CB Financial Services, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. CB Financial Services operates Community Bank and Exchange Underwriters, an insurance agency, principally in southwestern Pennsylvania and nearby West Virginia.
Financial performance and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets, year-end | $1.409 billion | $1.425 billion |
| Total loans, year-end | $1.050 billion | $1.021 billion |
| Total deposits, year-end | $1.269 billion | $1.227 billion |
| Net interest income | $42.9 million | $40.2 million |
| Provision (recovery) for loan losses | $3.8 million | ($1.1 million) |
| Noninterest income | $9.8 million | $16.3 million |
| Noninterest expense | $34.9 million | $42.9 million |
| Net income | $11.2 million | $11.6 million |
| Diluted earnings per share | $2.18 | $2.15 |
- Margins and returns: GAAP net interest margin rose to 3.24% from 2.92%; return on average assets was 0.80% versus 0.79%, and return on average equity was 9.56% versus 8.66%.
- Cash flow: Operating activities provided $14.2 million; investing activities used $28.3 million and financing activities used $1.8 million. Cash and due from banks declined $16.0 million to $103.7 million.
- Credit quality: The allowance for loan losses was $12.8 million, or 1.22% of loans, versus $11.6 million, or 1.13%. Net charge-offs were $2.5 million, primarily from one commercial and industrial loan. Nonperforming assets decreased to $5.8 million, or 0.41% of assets, from $7.3 million, or 0.51%.
- Debt and liquidity: Year-end short-term borrowings were $8.1 million; other borrowed funds were $14.6 million, including a $15.0 million subordinated note, net of issuance costs. The Bank reported no outstanding FHLB advances and $407.4 million of available FHLB borrowing capacity; it also had $119.0 million of FRB credit capacity and $50.0 million of correspondent-bank lines, with no balances drawn on those facilities. The Bank was classified as well capitalized.
Material changes versus 2021
- Net interest income increased 6.9%, as higher rates lifted asset yields more than funding costs. Interest expense nevertheless rose 40.4% to $4.8 million.
- Net income fell modestly despite higher net interest income and lower expenses. The $3.8 million loan-loss provision in 2022 replaced the prior-year $1.1 million recovery, while 2021 included a $5.2 million branch-sale gain and $7.5 million of branch-optimization and restructuring expenses.
- Noninterest income declined 39.7%, principally because 2021 included the branch-sale gain and mortgage-loan sale gains; the Company retained loans originated in 2022 rather than selling them. Insurance commissions increased 5.7% to $5.9 million.
- Loan growth was 2.8%; commercial real estate and consumer loans increased, while construction and commercial and industrial balances declined. Deposits increased 3.4%, and short-term borrowings fell 79.5% as customer sweep balances shifted into deposit products.
- Stockholders’ equity declined 17.3% to $110.2 million, largely reflecting a $25.3 million after-tax increase in accumulated other comprehensive loss from available-for-sale securities. Book value per share fell to $21.60 from $25.31.
Outlook, risks, and unusual items
- The filing provides no specific earnings, revenue, or margin guidance. Management describes plans to build digital capabilities, improve efficiency, grow relationship-based lending and core deposits, and expand insurance-related fee income. It anticipates $3.0 million of ongoing pretax savings from branch optimization initiatives.
- Interest-rate risk is significant: the filing’s model estimates net interest income would decline 15.1% under an immediate 400-basis-point increase, and 9.6% under a 400-basis-point decrease. These are hypothetical model results, not forecasts.
- Key risks include commercial real estate and business-loan concentration, local economic and real-estate conditions, inflation, deposit competition and repricing, natural-gas industry exposure, cybersecurity and third-party service providers, and regulatory and compliance costs.
- Available-for-sale debt securities had $33.4 million of gross unrealized losses at year-end, primarily attributed to rising interest rates. Management stated it did not consider the losses other-than-temporary and did not expect to be required to sell the securities before recovery or maturity.
- The Company adopted the CECL credit-loss standard effective January 1, 2023. Management estimated an approximately $2.1 million increase to retained earnings, net of tax, from adoption; the final adjustment could vary with economic forecasts and portfolio conditions.
- The independent auditor issued an unqualified opinion. The allowance for loan losses was identified as a critical audit matter. Management concluded disclosure controls and internal control over financial reporting were effective at year-end.
Important facts for investors to verify
- Track deposit pricing, uninsured deposits ($368.1 million estimated at year-end), time-deposit maturities, and use of available borrowing capacity.
- Assess whether the loan-loss provision and allowance remain adequate, particularly after the large commercial and industrial charge-off and given commercial real estate exposure.
- Monitor the value and liquidity implications of the securities portfolio’s unrealized losses and any effects on capital or future earnings.
- Check whether the anticipated cost savings are realized and whether they offset ongoing expense pressure without impairing customer service or growth.
- Review the realized CECL adoption adjustment against management’s estimate and follow subsequent asset-quality and economic developments.