CB Financial Services, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the supplied filing does not provide standalone fourth-quarter results. CB Financial Services is a Pennsylvania bank holding company operating primarily through Community Bank, with an insurance agency subsidiary, Exchange Underwriters. At year-end, consolidated assets were $1.43 billion and the Bank operated 14 branches after closures and divestitures.
Key financial metrics
| Metric | FY 2021 / Dec. 31, 2021 | FY 2020 / Dec. 31, 2020 |
|---|---|---|
| Total assets | $1.425 billion | $1.417 billion |
| Net interest and dividend income | $40.2 million | $41.9 million |
| Noninterest income | $16.3 million | $9.5 million |
| Net income (loss) | $11.6 million; diluted EPS $2.15 | $(10.6) million; diluted EPS $(1.97) |
| Net interest margin (GAAP) | 2.92% | 3.30% |
| Return on average assets / equity | 0.79% / 8.66% | (0.77)% / (7.18)% |
| Operating cash flow | $13.1 million | $14.1 million |
| Cash and due from banks | $119.7 million | $160.9 million |
| Loans, net of allowance | $1.009 billion | $1.032 billion |
| Deposits | $1.227 billion | $1.225 billion |
| Borrowings | $39.3 million short-term; $17.6 million other | $41.1 million short-term; $8.0 million other |
| Stockholders’ equity | $133.1 million | $134.5 million |
| Bank total capital ratio / Tier 1 leverage ratio | 13.18% / 7.76% | 13.04% / 7.81% |
Investing cash flow was $(60.1) million and financing cash flow was $5.8 million; cash declined $41.2 million during 2021. The allowance for loan losses was $11.6 million, or 1.13% of total loans. Nonperforming assets were $7.3 million, or 0.51% of assets.
Material changes versus the prior period
- Net income rebounded from the 2020 loss, which included an $18.7 million goodwill impairment. FY 2021 earnings included a $5.2 million pretax gain on branch sales and $7.5 million of restructuring-related and other costs tied to branch optimization and operational efficiency.
- Net interest income fell 4.2%, and GAAP net interest margin contracted 38 basis points, as lower loan and securities yields more than offset reduced funding costs.
- Noninterest income rose 71.9%, principally because of the branch-sale gain; insurance commissions also increased 15.1% to $5.6 million.
- The provision for loan losses was a $1.1 million recovery in 2021, versus a $4.0 million provision in 2020. Net charge-offs declined to $64,000 from $1.1 million.
- Total loans declined 2.3%, partly reflecting a $30.6 million net reduction in PPP loans; excluding PPP, loans increased $6.6 million. Commercial real estate loans rose to 38.5% of the portfolio.
- Deposits were nearly flat despite the sale of $102.8 million of deposits with two branches. Noninterest-bearing demand, NOW and savings balances increased, while time deposits decreased.
- Accumulated other comprehensive income fell $4.3 million, primarily reflecting market-value declines in available-for-sale debt securities. The company repurchased $4.1 million of shares in 2021 and completed its $7.5 million repurchase program in February 2022.
Outlook, risks and unusual items
- Management outlook: The company anticipates $3.0 million of ongoing pretax savings from branch optimization. It expects $2.5 million to $3.5 million in 2022 savings from operational efficiency initiatives, with further revenue and fee-generating benefits in future years. These are estimates, not formal earnings guidance.
- Management expected near-zero interest rates to gradually reverse as the Federal Reserve addressed inflation, but stated that timing and impact were uncertain. The company cautioned that rate movements may affect net interest income, deposit costs, securities values and borrower repayment capacity.
- Key credit risks include concentration in real-estate-secured lending, commercial real estate and business exposures, and sensitivity to local economic conditions and natural-gas activity. Special-mention loans increased to $55.6 million from $46.5 million, including pandemic-related construction and senior-housing concerns.
- COVID-19 uncertainty, inflation, labor shortages, supply-chain disruption, cybersecurity and third-party service-provider risks remain relevant. The company also identified LIBOR transition exposure: approximately $160 million of loans and a $5 million corporate debt security were LIBOR-linked at year-end 2021.
- CECL adoption was scheduled for January 1, 2023. Management expected a one-time allowance adjustment but could not estimate its size or overall financial impact.
- The company reported no material pending legal proceedings beyond ordinary-course matters management considered immaterial. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the 2021 financial statements received an unqualified audit opinion. The auditor identified the allowance for loan losses as a critical audit matter.
Important facts for investors to verify
- How much of 2021 profitability and future cost improvement is sustainable after separating the $5.2 million branch-sale gain and $7.5 million of initiative-related costs.
- Whether projected 2022 savings of $2.5 million to $3.5 million are realized, and whether the 14-branch network supports planned growth and service levels.
- Credit quality trends in commercial real estate, construction and senior housing, including special-mention exposures, hotel-related loans and the adequacy of the allowance.
- The effect of changing interest rates on net interest margin, deposit retention and the $222.1 million available-for-sale debt-securities portfolio, which had $3.8 million of gross unrealized losses at year-end.
- The impact of CECL implementation, including the initial allowance adjustment, and completion of the transition from LIBOR for affected loans and securities.
- Capital and liquidity following the $15 million subordinated-note issuance, share repurchases and dividends; the Bank reported $347.1 million of available FHLB borrowing capacity and $54.3 million of unpledged securities.