Business context and reporting period
CB Financial Services, Inc. is a Pennsylvania bank holding company operating primarily through Community Bank, with 13 offices in southwestern Pennsylvania and West Virginia. This Form 10-K covers the fiscal year ended December 31, 2023; it does not provide a separate fourth-quarter income statement summary in the supplied text.
The Bank’s principal activities are community banking, including commercial and real estate lending and deposit services. The Company completed the sale of substantially all assets of its insurance subsidiary, Exchange Underwriters, on December 8, 2023.
Key financial metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets, year-end | $1.456 billion | $1.409 billion |
| Total loans, before allowance | $1.110 billion | $1.050 billion |
| Deposits, year-end | $1.267 billion | $1.269 billion |
| Net interest income | $44.6 million | $42.9 million |
| Net interest margin, GAAP | 3.28% | 3.24% |
| Net income | $22.6 million | $11.2 million |
| Diluted earnings per share | $4.40 | $2.18 |
| Operating cash flow | $14.2 million | $14.2 million |
| Year-end stockholders’ equity | $139.8 million | $110.2 million |
Interest and dividend income rose 30.4% to $62.2 million, while interest expense increased 269.6% to $17.7 million as deposit and borrowing costs repriced upward. Noninterest income was $24.0 million and included a $24.6 million gain on the insurance-business sale and a $10.2 million securities loss. Noninterest expense increased 11.2% to $38.8 million. Return on average assets was 1.60% and return on average equity was 19.42%.
Cash and due from banks fell to $68.2 million from $103.7 million. Investing activities used $54.7 million, mainly reflecting loan growth and securities purchases, partly offset by sale proceeds. Financing activities provided $5.0 million. Year-end other borrowed funds were $34.7 million, including $20.0 million of FHLB advances and $14.7 million of subordinated debt, net of issuance costs. The Bank reported $438.3 million of available FHLB borrowing capacity and $49.8 million of unpledged securities.
The Bank’s regulatory capital ratios remained above well-capitalized thresholds: common equity Tier 1 was 13.64%, total capital was 14.61%, and Tier 1 leverage was 10.19%. The allowance for credit losses was $9.7 million, or 0.87% of loans. Nonperforming assets were $2.4 million, or 0.16% of assets.
Material changes versus 2022
- Net income approximately doubled, but results included the one-time insurance-sale gain and the securities repositioning loss; the filing does not provide a single adjusted earnings figure excluding these items.
- Net interest income increased 3.8% and GAAP net interest margin increased four basis points. Higher asset yields were substantially offset by higher funding costs; the average cost of interest-bearing liabilities rose to 1.85% from 0.53%.
- Gross loans grew 5.8%. Commercial and industrial loans increased $41.2 million and commercial real estate loans increased $30.3 million. Consumer loans declined $35.3 million as indirect auto lending was discontinued effective June 30, 2023.
- Deposits were nearly flat overall, but the mix shifted: noninterest-bearing demand and savings declined, while time deposits increased $121.5 million. Year-end time deposits included $29.0 million of brokered certificates used to fund floating-rate CLO securities.
- Nonperforming assets declined from $5.8 million to $2.4 million, while special-mention and classified loans rose from $58.7 million to $69.4 million, principally due to construction-loan downgrades.
- The Company adopted CECL on January 1, 2023. Adoption reduced the loan allowance by $3.4 million, increased the unfunded-commitment allowance by $718,000, and increased retained earnings by $2.1 million net of tax.
- Available-for-sale securities increased to $204.5 million fair value from $187.4 million. The repositioning included selling $69.3 million of lower-yielding securities averaging 1.89% and buying $69.3 million of securities averaging 5.49%, recognizing a $10.1 million pretax loss on debt securities.
Outlook, risks and unusual items
Management describes margin compression and funding costs as challenges, while pursuing efficiency measures, technology investment, core-deposit growth, and growth in commercial real estate and commercial lending. It expects the indirect auto portfolio to continue to run off and says it anticipates retaining a significant portion of maturing time deposits. The filing states that liquidity was sufficient at year-end. No specific numerical earnings or margin guidance is provided in the supplied filing text.
Key exposures include commercial real estate concentration (42.1% of loans), local real estate and economic conditions, borrower credit quality, interest-rate and deposit-pricing competition, and the regional natural-gas industry. Cybersecurity, third-party service providers, regulatory costs, inflation, and climate-related effects are also identified risks. Management cautions that allowance estimates rely on forecasts and judgment; the auditor identified qualitative adjustments to the allowance as a critical audit matter.
Interest-rate simulations estimate that an immediate 400-basis-point increase would raise one-year net interest income at risk by 6.0% while reducing economic value of equity by 21.4%; a 400-basis-point decrease would lower modeled net interest income by 14.3%. The filing cautions that these model estimates depend on assumptions and are not forecasts of actual results.
The insurance sale generated $30.5 million cash consideration plus possible additional earn-out payments; the amount and timing of any earn-out are not stated. The subsidiary was expected to be dissolved and remaining assets and liabilities transferred to the Bank during 2024. The 2023 financial statements received an unqualified audit opinion; management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- How much of 2023 earnings and future capital flexibility depends on the nonrecurring insurance-sale gain, and whether any earn-out will be received.
- Whether the higher-yielding securities repositioning improves recurring net interest income enough to offset its realized loss, and how unrealized securities losses and interest-rate sensitivity evolve.
- Deposit retention and pricing, including the $136.0 million of certificates due within one year and the role of brokered deposits.
- Credit trends in construction and commercial real estate: special-mention/classified loans increased even as nonperforming assets declined.
- The sustainability of the lower credit-loss expense and the assumptions supporting the CECL allowance.
- Progress on the insurance subsidiary wind-down, cost-efficiency initiatives, and the planned shift away from indirect auto lending.