CB Financial Services, Inc. Announces Fourth Quarter and Full Year 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 fourth quarter and 2022 financial results.

2022 Fourth Quarter Financial Highlights

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

• Net income was $4.2 million, compared to net income of $7.0 million. Current period results were driven by net interest margin expansion coupled with a reduction of noninterest expense of $974,000 for the three months ended December 31, 2022 compared to the three months ended December 31, 2021, which benefited from a gain on sale of $5.2 million resulting from the sale of branch locations.
  • Adjusted net income (Non-GAAP) was $4.1 million, compared to $2.8 million.
• Earnings per diluted common share (EPS) decreased to $0.81 from $1.31.
  • Adjusted earnings per common share - diluted (Non-GAAP) was $0.80, compared to $0.53.
• Return on average assets (annualized) of 1.16%, compared to 1.87%.
  • Adjusted return on average assets (annualized) (Non-GAAP) of 1.15%, compared to 0.76%.
• Return on average equity (annualized) of 15.26%, compared to 20.95% (annualized).
  • Adjusted return on average equity (annualized) (Non-GAAP) of 15.01%, compared to 8.55%.
• Net interest margin (NIM) improved to 3.45% from 2.95%.
• Net interest and dividend income was $11.9 million, compared to $10.2 million.
• Noninterest income decreased to $2.4 million, compared to $8.7 million. The prior year period benefited from the recognition of $5.2 million in gain on sales of branches of two branch locations as part of branch optimization initiatives while the current year period included a decrease of income from net gain on sale of loans of $977,000 primarily the result of the sale of a nonperforming commercial real estate loan in the hotel portfolio. In addition, a decrease of $219,000 in insurance commissions was primarily driven by contingency income which resulted from the timing of lock-in amounts recorded and was partially offset by an increase in core business for commercial insurance lines.

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

• Total loans, including Payroll Protection Program ("PPP") loans, were $1.05 billion, an increase of $29.1 million from $1.02 billion.
  • Total loans held for investment, excluding PPP loans, increased $53.5 million, or 5.4%, to $1.05 billion compared to $996.3 million, and included increases of $24.8 million, or 27.1%, in consumer loans, and $44.7 million, or 15.2%, growth in commercial real estate loans, partially offset by decreases of $40.1 million in construction real estate and $19.0 million in commercial and industrial loans. Total loans held for investment, excluding PPP loans, as of December 31, 2022, increased $7.6 million, or 0.7%, as compared to September 30, 2022. This included increases of $8.5 million, or 13.8%, in commercial and industrial loans, $4.3 million, or 1.0%, in commercial real estate loans, and $2.5 million, or 0.8%, in residential loans, partially offset by decreases of $4.6 million, or 9.2%, in construction loans, and $3.7 million, or 2.4%, in consumer loans.
• Nonperforming loans to total loans was 0.55%, a decrease of 16 basis points ("bps"), compared to 0.71%.
• Total deposits were $1.27 billion, an increase of $41.9 million, compared to $1.23 billion.
• Total assets remained level at $1.43 billion.
• Book value per share was $21.60, compared to $20.94 as of September 30, 2022 and $25.31 as of December 31, 2021.
  • Tangible book value per share (Non-GAAP) was $19.00, compared to $18.25 as of September 30, 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, "In closing out what was a successful 2022, our fourth quarter results continued to benefit from margin expansion on top of consistent loan growth. Two years ago we undertook a long term strategy that consisted of first driving down our expenses in a durable manner by rationalizing our physical branch footprint while also working to make sure our operations were optimized and efficient. This effort set the stage for the reduced the non-interest expenses we enjoyed throughout 2022. With our branch optimization largely completed, in 2022 we turned our attention to driving growth through smart additions of key leadership on both the retail and commercial sides of our business. Those investments helped drive growth in our loan portfolio through 2022 which coupled with rising interest rates to yield growth in our net interest income."

Mr. Montgomery continued, "We remain watchful with respect to the overall economic climate as the Federal Reserve continues to work to rein in inflation while not tipping the country into a recession. As I have noted in the past, our credit team possesses a wealth of experience, including demonstrated success during the Great Financial Crisis just over a dozen years ago. With that experience, we are confident in our ability to navigate whatever macroeconomic headwinds we face."

Mr. Montgomery concluded, "Continuing our commitment to CB shareholders, we increased our regular quarterly dividend to $0.25 per share. In addition, we repurchased 4,620 shares during the fourth quarter under the current $10.0 million share repurchase program announced earlier in 2022. 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 approved a 4.2% increase in the regular quarterly cash dividend by declaring a $0.25 quarterly cash dividend per outstanding share of common stock, payable on or about February 28, 2023, to stockholders of record as of the close of business on February 15, 2023.

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 at January 23, 2023, the repurchase program, if fully completed, would encompass 430,906 shares, or approximately 8.4% of the shares currently outstanding.

2022 Fourth Quarter Financial Review

Net Interest and Dividend Income

Net interest and dividend income increased $1.6 million, or 16.0%, to $11.9 million for the three months ended December 31, 2022 compared to $10.2 million for the three months ended December 31, 2021.

• Net interest margin (GAAP) increased to 3.45% for the three months ended December 31, 2022 compared to 2.95% for the three months ended December 31, 2021. Fully Tax Equivalent ("FTE") Net interest margin (Non-GAAP) increased 50 bps to 3.46% for the three months ended December 31, 2022 compared to 2.96% for the three months ended December 31, 2021.
• Interest and dividend income increased $2.9 million, or 26.4%, to $13.9 million for the three months ended December 31, 2022 compared to $11.0 million for the three months ended December 31, 2021.
  • Interest income on loans increased $1.9 million, or 19.5%, to $11.8 million for the three months ended December 31, 2022 compared to $9.9 million for the three months ended December 31, 2021. The average balance of loans increased $29.9 million to $1.03 billion from $1.00 billion and the average yield increased 62 bps to 4.54% compared to 3.92%. Interest and fee income on PPP loans was $22,000 for the three months ended December 31, 2022 and didn't impact loan yield, compared to $391,000 for the three months ended December 31, 2021, which contributed 4 bps to loan yield. The impact of the accretion of the credit mark on acquired loan portfolios was $61,000 for the three months ended December 31, 2022 compared to $83,000 for the three months ended December 31, 2021, or 2 bps in the current period compared to 3 bps in the prior period.
  • Interest income on taxable investment securities increased $108,000, or 12.5%, to $974,000 for the three months ended December 31, 2022 compared to $866,000 for the three months ended December 31, 2021 driven by a $11.6 million increase in average balance partially coupled with a 11 bps increase in average yield.
• Interest expense increased $1.3 million, or 171.7%, to $2.0 million for the three months ended December 31, 2022 compared to $732,000 for the three months ended December 31, 2021.
  • Interest expense on deposits increased $1.2 million, or 184.7%, to $1.8 million for the three months ended December 31, 2022 compared to $636,000 for the three months ended December 31, 2021. While average interest-earning deposit balances decreased $7.2 million, or 0.8%, to $887.7 million as of December 31, 2022 compared to $894.8 million as of December 31, 2021, rising interest rates led to the repricing of higher-cost demand and money market deposits and resulted in a 53 bps, or 188.0%, increase in average cost compared to the three months ended December 31, 2021. In addition, the average balance of time deposits and the related average cost decreased $38.2 million and 5 bps, respectively. These decreases are partially offset by an increase in average other borrowings of $8.1 million or 85.8% to $17.6 million as of December 31, 2022 compared to $9.5 million as of December 31, 2021, which was driven by the issuance of subordinate debt of $15.0 million in late December of 2021, and outstanding for the entire quarter ended December 31, 2022.

Provision for Loan Losses

There was no provision for loan losses for the three months ended December 31, 2022 or for the three months ended December 31, 2021.

Noninterest income

Noninterest income decreased $6.3 million, or 72.8%, to $2.4 million for the three months ended December 31, 2022, compared to $8.7 million for the three months ended December 31, 2021. The decrease was primarily related to non-recurring prior period recognition of $5.2 million gain on sale of branches as a result of branch optimization initiatives and $897,000 due to the sale of a nonperforming commercial real estate loan in the hotel portfolio. During the quarter, there was a $219,000 decrease in insurance commissions. The decrease in insurance commissions was primarily driven by contingency income which resulted from the timing of lock-in amounts received and core business including commercial and personal insurance lines.

Noninterest Expense

Noninterest expense decreased $974,000, or 9.8%, to $9.0 million for the three months ended December 31, 2022 compared to $10.0 million for the three months ended December 31, 2021. Salaries and benefits decreased $556,000 to $4.6 million and contracted services decreased $728,000 to $405,000 for the three months ended December 31, 2022 compared to $1.1 million for the three months ended December 31, 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 $198,000.

Statement of Financial Condition Review

Assets

Total assets decreased $16.5 million, or 1.16%, to $1.41 billion at both December 31, 2022, and December 31, 2021.

• Cash and due from banks decreased $16.0 million, or 13.3%, to $103.7 million at December 31, 2022, compared to $119.7 million at December 31, 2021.
• Securities decreased $34.9 million, or 15.5%, to $190.1 million at December 31, 2022, compared to $225.0 million at December 31, 2021. The Securities balance was primarily impacted by a $32.3 million decrease in the market value of the debt securities portfolio, primarily due to the increase in market interest rates. The current year included $26.8 million of purchases, and $29.2 million of pay downs. The purchases were made to earn a higher yield on excess cash. In addition, there was $168,000 decrease in the market value in the equity securities portfolio, which is primarily comprised of bank stocks.

Payroll Protection Program Update

• PPP loans decreased $24.4 million to $126,000 at December 31, 2022 compared to $24.5 million at December 31, 2021.
• $5,000 of net PPP loan origination fees were unearned at December 31, 2022 compared to $678,000 at December 31, 2021. $22,000 of net PPP loan origination fees were earned in the three months ended December 31, 2022 compared to $117,000 for the three months ended September 30, 2022.

Loans and Credit Quality

• Total loans held for investment increased $29.1 million, or 2.85%, to $1.05 billion at December 31, 2022 compared to $1.02 billion at December 31, 2021. Excluding the net decline of $24.4 million in PPP loans in the current period, loans increased $53.5 million or 5.4%.
• The allowance for loan losses was $12.8 million at December 31, 2022 and $11.6 million at December 31, 2021. As a result, the allowance for loan losses to total loans was 1.22% at December 31, 2022 compared to 1.13% at December 31, 2021. The allowance for loan losses to total loans, excluding PPP loans, was 1.22% at December 31, 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 December 31, 2022 were $35,000, or 0.01% of average loans on an annualized basis. Net charge-offs for the three months ended December 31, 2021 were $74,000, or 0.03% of average loans on an annualized basis. Net charge-offs for the year ended December 31, 2022 were $2.5 million, or 0.25% of average loans on an annualized basis. Net charge-offs for the year ended December 31, 2021 were $64,000, and had an immaterial and one hundredth 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 $5.8 million at December 31, 2022 compared to $7.3 million at December 31, 2021. Current nonperforming loans to total loans ratio was 0.55% compared to 0.71% at December 31, 2021.

Other

• Intangible assets decreased $1.8 million, or 34.0%, to $3.5 million at December 31, 2022 compared to $5.3 million at December 31, 2021 due to amortization expense recognized during the period.
• Accrued interest receivable and other assets increased $8.3 million, or 64.5% to $21.1 million at December 31, 2022, compared to $12.9 million at December 31, 2021. This change was primarily driven by the increase in market interest rate conditions and an increase in deferred tax assets of $7.5 million.

Liabilities

Total liabilities increased $6.4 million, or 0.5%, to $1.30 billion at December 31, 2022 compared to $1.29 billion at December 31, 2021.

Deposits

• Total deposits increased $41.9 million to $1.27 billion as of December 31, 2022 compared to $1.23 billion at December 31, 2021, an increase of 3.4%. Interest-bearing and non interest-bearing demand deposits increased $39.3 million and $4.6 million, respectively, partially offset by a decrease in time deposits of $27.6 million. Average total deposits increased $45.9 million, primarily in both interest-bearing and non interest-bearing demand deposits for the three months ended December 31, 2022. The increase in interest-bearing demand deposits is primarily the result of the transition of customer deposits from securities sold under agreements to repurchase product, 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.

Borrowed Funds

• Short-term borrowings decreased $31.2 million, or 79.5%, to $8.1 million at December 31, 2022, compared to $39.3 million at December 31, 2021. At December 31, 2022 and December 31, 2021, short-term borrowings were comprised entirely of securities sold under agreements to repurchase as noted in the above-mentioned deposit section. A portion of this decrease is due to accounts that were transitioned into other deposit products and account for most of the interest-bearing demand deposit increase.

Stockholders' Equity

Stockholders' equity decreased $23.0 million, or 17.3%, to $110.2 million at December 31, 2022, compared to $133.1 million at December 31, 2021. Key factors impacting stockholders' equity included accumulated other comprehensive loss, which increased $25.3 million primarily due to the effect of rising market interest rates on the Company's investment securities; the payment of $4.9 million in dividends since December 31, 2021; and activity under share repurchase programs, offset by the positive impact of $11.2 million of net income. 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 62,178 shares at an average price of $22.47 per share since the inception of the plan. In total, the Company has repurchased $4.8 million since December 31, 2021.

Book value per share

Book value per common share was $21.60 at December 31, 2022 compared to $25.31 at December 31, 2021, a decrease of $3.71.

Tangible book value per common share (Non-GAAP) was $19.00 at December 31, 2022, compared to $22.45 at December 31, 2021, a decrease of $3.45.

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.