CB Financial Services, Inc. (“CB” or the “Company”) (NASDAQGM: CBFV), the holding company of Community Bank (the “Bank”) and Exchange Underwriters, Inc. (“EU”), a wholly-owned insurance subsidiary of the Bank, today announced its third quarter and year-to-date 2023 financial results.

2023 Third Quarter Financial Highlights

(Comparisons to three months ended September 30, 2022 unless otherwise noted)

• Net income was $2.7 million, compared to $3.9 million. Current period results were negatively impacted by net interest margin (NIM) compression coupled with increases in the provision for credit losses and noninterest expense and a decrease in noninterest income, partially offset by a decrease in income tax expense.
  • Income before income tax expense was $3.2 million compared to $4.9 million.
  • Pre-provision net revenue (PPNR) (non-GAAP) was $3.5 million compared to $4.9 million.
• Earnings per diluted common share (EPS) decreased to $0.52 from $0.77.
• Return on average assets (annualized) was 0.75%, compared to 1.12%.
• Return on average equity (annualized) was 9.03%, compared to 13.60%.
• NIM declined to 3.13% from 3.29%.
• Net interest and dividend income was $10.7 million, compared to $11.0 million.
• Noninterest income decreased to $2.4 million, compared to $2.7 million. Prior period noninterest income included a $439,000 gain recognized as a result of the sale of assets of two closed branch locations.
• Noninterest expense increased to $9.5 million, compared to $8.8 million, primarily due to increases in compensation and benefits, equipment and data processing costs.

(Amounts at September 30, 2023; comparisons to December 31, 2022, unless otherwise noted)

• Total assets decreased to $1.40 billion from $1.41 billion.
• Total loans increased $52.6 million, or 5.0%, to $1.10 billion compared to $1.05 billion, and included increases of $30.8 million, or 44.0%, in commercial and industrial loans, $30.1 million, or 6.9%, in commercial real estate loans, and $15.8 million, or 4.8%, in residential mortgage loans, partially offset by a decrease of $24.4 million, or 16.6%, in consumer loans, which is primarily comprised of indirect automobile loans.
• Nonperforming loans to total loans was 0.30%, a decrease of 25 basis points (“bps”), compared to 0.55%.
• Total deposits were $1.24 billion, a decrease of $32.2 million, compared to $1.27 billion.
• Book value per share was $22.43, compared to $22.81 as of June 30, 2023 and $21.60 as of December 31, 2022.
• Tangible book value per share (Non-GAAP) was $20.10, compared to $20.39 as of June 30, 2023 and $19.00 as of December 31, 2022. The year-to-date change was due to an increase in stockholders’ equity primarily related to current period net income of $9.6 million and a $2.1 million positive adjustment due to the Company’s January 1, 2023 adoption of CECL, partially offset by current period dividends paid to stockholders of $3.8 million.

Management Commentary

President and CEO John H. Montgomery stated, “Our third quarter results, while impacted by pressures on funding costs, continue to support our model of investing in our franchise and focusing on delivering an exceptional client experience.

As we have noted for several quarters, the net interest margin compression continues as our customers respond to the overall increase in market interest rates, while being partially offset by the gradual and increasing shift in our asset base from consumer loans into higher yielding commercial and industrial loans and commercial real estate loans. We continued to make investments in our team, resulting in substantial loan growth and onboarding of new relationships. We firmly believe that the challenges of the economic environment provide an opportunity for quality relationship growth, increasing our long term franchise value and benefiting all of our stakeholders. In addition to our loan growth, our asset quality remains strong with nonperforming assets to total assets decreasing from the previous quarter.

During the quarter, significant progress was made on a number of strategic initiatives, including investing in technology and refreshing our branch network, creating the physical environment for technology and our team members to work cohesively in serving our customers. Additionally, we also declared and paid a $0.25 cash dividend during the quarter, continuing our commitment to our shareholders.”

Mr. Montgomery concluded, “As I have noted previously, we remain focused on maintaining solid capital and liquidity positions as we continue to navigate the challenging economic environment and position ourselves for the future.”

Dividend Information

The Company’s Board of Directors declared a $0.25 quarterly cash dividend per outstanding share of common stock, payable on or about November 30, 2023, to stockholders of record as of the close of business on November 15, 2023.

2023 Third Quarter Financial Review

Net Interest and Dividend Income

Net interest and dividend income decreased $298,000, or 2.7%, to $10.7 million for the three months ended September 30, 2023 compared to $11.0 million for the three months ended September 30, 2022.

• Net interest margin (GAAP) decreased to 3.13% for the three months ended September 30, 2023 compared to 3.29% for the three months ended September 30, 2022. Fully tax equivalent (FTE) net interest margin (Non-GAAP) decreased 16 bps to 3.14% for the three months ended September 30, 2023 compared to 3.30% for the three months ended September 30, 2022.
• Interest and dividend income increased $3.6 million, or 29.2%, to $15.9 million for the three months ended September 30, 2023 compared to $12.3 million for the three months ended September 30, 2022.
  • Interest income on loans increased $3.2 million, or 29.9%, to $14.0 million for the three months ended September 30, 2023 compared to $10.8 million for the three months ended September 30, 2022. The average balance of loans increased $64.3 million to $1.09 billion from $1.02 billion, generating $729,000 of additional interest income on loans. The average yield increased 93 bps to 5.13% compared to 4.20% resulting in a $2.5 million increase in interest income on loans.
  • Interest income on interest-earning deposits at other banks increased $372,000, to $750,000 for the three months ended September 30, 2023 compared to $378,000 for the three months ended September 30, 2022 as the average yield increased 347 bps, partially offset by a $15.2 million decrease in average balances. The increase in the average yield was the result of the Federal Reserve Board’s interest rate increases.
• Interest expense increased $3.9 million, or 305.4%, to $5.2 million for the three months ended September 30, 2023 compared to $1.3 million for the three months ended September 30, 2022.
  • Interest expense on deposits increased $3.7 million, or 340.2%, to $4.8 million for the three months ended September 30, 2023 compared to $1.1 million for the three months ended September 30, 2022. Rising market interest rates led to the repricing of interest-bearing demand and money market deposits and a shift in deposits from noninterest-bearing to interest-bearing demand and time deposits resulted in a 150 bps, or 295.2%, increase in the average cost of interest-bearing deposits compared to the three months ended September 30, 2022. This accounted for a $3.5 million increase in interest expense. Additionally, interest-bearing deposit balances increased $95.4 million, or 11.3%, to $937.8 million as of September 30, 2023 compared to $842.4 million as of September 30, 2022, accounting for a $138,000 increase in interest expense.

Provision for Credit Losses

Effective January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The provision for credit losses recorded for the three months ended September 30, 2023 was $406,000 and was required primarily due to changes in qualitative factors coupled with a modeled slowdown in loan prepayment speeds. This compared to no provision for credit losses recorded for the three months ended September 30, 2022.

Noninterest Income

Noninterest income decreased $327,000, or 11.9%, to $2.4 million for the three months ended September 30, 2023, compared to $2.7 million for the three months ended September 30, 2022. This decrease was primarily related to a $439,000 decrease in net gain on disposal of fixed assets as the prior period included a $439,000 gain resulting from the sale of assets of two closed branch locations.

Noninterest Expense

Noninterest expense increased $660,000, or 7.5%, to $9.5 million for the three months ended September 30, 2023 compared to $8.8 million for the three months ended September 30, 2022. Salaries and benefits increased $630,000, or 13.3%, to $5.4 million primarily due to merit increases and revenue producing staff additions. Data processing expense increased $174,000, or 32.2%, to $714,000, due to increased ongoing costs related to the fourth quarter 2022 core conversion and equipment expense increased $95,000 or 55.9%, to $265,000, due to costs associated with the implementation and operation of new interactive teller machines.

Statement of Financial Condition Review

Assets

Total assets decreased $9.4 million, or 0.7%, to $1.40 billion at September 30, 2023, compared to $1.41 billion at December 31, 2022.

• Cash and due from banks decreased $51.1 million, or 49.3%, to $52.6 million at September 30, 2023, compared to $103.7 million at December 31, 2022, due to significant loan growth.
• Securities decreased $17.2 million, or 9.0%, to $172.9 million at September 30, 2023, compared to $190.1 million at December 31, 2022. The securities balance was primarily impacted by $12.4 million of repayments on mortgage-backed and collateralized mortgage obligation securities and a $369,000 decrease in the market value in the equity securities portfolio, which is primarily comprised of bank stocks.

Loans and Credit Quality

• Total loans increased $52.6 million, or 5.0%, to $1.10 billion at September 30, 2023 compared to $1.05 billion at December 31, 2022. Loan growth was driven by increases in commercial and industrial loans, commercial real estate loans and residential mortgage loans of $30.8 million, $30.1 million, and $15.8 million, respectively, partially offset by a decrease in consumer loans of $24.4 million. The decrease in consumer loans resulted from a reduction in indirect automobile loan production due to rising market interest rates and the discontinuation of this product offering as of June 30, 2023. This portfolio is expected to continue to decline as resources are allocated and production efforts are focused on more profitable commercial products.
• The allowance for credit losses (ACL) was $10.8 million at September 30, 2023 and $12.8 million at December 31, 2022. As a result, the ACL to total loans was 0.98% at September 30, 2023 compared to 1.22% at December 31, 2022. The change in the ACL was primarily due to the Company's aforementioned adoption of CECL. At adoption, the Company decreased its ACL by $3.4 million. Contributing to the change in ACL was a prior year charge-off of $2.7 million and qualitative factors that significantly impacted the incurred loss model driven by historical activity compared to the adopted CECL methodology that is centered around CECL activity using a forecast approach.
• Net charge-offs for the three months ended September 30, 2023 were $109,000, or 0.04% of average loans on an annualized basis. Net recoveries for the three months ended September 30, 2022 were $21,000, or 0.01% of average loans on an annualized basis. Net recoveries for the nine months ended September 30, 2023 were $551,000 primarily due to recoveries totaling $750,000 related to the prior year $2.7 million charged-off commercial and industrial loan. Net charge-offs for the nine months ended September 30, 2022 were $2.5 million.
• Nonperforming loans, which includes nonaccrual loans and accruing loans past due 90 days or more, were $3.3 million at September 30, 2023 compared to $5.8 million at December 31, 2022. The decrease of $2.5 million was due to ten loans totaling $1.7 million transferred from nonaccrual to accrual status during the current period and the repayment of a $1.6 million commercial real estate loan that was previously on nonaccrual status. Partially offsetting these favorable movements, a $757,000 commercial real estate loan moved to nonaccrual status during the period. Nonperforming loans to total loans ratio was 0.30% at September 30, 2023 compared to 0.55% at December 31, 2022.

Other

• Intangible assets decreased $1.3 million, or 37.0%, to $2.2 million at September 30, 2023 compared to $3.5 million at December 31, 2022 due to amortization expense recognized during the period.
• Accrued interest and other assets increased $5.5 million or 26.0%, to $26.7 million at September 30, 2023, compared to $21.1 million at December 31, 2022 due to the sale of a $2.0 million syndicated loan which was sold but not yet settled at September 30, 2023, and increases in prepaid expenses and accrued interest receivable of $1.2 million and $600,000.

Total liabilities decreased $14.1 million, or 1.1%, to $1.28 billion at September 30, 2023 compared to $1.30 billion at December 31, 2022.

Deposits

• Total deposits decreased $32.2 million to $1.24 billion as of September 30, 2023 compared to $1.27 billion at December 31, 2022. Interest-bearing demand deposits increased $45.6 million and time deposits increased $68.3 million, while non interest-bearing demand deposits decreased $85.3 million, savings deposits decreased $40.9 million, and money market deposits decreased $19.9 million. The increase in interest-bearing demand deposits was primarily the result of higher interest rates attracting more customers and additional deposits from existing customers while higher time deposits resulted from the offering of a higher-rate certificate of deposit product. FDIC insured deposits totaled approximately 60.5% of total deposits while an additional 16.9% of deposits were collateralized with investment securities.

Borrowed Funds

• Long-term borrowings increased $20.0 million, or 136.6%, to $34.7 million at September 30, 2023, compared to $14.6 million at December 31, 2022. During the second quarter, the Bank entered into $20.0 million of FHLB advances for a term of 24 months at 4.92%, the proceeds of which were utilized to match fund originations within the Bank’s commercial and industrial loan portfolio.
• Short-term borrowings decreased $8.1 million, or 100.0%, as there were no short-term borrowings at September 30, 2023, compared to $8.1 million at December 31, 2022. At December 31, 2022, short-term borrowings were comprised entirely of securities sold under agreements to repurchase. These accounts were transitioned into other deposit products and account for a portion of the interest-bearing demand deposit increase.

Accrued Interest Payable and Other Liabilities

• Accrued interest payable and other liabilities increased $6.1 million, or 80.5%, to $13.7 million at September 30, 2023, compared to $7.6 million at December 31, 2022 primarily due to the purchase of $3.9 million of syndicated loans which were unfunded at the end of the period and a $1.1 million increase in accrued interest payable on certificate accounts.

Stockholders’ Equity

Stockholders’ equity increased $4.7 million, or 4.3%, to $114.8 million at September 30, 2023, compared to $110.2 million at December 31, 2022. Key factors positively impacting stockholders’ equity included $9.6 million of net income for the current period and a $2.1 million positive adjustment, net of tax, due to the Company’s January 1, 2023 adoption of CECL as described above. These factors were partially offset by the payment of $3.8 million in dividends since December 31, 2022 and activity under share repurchase programs. On April 21, 2022, a $10.0 million repurchase program was authorized, with the Company repurchasing 74,656 shares at an average price of $22.38 per share since the inception of the program. In total, the Company repurchased $274,000 of common stock since December 31, 2022. The program expired on May 1, 2023.

Book value per share

Book value per common share was $22.43 at September 30, 2023 compared to $21.60 at December 31, 2022, an increase of $0.83.

Tangible book value per common share (Non-GAAP) was $20.10 at September 30, 2023, compared to $19.00 at December 31, 2022, an increase of $1.10.

Refer to “Explanation of Use of Non-GAAP Financial Measures” at the end of this Press Release.

About CB Financial Services, Inc.

CB Financial Services, Inc. is the bank holding company for Community Bank, a Pennsylvania-chartered commercial bank. Community Bank operates its branch network in southwestern Pennsylvania and West Virginia. Community Bank offers a broad array of retail and commercial lending and deposit services and provides commercial and personal insurance brokerage services through Exchange Underwriters, Inc., its wholly owned subsidiary.

For more information about CB Financial Services, Inc. and Community Bank, visit our website at www.communitybank.tv.

Statement About Forward-Looking Statements

Statements contained in this press release that are not historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995 and such forward-looking statements are subject to significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions contained in the Act. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, general and local economic conditions, changes in market interest rates, deposit flows, demand for loans, real estate values and competition, competitive products and pricing, the ability of our customers to make scheduled loan payments, loan delinquency rates and trends, our ability to manage the risks involved in our business, our ability to control costs and expenses, inflation, market and monetary fluctuations, changes in federal and state legislation and regulation applicable to our business, actions by our competitors, and other factors that may be disclosed in the Company’s periodic reports as filed with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.