $809.2 ~~short-term~~million and ~~long-term~~stockholders’ ~~borrowings~~equity ~~during the period~~of $146.0 million.

~~Investment~~Standard Securities. Investment securities available for sale increased $3.7 million, or 5.6%, to $69.9 million at December 31, 2019 from $66.2 million at December 31, 2018. Purchases of investment securities totaled $13.9 million, partially offset by calls and maturities of $5.3 million and sales of $6.3 million during the year ended December 31, 2019. Additionally, there was a $1.5 million increase in the unrealized gain on investment securities during the period. Bank

30The Bank is a Pennsylvania chartered savings bank headquartered in Murrysville, Pennsylvania with executive offices in Monroeville, Pennsylvania. The Bank was organized in 1913, and reorganized into the mutual holding company structure in 1998. Following the completion of a stock conversion in 2010, the Bank became the wholly owned subsidiary of Standard. The Bank provides financial services to individuals, families and businesses through seventeen banking offices located in Allegheny, Westmoreland and Bedford counties in Pennsylvania and Allegany County, Maryland.

~~TABLE~~The OFBank’s ~~CONTENTS~~ business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in commercial real estate loans, commercial business loans, one- to four-family residential mortgage loans, home equity loans and lines of credit and investment securities. To a much lesser extent, the Bank also originates construction loans and consumer loans. The Bank offers a variety of deposit accounts, including savings accounts, certificates of deposit, money market accounts, commercial and regular checking accounts and individual retirement accounts.

Equity Securities. Equity securities were $3.0 million and $2.7 million at December 31, 2019 and December 31, 2018, respectively. There were no purchases or sales of equity securities during the year ended December 31, 2019.

Mortgage-Backed Securities. The Company’s mortgage-backed securities available for sale increased $9.7 million, or 11.8%, to $91.5 at December 31, 2019 from $81.8 million at December 31, 2018. Purchases of mortgage-backed securities totaled $30.4 million, partially offset by repayments of $20.3 million and sales of $1.3 million during the year ended December 31, 2019. Additionally, there was a $1.7 million increase in the unrealized gain on mortgage-backed securities during the period.

Investment, Equity and Mortgage-Backed Securities Composition. The composition of the investment, equity, and mortgage-backed securities portfolio is summarized in the following table (dollars in thousands). At December 31, 2019 and December 31, 2018, all of the Company’s investment, equity, and mortgage-backed securities were classified as available for sale and recorded at current fair value. 2

	At December 31,
	2019						2018
	AmortizedCost			FairValue			AmortizedCost			FairValue
Municipal obligations		$	57,506		$	58,816		$	53,546		$	53,698
U.S. government and agency obligations			8,404			8,489			8,368			8,270
Corporate bonds			2,477			2,579			4,226			4,201
Mortgage-backed securities:
Ginnie Mae pass-through certificates			21,386			21,504			19,213			18,890
Fannie Mae pass-through certificates			20,537			20,795			13,952			13,620
Freddie Mac pass-through certificates			13,986			14,086			12,662			12,410
Private pass-through certificates			21,904			21,603			25,064			24,715
Collateralized mortgage obligations			13,406			13,490			12,328			12,159
Equity securities			2,686			2,955			2,686			2,725
Total securities		$	162,292		$	164,317		$	152,045		$	150,688

Table of Contents

During the year ended December 31, 2019, $44.2 million of securities purchased were partially offset by $7.6 million of securities sales and $25.6 million of securities calls and repayments. For the year ended December 31, 2019, there was a net realized loss of $1,000 on the sale of securities. During the year ended December 31, 2018, $40.2 million of securities purchased were partially offset by $6.7 million of securities sales and $13.4 million of securities calls and repayments. For the year ended December 31, 2018, there was a net realized gain of $377,000 on the sale of securities. Merger

AtOn ~~December 31~~September 25, ~~2019~~2020 the Company and ~~December 31,~~Dollar ~~2018,~~Mutual ~~the~~Bancorp ~~Company~~(“Dollar”) ~~held~~announced 42they ~~securities~~had ~~and~~entered ~~118~~into ~~securities~~a definitive agreement under which Dollar will acquire the Company in ~~unrealized~~an ~~loss~~all ~~positions~~cash ~~of $471,000~~transaction ~~and~~valued at approximately $1158.~~9 million,~~0 ~~respectively~~million. The ~~decline~~Company’s instockholders ~~the~~will ~~fair~~receive ~~value~~$33.00 offor ~~these~~each ~~securities~~share ~~resulted~~of ~~primarily~~Company ~~from~~common ~~interest~~stock ~~rate~~that ~~fluctuations~~they own. The transaction was approved by the Company’s ~~does~~stockholders ~~not~~on ~~intend~~January 19, 2021 and is expected to ~~sell~~close ~~these~~in ~~securities~~the ~~nor~~first ishalf itof ~~more~~2021. ~~likely~~However, ~~than~~it ~~not~~is possible that factors outside the ~~Company~~control ~~would~~of beboth ~~required~~companies, toincluding ~~sell~~whether ~~these~~or ~~securities~~when ~~before~~the ~~their~~required ~~anticipated~~regulatory ~~recovery~~approvals ~~and~~will ~~the~~be ~~Company~~received, ~~believes~~could result in the ~~collection~~merger ofbeing ~~the~~completed ~~investment~~at ~~and~~a ~~related~~different ~~interest~~time isor ~~probable~~not at all. ~~Based~~In onconnection ~~this~~with ~~analysis~~the acquisition, the Company ~~considers~~had ~~all~~incurred $1.1 million ($1.0 million after tax) of merger-related expenses for the ~~unrealized~~year ~~losses~~ended toDecember be31, ~~temporary~~2020, ~~impairment~~primarily ~~losses.~~legal and investment banker costs, which are included in the Consolidated Statements of Income.

~~Investment,~~Available Equity and Mortgage-Backed Securities Maturities and Yields. The maturities and weighted average yields of the investment, equity and mortgage-backed securities portfolio at December 31, 2019 are summarized in the following table (dollars in thousands). Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax- equivalent basis. Information

31The Company maintains a website at www.standardbankpa.com. Copies of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports and proxy materials are available through that website, free of charge, as soon as is reasonably practical after the Company electronically files those materials with or furnishes them to the SEC. You may access those reports by following the links under “Investor Relations” at the Company’s website. Information on this website is not and should not be considered a part of this document.

~~TABLE~~Market ~~OF CONTENTS~~ Area

	Due 1 Year or Less					Due 1 – 5 Years					Due 5 – 10 Years					Due Over 10 Years					Total Securities
	AmortizedCost			WeightedAverageYield		AmortizedCost			WeightedAverageYield		AmortizedCost			WeightedAverageYield		AmortizedCost			WeightedAverageYield		AmortizedCost			WeightedAverageYield
Municipal obligations		$	260		2.96%		$	5,085		4.78%		$	18,210		2.89%		$	33,951		2.81%		$	57,506		3.01%
U.S. government and agency obligations			5,986		2.08%			1,470		2.50%			948		2.92%			—		—			8,404		2.25%
Corporate bonds			—		—			2,477		3.63%			—		—			—		—			2,477		3.63%
Mortgage-backed securities:
Ginnie Mae pass through certificates			—		—			—		—			—		—			21,386		2.55%			21,386		2.55%
Fannie Mae pass through certificates			—		—			—		—			1,150		2.95%			19,387		2.36%			20,537		2.39%
Freddie Mac pass through certificates			—		—			—		—			—		—			13,986		2.37%			13,986		2.37%
Collateralized mortgage obligations			—		—			—		—			—		—			13,406		2.37%			13,406		2.37%
Private pass through certificates			—		—			605		3.15%			4,743		2.77%			16,556		2.77%			21,904		2.78%
Equity securities			2,686		3.04%			—		—			—		—			—		—			2,686		3.04%
Total		$	8,932		0.91%		$	9,637		4.03%		$	25,051		2.87%		$	118,672		2.58%		$	162,292		2.62%

The Company, with total assets of $1.1 billion at December 31, 2020, is the parent company of the Bank, a Pennsylvania chartered savings bank which operates seventeen offices serving individuals and small to mid-sized businesses in Allegheny, Westmoreland, and Bedford counties in Pennsylvania and Allegany County in Maryland. The Bank is a member of the Federal Deposit Insurance Corporation (“FDIC”) and an Equal Housing Lender.

~~Loans. At~~The ~~December 31,~~Bank’s ~~2019,~~market ~~net~~area ~~loans~~has ~~were~~a ~~$713.0 million,~~broad orrange ~~72.4%~~ of ~~total~~private ~~assets~~and public employers, ~~compared~~and tohas ~~$729.0 million,~~transitioned orfrom ~~75.0%~~heavy ofindustry ~~total~~to ~~assets~~more atspecialized ~~December 31,~~industries ~~2018.~~and ~~The~~service ~~$16.0 million~~providers, orincluding ~~2.2%~~technology, ~~decrease~~health incare, ~~total~~education, ~~loans~~energy ~~was the result of loan payoffs~~ and ~~amortization~~finance. ~~exceeding~~Westmoreland ~~loan~~County ~~production~~is ~~during~~east ~~the~~of ~~period.~~Allegheny ~~Commercial~~County ~~real estate~~ and ~~construction~~is ~~loans~~part ~~and~~of ~~commercial~~the ~~business~~Pittsburgh ~~loans~~metropolitan ~~increased $15~~area.~~1 million~~ orAllegany ~~4.9%~~County, ~~and~~Maryland ~~$1.3 million~~is orpart ~~2.9%,~~of ~~respectively. These increases were offset by decreases in~~ the ~~one~~Cumberland, Maryland-~~to-four~~West ~~family~~Virginia ~~residential~~metropolitan ~~and construction~~area, ~~home~~which ~~equity~~is ~~loans~~equidistant ~~and~~from ~~lines~~Pittsburgh ofand ~~credit~~Baltimore, and ~~other~~its ~~loan~~economy ~~segments~~includes ~~of $19.5 million~~information ortechnology, ~~7.7%~~biotechnology, ~~$11.9 million~~medical orservices ~~9.6%,~~ and ~~$569,000 or 50~~manufacturing.~~0%, respectively.~~

~~Loan~~Unemployment ~~Portfolio~~rates ~~Composition. The~~have ~~following~~increased ~~table~~substantially ~~summarizes~~due to the ~~composition~~COVID-19 ofpandemic. Any significant reduction in the ~~loan~~unemployment ~~portfolio~~rate atwill be largely dependent on the ~~dates~~rollout ~~indicated,~~of ~~excluding~~the ~~loans~~vaccines ~~held~~and ~~for~~the ~~sale~~inoculation ~~(dollars~~of ina ~~thousands):~~large percentage of the public.

	December 31,												September 30,
	2019			2018			2017			2016			2016*
One-to-four family residential and construction		$	234,421		$	253,913		$	261,715		$	174,740		$	167,512
Commercial real estate and construction			323,843			308,775			300,997			116,691			119,879
Home equity loans and lines of credit			111,499			123,373			130,915			77,913			79,157
Commercial business			47,514			46,196			56,122			15,505			14,779
Other			570			1,139			1,413			520			553
Total loans		$	717,847		$	733,396		$	751,162		$	385,369		$	381,880

The population in the Bank’s market area as well as both Pennsylvania and Maryland has been relatively stable over the last several years while increasing at the national level. The median age in some counties in the Bank’s market area is significantly older than that of the nation and respective states. Areas outside of Allegheny County, Pennsylvania continue to increase in median age, however, the median age has declined in the greater Pittsburgh area due to neighborhood revitalization along with an influx of technology jobs that have attracted a younger demographic. Nonetheless, there remains a significant difference in the median age between some of the Bank’s market area and that of Pennsylvania, Maryland, and the nation; the largest disparity being over eight years between Westmoreland County, Pennsylvania and the nation.

~~The~~Table ~~Company~~of ~~changed its fiscal year end from September to December in 2016.~~ Contents

Competition

32The Bank faces intense competition in its market areas both in making loans and attracting deposits. The Bank competes with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies and investment banking firms. Some of the Bank’s larger competitors have greater name recognition and market presence that benefit them in attracting business, and offer certain services that the Bank does not or cannot provide.

~~TABLE~~The OFBank’s ~~CONTENTS~~ deposit sources are primarily concentrated in the communities surrounding its community banking offices, located in the Pennsylvania counties of Allegheny, Westmoreland and Bedford and Allegany County, Maryland. As of December 31, 2020, the Bank ranked 16th in deposit market share out of 34 bank and thrift institutions with offices in Allegheny County, Pennsylvania with a market share of 0.3%, 9th in deposit market share out of 25 bank and thrift institutions in Westmoreland County, Pennsylvania with a market share of 2.7%, 8th in deposit market share out of 9 bank and thrift institutions in Bedford County, Pennsylvania, with a market share of 3.2% and 4th in deposit market share out of 4 bank and thrift institutions in Allegany County, Maryland with a market share of 11.5%

~~Loan~~Lending Portfolio Maturities. The following table summarizes the maturity of the loan portfolio at December 31, 2019 (dollars in thousands). Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Activities

	Due Under1 Year			Due 1 – 5Years			Due Over5 Years
One-to-four family residential and construction		$	47		$	5,017		$	229,357
Commercial real estate and construction			21,594			42,913			259,336
Home equity loans and lines of credit			4,876			14,728			91,895
Commercial business			14,373			10,337			22,804
Other			222			303			45
Total loans		$	41,112		$	73,298		$	603,437

~~Fixed~~Commercial ~~and~~Real ~~Adjustable~~Estate ~~Rate~~ Loans. ~~The~~ ~~following~~At ~~table~~December ~~summarizes~~31, 2020, $375.6 million, or 50.6%, of the ~~maturity~~Bank’s total loan portfolio, consisted of commercial real estate loans. Properties securing the Bank’s ~~fixed-~~commercial real estate loans primarily include loans to lessors of residential buildings and ~~adjustable~~dwellings, lessors of non-~~rate~~residential buildings, properties for single family home construction, small office buildings and warehouse/industrial facilities. The Bank generally seeks to originate commercial real estate loans atwith initial principal balances not to exceed $6.0 million. Substantially all of the Bank’s commercial real estate loans are secured by properties located in its primary market area. At December 31, ~~2019~~2020, the Bank’s largest commercial real estate loan relationship (~~dollars~~consisting inof ~~thousands~~two separate $4.0 million commercial real estate loans): had a combined principal balance of $8.0 million and was secured by one apartment complex and one commercial office building. These two loans were performing in accordance with their terms and conditions at December 31, 2020.

	Due Under1 Year			Due 1 – 5Years			Due Over5 Years
Fixed		$	32,094		$	50,081		$	255,082
Adjustable			9,018			23,217			348,355
Total loans		$	41,112		$	73,298		$	603,437

In the underwriting of commercial real estate loans, the Bank generally lends up to the lower of 80% of the property’s appraised value or purchase price. The Bank bases its decision to lend primarily on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, the Bank emphasizes the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a preferred ratio of 1.25x), computed after deductions for a vacancy factor and property expenses that the Bank deems appropriate. Personal guarantees are usually obtained from commercial real estate borrowers. The Bank generally requires title insurance, fire and extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect its security interest in the underlying property. Almost all of the Bank’s commercial real estate loans are generated internally by its Commercial Relationship Managers.

~~Bank~~Commercial ~~Owned~~real ~~Life~~estate ~~Insurance. The~~loans ~~Company~~generally ~~invests~~carry inhigher ~~bank~~interest ~~owned~~rates ~~life~~and ~~insurance~~have toshorter ~~provide~~terms athan ~~funding~~one- ~~source~~to ~~for~~four-family ~~benefit~~residential ~~plan~~mortgage ~~obligations~~loans. ~~Bank~~Commercial ~~owned~~real ~~life~~estate ~~insurance~~loans ~~also~~entail ~~generally~~greater ~~provides~~credit ~~noninterest~~risks ~~income~~compared ~~that~~to isthe ~~non~~one-~~taxable.~~ ~~Bank~~to ~~owned~~four-family ~~life~~residential ~~insurance~~mortgage ~~increased~~loans ~~$802~~Standard originates,~~000,~~ as they typically involve larger loan balances concentrated with single borrowers or 3groups of related borrowers.6% In addition, tothe ~~$23.4 million~~payment atof ~~December 31~~loans secured by income-producing properties typically depends on the successful operation of the property, ~~2019~~as repayment of the loan generally is dependent, in large part, on sufficient income generated from ~~$22~~the property to cover both operating expenses and debt service.~~6 million~~ atChanges ~~December 31,~~in ~~2018~~economic conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for commercial real estate than residential properties.

~~Goodwill. Goodwill represents the excess of the purchase price over the cost of net assets purchased. Goodwill was $25.8 million at December 31, 2019 and December 31, 2018.~~ 4

~~Deposits. The~~Table Company accepts deposits primarily from the areas in which the Bank’s offices are located. The Company has consistently focused on building broader customer relationships and targeting small business customers to increase core deposits. The Company also relies on customer service to attract and retain deposits. The Company offers a variety of deposit accounts with a range of interest rates and terms. Deposit accounts consist of savings accounts, certificates of deposit, money market accounts, commercial and consumer checking accounts and individual retirement accounts. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and deposit growth goals. Contents

~~Deposits~~Commercial ~~increased~~Business ~~$16~~Loans.~~5 million,~~ orThe ~~2.3%,~~Bank makes various types of secured and unsecured commercial business loans to ~~$734.4 million~~customers atin ~~December 31,~~its ~~2019~~market ~~from~~area ~~$717.9 million~~for atworking ~~December 31,~~capital ~~2018~~and other general business purposes. The ~~increase~~terms ~~resulted~~of ~~from~~these ~~increases~~loans ingenerally ~~money~~range ~~market~~from ~~and~~less ~~interest-bearing~~than ~~checking~~one ~~accounts~~year to a maximum of ~~$19.0 million~~ orten 21years.~~7%,~~ ~~and~~The ~~$11.3 million~~loans are either negotiated on a fixed-rate basis or ~~11.3%,~~carry ~~respectively~~adjustable interest rates indexed to a market rate index. ~~These~~The ~~increases~~Bank ~~were~~generally ~~partially~~seeks ~~offset~~to byoriginate ~~decreases~~loans into ~~non~~small-~~interest-bearing~~ ~~checking~~and ~~accounts,~~medium-size ~~savings~~businesses ~~accounts~~with ~~and~~principal ~~time~~balances ~~deposits~~between of$50,000 and $8.5 .0 million. orAt ~~6.3%~~December 31, 2020, the Bank had commercial business loans outstanding of $378.6 0 million, or 210.45%, ~~and~~of the total loan portfolio. Included in the $178.6 0 million orwere 0Paycheck Protection Program loans of $37.~~6%,~~7 ~~respectively~~million. See “The Paycheck Protection Program” for additional information.

33Commercial credit decisions are based upon the Bank’s credit assessment of the loan applicant. The Bank evaluates the applicant’s ability to repay in accordance with the proposed terms of the loan and the Bank assesses the risks involved. Personal guarantees of the principals are typically obtained. In addition to evaluating the loan applicant’s financial statements, the Bank considers the adequacy of the primary and secondary sources of repayment for the loan and debt service coverage. Credit agency reports of the applicant’s personal credit history supplement the Bank’s analysis of the applicant’s creditworthiness. Collateral supporting a secured transaction is also analyzed to determine its value and marketability. Commercial business loans generally carry higher interest rates than residential loans of like duration due to a higher risk of default as repayment generally depends on the successful operation of the borrower’s business and the sufficiency of any collateral. At December 31, 2020, the Bank’s largest commercial business loan was to a municipality. The loan had a principal balance of $3.9 million and was secured by the full faith and credit and taxing authority of the borrower. This loan was performing in accordance with its terms and conditions at December 31, 2020.

~~TABLE~~One- OFto ~~CONTENTS~~ Four-Family Residential Mortgage Loans. At December 31, 2020, $192.4 million, or 25.9%, of the Bank’s total loan portfolio, consisted of one- to four-family residential mortgage loans. The Bank offers fixed-rate and adjustable-rate residential mortgage loans with maturities up to 30 years. One- to four-family residential mortgage loans are generally underwritten according to secondary market guidelines, and the Bank refers to loans that conform to such guidelines as “conforming loans.” The Bank generally originates both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which is currently $548,250 for single-family homes. However, loans in excess of $548,250 (which are referred to as “jumbo loans”) are generally originated for retention in the Bank’s loan portfolio or may be sold servicing released. The Bank’s portfolio maximum loan amount for these loans is generally $750,000. The Bank underwrites jumbo portfolio loans in the same manner as conforming loans. Most of the Bank’s one- to four-family residential mortgage loan originations are generated by its mortgage loan officers.

The ~~following~~Bank ~~table~~will ~~summarizes~~originate loans with loan-to-value ratios in excess of 80%, up to and including a loan-to-value ratio of 97%. The Bank requires private mortgage insurance for loans with loan-to-value ratios in excess of 80%. During the ~~average~~year ~~balance~~ended December 31, 2020, the Bank originated $9.6 million of one- to four-family residential mortgage loans with loan-to-value ratios in excess of 80%. The Bank offers special programs for low- and ~~weighted~~moderate-income ~~average~~home ~~rates~~purchasers within low to moderate income census tracts. The property must be located within the Bank’s lending assessment area. Household income must be less than 80% of ~~total~~the ~~deposits~~median income of the Metropolitan Statistical Area in order to qualify for the special low-to moderate-income program. Loans under this program may be originated up to an 89% loan-to-value. Under this program, byfor ~~account~~loans ~~type~~exceeding an 80% loan-to-value up to an 89% loan-to-value, atmortgage insurance is not required if the ~~dates~~borrower’s ~~indicated~~FICO ~~(dollars~~scores inare ~~thousands):~~700 or greater and the debt to income ratio does not exceed 45%.

	Year EndedDecember 31, 2019					Year EndedDecember 31, 2018
	AverageBalance			Yield /Rate		AverageBalance			Yield/Rate
Savings accounts		$	141,758		0.16%		$	150,461		0.14%
Certificates of deposit			246,553		2.13%			228,006		1.93%
Money market accounts			106,001		1.16%			96,427		0.54%
Demand and NOW accounts			105,545		0.29%			99,376		0.23%
Total deposits		$	599,857		1.17%		$	574,270		0.86%

The Bank generally sells fixed rate conforming loans with terms greater than 15 years and retains the servicing rights on loans sold to generate fee income. For the year ended December 31, 2020, the Bank recognized loan servicing fees of $565,000. As of December 31, 2020, the principal balance of loans serviced for others totaled $116.1 million.

AtOther ~~December 31,~~than ~~2019,~~the Bank’s loans for the ~~scheduled~~construction ~~maturities~~of one- to four-family residential mortgage loans (described under “Construction Loans”) and home equity lines of ~~time~~credit ~~deposits~~(described inunder ~~denominations~~“Home Equity Loans and Lines of ~~$100~~ Credit”),~~000~~ orthe ~~more~~Bank ~~was~~does ~~$112~~not offer “interest only” mortgage loans on one- to four-family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan).~~7 million.~~ The ~~following~~Bank ~~table~~also ~~summarizes~~does ~~the~~not ~~maturity~~offer loans that provide for negative amortization of ~~those~~principal, ~~certificates~~such atas ~~December 31~~“Option ARM” loans, ~~2019~~where ~~(dollars~~the borrower can pay less than the interest owed on the loan, resulting in ~~thousands):~~an increased principal balance during the life of the loan. The Bank does

Three months or less	$	24,419
Over three to six months		15,548
Over six to twelve months		22,448
Over twelve months		50,263
Total	$	112,678

~~Borrowings. Borrowed~~Table ~~funds decreased by $8.8 million, or 7.9%, to $102.8 million at December 31, 2019 from $111.6 million at December 31, 2018. The decrease was primarily due to the repayment~~ of maturing long term advances as well as pay downs on both amortizing long term advances and the overnight borrowing line. These decreases were partially offset by new advances entered into and the recording of financing lease liabilities during the year. Federal Home Loan Bank advances decreased $9.0 million, or 8.5%, to $96.0 million from $105.0 million at December 31, 2018. The decrease in advances was due to $34.2 million in principal repayments made on existing advances partially offset by $25.2 million in additional advances entered into during the period. The Bank adopted ASU 2016-02 and its related amendments as of January 1, 2019 which resulted in the recognition of financing lease liabilities on the Consolidated Statements of Financial Condition. Financing lease liabilities, which are included in the long-term borrowings, were $3.1 million at December 31, 2019 compared to $0 at December 31, 2018. There were no short-term borrowings at December 31, 2019 compared to $4.5 million at December 31, 2018. During the year ended December 31, 2019, proceeds from short-term borrowings were $105.0 million, offset by repayments of $109.5 million. Contents

~~The~~not ~~following~~offer ~~table~~“subprime ~~summarizes~~loans” ~~short~~(loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-~~term~~offs, ~~balances~~judgments, ~~and~~bankruptcies, ~~weighted~~or ~~average~~borrowers ~~interest~~with ~~rates~~questionable atrepayment ~~the~~capacity ~~dates~~as ~~indicated~~evidenced ~~(dollars~~by inlow ~~thousands~~credit scores or high debt-burden ratios): or Alt-A loans (traditionally defined as loans having less than full documentation).

	December 31
	2019			2018
Balance		$	—		$	4,524
Average balance outstanding during the period			1,698			12,696
Maximum amount outstanding at any month-end			11,339			51,500
Weighted average interest rate at period end			—%			2.64%
Average interest rate during the period			2.67			1.79

Home Equity Loans and Lines of Credit. In addition to traditional one- to four-family residential mortgage loans, the Bank offers home equity loans and home equity lines of credit that are secured by the borrower’s primary residence or secondary residence. At December 31, 2020, the Bank’s home equity loans and lines of credit totaled $96.1 million and represented 12.9% of the total loan portfolio. The Bank’s home equity loans are originated with fixed rates of interest and with terms of up to 15 years. Home equity lines of credit have a maximum term of 20 years. The Bank offers interest only lines of credit with a 10-year draw period in which interest is due monthly. After the initial 10-year draw period, the borrower is required to make principal and interest payments based on a 10-year amortization. The Bank’s home equity lines of credit are currently originated with adjustable rates of interest. Home equity loans and lines of credit are generally underwritten with the same criteria that the Bank uses to underwrite one- to four-family residential mortgage loans. For a borrower’s primary residence, home equity loans and lines of credit may be underwritten with a loan-to-value ratio of 89.9% and 85.0%, respectively, when combined with the principal balance of the existing mortgage loan. At the time the Bank closes a home equity loan or line of credit, the Bank records a mortgage to protect its security interest in the underlying collateral. At December 31, 2020 the Bank’s in-house maximum limit for home equity loans and lines of credit was $750,000. Loans over $400,000 require title insurance.

~~Total~~Home ~~Stockholders’ Equity. Stockholders’~~ equity ~~increased~~loans ~~$4.0 million,~~and orlines ~~2.9%,~~of tocredit ~~$141.8 million~~entail atgreater ~~December 31,~~credit ~~2019~~risks ~~from~~compared ~~$137.9 million~~to ~~at December 31, 2018. The increase was~~ the ~~result~~one- ofto ~~net~~four-family ~~income~~residential ofmortgage ~~$8.8 million~~loans ~~earned during~~ the ~~year~~Bank ~~ended December 31~~originates, ~~2019~~ as ~~well~~they astypically ainvolve ~~$2.5 million~~higher ~~increase~~loan-to-value inratios. ~~accumulated~~Therefore, ~~other~~any ~~comprehensive~~decline ~~income~~in ~~resulting~~real ~~from~~estate ~~fair~~values ~~value~~may ~~adjustments~~have ona ~~available~~more ~~for~~detrimental ~~sale~~effect ~~debt~~on ~~securities~~home ~~during~~equity ~~the~~loans ~~period.~~and ~~These~~lines ~~increases~~of ~~were~~credit ~~partially~~compared ~~offset~~to byone- ~~$4.1 million~~to infour-family ~~dividends~~residential ~~paid~~mortgage ~~during the~~ loans.

34Construction Loans. The Bank makes commercial construction loans for rental properties, commercial buildings and homes built by developers on speculative, undeveloped property. The terms of commercial construction loans are made in accordance with the Bank’s commercial loan policy. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction, but are generally limited to an 80% loan-to-completed-appraised-value ratio. Repayment of construction loans on non-residential properties is normally expected from the property’s eventual rental income, income from the borrower’s operating entity or the sale of the subject property. In the case of income-producing property, repayment is usually expected from permanent financing upon completion of construction. The Bank typically provides the permanent mortgage financing on construction loans. Construction loans are interest-only loans during the construction period, which typically do not exceed 12 months, and convert to permanent, amortizing financing following the completion of construction. At December 31, 2020, commercial construction loans totaled $7.8 million and are included with commercial real estate loans. At December 31, 2020, the additional un-advanced portion of these construction loans totaled $2.4 million.

~~TABLE~~The OFBank ~~CONTENTS~~ makes residential construction loans for one- to four-family owner-occupied properties. Advances on residential construction loans are made in accordance with a schedule reflecting the cost of construction. The terms of residential construction loans are made in accordance with the Bank’s one- to four-family residential lending policy (described under “One- to Four-Family Residential Mortgage Loans”). At December 31, 2020, residential construction loans totaled $200,000 and are included with one-to-four family residential and construction loans. At December 31, 2020, the additional un-advanced portion of these construction loans totaled $300,000.

~~year~~Generally, ~~ended~~before ~~December 31~~making a commitment to fund a construction loan, ~~2019~~the Bank requires an appraisal of the property by a state-certified or state-licensed appraiser. ~~Additionally,~~The inBank ~~accordance~~reviews ~~with~~and inspects properties before disbursement of funds during the ~~Company’s~~term ~~stock~~of ~~repurchase~~the ~~program,~~construction ~~138~~loan. Construction financing generally involves greater credit risk than long-term financing on improved,~~789~~ ~~shares~~owner-occupied real estate. Risk of loss on a construction loan depends largely upon the ~~Company’s~~accuracy ~~outstanding~~of ~~stock~~the ~~were~~initial ~~repurchased~~estimate ~~for~~of $3the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions.~~8 million~~ ~~during~~If the ~~year~~estimate ~~ended~~of ~~December 31~~construction cost is inaccurate, ~~2019~~the Bank may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. In the event the

~~Average Balance and Yields~~ 6

~~The~~Table following table sets forth average balance sheets, average yields and costs, and certain other information for the years and the periods indicated (dollars in thousands). No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. Contents

	For the Year Ended December 31,
	2019								2018
	AverageOutstandingBalance			Interest			Yield/Rate		AverageOutstandingBalance			Interest			Yield/ Rate
Interest-earning assets:
Loans		$	731,098		$	32,487		4.41%		$	740,370		$	32,033		4.25%
Investment and mortgage-backed securities			160,445			4,227		2.63%			145,995			3,850		2.55%
FHLB and other restricted stock			7,680			618		8.05%			8,616			590		6.85%
Interest-earning deposits			17,906			372		2.08%			19,692			322		1.64%
Total interest-earning assets			917,129			37,704		4.08%			914,673			36,795		3.95%
Noninterest-earning assets			65,913								63,847
Total assets		$	983,042							$	978,520
Interest-bearing liabilities:
Savings accounts		$	141,758			221		0.16%			150,461			205		0.14%
Certificates of deposit			246,553			5,242		2.13%			228,006			4,008		1.93%
Money market accounts			106,001			1,227		1.16%			96,427			522		0.54%
Demand and NOW accounts			105,545			301		0.29%			99,376			226		0.23%
Total interest-bearing deposits			599,857			6,991		1.17%			574,270			4,961		0.86%
Borrowings			103,414			2,254		2.18%			126,295			2,482		1.98%
Securities sold under agreements to repurchase			3,488			17		0.48%			4,782			11		0.23%
Total interest-bearing liabilities			706,759			9,262		1.31%			705,347			7,454		1.05%
Noninterest-bearing deposits			132,510								135,320
Noninterest-bearing liabilities			3,584								3,443
Total liabilities			842,853								844,110
Stockholders’ equity			140,189								134,410
Total liabilities and stockholders’ equity		$	983,042							$	978,520
Net interest income					$	28,442							$	29,341
Net interest rate spread(1)								2.77%								2.90%
Net interest-earning assets(2)		$	210,370							$	209,326
Net interest margin(3)								3.10%								3.21%
Average interest-earning assets to interest-bearing liabilities			129.77%								129.68%

Bank makes a land acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. Construction loans also expose the Bank to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

(During the year ended December 31, 2020, the Bank sold approximately 86.4% or $68.4 million of the fixed rate one-to-four family mortgage loans it originated. Of that total, 93.7% or $64.1 million had terms greater than 15 years. The loans were originated by the Bank and sold on the secondary market as well as to the Federal Home Loan Bank of Pittsburgh (“FHLB”) through its Mortgage Partnership Finance (“MPF”) program. The Bank also receives fees related to the referral of a loan to a secondary market lender whereby the Bank does not originate the loan. In 2020, the Bank referred $2.2 million of fixed rate one-to-four family mortgage loans. The Bank determines on a loan by loan basis whether or not to retain the loan servicing rights. At December 31, 2020, the Bank was servicing one-to-four family mortgage loans owned by others with a principal balance of $116.1 million. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent borrowers, supervising foreclosures and property dispositions in the event of defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. The Bank retains a portion of the interest paid by the borrower on the loans it services as consideration for servicing activities.

~~Net~~From ~~interest~~time ~~rate~~to time, banks enter into participation agreements with other banks on commercial loans in order to spread ~~represents~~credit ~~the~~risk ~~difference~~and ~~between~~manage customer expectations. In these circumstances, the ~~yield~~Bank onwill ~~average~~generally ~~interest-earning~~follow ~~assets~~its customary loan underwriting and approval policies. At December 31, 2020, the ~~cost~~Bank ofhad ~~average~~$62.7 ~~interest-bearing~~million ~~liabilities~~in loan participations bought where another bank was the lead lender. Conversely, the Bank had $5.3 million related to loan participations sold where the Bank acted as the lead lender and serviced the loan relationship.

Loan Approval Procedures and Authority. The Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors. The loan approval process is intended to assess the borrower’s ability to repay the loan and the value of the collateral that will secure the loan. To assess the borrower’s ability to repay, the Bank reviews the borrower’s employment and credit history, and historical and projected income and expenses. The Bank requires “full documentation” on all loan applications. The Bank requires a full appraisal of all real property securing 1st lien residential mortgage loans. The Bank also requires appraisals on home equity loans and lines of credit for loans greater than $250,000 and commercial real estate loans greater than $500,000. For loan amounts under these thresholds, an appraisal may be required or other objective methods of property valuations are utilized. All appraisers are state-licensed or state-certified appraisers, and it is Bank practice to have local appraisers approved by the Board of Directors annually.

~~(2)~~The Bank’s policies and loan approval limits are established by the Board of Directors. The approval authority necessary to decision all loan applications regardless of loan type is based on the resulting total exposure of the relationship. Secured loan requests with a relationship exposure of $3.0 million or less can be approved by designated individual officers, officers acting together with specific lending approval authority, and/or the Officer Loan Committee. Secured loan requests with a relationship exposure in excess of $3.0 million can be approved by the Board Loan Committee. Unsecured loan requests utilize a similar authority breakdown with the Board Loan Committee decisioning transaction for relationships with unsecured exposures in excess of $750,000. The Board of Directors approves all loan requests subject to Regulation O, and those that result in a relationship exposure that exceeds the Bank’s internal House Limit. The Bank’s House Limit was $8.9 million at December 31, 2020.

~~Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.~~ Investments

The Bank’s Investment Committee, which is comprised of the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Director of Finance and Investment Specialist, has primary responsibility for implementing the

~~(3)~~7

~~Net~~Table ~~interest~~of ~~margin represents net interest income divided by average total interest-earning assets.~~ Contents

Bank’s Investment Policy, which is established by the Bank’s Audit Committee. The general investment strategies are developed and authorized by the Investment Committee in consultation with the Audit Committee. The Investment Committee is responsible for the execution of specific investment actions. These officers are authorized to execute investment transactions without the Audit Committee’s prior approval (provided the transactions are within the scope of the established Investment Policy). The Investment Policy is reviewed annually by the Investment Committee, and any changes to the policy are subject to approval by the Audit Committee. The overall objectives of the Investment Policy are to maintain a portfolio of high quality and diversified investments to maximize interest income over the long term and to minimize risk, to provide collateral for borrowings, to provide additional earnings when loan production is low, and, when appropriate, to reduce the Bank’s tax liability. The policy dictates that investment decisions give consideration to the safety of principal, liquidity requirements and interest rate risk management. All securities transactions are reported to the Board of Directors on a monthly basis.

35The Bank’s current Investment Policy permits investments in securities issued by the U.S. government as well as mortgage-backed securities, municipal securities, corporate bonds and direct obligations of Fannie Mae, Freddie Mac and Ginnie Mae. The Investment Policy also permits, with certain limitations, investments in certificates of deposit, collateralized mortgage obligations, mutual funds and equity securities. The Bank’s current Investment Policy does not permit investment in stripped mortgage-backed securities or derivatives as defined in federal banking regulations or in other high-risk securities. The Bank’s Investment Policy expressly prohibits the use of the investment portfolio for market-oriented trading activities or speculative purposes unless otherwise approved by the Audit Committee. The Bank does not currently have a trading account for investment securities.

~~TABLE~~The OFCompany ~~CONTENTS~~ designates a security as either trading, held to maturity, or available for sale, based upon the Company’s ability and intent. Securities bought and held principally for the purpose of selling them in the near term are classified as trading and are reported at fair value, with unrealized gains and losses included in earnings. Held-to-maturity securities are debt securities acquired with the intent and ability to hold to maturity and are stated at amortized cost. Available-for-sale securities are other debt and equity securities that are not classified as trading or held-to-maturity securities and serve principally as a source of liquidity. Available-for-sale debt securities are stated at fair value, with unrealized holding gains and losses reported as a separate component of stockholders’ equity, net of tax, until realized. Available-for-sale equity securities are stated at fair value, with unrealized holding gains and losses reported as equity fair value adjustments in the income statement.

~~Rate/Volume~~A periodic review and evaluation of the available for sale and held to maturity securities portfolios is conducted to determine if the fair value of any security has declined below its carrying value and whether such decline is other-than-temporary. At December 31, 2020, all of the Company’s securities were classified as available for sale. The Company’s securities portfolio at December 31, 2020 consisted primarily of securities with the following fair values: $95.5 million of mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises; $80.7 million of municipal obligations; $4.0 million of U.S. government and agency obligations; $5.2 million of corporate bonds and $2.6 million of equity securities. At December 31, 2020, none of the collateral underlying the Company’s securities portfolio was considered subprime or Alt-A. See “Item 7 — Management’s Discussion of Financial Condition and Results of Operations — Balance Sheet Analysis: December 31, 2020 and December 31, 2019 — Investment Securities Portfolio” for a discussion of the recent performance of the Company’s securities portfolio.

~~The~~Mortgage-backed ~~following~~securities ~~table~~are ~~presents~~securities issued in the ~~effects~~secondary market that are collateralized by pools of ~~changing~~mortgages. ~~rates~~Certain ~~and~~types ~~volumes~~of onmortgage-backed securities are commonly referred to as “pass-through” certificates because the ~~Company’s~~principal ~~net~~and interest ~~income~~of ~~for~~ the ~~years~~ ~~ended~~underlying ~~December 31~~loans is “passed through” to investors, ~~2019~~net ~~and~~of ~~December 31~~certain costs, ~~2018~~including ~~(dollars~~servicing inand ~~thousands)~~guarantee fees. ~~The~~Mortgage-backed ~~rate~~securities ~~column~~are ~~shows~~typically ~~the~~collateralized ~~effects~~by ~~attributable~~pools of one- to ~~changes~~four-family inor ~~rate~~multifamily (~~changes~~loans on properties with 5 or more units) mortgages, although the Bank invests primarily in ~~rate~~mortgage-backed ~~multiplied~~securities backed by ~~prior~~one- ~~volume)~~to four-family mortgages. The ~~volume~~issuers ~~column~~of ~~shows~~such ~~the~~securities ~~effects~~pool ~~attributable~~and toresell ~~changes~~the participation interests in ~~volume~~the ~~(changes~~form inof ~~volume~~securities ~~multiplied~~to byinvestors ~~prior~~such ~~rate)~~as the Bank. ~~For~~The ~~purposes~~interest ofrate ~~this~~on ~~table,~~the ~~changes~~security ~~attributable~~is lower than the interest rates on the underlying loans to ~~both~~allow ~~rate~~for payment of servicing and ~~volume~~guaranty fees. Ginnie Mae, ~~which~~a ~~cannot~~U.S. begovernment ~~segregated~~agency, ~~have~~and ~~been~~government ~~allocated~~sponsored ~~proportionately~~enterprises, ~~based~~such onas Fannie Mae and Freddie Mac, guarantee the ~~changes~~timely ~~due~~payment toof ~~rate~~principal and ~~the~~interest ~~changes~~to ~~due~~investors. Mortgage-backed securities are more liquid than individual mortgage loans since there is an active trading market for such securities. In addition, mortgage-backed securities may be used to ~~volume~~collateralize borrowings and public deposits. Investments in mortgage-backed securities involve a risk that actual

	Year Ended December 31, 2019vs.Year Ended December 31, 2018
	Increase (decrease) due to
	Volume			Rate			Total
Interest-earning assets:
Loans receivable		$	(177)		$	631		$	454
Investment and mortgage-backed securities			282			95			377
FHLB and other restricted stock			(68)			96			28
Interest-earning deposits			(31)			81			50
Total interest-earning assets			6			903			909
Interest-bearing liabilities:
Savings accounts			(12)			28			16
Certificates of deposit			364			870			1,234
Money market accounts			56			649			705
Demand and NOW accounts			15			60			75
Borrowings			(481)			253			(228)
Securities sold under agreements to repurchase			(3)			9			6
Total interest-bearing liabilities			(61)			1,869			1,808
Change in net interest income		$	67		$	(966)		$	(899)

~~Comparison~~Table of ~~Operating Results for the Years Ended December 31, 2019 and December 31, 2018~~ Contents

~~General. Net~~payments ~~income~~will ~~was~~be ~~$8.8 million~~greater ~~for~~or ~~each~~less ofthan the ~~years~~ ~~ended~~prepayment ~~December 31,~~rate ~~2019~~estimated ~~and~~at ~~December 31~~the time of purchase, ~~2018.~~which ~~Earnings~~may ~~per~~require ~~share~~adjustments ~~for~~to the ~~current~~amortization ~~period~~of ~~was~~any ~~$1.91~~premium ~~for~~or ~~basic~~accretion ~~and~~of ~~$1.90~~any ~~for~~discount ~~fully~~relating ~~diluted~~to ~~compared~~such tointerests, ~~$1.90~~thereby ~~for~~affecting ~~basic~~the ~~and~~net $1yield on securities.88 ~~for~~Current ~~fully~~prepayment ~~diluted~~speeds ~~for~~determine ~~the~~whether ~~prior~~prepayment ~~year.~~estimates require modification that could cause amortization or accretion adjustments.

~~The~~Sources ~~Company’s~~of annualized return on average assets (ROA) and return on average equity (ROE) for the year ended December 31, 2019 were 0.90% and 6.28%, respectively, compared to 0.90% and 6.55%, respectively, for the year ended December 31, 2018. Funds

~~Net Interest Income~~General. ~~Net~~ ~~interest~~Deposits ~~income~~traditionally ~~for~~have been the ~~year~~primary ~~ended~~source ~~December 31, 2019 was $28.4 million, a decrease~~ of ~~$899,000,~~ orfunds ~~3.1%, compared to $29.3 million~~ for ~~the~~investment ~~year~~and ~~ended~~lending ~~December 31, 2018~~activities. The ~~decrease~~Bank ~~was~~also ~~primarily~~borrows ~~the~~from ~~result of an increase in~~ the ~~cost~~FHLB ofto ~~interest-bearing~~supplement ~~deposits~~cash ~~partially~~flow ~~offset by an increase in the yield on interest-earning assets~~needs. ~~The~~Additional ~~net~~sources ~~interest~~of ~~rate~~funds ~~spread~~include ~~and~~scheduled ~~net~~loan ~~interest~~payments, ~~margin~~maturing ~~were~~investments, ~~2.77%~~loan ~~and 3.10%~~repayments, ~~respectively,~~customer ~~for~~repurchase ~~the year ended December 31~~agreements, ~~2019,~~income ~~compared~~on toother ~~2.90%~~earning assets and ~~3.21%, respectively, for~~ the ~~year~~proceeds ~~ended~~of ~~December 31,~~loan ~~2018~~sales.

~~Interest~~Deposits. ~~and~~Deposits ~~Dividend~~are ~~Income. Total~~accepted ~~interest~~primarily ~~and~~from ~~dividend~~the ~~income~~areas ~~increased~~in bywhich ~~$909,000,~~the orBank’s ~~2.5%,~~offices toare ~~$37~~located.~~7 million~~ ~~for~~The ~~the~~Bank ~~year~~relies ~~ended~~on ~~December 31~~competitive pricing and products, ~~2019~~convenient ~~compared~~locations and quality customer service to ~~$36~~attract and retain deposits.~~8 million~~ ~~for~~The ~~the~~Bank ~~year~~offers ~~ended~~a ~~December 31,~~variety ~~2018~~of deposit accounts with a range of interest rates and terms. The ~~increase~~Bank’s ~~was~~deposit ~~primarily~~accounts ~~the~~consist ~~result~~of savings accounts, certificates of adeposit 13and ~~basis~~checking ~~point~~accounts. ~~increase~~Interest inrates, ~~the~~maturity ~~average~~terms, ~~yield~~service onfees ~~interest-earning~~and ~~assets~~withdrawal topenalties 4are established on a periodic basis.~~08%~~ ~~for~~Deposit ~~the~~rates ~~year~~and ~~ended~~terms ~~December 31,~~are ~~2019~~based ~~from~~primarily ~~3.95%~~on ~~for~~current operating strategies and market interest rates, liquidity requirements and the ~~prior~~Bank’s ~~year.~~deposit growth goals.

~~Interest~~Borrowings. ~~income~~Borrowings onconsist ~~loans~~of ~~increased~~short-term borrowings and long term advances from the FHLB, funds borrowed from customers under repurchase agreements, and financing lease liabilities. At December 31, 2020, there were no FHLB short-term borrowings and long-term advances totaled $~~454~~86.4 million,~~000~~ or 9.5%, of total liabilities. Repurchase agreements totaled $3.6 million, or 10.4%, toof total liabilities. Financing lease liabilities totaled $323.5 0 million, ~~for~~or ~~the~~0.3%, ~~year~~of ~~ended~~total liabilities at December 31, ~~2019~~2020. ~~compared~~At December 31, 2020, the Bank had access to additional FHLB borrowings of up to $32315.0 2 million. ~~for~~Short-term borrowings and long-term advances from the ~~year~~FHLB ~~ended~~are ~~December 31~~collateralized by certain qualifying collateral such as loans, ~~2018.~~with ~~The~~weighted ~~increase~~average ~~was~~collateral ~~primarily~~values determined by the ~~result~~FHLB equal to at least the unpaid amount of outstanding borrowings. Repurchase agreements are secured by municipal and U.S. government obligations.

36Subsidiary Activities

~~TABLE~~The OFBank ~~CONTENTS~~ has one active subsidiary, Westmoreland Investment Company, which is a Delaware corporation that holds residential mortgage loans originated and serviced by the Bank.

ofExpense a 16 basis point increase in the average yield on loans receivable to 4.41% for the year ended December 31, 2019 from 4.25% for the prior year. The increase in the average yield was attributable to some adjustable rate loans resetting higher as a result of increases in general market rates earlier in the year and ~~the~~Tax continued repositioning of the loan portfolio to emphasize commercial real estate and business lending compared to the prior year. The increase in interest income resulting from the increase in the average yield was partially offset by a decrease in the average balance of loans receivable of $9.3 million, or 1.3%, to $731.1 million for the year ended December 31, 2019 compared to the prior year. Allocation

~~Interest~~The ~~income~~Bank onhas ~~investment~~entered ~~and~~into ~~mortgage-backed~~an ~~securities~~agreement ~~increased~~with bythe ~~$377,000,~~Company ~~or 9.8%,~~ to ~~$4.2 million~~provide ~~for~~it ~~the~~with ~~year~~certain ~~ended~~administrative ~~December 31~~support services, ~~2019~~whereby ~~from $3.9 million for~~ the ~~year~~Bank ~~ended~~will ~~December 31,~~be ~~2018.~~compensated ~~The~~at ~~increase~~not ~~was~~less ~~primarily~~than the ~~result~~fair ofmarket anvalue ~~increase in the average balance~~ of ~~investment and mortgage-backed securities of $14.5 million, or 9.9%, to $160.4 million for year ended December 31, 2019 compared to~~ the ~~prior~~services ~~year~~provided. In addition, the ~~average~~Bank ~~yield~~and ~~earned~~the onCompany ~~investment~~have ~~and~~entered ~~mortgage-backed~~into ~~securities~~an ~~increased~~agreement ~~eight~~to ~~basis~~establish ~~points~~a tomethod ~~2.63%~~ for ~~the~~allocating ~~year~~and ~~ended December 31, 2019 from 2.55%~~ for ~~the~~reimbursing ~~prior year. The increase in~~ the ~~average~~payment ~~yield~~of ~~was~~their ~~due~~consolidated totax ~~new security purchases made at higher interest rates during the period~~liability.

~~Interest~~Human ~~income~~Capital on FHLB stock and other restricted stock increased $28,000 or 4.8% to $618,000 for the year ended December 31, 2018 compared to $590,000 for the year ended December 31, 2018. The increase was primarily the result of an increase in the average yield to 8.05% for the year ended December 31, 2019 from 6.85% for the prior year. The FHLB increased the dividend yield on both activity and membership stock as of the fourth quarter of 2018. The additional dividend income to true up the 2018 quarter was received in 2019. The increase in interest income resulting from the increase in the average yield was partially offset by a decrease in the average balance of FHLB stock and other restricted stock of $936,000, or 10.9%, to $7.7 million for the year ended December 31, 2019 compared to the prior year. Resources

~~Interest~~As ~~income~~of onDecember ~~interest-earning~~31, ~~deposits~~2020, ~~increased~~the ~~$50,000~~Bank orhad ~~15.5%~~141 tofull ~~$372,000~~time ~~for~~and ~~the~~11 ~~year~~part ~~ended~~time ~~December 31,~~employees. ~~2019~~The ~~compared~~Bank’s toemployees ~~$322,000~~are ~~for~~not ~~the~~represented ~~year~~by ~~ended~~any ~~December 31,~~collective ~~2018~~bargaining group. The ~~increase~~success ~~was~~of ~~primarily~~our ~~the~~business ~~result~~is ofhighly adependent 44on ~~basis~~our ~~point~~employees, ~~increase~~who inprovide ~~the~~value ~~average~~through ~~yield~~their ondedication ~~interest-earning~~to ~~deposits~~our tomission ~~2.08%~~of ~~for~~establishing ~~the~~and ~~year~~maintaining ~~ended~~mutually ~~December 31,~~beneficial ~~2019~~long-term ~~from~~relationships ~~1.64%~~with ~~for~~customers, ~~the~~businesses, ~~prior~~professionals ~~year~~and asthe acommunities ~~result~~we ofserve. ~~higher~~Management ~~short-term~~believes ~~interest~~they ~~rates~~have ~~for~~a ~~much~~good ofworking ~~the~~relationship ~~year~~with their employees. ~~The~~Our ~~increase~~workplace culture is grounded in ~~interest~~a ~~income~~set ~~resulting~~of ~~from~~core ~~the~~values ~~increase~~– ina ~~the~~concern ~~average~~for ~~yield~~others, ~~was~~trust, ~~partially~~respect, ~~offset~~hard bywork, and a ~~decrease~~dedication into ~~the~~our ~~average~~customers ~~balance~~and ofcommunities. ~~interest~~We seek to hire well-~~earning~~qualified ~~deposits~~employees ~~of $1.8 million,~~who orare ~~9.1%,~~also toa ~~$17.9 million~~good fit for ~~the~~our ~~year~~value ~~ended~~system. ~~December 31,~~Our ~~2019~~selection ~~compared~~and topromotion ~~the~~processes ~~prior~~are ~~year~~without bias.

~~Interest~~We ~~Expense. Total~~encourage ~~interest~~and ~~expense~~support ~~increased~~the bygrowth ~~$1.8 million,~~and ordevelopment ~~24.3%,~~of toour ~~$9.3 million~~employees ~~for~~and, ~~the~~wherever ~~year ended December 31~~possible, ~~2019~~seek ~~from~~to ~~$7.5 million~~fill ~~for~~positions ~~the~~by ~~year~~promotion ~~ended~~and ~~December 31,~~transfer ~~2018.~~from ~~The~~within ~~increase was primarily~~ the ~~result~~organization. ofContinual atraining 26and ~~basis~~career ~~point~~development ~~increase~~is inadvanced ~~the~~through ~~average~~regular ~~cost~~performance ofdiscussions ~~interest-bearing~~between ~~liabilities~~employees toand ~~1.31%~~their ~~for~~managers, ~~the~~internally ~~year~~developed ~~ended~~training ~~December 31~~programs, ~~2019~~customized ~~from~~corporate ~~1.05%~~training ~~for~~engagements ~~the~~and ~~prior~~educational ~~year~~reimbursement programs. Reimbursement is

~~Interest expense on deposits increased by $2.0 million, or 40.~~9%, to $7.0 million for the year ended December 31, 2019 from $5.0 million for the year ended December 31, 2018. The increase was primarily the result of a 31 basis point increase in the average cost of interest-bearing deposits to 1.17% for the year ended December 31, 2019 compared to 0.86% for the prior year due to a rising interest rate market for much of the year. In addition, the average balance of interest-bearing deposits increased $25.6 million, or 4.5%, for the year ended December 31, 2019 compared to the prior year.

~~Interest~~Table expense on borrowed funds decreased $228,000, or 9.2%, to $2.3 million for the year ended December 31, 2019 from $2.5 million for the year ended December 31, 2018. The decrease was primarily the result of a $22.9 million, or 18.1%, decrease in the average balance of borrowings to $103.4 million for the year ended December 31, 2019 compared to the prior year. The decrease in interest expense resulting from the decrease in the average balance was partially offset by a 20 basis point increase in the cost of borrowings to 2.18% for the year ended December 31, 2019 from 1.98% for the year ended December 31, 2018 due to the repayment of lower cost borrowings and new advances entered into at higher rates during the period as a result of increases in general market rates for much of the year. Contents

~~Provision~~available ~~for~~to ~~Loan~~employees ~~Losses. Provision~~enrolled ~~for~~in ~~loan~~pre-approved ~~losses~~degree ~~increased $153,000,~~ or ~~26.8%,~~certification toprograms ~~$725,000~~at ~~for~~accredited ~~the~~institutions ~~year~~that ~~ended~~teach ~~December 31,~~skills ~~2019,~~or ~~compared~~knowledge relevant to ~~$572~~our business,~~000~~ and for ~~the year ended December 31~~seminars, ~~2018. In management’s judgement~~conferences, ~~the~~and ~~allowance~~other ~~for~~training ~~loan~~events ~~losses~~employees isattend atin aconnection ~~sufficient~~with ~~level~~their ~~that~~job ~~reflects the losses inherent in the Bank’s~~ duties.

~~TABLE~~The OFsafety, ~~CONTENTS~~ health and wellness of our employees is a top priority. While the Company’s banking operations were not restricted by the government stay-at-home orders resulting from the COVID-19 pandemic, the Company took steps to protect its employees and customers by providing for remote working for many employees, enhancing cleaning procedures for the Company’s offices, requiring face masks to be worn by employees and maintaining appropriate social distancing in our offices. The Company continues to assess and monitor the COVID-19 pandemic and will take additional such steps as are necessary to protect its employees and assist its customers during this difficult time.

~~loan~~SUPERVISION ~~portfolio~~AND ~~relative to loan mix, economic conditions and historical loss experience. See “Non-Performing and Problem Assets” for additional information.~~ REGULATION

Noninterest Income. Noninterest income increased $705,000, or 16.2%, to $5.1 million for the year ended December 31, 2019 compared to $4.3 million for the year ended December 31, 2018. The increase was primarily the result of a $714,000, or 147.5%, change in net equity securities fair value adjustments from a loss of $484,000 for the year ended December 31, 2018 to a gain of $230,000 for the year ended December 31, 2019 related to fluctuations in the market prices of the equity securities. Additionally, there were increases in loan sale gains, service charges and investment management fees of $202,000 or 284.5%, $76,000 or 2.6%, and $51,000 or 7.9%, respectively, for the year ended December 31, 2019 compared to the prior year. The increase in loan sale gains for the year was reflective of the Bank’s business strategy to continue to expand it’s product mix and capacity to sell residential loans in the secondary mortgage market. Those increases were partially offset by there being no gains on the sales of equity securities during the twelve months ended December 31, 2019 compared to $394,000 in the prior year. General

~~Noninterest~~The ~~Expense. Noninterest~~Bank ~~expenses~~is ~~decreased~~supervised ~~$442~~and examined by the Pennsylvania Department of Banking and Securities as the issuer of its charter,~~000,~~ orand 2by the FDIC as the insurer of its deposits and its primary federal regulator.~~0%,~~ The Bank is regulated to ~~$21.6 million~~a ~~for~~lesser extent by the ~~year~~Federal ~~ended~~Reserve ~~December 31~~Board, ~~2019~~governing ~~from~~reserves ~~$22~~to be maintained against deposits and other matters.~~1 million~~ ~~for~~The Bank is also subject to consumer protection rules and regulations issued by the ~~year~~Consumer ~~ended~~Finance ~~December 31~~Protection Bureau although, ~~2018~~because it has less than $10.0 ~~Included~~billion in total consolidated assets, the ~~fluctuation~~FDIC and Pennsylvania Department of Banking and Securities are responsible for examining and supervising the ~~year~~Bank’s ~~were~~compliance ~~decreases~~with inthese ~~other~~laws. ~~operating~~This ~~expenses,~~system ~~core~~of ~~deposit~~state ~~amortization,~~and ~~premises~~federal regulation and ~~occupancy~~supervision ~~expenses,~~establishes a comprehensive framework of activities in which an institution may engage and ~~federal~~is ~~deposit~~intended ~~insurance~~primarily for the protection of ~~$385,000~~ orthe ~~8.1%,~~FDIC’s ~~$209,000~~deposit orinsurance ~~25.0%~~fund, ~~$210~~depositors,~~000~~ orand ~~8.0%~~other customers, and ~~$188,000~~not orfor 64the protection of security holders.~~2%,~~ ~~respectively,~~The ~~compared~~Bank tois periodically examined by the ~~prior~~Pennsylvania ~~year.~~Department ~~These~~of ~~decreases~~Banking ~~were~~and ~~offset~~Securities and the FDIC to aensure ~~large~~that ~~extent~~it bysatisfies ~~increases~~applicable instandards ~~compensation~~with ~~and~~respect ~~benefits~~to ~~of $394~~its capital adequacy,~~000~~ assets, ormanagement, ~~3.2%~~earnings, asliquidity ~~well~~and assensitivity ~~increases~~to inmarket ~~automatic~~interest ~~teller~~rates. ~~machine~~Following ~~and~~examinations, ~~data~~the ~~processing~~Pennsylvania ~~expenses~~Department of ~~$83,000~~ orBanking ~~16.2%~~and Securities and ~~$73,000~~the orFDIC ~~11.3%,~~prepare ~~respectively,~~reports ~~compared~~for tothe consideration of the ~~prior~~Bank’s ~~year~~Board of Directors on any operating deficiencies. The ~~lower~~Bank’s ~~federal~~relationship ~~deposit~~with ~~insurance~~its ~~was~~depositors ~~due~~is also regulated to ~~the~~a ~~application~~great ofextent ~~small~~by ~~bank~~federal ~~credits~~law and, to a lesser extent, state law, especially in matters concerning the ~~third~~ownership of deposit accounts and ~~fourth~~the ~~quarter~~form and content of the Bank’s ~~assessment.~~loan documents.

~~Income~~As ~~Tax Expense. The Company recorded~~ a ~~provision~~bank ~~for~~holding ~~income~~company, ~~tax~~the ~~of $2~~Company.~~3 million~~ ~~for~~is ~~the~~required ~~year~~to ~~ended~~file ~~December 31~~certain reports with, ~~2019~~is ~~compared~~subject to ~~$2.2 million~~examination ~~for~~by, ~~the~~and ~~year~~otherwise ~~ended~~must ~~December 31,~~comply ~~2018.~~with ~~The~~the ~~effective~~rules ~~tax~~and ~~rate~~regulations ~~was~~of ~~21.0% for~~ the ~~year~~Pennsylvania ~~ended~~Department ~~December 31,~~of ~~2019~~Banking and ~~20.3%~~Securities ~~for~~and the ~~year~~Federal ~~ended~~Reserve ~~December 31, 2018~~Board.

~~Non-Performing~~Any change in the applicable laws or regulations, whether by the FDIC, the Pennsylvania Department of Banking and ~~Problem~~Securities, ~~Assets~~the Federal Reserve Board or Congress, could have a material adverse impact on the Company, the Bank and their operations.

~~When~~Set aforth ~~residential~~below ~~mortgage loan, home equity loan or line of credit or consumer loan~~ is ~~past due, the Company sends~~ a ~~late~~brief ~~notice~~description ~~and~~of ~~contacts~~certain ~~the~~regulatory ~~borrower~~requirements tothat ~~inquire~~are asapplicable to ~~why~~ the ~~loan~~Bank ~~is past due. When a loan is 30 days or more past due, a second late notice is mailed~~ and ~~additional personal, direct contact with~~ the ~~borrower is attempted to determine the reason for the delinquency and establish the procedures by which the borrower will bring the loan current~~Company. ~~When~~The ~~the~~description ~~loan~~below is ~~45 days~~limited ~~past~~to ~~due,~~certain ~~the~~material ~~Company~~aspects ~~explores~~of the ~~customer’s~~statutes ~~situation~~ and ~~repayment~~regulations ~~options and inspects the collateral. In addition~~addressed, ~~when a loan reaches 90 days past due, management determines~~ and ~~recommends~~is tonot ~~the~~intended ~~Loan Committee whether~~ to ~~initiate foreclosure proceedings, which will~~ be ~~initiated~~a bycomplete ~~counsel~~description ifof ~~the~~such ~~loan~~statutes isand ~~not~~regulations ~~brought~~and ~~current.~~their ~~Procedures~~effects ~~for~~on ~~avoiding foreclosure can include restructuring~~ the ~~loan~~Bank inand ~~a manner that provides concessions to~~ the ~~borrower to facilitate payment~~Company.

Commercial business loans and commercial real estate loans are generally handled in the same manner as the loans discussed above. Additionally, when a loan is 30 days past due, the borrower is contacted, the property is visually inspected and inquiries are made with the principals as to the status of the loan and what actions are being implemented to bring the loan current. Depending on the type of loan, the borrower’s cash flow statements, internal financial statements, tax returns, rent rolls, new or updated independent appraisals, online databases and other relevant information in Bank and thirdDodd-~~party~~Frank ~~loan reviews are analyzed to help determine a course of action. In addition, legal counsel is consulted and an approach for resolution is determined and aggressively pursued.~~ Act

~~Loans~~The ~~are~~Dodd-Frank ~~generally~~Wall ~~placed~~Street onReform ~~non-accrual~~and ~~status~~Consumer ~~when~~Protection ~~payment~~Act of ~~principal~~2010 or(the ~~interest~~“Dodd-Frank isAct”), ~~90 days~~has orsignificantly ~~more~~changed ~~delinquent.~~the ~~Loans~~bank ~~are~~regulatory ~~also~~structure ~~placed~~and onaffected ~~non-accrual~~the ~~status~~lending, ifinvestment, ~~collection~~trading ofand ~~principal~~operating oractivities ~~interest~~of indepository ~~full~~institutions isand intheir ~~doubt~~holding companies. ~~When~~See ~~loans~~“Item ~~are~~1A — Risk ~~placed~~Factors — The onDodd-Frank aAct ~~non-accrual~~may ~~status,~~have ~~unpaid~~a ~~accrued~~material ~~interest~~impact ison ~~fully~~the ~~reversed,~~Bank’s operations and ~~interest~~the iscost ~~accounted~~of ~~for~~operations.” onMany of the ~~cash-basis~~provisions orof ~~cost~~the Dodd-~~recovery~~Frank ~~method~~Act ~~until~~required ~~qualifying~~various ~~for~~federal ~~return~~agencies to ~~accrual~~promulgate numerous and extensive implementing regulations over a period of years. ~~The~~Although ~~loan~~the ~~may~~effect of all of these regulations cannot be ~~returned~~completely todetermined ~~accrual~~at ~~status~~this ~~once~~time, it is ~~brought~~expected ~~current,~~that ~~six months~~the oflegislation ~~on-time~~and ~~payments~~implementing ~~have~~regulations ~~been~~will ~~received~~continue ~~and~~to ~~full~~increase ~~payment~~the ofBank’s ~~principal~~operating and ~~interest~~compliance ~~is expected~~costs.

3810

~~TABLE~~Table OFof ~~CONTENTS~~ Contents

~~Management~~On ~~evaluates~~May ~~individual~~24, ~~loans in all of the commercial segments for possible impairment if the relationship is greater than $200~~2018,~~000~~ ~~and~~ the ~~loan~~Economic ~~is in nonaccrual status~~Growth, ~~risk-rated~~Regulatory ~~Substandard~~Relief orand ~~Doubtful,~~Consumer ~~90 days~~Protection orAct ~~more~~(the ~~past~~“Economic ~~due~~Growth orAct”) ~~represents~~was aenacted ~~troubled debt restructuring. Loans are considered~~ to bemodify ~~impaired~~or ~~when,~~remove ~~based~~certain onfinancial ~~current~~reform ~~information~~rules and ~~events~~regulations, itincluding issome ~~probable that the Company will be unable to collect the scheduled payments~~ of ~~principal~~those orimplemented ~~interest~~under ~~when due according to~~ the ~~contractual~~Dodd-Frank ~~terms of the loan agreement~~Act. ~~The~~While ~~definition of “impaired loans” is not~~ the ~~same~~Economic asGrowth ~~the~~Act ~~definition~~maintained most of ~~“nonaccrual~~ ~~loans,” although~~ the ~~two~~regulatory ~~categories~~structure ~~overlap.~~established The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a commercial business or commercial real estate loan. Factors considered by ~~management in evaluating impairment include payment status, collateral value, and~~ the ~~probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case~~Dodd-~~by-case~~Frank ~~basis~~Act, ~~taking~~it ~~into~~amended ~~consideration~~certain ~~all~~aspects of the ~~circumstances~~regulatory ~~surrounding~~framework ~~the loan and the borrower, including the length of the delay, the reasons~~ for ~~the~~small ~~delay,~~depository ~~the~~institutions ~~borrower’s~~with ~~prior~~assets ~~payment record, and the amount~~ of ~~the~~less ~~shortfall~~than ~~in relation to the principal and interest owed~~$10.0 ~~The~~billion ~~Company does not separately evaluate individual consumer~~ and ~~residential mortgage loans~~ for ~~impairment,~~large ~~unless~~banks ~~such~~with ~~loan~~assets ~~is part~~ of amore ~~larger~~than ~~relationship that is impaired, has a classified risk rating, or is a trouble debt restructuring (“TDR”)~~$50.0 billion.

~~The~~Banking table below sets forth the amounts and categories of non-performing assets at the dates indicated (dollars in thousands). During the year ended December 31, 2019, there were two loans modified as TDRs. At December 31, 2018, 2017, and 2016 and September 30, 2016, there were no TDRs. Regulation

	December 31,												September 30,
	2019			2018			2017			2016			2016
Non-accrual loans:
One-to-four family residential and construction		$	2,067		$	1,727		$	1,899		$	544		$	516
Commercial real estate and construction			311			661			756			100			100
Home equity loans and lines of credit			272			258			244			101			73
Commercial business			60			62			5			—			—
Other			6			19			3			8			—
Total nonaccrual loans			2,716			2,727			2,907			753			689
Loans past due 90 days and still accruing			—			3			19			—			—
Total non-performing loans			2,716			2,730			2,926			753			689
Foreclosed real estate			404			486			419			251			281
Total non-performing assets		$	3,120		$	3,216		$	3,345		$	1,004		$	970
Ratios:
Non-accrual loans to total loans			0.38%			0.37%			0.39%			0.20%			0.18%
Non-performing loans to total loans			0.38%			0.37%			0.39%			0.20%			0.18%
Non-performing assets to total assets			0.32%			0.33%			0.34%			0.21%			0.20%
Allowance for loan losses to non-performing loans			179.75%			161.68%			141.05%			509.56%			551.52%

Pennsylvania Savings Bank Law. The Pennsylvania Banking Code of 1965, as amended (the “Banking Code”), contains detailed provisions governing the organization, operations, corporate powers, savings and investment authority, branching rights and responsibilities of directors, officers and employees of Pennsylvania savings banks. Under the Banking Code, a Pennsylvania savings bank may operate its banking business out of its principal office and may establish and maintain branch offices anywhere in Pennsylvania, or in other states, with the prior approval of the Pennsylvania Department of Banking and Securities. The Banking Code delegates extensive rulemaking power and administrative discretion to the Pennsylvania Department of Banking and Securities in its supervision and regulation of state-chartered savings banks. The Pennsylvania Department of Banking and Securities may order any savings bank to discontinue any violation of law or unsafe or unsound business practice and may direct any trustee, officer, attorney, or employee of a savings bank engaged in an objectionable activity, after the Pennsylvania Department of Banking and Securities has ordered the activity to be terminated, to show cause at a hearing before the Pennsylvania Department of Banking and Securities why such person should not be removed. The Department of Banking and Securities may also appoint a receiver or conservator for an institution in appropriate cases.

~~Loans~~Capital inRequirements. ~~process~~Federal ofregulations ~~foreclosure~~require ~~totaled~~federally $insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 ~~million~~ atcapital ~~December 31~~to risk-based assets ratio of 6.0%, ~~2019~~a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015, and are the result of a final rule implementing recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.

~~Foreclosed~~In ~~Real~~determining ~~Estate~~the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e. ~~Real~~g., ~~estate~~recourse ~~acquired~~obligations, asdirect credit substitutes, residual interests) are multiplied by a ~~result~~risk ofweight ~~foreclosure~~factor orassigned by ~~deed~~the regulations based on the risks believed inherent in ~~lieu~~the type of ~~foreclosure~~asset. isHigher ~~classified~~levels asof ~~foreclosed~~capital ~~real~~are ~~estate~~required onfor ~~the~~asset ~~Consolidated~~categories ~~Statements~~believed ofto ~~Financial~~present ~~Condition~~greater risk. ~~When~~Common ~~property~~equity isTier ~~acquired,~~1 itcapital generally is ~~recorded~~defined atas ~~estimated~~common ~~fair~~stockholders’ ~~value~~equity atand ~~the~~retained ~~date~~earnings. ofTier ~~foreclosure~~1 ~~less~~capital ~~the~~generally ~~cost~~is todefined ~~sell~~as common equity Tier 1 plus additional Tier 1 capital, ~~establishing~~such aas ~~new~~certain ~~cost~~noncumulative ~~basis~~perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. ~~Estimated~~Total ~~fair~~capital ~~value~~includes ~~generally~~Tier ~~represents~~1 ~~the~~capital ~~sales~~(common ~~price~~equity aTier ~~buyer~~1 ~~would~~capital beplus ~~willing~~additional toTier ~~pay~~1 oncapital) ~~the~~and ~~basis~~Tier 2 capital. Tier 2 capital is comprised of ~~current~~capital ~~market~~instruments ~~conditions~~and related surplus, ~~including~~meeting ~~normal~~specified ~~terms~~requirements, ~~from~~and ~~other~~may ~~financial~~include ~~institutions.~~cumulative ~~Holding~~preferred ~~costs~~stock and ~~declines~~long-term inperpetual ~~estimated~~preferred ~~fair~~stock, ~~market~~mandatory ~~value~~convertible ~~result~~securities, intermediate preferred stock and subordinated debt. Also included in ~~charges~~Tier 2 capital is the allowance for loan and lease losses limited to ~~expense~~a ~~after~~maximum ~~acquisition~~of 1.25% Atof ~~December 31~~risk-weighted assets and certain other items. In assessing an institution’s capital adequacy, ~~2019~~the FDIC takes into consideration, ~~2018~~not only these numeric factors, ~~2017~~but qualitative factors as well, and ~~2016~~has ~~and~~the ~~September 30,~~authority ~~2016,~~to ~~foreclosed~~establish ~~real~~higher ~~estate~~capital ~~totaled~~requirements ~~$404,000,~~for ~~$486,000,~~individual institutions when deemed necessary.

39In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in and became fully effective on December 31, 2020.

~~TABLE~~As OFa ~~CONTENTS~~ result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have adopted a rule to establish for institutions with assets of less than $10 billion that meet other specified criteria a “community bank leverage ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets). Institutions may elect to utilize the community bank leverage ratio in lieu of the generally applicable leverage and risk-based capital requirements noted above. The federal banking agencies adopted 9% as the

~~$419,000, and $251,000 and $281,000, respectively. Foreclosed real estate at December 31, 2019 consisted of two residential properties and one commercial real estate property.~~ 11

~~Classification~~Table of Assets. Management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently performing but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the collection of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans 90 days or more past due are considered Substandard. Any loan that has a specific allocation of the allowance for loan losses and is in the process of liquidation of the collateral is placed in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category. Contents

~~The~~applicable ~~following~~ratio, ~~table~~however, ~~sets~~in ~~forth~~response to federal legislation dealing with the ~~amounts~~effects of ~~classified~~COVID-19, the ratio was temporarily reduced to 8% effective March 31, 2020. The agencies established a community bank leverage ratio of 8.5% for calendar 2021 and ~~criticized~~the ~~assets~~ratio ~~(classified~~will ~~assets~~revert ~~plus~~to ~~loans~~9% ~~designated~~effective asJanuary ~~special~~1, ~~mention)~~2022. atInstitutions with capital meeting the specified requirements and electing to follow the alternative framework are considered compliant with all applicable regulatory capital and leverage requirements, including the requirement to be “well-capitalized” for purposes of prompt corrective action, discussed below. The Bank did not utilize the community bank leverage ratio frame work in its December 31, ~~2019~~2020 ~~(dollars~~Call Report and maintains the right to opt-in ~~thousands):~~or opt-out of the framework in any subsequent quarter.

Classified assets:
Substandard	$	2,716
Doubtful		—
Loss		—
Total classified assets		2,716
Special mention		3,424
Total criticized assets	$	6,140

The Bank is also subject to capital guidelines of the Pennsylvania Department of Banking and Securities. The Pennsylvania Department of Banking and Securities requires 4.0% leverage capital and incorporates the federal risk-based requirements. The components of capital are substantially the same as those defined by the FDIC. At December 31, 2020, the Bank’s capital exceeded all applicable requirements.

~~Allowance~~Prompt Corrective Action. Under federal regulations, as amended to incorporate the previously referenced revised capital requirements, a bank is considered to be (i) “well capitalized” if it has total risk-based capital of 10.0% or more, Tier 1 risk-based capital of 8.0% or more, common equity Tier 1 risk-based capital of 6.5% or more and Tier 1 leverage capital of 5.0% or more and is not subject to any written capital order or directive; (ii) “adequately capitalized” if it has total risk-based capital of 8.0% or more, Tier 1 risk-based capital of 6.0% or more, common equity Tier 1 risk-based capital of 4.5% or more and Tier 1 leverage capital of 4.0% or more and does not meet the definition of “well capitalized”; (iii) “undercapitalized” if it has total risk-based capital of less than 8.0%, Tier 1 risk-based capital of less than 6.0%, common equity Tier 1 risk-based capital of 4.5% or less or Tier 1 leverage capital of less than 4.0%; (iv) “significantly undercapitalized” if it has total risk-based capital of less than 6.0%, Tier 1 risk-based capital less than 4.0% common equity Tier 1 risk-based capital of less than 3.0, or Tier 1 leverage capital of less than 3.0%; and (v) “critically undercapitalized” if its ratio of tangible equity to total assets is equal to or less than 2.0%. Federal regulations also specify circumstances under which a federal banking agency may reclassify a well-capitalized institution as adequately capitalized, and may require an adequately capitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). As of December 31, 2020, the Bank was “well-capitalized” for ~~Loan~~this ~~Losses~~purpose and exceeded all applicable capital requirements.

AnFederal ~~allowance~~law provides for ~~loan~~certain ~~losses~~supervisory ~~(“ALL”)~~measures isfor ~~maintained~~undercapitalized toinstitutions ~~absorb~~including ~~losses~~restrictions ~~from~~on capital distributions and asset growth and the ~~loan~~requirement ~~portfolio.~~that ~~The~~a ~~ALL~~capital isrestoration ~~based~~plan onbe ~~management’s~~filed ~~continuing~~with ~~evaluation~~the FDIC within 45 days of the ~~risk~~date ~~characteristics~~an ~~and~~institution ~~credit~~receives ~~quality~~notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the ~~loan~~methodology ~~portfolio~~and assumptions for attaining adequately capitalized status on an annual basis, ~~assessment~~procedures offor ~~current~~ensuring ~~economic~~compliance ~~conditions~~with restrictions imposed by applicable federal regulations, ~~diversification~~the identification of the types and ~~size~~levels of activities the ~~portfolio~~institution will engage in while the capital restoration plan is in effect, ~~adequacy~~and assurances that the capital restoration plan will not appreciably increase the current risk profile of ~~collateral~~the institution. Any holding company for an institution required to submit a capital restoration plan must guarantee the lesser of an amount equal to 5% of the institution’s assets at the time it was notified or deemed to be undercapitalized by the FDIC or the amount necessary to restore the institution to adequately capitalized status. This guarantee remains in place until the FDIC notifies the institution that it has maintained adequately capitalized status for each of four consecutive calendar quarters, ~~past~~and the FDIC has the authority to require payment and ~~anticipated~~collect ~~loss~~payment ~~experience~~under the guarantee. The FDIC may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the ~~amount~~replacement of ~~non-performing~~senior ~~loans~~executive officers and directors. Generally, the FDIC is required to appoint a receiver or conservator for an institution that is “critically undercapitalized” within specific time frames.

~~The~~Loans-to-One-Borrower ~~Bank’s~~Limitation. ~~methodology~~Under ~~for~~applicable ~~determining~~regulations, ~~the~~with ~~ALL~~certain islimited ~~based~~exceptions, ona ~~the~~Pennsylvania ~~requirements~~chartered savings bank may lend to a single or related group of ~~ASC~~borrowers ~~Section 310-10-35~~on ~~for~~an ~~loans~~“unsecured” ~~individually~~basis ~~evaluated~~an ~~for~~amount ~~impairment~~equal ~~(discussed~~to ~~above)~~15% of its unimpaired capital and ~~ASC~~surplus. ~~Subtopic 450-20~~An ~~for~~additional ~~loans~~amount ~~collectively~~may ~~evaluated~~be ~~for~~lent, ~~impairment~~equal to 10% of unimpaired capital and surplus, asif ~~well~~such asloan ~~the~~is ~~Interagency~~secured ~~Policy~~by ~~Statements~~readily onmarketable ~~the~~collateral, ~~Allowance~~which ~~for~~is ~~Loan~~defined ~~and~~to ~~Lease~~include ~~Losses~~certain financial instruments and ~~other~~bullion, ~~bank~~but ~~regulatory~~generally ~~guidance~~does not include real estate. ~~The~~As ~~total~~a prudent lending practice, however, Management and the Board of Directors have established an internal limitation for approval purposes based on the ~~two~~total ~~components~~exposure ~~represents~~of a relationship. The formula to determine the Bank’s ~~ALL~~internal limitation is Tangible Capital times 15% times 50%. This

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. Management tracks the historical net charge-off activity for the loan segments which may be adjusted for qualitative factors. Pass rated credits are segregated from criticized credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. 12

~~Management~~Table ~~has identified a number~~ of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors are evaluated using information obtained from internal, regulatory, and governmental sources such as national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, depth and ability of management; and concentrations of credit from a loan type, industry and/or geographic standpoint. Contents

~~Management~~limitation ~~reviews~~is ~~the~~a ~~loan~~rolling ~~portfolio~~number based on athe ~~quarterly~~Bank’s ~~basis~~capital ~~using~~balance, aand ~~defined~~is measured at the end of each calendar quarter. The internal limitation as of December 31, ~~consistently~~2020 ~~applied~~was ~~process~~$8.9 million. Any new loan request that results in ~~order~~an toexposure ~~make~~for ~~appropriate~~approval ~~and~~purposes ~~timely~~that ~~adjustments~~exceeds this limitation must be presented to the ~~ALL.~~full ~~When~~Board ~~information~~of ~~confirms~~Directors ~~all~~for or decisioning.

40Activities and Investments of Insured State-Chartered Banks. Federal law generally limits the types and amounts of equity investments of state-chartered banks insured by the FDIC to those that are permissible for national banks. An insured state bank is not prohibited from, among other things: (i) acquiring or retaining a majority interest in a subsidiary that is engaged in permissible activities; (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation, or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets; (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures liability insurance for directors, trustees or officers, or blanket bond group insurance coverage for insured depository institutions; and (iv) acquiring or retaining the voting shares of a depository institution owned exclusively by other depository institutions if certain requirements are met. The direct or indirect activities of a state-chartered bank are similarly generally limited to those of a national bank. Exceptions include where approval is received for the activity from the FDIC.

~~TABLE~~Capital OFDistributions. ~~CONTENTS~~ The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the FDIC Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. Federal banking regulators have the authority to prohibit banks and bank holding companies from paying a dividend if the regulators deem such payment to be an unsafe or unsound practice. The Bank is also subject to regulatory restrictions on the payment and amounts of dividends under the Banking Code. The Banking Code states, among other things, that dividends may be declared and paid by the Bank only out of accumulated net earnings.

~~part~~Community Reinvestment Act and Fair Lending Laws. Under the Community Reinvestment Act of ~~specific~~1977 ~~loans~~(“CRA”), the FDIC is required to beassess ~~uncollectible,~~the ~~these~~record ~~amounts~~of all financial institutions regulated by it to determine if such institutions are ~~promptly~~meeting ~~charged~~the ~~off~~credit ~~against~~needs of the ~~ALL~~community (including low-and moderate-income areas) which they serve. ~~Any~~CRA ~~future~~performance ~~recoveries~~evaluations are ~~credited~~based ~~back~~on a four-tiered rating system: Outstanding, Satisfactory, Needs to ~~the~~Improve ~~ALL~~and Substantial Noncompliance. ~~Management~~CRA ~~utilizes~~performance anevaluations ~~internally~~are ~~developed~~considered ~~spreadsheet~~in toevaluating ~~track~~applications ~~and~~for ~~apply~~such ~~the~~things ~~various~~as ~~components~~mergers, ofacquisitions ~~the~~and ~~allowance~~applications to open branches. The Bank has a current CRA rating of “Satisfactory.”

~~The~~Transactions ~~ALL~~with isRelated ~~based~~Parties. onTransactions ~~estimates~~between banks and ~~actual~~their ~~losses~~related ~~will~~parties ~~vary~~or ~~from~~affiliates ~~current~~are ~~estimates.~~limited ~~Management~~by ~~believes~~Sections ~~that~~23A ~~the~~and ~~granularity~~23B of the ~~homogeneous~~Federal ~~pools~~Reserve ~~and~~Act. ~~the~~An ~~related~~affiliate ~~historical~~of ~~loss~~a ~~ratios~~bank ~~and~~is ~~other~~any ~~qualitative~~company ~~factors,~~or asentity ~~well~~that ~~as the consistency in the application of assumptions~~controls, ~~result~~is incontrolled anby ~~ALL~~or ~~that~~ is ~~representative~~under ofcommon ~~the~~control ~~risk~~with ~~found in~~ the ~~components of the loan portfolio at any given date~~bank. In ~~addition,~~a ~~federal~~holding ~~regulatory~~company ~~agencies~~context, ~~as an integral part of their examination process, periodically review~~ the ~~Bank’s~~parent ~~allowance~~bank ~~for~~holding ~~loan~~company ~~losses~~ and ~~may~~any ~~require~~companies ~~the Bank to make changes to the allowance based on their judgments about information available to them at the time of their examination,~~ which ~~may~~are ~~not~~controlled beby ~~currently~~such ~~available~~parent toholding ~~Management.~~company ~~Based~~are onaffiliates ~~Management’s comprehensive analysis~~ of the ~~loan portfolio, they believe the current level of the allowance for loan losses is adequate~~bank.

~~The~~Generally, ~~table~~Sections ~~below~~23A ~~presents~~and ~~information~~23B ~~regarding~~of the ~~activity~~Federal Reserve Act (i) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus and (ii) require that all such transactions be on terms substantially the ~~allowance~~same, ~~for~~or at least as favorable, to the institution or subsidiary as those provided to non-affiliates. The term “covered transaction” includes the making of a loan ~~losses~~to, ~~for~~purchase ~~each~~of assets from, issuance of a guarantee on behalf of and similar transactions with an affiliate. In addition, loans or other extensions of credit by the ~~periods~~institution ~~presented~~to ~~(dollars~~the affiliate must be collateralized in ~~thousands):~~accordance with the requirements set forth in Section 23A of the Federal Reserve Act.

	For the Year Ended December 31,												For the YearEndedSeptember 30,
	2019			2018			2017			2016			2016
Balance at beginning of year		$	4,414		$	4,127		$	3,837		$	3,800		$	3,879
Provision charged to operating expenses			725			572			517			40			105
Recoveries of loans previously charged-off:
One-to-four family residential and construction			4			69			28			—			8
Commercial real estate and construction			3			2			1			1			7
Home equity loans and lines of credit			1			11			—			—			9
Commercial business			—			5			3			—			18
Other			2			—			7			—			7
Total recoveries			10			87			39			1			49
Loans charged-off:
One-to-four family residential and construction			—			—			(185)			—			(70)
Commercial real estate and construction			(187)			(80)			—			—			(93)
Home equity loans and lines of credit			(2)			—			(51)			—			(4)
Commercial business			(37)			(244)			(1)			—			(43)
Other			(41)			(48)			(29)			(4)			(23)
Total charge-offs			(267)			(372)			(266)			(4)			(233)
Net charge-offs			(257)			(285)			(227)			(3)			(184)
Balance at end of year		$	4,882		$	4,414		$	4,127		$	3,837		$	3,800
Net charge-offs to average loans outstanding			0.04%			0.04%			0.03%			0.00%			0.05%
Allowance for loan losses to total loans at year-end			0.68%			0.60%			0.55%			1.00%			1.00%

~~The allowance for loan losses at December 31, 2019 represented 0.68% of total loans, compared to 0.60% at December 31, 2018.~~ 13

~~During~~Table the year ended December 31, 2019, there was an increase in the provision for the commercial real estate and construction loan class primarily due to growth in the loan balances included in the allowance calculation for that loan class as well as charge-offs incurred during the year; there was a decrease in the provision for the one-to-four family residential and construction loan class primarily due to a decline in the loan balances included in the allowance calculation for that loan class as well as a decrease in the qualitative factors; and there was an increase in the provision for the commercial business loan class due to both an increase in the balance of ~~loans included in the allowance calculation for that loan class as well as an~~ Contents

41the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are further limited to specific categories.

~~TABLE~~Standards OFfor ~~CONTENTS~~ Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action.

~~increase~~Insurance inof ~~the~~Deposit ~~qualitative factors~~Accounts. The ~~allowance~~Bank ~~for~~is ~~the~~a ~~home~~member ~~equity~~of ~~loans~~the ~~and~~Deposit ~~lines~~Insurance ofFund, ~~credit~~which ~~and~~is administered by the ~~other~~FDIC. ~~loan~~Deposit ~~classes~~accounts ~~remained~~in ~~consistent~~the ~~with~~Bank are insured by the ~~previous~~FDIC ~~year.~~up to a maximum of $250,000 for each separately insured depositor.

~~Allocation~~The ofFDIC ~~Allowance~~assesses ~~for~~insured ~~Loan~~depository ~~Losses. The~~institutions ~~following~~to ~~table~~maintain ~~sets~~the ~~forth~~Deposit ~~the~~Insurance ~~allowance~~Fund. ~~for~~Under ~~loan~~the ~~losses~~FDIC’s ~~allocated~~risk-based byassessment ~~loan~~system, ~~category~~institutions ~~and~~deemed ~~the percent~~less ofrisky ~~loans~~pay inlower ~~each~~assessments. ~~category~~Assessments tofor ~~total~~institutions ~~loans~~with atless ~~the~~than ~~dates~~$10.0 ~~indicated~~billion ~~(dollars~~of inassets ~~thousands).~~are ~~The~~based ~~allowance~~on ~~for~~financial ~~loan~~measures ~~losses~~and ~~allocated~~supervisory toratings ~~each~~derived ~~category~~from isstatistical ~~not~~modeling ~~necessarily~~estimating ~~indicative~~the probability of ~~future~~an ~~losses~~institution’s infailure ~~any~~within ~~particular~~three ~~category~~years. ~~and~~That ~~does~~system, ~~not~~effective ~~restrict~~July ~~the~~1, ~~use~~2016, ofreplaced the ~~allowance~~previous tosystem ~~absorb~~under ~~losses~~which ininstitutions ~~other~~were placed into risk categories.

	December 31, 2019					December 31, 2018					December 31, 2017					December 31, 2016					September 30, 2016
	Amount			Percent ofLoans inEachCategory toTotal		Amount			Percent ofLoans inEachCategory toTotal		Amount			Percent ofLoans inEachCategory toTotal		Amount			Percent ofLoans inEachCategory toTotal		Amount			Percent ofLoans inEachCategory toTotal
One-to-four family residential and construction		$	721		32.7%		$	1,051		34.6%		$	1,384		34.8%		$	1,280		45.4%		$	1,250		43.9%
Commercial real estate and construction			3,313		45.1%			2,761		42.1%			2,003		40.1%			1,787		30.3%			1,786		31.4%
Home equity loans and lines of credit			310		15.5%			312		16.8%			400		17.4%			547		20.2%			547		20.7%
Commercial business			534		6.6%			286		6.3%			333		7.5%			211		4.0%			211		3.9%
Other			4		0.1%			4		0.2%			7		0.2%			12		0.1%			6		0.1%
Total		$	4,882		100.0%		$	4,414		100.0%		$	4,127		100.0%		$	3,837		100.0%		$	3,800		100.0%

~~Liquidity~~The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC was required to seek to achieve the 1.35% ratio by September 30, 2020. The Dodd-Frank Act required insured institutions with assets of $10.0 billion or more to fund the increase from 1.15% to 1.35% and, ~~Capital~~effective ~~Resources~~July 1, 2016, such institutions were subject to a surcharge to achieve that goal. In November 2018, the FDIC announced that the 1.35% ratio had been achieved. Institutions with less than $10 billion in assets began receiving credits to the extent that their assessment payments contributed to raising the ratio between 1.15% and 1.35%. The FDIC announced that such credits were fully remitted by September 30, 2020. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC; the FDIC has exercised that discretion by establishing a long-term fund ratio of 2.0%.

~~Liquidity~~The isFDIC ~~the~~has ~~ability~~authority to ~~meet~~increase ~~current~~insurance ~~and future financial obligations~~assessments. ~~The~~Any ~~Company’s~~significant ~~primary~~increases ~~sources~~would ofhave ~~funds~~an ~~consist~~adverse ofeffect ~~deposit~~on ~~inflows, loan repayments and sales, advances and short-term borrowings from~~ the ~~FHLB,~~operating ~~repurchase~~expenses ~~agreements~~ and ~~maturities,~~results ~~principal repayments and sales~~ of ~~available-for-sale~~operations ~~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 Asset/Liability Management Committee, under~~ the direction of the Chief Financial Officer, is responsible for establishing and monitoring liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of its customers as well as unanticipated contingenciesBank. ~~Management~~Future ~~believes~~insurance ~~there~~assessments ~~are~~cannot ~~sufficient~~be ~~sources of liquidity to satisfy short- and long-term liquidity needs as of December 31, 2019~~predicted.

~~Management~~Insurance ~~regularly~~of ~~monitors~~deposits ~~and~~may ~~adjusts~~be terminated by the ~~investments~~FDIC upon a finding that an institution has engaged in ~~liquid~~unsafe ~~assets~~or ~~based~~unsound ~~upon~~practices, is in an ~~assessment~~unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The Bank does not currently know of: any practice, condition or violation that may lead to termination of its deposit insurance.

•Enforcement. The FDIC has extensive enforcement authority over insured state savings banks, including the Bank. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and

~~expected loan demand;~~ 14

Table of Contents

•desist orders and capital directives and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices.

~~expected~~Federal ~~deposit~~Home ~~flows~~Loan Bank System. The Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the Federal Home Loan Bank of Pittsburgh, the Bank is required to acquire and ~~borrowing~~hold ~~maturities;~~shares of capital stock in the Federal Home Loan Bank. As of December 31, 2020, the Bank was in compliance with this requirement.

Other Regulations

•Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank’s operations are also subject to federal laws applicable to credit transactions.

~~yields~~Bank ~~available~~Holding onCompany ~~interest-earning~~Regulations. ~~deposits~~As a bank holding company, the Company is subject to regulation and ~~securities;~~examination by the Pennsylvania Department of Banking and Securities and the Federal Reserve Board. The Company is required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The BHC Act requires each bank holding company to obtain the approval of the Federal Reserve Board before it may acquire substantially all the assets of any bank, or before it may acquire ownership or control of any voting shares of any bank if, after such acquisition, it would own or control, directly or indirectly, more than five percent of the voting shares of such bank. Such a transaction may also require approval of the Pennsylvania Department of Banking and Securities.

Pursuant to provisions of the BHC Act and regulations promulgated by the Federal Reserve Board thereunder, the Company may only engage in or own companies that engage in activities deemed by the Federal Reserve Board to be so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. The holding company must obtain permission from the Federal Reserve Board prior to engaging in most new business activities. A bank holding company that meets certain criteria may become a “financial holding company” and thereby engage in a broader range of financial activities, including insurance underwriting and investment banking. The Company has not elected to become a financial holding company.

•The Dodd-Frank Act required the Federal Reserve Board to revise its holding company consolidated capital requirements so that they are no less stringent than those applicable to insured depository institutions. The previously referenced regulatory capital requirements applicable to banks also apply to bank holding companies with consolidated assets of $3.0 billion or more. Such capital requirements would apply to the Company at such time as its size met that threshold.

The Federal Reserve Board has issued a policy statement regarding the ~~objectives~~payment of dividends by bank holding companies. In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset~~/liability~~ ~~management~~quality ~~program~~and overall financial condition. The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Federal Reserve Board policies require a bank holding company to consult with and receive the nonobjection of the agency prior to paying dividends or repurchasing its stock under certain circumstances. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory requirements and policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.

The most liquid assets are cash and cash equivalents. The level of these assets is dependent on the operating, financing, lending and investing activities during any given period. At December 31, 2019, cash and cash equivalents totaled $32.4 million. Cash flows are derived from operating activities, investing activities and financing activities as reported in the Company’s Consolidated Statements of Cash Flows included in the Consolidated Financial Statements. 15

AtTable ~~December 31, 2019, there were $121.7 million in loan commitments outstanding~~ of which $58.6 million were for commercial loans and lines, $40.5 million were for one-to-four-family and construction loans and $22.6 million were for standby letters of credit and other commitments including consumer overdraft lines. Certificates of deposit due within one year of December 31, 2019 totaled $127.6 million, or 17.4% of total deposits. If these deposits do not remain with the Bank, it may be required to seek other sources of funds, including loan Contents

42regulations, means ownership, control of or holding more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances, including where the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. In addition, federal regulations provide that no company may acquire control of a bank holding company (as “control” is defined in the BHCA Act) without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve Board.

~~TABLE~~Federal OFSecurities ~~CONTENTS~~ Laws

~~and~~The ~~securities~~Company’s ~~sales,~~common ~~repurchase~~stock ~~agreements~~is ~~and~~registered ~~FHLB~~with ~~advances~~the Securities and ~~short-term~~Exchange ~~borrowings.~~Commission ~~The~~under ~~Company~~the ~~believes,~~Securities ~~however,~~Exchange ~~based~~Act onof ~~historical~~1934, ~~experience~~as ~~and~~amended. ~~current~~The ~~market~~Company ~~interest~~is ~~rates,~~subject itto ~~will~~the ~~retain~~information ~~upon~~and ~~maturity~~other arequirements ~~large~~under ~~portion~~the ofSecurities ~~certificates~~Exchange ofAct ~~deposit with maturities~~ of ~~one year or less~~1934.

The Company’s ~~primary~~common ~~investing~~stock ~~activities~~held ~~include~~by ~~originating~~persons ~~loans~~who ~~and~~are ~~purchasing~~affiliates ~~investment~~(generally ~~securities.~~officers, ~~During~~directors ~~the~~and ~~year~~principal ~~ended~~stockholders) ~~December 31,~~of ~~2019,~~ the ~~Bank~~Company ~~had~~may anot ~~net~~be ~~decrease~~resold inwithout ~~loans~~registration ~~of $16.0 million~~or asunless asold ~~result~~in ofaccordance ~~loan~~with ~~payoffs~~certain ~~exceeding~~resale ~~loan~~restrictions. ~~production~~If ~~during~~ the ~~year.~~Company ~~During~~meets ~~the~~specified ~~year~~current ~~ended~~public ~~December 31,~~information ~~2018~~requirements, ~~the~~each ~~Bank~~affiliate ~~had~~of athe ~~net~~Company ~~decrease~~is inable ~~loans~~to ~~of $18.1 million.~~sell ~~Purchases~~in ofthe ~~investment~~public ~~securities~~market, ~~totaled~~without ~~$44.2 million~~registration, ~~and~~a ~~$40.2 million~~limited ~~for~~number ~~the years~~of ~~ended~~shares ~~December 31,~~in ~~2019~~any ~~and~~three-month ~~2018, respectively~~period.

~~Financing activities generally consist of activity in deposit accounts and FHLB advances and short~~Sarbanes-~~term~~Oxley ~~borrowings.~~Act ~~The Company experienced net increases in deposits~~ of ~~$16.5 million~~ and $23.0 million during the years ended December 31, 2019 and December 31, 2018, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by the Bank and local competitors, and by other factors. 2002

~~Liquidity~~The ~~management~~Sarbanes-Oxley isAct ~~both~~of a2002 ~~daily~~addresses, among other issues, corporate governance, auditing and ~~long-term~~accounting, ~~function~~executive compensation, and enhanced and timely disclosure of ~~business~~corporate ~~management~~information. IfAs directed by the Sarbanes-Oxley Act, the Company’s ~~requires~~Chief ~~funds~~Executive ~~beyond~~Officer ~~its~~and ~~ability~~Chief Financial Officer are required to ~~generate~~certify ~~them~~that ~~internally,~~the ~~borrowing~~Company’s ~~agreements~~quarterly ~~exist~~and ~~with~~annual ~~the~~reports ~~FHLB,~~do ~~which~~not ~~provides~~contain anany ~~additional~~untrue ~~source~~statement of ~~funds~~a material fact. ~~There~~The ~~were~~rules ~~net~~adopted ~~decreases~~by inthe ~~FHLB~~SEC ~~advances~~under ~~of $9.0 million~~the ~~and~~Sarbanes-Oxley ~~$2.7 million~~Act ~~for~~have ~~the years~~several ~~ended~~requirements, ~~December 31~~including having these officers certify that: they are responsible for establishing, ~~2019~~maintaining and ~~December 31,~~regularly ~~2018,~~evaluating ~~respectively.~~the ~~There~~effectiveness ~~were~~of ~~net~~the ~~decreases~~Company’s ininternal ~~FHLB~~control ~~short~~over ~~term~~financial ~~borrowings~~reporting; they have made certain disclosures to the Company’s auditors and the audit committee of ~~$4.5 million~~ the Board of Directors about internal control over financial reporting; and ~~$22.5 million~~they ~~for~~have included information in the ~~years~~ ~~ended~~Company’s ~~December 31,~~quarterly ~~2019~~and annual reports about their evaluation and ~~December 31,~~whether ~~2018,~~there ~~respectively.~~have Atbeen ~~December 31,~~changes ~~2019,~~in the ~~Bank~~Company’s ~~had~~internal ~~the~~control ~~ability~~over tofinancial ~~borrow~~reporting upor toin another ~~additional~~factors ~~$335.8 million~~that ~~from~~could ~~the~~materially ~~FHLB.~~affect internal control over financial reporting.

The ~~Bank~~Coronavirus ~~is subject to various regulatory capital requirements~~Aid, ~~including~~Relief ~~a risk-based capital measure. The risk-based capital guidelines include both a definition of capital~~ and aEconomic ~~framework~~Security ~~for~~Act ~~calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2019,~~ (the ~~Bank exceeded all regulatory capital requirements. The Bank is considered~~ “~~well~~CARES ~~capitalized~~Act” under regulatory guidelines. See “Item 1 Business-Supervision and Regulation — Banking Regulation — Capital Requirements” and Note 12 of the Notes to the Consolidated Financial Statements. )

~~Off~~The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-~~Balance~~19) ~~Sheet~~and ~~Arrangements~~stimulate the economy. The law had several provisions relevant to depository institutions, including:

InAllowing ~~the~~institutions normal course of business, the Company extends credit in the form of various financial instruments with off-balance-sheet risks. These off-balance sheet instruments involve, to various degrees, elements of credit and interest rate risk not reported in the statement of financial condition. The Company uses the same credit policies in making commitments for off-balance sheet financial instruments as it does for on-balance sheet instruments. Collateral is generally required to ~~support~~characterize ~~financial instruments with credit risk and it typically includes real estate property. The Company grants~~ loan ~~commitments~~modifications atrelating ~~prevailing market rates of interest. Commitments~~ to ~~extend~~the ~~credit~~COVID-19 ~~are~~pandemic ~~agreements to lend to a customer~~ as ~~long~~troubled asdebt ~~there~~restructurings ~~is no violation of any conditions established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses~~ and ~~may~~also ~~require~~allowing payment of a fee. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The Company’s exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contract amount of the financial instrument and is limited by subjecting them to ~~credit~~suspend ~~approval and monitoring procedures. Substantially all commitments to extend credit are contingent upon customers maintaining specific credit standards at~~ the ~~time~~corresponding ofimpairment ~~the~~determination ~~loan~~for ~~funding.~~accounting ~~Sometimes~~purposes; commitments expire without being drawn upon. Therefore, the total contractual amounts presented do not necessarily represent future funding requirements. At December 31, 2019, the Company had unused commitments totaling $121.7 million.

~~The~~As ~~Company~~previously ~~does~~noted, ~~not~~temporarily ~~currently~~reducing ~~participate~~to in8% ~~any derivative activity for~~ the ~~purpose~~community ofbank ~~managing~~leverage ~~interest~~ratio ~~rate~~alternative ~~sensitivity~~available orto ~~risks~~institutions ~~associated~~ with ~~lending,~~less ~~deposit~~than ~~taking~~$10 orbillion ~~borrowing~~of ~~activities~~assets.

~~Impact~~The ability of ~~Inflation~~a borrower of a federally-backed mortgage loan (VA, FHA, USDA, Freddie Mac and ~~Changing~~Fannie ~~Prices~~Mae) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic, to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance could be granted for up to 180 days, subject to extension for an additional 180-day period upon the request of the borrower. During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract could accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally-backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the

The Company’s consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles which require the measurement of financial condition and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money 16

43Table of Contents

~~TABLE~~60-day OFperiod ~~CONTENTS~~ beginning March 18, 2020. The Biden Administration has indicated its intent that the federal mortgage backing agencies will extent the forbearance program and the foreclosure moratorium to at least June 30, 2021.

~~over~~The ~~time~~ability ~~due~~of toa ~~inflation.~~borrower ~~The~~of ~~impact~~a ofmulti-family ~~inflation~~federally isbacked ~~reflected~~mortgage inloan ~~the~~that ~~increased~~was ~~cost~~current as of February 1, 2020, to submit a request for forbearance to the ~~Company~~borrower’s ~~operations~~servicer affirming that the borrower is experiencing financial hardship during the COVID-19 emergency. ~~Unlike~~A ~~industrial~~forbearance ~~companies~~would be granted for up to 30 days, which could be extended for up to two additional 30-day periods upon the ~~Company’s~~request ~~assets~~of ~~and~~the ~~liabilities~~borrower. ~~are~~Later ~~primarily~~extensions ~~monetary~~were inmade ~~nature~~available, for a total of six months, for certain federally backed multi-family mortgage loans. AsDuring the time of the forbearance, the multi-family borrower could not evict or initiate the eviction of a ~~result~~tenant or charge any late fees, ~~changes~~penalties inor ~~market~~other ~~interest~~charges ~~rates~~to ~~have~~a tenant for late payment of rent. Additionally, a ~~greater~~multi-family ~~impact~~borrower that received a forbearance could not require a tenant to vacate a dwelling unit before a date that is 30 days after the date on ~~performance~~which ~~than~~the borrower provided the ~~effects~~tenant notice to vacate and may not issue a notice to vacate until after the expiration of ~~inflation.~~the forbearance.

~~ITEM~~The ~~7A. Quantitative~~Paycheck ~~and~~Protection ~~Qualitative Disclosures About Market Risk~~ Program

~~Management~~The CARES Act and the Paycheck Protection Program and Health Care Enhancement Act provided $659 billion to fund loans by depository institutions to eligible small businesses through the Small Business Administration’s (“SBA”) 7(a) loan guaranty program. These loans are 100% federally guaranteed (principal and interest). An eligible business could apply under the Paycheck Protection Program (“PPP”) during the applicable covered period and receive a loan up to 2.5 times its average monthly “payroll costs” limited to a loan amount of ~~Market~~$10.0 ~~Risk~~million. The proceeds of the loan could be used for payroll (excluding individual employee compensation over $100,000 per year), mortgage, interest, rent, insurance, utilities and other qualifying expenses. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan term (or five-year loan term for loans made after June 5, 2020) to maturity; and (c) principal and interest payments deferred until the date on which the SBA remits the loan forgiveness amount to the borrower’s lender or, alternatively, notifies the lender no loan forgiveness is allowed. If the borrower did not submit a loan forgiveness application to the lender within 10 months following the end of the 24-week loan forgiveness covered period (or the 8-week loan forgiveness covered period with respect to loans made prior to June 5, 2020 if such covered period is elected by the borrower), the borrower would begin paying principal and interest on the PPP loan immediately after the 10-month period. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be fully reduced by the loan forgiveness amount under the PPP so long as, during the applicable loan forgiveness covered period, employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses. Through December 31, 2020 the Company had processed over 400 PPP loan applications totaling over $43.2 million.

~~General. The~~On ~~Company’s~~December ~~most~~27, ~~significant~~2020, ~~form~~the ofConsolidated ~~market~~Appropriations ~~risk~~Act, is2021 ~~interest~~(the ~~rate~~“Relief ~~risk~~Act”) ~~because,~~became aslaw aand ~~financial~~provides ~~institution,~~an ~~the~~additional ~~majority~~$284 ofbillion for the ~~assets~~PPP, and ~~liabilities~~extended ~~are~~the ~~sensitive~~PPP tothrough ~~changes~~at inleast ~~interest~~March ~~rates~~31, 2021. ~~Therefore,~~PPP achanges ~~principal~~as ~~part~~a result of the ~~Company’s~~Relief ~~operations~~Act isincluded: to(1) ~~manage~~an ~~interest~~opportunity ~~rate~~for ~~risk~~a second PPP forgivable loan for small businesses and ~~limit~~nonprofits ~~the~~with ~~exposure~~300 or fewer employees that can demonstrate a loss of ~~net~~25 ~~interest~~percent ~~income~~of gross receipts in any quarter during 2020 compared to ~~changes~~the same quarter in ~~market~~2019; ~~interest~~(2) ~~rates.~~allowing ~~The~~qualified ~~Board~~borrowers ofto ~~Directors~~apply ~~has~~for ~~established~~a anPPP ~~Asset/Liability~~loan ~~Management~~up ~~Committee,~~to ~~which~~2.5 istimes ~~responsible~~(or 3.5 times for ~~evaluating~~small businesses in the ~~interest~~restaurant ~~rate~~and ~~risk~~hospitality ~~inherent~~industries) the borrower’s average monthly payroll costs in ~~assets~~the ~~and~~one-year ~~liabilities,~~period ~~for~~prior ~~determining~~to the ~~level~~date ofon ~~risk~~which ~~that~~the loan is ~~appropriate~~made or calendar year 2019, ~~given~~limited to a loan amount of $2.0 million; (3) the ~~business~~addition ~~strategy,~~of ~~operating~~personal ~~environment~~protective equipment expenses, ~~capital~~costs associated with outdoor dining, ~~liquidity~~uninsured costs related to property damaged and ~~performance~~vandalism ~~objectives,~~or looting due to 2020 public disturbances and supplier costs as eligible and forgivable expenses; (4) simplifying the loan forgiveness process for ~~managing~~loans ~~this~~of ~~risk~~$150,000 ~~consistent~~or less; and (5) eliminating the requirement that Economic Injury Disaster Loan (EIDL) Advances will reduce the borrower’s PPP loan forgiveness amount. Additionally, expenses paid with the ~~guidelines~~proceeds ~~approved~~of byPPP loans that are forgiven became tax-deductible, reversing previous guidance from the ~~Board~~U.S. Department of ~~Directors~~the Treasury and the Internal Revenue Service, which did not allow deductions on expenses paid for with PPP loan proceeds.

Historically, the Bank operated as a traditional savings bank. Therefore, the majority of assets consist of longer-term, fixed rate residential mortgage loans and mortgage backed securities, which were funded primarily with checking and savings accounts and short-term borrowings. In an effort to improve earnings and to decrease exposure to interest rate risk, the Bank generally sells fixed rate residential loans with terms over 15 years. In addition, the Bank has shifted the focus to originating more commercial real estate loans, which generally have shorter maturities than one- to four-family residential mortgage loans, and are usually originated with adjustable interest rates.

~~In addition to the above strategies with respect to lending activities, the Company has used the following strategies to reduce interest rate risk:~~ 17

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~~increasing personal and business checking accounts, which are less rate-sensitive than certificates of deposit and which provide the Company with a stable, low-cost source of funds;~~ TAXATION

Federal Taxation

•General. The Company and the Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company and the Bank.

~~repaying~~Method ~~short-term~~of ~~borrowings;~~Accounting. For federal income tax purposes, the Bank will file a consolidated tax return with the Company and will report income and expenses on the accrual method of accounting and use a calendar year ending December 31st for filing their consolidated federal income tax returns.

Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent alternative minimum taxable income is in excess of an exemption amount. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. At December 31, 2020, the Company had no alternative minimum tax credit carryforward.

•Net Operating Loss Carryovers. At December 31, 2020, the Company had no net operating loss carryovers for federal income tax purposes.

~~maintaining~~Corporate ~~relatively~~Dividends. ~~high~~The ~~levels~~Company will be able to exclude from income 100% of ~~capital.~~dividends received from the Bank as a member of the same affiliated group of corporations.

~~The~~State Company has not conducted hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed securities. Taxation

InThe ~~addition,~~Bank ~~changes~~is insubject ~~interest~~to ~~rates~~the ~~can~~Pennsylvania, ~~affect~~Maryland ~~the~~and ~~fair~~West ~~values~~Virginia ofCorporate ~~the~~Net ~~Company’s~~Income ~~financial~~tax ~~instruments.~~which ~~During~~is ~~the years~~allocated ~~ended~~between ~~December 31,~~the ~~2019~~states and ~~2018,~~calculated ~~changes~~at in11.50%, ~~market~~8.25% ~~interest~~and ~~rates~~6.50%, ~~were~~respectively, ~~the~~based ~~primary~~on ~~reasonfor~~taxable ~~the~~income ~~fluctuations~~applicable into the ~~fair~~individual ~~values~~states. ofThe ~~the~~ Company’s ~~loans,~~state ~~deposits~~income ~~and~~tax ~~FHLB~~returns, ~~advances.~~as ~~For additional information~~applicable, ~~see~~have ~~Note~~not 17been toaudited ~~the~~in ~~Notes to~~ the ~~Company’s~~most ~~Consolidated~~recent ~~Financial~~five ~~Statements.~~year period.

~~Net~~ITEM ~~Portfolio Value~~1A. ~~The~~ ~~table~~Risk below sets forth, as of December 31, 2019, the estimated changes in the net portfolio value (“NPV”) that would result from the designated instantaneous changes in the interest rate yield curve (dollars in thousands). The NPV is the difference between the present value of an institution’s assets and liabilities. The institution’s NPV would change in the event of a range of assumed changes in market interest rates. The simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the model estimated the economic value of each type of asset, liability and off-balance sheet contract using the current interest rate yield curve with instantaneous increases or decreases of 100 to 300 basis points in 100 basis point increments. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. Given the current relatively low level of market interest rates, an NPV calculation for an interest rate decrease of greater than 100 basis points has not been prepared. Factors

44Economic and Market Area

~~TABLE OF CONTENTS~~

	Net Portfolio Value(2)								Net Interest Income
				Estimated Increase(Decrease)								Estimated Increase(Decrease)
Change in Interest Rates (basis points)	EstimatedNPV(1)			Amount			Percent		Estimated NetInterestIncome(3)			Amount			Percent
December 31, 2019
+300		$	144,468		$	(12,753)		(8.11)%		$	27,786		$	(199)		(5.93)%
+200		$	153,414		$	(3,807)		(2.42)%		$	28,083		$	98		0.70%
+100		$	159,350		$	2,129		1.35%		$	28,182		$	197		0.35%
0		$	157,221		$	—		—%		$	27,985		$	—		—%
-100		$	140,559		$	(16,662)		(10.60)%		$	26,325		$	(1,660)		(0.71)%

The recent global coronavirus outbreak could adversely affect our business and results of operations.

~~(1)~~The COVID-19 pandemic is having an adverse impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen and remain open, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, including real estate, accounts receivable, inventory, equipment and investment securities, may decline in value or dissipate, which could cause loan charge offs to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income;

~~Assumes an instantaneous and parallel shift in interest rates at all maturities.~~ 18

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~~(2)~~the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; expenses may increase as a result of an escalation in the number of troubled credits; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; and our cyber security risks are increased as the result of an increase in the number of employees working remotely.

~~NPV,~~Downturns ~~also~~in ~~referred to as economic value of equity, is~~ the ~~discounted~~local ~~present~~real ~~value~~estate ofmarket ~~expected~~or ~~cash~~economy ~~flows~~could ~~from~~adversely ~~assets,~~affect ~~liabilities~~the ~~and~~Company’s ~~off-balance sheet contracts~~earnings.

~~(3)~~A downturn in the real estate market or the local economy could adversely affect the value of properties securing the loan or the revenues from the borrower’s business, thereby increasing the risk of nonperforming loans. If the Company is required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, the earnings and shareholders’ equity could be adversely affected. The declines in real estate prices in the Company’s markets also may result in increases in delinquencies and losses in the loan portfolios. Unexpected decreases in real estate prices coupled with a prolonged economic recovery and elevated levels of unemployment could drive losses beyond that which is provided for in the Company’s allowance for loan losses. In that event, the Company’s earnings could be adversely affected.

~~Assumes a gradual change in interest rates over a one year period at all maturities.~~

A worsening of national or local economic conditions could adversely affect our financial condition and results of operations.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net portfolio value. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs, or loan repayments and deposit decay, respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of the Company’s interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assume that a particular change in interest rates is reflected across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Company’s net interest income and will differ from actual results.

45Deteriorating economic or business conditions could significantly affect the markets in which we do business, the value of our loans and investments, the value of real estate collateral securing our mortgage loans, the financial strength of our borrowers and our on-going operations, costs and profitability. Declines in real estate values, sales volumes and unemployment levels together with increased vacancy rates may result in greater loan delinquencies, increases in our nonperforming, criticized and classified assets and a decline in demand for our products and services. These events may cause us to increase our credit loss reserves, incur credit losses and may adversely affect our financial condition and results of operations.

~~TABLE OF CONTENTS~~

~~ITEM~~Acts ~~8. Financial~~of ~~Statements~~terrorism, severe weather, natural disasters, pandemics, public health issues and ~~Supplementary~~other ~~Data~~external events could impact the Company’s ability to conduct business.

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

ToThe Company’s business is subject to risk from external events that could affect the ~~Stockholders~~stability of the Bank’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause the ~~Board~~Company to incur additional expenses. For example, financial institutions have been, and continue to be, targets of ~~Directors~~terrorist threats aimed at compromising their operating and communication systems. Additionally, there could be sudden increases in electrical, telecommunications or other major physical infrastructure outages, natural disasters, the emergence of ~~Standard~~widespread ~~AVB~~health ~~Financial~~emergencies ~~Corp~~or pandemics, events arising from local or larger scale political or social matters, including terrorist acts, and cyber-attacks. Events such as these may become more common in the future and could cause significant damage, such as disrupt power and communication services, impact the stability of the Company’s facilities and result in additional expenses, impair the ability of the Bank’s borrowers to repay their loans and reduce the value of collateral securing the repayment of the Bank’s loans, which could result in the loss of revenue. While the Company has established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on the Company’s business, operations and financial condition.

~~Opinion~~Strong oncompetition within the ~~Financial~~Company’s ~~Statements~~market areas may limit growth and profitability.

WeCompetition ~~have~~in ~~audited~~ the ~~accompanying~~banking ~~consolidated~~and ~~statements of~~ financial ~~condition~~services ofindustry ~~Standard~~is ~~AVB Financial Corp~~intense. ~~and~~In ~~subsidiaries (~~the “Company”)’s asmarket ofareas ~~December 31,~~it ~~2019~~competes ~~and~~with ~~2018;~~commercial ~~the~~banks, ~~related~~savings ~~consolidated~~institutions, ~~statements~~mortgage ofbrokerage ~~income~~firms, ~~comprehensive~~credit ~~income~~unions, ~~changes~~finance incompanies, ~~stockholders’~~mutual ~~equity~~funds, insurance companies, and ~~cash~~brokerage ~~flows~~and ~~for~~investment ~~the years~~banking ~~then~~firms ~~ended;~~operating locally and ~~the~~elsewhere. ~~related~~Some ~~notes~~of to the ~~consolidated~~Company’s ~~financial~~competitors ~~statements~~have ~~(collectively,~~greater ~~the~~name ~~“financial~~recognition ~~statements”).~~and Inmarket ~~our~~presence ~~opinion,~~that ~~the~~benefits ~~financial~~them ~~statements~~in ~~present~~attracting ~~fairly~~business, inand ~~all~~offer ~~material~~certain ~~respects,~~services that the ~~financial~~Company ~~position~~does ofnot ~~the~~or ~~Company~~cannot asprovide. ofIn ~~December 31~~addition, ~~2019~~larger ~~and~~competitors ~~2018,~~may ~~and~~be ~~the~~able ~~results~~to ofprice ~~its~~loans ~~operations~~ and ~~its~~deposits ~~cash~~more ~~flows~~aggressively ~~for~~than the ~~years~~ ~~then~~Company ~~ended~~does, inwhich ~~conformity~~could ~~with~~affect ~~accounting~~the ~~principles~~ability ~~generally~~to ~~accepted~~grow inand ~~the~~remain ~~United~~profitable ~~States~~on ofa ~~America~~long-term basis. The Company’s profitability depends upon its continued ability to successfully compete

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 16, 2020, which expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. 19

~~Basis~~Table ~~for~~of ~~Opinion~~ Contents

~~These~~in ~~financial~~its ~~statements~~market ~~are the responsibility of the Company’s management~~areas. ~~Our~~This ~~responsibility~~could isbecome toincreasingly ~~express~~difficult anif ~~opinion~~some oncompetitors in the ~~Company~~Bank’s ~~financial~~market ~~statements~~areas ~~based~~price onloans ~~our~~and ~~audits~~deposits irrationally. WeIf ~~are~~the aCompany ~~public~~must ~~accounting~~raise ~~firm~~interest ~~registered~~rates ~~with~~paid ~~the~~on ~~PCAOB~~deposits ~~and~~or ~~are~~lower ~~required~~interest torates becharged ~~independent~~on loans, ~~with respect to~~ the ~~Company,~~net ininterest ~~accordance~~margin ~~with U.S. federal securities laws~~ and ~~the~~profitability ~~applicable~~could ~~rules~~be ~~and~~adversely ~~regulations~~affected. ofFor ~~the~~additional ~~Securities~~information ~~and~~see ~~Exchange~~“Item 1 — Business — Standard ~~Commission and the PCAOB~~Bank — Competition. ”

WeInterest ~~conducted~~Rate ~~our audits in accordance with the standards of the PCAOB. Those standards require that we plan~~ and ~~perform~~Asset the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Quality

~~Such~~Because ~~procedures~~the ~~included~~Bank ~~examining,~~intends onto aemphasize ~~test~~commercial ~~basis,~~real ~~evidence~~estate ~~regarding~~and ~~the~~commercial ~~amounts~~business ~~and~~loan ~~disclosures~~originations, in the ~~financial~~Company’s ~~statements.~~credit ~~Our~~risk ~~audits~~could ~~also~~increase ~~included evaluating the accounting principles used~~ and ~~significant~~continued ~~estimates~~weakness ~~made~~in ~~by management, as well as evaluating~~ the ~~overall~~local ~~presentation~~real ofestate ~~the~~market ~~financial~~or ~~statements.~~economy Wecould ~~believe~~adversely ~~that~~affect ~~our~~its ~~audits provide a reasonable basis for our opinion~~earnings.

WeThe Bank intends to emphasize originating commercial real estate and commercial business loans. Because the repayment of commercial real estate and commercial business loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the local real estate market or economy. Commercial real estate and commercial business loans generally have ~~served~~more asrisk than one- to four-family residential real estate loans. Commercial real estate and commercial business loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. Any continued weakness or downturn in the ~~Company~~real estate market or the local economy could adversely affect the value of properties securing the loan or the revenues from the borrower’s ~~auditor~~business, ~~since~~thereby ~~2008~~increasing the risk of nonperforming loans. As the Bank’s commercial real estate portfolio increases, the corresponding risks and potential for losses from these loans may also increase.

~~Cranberry~~If ~~Township,~~the ~~Pennsylvania March 16~~Bank’s allowance for loan losses is not sufficient to cover actual loan losses, ~~2020~~the Company’s earnings will decrease.

SThe Bank makes various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of the loans.R. ~~Snodgrass~~In determining the amount of the allowance for loan losses, Pmanagement reviews the Bank’s loans and the loss and delinquency experience and evaluates economic conditions.C. •If ~~2009~~management’s ~~Mackenzie~~assumptions ~~Way~~are incorrect, ~~Suite~~the ~~340~~Bank’s •allowance ~~Cranberry~~for ~~Township~~loan losses may not be sufficient to cover losses inherent in the loan portfolio, ~~Pennsylvania~~resulting ~~16066~~in •additions ~~Phone:~~to ~~724-934-0344~~the •Bank’s ~~Fax:~~allowance. ~~724-934-0345~~Material additions to the Bank’s allowance could materially decrease the Company’s net income.

46In addition, bank regulators periodically review the Bank’s allowance for loan losses and may require the Bank to increase the allowance for loan losses or recognize further loan charge-offs. Any increase in the Bank’s allowance for loan losses or loan charge-offs as required by these regulatory authorities might have a material adverse effect on the Company’s financial condition and results of operations.

~~TABLE~~The OFFinancial ~~CONTENTS~~ Accounting Standards Board (“FASB”) has adopted Accounting Standard Update (“ASU”) 2016-13. This standard, often referred to as “CECL” (reflecting a current expected credit loss model), will require companies to recognize an allowance for credit losses based on estimates of losses expected to be realized over the contractual lives of the loans. Under current U.S. GAAP, companies generally recognize credit losses only when it is probable that a loss has been incurred as of the balance sheet date. This new standard will require the Bank to collect and review increased types and amounts of data for management to determine the appropriate level of the allowance for loan losses, and may require the Bank to increase the allowance for loan losses. Any increase in the Bank’s allowance for loan losses or expenses may have a material adverse effect on the Company’s financial condition and results of operations. In November 2019, the FASB issued ASU 2019-10 which defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Bank’s management will continue to work through the provisions of the ASU to determine what impact it will have on the consolidated financial statements.

~~REPORT~~Future OFchanges ~~INDEPENDENT~~in ~~REGISTERED~~interest ~~PUBLIC~~rates ~~ACCOUNTING~~could ~~FIRM~~reduce the Company’s profits.

ToThe ~~the~~Company’s ~~Stockholders~~ability ~~and~~to make a profit largely depends on the ~~Board~~Company’s ofnet ~~Directors~~interest ofincome, ~~Standard~~which ~~AVB~~could ~~Financial~~be ~~Corp~~negatively affected by changes in interest rates. Net interest income is the difference between the interest income the

~~Opinion on Internal Control over Financial Reporting~~ 20

WeTable ~~have audited Standard AVB Financial Corp. and subsidiaries’ (the “Company”) internalcontrol over financial reporting as~~ of December 31, 2019, based on criteria established inInternal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Contents

~~We have also audited, in accordance with the standards of the Public~~ Company ~~Accounting~~earns ~~Oversight~~on ~~Board~~interest-earning ~~(United States) (PCAOB)~~assets, ~~the~~such ~~consolidated statements of financial condition of the Company~~ as ofloans ~~December 31, 2019~~ and ~~2018,~~investment ~~the related consolidated statements of income~~securities, ~~comprehensive income, changes in stockholders’ equity,~~ and ~~cash flows for each of~~ the ~~two years~~interest inexpense the ~~period ended December 31, 2019, of the~~ Company; ~~and~~pays ~~our~~on ~~report~~interest-bearing ~~dated March 10~~liabilities, ~~2020,~~such ~~expressed~~as andeposits ~~unqualified~~and ~~opinion~~borrowings.

~~Basis~~The ~~for~~majority ~~Opinion~~of the Bank’s portfolio loans have fixed interest rates. Additionally, many of the Company’s investment securities have fixed interest rates. Like many financial institutions, the Bank’s focus on deposit accounts as a source of funds, which have no stated maturity date or short contractual maturities, results in the Company’s liabilities having a shorter duration than its assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on assets, such as loans and investments, may not increase as rapidly as the interest paid on liabilities, such as deposits. In a period of declining interest rates, the interest income earned on assets may decrease more rapidly than the interest paid on liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities and callable investment securities are called or prepaid, thereby requiring the Company to reinvest the cash flows at lower interest rates.

~~The~~Changes ~~Company’s~~in ~~management~~interest rates creates reinvestment risk, which is ~~responsible~~the ~~for~~risk ~~maintaining~~that ~~effective~~the ~~internal~~Company ~~control~~may ~~over~~not ~~financial~~be ~~reporting~~able ~~and~~to ~~for~~reinvest ~~its~~prepayments ~~assessment~~at ofrates that are comparable to the ~~effectiveness~~rates ofearned ~~internal~~on ~~control~~the ~~over~~prepaid ~~financial~~loans ~~reporting~~or investment securities in ~~the~~a ~~accompanying~~declining ~~Management’s~~interest ~~Report~~rate onenvironment. ~~Internal~~Additionally, ~~Control~~increases ~~over~~in ~~Financial~~interest ~~Reporting.~~rates ~~Our~~may ~~responsibility~~decrease isloan demand and/or make it more difficult for borrowers to ~~express~~repay anadjustable-rate ~~opinion~~loans. onChanges in interest rates also affect the current fair value of the Company’s ~~internal~~interest-earning ~~control~~securities ~~over~~portfolio. ~~financial~~Generally, ~~reporting~~the ~~based~~value onof ~~our~~securities ~~audit~~moves inversely with changes in interest rates. WeAt ~~are~~December 31, 2020, a ~~public~~“rate ~~accounting~~shock” ~~firm~~analysis ~~registered~~indicated ~~with~~that the ~~PCAOB~~Company’s ~~and~~net ~~are~~portfolio ~~required~~value to(the bedifference ~~independent~~between ~~with~~the ~~respect~~present tovalue of assets and the ~~Company,~~present invalue ~~accordance~~of ~~with~~liabilities) ~~U.S.~~would ~~federal~~increase ~~securities~~by ~~laws~~approximately ~~and~~$11.5 million, ~~the~~or ~~applicable~~7.65%, ~~rules~~if ~~and~~there ~~regulations~~was ofan ~~the~~instantaneous ~~Securities~~200 ~~and~~basis ~~Exchange~~point ~~Commission~~increase ~~and~~in ~~the~~market ~~PCAOB.~~interest rates.

WeChanges ~~conducted our audit~~ in ~~accordance with~~ the ~~standards~~valuation of the ~~PCAOB.~~Company’s ~~Those~~securities ~~standards~~portfolio ~~require~~could ~~that~~adversely weaffect ~~plan and perform~~ the ~~audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects~~Company. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

~~Definition~~As of December 31, 2020, the Company’s investment securities portfolio, which includes government agency securities, mortgage-backed securities, municipal obligations, corporate bonds and ~~Limitations~~marketable equity securities totaled $188.0 million, or 17.9% of ~~Internal~~the ~~Control~~Company’s ~~over~~total ~~Financial~~assets. ~~Reporting~~The Company’s securities portfolio may be impacted by fluctuations in market value, potentially reducing earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management evaluates securities for other-than-temporary impairment on a quarterly basis, with more frequent evaluation for selected issues. In analyzing a debt issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, industry analysts’ reports and, to a lesser extent given the relatively insignificant levels of depreciation in the Company’s debt portfolio, spread differentials between the effective rates on instruments in the portfolio compared to risk-free rates. Changes in interest rates can also have an adverse effect on the Company’s financial condition, as the Company’s available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. The declines in fair value could result in charges to earnings that could have a material adverse effect on the Company’s net income and capital levels.

AThe ~~company’s~~flattening ~~internal~~or ~~control~~inversion ~~over~~of ~~financial reporting is a process designed to provide reasonable assurance regarding~~ the ~~reliability~~yield ofcurve ~~financial~~may ~~reporting~~adversely ~~and~~affect the ~~preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company~~Company’s ~~internal~~net ~~control~~interest ~~over~~income ~~financial reporting includes those policies~~ and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statementsprofitability.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk

SIn 2017 and 2018 the Federal Reserve Board increased the federal funds target rate by 200 basis points, which resulted in increased in short-term rates, such as the cost of deposits the cost of overnight borrowings, while long-term rates on loans and securities did not rise as much, resulting in a flattening of the yield curve.R. ~~Snodgrass~~Due to a slowdown in the economy and an inverted yield curve, Pthe Federal Reserve Board reduced the target rate 75 basis points in 2019 to a range of 1.C50% to 1.75% •and, ~~2009~~in ~~Mackenzie~~response ~~Way,~~to ~~Suite~~the ~~340~~national •emergency ~~Cranberry~~caused ~~Township~~by the pandemic, ~~Pennsylvania~~reduced ~~16066~~the •rate ~~Phone:~~an ~~724-934-0344~~additional •150 ~~Fax:~~basis ~~724-934-0345~~points in March 2020 to its current range of 0% to .25%.

~~TABLE~~In OFa ~~CONTENTS~~ period of rising interest rates, the interest income earned on the Bank’s assets may not increase as rapidly as the interest paid on its liabilities. The Bank’s cost of funds is expected to increase more rapidly than interest earned on its loan and investment portfolios as its primary source of funds is deposits with generally shorter maturities than the maturities of its loans and investments. This makes the balance sheet more liability sensitive in the short-term.

~~that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.~~

~~Cranberry~~When ~~Township~~interest rates decline, ~~Pennsylvania March 16~~borrowers may refinance higher rate loans at lower rates causing prepayments on mortgage loans and mortgage-backed securities to be elevated. Under those circumstances, ~~2020~~the Bank may not be able to

~~S.R. Snodgrass, P.C. • 2009 Mackenzie Way, Suite 340 • Cranberry Township, Pennsylvania 16066 • Phone: 724-934-0344 • Fax: 724-934-0345~~21

48Table of Contents

~~TABLE~~reinvest OFthe ~~CONTENTS~~ resulting cash flows in new interest-earning assets with rates as favorable as those that prepaid. In addition, subject to the floors contained in many of the Bank’s loan agreements, the Bank’s loans at variable interest rates may adjust to lower rates at their reset dates. While lower rates may reduce the Bank’s cost of funds on non-maturity deposits, certificates of deposits and FHLB advances, the cost savings could be somewhat constrained because decreases in the Bank’s funding rates may occur more slowly than decreases in yields earned on the Bank’s assets and a significant portion of the Bank’s funding is currently derived from noninterest bearing checking deposits and capital. In addition, in a prolonged low interest rate environment, the Bank’s deposit products could reach an effective floor rate close to zero which would not allow for any further reduction in its cost of funds.

~~Standard AVB Financial Corp.~~

~~Consolidated~~In ~~Statements~~addition ofto ~~Financial~~the ~~Condition~~risks ~~(Dollars~~arising from changes in ~~thousands~~interest rates, ~~except~~the ~~per~~current ~~share~~level ~~data)~~of interest rates and shape of the yield curve could create downward pressure on net interest income and net interest margin. In a low interest rate environment with a flat or inverted yield curve, the Bank’s earnings and profitability metrics could be negatively impacted by asset growth. As a result, the Bank may be unable to increase earnings, or maintain the current level of earnings, until the shape of the yield curve improves.

	December 31
	2019			2018
ASSETS
Cash on hand and due from banks		$	3,396		$	3,371
Interest-earning deposits in other institutions			29,031			12,836
Cash and Cash Equivalents			32,427			16,207
Investment securities available for sale, at fair value			69,884			66,169
Equity securities, at fair value			2,955			2,725
Mortgage-backed securities available for sale, at fair value			91,478			81,794
Certificate of deposit			249			249
Federal Home Loan Bank and other restricted stock, at cost			7,486			7,900
Loans receivable, net of allowance for loan losses of $4,882 and $4,414			712,965			728,982
Loans held for sale			373			—
Foreclosed real estate			404			486
Office properties and equipment, net			9,930			7,794
Bank-owned life insurance			23,374			22,572
Goodwill			25,836			25,836
Core deposit intangible			1,881			2,508
Accrued interest receivable and other assets			5,145			8,574
TOTAL ASSETS		$	984,387		$	971,796
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits:
Demand and savings accounts		$	489,292		$	471,177
Time Deposits			245,114			246,697
Total Deposits			734,406			717,874
Federal Home Loan Bank short-term borrowings			—			4,524
Long-term borrowings			99,098			104,963
Securities sold under agreements to repurchase			3,740			2,137
Advance deposits by borrowers for taxes and insurance			47			45
Accrued interest payable and other liabilities			5,248			4,363
TOTAL LIABILITIES			842,539			833,906
Stockholders’ Equity
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, none issued			—			—
Common stock, $0.01 par value per share, 40,000,000 shares authorized, 4,689,354 and 4,812,991 shares outstanding, respectively			47			48
Additional paid-in-capital			72,155			75,571
Retained earnings			70,037			65,301
Unearned Employee Stock Ownership Plan (ESOP) shares			(1,533)			(1,686)
Accumulated other comprehensive income (loss)			1,142			(1,344)
TOTAL STOCKHOLDERS’ EQUITY			141,848			137,890
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	984,387		$	971,796

Regulatory Matters

~~See~~Financial ~~accompanying~~reform ~~notes~~legislation tohas increased the ~~consolidated~~Company’s ~~financial~~costs ~~statements.~~of operations.

49The Dodd-Frank Act has significantly changed the regulation of banks and savings institutions and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act required various federal agencies and regulators to adopt a broad range of new rules and regulations intended to place significant restrictions and requirements on financial institutions and to prepare numerous studies and reports for Congress. Almost immediately following the 2016 election, the Administration indicated they would support plans for Dodd-Frank reform. In 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act (“S. 2155”) was passed by Congress and signed by the President. While S. 2155 provided some regulatory relief for mortgage lending, regulatory reporting and length of examination cycles, capital requirements and appraisals, among others, it did not impact most of the restrictions and requirements in the Dodd-Frank Act. While there are efforts for more reform of Dodd-Frank, the Company cannot predict whether those efforts will be successful and the extent to how those changes will impact business, operations or financial condition. However, compliance with the remaining provisions of the Dodd-Frank Act and its implementing regulations and policies continue to have a significant impact on the Company’s business and operations, as well as additional costs, and have diverted management's time from other business activities, which adversely affects the Company’s financial condition and results of operations.

~~TABLE~~The OFshort-term ~~CONTENTS~~ and long-term impact of the changing regulatory capital requirements and new capital rules may adversely affect the Company’s returns on equity and ability to pay dividends or repurchase stock.

~~Standard~~In ~~AVB~~July 2013, ~~Financial~~the ~~Corp~~FDIC and the other federal bank regulatory agencies revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), set the leverage ratio at a uniform 4% of total assets, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to certain exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” consisting of 2.50% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet minimum risk-based capital requirements. The final rule became effective January 1, 2015. The “capital conservation buffer was fully phased in at 2.50% on January 1, 2019.

~~Consolidated~~The ~~Statements~~application of ~~Income~~these ~~(Dollars~~more stringent capital requirements could, among other things, result in ~~thousands~~lower returns on equity, ~~except~~and ~~per~~result ~~share~~in ~~data)~~regulatory actions if the Company was to be unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in the Company having to lengthen the term of funding, restructure business models, and/or increase holdings of liquid assets.

	Years Ended December 31
	2019			2018
Interest and Dividend Income
Loans, including fees		$	32,487		$	32,033
Mortgage-backed securities			2,183			1,999
Investments:
Taxable			464			420
Tax-exempt			1,580			1,431
Federal Home Loan Bank and other restricted stock			618			590
Interest-earning deposits and federal funds sold			372			322
Total Interest and Dividend Income			37,704			36,795
Interest Expense
Deposits			6,991			4,961
Federal Home Loan Bank short-term borrowings			45			227
Long-term borrowings			2,209			2,255
Securities sold under agreements to repurchase			17			11
Total Interest Expense			9,262			7,454
Net Interest Income			28,442			29,341
Provision for Loan Losses			725			572
Net Interest Income after Provision for Loan Losses			27,717			28,769
Noninterest Income
Service charges			3,046			2,970
Earnings on bank-owned life insurance			537			533
Net losses on sales of securities			(1)			(17)
Net gains on sales of equities			—			394
Net equity securities fair value adjustment gains (losses)			230			(484)
Net loan sale gains and referral fees			273			71
Investment management fees			695			644
Other income			272			236
Total Noninterest Income			5,052			4,347
Noninterest Expenses
Compensation and employee benefits			12,812			12,418
Data processing			717			644
Premises and occupancy costs			2,427			2,637
Automatic teller machine expense			595			512
Federal deposit insurance			105			293
Core deposit amortization			627			836
Other operating expenses			4,342			4,727
Total Noninterest Expenses			21,625			22,067
Income before Income Tax Expense			11,144			11,049
Income Tax Expense
Federal			1,704			1,713
State			634			535
Total Income Tax Expense			2,338			2,248
Net Income		$	8,806		$	8,801
Earnings Per Share:
Basic earnings per common share		$	1.91		$	1.90
Diluted earnings per common share		$	1.90		$	1.88
Cash dividends paid per common share		$	0.88		$	0.88
Basic weighted average shares outstanding			4,606,457			4,634,003
Diluted weighted average shares outstanding			4,642,775			4,685,044

~~See~~Table ~~accompanying~~of ~~notes to the consolidated financial statements.~~ Contents

50Government responses to economic conditions may adversely affect the Company’s operations, financial condition and earnings.

~~TABLE~~The OFCompany ~~CONTENTS~~ is subject to extensive regulation, supervision and examination by the Pennsylvania Department of Banking and Securities, the FDIC and the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of the Company’s common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on the Company’s operations, the classification of assets and determination of the level of allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on the Company’s operations.

~~Standard~~Financial ~~AVB~~reform ~~Financial~~legislation ~~Corp~~has changed the bank regulatory framework, created an independent consumer protection bureau that has assumed the consumer protection responsibilities of the various federal banking agencies, and established more stringent capital standards for banks and bank holding companies. The legislation has also resulted in new regulations affecting the lending, funding, trading and investment activities of banks and bank holding companies. Bank regulatory agencies also have been responding aggressively to concerns and adverse trends identified in examinations. Ongoing uncertainty regarding the effect of new legislation and regulatory actions may adversely affect the Company’s operations by restricting business activities, including the ability to originate or sell loans, modify loan terms, or foreclose on property securing loans. These measures are likely to increase the Company’s costs of doing business and may have a significant adverse effect on lending activities, financial performance and operating flexibility. In addition, these risks could affect the performance and value of the Company’s loan and investment securities portfolios, which also would negatively affect the Company’s financial performance.

~~Consolidated~~In ~~Statements~~addition, there have been proposals made by members of ~~Comprehensive~~Congress ~~Income~~and ~~(Dollars~~others that would reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral. Were proposals such as these, or other proposals limiting the Company’s rights as a creditor, to be implemented, the Company could experience increased credit losses or increased expense in ~~thousands)~~pursuing remedies as a creditor.

	Years Ended December 31
	2019			2018
Net Income		$	8,806		$	8,801
Other comprehensive income (loss):
Change in unrealized gain (loss) on securities available for sale			3,151			(1,949)
Tax effect			(663)			409
Reclassification adjustment for security losses realized in income			1			17
Tax effect			—			(4)
Change in pension obligation for defined benefit plan			(4)			90
Tax effect			1			(19)
Total other comprehensive income (loss)			2,486			(1,456)
Total Comprehensive Income		$	11,292		$	7,345

Business Matters

~~See~~The ~~accompanying~~Company’s ~~notes~~business tois ~~the~~reliant ~~consolidated~~on ~~financial~~outside ~~statements~~vendors.

51The Company’s business is highly dependent on the use of certain outside vendors for day-to-day operations. The Company’s operations are exposed to risk that a vendor may not perform in accordance with established performance standards required in the agreements for any number of reasons including a change in their senior management, their financial condition, their product line or mix and how they support existing customers, or a simple change in their strategic focus. While the Company has comprehensive policies and procedures in place to mitigate risk at all phases of vendor management from selection, to performance monitoring and renewals, the failure of a vendor to perform in accordance with contractual agreements could be disruptive to business, which could have a material adverse effect on the financial condition and results of operations.

~~TABLE~~Development OFof ~~CONTENTS~~ new products and services may impose additional costs on the Company and may expose it to increased operational risk.

~~Standard~~The ~~AVB~~Company’s ~~Financial~~financial ~~Corp~~performance depends, in part, on the ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate products or provide cost efficiencies, while avoiding increased related expenses. This dependency is exacerbated in the current “FinTech” environment, where financial institutions are investing significantly in evaluating new technologies, such as artificial intelligence and digital delivery channels, and developing potentially industry-changing new products, services and industry standards. The introduction of new products and services can entail significant time and resources, including regulatory approvals. Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry. The Company’s ability to access technical and other information from clients, the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices and the preparation of

~~Consolidated Statement of Changes in Stockholders’ Equity (Dollars in thousands, except per share data)~~ 23

	CommonStock			AdditionalPaid-InCapital			RetainedEarnings			UnearnedESOPShares			AccumulatedOtherComprehensiveIncome (Loss)			TotalStockholders’Equity
Balance, December 31, 2017		$	48		$	75,063		$	60,172		$	(1,839)		$	528		$	133,972
Net income			—			—			8,801			—			—			8,801
Other comprehensive loss			—			—			—			—			(1,456)			(1,456)
Change in accounting principle for adoption of ASU 2016-01			—			—			416			—			(416)			—
Stock repurchases (13,482 shares)			—			(428)			—			—			—			(428)
Cash dividends ($0.88 per share)			—			—			(4,088)			—			—			(4,088)
Stock options exercised (35,536 shares)			—			648			—			—			—			648
Compensation expense on stock awards			—			1			—			—			—			1
Compensation expense on ESOP			—			287			—			153			—			440
Balance, December 31, 2018		$	48		$	75,571		$	65,301		$	(1,686)		$	(1,344)		$	137,890
Net income			—			—			8,806			—			—			8,806
Other comprehensive income			—			—			—			—			2,486			2,486
Stock repurchases (147,098 shares)			(1)			(4,011)			—			—			—			(4,012)
Cash dividends ($0.88 per share)			—			—			(4,070)			—			—			(4,070)
Stock options exercised (18,914 shares)			—			257			—			—			—			257
Compensation expense on stock awards			—			81			—			—			—			81
Compensation expense on ESOP			—			257			—			153			—			410
Balance, December 31, 2019		$	47		$	72,155		$	70,037		$	(1,533)		$	1,142		$	141,848

Table of Contents

~~See~~marketing, ~~accompanying~~sales ~~notes~~and other materials that fully and accurately describe the product or service and underlying risks. The Company’s failure to manage these risks and uncertainties also exposes it to enhanced risk of operational lapses which may result in the ~~consolidated~~recognition of financial ~~statements~~statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationships and shifting market preferences may also determine if such initiatives can be brought to market in a manner that is timely and attractive to the Company’s clients. Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on the Company’s business and reputation, as well as on consolidated results of operations and financial condition.

52The Company’s ability to pay dividends is subject to limitations.

~~TABLE~~The OFmerger ~~CONTENTS~~ agreement between the Standard and Allegheny Valley contemplated that, unless 75% of the Board of Directors determines otherwise for the two years following the closing of the merger and 66.33% of the Board of Directors for the three years thereafter, the combined company will pay a quarterly cash dividend in an amount no less than $0.221 per share for five years after the effective time of the merger, provided that sufficient funds are legally available, and that the Company and the Bank remain “well-capitalized” in accordance with applicable regulatory guidelines.

~~Standard~~The ~~AVB~~Company’s ~~Financial~~ability ~~Corp~~to pay dividends depends on the receipt of dividends from direct and indirect subsidiaries. The Bank is the Company’s primary source of dividends. As a state-chartered bank, the Bank is subject to regulatory restrictions on the payment and amounts of dividends under the Pennsylvania Banking Code.

~~Consolidated~~Further, ~~Statements~~the ability of ~~Cash~~banking ~~Flows~~subsidiaries ~~(Dollars~~to pay dividends is also subject to their profitability, financial condition, capital expenditures and other cash flow requirements. There is no assurance that the Company’s subsidiaries will be able to pay the dividends contemplated by the merger agreement or other dividends in ~~thousands)~~the future or that the Company will generate adequate cash flow to pay dividends in the future. The Company’s failure to pay dividends on common stock could have a material adverse effect on the market price of the common stock.

	Years Ended December 31
	2019			2018
Cash Flows From Operating Activities
Net income		$	8,806		$	8,801
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,940			1,352
Provision for loan losses			725			572
Amortization of core deposit intangible			627			836
Net loss on sale of securities available for sale			1			17
Net gain on sale of equity securities			—			(394)
Net gain on sale of office properties and equipment			(29)			—
Net equity securities fair value adjustment (gains) losses			(230)			484
Origination of loans held for sale			(13,981)			(5,552)
Proceeds from sale of loans held for sale			13,784			5,623
Net loan sale gains			(273)			(71)
Compensation expense on ESOP			410			440
Compensation expense on stock awards			81			1
Deferred income taxes			(80)			(288)
Decrease (increase) in accrued interest receivable			29			(166)
Earnings on bank-owned life insurance			(537)			(533)
(Decrease) increase in accrued interest payable			(144)			161
Other, net			3,250			1,350
Net Cash Provided by Operating Activities			14,379			12,633
Cash Flows Used In Investing Activities
Net decrease in loans			15,230			14,077
Purchases of investment securities			(13,138)			(11,699)
Purchases of equity securities			—			(546)
Purchases of mortgage-backed securities			(30,351)			(27,985)
Proceeds from maturities of certificates of deposits			—			500
Proceeds from maturities/principal repayments/calls of investment securities			5,315			1,335
Proceeds from maturities/principal repayments/calls of mortgage-backed securities			20,252			12,046
Proceeds from sales of investment securities			6,328			4,830
Proceeds from sales of equity securities			—			1,900
Proceeds from sales of mortgage-backed securities			1,286			—
Purchase of Federal Home Loan Bank stock			(3,137)			(3,532)
Redemption of Federal Home Loan Bank stock			3,551			5,173
Proceeds from sales of foreclosed real estate			83			450
Purchase of bank-owned life insurance			(265)			—
Proceeds from sales of office properties and equipment			997			—
Net additions of office properties and equipment			(734)			(374)
Net Cash Provided (Used) by Investing Activities			5,417			(3,825)
Cash Flows From Financing Activities
Net increase (decrease) in demand and savings accounts			18,115			(11,725)
Net (decrease) increase in certificate accounts			(1,583)			34,753
Net increase (decrease) in securities sold under agreements to repurchase			1,603			(2,103)
Repayments of Federal Home Loan Bank short-term borrowings			(109,517)			(165,491)
Proceeds from Federal Home Loan Bank short-term borrowing			104,993			142,994
Repayments of Federal Home Loan Bank advances			(34,165)			(35,689)
Proceeds from Federal Home Loan Bank advances			25,208			33,000
Lease liabilities payments			(407)			—
Net increase (decrease) in advance deposits by borrowers for taxes and insurance			2			(737)
Exercise of stock options			257			648
Dividends paid			(4,070)			(4,088)
Stock repurchases			(4,012)			(428)
Net Cash Used in Financing Activities			(3,576)			(8,866)
Net Increase (Decrease) in Cash and Cash Equivalents			16,220			(58)
Cash and Cash Equivalents – Beginning			16,207			16,265
Cash and Cash Equivalents – Ending		$	32,427		$	16,207
Supplementary Cash Flows Information
Interest paid		$	9,406		$	7,293
Income taxes paid		$	2,923		$	1,594
Foreclosed real estate acquired in settlement of loans		$	404		$	486
Loan participation payoffs not settled		$	—		$	3,000
Investment securities purchased not settled		$	756		$	—
Right-of-use asset		$	(3,423)		$	—
Lease liability		$	3,449		$	—
Prepaid lease payments		$	(26)		$	—

The Company’s success will depend upon the ability of management to attract and retain talent.

~~See~~The ~~accompanying~~business ~~notes~~success of the Company and the Bank depends to a great extent upon the ~~consolidated~~services ~~financial~~of ~~statements~~their directors and executive officers. Management’s ability to operate the Company profitably will require the acquisition of new knowledge and skills. In particular, if the Company expands geographically or expands to provide non-banking services through the acquisition or formation of additional subsidiaries, current management may not have the necessary experience for successful operation in these new areas. There is no guarantee that management would be able to meet these new challenges or that the Company would be able to retain new directors or personnel with the appropriate background and expertise.

53Security

~~TABLE~~A OFfailure ~~CONTENTS~~ in or breach of the Company’s operational or security systems or infrastructure, or those of third parties, could disrupt the Company’s businesses, and adversely impact the results of operations, liquidity and financial condition, as well as cause reputational harm.

~~STANDARD~~The ~~AVB~~Company ~~FINANCIAL~~collects, ~~CORP~~processes and stores sensitive consumer data by utilizing computer systems and telecommunications networks operated by both the Bank and third-party service providers. The Company’s operational and security systems, infrastructure, including computer systems, data management, and internal processes, as well as those of third parties, are integral to the Company’s business. The Company relies on employees and third parties in day-to-day and ongoing operations, who may, as a result of human error, misconduct or malfeasance, or failure or breach of third- party systems or infrastructure, expose the Company to risk. The Company has taken measures to implement backup systems and other safeguards to support operations, but the ability to conduct business may be adversely affected by any significant disruptions to the Company or to third parties with whom it interacts. In addition, the Company’s ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with its own systems.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018~~ 24

~~Note~~Table ~~1 — Summary~~ of ~~Significant Accounting Policies~~ Contents

The ~~following~~Company ~~comprise~~handles ~~the~~a ~~significant~~substantial volume of customer and other financial transactions every day. The Company’s financial, accounting, ~~policies~~data processing, ~~which~~check ~~Standard~~processing, ~~AVB~~electronic ~~Financial~~funds ~~Corp.~~transfer, loan processing, online and ~~subsidiaries~~mobile (banking, automated teller machines, or ATMs, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond its control. This could adversely affect the “Company”)’s ~~follow~~ability to process these transactions or provide these services. There could be sudden increases in ~~preparing~~customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale political or social matters, including terrorist acts, and ~~presenting~~cyber ~~their~~attacks. ~~consolidated~~The Company continuously updates these systems to support operations and growth. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones. Operational risk exposures could adversely impact the Company’s results of operations, liquidity and financial ~~statements:~~condition, and cause reputational harm.

~~Principles~~A cyber attack, information or security breach, or a technology failure of ~~Consolidation~~the Company’s or of a third-party could adversely affect the Company’s ability to conduct business or manage exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase the Company’s costs to maintain and update operational and security systems and infrastructure, and adversely impact the Company’s results of operations, liquidity and financial condition, as well as cause reputational harm.

The ~~accompanying~~Company’s ~~consolidated~~business ~~financial~~is ~~statements~~highly ~~include~~dependent on the ~~accounts~~security and efficacy of ~~Standard~~its ~~AVB~~infrastructure, ~~Financial~~computer ~~Corp~~and data management systems, as well as those of third parties with whom it interacts. Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and ~~its~~telecommunications ~~direct~~technologies to conduct financial transactions, and ~~indirect~~the ~~wholly~~increased ~~owned~~sophistication ~~subsidiaries~~and activities of organized crime, ~~Standard~~hackers, ~~Bank~~terrorists and other external parties, ~~PaSB~~including (foreign state actors. The Company’s operations rely on the ~~“Bank”)~~secure processing, transmission, storage and ~~Westmoreland~~retrieval ~~Investment~~of ~~Company.~~confidential, ~~All~~proprietary ~~significant~~and ~~intercompany~~other ~~accounts~~information in computer and ~~transactions~~data ~~have~~management ~~been~~systems ~~eliminated~~and networks, and in ~~consolidation~~the computer and data management systems and networks of third parties. ~~Standard~~The ~~AVB~~Company ~~Financial~~relies ~~Corp~~on digital technologies, computer, database and email systems, software, and networks to conduct operations. ~~owns~~In ~~all~~addition, ofto access the ~~outstanding~~Company’s ~~shares~~network, ofproducts ~~common~~and ~~stock~~services, customers and third parties may use personal mobile devices or computing devices that are outside of the ~~Bank.~~Company’s network environment.

~~Nature~~Financial services institutions have been subject to, and are likely to continue to be the target of, ~~Operations~~cyber attacks, including computer viruses, malicious or destructive code, phishing attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, employees or customers of third parties, or otherwise materially disrupt network access or business operations. For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers. The Company has experienced cyber security incidents in the past, although not material, and it anticipates that, as a larger bank, it could experience further incidents. There can be no assurance that the Company will not suffer material losses or other material consequences relating to technology failure, cyber attacks or other information or security breaches.

~~The~~Misconduct ~~Company’s~~by ~~primary~~employees ~~asset~~could isalso ~~the~~result ~~stock~~in offraudulent, ~~its~~improper ~~wholly~~or ~~owned~~unauthorized ~~subsidiary,~~activities ~~the~~on ~~Bank,~~behalf aof ~~Pennsylvania-chartered~~clients ~~state~~or ~~savings~~improper ~~bank~~use ~~with~~of ~~deposits~~confidential ~~insured~~information. byThe ~~the~~Company ~~Federal~~may ~~Deposit~~not ~~Insurance~~be ~~Corporation~~able ~~(“FDIC”).~~to ~~The~~prevent ~~Bank~~employee iserrors aor ~~retail-oriented financial institution~~misconduct, ~~which~~and ~~offers~~the ~~traditional~~precautions ~~deposit~~the ~~and~~Company ~~loan~~takes ~~products~~to ~~through~~detect ~~its~~this ~~seventeen~~type ~~offices~~of inactivity ~~Allegheny,~~might ~~Westmoreland,~~not ~~and~~be ~~Bedford~~effective ~~Counties~~in ofall ~~Pennsylvania~~cases. ~~and~~Employee ~~Allegany~~errors ~~County~~or ofmisconduct ~~Maryland.~~could ~~Westmoreland~~subject ~~Investment~~the Company isto acivil ~~Delaware~~claims ~~subsidiary,~~for ~~holding~~negligence ~~residential~~or ~~mortgage~~regulatory ~~loans~~enforcement asactions, ~~the~~including ~~majority~~fines ofand ~~its~~restrictions ~~assets.~~on business.

~~Use~~In addition, there have been instances where financial institutions have been victims of ~~Estimates~~fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. The recent massive breach of the systems of a credit bureau presents additional threats as criminals now have more information about a larger portion of the population of the United States than past breaches have involved, which could be used by criminals to pose as customers initiating transfers of money from customer accounts. Although the Company has policies and procedures in place to verify the authenticity of customers, the Company cannot assure that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to its reputation.

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of related revenue and expenses during the reporting period. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that in 2020, actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, obligations associated with the deferred benefit pension plan, valuation of deferred taxes, fair value of investments and mortgage-backed securities available for sale, and the valuation of intangible assets. 25

~~Significant~~Table ~~Group Concentrations~~ of ~~Credit Risk~~ Contents

~~Most~~As cyber threats and other fraudulent activity continues to evolve, the Company may be required to expend significant additional resources to continue to modify and enhance protective measures or to investigate and remediate any information security vulnerabilities or incidents. Any of these matters could result in the ~~Bank~~Company’s ~~activities~~loss ~~are~~of ~~with~~ customers ~~located~~and ~~within~~business ~~Allegheny~~opportunities, ~~Westmoreland,~~significant disruption to operations and ~~Bedford~~business, ~~Counties~~misappropriation or destruction of ~~Pennsylvania~~confidential information and/or ~~Allegany~~that ~~County~~ of ~~Maryland.~~its ~~Notes 2~~customers, 3or damage to customers’ and/or 4third ~~discuss~~parties’ ~~the~~computers ~~types~~or ofsystems, ~~securities~~and could result in ~~which~~a ~~the~~violation ~~Company~~of ~~invests.~~applicable ~~Note~~privacy 5laws ~~details~~and ~~the~~other ~~types~~laws, litigation exposure, regulatory fines, penalties or intervention, loss of ~~lending~~confidence in ~~which~~security ~~the~~measures, ~~Company~~reputational ~~engages.~~damage, ~~The~~reimbursement ~~Company~~or ~~does~~other ~~not~~compensatory ~~have~~costs, ~~any~~and ~~significant~~additional ~~concentrations~~compliance incosts. In addition, any ~~one~~of ~~industry~~the ormatters ~~customer.~~described above could adversely impact the Company’s results of operations and financial condition.

~~Cash and Cash Equivalents~~ Merger

For the purposes of reporting cash flows, the Company has defined cash and cash equivalents as those amounts included in the balance sheet captions cash on hand and due from banks and interest-earning deposits in other institutions. Interest-earning deposits in other institutions includes balances with original maturities of 90 days or less. Account balances are insured by the FDIC up to at least $250,000. At times, the Company may maintain more than $250,000 in cash at a financial institution.

~~Investment~~If the merger is not completed, ~~Mortgage-Backed~~we will have incurred significant expenses without realizing the expected benefits of the merger and ~~Equity~~could ~~Securities~~be subject to additional risks.

~~The~~Prior ~~Company~~to ~~accounts~~completion ~~for~~of ~~investment~~the merger, ~~mortgage-backed~~we ~~and~~will ~~equity~~incur ~~securities~~or byhave ~~classifying~~incurred ~~them~~substantial ~~into~~expenses ~~one~~in connection with the completion of ~~three~~the ~~categories~~transactions atcontemplated by the ~~time~~merger ofagreement. ~~purchase:~~If ~~trading~~the merger is not completed, ~~held~~we would have to ~~maturity~~recognize these expenses without receiving the merger consideration. In addition, if the merger is not completed, we may experience negative reactions from the financial markets and ~~available~~from ~~for~~our ~~sale~~customers and employees. The market price of our common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the merger will be consummated. We also could be subject to litigation related to any failure to complete the merger or to proceedings commenced by Dollar Mutual Bancorp against us seeking damages or to compel us to perform our obligations under the merger agreement. These factors and similar risks could have an adverse effect on the results of operations, business and stock prices of the Company.

54We will be subject to business uncertainties and contractual restrictions while the merger is pending.

~~TABLE~~Uncertainty OFabout ~~CONTENTS~~ the effect of the merger on employees, customers, suppliers and vendors may have an adverse effect on our business, financial condition and results of operations. These uncertainties may impair our ability to retain and motivate key personnel pending the consummation of the merger, as such personnel may experience uncertainty about their future roles following the consummation of the merger. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Dollar Mutual Bancorp our business could be harmed. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with us to seek to change existing business relationships with us or fail to extend an existing relationship with us. In addition, competitors may target our existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger.

~~STANDARD AVB FINANCIAL CORP~~

~~NOTES~~The TOpursuit ~~CONSOLIDATED~~of ~~FINANCIAL~~the ~~STATEMENTS~~merger ~~FOR~~and ~~THE~~the ~~YEARS~~preparation ~~ENDED~~for ~~DECEMBER~~the ~~31,~~integration ~~2019~~may ~~AND~~place ~~DECEMBER~~a 31burden on our management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on our business, ~~2018~~financial condition and results of operations.

~~Note~~In ~~1 — Summary~~addition, in the merger agreement we have agreed to operate our business in the ordinary course prior to closing, but are restricted from taking certain actions without Dollar Mutual Bancorp’s consent while the merger is pending. These restrictions may, among other matters, prevent us from pursuing otherwise attractive business opportunities, selling assets, incurring indebtedness, engaging in significant capital expenditures in excess of ~~Significant~~certain ~~Accounting~~limits ~~Policies – (continued)~~set forth in the merger agreement, entering into other transactions or making other changes to our business prior to consummation of the merger or termination of the merger agreement. These restrictions could have a material adverse effect on our business, financial condition and results of operations.

~~Securities~~Our ~~bought~~stockholders ~~and~~will ~~held~~not ~~principally~~be ~~for~~entitled ~~the~~to ~~purpose~~dissenters’ ofor ~~selling~~appraisal ~~them~~rights in the ~~near term are classified as trading and are reported at fair value, with unrealized gains and losses included in earnings~~merger. ~~The Company had no trading securities in 2019 or 2018.~~

~~Held-to-maturity~~Dissenters’ ~~securities~~or appraisal rights are ~~debt~~statutory ~~securities~~rights ~~acquired~~that, ~~with~~if ~~the~~applicable ~~intent~~under ~~and~~law, ~~ability~~enable stockholders to ~~hold~~dissent tofrom ~~maturity~~an extraordinary transaction, such as a merger, and ~~are~~to ~~stated~~demand atthat ~~amortized~~the ~~cost.~~corporation ~~The~~pay ~~Company~~the ~~had~~fair novalue ~~held-to-maturity~~for ~~securities~~their shares as determined by a court in ~~2019~~a orjudicial ~~2018.~~proceeding instead of receiving the consideration offered to stockholders in

Available-for-sale securities are debt and equity securities that are not classified as trading or held-to-maturity securities and serve principally as a source of liquidity. Available-for-sale debt securities are stated at fair value, with unrealized holding gains and losses reported as a separate component of stockholders’ equity, net of tax, until realized. Available-for-sale equity securities are stated at fair value, with unrealized holding gains and losses reported as equity fair value adjustments in the income statement. 26

~~Declines~~Table ~~in the fair value~~ of individual securities below their cost that are other than temporary will result in write-downs of the individual securities to their fair value. The other-than-temporary impairment is separated into credit-related and noncredit-related components. The credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on an other-than-temporarily impaired security fall below its amortized cost while the noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes credit-related, other-than-temporary impairments in earnings, while noncredit-related, other-than-temporary impairments on debt securities are recognized, net of deferred taxes, in accumulated other comprehensive income. In estimating other than-temporary losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Company plans to sell or will be forced to sell the security. Realized securities gains and losses are computed using the specific identification method. Amortization of premiums and accretion of discounts are recorded as interest income from investments over the life of the security utilizing the level yield method. Interest and dividends on investment securities are recognized as income when earned. Contents

~~Federal~~connection ~~Home~~with ~~Loan~~the ~~Bank~~extraordinary ~~Stock~~transaction. Under the Maryland law, holders of our common stock do not have the right to dissent from the merger agreement and seek an appraisal in connection with the merger.

The Company, as a member of the Federal Home Loan Bank (“FHLB”) system, is required to maintain an investment in capital stock of the FHLB. During 2019, the FHLB made quarterly dividend payments. Additionally, excess capital stock was repurchased weekly in an amount equal to the lesser of five percent of the member’s total capital stock outstanding or its excess capital stock outstanding.

~~FHLB~~ITEM ~~stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost on the Consolidated Statements of Financial Condition, and evaluated for impairment~~1B. ~~The~~Unresolved ~~determination~~Staff of whether the stock is impaired is based on the assessment of the ultimate recoverability of the cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of the cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management evaluated the stock based on the above and determined that the stock was not impaired as of December 31, 2019 or December 31, 2018. Comments

~~Loans Receivable~~ None.

~~Loans~~ITEM ~~which~~2. ~~management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balance, adjusted for any allowance for loan losses and any~~ Properties

55The Bank operates from seventeen full service branches located in Allegheny, Westmoreland and Bedford counties in Pennsylvania and Allegany County, Maryland. The Bank considers its primary market area to be eastern Allegheny, Westmoreland, northern Fayette and southern Bedford counties in Pennsylvania and Allegany County, Maryland. The net book value of its office, properties and equipment was $9.4 million at December 31, 2020.

~~TABLE~~The OFfollowing ~~CONTENTS~~ table sets forth information with respect to the full-service banking offices, including the expiration date of leases with respect to leased facilities.

STANDARD AVB FINANCIAL CORP

Branch Name	Address	Owned or Leased
Cumberland	200 N. Mechanic Street Cumberland, MD 21502	Owned
LaVale	1275 National Highway LaVale, MD 21502	Owned
Blawnox	201 Freeport Road Pittsburgh, PA 15238	Owned
Green Tree	Four Parkway Center #100 875 Greentree Road Pittsburgh, PA 15220	Leased (expires 8/31/2022)
Greensburg	5150 Route 30 Greensburg, PA 15601	Leased (expires 4/30/2026)
Hyndman	3945 Center Street Hyndman, PA 15545	Owned
Lawrenceville	5137 Butler Street Pittsburgh, PA 15201	Owned
Ligonier	211 W. Main Street Ligonier, PA 15658	Owned
McKnight Road	7703 McKnight Road Pittsburgh, PA 15237	Leased (expires 6/30/2030)
Monroeville (Corporate Headquarters)	2640 Monroeville Boulevard Monroeville, PA 15146	Owned
Mount Pleasant	659 W. Main Street Mt Pleasant, PA 15666	Owned
Mt. Troy	2000 Mt. Troy Road Pittsburgh, PA 15212	Owned
Murrysville	4785 Old William Penn Highway Murrysville, PA 15668	Owned
Pittsburgh (downtown)	Lawyers Building 428 Forbes Avenue Pittsburgh, PA 15219	Leased (expires 10/31/2025)
Scottdale	100 Pittsburgh Street Scottdale, PA 15683	Owned
Shaler	900 Mt. Royal Boulevard Pittsburgh, PA 15223	Owned
Shaler Drive-Thru	1100 Mt. Royal Boulevard Pittsburgh, PA 15223	Owned

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018~~

~~Note 1 — Summary of Significant Accounting Policies – (continued)~~

~~deferred~~ITEM ~~loan fees or costs~~3. ~~Interest~~Legal on loans is credited to income as earned. Interest income on loans is accrued at the contractual rate on the principal amount outstanding and includes the amortization of deferred loan fees and costs. Deferred loan fees and costs are netted and amortized to income over the life of the loan. Accrual of interest is discontinued when, in the opinion of management, collection is doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Amortization of any net deferred fees is discontinued when a loan is placed on nonaccrual status. Interest on nonaccrual loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, six months of timely payments are received, and future payments are reasonably assured. Proceedings

~~All~~From ~~loans~~time ~~are~~to ~~charged~~time, ~~off~~the ~~when~~Company ~~management~~is ~~determines~~involved ~~that~~as ~~principal~~plaintiff ~~and~~or ~~interest~~defendant ~~are~~in ~~not~~various ~~collectible.~~legal ~~Any~~proceedings ~~excess~~arising in the ordinary course of business At December 31, 2020, the Company’s ~~recorded~~was ~~investment~~not involved in ~~impaired~~any ~~loans~~legal ~~over~~proceedings, the ~~measured~~outcome ~~value~~ of ~~the~~which ~~loan~~management isbelieves ~~provided~~would ~~for~~be inmaterial to the ~~allowance~~Company’s ~~for~~financial ~~loan~~condition ~~losses~~or results of operations.

~~Loans Acquired~~

~~Loans~~ITEM acquired including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance4. ~~Loans~~Mine ~~are~~Safety evaluated individually to determine if there is evidence of deterioration of credit quality since origination. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life. Decreases in expected cash flows are recognized immediately as impairment. Any valuation allowances on these impaired loans reflect only losses incurred after acquisition. Disclosures

~~For~~Not ~~purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value~~Applicable. Loans are aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics. Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts. The remaining difference between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

~~Allowance for Loan Losses~~ 27

~~The~~Table ~~allowance~~of for loan and lease losses represents the amount which management estimates is necessary to provide for probable losses in its loan and lease portfolio. The Company uses the allowance method in providing for loan and lease losses. Accordingly, all loan and lease losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan and lease losses is established through a provision for loan losses which is charged to operations. Contents

~~Mortgage~~PART ~~Loans Held for Sale and Mortgage Servicing Rights~~ II

56Market Information

~~TABLE~~The OFCompany’s ~~CONTENTS~~ common stock trades on the NASDAQ market place under the symbol “STND.” As of December 31, 2020, the Company had 4,773,995 shares of common stock outstanding and 543 stockholders of record. Certain shares of the Company are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

~~STANDARD~~Equity ~~AVB~~Compensation ~~FINANCIAL~~Plan ~~CORP~~Information

~~NOTES~~Set TOforth ~~CONSOLIDATED~~below ~~FINANCIAL~~is ~~STATEMENTS~~information ~~FOR~~as ~~THE~~of ~~YEARS~~December ~~ENDED DECEMBER~~ 31, ~~2019~~2020 ~~AND~~regarding ~~DECEMBER~~equity ~~31,~~compensation ~~2018~~plans that have been approved by stockholders. The Company has no equity based benefit plans that were not approved by stockholders.

Note 1 — Summary of Significant Accounting Policies – (continued)


	Number of securities to be
	issued upon exercise of			Number of securities available
Equity compensation plans	outstanding options, warrants,	Weighted average		for future issuance under
approved by stockholders	and rights	exercise price⁽¹⁾		equity compensation plans
Standard Financial Corp. 2012 Equity Incentive Plan	29,790	$	16.50	101,144
Allegheny Valley Bankcorp, Inc 2011 Stock Incentive Plan	2,083	$	20.02	66,235

~~the~~(1) ~~right~~Reflects toexercise ~~service~~price ~~loans for third-party investors. MSRs are recognized as a separate asset for the right to service mortgage loans for others, regardless~~ of ~~how~~options ~~those servicing rights are acquired~~only. MSRs are recognized upon the sale of mortgage loans to a third-party investor with the servicing rights retained by the Bank. Servicing loans for others generally consists of collecting mortgage payments from borrowers, maintaining escrow accounts, remitting payments to third-party investors and, when necessary, processing foreclosures. Serviced loans are not included in the Consolidated Statements of Financial Condition. Loan servicing income includes servicing fees received from the third-party investors. Originated MSRs are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition at allocated fair value at the time of the sale of the loans to the third-party investor. MSRs are amortized in proportion to and over the estimated period of net servicing income. MSRs are carried at amortized cost, less a valuation allowance for impairment, if any. Impairment exists if the carrying value of MSRs exceeds the estimated fair value of the MSRs. There was no impairment at December 31, 2019 or December 31, 2018.

~~Transfers~~Recent Sales of ~~Financial~~Unregistered ~~Assets~~ Securities

~~Transfers~~There ofwere ~~financial~~no ~~assets,~~unregistered ~~including loan and loan participation~~ sales, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Bank; (2) the transferee obtains the right (free of ~~conditions~~equity ~~that~~securities ~~constrain~~during ~~it from taking advantage of that right) to pledge or exchange~~ the ~~transferred~~year ~~assets;~~ended ~~and~~December ~~(3) the~~31, ~~Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity~~2020.

~~Foreclosed~~Issuer ~~Real~~Purchases ~~Estate~~of Equity Securities

~~Foreclosed~~The ~~real~~following ~~estate~~table ~~consists~~sets offorth ~~property~~information ~~acquired~~with ~~through~~respect ato ~~foreclosure~~purchases ~~proceeding~~made by or ~~acceptance~~on ofbehalf ~~a deed in lieu~~ of ~~foreclosure.~~the ~~Foreclosed~~Company ~~real estate is initially recorded at fair value, net~~ of ~~estimated~~shares ~~selling costs, at the date~~ of ~~foreclosure~~common ~~establishing~~stock ~~a new cost basis. Any write downs based on the asset’s fair value at the date~~ of ~~acquisition are charged to~~ the ~~allowance~~Company ~~for~~during ~~loan losses. Subsequent to foreclosure, valuations are periodically performed by management and~~ the ~~assets~~fourth ~~are~~quarter ~~carried at the lower~~ of ~~carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other expense.~~ 2020:

Office Properties and Equipment


					Maximum
				Total Number of	Number of
				Shares Purchased	Shares That May
				as Part of	Yet Be
				Publically	Purchased Under
	Total Number of	Average Price		Announced Plans	the Plans or
Period	Shares Purchased	Paid Per Share		or Programs	Programs (1)
October 1-31, 2020	—	$	—	—	230,000
November 1-30, 2020	—		—	—	230,000
December 1-31, 2020	—		—	—	230,000
Totals	—	$	—	—

~~Office~~(1) ~~properties~~On ~~and~~January, ~~equipment~~29, ~~are~~2020, ~~stated~~the atCompany ~~cost,~~announced ~~net~~that its Board of ~~accumulated~~Directors ~~depreciation.~~approved ~~Depreciation~~a isnew ~~computed~~stock onrepurchase program. Pursuant to the ~~straight-line~~new ~~method~~stock ~~over~~repurchase program, the ~~estimated~~Company ~~useful~~may ~~lives~~repurchase up to 230,000 shares of ~~the~~its ~~related~~common ~~assets~~stock, or approximately 5% of its current outstanding shares. ~~Leasehold~~The ~~improvements~~stock ~~are~~repurchase ~~capitalized~~program ~~and~~may ~~depreciated~~be tocarried ~~operating~~out ~~expense~~through ~~over~~open ~~the~~market ~~term~~purchases, ofblock ~~the~~trades, ~~lease~~negotiated private transactions or ~~the~~pursuant ~~useful~~to ~~life~~a trading plan adopted in accordance with Rule 10b5-1 of the ~~asset~~Securities ~~whichever~~and isExchange ~~shorter~~Commission rules. The ~~cost~~stock ofmay ~~major~~be ~~additions~~repurchased ~~and~~on ~~improvements~~an isongoing ~~capitalized~~basis and ~~depreciated~~will be subject to ~~operating~~the ~~expense~~availability ~~over~~of ~~the~~stock, ~~estimated~~general ~~remaining~~market ~~life~~conditions, the trading prices of the ~~asset.~~stock, ~~Expenditures~~alternative uses for ~~maintenance~~capital and ~~repairs~~the ~~are~~Company’s ~~charged~~financial toperformance. ~~expense~~On asMarch ~~incurred~~19, 2020, the Company temporarily suspended its stock repurchase plan. To date, no shares have been repurchased under this program.

~~Bank-Owned Life Insurance~~ 28

~~The~~Table ~~Bank owns insurance on the lives~~ of certain directors and officers. The policies were purchased to help offset the cost of various fringe benefit plans, including health care. The cash surrender value of these policies is included on the Consolidated Statements of Financial Condition and any increases in the cash surrender value are recorded in noninterest income in the Consolidated Statements of Income. In the event of the death of an insured individual under these policies, a portion of the death benefit would be payable to the Bank and recorded as other income in the Consolidated Statements of Income. The remainder of the death benefit would be payable to the beneficiary, assuming the insured was employed by the Bank at the time of death. Contents

~~TABLE~~ITEM OF6. ~~CONTENTS~~ Selected Financial Data

~~STANDARD~~Not ~~AVB FINANCIAL CORP~~applicable.

~~NOTES~~ITEM TO7. ~~CONSOLIDATED~~Management’s ~~FINANCIAL~~Discussion ~~STATEMENTS~~and ~~FOR~~Analysis ~~THE~~of ~~YEARS~~Financial ~~ENDED~~Condition ~~DECEMBER~~and ~~31,~~Results ~~2019~~of ~~AND DECEMBER 31, 2018~~Operations

~~Note~~This ~~1 — Summary~~section is intended to help potential investors understand the Company’s financial performance through a discussion of ~~Significant~~the ~~Accounting~~factors ~~Policies – (continued)~~affecting its financial condition at December 31, 2020 and December 31, 2019, and the Company’s consolidated results of operations for the year ended December 31, 2020. This section should be read in conjunction with the audited consolidated financial statements and notes that appear elsewhere in this Annual Report.

~~Goodwill and Core Deposit Intangible~~ Overview

~~Goodwill~~The ~~represents~~Company ~~the~~provides ~~excess~~a ofwide ~~the~~array ~~purchase price over the cost~~ of ~~net~~consumer ~~assets~~and ~~purchased.~~commercial ~~Goodwill~~financial isproducts ~~not~~and ~~amortized,~~services ~~but~~to ~~is evaluated for impairment. At least annually~~individuals, ~~management~~families ~~reviews goodwill~~ and ~~evaluates~~small ~~events~~to ormedium-sized ~~changes~~businesses inthrough ~~circumstances~~17 ~~that~~banking ~~may~~offices ~~indicate~~located ~~impairment~~ in the ~~carrying~~Pennsylvania ~~amount~~counties of ~~goodwill. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the net assets~~Allegheny, anWestmoreland ~~impairment~~and ~~loss~~Bedford ~~will~~and beAllegany ~~recognized. Impairment~~County, ifMaryland ~~any,~~through isits ~~measured~~wholly-owned onsubsidiary aStandard ~~discounted future cash flow basis~~Bank. ~~For~~In ~~December 31,~~addition ~~2019~~to ~~and~~providing ~~December 31,~~traditional ~~2018,~~banking ~~no impairment existed; however~~services, ~~for any future period, if~~ the ~~Company~~Bank ~~determines~~offers ~~that~~enhanced ~~there~~investment ~~has been impairment in the carrying value of goodwill~~advisory, ~~the Company would record a charge to earnings~~brokerage, ~~which~~and ~~could~~insurance ~~have a material adverse effect on net income~~services.

~~Core deposit intangible assets represent the premiums paid to acquire the core deposits of another institution.~~ The ~~premium~~COVID-19 ispandemic ~~the~~has ~~amount~~caused ~~paid~~significant involatility ~~excess of the dollar amount of the deposits acquired~~ and itdisruption isin ~~carried at amortized cost on~~ the ~~Consolidated~~financial ~~Statements~~markets ~~of Financial Condition~~worldwide. The Company has ~~core~~continued ~~deposit~~to ~~intangible~~provide ~~assets~~assistance ~~relating~~ to ~~the~~residential ~~2017~~and ~~acquisition~~commercial ofborrowers ~~Allegheny~~to ~~Valley~~help ~~Bancorp~~them ~~Inc.~~meet ~~(“Allegheny~~the ~~Valley”).~~unexpected ~~These~~financial ~~intangible~~challenges ~~assets~~stemming ~~are~~from ~~being~~the ~~amortized on an accelerated basis over an 8~~COVID-~~year~~19 ~~period~~pandemic. The balance of core deposit intangibles was $1.9 million and $2.5 million, net of accumulated amortization of $2.2 million and $1.6 million, for the years ended December 31, 2019 and December 31, 2018, respectively.

~~Pension~~Despite ~~Plan~~the challenging current market and economic conditions, the Company continues to maintain capital in excess of regulatory requirements.

The ~~Bank~~primary ~~maintains~~sources aof ~~noncontributory~~funds ~~defined~~consist ~~benefit~~of ~~pension~~deposit ~~plan~~inflows, ~~covering~~loan ~~employees~~repayments ~~whose~~and ~~benefits were frozen effective August 1~~sales, ~~2005.~~advances Noand ~~future~~short-term ~~benefits~~borrowings ~~are~~from ~~accrued, however,~~ the ~~plan~~FHLB ~~calls~~and ~~for~~repurchase ~~benefits~~agreements toand bematurities, ~~paid~~principal torepayments ~~eligible~~and ~~employees~~sales ~~at retirement based primarily upon years~~ of ~~service~~available ~~with~~for ~~the~~sale ~~Bank~~securities.

~~Interest~~Building shareholder value through consistent earnings remains the Company’s primary focus. The Company’s key performance metrics are net income, return on ~~Deposits~~average assets, return on average equity, the efficiency ratio and non-performing assets to total assets.

~~Interest~~The onprimary ~~deposits~~source of earnings is ~~accrued~~net ~~and~~interest ~~charged~~income. toOperational ~~expense~~results ~~daily~~can be affected by a wide range of factors including general and islocal ~~paid~~economic orand ~~credited~~competitive conditions, changes in ~~accordance~~market ~~with~~interest ~~the~~rates ~~terms~~and actions of regulatory authorities. The Company continues to focus on managing the ~~respective~~interest ~~accounts.~~rate margin and maximizing earnings from sources other than interest income, controlling non-interest expenses and maintaining strong asset quality.

~~Income~~Business ~~Taxes~~ Strategy

The ~~Company~~Bank’s ~~accounts~~primary ~~for~~objective ~~income~~is ~~taxes~~to operate as a profitable, community-oriented financial institution serving customers in ~~accordance~~its ~~with~~market ~~GAAP~~areas. The Bank is seeking to accomplish this objective by pursuing a business strategy that is designed to maintain core profitability, strong capital and high asset quality. This business strategy includes the following elements:

~~The~~● ~~income~~Remaining ~~tax~~a ~~accounting~~community-oriented ~~guidance~~financial ~~results~~institution inwhile ~~two~~continuing ~~components~~to ofincrease ~~income~~the ~~tax~~customer ~~expense:~~base ~~current~~of small and ~~deferred.~~medium-size ~~Current~~businesses ~~income~~in ~~tax~~the ~~expense~~market ~~reflects~~area. ~~taxes~~The toBank bewas ~~paid~~established orin ~~refunded~~1913 ~~for~~and ~~the~~has ~~current~~operated ~~period~~continuously byin ~~applying~~southwestern ~~the~~Pennsylvania ~~provisions~~since ofthat ~~the~~date. ~~enacted~~In ~~tax~~2017, ~~law~~the toBank ~~the~~merged ~~taxable~~with ~~income~~Allegheny orValley ~~excess~~and ofexpanded ~~deductions~~its ~~over~~footprint ~~revenues.~~in ~~The~~the ~~Company~~Pittsburgh ~~determines~~market ~~deferred~~area. ~~income~~Pursuant ~~taxes~~to ~~using~~the terms of the ~~liability~~merger ~~(or~~agreement ~~balance~~entered ~~sheet)~~into ~~method.~~with ~~Under~~Dollar ~~this~~in ~~method~~September 2020, the ~~net~~Bank ~~deferred~~will ~~tax~~operate ~~asset~~as ora ~~liability~~separate iswholly ~~based~~owned onsubsidiary ~~the~~of ~~tax~~Dollar ~~effects~~after of the ~~differences~~transaction. ~~between~~Both the ~~book~~Company and ~~tax~~Dollar ~~bases~~have ofa ~~assets~~long ~~and~~history ~~liabilities,~~of ~~and~~providing ~~enacted~~community ~~changes~~banking services in ~~tax~~their ~~rates~~market ~~and~~areas. ~~laws~~The ~~are~~Bank ~~recognized~~is incommitted to meeting the ~~period~~financial inneeds ~~which~~of ~~they~~the ~~occur.~~communities in which it

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. 29

~~The~~Table Company accounts for uncertain tax positions if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50%; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge Contents

58operates, and is dedicated to providing quality personal service to customers. The Bank provides a broad range of business and consumer financial services from seventeen community banking offices. Relationship banking is the core focus with a strong emphasis to increase small and medium-sized businesses in the market area.

~~TABLE~~● OFIncreasing ~~CONTENTS~~ commercial real estate and business lending while maintaining conservative loan underwriting standards. The largest increase in the Bank’s loan portfolio balance in recent years has been to the growth in the commercial loan portfolio. Commercial real estate and business loans outstanding totaled approximately $453.6 million, or 61.1% of the gross loan portfolio at December 31, 2020, including $37.7 million of PPP loans. In growing the commercial loan portfolio, the Bank has emphasized maintaining strong asset quality by following conservative loan underwriting guidelines. All commercial loans are underwritten in a central location in the Lawrenceville office to ensure uniformity and consistency in underwriting decisions.

~~STANDARD~~● ~~AVB~~Expanding ~~FINANCIAL~~the ~~CORP~~product mix and capacity to sell residential loans in the secondary mortgage market. The Bank has expanded offerings of residential lending products to include more saleable government sponsored loans (e.g. USDA, FHA, PHFA and VA). These loans, which generally have longer terms and fixed rates, can be originated and sold to avoid increasing the Bank’s interest rate risk exposure while establishing customer deposit and other relationships. Notwithstanding the emphasis on sales of residential mortgages, the Bank continues to originate fixed and adjustable rate mortgage loans for its portfolio.

~~NOTES~~● TOEmphasizing ~~CONSOLIDATED~~core ~~FINANCIAL~~deposits ~~STATEMENTS~~by ~~FOR~~attracting ~~THE~~new ~~YEARS~~customers ~~ENDED~~and ~~DECEMBER~~enhancing 31existing customer relationships. In an effort to grow the banking franchise, ~~2019~~the ~~AND~~Bank ~~DECEMBER~~has 31enhanced direct marketing efforts to local businesses and consumers and established a stronger culture of cross-selling products to existing customers. In addition, ~~2018~~the Bank has worked to enhance treasury management products and services. This line of business provides higher balance, lower cost accounts which use more sophisticated electronic cash management services than the consumer or average small business. A comprehensive strategy has been developed to attract and retain deposits by offering enhanced technology, such as mobile and online banking, remote check deposit, positive pay, People Pay and remote deposit capture, with a consistent emphasis on quality customer service.

~~Note~~● ~~1 — Summary~~Rationalizing delivery channels as customer preferences evolve. The Bank currently operates seventeen community banking offices. The banking industry is experiencing rapid changes in technology. The Bank is focused on improving customer services and addressing our customer’s needs by using technology. The objective is to ensure an efficient service delivery system that balances the use of ~~Significant~~technology ~~Accounting~~and ~~Policies – (continued)~~personal customer service.

ofCritical ~~all~~Accounting relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. The Company had no uncertain tax positions at December 31, 2019 or December 31, 2018. If the Company were to incur interest and penalties on income taxes, it would be recognized as a component of income tax expense. Policies

~~Stock~~The ~~Compensation~~Company considers accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. The Company considers the following to be its critical accounting policies.

Allowance for Loan Losses. The ~~Company~~Bank ~~accounts~~maintains an allowance for ~~share-based~~loan ~~awards~~losses in ~~accordance~~an ~~with~~amount ~~GAAP,~~it ~~which~~believes ~~requires~~is ~~companies~~appropriate to ~~estimate~~absorb probable losses inherent in the ~~fair~~portfolio ~~value~~at the balance sheet date. Management’s periodic determination of ~~awards~~the adequacy of the allowance is based on the ~~date~~size and current risk characteristics of ~~grant~~the loan portfolio, an assessment of individual problem loans and actual loss experience, current economic events in relevant industries and other pertinent factors such as regulatory guidance and general economic conditions. ~~The~~However, ~~value~~this evaluation is inherently subjective, as it requires an estimate of the ~~portion~~loss content for each risk rating and for each impaired loan, an estimate of the ~~award~~amounts ~~that~~and istiming ~~ultimately~~of expected tofuture ~~vest~~cash isflows, ~~included~~and inan ~~compensation~~appraisal or other estimate of the value of collateral on impaired loans and ~~employee~~estimated ~~benefits~~losses on pools of homogenous loans based on the ~~income~~balance ~~statement.~~of ~~Compensation~~loans ~~expense~~in ~~for~~each ~~share-based~~loan ~~awards~~category, ~~with~~changes ~~graded~~in ~~vesting~~the ~~schedules~~inherent iscredit ~~recognized~~risk due to portfolio growth, historical loss experience and consideration of current economic trends. Based on amanagement’s ~~straight-line~~estimate ~~basis~~of ~~over~~the level of allowance for loan losses required, the ~~requisite~~Bank ~~service~~records ~~period~~a provision for loan losses to maintain the ~~entire~~allowance ~~grant.~~for loan losses at an appropriate level.

~~Advertising~~The ~~Expense~~determination of the allowance for loan losses is based on management’s current judgments about the loan portfolio credit quality and management’s consideration of all known relevant internal and external factors that affect

Advertising costs are expensed as incurred and included in other operating expense in the Consolidated Statements of Income. Advertising expense for the years ended December 31, 2019 and December 31, 2018 totaled $262,000 and $289,000, respectively. 30

~~Comprehensive~~Table ~~Income~~of Contents

~~Comprehensive~~loan ~~income~~collectability, ~~consists~~as of ~~net~~the ~~income~~reporting ~~and~~date. ~~other~~Management ~~comprehensive~~cannot ~~gain~~predict ~~(loss)~~with certainty the amount of loan charge-offs that will be incurred. ~~Other~~Management ~~comprehensive~~does ~~gain~~not ~~(loss)~~currently ~~includes~~determine ~~the~~a ~~change~~range inof ~~unrealized~~loss ~~gains~~with onrespect ~~debt~~to ~~securities~~the ~~available~~allowance for ~~sale~~loan losses. In addition, ~~unrealized~~various ~~losses~~banking ~~related~~regulatory toagencies, ~~factors~~as ~~other~~an ~~than~~integral ~~credit~~part onof ~~debt~~their ~~securities~~examination processes, ~~and~~periodically review the ~~change~~Bank’s inallowance for loan losses. Such agencies may require that the ~~pension~~Bank ~~benefit~~recognize ~~obligation~~additions to the allowance for loan losses based on their judgments about information available to them at the ~~defined~~time ~~benefit~~of ~~plan~~their examination. Accordingly, actual results could differ from those estimates.

OnOther-Than-Temporary ~~January 1~~Impairment. In estimating other-than-temporary impairment of investment securities, ~~2018~~securities are evaluated periodically, ~~the~~and ~~Company~~at ~~adopted~~least ~~ASU~~quarterly, ~~2016-01 — Financial~~to ~~Instruments — Overall~~determine ~~(Subtopic 825-10):~~whether ~~Recognition~~a ~~and~~decline ~~Measurement~~in oftheir ~~Financial~~value ~~Assets~~is other than temporary. The Company considers numerous factors when determining whether potential other-than-temporary impairment exists and ~~Financial~~the ~~Liabilities,~~period over which ~~requires~~a ~~equity~~debt ~~securities~~security is expected to berecover. ~~measured~~The atprincipal ~~fair~~factors ~~value~~considered ~~with~~are ~~net~~(1) ~~unrealized~~the ~~gains~~length ~~and~~of ~~losses~~time ~~recognized~~and inthe ~~noninterest~~extent ~~income~~to onwhich the ~~Consolidated~~fair ~~Statements~~value ofhas ~~Income.~~been Asless athan ~~result~~the ofamortized cost basis, (2) the ~~adoption~~financial condition of ~~this~~the ~~guidance~~issuer (and guarantor, ~~there~~if ~~was~~any) aand ~~one-time~~adverse ~~cumulative~~conditions ~~effect~~specifically ~~adjustment~~related ~~of $416~~to the security,~~000~~ ~~between~~industry ~~retained~~or ~~earnings~~geographic ~~and~~area, ~~accumulated~~(3) ~~other~~failure ~~comprehensive~~of ~~income~~the onissuer of the ~~Consolidated~~security ~~Statement~~to ofmake ~~Financial~~scheduled ~~Condition~~interest ~~for~~or ~~December 31~~principal payments, ~~2018.~~(4) ~~The~~any ~~adjustment~~changes ~~had~~to nothe ~~impact~~rating onof ~~net~~a ~~income~~security ~~for~~by a rating agency, and (5) the ~~year~~presence ~~ended~~of ~~December 31~~credit enhancements, ~~2018.~~if any, including the guarantee of the federal government or any of its agencies.

~~Earnings~~For ~~per~~debt ~~Share~~securities, other-than-temporary impairment is considered to have occurred if (1) the Company intends to sell the security, (2) it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, or (3) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. In determining the present value of expected cash flows, the Company discounts the expected cash flows at the effective interest rate implicit in the security at the date of acquisition or, for debt securities that are beneficial interests in securitized financial assets, at the current rate used to accrete the beneficial interest. In estimating cash flows expected to be collected, the Company uses available information with respect to security prepayment speeds, expected deferral rates and severity, whether subordinated interests, if any, are capable of absorbing estimated losses and the value of any underlying collateral.

~~Basic~~Deferred ~~earnings~~Tax ~~per~~Assets. ~~share~~The ~~(“EPS”)~~Company isuses ~~computed~~an byestimate ~~dividing~~of ~~net~~future ~~income~~earnings ~~available~~ to ~~common~~support ~~stockholders by~~ the ~~weighted~~position ~~average~~that ~~number of common shares outstanding for~~ the ~~period.~~benefit ~~Diluted~~of ~~EPS~~its ~~reflects~~deferred ~~the~~tax ~~potential~~assets ~~dilution~~will ~~that~~be ~~could~~realized. ~~occur~~If iffuture ~~securities~~income orshould ~~other~~prove ~~contracts~~non-existent ~~to issue common stock were exercised~~ or ~~converted~~less ~~into~~than ~~common stock or resulted in~~ the ~~issuance~~amount of ~~common~~the ~~stock~~deferred ~~that~~tax ~~then~~assets ~~shared~~within in the ~~earnings~~tax ofyears ~~the~~to ~~Company.~~which ~~The~~they ~~following~~may ~~table~~be ~~sets~~applied, ~~forth~~ the ~~computation~~asset ofmay ~~basic~~not ~~and~~be ~~diluted~~realized ~~EPS~~and ~~for~~ the ~~years~~ ~~ended~~Company’s ~~December 31,~~net ~~2019~~income ~~and~~will ~~December 31,~~be ~~2018 (dollars in thousands except share and per share data):~~ reduced.

59Goodwill and Other Intangible Assets. The Company must assess goodwill and other intangible assets for impairment. This assessment involves estimating the fair value of its reporting units. If the fair value of the reporting unit is less than the carrying value including goodwill, the Company would be required to take a charge against earnings to write down the assets to the lower value.

~~TABLE~~Pension OFPlan. ~~CONTENTS~~ The Bank maintains a noncontributory defined benefit pension plan covering employees whose benefits were frozen effective August 1, 2005. No future benefits are accrued, however the plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Bank.

~~STANDARD~~Non-GAAP ~~AVB~~Financial ~~FINANCIAL~~Measures. ~~CORP~~In addition to the results of operations presented in accordance with generally accepted accounting principles (GAAP), Management uses, and this exhibit contains, certain non-GAAP financial measures. Management believes these non-GAAP financial measures provide information useful to investors in understanding the Company’s underlying operational performance, business and performance trends, and facilitate comparisons with the performance of others in the financial service industry. Although Management believes these non-GAAP financial measures enhance investors’ understanding of the Company’s business and performance, they should not be considered an alternative to GAAP.

~~NOTES~~Net TOincome, ~~CONSOLIDATED~~basic ~~FINANCIAL~~earnings ~~STATEMENTS~~per ~~FOR~~share, ~~THE~~diluted ~~YEARS~~earnings ~~ENDED~~per ~~DECEMBER~~share, return on average assets and return on average equity excluding merger-related expenses are all non-GAAP measures. The following table reconciles net income to net income excluding merger-related expenses and presents basic earnings per share, diluted earnings per share, return on average assets and return on average equity utilizing both net income and net income excluding merger-related expenses for the years ended December 31, ~~2019~~2020 ~~AND~~and ~~DECEMBER~~December 31, ~~2018~~2019 (dollars in thousands, except per share data):

~~Note 1 — Summary of Significant Accounting Policies – (continued)~~31

	Years Ended December 31
	2019			2018
Net income available to common stockholders		$	8,806		$	8,801
Basic EPS:
Weighted average shares outstanding			4,606,457			4,634,003
Basic EPS		$	1.91		$	1.90
Diluted EPS:
Weighted average shares outstanding			4,606,457			4,634,003
Diluted effect of common stock equivalents			36,318			51,041
Total diluted weighted average shares outstanding			4,642,775			4,685,044
Diluted EPS		$	1.90		$	1.88

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Options to purchase 247,781 and 266,695 shares of common stock were outstanding as of December 31, 2019 and December 31, 2018, respectively, with an average exercise price of $17.07 and $17.12, respectively. There were no anti-dilutive options as of December 31, 2019 or December 31, 2018.


	Year Ended December 31,
	2020			2019

Noninterest Expense (GAAP)	$	22,604		$	21,625
Merger-related expenses (GAAP)		(1,075)			-
Noninterest expense, excluding merger-related expenses	$	21,529		$	21,625

Net Income (GAAP)	$	6,932		$	8,806
After tax merger-related expenses (GAAP)		1,005			-
Net income, excluding merger-related expenses	$	7,937		$	8,806

Earnings Per Share - Basic
GAAP	$	1.52		$	1.91
Excluding merger-related expenses	$	1.74			n/a

Earnings Per Share - Diluted
GAAP	$	1.50		$	1.90
Excluding merger-related expenses	$	1.71			n/a

Average Assets (GAAP)	$	1,031,734		$	983,042

Return on Average Assets
GAAP		0.67	%		0.90	%
Excluding merger-related expenses		0.77	%		n/a

Average Equity (GAAP)	$	142,984		$	140,189

Return on Average Equity
GAAP		4.85	%		6.28	%
Excluding merger-related expenses		5.55	%		n/a

As of December 31, 2019 and December 31, 2018, there were 1,944 and 250 shares of outstanding restricted stock, respectively, that were not fully vested and included in the computation of diluted earnings per common share.

~~Reclassifications~~Balance Sheet Analysis: December 31, 2020 and December 31, 2019

~~Certain~~General. ~~comparative~~The ~~amounts~~Company’s ~~for~~total ~~the~~assets ~~prior~~as ~~year~~of ~~have~~December ~~been~~31, ~~reclassified~~2020 toincreased ~~conform~~$67.2 million, or 6.8%, to ~~current-year~~$1.1 ~~presentation~~billion from $984.4 ~~Such~~million ~~reclassifications~~at ~~had~~December no31, ~~effect~~2019. onThe ~~net~~increase ~~income~~in total assets included an increase in cash and cash equivalents of $18.1 million, or ~~stockholders’~~55.8%, ~~equity~~an increase in investment and mortgage-backed securities of $24.1 million, or 15.0%, and an increase in loans receivable of $21.8 million, or 3.1%, for the year ended December 31, 2020.

~~Recent~~Cash ~~Accounting~~and ~~Pronouncements~~Cash Equivalents. Cash and cash equivalents increased $18.1 million, or 55.8%, to $50.5 million at December 31, 2020 from $32.4 million at December 31, 2019. The increase was primarily the result of a $74.8 million, or 10.2%, increase in deposits, partially offset by an increase in loans receivable of $21.8 million, or 3.1%, and an increase in investment and mortgage-backed securities of $24.1 million, or 15.0%, during the period.

~~Accounting~~Investment ~~Standards~~Securities. ~~Adopted~~Investment insecurities available for sale increased $20.1 million, or 28.7%, to $90.0 million at December 31, 2020 from $69.9 million at December 31, 2019. Purchases of investment securities totaled $39.3 million, partially offset by calls and maturities of $19.0 million and sales of $874,000 during the year ended December 31, 2020.

InEquity ~~February 2016,~~Securities. ~~the~~Equity ~~FASB~~securities ~~issued~~were ~~ASU 2016-02, Leases (Topic 842)~~$2.6 ~~The~~million ~~standard requires lessees to recognize the assets~~ and ~~liabilities that arise from leases on the balance sheet~~$3.0 ~~Additionally,~~million inat ~~July 2018,~~December ~~the FASB issued ASU 2018-11~~31, ~~Leases~~2020 ~~(Topic~~and ~~842) — Targeted~~December ~~Improvements~~31, ~~which~~2019, ~~among~~respectively. ~~other~~The ~~things,~~decrease ~~provided~~of an$403,000 ~~additional~~was ~~transition~~a ~~method~~result ~~that~~of ~~allows~~changes ~~entities~~in ~~to not apply~~ the ~~guidance~~market inprices ~~ASU~~of ~~2016-02 in~~ the ~~comparative~~community ~~periods~~bank ~~presented~~stocks held in the ~~financial~~investment ~~statements~~portfolio ~~and~~due ~~instead~~ to ~~recognize a cumulative-effect adjustment to~~ the ~~opening~~current ~~balance~~economic ~~of retained earnings in the period of adoption~~environment. ~~The~~There ~~Company~~were ~~adopted~~no ~~ASU~~purchases ~~2016-02~~or ~~and~~sales ~~its related amendments as~~ of ~~January 1,~~equity ~~2019,~~securities ~~which~~during ~~resulted in~~ the ~~recognition~~year ofended ~~finance~~December ~~right-of-use assets and finance lease liabilities totaling $1.1 million and $1.2 million~~31, ~~respectively~~2020.

The Company elected to adopt the transition relief provisions from ASU 2018-11 and recorded the impact of adoption as of January 1, 2019, without restating any prior-year amounts or disclosures. Additional lease disclosures can be found in Note 7 contained herein. There was no cumulative effect adjustment to the opening balance of retained earnings required. 32

~~Accounting~~Table ~~Standards~~of ~~Pending Adoption~~ Contents

InMortgage-Backed ~~June 2016,~~Securities. ~~the~~The ~~FASB~~Company’s ~~issued ASU 2016~~mortgage-~~13,~~backed ~~Financial~~securities ~~Instruments — Credit~~available ~~Losses:~~for ~~Measurement~~sale ofincreased ~~Credit~~$4.0 ~~Losses~~million, onor ~~Financial Instruments~~4.4%, ~~which~~to ~~changes~~$95.5 ~~the~~at ~~impairment~~December ~~model~~31, ~~for~~2020 ~~most~~from ~~financial assets~~$91.5 ~~This~~million ~~Update~~at isDecember ~~intended~~31, to2019. ~~improve~~Purchases ~~financial~~of ~~reporting~~mortgage-backed bysecurities ~~requiring~~totaled ~~timelier~~$40.5 ~~recording~~million, ofpartially ~~credit~~offset ~~losses~~by onrepayments ~~loans~~of $33.0 million and ~~other~~sales ~~financial~~of $3.5 ~~instruments~~million ~~held~~during bythe ~~financial~~year ~~institutions~~ended ~~and~~December ~~other~~31, ~~organizations~~2020. ~~The underlying premise~~

60Investment, Equity and Mortgage-Backed Securities Composition. The composition of the investment, equity, and mortgage-backed securities portfolio is summarized in the following table (dollars in thousands). At December 31, 2020 and December 31, 2019, all of the Company’s investment, equity, and mortgage-backed securities were classified as available for sale and recorded at current fair value.

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	At December 31,
	2020				2019
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Municipal obligations	$	78,877	$	80,716	$	57,506	$	58,816
U.S. government and agency obligations		4,000		4,007		8,404		8,489
Corporate bonds		4,975		5,230		2,477		2,579
Mortgage-backed securities:
Ginnie Mae pass-through certificates		20,079		20,495		21,386		21,504
Fannie Mae pass-through certificates		24,051		24,553		20,537		20,795
Freddie Mac pass-through certificates		21,317		21,624		13,986		14,086
Private pass-through certificates		17,528		17,371		21,904		21,603
Collateralized mortgage obligations		11,287		11,482		13,406		13,490
Equity securities		2,686		2,552		2,686		2,955
Total securities	$	184,800	$	188,030	$	162,292	$	164,317

~~STANDARD AVB FINANCIAL CORP~~

~~NOTES~~During TOthe ~~CONSOLIDATED~~year ~~FINANCIAL~~ended ~~STATEMENTS~~December ~~FOR~~31, ~~THE~~2020, ~~YEARS~~$79.9 ~~ENDED~~million ~~DECEMBER~~of securities purchased were partially offset by $4.4 million of securities sales and $52.0 million of securities calls and repayments. For the year ended December 31, 2020, there was a net realized gain of $23,000 on the sale of securities. During the year ended December 31, 2019, ~~AND~~$44.2 ~~DECEMBER~~million of securities purchased were partially offset by $7.6 million of securities sales and $25.6 million of securities calls and repayments. For the year ended December 31, ~~2018~~2019, there was a net realized loss of $1,000 on the sale of securities.

~~Note~~At ~~1 — Summary~~December 31, 2020 and December 31, 2019, the Company held 39 securities and 42 securities in unrealized loss positions of $414,000 ~~Significant~~and ~~Accounting~~$471,000, ~~Policies – (continued)~~respectively. The decline in the fair value of these securities resulted primarily from interest rate fluctuations. The Company does not intend to sell these securities nor is it more likely than not that the Company would be required to sell these securities before their anticipated recovery and the Company believes the collection of the investment and related interest is probable. Based on this analysis, the Company considers all of the unrealized losses to be temporary impairment losses.

~~of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected~~Investment, ~~through~~Equity anand ~~allowance~~Mortgage-Backed ~~for~~Securities ~~credit~~Maturities ~~losses~~and ~~that is deducted from the amortized cost basis~~Yields. The ~~allowance~~maturities ~~for~~and ~~credit~~weighted ~~losses~~average ~~should~~yields ~~reflect management’s current estimate~~ of ~~credit losses that are expected to occur over~~ the ~~remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets~~investment, asequity ~~well~~and ~~as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016~~mortgage-13backed issecurities ~~effective~~portfolio ~~for~~at ~~annual and interim periods beginning after~~ December ~~15,~~ ~~2019~~31, ~~and~~2020 ~~early~~are ~~adoption~~summarized is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in ~~which~~ the ~~guidance~~following istable ~~adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses~~ (~~Topic~~dollars ~~326),~~in ~~Derivatives and Hedging (Topic 815~~thousands)~~, and Leases (Topic 842)~~. ~~This~~Maturities ~~Update defers the effective date of ASU 2016-13 for SEC filers that~~ are ~~eligible~~based toon be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company expects to recognize a one-time cumulative effect adjustment to the ~~allowance~~final ~~for~~contractual ~~loan~~payment ~~losses as of the beginning of the first reporting period in which the new standard is effective~~dates, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The Company has been working with a third party to evaluate the various CECL methodologies and ~~decided~~do tonot ~~utilize~~reflect the ~~vintage method. The Company is continuing to work through implementation of that method and determine what impact it will have on the consolidated financial statements.~~

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles — Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. 33

InTable August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to Contents

61impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax- equivalent basis.

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	Due 1 Year or Less				Due 1 – 5 Years				Due 5 – 10 Years				Due Over 10 Years				Total Securities
			Weighted				Weighted				Weighted				Weighted				Weighted
	Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average
	Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield
Municipal obligations	$	4,657	5.14	%	$	1,640	2.74	%	$	18,571	2.66	%	$	54,009	2.38	%	$	78,877	2.62	%
U.S. government and agency obligations		—	—			1,000	0.75	%		3,000	1.08	%		—	—			4,000	1.00	%
Corporate bonds		1,000	3.00	%		3,975	2.84	%		—	—			—	—			4,975	2.87	%
Mortgage-backed securities:
Ginnie Mae pass through certificates		—	—			—	—			—	—			20,079	1.31	%		20,079	1.31	%
Fannie Mae pass through certificates		—	—			—	—			827	3.11	%		23,224	1.50	%		24,051	1.56	%
Freddie Mac pass through certificates		—	—			—	—			—	—			21,317	1.58	%		21,317	1.58	%
Collateralized mortgage obligations		—	—			—	—			—	—			11,287	0.76	%		11,287	0.76	%
Private pass through certificates		—	—			718	1.70	%		3,727	1.68	%		13,083	1.15	%		17,528	1.29	%
Equity securities		2,686	3.60	%		—	—			—	—			—	—			2,686	3.60	%
Total	$	8,343	4.39	%	$	7,333	2.42	%	$	26,125	2.35	%	$	142,999	1.73	%	$	184,800	1.97	%

~~STANDARD AVB FINANCIAL CORP~~

~~NOTES~~Loans. TOAt ~~CONSOLIDATED~~December ~~FINANCIAL~~31, ~~STATEMENTS~~2020, ~~FOR~~net ~~THE~~loans ~~YEARS~~were ~~ENDED~~$734.8 ~~DECEMBER~~million, or 69.9% of total assets, compared to $713.0 million, or 72.4% of total assets at December 31, 2019. ~~AND~~The ~~DECEMBER~~$21.8 31million, ~~2018~~or 3.1%, increase in total loans was due in large part to a $51.8 million, or 16.0%, increase in commercial real estate and construction loans and a $30.4 million, or 64.1%, increase in commercial business loans. The increase in commercial business loans was primarily the result of funded SBA PPP loans totaling $42.4 million partially offset by loan repayments. These increases were partially offset by decreases in the one-to-four family residential and construction, home equity loans and lines of credit, and other loan segments of $42.0 million or 17.9%, $15.4 million or 13.8%, and $66,000 or 11.6%, respectively. The decrease in residential and construction loans and home equity loans and lines of credit were the result of residential loan sales and loan repayments during the period.

~~Note 1 — Summary of Significant Accounting Policies – (continued)~~34

~~develop~~Table ~~Level~~of III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s financial statements. Contents

InLoan ~~August 2018,~~Portfolio ~~the FASB issued ASU 2018-14, Compensation — Retirement Benefits (Topic 715-20)~~Composition. ~~This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans.~~ The ~~Update~~following ~~eliminates~~table ~~the~~summarizes ~~requirement to disclose~~ the ~~amounts~~composition ~~in accumulated other comprehensive income expected to be recognized as part~~ of ~~net periodic benefit cost over~~ the ~~next~~loan ~~year.~~portfolio ~~The~~at ~~Update also removes~~ the ~~disclosure~~dates ~~requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost~~indicated, ~~interest~~excluding ~~cost~~loans ~~and~~held ~~the benefit obligation~~ for ~~postretirement~~sale ~~health~~(dollars ~~care~~in benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. For all other entities, this Update is effective for fiscal years ending after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements. thousands):

In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40). This Update addresses customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This Update is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The amendments in this Update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles — Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.


	December 31,
	2020		2019		2018		2017		2016
One-to-four family residential and construction	$	192,402	$	234,421	$	253,913	$	261,715	$	174,740
Commercial real estate and construction		375,621		323,843		308,775		300,997		116,691
Home equity loans and lines of credit		96,116		111,499		123,373		130,915		77,913
Commercial business		77,950		47,514		46,196		56,122		15,505
Other		504		570		1,139		1,413		520
Total loans	$	742,593	$	717,847	$	733,396	$	751,162	$	385,369

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement. The ASU also exempts both lessees and lessors from having to provide the interim disclosures required by ASC 250-10-50-3 in the fiscal year in which a company adopts the new leases standard. The amendments addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

InLoan ~~April 2019,~~Portfolio ~~the~~Maturities. ~~FASB~~The ~~issued~~following ~~ASU~~table ~~2019-04,~~summarizes ~~Codification~~the ~~Improvements~~maturity toof ~~Topic~~the ~~326,~~loan ~~Financial~~portfolio ~~Instruments — Credit~~at ~~Losses,~~December ~~Topic 815~~31, ~~Derivatives~~2020 ~~and~~(dollars ~~Hedging,~~in ~~and~~thousands). ~~Topic~~Demand ~~825~~loans, ~~Financial~~loans ~~Instruments,~~having ~~which~~no ~~affects~~stated arepayment ~~variety~~schedule ofor ~~topics~~maturity, ~~in the Codification~~ and ~~applies~~overdraft toloans ~~all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments — Credit Losses amendments~~ are ~~effective~~reported ~~for~~as ~~SEC~~being ~~registrants~~due ~~for~~in ~~fiscal years~~one ~~beginning~~year ~~after~~or ~~December 15, 2019, and interim periods within those~~ less.


	Due Under		Due 1 – 5		Due Over
	1 Year		Years		5 Years
One-to-four family residential and construction	$	1,100	$	5,745	$	186,841
Commercial real estate and construction		19,534		43,495		312,040
Home equity loans and lines of credit		3,472		12,833		79,935
Commercial business		11,461		47,903		17,729
Other		177		328		—
Total loans	$	35,744	$	110,304	$	596,545

~~TABLE OF CONTENTS~~

~~STANDARD~~Fixed ~~AVB~~and ~~FINANCIAL~~Adjustable ~~CORP~~Rate Loans. The following table summarizes the maturity of the Bank’s fixed- and adjustable-rate loans at December 31, 2020 (dollars in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018


	Due Under		Due 1 – 5		Due Over
	1 Year		Years		5 Years
Fixed	$	6,755	$	87,020	$	211,010
Adjustable		28,989		23,284		385,535
Total loans	$	35,744	$	110,304	$	596,545

~~Note 1 — Summary of Significant Accounting Policies – (continued)~~

~~fiscal years.~~Bank ~~For~~Owned ~~all~~Life ~~other~~Insurance. ~~public~~The ~~business~~Company ~~entities,~~invests ~~the~~in ~~effective~~bank ~~date~~owned islife ~~for~~insurance ~~fiscal years~~to ~~beginning~~provide ~~after~~a ~~December 15,~~funding ~~2020,~~source ~~and~~ for ~~all~~benefit ~~other~~plan ~~entities, the effective date is for fiscal years beginning after December 15, 2021~~obligations. ~~Topic~~Bank ~~815,~~owned ~~Derivatives~~life ~~and~~insurance ~~Hedging~~also ~~amendments~~generally ~~are~~provides ~~effective~~noninterest ~~for~~income public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that ~~have adopted the amendments in Update 2017-12, the effective date~~ is ~~as of the beginning of the first annual period beginning after the issuance of this Update~~non-taxable. ~~Topic~~Bank ~~825,~~owned ~~Financial~~life ~~Instruments~~insurance ~~amendments~~increased ~~are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years~~$1.6 ~~In November 2019~~million, ~~the~~or ~~FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)~~6. ~~This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies~~7%, ~~non-SEC filers and all other companies~~ to ~~fiscal years~~$24.9 ~~beginning~~million ~~after~~at December ~~15,~~ ~~2022~~31, ~~including interim periods within those fiscal years. Furthermore~~2020, ~~the~~from ~~ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities~~$23.4 ~~This~~million ~~Update~~at isDecember ~~not~~31, ~~expected to have a significant impact on the Company’s financial statements~~2019.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments — Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standardGoodwill. ToGoodwill berepresents ~~eligible for~~ the ~~transition~~excess ~~election, the existing financial asset must otherwise be both within the scope~~ of the ~~new~~purchase ~~credit~~price ~~losses~~over ~~standard and eligible for~~ the ~~applying~~cost the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of ~~the~~net ~~financial~~ assets ~~would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13~~purchased. ~~Changes~~Goodwill inwas ~~fair value of that financial asset would subsequently be reported in current earnings~~$25.8 ~~For~~million ~~entities~~at ~~that~~December ~~have not yet adopted ASU 2016-13~~31, ~~the~~2020 ~~effective dates~~ and ~~transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after~~ December ~~15,~~ ~~2019~~31, ~~including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. In November~~ 2019~~, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)~~. The Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

InDeposits. ~~November 2019,~~The ~~the~~Company ~~FASB~~accepts ~~issued~~deposits ~~ASU~~primarily ~~2019-10,~~from ~~Financial~~the ~~Instruments — Credit~~areas ~~Losses~~in ~~(Topic 326),~~which ~~Derivatives~~the ~~and~~Bank’s ~~Hedging~~offices ~~(Topic~~are ~~815), and Leases (Topic 842)~~located. The ~~Update~~Company ~~defers~~has ~~the~~consistently ~~effective~~focused ~~dates~~on ofbuilding ~~ASU 2016-13~~broader ~~for~~customer ~~SEC~~relationships ~~filers~~and ~~that~~targeting ~~are~~small ~~eligible~~business customers to beincrease ~~smaller~~core ~~reporting~~deposits. ~~companies,~~The ~~non-SEC~~Company ~~filers,~~also ~~and~~relies ~~all~~on ~~other~~customer ~~companies~~service to ~~fiscal years~~attract ~~beginning~~and ~~after~~retain ~~December 15, 2022, including interim periods within those fiscal years~~deposits. ~~This~~The ~~Update~~Company ~~also~~offers ~~amends~~a ~~the~~variety ~~mandatory~~of ~~effective~~deposit ~~date~~accounts ~~for~~with ~~the~~a ~~elimination~~range of ~~Step~~interest 2rates ~~from~~and ~~the~~terms. ~~goodwill~~Deposit ~~impairment~~accounts ~~test~~consist ~~under~~of ~~ASU~~savings ~~No. 2017-04~~accounts, ~~Intangibles — Goodwill~~certificates ~~and~~of ~~Other (Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill)~~deposit, tomoney ~~align~~market ~~with those used for credit losses. Furthermore~~accounts, ~~the~~commercial ~~ASU~~and ~~provides~~consumer achecking ~~one-year~~accounts ~~deferral~~and ofindividual ~~the~~retirement ~~effective~~accounts. ~~dates~~Interest ofrates, ~~the~~maturity ~~ASUs~~terms, onservice ~~derivatives~~fees and ~~hedging~~withdrawal ~~and~~penalties ~~leases for companies that~~ are ~~not~~established ~~public~~on ~~business entities. The Company qualifies as~~ a ~~smaller~~periodic ~~reporting~~basis. ~~company~~Deposit rates and ~~does~~terms ~~not~~are ~~expect~~based toprimarily ~~early~~on ~~adopt~~current ~~these~~operating ~~ASUs~~strategies ~~with~~and ~~the~~market ~~exception~~interest ~~of the ASU on leases which was adopted January 1~~rates, ~~2019~~liquidity asrequirements ~~noted~~and indeposit ~~the~~growth ~~Accounting Standards Adopted in 2019 section above~~goals.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy 35

63Table of Contents

~~TABLE~~Deposits OFincreased ~~CONTENTS~~ $74.7 million, or 10.2%, to $809.2 million at December 31, 2020 from $734.5 million at December 31, 2019. The increase resulted from a $113.7 million, or 23.2%, increase in demand and savings accounts partially offset by a $39.0 million, or 15.9%, decrease in time deposits during the year ended December 31, 2020. The increase in demand and savings accounts resulted from increases in both business and consumer products. The increases were primarily the result of inflows from several sources including PPP loan proceeds, government stimulus and maturing time deposits as well as reductions in business and consumer spending during the period. Non-interest-bearing checking accounts, savings accounts, interest-bearing checking accounts and money market accounts increased $49.2 million or 38.7%, $29.1 million or 20.2%, $18.4 million or 16.6%, and $17.0 million or 16.0%, respectively.

~~STANDARD~~The ~~AVB~~following ~~FINANCIAL~~table ~~CORP~~summarizes the average balance and weighted average rates of total deposits, by account type, at the dates indicated (dollars in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018


Year Ended		Year Ended
December 31, 2020		December 31, 2019
Average	Yield /	Average	Yield/

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