CB Financial Services, Inc. Announces First Quarter 2022 Financial Results and Declares Quarterly Cash Dividend

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 first quarter 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 First Quarter Financial Highlights

(Comparisons to three months ended March 31, 2021 unless otherwise noted)

• Net income was $3.0 million, compared to $2.8 million, largely due to the completion of the Company’s optimization program in 2021, which resulted in a reduction of noninterest expense.
  • Adjusted net income (non-GAAP) was $3.1 million, compared to $2.5 million.
• Earnings per diluted common share (EPS) increased to $0.58 from $0.52.
  • Adjusted earnings per common share - diluted (non-GAAP) was $0.59, compared to $0.46.
• Return on average assets (annualized) of 0.87%, compared to 0.81%.
  • Adjusted return on average assets (annualized) (non-GAAP) of 0.87%, compared to 0.71%.
• Return on average equity (annualized) of 9.50%, compared to 8.54%.
  • Adjusted return on average equity (annualized) (non-GAAP) of 9.54%, compared to 7.48%.
• Net interest margin (NIM) improved quarter over quarter to 3.08% from 2.95% for the three months ended December 31, 2021. NIM was 3.04% for the prior year period.
• Net interest and dividend income was $9.9 million, compared to $10.0 million.
• Noninterest income decreased to $2.6 million, compared to $3.2 million. The most significant changes in noninterest income were a $454,000 reduction in securities gains offset by an increase of $203,000 in insurance commissions. The increase in insurance commissions was primarily driven by contingency income which resulted from the higher than lock-in amounts received, partially offset by a decrease in commercial and personal insurance commissions.

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

• Total loans, including Payroll Protection Program (“PPP”) loans, were $1.02 billion, a decrease of $154,000.
  • Total loans held for investment, excluding PPP loans, increased $16.1 million, or 6.5% annualized, to $1.01 billion compared to $996.3 million at December 31, 2021 and included 69.7% and 3.6% annualized growth in consumer and commercial real estate loans, respectively.
• Nonperforming loans to total loans was 0.72%, a increase of 1 bps, compared to 0.71%.
• Total deposits were $1.25 billion, an increase of $23.7 million, compared to $1.23 billion.
• Total assets increased to $1.44 billion, compared to $1.43 billion.
• Book value per share was $23.69, compared to $24.62 at March 31, 2021 and $25.31 at December 31, 2021.
  • Tangible book value per share (Non-GAAP) decreased to $20.86, compared to $21.38 at March 31, 2021 and $22.45 at December 31, 2021.

Management Commentary

President and CEO John H. Montgomery stated, “Our first quarter benefited from the combination of modest loan growth and improved efficiency levels which resulted in solid bottom-line income growth. We were pleased to see our loans, excluding PPP loans, grow 1.64% in the current quarter, or 6.5% annualized, led by commercial real estate and indirect auto. Our indirect auto loan business was fueled by the investments we have made in process efficiencies, which led directly to improved pull-through rates. We coupled that growth with an improved Efficiency Ratio, which declined 420 basis points from last year’s first quarter to 68.6% and is the result of the optimization program we largely completed last year. This improvement in our Efficiency Ratio is an important foundation supporting our goal of becoming a high performing bank.”

Mr. Montgomery continued, “We furthered our commitment to CB shareholders as we completed a $7.5 million share repurchase program in February and have announced a new $10.0 million program, in addition to our regular quarterly dividend. We remain well-capitalized with the ability to support growth along with these shareholder-friendly actions. During the quarter, the Bank invested in sales leadership to accelerate growth. We recently hired Bruce Sharp as our Chief Commercial Banking Officer and Alan Bicker as Chief Consumer Banking Officer. In addition, Benjamin Brown was recently hired as Director of Client Experience and Innovation. All three of these gentlemen possess a wealth of experience and know our markets well. I am excited to have Bruce, Alan and Ben on board as we look to accelerated growth and leverage our work in efficiency and process optimization. Our regional economic activity remains strong and is bolstered by a number of top educational and medical institutions in addition to a strong technology presence, providing an excellent counter-balance to regular economic cycles. In addition, our region is a major supplier of natural gas and we are seeing some benefit from the recent surge in commodity prices.”

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 May 31, 2022, to stockholders of record as of the close of business on May 20, 2022.

Stock Repurchase Program

On June 10, 2021, CB authorized a program to repurchase up to $7.5 million of the Company’s outstanding common stock. The program was effective as of June 14, 2021 and is authorized through June 13, 2022. On February 15, 2022, the Company completed the program, under which a total of 308,996 shares were repurchased at an average price of $24.27 per share for a total of approximately $7.5 million.

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 April 19, 2022, the repurchase program, if fully completed, would encompass 433,643 shares, or approximately 8.4% the shares currently outstanding.

2022 First Quarter Financial Review

Net Interest and Dividend Income

Net interest and dividend income decreased $84,000, or 0.8%, to $9.9 million for the three months ended March 31, 2022 compared to $10.0 million for the three months ended March 31, 2021.

• Net interest margin (FTE) (Non-GAAP) increased 5 basis points (“bps”) to 3.10% for the three months ended March 31, 2022 compared to 3.05% for the three months ended March 31, 2021. Net interest margin (GAAP) increased to 3.08% for the three months ended March 31, 2022 compared to 3.04% for the three months ended March 31, 2021. CB has controlled its deposit cost structure as deposit balances increased and benefited from non-renewal or repricing of higher-cost time deposits.
• Interest and dividend income decreased $372,000, or 3.4%, to $10.6 million for the three months ended March 31, 2022 compared to $11.0 million for the three months ended March 31, 2021.
  • Interest income on loans decreased $595,000, or 5.9%, to $9.6 million for the three months ended March 31, 2022 compared to $10.1 million for the three months ended March 31, 2021. The average balance of loans decreased $22.6 million and the average yield decreased 15 bps to 3.85% compared to the three months ended March 31, 2021. Interest and fee income on PPP loans was $445,000 for the three months ended March 31, 2022 and contributed 13 bps to loan yield, compared to $676,000 for the three months ended March 31, 2021, which contributed 5 bps to loan yield. The impact of the accretion of the credit mark on acquired loan portfolios was $56,000 for the three months ended March 31, 2022 compared to $138,000 for the three months ended March 31, 2021, or 2 bps in the current period compared to 6 bps in the prior period.
  • Interest income on taxable investment securities increased $259,000, or 40.1%, to $905,000 for the three months ended March 31, 2022 compared to $646,000 for the three months ended March 31, 2021 driven by a $93.0 million increase in average balance partially offset by a 42 bps decrease in average yield.
• Interest expense decreased $288,000, or 28.5%, to $723,000 for the three months ended March 31, 2022 compared to $1.0 million for the three months ended March 31, 2021.
  • Interest expense on deposits decreased $417,000, or 44.0%, to $530,000 for the three months ended March 31, 2022 compared to $947,000 for the three months ended March 31, 2021. While average interest-earning deposit balances decreased $38.6 million compared to the three months ended March 31, 2021, controlling the deposit cost structure as deposit balances increased combined with non-renewal or repricing of higher-cost time deposit resulted in a 18 bp, or 41.4%, decrease in average cost compared to the three months ended March 31, 2021. The average balance of time deposits and the related average cost decreased $55.1 million and 30 bps, respectively.

Provision for Loan Losses

There was no provision for loan losses for either the three months ended March 31, 2022 or the three months ended March 31, 2021. The provision for loan losses remaining constant was primarily due to consistent loan balances between the periods and no significant changes in qualitative factors.

Noninterest income

Noninterest income decreased $561,000, or 17.7%, to $2.6 million for the three months ended March 31, 2022, compared to $3.2 million for the three months ended March 31, 2021. The decrease was largely due to a $454,000 reduction in securities gains, partially offset by a $203,000 improvement in insurance commissions. The increase in insurance commissions was primarily driven by contingency income of $114,000 which resulted from the higher than lock-in amounts received and commercial insurance commissions, partially offset by a decrease in personal insurance commissions. In addition, net gain on sale of loans decreased $86,000 as there were no loans sold for the three months ended March 31, 2022.

Noninterest Expense

Noninterest expense decreased $739,000, or 7.9%, to $8.7 million for the three months ended March 31, 2022 compared to $9.4 million for the three months ended March 31, 2021, primarily due to the implementation of branch optimization initiatives begun in 2020 and completed during 2021 which established a lower expense base. Offsetting the lower base in the first quarter were investment in executive leadership tasked with driving growth initiatives. Contracted services decreased $100,000 to $587,000 for the three months ended March 31, 2022 compared to $687,000 for the three months ended March 31, 2021. This was a result of the previously mentioned branch optimization initiatives completed in the prior year.

Statement of Financial Condition Review

Assets

Total assets increased $13.2 million, or 0.9%, to $1.44 billion at March 31, 2022, compared to $1.43 billion at December 31, 2021.

• Cash and due from banks increased $3.9 million, or 3.3%, to $123.6 million at March 31, 2022, compared to $119.7 million at December 31, 2021. The change is primarily due to an increase in deposits as further described below in the Liabilities section. The increase was partially offset by purchases of securities detailed in the below Securities section.
• Securities increased $6.1 million, or 2.7%, to $231.1 million at March 31, 2022, compared to $225.0 million at December 31, 2021. Current period activity included $26.8 million of purchases, and $8.3 million of paydowns. The purchases were made to earn a higher yield on excess cash. In addition, there was a $12.4 million decrease in the market value of the debt securities portfolio, primarily due to the increase in market interest rates and a $7,000 gain in market value in the equity securities portfolio, which is primarily comprised of bank stocks.

Payroll Protection Program (“PPP”) Update

• PPP loans decreased $16.3 million to $8.2 million at March 31, 2022 compared to $24.5 million at December 31, 2021
• $274,000 of net PPP loan origination fees were unearned at March 31, 2022 compared to $678,000 at December 31, 2021. $404,000 of net PPP loan origination fees were earned for the three months ended March 31, 2022 compared to $321,000 for the three months ended December 31, 2021.

Loans and Credit Quality

• Total loans held for investment decreased $154,000, or 0.02%, to $1.02 billion at March 31, 2022 compared to $1.02 billion at December 31, 2021. Excluding the net decline of $16.3 million in PPP loans in the current period, loans increased $16.1 million. Average loans for the three months ended March 31, 2022 increased $4.4 million compared to the three months ended December 31, 2021. An increase in consumer and commercial real estate loans was the primary driver in the average balance increase, offset by quicker payoffs in residential, and commercial and industrial loans.
• The allowance for loan losses was $11.6 million at both March 31, 2022 and December 31, 2021. As a result, the allowance for loan losses to total loans was 1.14% at March 31, 2022 compared to 1.13% at December 31, 2021. The allowance for loan losses to total loans, excluding PPP loans, was 1.15% at March 31, 2022 compared to 1.16% at December 31, 2021. The lack of change in the allowance for loan losses was primarily due to consistent loan balances between the periods and no significant changes in qualitative factors.
• Net recoveries for the three months ended March 31, 2022 were $13,000, or 0.01% of average loans on an annualized basis. Net charge-offs for the three months ended March 31, 2021 were $46,000, or 0.02% 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 $7.3 million at both March 31, 2022 and December 31, 2021. Nonperforming loans to total loans ratio was 0.72% at March 31, 2022 compared to 0.71% at December 31, 2021.
• There was one loan in forbearance at March 31, 2022 totaling $128,000, compared to no loans in forbearance at December 31, 2021.

Other

• Intangible Assets decreased $445,000, or 7.6%, to $4.9 million at March 31, 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 $3.7 million, or 28.8% to $16.5 million at March 31, 2022, compared to $12.9 million at December 31, 2021. This change is 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 increased $24.2 million, or 1.9%, to $1.32 billion at March 31, 2022 compared to $1.29 billion at December 31, 2021.

Deposits

• Total deposits increased $23.7 million to $1.25 billion as of March 31, 2022 compared to $1.23 billion at December 31, 2021. Noninterest bearing demand deposits, NOW accounts and savings accounts increased $14.3 million, $7.9 million and $8.1 million, respectively, partially offset by a decrease of $7.5 million in time deposits. Annualized deposit growth rate was 7.7%. Average total deposits decreased $54.6 million, primarily in time deposits, for the three months ended March 31, 2022 compared to the three months ended December 31, 2021.

Borrowed Funds

• Short-term borrowings decreased $47,000 , or 0.1%, to $39.2 million at March 31, 2022, compared to $39.3 million at December 31, 2021. At March 31, 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 $11.0 million, or 8.3%, to $122.2 million at March 31, 2022, compared to $133.1 million at December 31, 2021. The Company paid $1.2 million in dividends and repurchased $3.4 million of its common stock as part of its stock repurchase program that was completed on February 15, 2022. In addition, accumulated other comprehensive income decreased $9.7 million primarily due to the effect of rising market interest rates on the Bank’s debt securities. This was partially offset by $3.0 million of net income.

Book value per share

Book value per common share was $23.69 at March 31, 2022 compared to $25.31 at December 31, 2021, a decrease of $1.62.

Tangible book value per common share (Non-GAAP) was $20.86 at March 31, 2022, compared to $22.45 at December 31, 2021, a decrease of $1.59.

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.

(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.

Explanation of Use of Non-GAAP Financial Measures

In addition to financial measures presented in accordance with generally accepted accounting principles (“GAAP”), we use, and this Press Release contains or references, certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information in understanding our underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Non-GAAP adjusted items impacting the Company's financial performance are identified to assist investors in providing a complete understanding of factors and trends affecting the Company’s business and in analyzing the Company’s operating results on the same basis as that applied by management. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.