CB Financial Services, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. The company is a Pennsylvania-based bank holding company whose primary business is community banking. Results are unaudited.
Financial results and condition
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior date |
|---|---|---|
| Net income | $4.20 million; diluted EPS $0.82 | $4.16 million; diluted EPS $0.81 in Q1 2023 |
| Net interest income | $11.59 million | $11.58 million in Q1 2023 |
| Net interest margin | 3.36% GAAP; 3.37% fully tax-equivalent | 3.51% GAAP; 3.52% fully tax-equivalent in Q1 2023 |
| Total assets | $1.473 billion | $1.456 billion at December 31, 2023 |
| Total loans | $1.096 billion; net loans $1.087 billion | $1.110 billion total loans at December 31, 2023 |
| Deposits | $1.262 billion | $1.267 billion at December 31, 2023 |
| Stockholders’ equity | $141.6 million; book value $27.53 per share; tangible book value $25.52 per share | $139.8 million; $27.32 and $25.23 per share, respectively, at December 31, 2023 |
| Cash flow | $3.3 million operating cash provided; $8.2 million investing cash provided; $6.0 million financing cash used | Q1 2023: $7.2 million operating cash provided; $11.1 million investing cash used; $3.7 million financing cash provided |
Interest and dividend income rose 26.3% to $18.0 million, but interest expense increased 140.3% to $6.4 million, largely from deposit repricing and a shift toward higher-cost deposits. Noninterest income fell 31.8% to $1.9 million; noninterest expense declined 6.6% to $8.4 million. Return on average assets was 1.17% and return on average equity was 12.03%, versus 1.21% and 14.69% in Q1 2023.
Material changes and notable items
- Total loans declined $14.1 million during the quarter, principally from lower consumer and commercial and industrial balances. The company discontinued indirect automobile loan production in June 2023 and expects that portfolio to continue declining as it focuses on commercial lending.
- Deposits declined $4.7 million. Interest-bearing demand and savings balances fell, while time deposits rose $35.0 million. Brokered certificates of deposit increased to $42.0 million from $29.0 million and were used to fund floating-rate collateralized loan obligation securities.
- Securities increased $25.2 million to $232.3 million, including purchases of collateralized loan obligation securities. Available-for-sale debt securities had $23.0 million of gross unrealized losses at quarter-end, primarily attributed to market interest rates; management said it did not consider the losses credit-related and did not intend, nor expect to be required, to sell the securities before recovery or maturity.
- The allowance for credit losses on loans was $9.6 million, or 0.87% of total loans. The quarter recorded a $143,000 loan-loss recovery and a $106,000 provision for unfunded commitments, resulting in a net $37,000 recovery. Nonperforming loans were $2.2 million, or 0.20% of loans.
- Q1 2023 included insurance brokerage commissions and expenses; the company sold substantially all of Exchange Underwriters’ assets in December 2023. The sale generated a $24.6 million pretax gain in 2023, not Q1 2024, and the insurance business did not qualify for discontinued-operations reporting.
- Q1 2024 included a $274,000 pretax gain from a branch sale-and-leaseback and $915,000 of bank-owned life insurance death-benefit gains. These unusual gains partially offset the absence of insurance commissions.
Liquidity, capital, outlook and risks
- Management stated that liquidity was sufficient for short- and long-term needs. Cash and due from banks totaled $73.7 million; unpledged securities were $66.5 million. Available borrowing capacity included $460.0 million at the FHLB, $97.8 million through the Federal Reserve borrower-in-custody line, and unused bank credit lines totaling $50.0 million.
- About 75.9% of time deposits, or $201.5 million, mature within one year. Management noted that replacement funding could cost more if deposits do not remain. At quarter-end, 63.1% of deposits were FDIC-insured, 15.0% were additionally collateralized by securities, and 21.9% were uninsured.
- The Bank was categorized as well capitalized. Its actual common equity Tier 1, total capital and Tier 1 leverage ratios were 14.50%, 15.51% and 10.28%, respectively.
- Interest-rate sensitivity modeling estimated that a parallel +400-basis-point shock would reduce economic value of equity by 19.6% and increase modeled net interest income by 8.5%; a -400-basis-point shock would increase economic value of equity by 3.4% and reduce modeled net interest income by 16.0%. The filing cautions that these are assumption-dependent estimates, not forecasts.
- No specific earnings or growth guidance was provided. Management cited risks including economic conditions, interest rates, deposit flows, loan demand and credit performance, real estate values, competition, regulation, and the execution of cost-saving and operational-efficiency initiatives. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no legal proceedings believed likely to have a material adverse effect.
Most important facts for investors to verify
- Whether deposit retention and funding costs stabilize, particularly as $201.5 million of time deposits mature within a year and brokered CDs have increased.
- Whether net interest margin pressure persists as deposit costs reprice, and how the shift in loan mix affects yields and growth.
- Credit quality trends, including criticized commercial and construction exposures, nonperforming loans, and the adequacy of the loan and unfunded-commitment allowances.
- The duration and liquidity implications of securities with $23.0 million of unrealized losses, and the risks associated with the expanded collateralized loan obligation position.
- How recurring earnings compare with reported results after accounting for the branch sale-and-leaseback gain and bank-owned life insurance claim gain.