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 second quarter and year-to-date 2022 financial results.

(1) Refer to Explanation of Use of Non-GAAP Financial Measures and reconciliation of net income (loss) and adjusted earnings per common share - diluted in this Press Release.

2022 Second Quarter Financial Highlights

(Comparisons to three months ended June 30, 2021 unless otherwise noted)

• Net income was $118,000, compared to a net loss of $223,000. Current period results were negatively impacted by provision expense of approximately $3.8 million driven, largely, by a loan charge-off of $2.7 million while the prior year period included an intangible asset impairment and asset write down of $3.4 million, associated with the Company’s optimization program. Current period results were aided by the completion of the Company’s optimization program in 2021, which resulted in a reduction of noninterest expense of $1.9 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 (excluding noninterest expense of $3.4 million related to intangible impairment and fixed asset write-down).
  • Adjusted net income (non-GAAP) was $275,000, compared to $3.2 million.
• Earnings per diluted common share (EPS) increased to $0.02 from loss per diluted common share of $0.04.
  • Adjusted earnings per common share - diluted (non-GAAP) was $0.05, compared to $0.59.
• Return on average assets (annualized) of 0.03%, compared to loss on average assets (annualized) of 0.06%.
  • Adjusted return on average assets (annualized) (non-GAAP) of 0.08%, compared to 0.87%.
• Return on average equity (annualized) of 0.40%, compared to loss on average equity (annualized) of 0.66%.
  • Adjusted return on average equity (annualized) (non-GAAP) of 0.93%, compared to 9.57%.
• Net interest margin (NIM) improved to 3.12% from 2.84%.
• Net interest and dividend income was $10.2 million, compared to $9.9 million.
• Noninterest income decreased to $2.1 million, compared to $2.2 million. The most significant change in noninterest income was a $210,000 reduction in securities gains resulting from mark-to-market accounting, partially offset by an increase of $160,000 in insurance commissions. The increase in insurance commissions was primarily driven by contingency income which resulted from the higher than lock-in amounts received and core business including commercial and personal insurance lines.

(Amounts at June 30, 2022; comparisons to December 31, 2021, unless otherwise noted)

• Total loans, including Payroll Protection Program (“PPP”) loans, were $1.03 billion, an increase of $7.2 million from $1.02 billion.
  • Total loans held for investment, excluding PPP loans, increased $27.8 million, or 5.6% annualized, to $1.02 billion compared to $996.3 million, and included increases of $26.8 million, or 44.2% annualized, in consumer loans, and $34.0 million, or 17.6% annualized, growth in commercial real estate loans, partially offset by decreases in construction real estate and commercial and industrial loans. Compared to June 30, 2021, loans held for investment, excluding PPP loans, increased $66.2 million, or 6.9%, primarily from increases of $65.6 million in commercial real estate loans and $42.5 million in consumer loans as noted above, partially offset by decreases of $43.9 million in construction real estate loans and $8.6 million in commercial and industrial loans.
• Nonperforming loans to total loans was 0.57%, a decrease of 14 basis points (“bps”), compared to 0.71%.
• Total deposits were $1.22 billion, a decrease of $11.4 million, compared to $1.23 billion.
• Total assets decreased by $39 million to $1.39 billion, compared to $1.43 billion.
• Book value per share was $22.18, compared to $23.69 as of March 31, 2022 and $25.31 as of December 31, 2021.
  • Tangible book value per share (Non-GAAP) decreased to $19.43, compared to $20.86 as of March 31, 2022 and $22.45 as of December 31, 2021, reflecting impact to Accumulated Other Comprehensive Income from unrealized losses on securities portfolios.

Management Commentary

President and CEO John H. Montgomery stated, “Despite the looming macroeconomic uncertainty, we are optimistic about our business for a number of reasons. Our core earnings, as measured by pre-tax, pre-provision income, are accelerating and that is due primarily to the steps we took in 2021 to optimize our operations, coupled with growth investments we have made this year. Continuing the trend we saw in the first quarter, second quarter results included further loan growth, led by consumer and commercial real estate loans, and a lower noninterest expense run rate. Underpinning our growth is a stable, low volatility metropolitan service area anchored by leading higher education institutions and major healthcare companies, in addition to a strong technology presence.”

Mr. Montgomery continued, “As we reported on June 6th, we incurred a $2.7 million charge-off associated with a loan to a long-time customer that unexpectedly decided to wind down their operations. Although the charge negatively impacted our results in the quarter, a subsequent examination of our entire credit portfolio confirmed our view that this was an isolated event. We also believe our senior leadership team, and our credit management team in particular, is a key asset, as they delivered outstanding performance during the recessionary period from 2008 to 2010. During that period, we did not need to take a government TARP loan and our total credit losses during the period were less than $5.0 million. That experience allows us to face the current economic headwinds with confidence that we can not only adeptly manage our credit risk but also continue to grow our core earnings. During the second quarter we furthered our commitment to CB shareholders as we announced a new $10.0 million share repurchase program, in addition to our regular quarterly dividend. We remain well-capitalized with the ability to support growth along with these shareholder-friendly actions.”

Dividend Information

The Company’s Board of Directors has declared a $0.24 quarterly cash dividend per outstanding share of common stock, payable on or about August 31, 2022, to stockholders of record as of the close of business on August 19, 2022.

Stock Repurchase Program

On April 21, 2022, CB announced a program to repurchase up to $10.0 million of the Company’s outstanding shares of common stock. Based on the Company’s closing stock price on July 26, 2022, the repurchase program, if fully completed, would encompass 428,082 shares, or approximately 8.3% of the shares currently outstanding.

2022 Second Quarter Financial Review

Net Interest and Dividend Income

Net interest and dividend income increased $229,000, or 2.3%, to $10.2 million for the three months ended June 30, 2022 compared to $9.9 million for the three months ended June 30, 2021.

• Net interest margin (GAAP) increased to 3.12% for the three months ended June 30, 2022 compared to 2.84% for the three months ended June 30, 2021. Net interest margin (FTE) (Non-GAAP) increased 28 bps to 3.13% for the three months ended June 30, 2022 compared to 2.85% for the three months ended June 30, 2021.
• Interest and dividend income increased $138,000, or 1.3%, to $11.0 million for the three months ended June 30, 2022 compared to $10.8 million for the three months ended June 30, 2021.
  • Interest income on loans decreased $203,000, or 2.0%, to $9.7 million for the three months ended June 30, 2022 compared to $9.9 million for the three months ended June 30, 2021. The average balance of loans decreased $9.0 million to $1.01 billion from $1.02 billion and the average yield decreased 5 bps to 3.88% compared to 3.93%. Interest and fee income on PPP loans was $144,000 for the three months ended June 30, 2022 and contributed 4 bps to loan yield, compared to $636,000 for the three months ended June 30, 2021, which contributed 3 bps to loan yield. The impact of the accretion of the credit mark on acquired loan portfolios was $75,000 for the three months ended June 30, 2022 compared to $153,000 for the three months ended June 30, 2021, or 3 bps in the current period compared to 6 bps in the prior period. 
  • Interest income on taxable investment securities increased $353,000, or 55.6%, to $988,000 for the three months ended June 30, 2022 compared to $635,000 for the three months ended June 30, 2021 driven by a $103.6 million increase in average balance partially offset by a 31 bps decrease in average yield.
• Interest expense decreased $91,000, or 10.3%, to $795,000 for the three months ended June 30, 2022 compared to $886,000 for the three months ended June 30, 2021.
  • Interest expense on deposits decreased $223,000, or 27.0%, to $604,000 for the three months ended June 30, 2022 compared to $827,000 for the three months ended June 30, 2021. While average interest-earning deposit balances decreased $74.5 million, or 8%, from $900.1 million as of June 30, 2021 compared to $825.6 million as of June 30, 2022, controlling the deposit cost structure combined with non-renewal or repricing of higher-cost time deposit resulted in a 8 bps, or 21.7%, decrease in average cost compared to the three months ended June 30, 2021. In addition, the average balance of time deposits and the related average cost decreased $49.7 million and 24 bps, respectively. These decreases are partially offset by a 9 bps increase in interest-bearing demand deposit average cost as well as an increase in average other borrowings of $11.6 million or 193.5% to $17.6 million as of June 30, 2022 compared to $6.0 million as of June 30, 2021, which was driven by an increase in subordinated debt balance.

Provision for Loan Losses

There was $3.8 million provision for loan losses for the three months ended June 30, 2022 compared with a recovery of $1.2 million for the three months ended June 30, 2021. The increased provision for loan losses was primarily due to a provision for a single loan charge-off of $2.7 million (pre-tax) with respect to a commercial and industrial loan. As previously reported, the charge-off relates to a borrower which is ceasing operations and carried a $3.5 million revolving line of credit which had an outstanding balance of $2.7 million. The remaining increase to the provision was a result of adjustments made to historical loss factors and changes in qualitative factors in particular economic and industry conditions between the three months ended June 30, 2022 and three months ended June 30, 2021.

Noninterest income

Noninterest income decreased $114,000, or 5.1%, to $2.1 million for the three months ended June 30, 2022, compared to $2.2 million for the three months ended June 30, 2021. The decrease was largely due to a $210,000 reduction in securities gains due to a decline of $199,000 in the market value of equity securities, comprised mainly of bank stocks, partially offset by a $160,000 increase in insurance commissions. The increase in insurance commissions was primarily driven by contingency income which resulted from the higher than lock-in amounts received and core business including commercial and personal insurance lines. In addition, net gain on sale of loans decreased $31,000 as there were no loans sold during the three months ended June 30, 2022.

Noninterest Expense

Noninterest expense decreased $5.3 million, or 38.7%, to $8.4 million for the three months ended June 30, 2022 compared to $13.7 million for the three months ended June 30, 2021, and compared to $8.7 million for the three months ended March 31, 2022. The primary drivers were decreases of $2.3 million and $1.2 million related to the writedown of fixed assets and intangible impairment associated with branch consolidation and sale initiatives in 2021, respectively. In addition, salaries and benefits decreased $537,000 and occupancy decreased $248,000, primarily related to the reduction of footprint and related headcount resulting from the consolidation and sale of branches during 2021. Contracted services decreased $402,000 to $348,000 for the three months ended June 30, 2022 compared to $750,000 for the three months ended June 30, 2021. This was a result of branch optimization initiatives completed in the prior year.

Statement of Financial Condition Review

Assets

Total assets decreased $39.0 million, or 2.7%, to $1.39 billion at June 30, 2022, compared to $1.43 billion at December 31, 2021.

• Cash and due from banks decreased $38.6 million, or 32.2%, to $81.1 million at June 30, 2022, compared to $119.7 million at December 31, 2021. The change is primarily due to a decrease in deposits as further described below in the Liabilities section.
• Securities decreased $11.5 million, or 5.1%, to $213.5 million at June 30, 2022, compared to $225.0 million at December 31, 2021. Current period activity included $26.8 million of purchases, and $17.0 million of pay downs. The purchases were made to earn a higher yield on excess cash. In addition, there was a $21.0 million decrease in the market value of the debt securities portfolio, primarily due to the increase in market interest rates, and a $206,000 loss in market value in the equity securities portfolio, which is primarily comprised of bank stocks.

Payroll Protection Program (“PPP”) Update

• PPP loans decreased $20.7 million to $3.9 million at June 30, 2022 compared to $24.5 million at December 31, 2021.
• $144,000 of net PPP loan origination fees were unearned at June 30, 2022 compared to $678,000 at December 31, 2021. $130,000 of net PPP loan origination fees were earned in the three months ended June 30, 2022 compared to $404,000 for the three months ended March 31, 2022. 

Loans and Credit Quality

• Total loans held for investment increased $7.2 million, or 0.70%, to $1.03 billion at June 30, 2022 compared to $1.02 billion at December 31, 2021. Excluding the net decline of $20.7 million in PPP loans in the current period, loans increased $27.8 million.
• The allowance for loan losses was $12.8 million at June 30, 2022 and $11.6 million at December 31, 2021. As a result, the allowance for loan losses to total loans was 1.25% at June 30, 2022 compared to 1.13% at December 31, 2021. The allowance for loan losses to total loans, excluding PPP loans, was 1.25% at June 30, 2022 compared to 1.16% at December 31, 2021. The change in the allowance for loan losses was primarily due to adjustments to historical loss factors and changes in qualitative factors in particular economic and industry conditions since December 31, 2021.
• Net charge-offs for the three months ended June 30, 2022 were $2.5 million, or 1.01% of average loans on an annualized basis. Net recoveries for the three months ended June 30, 2021 were $19,000, or 0.01% of average loans on an annualized basis. Net charge-offs for the six months ended June 30, 2022 were $2.5 million, or 0.50% of average loans on an annualized basis. Net charge-offs for the six months ended June 30, 2021 were $27,000, or 0.01% of average loans on an annualized basis.
• Nonperforming loans, which includes nonaccrual loans, accruing loans past due 90 days or more, and accruing loans that are considered troubled debt restructurings, were $5.8 million at June 30, 2022 compared to $7.3 million at December 31, 2021. Nonperforming loans to total loans ratio was 0.57% at June 30, 2022 compared to 0.71% at December 31, 2021.

Other

• Intangible Assets decreased $891,000, or 17.0%, to $4.4 million at June 30, 2022 compared to $5.3 million at December 31, 2021 primarily due to amortization expense recognized during the period.
• Accrued interest receivable and other assets increased $5.9 million, or 45.9%; to $18.8 million at June 30, 2022, compared to $12.9 million at December 31, 2021. This change was primarily driven by deferred taxes as a result of the increase in market interest rates conditions and the decrease in the market value of the securities portfolio.

Liabilities

Total liabilities decreased $19.7 million, or 1.5%, to $1.27 billion at June 30, 2022 compared to $1.29 billion at December 31, 2021.

Deposits

• Total deposits decreased $11.4 million to $1.22 billion as of June 30, 2022 compared to $1.23 billion at December 31, 2021, an annualized decrease of 1.9%. Interest-bearing demand deposits and time deposits decreased $7.2 million and $11.5 million, respectively, partially offset by increases in noninterest bearing demand deposits and savings accounts by $3.4 million and $10.7 million, respectively. Average total deposits decreased $11.4 million, primarily in interest-bearing demand deposits and time deposits for the three months ended June 30, 2022 compared to the three months ended March 31, 2022,

Borrowed Funds

• Short-term borrowings decreased $7.1 million, or 18.1%, to $32.2 million at June 30, 2022, compared to $39.3 million at December 31, 2021. At June 30, 2022 and December 31, 2021, short-term borrowings were comprised entirely of securities sold under agreements to repurchase, which are related to business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase.

Stockholders’ Equity

Stockholders’ equity decreased $19.4 million, or 14.6%, to $113.8 million at June 30, 2022, compared to $133.1 million at December 31, 2021. Since December 31, 2021, the Company has paid $2.5 million in dividends. On February 15, 2022, the Company completed its stock repurchase program that was implemented on June 10, 2021. On April 21, 2022, a new $10 million repurchase program was authorized, with the Company repurchasing 27,439 shares at an average price of $22.06 per share during the second quarter. In total, the Company has repurchased $4.0 million since December 31, 2021. In addition, accumulated other comprehensive loss decreased $16.5 million primarily due to the effect of rising market interest rates on the Bank’s debt securities. This was partially offset by $3.2 million of net income.

Book value per share

Book value per common share was $22.18 at June 30, 2022 compared to $25.31 at December 31, 2021, a decrease of $3.13.

Tangible book value per common share (Non-GAAP) was $19.43 at June 30, 2022, compared to $22.45 at December 31, 2021, a decrease of $3.02.

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, the scope and duration of economic contraction as a result of the COVID-19 pandemic and its effects on the Company’s business and that of the Company’s customers, 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.

(1) Refer to Explanation of Use of Non-GAAP Financial Measures in this Press Release for the calculation of the measure and reconciliation to the most comparable GAAP measure.

(2) Interim period ratios are calculated on an annualized basis.

(3) Nonperforming loans consist of nonaccrual loans, accruing loans that are 90 days or more past due, and troubled debt restructured loans.

(4) Noncurrent loans consist of nonaccrual loans and accruing loans that are 90 days or more past due.

(5) Delinquent loans consist of accruing loans that are 30 days or more past due.

(6) Nonperforming assets consist of nonperforming loans and other real estate owned.

(7) Capital ratios are for Community Bank only. Certain items previously reported may have been reclassified to conform with the current reporting period’s format.

(1) Annualized based on three months ended results.

(2) Net of the allowance for loan losses and includes nonaccrual loans with a zero yield and Loans Held for Sale if applicable.

(3) Includes Deposits Held for Sale that were sold in December 2021.

(4) Refer to Explanation and Use of Non-GAAP Financial Measures in this Press Release for the calculation of the measure and reconciliation to the most comparable GAAP measure.

(5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(6) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(7) Net interest margin represents annualized net interest income divided by average total interest-earning assets.