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This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Forward-Looking Statements
This report contains certain "forward-looking statements" within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company's current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions. Management's ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:
•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;
•Government action in response to the COVID-19 pandemic and its effects on the
Company’s business and that of the Company’s customers;
•Our ability to realize the expected cost savings and other efficiencies related
to our branch optimization and operational efficiency initiatives;
•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 integrate the operations of businesses we acquire;
•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 disclosed in the Company’s periodic reports as filed with the
Many of these risks and uncertainties have been elevated by and may continue to be elevated by the COVID-19 pandemic. The ability to predict the impact of the ongoing COVID-19 pandemic on the Company's future operating results with any precision is difficult and depends on many factors beyond our control. 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.
General
headquartered in
conducted primarily through its wholly owned bank subsidiary,
The Bank is aPennsylvania -chartered commercial bank headquartered inCarmichaels, Pennsylvania . The Bank operates from 11 branches inGreene ,Allegheny ,Washington ,Fayette andWestmoreland Counties in southwesternPennsylvania and three offices inMarshall andOhio Counties inWest Virginia . The Bank also has a loan production office inAllegheny County , a corporate center inWashington County and an operations center inGreene County , all of which are inPennsylvania . The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Property and casualty, commercial liability, surety and other insurance products are offered throughExchange Underwriters, Inc. , the Bank's wholly owned subsidiary that is a full-service, independent insurance agency located inWashington County . 32
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[[Image Removed: cbfv-20220930_g1.jpg]] Overview The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as ofSeptember 30, 2022 , compared to the consolidated financial condition as ofDecember 31, 2021 and the consolidated results of operations for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, insurance commissions, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contracted services, legal and professional fees, advertising, deposit and general insurance and other expenses. Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in southwesternPennsylvania andOhio Valley market areas.
Explanation of Use of Non-GAAP Financial Measures
In addition to financial measures presented in accordance withU.S. GAAP, we present 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. The interest income on interest-earning assets, net interest rate spread and net interest margin are presented on a fully tax-equivalent ("FTE") basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory income tax rate of 21.0%. We believe the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. 33
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The following table reconciles net interest income, net interest spread and net
interest margin on a FTE basis for the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(Dollars in thousands)
Interest Income (GAAP) $ 12,287 $ 10,786 $ 33,861 $ 32,594
Adjustment to FTE Basis 31 41 105 131
Interest Income (FTE) (Non-GAAP) 12,318 10,827 33,966 32,725
Interest Expense (GAAP) 1,272 776
2,792 2,673
Net Interest Income (FTE) (Non-GAAP)
Net Interest Rate Spread (GAAP) 3.10 % 2.77 % 3.03 % 2.80 % Adjustment to FTE Basis 0.01 0.01 0.01 0.01 Net Interest Rate Spread (FTE) (Non-GAAP) 3.11 2.78 3.04 2.81 Net Interest Margin (GAAP) 3.29 % 2.88 % 3.17 % 2.92 % Adjustment to FTE Basis 0.01 0.01 0.01 0.01 Net Interest Margin (FTE) (Non-GAAP) 3.30 2.89
3.18 2.93
Allowance for loan losses to total loans, excluding PPP loans, is a non-GAAP
measure that serves as a useful measurement to evaluate the allowance for loan
losses without the impact of SBA guaranteed loans.
2022 December 31, 2021
(Dollars in thousands)
Allowance for Loan Losses (Numerator)$ 12,854 $ 11,582 Total Loans 1,042,942$ 1,020,796 PPP Loans (768) (24,523)
Total Loans, Excluding PPP Loans (Non-GAAP) (Denominator)
Allowance for Loan Losses to Total Loans (GAAP) 1.23 % 1.13 %
Allowance for Loan Losses to Total Loans, Excluding PPP Loans
(Non-GAAP)
1.23 % 1.16 %
Tangible book value per common share is a non-GAAP measure calculated based on
tangible common equity divided by period-end common shares outstanding. We
believe this non-GAAP measure serves as a useful tool to help evaluate the
strength and discipline of the Company's capital management strategies and as an
additional, conservative measure of the Company's total value.
2022 2021
(Dollars in thousands, except share and per share data)
Stockholders' Equity (GAAP)$ 106,706 $ 133,124 Goodwill and Other Intangible Assets, Net (13,691) (15,027)
Tangible Common Equity or Tangible Book Value (Non-GAAP)
(Numerator)
$
93,015
Common Shares Outstanding (Denominator) 5,096,672 5,260,672 Book Value per Common Share (GAAP) $
20.94
Tangible Book Value per Common Share (Non-GAAP) $
18.25
34
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Consolidated Statements of Financial Condition Analysis
Assets
Total assets increased
•Cash and due from banks increased$3.1 million , or 2.6%, to$122.8 million atSeptember 30, 2022 , compared to$119.7 million atDecember 31, 2021 . The change is primarily due to an increase in deposits as further described below in the Liabilities section. •Securities decreased$31.1 million , or 13.8%, to$193.8 million atSeptember 30, 2022 , compared to$225.0 million atDecember 31, 2021 . Current period activity included$26.8 million of purchases, and$24.9 million of pay downs. The purchases were made to earn a higher yield on excess cash. In addition, there was a$32.8 million decrease in the market value of the debt securities portfolio, primarily due to the increase in market interest rates, and a$252,000 decline in market value in the equity securities portfolio, which is primarily comprised of bank stocks.
Payroll Protection Program (“PPP”) Update
•PPP loans decreased
•$27,000 of net PPP loan origination fees were unearned atSeptember 30, 2022 compared to$678,000 atDecember 31, 2021 .$117,000 of net PPP loan origination fees were earned in the three months endedSeptember 30, 2022 compared to$130,000 for the three months endedJune 30, 2022 .
Loans, Allowance for Loan Losses and Credit Quality
•Total loans held for investment increased$22.1 million , or 2.17%, to$1.04 billion atSeptember 30, 2022 compared to$1.02 billion atDecember 31, 2021 . Excluding the net decline of$23.8 million in PPP loans in the current period, loans increased$45.9 million . •The allowance for loan losses was$12.9 million atSeptember 30, 2022 and$11.6 million atDecember 31, 2021 . As a result, the allowance for loan losses to total loans was 1.23% atSeptember 30, 2022 compared to 1.13% atDecember 31, 2021 . The allowance for loan losses to total loans, excluding PPP loans, was 1.23% atSeptember 30, 2022 compared to 1.16% atDecember 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 sinceDecember 31, 2021 . •Net recoveries for the three months endedSeptember 30, 2022 were$21,000 , or 0.01% of average loans on an annualized basis. Net recoveries for the three months endedSeptember 30, 2021 were$37,000 , or 0.01% of average loans on an annualized basis. Net charge-offs for the nine months endedSeptember 30, 2022 were$2.5 million , or 0.33% of average loans on an annualized basis. Net recoveries for the nine months endedSeptember 30, 2021 were$10,000 , and has an immaterial effect on ratios for the period. •Nonperforming loans, which includes nonaccrual loans, accruing loans past due 90 days or more, and accruing loans that are considered troubled debt restructurings, were$5.9 million atSeptember 30, 2022 compared to$7.3 million atDecember 31, 2021 . Current nonperforming loans to total loans ratio was 0.56% compared to 0.71% atDecember 31, 2021 .
Other
•Intangible Assets decreased
to amortization expense recognized during the period.
•Accrued interest receivable and other assets increased$8.8 million , or 68.4%; to$21.7 million atSeptember 30, 2022 , compared to$12.9 million atDecember 31, 2021 . This change was primarily driven by deferred taxes as a result of the increase in market interest rates conditions and the corresponding decrease in the market value of the mostly fixed rate securities portfolio. 35
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[[Image Removed: cbfv-20220930_g1.jpg]] Liabilities
Total liabilities increased
Deposits
•Total deposits increased$49.2 million to$1.28 billion as ofSeptember 30, 2022 compared to$1.23 billion atDecember 31, 2021 , an annualized increase of 5.3%. Interest-bearing and non interest-bearing demand deposits increased$26.2 million and$15.8 million , respectively, partially offset by a decrease in time deposits of$15.8 million . Average total deposits increased$15.4 million , primarily in both interest-bearing and non interest -bearing demand deposits for the three months endedSeptember 30, 2022 compared to the three months endedJune 30, 2022 . Borrowings •Short-term borrowings decreased$21.2 million , or 53.9%, to$18.1 million atSeptember 30, 2022 , compared to$39.3 million atDecember 31, 2021 . AtSeptember 30, 2022 andDecember 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. A portion of this decrease is due to accounts that were being transitioned into other deposit products and account for most of the interest-bearing demand deposit increase.
Stockholders’ Equity
Stockholders' equity decreased$26.4 million , or 19.8%, to$106.7 million atSeptember 30, 2022 , compared to$133.1 million atDecember 31, 2021 . OnFebruary 15, 2022 , the Company completed its stock repurchase program that was implemented onJune 10, 2021 . OnApril 21, 2022 , a new$10 million repurchase program was authorized, with the Company repurchasing 57,710 shares at an average price of$22.51 per share since the inception of the plan.
•Net income was
•Accumulated other comprehensive loss increased$25.7 million primarily due to the effect of market interest rate increases on the fair value of the Company's debt securities.
•In total, the Company has repurchased
•The Company declared and paid
in the current period.
•Book value per share (GAAP) was$20.94 atSeptember 30, 2022 compared to$25.31 atDecember 31, 2021 , a decrease of$4.37 . Tangible book value per share (Non-GAAP) decreased$4.20 , or 18.7%, to$18.25 compared to$22.45 atDecember 31, 2021 . Refer to Explanation of Use of Non-GAAP Financial Measures in this Report.
Consolidated Results of Operations for the Three Months Ended
and 2021
Overview. Net income was$3.9 million for the three months endedSeptember 30, 2022 , an increase of$1.9 million compared to net income of$2.0 million for the three months endedSeptember 30, 2021 . Net Interest and Dividend Income. Net interest and dividend income increased$1.0 million , or 10.0%, to$11.0 million for the three months endedSeptember 30, 2022 compared to$10.0 million for the three months endedSeptember 30, 2021 . Net interest margin (GAAP) increased to 3.29% for the three months endedSeptember 30, 2022 compared to 2.88% for the three months endedSeptember 30, 2021 . Net interest margin (FTE) (Non-GAAP) increased 41 basis points (bps) to 3.30% for the three months endedSeptember 30, 2022 compared to 2.89% for the three months endedSeptember 30, 2021 . Interest and Dividend Income •Net interest margin (GAAP) increased to 3.29% for the three months endedSeptember 30, 2022 compared to 2.88% for the three months endedSeptember 30, 2021 . Fully Tax Equivalent ("FTE") Net interest margin (Non-GAAP) increased 41 bps to 3.30% for the three months endedSeptember 30, 2022 compared to 2.89% for the three months endedSeptember 30, 2021 .
•Interest and dividend income increased
for the three months ended
three months ended
•Interest income on loans increased$1.1 million , or 11.3%, to$10.8 million for the three months endedSeptember 30, 2022 compared to$9.7 million for the three months endedSeptember 30, 2021 . The average balance of loans increased$19.9 million to$1.02 billion from$1.00 billion and the average yield increased 35 bps to 4.20% compared to 3.85%. 36
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[[Image Removed: cbfv-20220930_g1.jpg]] •Interest and fee income on PPP loans was$123,000 for the three months endedSeptember 30, 2022 and contributed 4 bps to loan yield, compared to$484,000 for the three months endedSeptember 30, 2021 , which contributed 4 bps to loan yield. •The impact of the accretion of the credit mark on acquired loan portfolios was$47,000 for the three months endedSeptember 30, 2022 compared to$94,000 for the three months endedSeptember 30, 2021 , or 2 bps in the current period compared to 4 bps in the prior period. •Interest income on taxable investment securities increased$142,000 , or 16.8%, to$985,000 for the three months endedSeptember 30, 2022 compared to$843,000 for the three months endedSeptember 30, 2021 driven by a$24.3 million increase in average balance coupled with a 6 bps increased in average yield.
Interest Expense
•Interest expense increased$496,000 , or 63.9%, to$1.3 million for the three months endedSeptember 30, 2022 compared to$776,000 for the three months endedSeptember 30, 2021 . •Interest expense on deposits increased$364,000 , or 50.9%, to$1.1 million for the three months endedSeptember 30, 2022 compared to$715,000 for the three months endedSeptember 30, 2021 . While average interest-earning deposit balances decreased$51.7 million , or 5.8%, to$842.4 million as ofSeptember 30, 2022 compared to$894.0 million as ofSeptember 30, 2021 , rising interest rates led to the repricing of higher-cost demand and money market deposits and resulted in a 19 bps, or 59.9%, increase in average cost compared to the three months endedSeptember 30, 2021 . In addition, the average balance of time deposits and the related average cost decreased$45.2 million and 11 bps, respectively. These decreases are partially offset by an increase in average other borrowings of$11.6 million or 193.7% to$17.6 million as ofSeptember 30, 2022 compared to$6.0 million as ofSeptember 30, 2021 , which was driven by an increase in subordinated debt balance. 37
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Average Balances and Yields. The following table presents information regarding
average balances of assets and liabilities, the total dollar amounts of interest
income and dividends from average interest-earning assets, the total dollar
amounts of interest expense on average interest-bearing liabilities, and the
resulting average yields and costs. Average balances are derived from daily
balances over the periods indicated. The yields set forth below include the
effect of deferred fees, discounts, and premiums that are amortized or accreted
to interest income or interest expense. FTE yield adjustments have been made for
tax exempt loan and securities interest income utilizing a marginal federal
income tax rate of 21.0% for the periods presented. As such, amounts will not
agree to income as reported in the consolidated financial statements. The yields
and costs for the periods indicated are derived by dividing annualized income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented.
Three Months Ended
2022 2021
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost (1) Balance Dividends Cost (1)
(Dollars in thousands) (Unaudited)
Assets:
Interest-Earning Assets: Loans, Net (2)$ 1,024,363 $ 10,833 4.20 %$ 1,004,474 $ 9,740 3.85 %Debt Securities Taxable 222,110 985 1.77 197,763 843 1.71 Exempt From Federal Tax 7,998 62 3.10 11,647 90 3.09 Equity Securities 2,693 21 3.12 2,655 19 2.86 Interest Bearing Deposits at Banks 67,870 378 2.23 160,935 92 0.23 Other Interest-Earning Assets 2,784 39 5.56 3,512 43 4.86 Total Interest-Earning Assets 1,327,818 12,318 3.68 1,380,986 10,827 3.11 Noninterest-Earning Assets 68,796 88,291 Total Assets$ 1,396,614 $ 1,469,277 Liabilities and Stockholders' Equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits (3)$ 278,412 393 0.56 %$ 275,411 48 0.07 % Savings (3) 251,148 20 0.03 251,801 21 0.03 Money Market (3) 189,371 269 0.56 198,167 55 0.11 Time Deposits (3) 123,438 397 1.28 168,654 591 1.39 Total Interest-Bearing Deposits (3) 842,369 1,079 0.51 894,033 715 0.32 Short-Term Borrowings Securities Sold Under Agreements to Repurchase 28,738 19 0.26 40,818 25 0.24 Other Borrowings 17,621 174 3.92 6,000 36 2.38 Total Interest-Bearing Liabilities 888,728 1,272 0.57 940,851 776 0.33 Noninterest-Bearing Demand Deposits 390,658 387,746 Other Liabilities 2,636 8,019 Total Liabilities 1,282,022 1,336,616 Stockholders' Equity 114,592 132,661 Total Liabilities and Stockholders' Equity$ 1,396,614 $ 1,469,277 Net Interest Income (FTE) (Non-GAAP) (4)$ 11,046 $ 10,051 Net Interest Rate Spread (FTE) (Non-GAAP) (4)(6) 3.11 % 2.78 % Net Interest-Earning Assets (5)$ 439,090 $ 440,135 Net Interest Margin (GAAP) (7)) 3.29 2.88 Net Interest Margin (FTE) (Non-GAAP) (4)(7) 3.30 2.89 Return on Average Assets (1) 1.12 0.54 Return on Average Equity (1) 13.60 5.93 Average Equity to Average Assets 8.20 9.03 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 149.41 146.78 PPP Loans$ 2,424 $ 123 20.13$ 40,313 $ 484 4.76 (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 inDecember 2021 . (4) Refer to Explanation and Use of Non-GAAP Financial Measures in this filing 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. 38
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Rate/Volume Analysis. The following table presents the effects of changing rates
and volumes on our net interest income for the periods indicated. FTE yield
adjustments have been made for tax exempt loan and securities income utilizing a
marginal federal income tax rate of 21.0%. The volume column shows the effects
attributable to changes in volume (changes in volume multiplied by prior rate).
The rate column shows the effects attributable to changes in rate (changes in
rate multiplied by prior volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately based on the changes due to rate and the changes due
to volume. The total column represents the sum of the prior columns.
Three Months Ended September 30, 2022
Compared to
Three Months Ended September 30, 2021
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net $ 192 $ 901 $ 1,093
Debt Securities:
Taxable 111 31 142
Exempt From Federal Tax (28) - (28)
Marketable Equity Securities - 2 2
Cash at Other Banks (89) 375 286
Other Interest-Earning Assets (10) 6 (4)
Total Interest-Earning Assets 176 1,315 1,491
Interest Expense:
Deposits (41) 405 364
Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase (8) 2 (6)
Other Borrowings 104 34 138
Total Interest-Bearing Liabilities 55 441 496
Change in Net Interest and Dividend Income $ 121
Provision for Loan Losses. There was no provision for loan losses for the three
months ended
Noninterest Income. Noninterest income increased$541,000 , or 24.6%, to$2.7 million for the three months endedSeptember 30, 2022 , compared to$2.2 million for the three months endedSeptember 30, 2021 . The increase was largely due to a gain of$439,000 on the disposal of fixed assets during the three months endedSeptember 30, 2022 due to the sale of the land and buildings of the formerPioneer andBellaire bank branches. During the quarter, the Bank also recorded a$174,000 increase in insurance commissions. The increase in insurance commissions was primarily driven by contingency income which resulted from the higher lock-in amounts received and core business including commercial and personal insurance lines. In addition, net gain on sale of loans decreased$49,000 as there were no loans sold during the three months endedSeptember 30, 2022 . Noninterest Expense. Noninterest expense decreased$946,000 , or 9.7%, to$8.8 million for the three months endedSeptember 30, 2022 compared to$9.8 million for the three months endedSeptember 30, 2021 . Salaries and benefits decreased$48,000 and contracted services decreased$1.2 million to$288,000 for the three months endedSeptember 30, 2022 compared to$1.4 million for the three months endedSeptember 30, 2021 . This was a result of branch optimization initiatives completed in the prior year. These decreases were partially offset by an increase in occupancy expenses of$153,000 .
Income Taxes. Income tax expense was
2021
39
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Results of Operations for the Nine Months Ended
Overview. Net income was$7.1 million for the nine months endedSeptember 30, 2022 , an increase of$2.5 million compared to$4.6 million for the nine months endedSeptember 30, 2021 . Net Interest and Dividend Income. Net interest and dividend income increased$1.1 million , or 3.8% to$31.1 million for the nine months endedSeptember 30, 2022 compared to$29.9 million for the nine months endedSeptember 30, 2021 . Net interest margin (Non-GAAP FTE) increased 25 bps to 3.18% for the nine months endedSeptember 30, 2022 compared to 2.93% the nine months endedSeptember 30, 2021 . Net interest margin (GAAP) increased to 3.17% for the nine months endedSeptember 30, 2022 compared to 2.92% for the nine months endedSeptember 30, 2021 . Interest and Dividend Income •Interest and dividend income increased$1.3 million , or 3.9%, to$33.9 million for the nine months endedSeptember 30, 2022 compared to$32.6 million for the nine months endedSeptember 30, 2021 . •Interest income on loans increased$298,000 or 1.0% to$30.1 million during the nine months endedSeptember 30, 2022 compared to$29.8 million for the nine months endedSeptember 30, 2021 . Average loans decreased$3.8 million , while the loan yield for the nine months endedSeptember 30, 2022 increased 6 bps to 3.98% compared to 3.92% for the nine months endedSeptember 30, 2021 . •Interest and fee income on PPP loans was$712,000 for the nine months endedSeptember 30, 2022 and contributed 7 bps to loan yield, compared to$1.8 million for the nine months endedSeptember 30, 2021 , which contributed loan yield 3 bps in the prior period. •The impact of the accretion of the credit mark on acquired loan portfolios was$178,000 for the nine months endedSeptember 30, 2022 compared to$385,000 for the nine months endedSeptember 30, 2021 , or 2 bps in the current period compared to 4 bps in the prior period. •Interest income on taxable investment securities increased$754,000 , or 35.5%, to$2.9 million for the nine months endedSeptember 30, 2022 compared to$2.1 million for the nine months endedSeptember 30, 2021 driven by a$73.4 million increased in average taxable investment securities balance and partially offset by a 17 bps decrease in average yield.
Interest Expense
•Interest expense increased$119,000 , or 4.5%, to$2.8 million for the nine months endedSeptember 30, 2022 compared to$2.7 million for the nine months endedSeptember 30, 2021 . •Interest expense on deposits decreased$275,000 , or 11.0%, to$2.2 million for the nine months endedSeptember 30, 2022 compared to$2.5 million for the nine months endedSeptember 30, 2021 . While average interest-bearing deposits decreased$55.0 million , rising interest rates led to the repricing of higher-cost demand and money market deposits resulted in a 2 bps decrease in average cost compared to the nine months endedSeptember 30, 2021 . In addition, the average balance of time deposits and the related average cost decreased$50.0 million and 22 bps, respectively. These decreases are partially offset by an 18 bps increase in interest-bearing demand deposit average cost as well as an increase in average other borrowings of$11.2 million or 175.4% to$17.6 million as ofSeptember 30, 2022 compared to$6.4 million as ofSeptember 30, 2021 , which was driven by an increase in subordinated debt balance. Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of 21% for the periods presented. As such, amounts will not 40
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agree to income as reported in the consolidated financial statements. The yields
and costs for the periods indicated are derived by dividing annualized income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented.
Nine Months Ended September 30,
2022 2021
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost (1) Balance Dividends Cost (1)
(Dollars in thousands) (Unaudited)
Assets:
Interest-Earning Assets:
Loans, Net (2) $ 1,013,871 $ 30,157 3.98 % $ 1,017,632 $ 29,872 3.92 %
Debt Securities
Taxable 222,132 2,878 1.73 148,718 2,124 1.90
Tax Exempt 9,093 218 3.20 12,284 282 3.06
Marketable Equity Securities 2,693 64 3.17 2,645 63 3.18
Interest Bearing Deposits at Other Banks 61,213 534 1.16 187,093 243 0.17
Other Interest-Earning Assets 3,165 115 4.86 3,820 141 4.93
Total Interest-Earning Assets 1,312,167 33,966 3.46 1,372,192 32,725 3.19
Noninterest-Earning Assets 91,607 87,863
Total Assets $ 1,403,774 $ 1,460,055
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits (3) $ 271,897 554 0.27 % $ 270,136 181 0.09 %
Savings (3) 247,790 58 0.03 246,340 78 0.04
Money Market (3) 190,189 371 0.26 198,408 223 0.15
Time Deposits (3) 127,732 1,231 1.29 177,690 2,007 1.51
Total Interest-Bearing Deposits (3) 837,608 2,214 0.35 892,574 2,489 0.37
ST Borrowings
Securities Sold Under Agreements to Repurchase 33,553 56 0.22 43,745 72 0.22
Other Borrowings 17,612 522 3.96 6,396 112 2.34
Total Interest-Bearing Liabilities 888,773 2,792 0.42 942,715 2,673 0.38
Noninterest-Bearing Demand Deposits 388,964 374,865
Other Liabilities 5,177 8,293
Total Liabilities 1,282,914 1,325,873
Stockholders' Equity 120,860 134,182
Total Liabilities and Stockholders' Equity $ 1,403,774 $ 1,460,055
Net Interest Income (FTE) (Non-GAAP) (4) $ 31,174 $ 30,052
Net Interest Rate Spread (FTE) (Non-GAAP)
(4)(6) 3.04 % 2.81 %
Net Interest-Earning Assets (5) $ 423,394 $ 429,477
Net Interest Margin (GAAP) (7) 3.17 2.92
Net Interest Margin (FTE) (Non-GAAP) (4)(7) 3.18 2.93
Return on Average Assets (1) 0.68 0.42
Return on Average Equity (1) 7.85 4.59
Average Equity to Average Assets 8.61 9.19
Average Interest-Earning Assets to Average
Interest-Bearing Liabilities 147.64 145.56
PPP Loans $ 7,503 $ 712 12.69 $ 51,579 $ 1,797 4.66
(1)Annualized based on nine 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 filing
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.
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Rate Volume Analysis. The following table presents the effects of changing rates
and volumes on our net interest income for the periods indicated. FTE yield
adjustments have been made for tax exempt loan and securities income utilizing a
marginal federal income tax rate of 21%. The volume column shows the effects
attributable to changes in volume (changes in volume multiplied by prior rate).
The rate column shows the effects attributable to changes in rate (changes in
rate multiplied by prior volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately based on the changes due to rate and the changes due
to volume. The total column represents the sum of the prior columns.
Nine Months Ended September 30, 2022
Compared to
Nine Months Ended September 30, 2021
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net $ (170) $ 455 $ 285
Debt Securities:
Taxable 958 (204) 754
Exempt From Federal Tax (77) 13 (64)
Marketable Equity Securities 1 - 1
Cash at Other Banks (260) 551 291
Other Interest-Earning Assets (24) (2) (26)
Total Interest-Earning Assets 428 813 1,241
Interest Expense:
Deposits (145) (130) (275)
Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase (16) - (16)
Other Borrowings 295 115 410
Total Interest-Bearing Liabilities 134 (15) 119
Change in Net Interest and Dividend Income $ 294
Provision for Loan Losses. The provision for loan losses was$3.8 million for the nine months endedSeptember 30, 2022 , compared to a$1.2 million recovery for the nine months endedSeptember 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. Noninterest Income. Noninterest income decreased$132,000 , or 1.7%, to$7.5 million for the nine months endedSeptember 30, 2022 , compared to$7.6 million for the nine months endedSeptember 30, 2021 . The decrease was primarily due to the net loss on equity securities of$252,000 for the nine months endedSeptember 30, 2022 compared to net gain of$482,000 for the nine months endedSeptember 30, 2021 , which was largely due to a decline of$503,000 in the market value of equity securities, comprised mainly of bank stocks. In addition, net gain on sales of loans decreased$166,000 as there were no loans sold during for the nine months endedSeptember 30, 2022 compared to$166,000 for the nine months endedSeptember 30, 2021 . These changes are partially offset by an increase of$537,000 , or 13.4%, in insurance commissions to$4.5 million for the nine months endedSeptember 30, 2022 , compared to$4.0 million for the nine months endedSeptember 30, 2021 due to higher lock-in amounts received and core business including commercial and personal insurance lines. During the quarter, the Bank also recorded a$431,000 gain on the disposal of fixed assets during the nine months endedSeptember 30, 2022 due to the sale of the land and buildings of the formerPioneer andBellaire bank branches. Noninterest Expense. Noninterest expense decreased$7.0 million , or 21.3%, to$25.9 million for the nine months endedSeptember 30, 2022 compared to$32.9 million for the nine months endedSeptember 30, 2021 . The primary drivers were decreases of$1.2 million and$2.3 million as previously noted 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 42
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[[Image Removed: cbfv-20220930_g1.jpg]]$914,000 and occupancy decreased$119,000 , primarily related to the reduction of footprint and related headcount resulting from the consolidation and sale of branches during 2021. Contracted services decreased$1.7 million to$1.2 million for the nine months endedSeptember 30, 2022 compared to$2.9 million for the nine months endedSeptember 30, 2021 . This was a result of branch optimization initiatives completed in the prior year. Income Taxes. Income tax expense increased$540,000 to$1.76 million for the nine months endedSeptember 30, 2022 compared to$1.22 million for the nine months endedSeptember 30, 2021 . The change between the periods is consistent with the change in pre-tax income, as pre-tax income was$8.9 million for the nine months endedSeptember 30, 2022 compared to pre-tax income of$5.8 million for the nine months endedSeptember 30, 2021 .
Off-Balance Sheet Arrangements.
Other than loan commitments and standby and performance letters of credit, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a significant current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Refer to Note 7 in the Notes to Consolidated Financial Statements of this report for a summary of commitments outstanding as ofSeptember 30, 2022 andDecember 31, 2021 .
Liquidity and Capital Management
Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company's primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are typically predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity atSeptember 30, 2022 to satisfy its short- and long-term liquidity needs. The Company's most liquid assets are cash and due from banks, which totaled$122.8 million atSeptember 30, 2022 . The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Unpledged securities, which provide an additional source of liquidity, totaled$14.2 million atSeptember 30, 2022 . In addition, atSeptember 30, 2022 , the Company had the ability to borrow up to$440.8 million from the FHLB ofPittsburgh , of which$429.1 million is available. The Company also has the ability to borrow up to$105.5 million million from the FRB through its Borrower-In-Custody line of credit agreement and the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling$50.0 million as of bothSeptember 30, 2022 andDecember 31, 2021 . AtSeptember 30, 2022 ,$76.9 million , or 63.6% of total time deposits mature within one year. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these time deposits. The Company believes, however, based on past experience that a significant portion of its time deposits will remain with it, either as time deposits or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered. We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLB, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the FHLB in the future.CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank's ability to pay dividends toCB Financial is subject to regulatory limitations. AtSeptember 30, 2022 ,CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of$16.6 million . The ability to pay future dividends or conduct stock repurchases may be limited under applicable banking regulations and regulatory policies due to expected losses for future periods and/or the inability to upstream funds from the Bank to the Company as a result of lower income or regulatory capital levels. Capital Management. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under 43
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regulatory accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. AtSeptember 30, 2022 andDecember 31, 2021 , the Bank was categorized as "well capitalized" under the regulatory framework for prompt corrective action. AtSeptember 30, 2022 , the Bank's capital ratios were not affected by loans modified in accordance with Section 4013 of the CARES Act. In addition, PPP loans received a zero-percent risk weight under the regulatory capital rules regardless of whether they were pledged as collateral to theFederal Reserve Bank's PPP lending facility, but were included in the Bank's leverage ratio requirement due to the Bank not pledging the loans as collateral to the PPP lending facility. The following table presents the Bank's regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized as of the dates indicated. September 30, 2022 December 31, 2021 Amount Ratio Amount Ratio
(Dollars in thousands)
Common Equity Tier 1 (to risk weighted assets) Actual$ 117,868 12.02 %$ 113,086 11.95 % For Capital Adequacy Purposes 44,139 4.50 42,571 4.50 To Be Well Capitalized 63,756 6.50 61,491 6.50 Tier 1 Capital (to risk weighted assets) Actual 117,868 12.02 113,086 11.95 For Capital Adequacy Purposes 58,852 6.00 56,761 6.00 To Be Well Capitalized 78,469 8.00 75,682 8.00 Total Capital (to risk weighted assets) Actual 130,136 13.27 124,668 13.18 For Capital Adequacy Purposes 78,469 8.00 75,682 8.00 To Be Well Capitalized 98,086 10.00 94,602 10.00 Tier 1 Leverage (to adjusted total assets) Actual 117,868 8.51 113,086 7.76 For Capital Adequacy Purposes 55,407 4.00 58,307 4.00 To Be Well Capitalized 69,258 5.00 72,884 5.00
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