CB Financial Services, Inc. (“CB” or the “Company”) (NASDAQGM: CBFV), the holding company of Community Bank (the “Bank”), today announced its fourth quarter and 2023 financial results.

2023 Fourth Quarter Financial Highlights

(Comparisons to three months ended December 31, 2022 unless otherwise noted)

• Net income was $13.0 million, compared to $4.2 million. Current period results were driven by a $24.6 million pre-tax gain on the sale of the Bank’s subsidiary insurance company, Exchange Underwriters (EU), partially offset by a $9.8 million pre-tax loss on the sale of securities resulting primarily from the execution of a balance sheet repositioning strategy. Results were also impacted by net interest margin (NIM) compression coupled with increases in noninterest expense and income tax expense, partially offset by a decrease in the provision for credit losses.
  • Adjusted net income (Non-GAAP) was $3.1 million compared to $4.1 million.
  • Income before income tax expense was $18.3 million compared to $5.2 million.
  • Adjusted pre-provision net revenue (PPNR) (Non-GAAP) was $2.1 million compared to $5.1 million.
• Earnings per diluted common share (EPS) increased to $2.52 from $0.81.
  • Adjusted earning per common share - diluted (Non-GAAP) was $0.60, compared to $0.80.
• Return on average assets (annualized) was 3.62%, compared to 1.16%.
  • Adjusted return on average assets (annualized) (Non-GAAP) was 0.85%, compared to 1.15%.
• Return on average equity (annualized) was 44.99%, compared to 15.26%.
  • Adjusted return on average equity (annualized) (Non-GAAP) was 10.62%, compared to 15.01%.
• NIM declined to 3.19% from 3.46%.
• Net interest and dividend income was $11.1 million, compared to $11.9 million.
• Noninterest income increased to $16.5 million, compared to $2.4 million including the aforementioned gain on the sale of the subsidiary and loss on the sale of securities.
• Noninterest expense increased to $10.8 million, compared to $9.0 million, primarily due to increases in compensation and benefits and equipment costs.

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

• Total assets increased to $1.46 billion from $1.41 billion.
• Total loans increased $60.5 million, or 5.8%, to $1.11 billion compared to $1.05 billion, and included increases of $41.2 million, or 58.9%, in commercial and industrial loans, $30.3 million, or 6.9%, in commercial real estate loans, $17.1 million, or 5.2%, in residential mortgage loans, and $8.9 million, or 43.8%, in other loans, partially offset by a decrease of $35.3 million, or 24.0%, in consumer loans, which is primarily comprised of indirect automobile loans. Excluding the $34.9 million decrease in indirect automobile loans resulting from the discontinuation of that product as of June 30, 2023, total loans increased $95.4 million, or 9.1%.
• Nonperforming loans to total loans was 0.20%, a decrease of 35 basis points (“bps”), compared to 0.55%.
• Total deposits were $1.267 billion, a decrease of $1.3 million, compared to $1.269 billion.
• Book value per share was $27.31, compared to $22.43 as of September 30, 2023 and $21.60 as of December 31, 2022.
• Tangible book value per share (Non-GAAP) was $25.23, compared to $20.10 as of September 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 $22.6 million, a $9.5 million increase in accumulated other comprehensive income 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 $5.1 million.

Management Commentary

President and CEO John H. Montgomery commented, "Three years ago, we embarked on a comprehensive strategy aimed at optimizing operations, investing in talent, and fortifying our dedication to all stakeholders by striving for excellence in client experience. Despite facing a challenging and uncertain economic landscape, our efforts in 2023, coupled with the work of the preceding two years, underscore our commitment to these objectives.

While our fourth-quarter results reflected the ongoing trend of net interest margin pressure due to heightened funding costs driven by prevailing market interest rates, we sustained consistent loan growth. This growth was particularly notable in higher-yielding commercial loans. In a year marked by significant deposit movements, our core deposits remained relatively stable, albeit shifting from non-interest and low interest bearing accounts to higher cost time deposits. Notably, our asset quality remains strong, with nonperforming loans well below prior year levels.

Despite the challenges posed by the interest rate environment, our prior investments in talent and our ongoing efforts to streamline operations are yielding positive outcomes across our franchise.

During the quarter, we successfully completed the sale of our full-service independent insurance agency subsidiary, Exchange Underwriters, to World Insurance Associates. This transaction not only realized a substantial valuation premium but also proved immediately accretive to capital, tangible book value and liquidity. The additional capital infusion provides us with the flexibility to assess and pursue various strategic initiatives that reinforce our core banking business, with a specific focus on enhancing long-term shareholder value.

Furthermore, we made a proactive decision to reposition our securities portfolio. On an annualized basis, the acquired securities exhibit a positive spread differential of approximately 360 basis points over the securities that were divested. This strategic move is anticipated to add approximately 17 basis points to net interest margin and contribute approximately $1.8 million of after-tax earnings in 2024. Aligned with the sale of our insurance agency subsidiary, we view this as a judicious deployment of capital designed to augment long-term shareholder value and bolster earnings.”

In conclusion, Mr. Montgomery affirmed, "As we usher in 2024, our commitment to prudently manage our capital and liquidity positions remains unwavering. We will persist in investing in our franchise, staying true to our long-term plan and prioritizing the delivery of an exceptional client experience that accrues benefits to all our stakeholders."

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 February 29, 2024, to stockholders of record as of the close of business on February 15, 2024.

2023 Fourth Quarter Financial Review

Net Interest and Dividend Income

Net interest and dividend income decreased $730,000, or 6.2%, to $11.1 million for the three months ended December 31, 2023 compared to $11.9 million for the three months ended December 31, 2022.

• Net interest margin (GAAP) decreased to 3.19% for the three months ended December 31, 2023 compared to 3.46% for the three months ended December 31, 2022. Fully tax equivalent (FTE) net interest margin (Non-GAAP) decreased 26 bps to 3.21% for the three months ended December 31, 2023 compared to 3.47% for the three months ended December 31, 2022.
• Interest and dividend income increased $3.1 million, or 22.0%, to $16.9 million for the three months ended December 31, 2023 compared to $13.9 million for the three months ended December 31, 2022.
  • Interest income on loans increased $3.0 million, or 25.1%, to $14.8 million for the three months ended December 31, 2023 compared to $11.8 million for the three months ended December 31, 2022. The average yield on loans increased 82 bps to 5.36% compared to 4.54% resulting in a $2.2 million increase in interest income on loans. The average balance of loans increased $63.6 million to $1.10 billion from $1.03 billion, generating $750,000 of additional interest income on loans.
  • Interest income on taxable investment securities increased $190,000, or 19.5%, to $1.2 million for the three months ended December 31, 2023 compared to $974,000 for the three months ended December 31, 2022 driven by a 45 bp increase in average yield, partially offset by a $10.2 million decrease in average balances.
  • Interest income on interest-earning deposits at other banks decreased $131,000, to $808,000 for the three months ended December 31, 2023 compared to $939,000 for the three months ended December 31, 2022 driven by a $29.9 million decrease in average balances, partially offset by a 91 bp increase in the average yield. The increase in the average yield was the result of the Federal Reserve Board’s interest rate increases.
• Interest expense increased $3.8 million, or 190.0%, to $5.8 million for the three months ended December 31, 2023 compared to $2.0 million for the three months ended December 31, 2022.
  • Interest expense on deposits increased $3.5 million, or 194.6%, to $5.3 million for the three months ended December 31, 2023 compared to $1.8 million for the three months ended December 31, 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 which resulted in a 139 bp, or 171.7%, increase in the average cost of interest-bearing deposits compared to the three months ended December 31, 2022. This accounted for a $3.4 million increase in interest expense. Additionally, interest-bearing deposit balances increased $73.3 million, or 8.3%, to $961.0 million as of December 31, 2023 compared to $887.7 million as of December 31, 2022, accounting for a $170,000 increase in interest expense.
  • Interest expense on borrowed funds increased $255,000, or 143.3%, to $433,000 for the three months ended December 31, 2023 compared to $178,000 for the three months ended December 31, 2022. The average balance of borrowed funds increased $20.6 million due to $20.0 million of FHLB long-term advances added during the second quarter of 2023. The increase in the average balance accounted for a $185,000 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 December 31, 2023 was a recovery of $1.4 million and was primarily due to improvements in qualitative factors coupled with a decrease in historical loss rates. This compared to no provision for credit losses recorded for the three months ended December 31, 2022.

Noninterest Income

Noninterest income increased $14.2 million, or 599.9%, to $16.5 million for the three months ended December 31, 2023, compared to $2.4 million for the three months ended December 31, 2022. This increase related to a $24.6 million pre-tax gain on the sale of EU, partially offset by a $9.8 million pre-tax loss on the sale of securities primarily resulting from the execution of a balance sheet repositioning strategy. Noninterest income excluding the gain on the sale of the subsidiary and gains and losses on securities for both periods decreased $507,000 to $1.8 million for the three months ended December 31, 2023 compared to $2.3 million for the three months ended December 31, 2022. This decrease resulted primarily from a $430,000 decrease in insurance commissions as only two months of income were recognized for the three months ended December 31, 2023 due to the sale of EU, compared to a full quarter of income recognized for the three months ended December 31, 2022.

Noninterest Expense

Noninterest expense increased $1.8 million, or 19.6%, to $10.8 million for the three months ended December 31, 2023 compared to $9.0 million for the three months ended December 31, 2022. The current quarter increase included one-time non-recurring expenses associated with sale of the insurance subsidiary of $691,000 related to salaries and benefits, $109,000 related to other noninterest expenses and $17,000 related to legal and professional fees. Salaries and benefits increased $1.6 million, or 34.6%, to $6.2 million primarily due to previously mentioned one-time non recurring expense, merit increases and revenue producing staff additions. Equipment expense increased $120,000 or 67.4%, to $298,000, due to costs associated with the implementation and operation of new interactive teller machines.

Statement of Financial Condition Review

Assets

Total assets increased $47.2 million, or 3.4%, to $1.46 billion at December 31, 2023, compared to $1.41 billion at December 31, 2022.

• Cash and due from banks decreased $33.7 million, or 32.5%, to $70.0 million at December 31, 2023, compared to $103.7 million at December 31, 2022, due to significant loan growth.
• Securities increased $17.0 million, or 8.9%, to $207.1 million at December 31, 2023, compared to $190.1 million at December 31, 2022. The securities balance was primarily impacted by the purchase of $29.9 million of collateralized loan obligation securities, partially offset by $15.8 million of repayments on mortgage-backed and collateralized mortgage obligation securities and a $110,000 decrease in the market value in the equity securities portfolio, which is primarily comprised of bank stocks. During the fourth quarter, the Bank implemented a balance sheet repositioning strategy of its portfolio of available-for-sale securities. The Bank sold $69.3 million in market value of its lower-yielding U.S government agency, mortgage-backed and municipal securities with an average yield of 1.89% and purchased $69.3 million of higher-yielding mortgage-backed and collateralized mortgage obligation securities with an average yield of 5.49%.

Loans and Credit Quality

• Total loans increased $60.5 million, or 5.8%, to $1.11 billion at December 31, 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, residential mortgage loans and other loans of $41.2 million, $30.3 million, $17.1 million, and $8.9 million, respectively, partially offset by a decrease in consumer loans of $35.3 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. Excluding the $34.9 million decrease in indirect automobile loans, total loans increased $95.4 million, or 9.1%.
• The allowance for credit losses (ACL) was $9.7 million at December 31, 2023 and $12.8 million at December 31, 2022. As a result, the ACL to total loans was 0.87% at December 31, 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. During the current year, the Company recorded a recovery of credit losses of $502,000 due to improvements in qualitative factors coupled with a decrease in historical loss rates
• Net recoveries for the three months ended December 31, 2023 were $6,000. Net charge-offs for the three months ended December 31, 2022 were $35,000, or 0.01% of average loans on an annualized basis. Net recoveries for the year ended December 31, 2023 were $557,000 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 year ended December 31, 2022 were $2.5 million.
• Nonperforming loans, which includes nonaccrual loans and accruing loans past due 90 days or more, were $2.2 million at December 31, 2023 compared to $5.8 million at December 31, 2022. The decrease of $3.6 million was due to ten loans totaling $1.7 million transferred from nonaccrual to accrual status during the current period and a $1.4 million partial repayment of a nonaccrual commercial real estate loan. Nonperforming loans to total loans ratio was 0.20% at December 31, 2023 compared to 0.55% at December 31, 2022.

Other

• Intangible assets decreased $2.6 million, or 74.0%, to $958,000 at December 31, 2023 compared to $3.5 million at December 31, 2022 due to $1.8 million of amortization expense recognized during the period and a write-off of the $789,000 remaining balance of EU’s customer list as a result of the sale of the subsidiary.
• Accrued interest and other assets increased $1.4 million or 6.6%, to $22.5 million at December 31, 2023, compared to $26.7 million at December 31, 2022 due primarily to a $1.8 million adjustment related to a fixed-to-floating interest rate swap derivative.

Total liabilities increased $17.5 million, or 1.3%, to $1.32 billion at December 31, 2023 compared to $1.30 billion at December 31, 2022.

Deposits

• Total deposits decreased $1.3 million to $1.267 billion as of December 31, 2023 compared to $1.269 billion at December 31, 2022. Non interest-bearing demand deposits decreased $112.7 million, savings deposits decreased $53.3 million, and money market deposits decreased $8.1 million, while interest-bearing demand deposits increased $51.2 million and time deposits increased $121.5 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 and the addition of $29.0 million of brokered certificates of deposit. The brokered certificates of deposits all mature within three months and were utilized to fund the purchase of floating rate collateralized loan obligation securities. FDIC insured deposits totaled approximately 59.4% of total deposits while an additional 16.0% of deposits were collateralized with investment securities.

Borrowed Funds

• Other borrowings increased $20.0 million, or 136.6%, to $34.7 million at December 31, 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 December 31, 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 $6.8 million, or 89.7%, to $14.4 million at December 31, 2023, compared to $7.6 million at December 31, 2022 primarily due to a $3.4 million increase in accrued taxes payable, a $1.8 million increase related to a fixed-to-floating interest rate swap derivative and a $1.5 million increase in accrued interest payable on deposit accounts.

Stockholders’ Equity

Stockholders’ equity increased $29.7 million, or 27.0%, to $139.8 million at December 31, 2023, compared to $110.2 million at December 31, 2022. Key factors positively impacting stockholders’ equity included $22.6 million of net income for the current period, a $9.5 million increase in accumulated other comprehensive income 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 $5.1 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 $27.31 at December 31, 2023 compared to $21.60 at December 31, 2022, an increase of $5.71.

Tangible book value per common share (Non-GAAP) was $25.23 at December 31, 2023, compared to $19.00 at December 31, 2022, an increase of $6.23.

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.

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.