CB Financial Services Inc.

08/09/2024 | Press release | Distributed by Public on 08/09/2024 11:54

Quarterly Report for Quarter Ending June 30, 2024 (Form 10-Q)

cbfv-20240630
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 001-36706
CB FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 51-0534721
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
100 N. Market Street, Carmichaels, PA
15320
(Address of principal executive offices) (Zip Code)
(724) 966-5041
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Common stock, par value $0.4167 per share CBFV The Nasdaq Stock Market, LLC
(Title of each class) (Trading symbol) (Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
As of August 8, 2024, the number of shares outstanding of the Registrant's Common Stock was 5,141,911.
Table of Contents
FORM 10-Q
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
1
Consolidated Statements of Financial Condition
1
Consolidated Statements of Income
2
Consolidated Statements of Comprehensive Income
3
Consolidated Statements of Changes In Stockholders' Equity
4
Consolidated Statements of Cash Flows
6
Notes to the Consolidated Financial Statements (Unaudited)
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
31
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
42
Item 4. Controls and Procedures.
44
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
44
Item 1A. Risk Factors.
44
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
44
Item 3. Defaults Upon Senior Securities.
44
Item 4. Mine Safety Disclosures.
44
Item 5. Other Information.
44
Item 6. Exhibits
45
SIGNATURES
46
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) June 30,
2024 		December 31,
2023
(Dollars in thousands, except per share and share data)
ASSETS
Cash and Due From Banks:
Interest-Earning $ 133,796 $ 62,442
Noninterest-Earning 8,804 5,781
Total Cash and Due From Banks 142,600 68,223
Securities:
Available-for-Sale Debt Securities, at Fair Value 266,378 204,507
Equity Securities, at Fair Value 2,391 2,588
Total Securities 268,769 207,095
Loans Held for Sale 632 -
Loans, Net of Allowance for Credit Losses of $9,527 and $9,707 at June 30, 2024 and December 31, 2023, Respectively
1,069,167 1,100,689
Premises and Equipment, Net
20,326 19,704
Bank-Owned Life Insurance
23,910 25,378
Goodwill
9,732 9,732
Intangible Assets, Net
353 958
Accrued Interest Receivable and Other Assets 24,770 24,312
TOTAL ASSETS
$ 1,560,259 $ 1,456,091
LIABILITIES
Deposits:
Noninterest-Bearing Demand Accounts $ 269,964 $ 277,747
Interest-Bearing Demand Accounts 324,688 362,994
Money Market Accounts 229,998 201,074
Savings Accounts 179,081 194,703
Time Deposits 346,037 230,641
Total Deposits 1,349,768 1,267,159
Other Borrowings
34,698 34,678
Accrued Interest Payable and Other Liabilities 32,911 14,420
TOTAL LIABILITIES
1,417,377 1,316,257
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized
- -
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 5,783,588 Shares Issued and 5,141,911 Shares Outstanding at June 30, 2024, with 5,759,378 and 5,118,713 Shares Issued and Outstanding at December 31, 2023.
2,410 2,400
Capital Surplus
85,718 85,334
Retained Earnings
87,673 83,392
Treasury Stock, at Cost (641,677 and 640,665 Shares at June 30, 2024 and December 31, 2023, Respectively)
(14,568) (14,545)
Accumulated Other Comprehensive Loss (18,351) (16,747)
TOTAL STOCKHOLDERS' EQUITY
142,882 139,834
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,560,259 $ 1,456,091
The accompanying notes are an integral part of these consolidated financial statements
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
(Dollars in thousands, except share and per share data)
INTEREST AND DIVIDEND INCOME
Loans, Including Fees $ 14,670 $ 13,426 $ 29,508 $ 25,797
Investment Securities:
Taxable 2,844 950 5,148 1,914
Tax-Exempt - 42 - 83
Dividends 27 25 54 49
Other Interest and Dividend Income 1,398 760 2,216 1,605
TOTAL INTEREST AND DIVIDEND INCOME 18,939 15,203 36,926 29,448
INTEREST EXPENSE
Deposits 7,065 3,842 13,056 6,346
Short-Term Borrowings - 3 - 5
Other Borrowings 404 238 808 393
TOTAL INTEREST EXPENSE 7,469 4,083 13,864 6,744
NET INTEREST AND DIVIDEND INCOME 11,470 11,120 23,062 22,704
Provision (Recovery) For Credit Losses - Loans 12 492 (130) 572
(Recovery) Provision For Credit Losses - Unfunded Commitments (48) (60) 57 (60)
NET INTEREST AND DIVIDEND INCOME AFTER NET (RECOVERY) PROVISION FOR CREDIT LOSSES 11,506 10,688 23,135 22,192
NONINTEREST INCOME
Service Fees 354 448 769 892
Insurance Commissions 1 1,511 3 3,434
Other Commissions 22 224 84 368
Net Gain (Loss) on Sales of Loans 9 (5) 30 (3)
Net Loss on Securities (31) (100) (197) (332)
Net Gain on Purchased Tax Credits 12 7 25 14
Net Gain on Disposal of Premises and Equipment - - 274 11
Income from Bank-Owned Life Insurance 147 139 295 280
Net Gain on Bank-Owned Life Insurance Claims - 1 915 303
Other Income 174 44 406 113
TOTAL NONINTEREST INCOME 688 2,269 2,604 5,080
NONINTEREST EXPENSE
Salaries and Employee Benefits 4,425 5,231 9,001 10,310
Occupancy 940 789 1,689 1,490
Equipment 298 283 562 501
Data Processing 1,011 718 1,703 1,575
Federal Deposit Insurance Corporation Assessment 161 224 290 376
Pennsylvania Shares Tax 297 195 595 455
Contracted Services 390 434 671 581
Legal and Professional Fees 208 246 420 428
Advertising 78 75 206 154
Other Real Estate Owned (Income) 37 (35) 14 (72)
Amortization of Intangible Assets 264 446 605 891
Other Expense 875 895 1,656 1,841
TOTAL NONINTEREST EXPENSE 8,984 9,501 17,412 18,530
Income Before Income Tax Expense
3,210 3,456 8,327 8,742
Income Tax Expense 560 699 1,480 1,827
NET INCOME $ 2,650 $ 2,757 $ 6,847 $ 6,915
EARNINGS PER SHARE
Basic $ 0.52 $ 0.54 $ 1.33 $ 1.35
Diluted 0.51 0.54 1.33 1.35
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 5,142,139 5,111,987 5,136,021 5,110,799
Diluted 5,152,657 5,116,134 5,151,188 5,118,396
The accompanying notes are an integral part of these consolidated financial statements
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
(Dollars in thousands)
Net Income $ 2,650 $ 2,757 $ 6,847 $ 6,915
Other Comprehensive Loss:
Change in Unrealized Loss on Investment Securities Available-for-Sale (344) (2,704) (1,972) (124)
Income Tax Effect 73 583 368 26
Other Comprehensive Loss, Net of Income Tax Effect (271) (2,121) (1,604) (98)
Total Comprehensive Income $ 2,379 $ 636 $ 5,243 $ 6,817
The accompanying notes are an integral part of these consolidated financial statements
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended June 30, 2024 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
March 31, 2024 5,783,788 $ 2,411 $ 85,501 $ 86,308 $ (14,550) $ (18,080) $ 141,590
Comprehensive Income:
Net Income - - - 2,650 - - 2,650
Other Comprehensive Loss - - - - - (271) (271)
Restricted Stock Awards Forfeited (200) (1) 19 - (18) - -
Stock-Based Compensation Expense - - 198 - - - 198
Dividends Paid ($0.25 Per Share)
- - - (1,285) - - (1,285)
June 30, 2024 5,783,588 $ 2,410 $ 85,718 $ 87,673 $ (14,568) $ (18,351) $ 142,882
Three Months Ended June 30, 2023 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
March 31, 2023 5,730,908 $ 2,388 $ 84,118 $ 68,834 $ (13,927) $ (24,218) $ 117,195
Comprehensive Income:
Net Income - - - 2,757 - - 2,757
Other Comprehensive Loss - - - - - (2,121) (2,121)
Restricted Stock Awards Forfeited - - 21 - (21) - -
Restricted Stock Awards Granted 2,500 1 (1) - - - -
Stock-Based Compensation Expense - - 187 - - - 187
Exercise of Stock Options - - - - 45 - 45
Treasury Stock Purchased, at cost (8,792 shares)
- - - - (197) - (197)
Dividends Paid ($0.25 Per Share)
- - - (1,277) - - (1,277)
June 30, 2023 5,733,408 $ 2,389 $ 84,325 $ 70,314 $ (14,100) $ (26,339) $ 116,589
The accompanying notes are an integral part of these consolidated financial statements
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Six Months Ended June 30, 2024 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2023 5,759,378 $ 2,400 $ 85,334 $ 83,392 $ (14,545) $ (16,747) $ 139,834
Comprehensive Income:
Net Income - - - 6,847 - - 6,847
Other Comprehensive Loss - - - - - (1,604) (1,604)
Restricted Stock Awards Granted 25,410 11 (11) - - - -
Restricted Stock Awards Forfeited (1,200) (1) 19 - (18) - -
Stock-Based Compensation Expense - - 376 - - - 376
Exercise of Stock Options - - - - - - -
Treasury stock purchased, at cost (222 shares)
- - - - (5) - (5)
Dividends Paid ($0.50 Per Share)
- - - (2,566) - - (2,566)
June 30, 2024 5,783,588 $ 2,410 $ 85,718 $ 87,673 $ (14,568) $ (18,351) $ 142,882
Six Months Ended June 30, 2023 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity
(Dollars in thousands, except share and per share data)
December 31, 2022 5,708,433 $ 2,379 $ 83,953 $ 63,861 $ (13,797) $ (26,241) $ 110,155
Adoption of Accounting Standard ASU 2016-13 - - - 2,092 - - 2,092
Balance at January 1, 2023, adjusted 5,708,433 2,379 83,953 65,953 (13,797) (26,241) 112,247
Comprehensive Income:
Net Income - - - 6,915 - - 6,915
Other Comprehensive Loss - - - - - (98) (98)
Restricted Stock Awards Forfeited - - 21 - (21) - -
Restricted Stock Awards Granted 24,975 10 (10) - - - -
Stock-Based Compensation Expense - - 361 - - - 361
Exercise of Stock Options - - - - 45 - 45
Treasury Stock Purchased, at cost (14,478 shares)
- - - - (327) - (327)
Dividends Paid ($0.50 Per Share)
- - - (2,554) - - (2,554)
June 30, 2023 5,733,408 $ 2,389 $ 84,325 $ 70,314 $ (14,100) $ (26,339) $ 116,589
The accompanying notes are an integral part of these consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 2024 2023
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income $ 6,847 $ 6,915
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities
Net (Accretion) Amortization on Securities (403) 40
Depreciation and Amortization 1,400 1,420
(Recovery) Provision for Credit Losses - Loans (130) 572
Provision (Recovery) for Credit Losses - Unfunded Commitments 57 (60)
Loss on Securities 197 332
Gain on Purchased Tax Credits (25) (14)
Income from Bank-Owned Life Insurance (295) (280)
Gain on Bank-Owned Life Insurance Death Benefit Claims (915) -
Proceeds From Mortgage Loans Sold 1,631 269
Originations of Mortgage Loans for Sale (2,233) (266)
(Gain) Loss on Sale of Loans (30) 3
Gain on Sale of Other Real Estate Owned and Repossessed Assets 30 -
Noncash Expense for Stock-Based Compensation 376 361
Increase in Accrued Interest Receivable (568) (561)
Gain on Disposal of Premises and Equipment (274) (11)
Decrease in Deferred Income Tax (522) -
Decrease in Taxes Payable (2,557) (839)
Increase in Accrued Interest Payable
983 963
Other, Net (1,475) (308)
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,094 8,536
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities 6,784 8,135
Purchases of Securities (62,669) -
Net Decrease (Increase) in Loans 46,295 (45,113)
Purchase of Premises and Equipment (2,189) (1,345)
Proceeds from Disposal of Premises and Equipment 988 36
Proceeds From a Claim on Bank-Owned Life Insurance 2,678 731
Proceeds From Sale of Other Real Estate Owned 132 -
Decrease (Increase) in Restricted Equity Securities 226 (503)
NET CASH USED IN INVESTING ACTIVITIES (7,755) (38,059)
FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits 82,609 (5,188)
Net Decrease in Short-Term Borrowings - (8,060)
Proceeds From Other Borrowed Funds - 20,000
Cash Dividends Paid (2,566) (2,554)
Treasury Stock, Purchases at Cost (5) (327)
Exercise of Stock Options - 45
NET CASH PROVIDED BY FINANCING ACTIVITIES 80,038 3,916
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 74,377 (25,607)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 68,223 103,700
CASH AND DUE FROM BANKS AT END OF PERIOD $ 142,600 $ 78,093
The accompanying notes are an integral part of these consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 2024 2023
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid For:
Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $12,070 and $5,462, Respectively)
$ 12,881 $ 5,781
Income Taxes 4,222 -
SUPPLEMENTAL NONCASH DISCLOSURE:
Proceeds Receivable from Claims on Bank-Owned Life Insurance - 664
Other Real Estate Acquired in Settlement of Loans 151 166
Securities Purchased Not Settled 7,556 -
Syndicated Loans Purchased and Sold Not Settled, net 14,672 6,976
Right of Use Asset Recognized 1,452 -
Lease Liability Recognized 1,452 -
The accompanying notes are an integral part of these consolidated financial statements
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. ("CB Financial") and its wholly owned subsidiary, Community Bank (the "Bank"), and the Bank's wholly-owned subsidiary, Exchange Underwriters, Inc. ("Exchange Underwriters"). CB Financial, the Bank and Exchange Underwriters are collectively referred to as the "Company". All intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and in conformity with accounting principles generally accepted in the United States of America ("GAAP") and with general practice within the banking industry. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition and income and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for credit losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, impairment evaluations of securities, goodwill and intangible assets impairment, and the valuation of deferred tax assets.
In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company's financial position and results of operations at the dates and for the periods presented. All these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Interim results are not necessarily indicative of results for a full year.
Nature of Operations
The Company derives substantially all its income from banking and bank-related services which include interest income on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest and dividend income on securities, insurance commissions, and fees generated from deposit services to its customers. The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. The Bank operates nine offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, and three offices in Marshall and Ohio Counties in West Virginia.
On December 1, 2023, the Company announced that the Bank and EU entered into an Asset Purchase Agreement with World Insurance Associates, LLC ("World") pursuant to which EU sold substantially all of its assets to World for a purchase price of $30.5 million cash plus possible additional earn-out payments. The sale of assets was completed December 8, 2023, and resulted in a pre-tax gain of $24.6 million. This transaction did not meet the criteria for discontinued operations reporting.
Critical Accounting Policies; Use of Critical Accounting Estimates
The disclosures below supplement the accounting policies disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC.
Allowance for Credit Losses (ACL)
On January 1, 2023, the Company adopted ASU 2016-13, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology. The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption resulted in a decrease of $3.4 million to the Company's ACL related to loans receivable (ACL - Loans) and an increase of $718,000 in ACL for unfunded commitments (ACL - Unfunded Commitments). The net impact resulted in a $2.1 million increase to retained earnings, net of deferred taxes.
The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities
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measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded ACL. The ACL is reported separately as a contra-asset account on the Consolidated Statement of Financial Condition. The expected credit loss for unfunded loan commitments is reported on the Consolidated Statement of Financial Condition in other liabilities while the provision for credit losses related to unfunded commitments is reported in provision for credit losses - unfunded commitments in the Consolidated Statements of Income.
ACL on Loans Receivable
The ACL on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the ACL when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.
The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments include residential mortgage, commercial real estate mortgages, construction, commercial business, consumer and other. For most segments, the Company calculates estimated credit losses using a probability of default and loss given default methodology, the results of which are applied to the aggregated discounted cash flow of each individual loan within the segment. The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount.
The Company estimates the ACL on loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts. The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts. After the reasonable and supportable forecast period, the Company reverts, on a straight-line basis, to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructuring will be executed with an individual borrower or the renewal option is included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Also included in the ACL on loans are qualitative reserves to cover losses that are expected but, in the Company's assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual loans, and the effect of external factors such as competition, legal and regulatory requirements, among others. Furthermore, the Company considers the inherent uncertainty in quantitative models that are built upon historical data.
Individually Evaluated Loans
On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less estimated costs to sell at the reporting date, and the amortized cost basis of the loan.
ACL on Off-Balance Sheet Commitments
The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancellable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. As noted above, the ACL on unfunded loan commitments is included in other liabilities on the Consolidated Statement of Financial Condition and the related credit expense is recorded in provision for credit losses - unfunded commitments in the Consolidated Statements of Income.
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ACL on Available-for-Sale Securities
For available-for-sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For securities available-for-sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses.
Changes in the ACL are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued Interest Receivable
The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans and available for sale securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $4.1 million at June 30, 2024 and $4.7 million at December 31, 2023 and is excluded from the estimate of credit losses. Accrued interest receivable on available of sale securities, also a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $1.5 million at June 30, 2024 and $947,000 at December 31, 2023 and is excluded from the estimate of credit losses.
Recent Accounting Standards
In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848that extends the period of time preparers can utilize the reference rate reform relief guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended.This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt). To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. For all entities, the amendments in ASU 2022-06 are effective upon issuance. As of June 30, 2024, the Company does not have any instruments tied to the LIBOR reference rate. The adoption of this guidance is not expected to have a material effect on the Company's consolidated statements of financial condition and results of operations.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires that public entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The ASU requires all entities to disclose on an annual basis (1) the amount of income taxes paid, disaggregated by federal, state and foreign taxes and (2) the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal or greater than five percent of total income taxes paid. The ASU also requires that all entities disclose (1) income (loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic or foreign and (2) income tax expense (or benefit) from continuing operations disaggregated by federal (national), state and foreign. This ASU is effective for public entities for annual periods beginning after December 15, 2024. The Company does not expect the adoption of the ASU to have a material effect on the Company's consolidated statements of financial condition and results of operations.
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Note 2. Earnings Per Share
There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statements of Income is used as the numerator.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
(Dollars in thousands, except share and per share data)
Net Income $ 2,650 $ 2,757 $ 6,847 $ 6,915
Weighted-Average Basic Common Shares Outstanding
5,142,139 5,111,987 5,136,021 5,110,799
Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)
10,518 4,147 15,167 7,597
Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding
5,152,657 5,116,134 5,151,188 5,118,396
Earnings Per Share:
Basic
$ 0.52 $ 0.54 $ 1.33 $ 1.35
Diluted
0.51 0.54 1.33 1.35
The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents for the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options' exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effects would be anti-dilutive.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Stock Options 402,297 339,123 300,597 339,123
Restricted Stock 11,154 58,527 - 51,727
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Note 3. Securities
The following table presents the amortized cost and fair value of securities available-for-sale at the dates indicated:
June 30, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
Available-for-Sale Debt Securities:
U.S. Government Agencies
$ 4,996 $ - $ (1,093) $ 3,903
Obligations of States and Political Subdivisions
3,488 - (154) 3,334
Mortgage-Backed Securities - Government-Sponsored Enterprises
55,819 - (3,450) 52,369
Collateralized Mortgage Obligations - Government-Sponsored Enterprises 115,957 - (16,973) 98,984
Collateralized Loan Obligations 99,956 58 (205) 99,809
Corporate Debt 9,481 - (1,502) 7,979
Total Available-for-Sale Debt Securities 289,697 58 (23,377) 266,378
Equity Securities:
Mutual Funds
874
Other
1,517
Total Equity Securities 2,391
Total Securities $ 268,769
December 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
Available-for-Sale Debt Securities:
U.S. Government Agencies
$ 4,995 $ - $ (1,046) $ 3,949
Obligations of States and Political Subdivisions
3,481 5 (113) 3,373
Mortgage-Backed Securities - Government-Sponsored Enterprises
57,377 141 (2,986) 54,532
Collateralized Mortgage Obligations - Government-Sponsored Enterprises 120,655 227 (15,752) 105,130
Collateralized Loan Obligations 29,862 - (58) 29,804
Corporate Debt 9,484 - (1,765) 7,719
Total Available-for-Sale Debt Securities 225,854 373 (21,720) 204,507
Equity Securities:
Mutual Funds
888
Other
1,700
Total Equity Securities 2,588
Total Securities $ 207,095
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The following tables show the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated:
June 30, 2024
Less than 12 months
12 Months or Greater
Total
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
(Dollars in thousands)
U.S. Government Agencies
- $ - $ - 1 $ 3,903 $ (1,093) 1 $ 3,903 $ (1,093)
Obligations of States and Political Subdivisions
1 543 (3) 6 2,791 (151) 7 3,334 (154)
Mortgage Backed Securities- Government-Sponsored Enterprises 4 26,375 (333) 8 16,042 (3,117) 12 42,417 (3,450)
Collateralized Mortgage Obligations - Government-Sponsored Enterprises 4 31,944 (685) 21 67,040 (16,288) 25 98,984 (16,973)
Collateralized Loan Obligations 5 37,617 (205) - - - 5 37,617 (205)
Corporate Debt - - - 3 7,979 (1,502) 3 7,979 (1,502)
Total 14 $ 96,479 $ (1,226) 39 $ 97,755 $ (22,151) 53 $ 194,234 $ (23,377)
December 31, 2023
Less than 12 months
12 Months or Greater
Total
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
(Dollars in thousands)
U.S. Government Agencies
- $ - $ - 1 $ 3,949 $ (1,046) 1 $ 3,949 $ (1,046)
Obligations of States and Political Subdivisions
- - - 6 2,823 (113) 6 2,823 (113)
Mortgage Backed Securities- Government-Sponsored Enterprises - - - 8 17,135 (2,986) 8 17,135 (2,986)
Collateralized Mortgage Obligations - Government-Sponsored Enterprises 1 5,603 (29) 21 71,796 (15,723) 22 77,399 (15,752)
Collateralized Loan Obligations 1 2,910 (58) - - - 1 2,910 (58)
Corporate Debt - - - 3 7,719 (1,765) 3 7,719 (1,765)
Total
2 $ 8,513 $ (87) 39 $ 103,422 $ (21,633) 41 $ 111,935 $ (21,720)
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For debt securities, the Company does not believe that any individual unrealized loss as of June 30, 2024 or December 31, 2023, represents a credit related impairment. The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate a credit related impairment. The unrealized losses on securities at June 30, 2024 and December 31, 2023 relate principally to changes in market interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell, and it is more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.
Total securities available to be pledged have a fair value of $249.8 million at June 30, 2024 and $196.8 million at December 31, 2023 of which securities with a fair value of $171.1 million and $157.3 million at June 30, 2024 and December 31, 2023, respectively, were pledged to secure uninsured public deposits, borrowings or for other purposes as required or permitted by law.
The scheduled maturities of securities available-for-sale are summarized as follows. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay debt obligations with or without prepayment penalties. Mortgage-backed securities, collateralized mortgage obligations and collateralized loan obligations are classified in the table below based on their contractual maturity date; however, regular principal payments and prepayments of principal are received on a monthly basis.
June 30, 2024
Amortized
Cost
Fair
Value
(Dollars in thousands)
Due in One Year or Less
$ - $ -
Due after One Year through Five Years
758 732
Due after Five Years through Ten Years
53,054 51,125
Due after Ten Years
235,885 214,521
Total
$ 289,697 $ 266,378
The following table presents the gain and loss on equity securities from both realized sales and unrealized market adjustments for the periods indicated. There was no realized gain or loss on sales of debt securities for the periods indicated. All gains and losses presented in the table below are reported in Net Loss on Securities on the Consolidated Statements of Income.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
(Dollars in thousands)
Equity Securities
Net Unrealized Loss Recognized on Securities Held $ (31) $ (100) $ (197) $ (332)
Net Realized Gain Recognized on Securities Sold - - - -
Net Loss on Equity Securities $ (31) $ (100) $ (197) $ (332)
Net Loss on Securities $ (31) $ (100) $ (197) $ (332)
Note 4. Loans and Allowance for Credit Losses
The Company's loan portfolio is segmented to enable management to monitor risk and performance. Real estate loans are further segregated into three classes. Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate. Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate. The commercial and industrial segment consists of loans to finance the activities of commercial customers. The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit.
Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient.
Commercial real estate loans generally present a higher level of credit risk than loans secured by residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the
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related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower's ability to repay the loan may be impaired.
Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. Construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion.
Commercial and industrial loans are generally secured by inventories, accounts receivable, and other business assets, which present collateral risk.
Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan.
The following table presents the classifications of loans as of the dates indicated:
June 30, 2024 December 31, 2023
(Dollars in thousands)
Real Estate:
Residential
$ 342,689 $ 347,808
Commercial
458,724 467,154
Construction
44,038 43,116
Commercial and Industrial
112,395 111,278
Consumer
90,357 111,643
Other
30,491 29,397
Total Loans
1,078,694 1,110,396
Allowance for Credit Losses (9,527) (9,707)
Loans, Net
$ 1,069,167 $ 1,100,689
Total unamortized net deferred loan fees were $870,000 and $1.0 million at June 30, 2024 and December 31, 2023, respectively.
The Company uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five categories are not considered criticized and are aggregated as "pass" rated. The criticized rating categories used by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as loss are considered uncollectible and of such little value that continuance as an asset is not warranted.
The following tables present the Company's loans by year of origination, loan segmentation and risk indicator summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated. There were no loans in the criticized category of Loss.
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Classified Loans by Origination Year (as of June 30, 2024)
(dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total
Real Estate:
Residential
Pass $ 9,154 $ 32,764 $ 49,307 $ 43,623 $ 57,115 $ 133,401 $ 14,694 $ 340,058
Special Mention - - 1,017 - - - - 1,017
Substandard - - - - - 1,614 - 1,614
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 9,154 32,764 50,324 43,623 57,115 135,015 14,694 342,689
Commercial
Pass 17,417 52,058 67,282 89,031 47,060 151,911 2,204 426,963
Special Mention - 1,180 5,407 4,582 289 10,187 - 21,645
Substandard - - - - 2,103 8,013 - 10,116
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 17,417 53,238 72,689 93,613 49,452 170,111 2,204 458,724
Construction
Pass 842 16,694 12,031 438 - - - 30,005
Special Mention - 4,322 2,561 269 6,881 - - 14,033
Substandard - - - - - - - -
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 842 21,016 14,592 707 6,881 - - 44,038
Commercial and Industrial
Pass 21,683 26,361 14,639 6,080 4,932 5,185 23,047 101,927
Special Mention - - - - 5 3,385 3,250 6,640
Substandard - - - - - 3,828 - 3,828
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 21,683 26,361 14,639 6,080 4,937 12,398 26,297 112,395
Consumer
Pass 709 11,044 40,451 19,765 7,497 5,504 5,285 90,255
Special Mention - - - - - - - -
Substandard - - - 22 22 58 - 102
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 709 11,044 40,451 19,787 7,519 5,562 5,285 90,357
Other
Pass - 4,044 18,957 34 612 4,749 558 28,954
Special Mention - - 1,537 - - - - 1,537
Substandard - - - - - - - -
Doubtful - - - - - - - -
Loss - - - - - - - -
Total - 4,044 20,494 34 612 4,749 558 30,491
Total Loans $ 49,805 $ 148,467 $ 213,189 $ 163,844 $ 126,516 $ 327,835 $ 49,038 $ 1,078,694
Gross Charge Offs $ - $ 24 $ 81 $ 11 $ 36 $ 24 $ 42 $ 218
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Classified Loans by Origination Year (as of December 31, 2023)
(dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total
Real Estate:
Residential
Pass $ 33,579 $ 49,903 $ 44,749 $ 58,344 $ 38,008 $ 104,931 $ 14,932 $ 344,446
Special Mention - 1,034 507 - - 345 - 1,886
Substandard - - - - - 1,476 - 1,476
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 33,579 50,937 45,256 58,344 38,008 106,752 14,932 347,808
Commercial
Pass 56,466 72,006 85,285 49,356 49,442 112,749 2,017 427,321
Special Mention 1,206 5,485 9,030 2,445 2,730 10,281 - 31,177
Substandard - - - - 2,717 5,939 - 8,656
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 57,672 77,491 94,315 51,801 54,889 128,969 2,017 467,154
Construction
Pass 13,322 12,469 2,932 540 - - - 29,263
Special Mention 4,489 2,153 663 6,548 - - - 13,853
Substandard - - - - - - - -
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 17,811 14,622 3,595 7,088 - - - 43,116
Commercial and Industrial
Pass 31,609 16,334 8,652 5,556 3,366 2,875 32,172 100,564
Special Mention - - - 12 - 3,215 3,250 6,477
Substandard - - - - - 4,237 - 4,237
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 31,609 16,334 8,652 5,568 3,366 10,327 35,422 111,278
Consumer
Pass 12,726 49,027 25,528 10,365 3,786 4,715 5,408 111,555
Special Mention - - - - - - - -
Substandard - - - 24 - 64 - 88
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 12,726 49,027 25,528 10,389 3,786 4,779 5,408 111,643
Other
Pass 4,047 17,248 41 646 1,278 3,701 851 27,812
Special Mention - 1,585 - - - - - 1,585
Substandard - - - - - - - -
Doubtful - - - - - - - -
Loss - - - - - - - -
Total 4,047 18,833 41 646 1,278 3,701 851 29,397
Total Loans $ 157,444 $ 227,244 $ 177,387 $ 133,836 $ 101,327 $ 254,528 $ 58,630 $ 1,110,396
Gross Charge Offs $ - $ 163 $ 44 $ 18 $ 2 $ 314 $ 48 $ 589
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The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated:
June 30, 2024
Loans
Current
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past Due
Non-
Accrual
Total
Loans
(Dollars in Thousands)
Real Estate:
Residential
$ 338,638 $ 2,625 $ - $ - $ 2,625 $ 1,426 $ 342,689
Commercial
458,395 - - - - 329 458,724
Construction
44,038 - - - - - 44,038
Commercial and Industrial
112,395 - - - - - 112,395
Consumer
88,995 1,106 154 - 1,260 102 90,357
Other
30,491 - - - - - 30,491
Total Loans
$ 1,072,952 $ 3,731 $ 154 $ - $ 3,885 $ 1,857 $ 1,078,694
December 31, 2023
Loans
Current
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
Or More
Past Due
Total
Past Due
Non-
Accrual
Total
Loans
(Dollars in Thousands)
Real Estate:
Residential
$ 342,852 $ 3,339 $ 141 $ - $ 3,480 $ 1,476 $ 347,808
Commercial
466,794 - - - - 360 467,154
Construction
43,116 - - - - - 43,116
Commercial and Industrial
110,905 57 - - 57 316 111,278
Consumer
110,459 1,010 86 - 1,096 88 111,643
Other
29,397 - - - - - 29,397
Total Loans
$ 1,103,523 $ 4,406 $ 227 $ - $ 4,633 $ 2,240 $ 1,110,396
Additional interest income that would have been recorded if the loans that were nonaccrual at June 30, 2024 were current was $21,000 and $40,000 for the three and six months ended June 30, 2024, respectively, and $61,000 and $86,000 for the three and six months ended June 30, 2023, respectively.
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The following table sets forth the amounts for amortized cost basis of loans on nonaccrual status, loans past due 90 days still accruing, and categories of nonperforming assets at the date indicated.
June 30, 2024
Nonaccrual With No ACL Nonaccrual With ACL Loans Past Due 90 Days Still Accruing Total Nonperforming Assets
(Dollars in Thousands)
Nonaccrual Loans:
Real Estate:
Residential
$ 1,426 $ - $ - $ 1,426
Commercial
329 - - 329
Construction - - - -
Commercial and Industrial
- - - -
Consumer
102 - - 102
Total Nonaccrual Loans
$ 1,857 $ - $ - 1,857
Other Real Estate Owned:
Residential
151
Commercial
-
Total Other Real Estate Owned
151
Total Nonperforming Assets
$ 2,008
December 31, 2023
Nonaccrual With No ACL Nonaccrual With ACL Loans Past Due 90 Days Still Accruing Total Nonperforming Assets
(Dollars in Thousands)
Nonaccrual Loans:
Real Estate:
Residential
$ 1,476 $ - $ - $ 1,476
Commercial
360 - - 360
Commercial and Industrial
316 - - 316
Consumer
88 - - 88
Total Nonaccrual Loans
$ 2,240 $ - $ - 2,240
Other Real Estate Owned:
Residential
162
Commercial
-
Total Other Real Estate Owned
162
Total Nonperforming Assets
$ 2,402
No interest income on nonaccrual loans was recognized during the three and six months ended June 30, 2024 and June 30, 2023.
All modifications and refinancing, including those with borrowers that are experiencing financial difficulty are subject to the modification guidance in ASC 310-20. Loan modifications could meet the definition of a new loan if certain terms of the loan are modified to the benefit of the lender and the modification to the terms of the loan are more than minor. Both of these criteria have to be met to define the modification as a new loan. If a loan modification meets the criteria of new loan, then the new loan should include the remaining net investment in the original loan, additional funds advanced, fees received, and direct loan origination costs with the refinancing or restructuring. Additionally, the effective interest rate should be recalculated based on the amortized cost basis of the new loan and a reassessment of contractual cash flow. For the three and six months ended June 30, 2024 and June 30, 2023, there were no new loan modifications to borrowers experiencing financial difficulty.
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The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $1.0 million and $907,000 at June 30, 2024 and December 31, 2023, respectively.
The activity in the ACL - Loans is summarized below by primary segments for the periods indicated:
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Total
(Dollars in thousands)
March 31, 2024 $ 2,832 $ 2,948 $ 870 $ 1,587 $ 1,084 $ 261 $ 9,582
Charge-offs
- - - - (156) - (156)
Recoveries
2 - - 46 41 - 89
Provision (Recovery) for Credit Losses - Loans 10 134 (126) (148) 162 (20) 12
June 30, 2024 $ 2,844 $ 3,082 $ 744 $ 1,485 $ 1,131 $ 241 $ 9,527
Real
Estate
Residential 		Real
Estate
Commercial 		Real
Estate
Construction 		Commercial
and
Industrial 		Consumer Other Total
(Dollars in thousands)
March 31, 2023 $ 2,156 $ 3,056 $ 805 $ 1,997 $ 2,098 $ 158 $ 10,270
Charge-offs (97) - - - (51) - (148)
Recoveries 1 23 - 8 20 - 52
Provision (Recovery) for Credit Losses - Loans 296 137 133 135 (219) 10 492
June 30, 2023 $ 2,356 $ 3,216 $ 938 $ 2,140 $ 1,848 $ 168 $ 10,666
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Total
(Dollars in thousands)
December 31, 2023 $ 3,129 $ 2,630 $ 639 $ 1,693 $ 1,367 $ 249 $ 9,707
Charge-offs
- - - (12) (206) - (218)
Recoveries
11 - - 89 68 - 168
Provision (Recovery) for Credit Losses - Loans (296) 452 105 (285) (98) (8) (130)
June 30, 2024 $ 2,844 $ 3,082 $ 744 $ 1,485 $ 1,131 $ 241 $ 9,527
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Table of Contents
Real
Estate
Residential
Real
Estate
Commercial
Real
Estate
Construction
Commercial
and
Industrial
Consumer
Other
Unallocated
Total
(Dollars in thousands)
December 31, 2022 $ 2,074 $ 5,810 $ 502 $ 2,313 $ 1,517 $ - $ 603 $ 12,819
Impact of ASC 326 - Loans 137 (3,244) 488 (1,057) 774 120 (603) (3,385)
Charge-offs
(97) - - - (104) - - (201)
Recoveries
14 23 - 766 58 - - 861
Provision (Recovery) 228 627 (52) 118 (397) 48 - 572
June 30, 2023 $ 2,356 $ 3,216 $ 938 $ 2,140 $ 1,848 $ 168 $ - $ 10,666
The Company's allowance for credit losses on unfunded commitments is recognized as a liability (accrued interest payable and other liabilities on the Consolidated Statement of Financial Condition), with adjustments to the reserve recognized in provision for credit losses - unfunded commitments on the Consolidated Statement of Income. The Company's activity in the allowance for credit losses on unfunded commitments for the periods indicated was as follows:
(in thousands) Allowance for Credit Losses
Balance at March 31, 2024
$ 605
Recovery for Credit Losses - Unfunded Commitments (48)
Balance at June 30, 2024 $ 557
(in thousands) Allowance for Credit Losses
Balance at March 31, 2023 $ 718
Impact of CECL Adoption -
Recovery for Credit Losses - Unfunded Commitments (60)
Balance at June 30, 2023 $ 658
(in thousands) Allowance for Credit Losses
Balance at December 31, 2023 $ 500
Provision for Credit Losses - Unfunded Commitments 57
Balance at June 30, 2024 $ 557
(in thousands) Allowance for Credit Losses
Balance at December 31, 2022 $ -
Impact of CECL Adoption 718
Recovery for Credit Losses - Unfunded Commitments (60)
Balance at June 30, 2023 $ 658
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Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL - Loans is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. During the three and six months ended June 30, 2024 and June 30, 2023, there were no loans that required a credit loss to be individually assigned.
Note 5. Derivatives and Hedging Activities
Derivatives Not Designated as Hedging Instruments
The Company has four risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which it is a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution.
Derivatives Designated as Hedging Instruments
In October 2023, the Company entered into an interest rate swap contract that is designated as a fair value hedge to mitigate the risk of interest rate increases and the subsequent impact on the associated fixed rate mortgages. This contract matures on October 17, 2026, has a notional amount of $75.0 million and is benchmarked to SOFR. The Company expects the hedge to remain effective during the remaining term of the swap.
The following table depicts the credit value and fair value adjustments recorded related to the notional amount of derivatives outstanding and risk participation agreements with other financial institutions. These adjustments are included in Accrued Interest Payable and Other Liabilities on the Company's Consolidated Statement of Financial Condition.
June 30, 2024 December 31, 2023
(Dollars in Thousands)
Derivatives not Designated as Hedging Instruments
Risk Participation Agreements:
Credit Value Adjustment $ (91) $ (94)
Notional Amount 16,374 9,119
Derivatives Designated as Hedging Instruments
Interest rate swaps:
Fair Value Adjustment (345) (1,777)
Notional Amount 75,000 75,000
Note 6. Fair Value Disclosure
ASC Topic 820 "Fair Value Measurement" defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.
The three levels of fair value hierarchy are as follows:
Level 1 - Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.
Level 2 - Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs.
Level 3 - Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques.
This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.
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The majority of the Company's securities are included in Level 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.
The Company uses derivative instruments, including interest rate swaps and risk participation agreements, and the fair value of such instruments are calculated using accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative, considering the contractual terms of each derivative, and uses observable market-based inputs, such as interest rate curves and implied volatilities. Credit valuation adjustments are incorporated to appropriately reflect nonperformance risk and the respective counterparties' nonperformance risk in calculating fair value measurements. These instruments are classified as Level 2.
There were no transfers into or out of Level 3 during the six months ended June 30, 2024 or year ended December 31, 2023.
The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated Statements of Financial Condition as of the dates indicated, by level within the fair value hierarchy:
Fair Value
Hierarchy
June 30, 2024 December 31, 2023
(Dollars in thousands)
ASSETS
Available-for-Sale Debt Securities
U.S. Government Agencies
Level 2
$ 3,903 $ 3,949
Obligations of States and Political Subdivisions
Level 2
3,334 3,373
Mortgage-Backed Securities - Government-Sponsored Enterprises
Level 2
52,369 54,532
Collateralized Mortgage Obligations - Government Sponsored Enterprises
Level 2
98,984 105,130
Collateralized Loan Obligations Level 2 99,809 29,804
Corporate Debt Level 2 7,979 7,719
Total Available-for-Sale Debt Securities 266,378 204,507
Equity Securities
Mutual Funds
Level 1
874 888
Other
Level 1
1,517 1,700
Total Equity Securities 2,391 2,588
Total Securities $ 268,769 $ 207,095
Total Assets $ 268,769 $ 207,095
LIABILITIES
Derivative Financial Liabilities
Interest Rate Swaps Level 2 $ 345 $ 1,777
Risk Participation Agreements Level 2 91 94
Total Liabilities $ 436 $ 1,871
The following table presents the financial assets on the Consolidated Statements of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount. The table also presents the significant unobservable inputs used in the fair value measurements.
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Financial Asset Fair Value Hierarchy December 31,
2023 		Valuation
Techniques 		Significant Unobservable Inputs Range Weighted Average
(Dollars in thousands)
OREO Level 3 $ -
Appraisal of Collateral (1)
Liquidation Expenses (2)
100 % to 100 %
100.0%
(1)Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable.
(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal.
Collateral dependent impaired loans are evaluated and valued at the time the loan is identified as impaired at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing the loans and is classified as Level 3 in the fair value hierarchy. At June 30, 2024 and December 31, 2023, the Company did not have any loans that would be required to be remeasured.
The fair value of mortgage servicing rights ("MSRs") is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3. At June 30, 2024 and December 31, 2023, the Company did not have any MSRs that would be required to be remeasured.
Other real estate owned ("OREO") properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy. As of June 30, 2024 the Company did not have any OREO that would be required to be remeasured. At December 31, 2023, OREO measured at fair value less costs to sell had no net carrying value, which consisted of the outstanding balance of $37,000 less write-downs of $37,000.
Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management's judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.
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The following table presents the estimated fair values of the Company's financial instruments at the dates indicated.
June 30, 2024 December 31, 2023
Fair Value
Hierarchy
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(Dollars in thousands)
Financial Assets:
Cash and Due From Banks:
Interest-Earning
Level 1
$ 133,796 $ 133,796 $ 62,442 $ 62,442
Noninterest-Earning
Level 1
8,804 8,804 5,781 5,781
Securities
See Above
268,769 268,769 207,095 207,095
Loans Held for Sale Level 2 632 632 - -
Loans, Net
Level 3
1,069,167 1,024,258 1,100,689 1,051,722
Restricted Stock
Level 2
3,119 3,119 3,345 3,345
Mortgage Servicing Rights Level 3 497 923 540 974
Accrued Interest Receivable
Level 2
5,654 5,654 5,086 5,086
Financial Liabilities:
Deposits
Level 2
1,349,768 1,349,024 1,267,159 1,263,574
Other Borrowed Funds
FHLB Borrowings Level 2 20,000 19,872 20,000 19,962
Subordinated Debt Level 2 14,698 13,313 14,678 13,378
Derivative Liabilities Level 2 436 436 1,871 1,871
Accrued Interest Payable
Level 2
2,797 2,797 1,814 1,814
Note 7. Commitments and Contingent Liabilities
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
The Company maintains an ACL on unfunded commitments to provide for the risk of loss inherent in these arrangements. The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancellable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. The ACL on unfunded loan commitments is included in other liabilities on the Consolidated Statement of Financial Condition and the related expense is recorded in provision for credit losses - unfunded commitments in the Consolidated Statement of Income.
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The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated:
June 30,
2024 		December 31,
2023
(Dollars in thousands)
Standby Letters of Credit
$ 75 $ 110
Performance Letters of Credit
795 895
Construction Loans
45,887 47,034
Personal Lines of Credit
7,151 7,185
Overdraft Protection Lines
4,536 2,025
Home Equity Lines of Credit
26,254 24,176
Commercial Lines of Credit
64,815 64,667
Total Commitments
$ 149,513 $ 146,092
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the letter. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets. The Company recorded no liability associated with standby letters of credit as of June 30, 2024 and December 31, 2023.
Note 8. Leases
The Company evaluates all contracts at commencement to determine if a lease is present. In accordance with ASC Topic 842, leases are defined as either operating or finance leases. The Company's lease contracts are all classified as operating leases and create operating right-of-use ("ROU") assets and corresponding lease liabilities on the Consolidated Statements of Financial Condition. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assetsare reported in Accrued Interest Receivable and Other Assets and the related lease liabilitiesin Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition.
The following tables present the lease expense, ROU assets, weighted average term, discount rate and maturity analysis of lease liabilities for operating leases for the periods and dates indicated.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
(Dollars in thousands)
Operating Lease Expense $ 99 $ 77 $ 176 $ 154
Variable Lease Expense 8 8 16 15
Total Lease Expense $ 107 $ 85 $ 192 $ 169
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June 30,
2024 		December 31,
2023
(Dollars in thousands)
Operating Leases:
ROU Assets $ 2,989 $ 1,673
Weighted Average Lease Term in Years 11.07 7.50
Weighted Average Discount Rate 4.15 % 2.86 %
June 30,
2024
(Dollars in thousands)
Maturity Analysis:
Due in One Year $ 505
Due After One Year to Two Years 408
Due After Two Years to Three Years 409
Due After Three Years to Four Years 405
Due After Four to Five Years 336
Due After Five Years 1,962
Total $ 4,025
Less: Present Value Discount 952
Lease Liabilities $ 3,073
On March 29, 2024, the Bank completed the sale and leaseback of a branch office located in Rostraver, Pennsylvania, for a sales price of $1.1 million. As a result, the Bank recorded a pre-tax net gain of $274,000. Concurrently, the Bank entered into a lease agreement with the purchaser under which the Bank will lease the property for an initial term of 20 years with specified renewal options. The lease agreement includes a 2.0% annual rent escalation during the initial term and renewal terms, if exercised. The Bank recorded an operating lease ROU asset and corresponding lease liability of $1.0 million.
On April 8, 2024, the Bank entered into a lease agreement under which the Bank will lease retail property located in Uniontown, Pennsylvania. The lease agreement is for an initial term of five years with specified renewal options. The lease agreement includes a 2.5% annual rent escalation during the initial term and renewal terms, if exercised. The Bank recorded an operating lease ROU asset and corresponding lease liability of $410,000.
There were no new lease agreements which commenced during the six months ended June 30, 2023.
Note 9. Segment and Related Information
At June 30, 2024, the Company's business activities were comprised of one operating segment, which is community banking. In prior reporting periods, the Company's business activities were comprised of two operating segments, community banking and insurance brokerage services. CB Financial is the parent company of the Bank and Exchange Underwriters ("EU"), a wholly owned subsidiary of the Bank.
EU had an independent board of directors from the Company and was managed separately from the banking and related financial services that the Company offers. EU was an independent insurance agency that offered property, casualty, commercial liability, surety and other insurance products.
On December 1, 2023, the Company announced that the Bank and EU entered into an Asset Purchase Agreement with World Insurance Associates, LLC ("World") pursuant to which EU sold substantially all of its assets to World for a purchase price of $30.5 million cash plus possible additional earn-out payments. The sale of assets was completed on December 8, 2023 and resulted in a pre-tax gain of $24.6 million. Assets remaining in the EU subsidiary at June 30, 2024 and December 31, 2023 consisted primarily of cash received from the sale of assets. The EU subsidiary is expected to be merged into the Bank, with the remaining assets and liabilities being transferred to the Bank during 2024.
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The following is a table of selected financial data for the Company's subsidiaries and consolidated results at the dates and for the periods indicated:
Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated
(Dollars in thousands)
June 30, 2024
Assets $ 1,558,458 $ 26,233 $ 157,615 $ (182,047) $ 1,560,259
Liabilities 1,418,052 4,974 14,733 (20,382) 1,417,377
Stockholders' Equity 140,406 21,259 142,882 (161,665) 142,882
December 31, 2023
Assets $ 1,452,469 $ 28,830 $ 154,698 $ (179,906) $ 1,456,091
Liabilities 1,315,110 7,571 14,864 (21,288) 1,316,257
Stockholders' Equity 137,359 21,259 139,834 (158,618) 139,834
Three Months Ended June 30, 2024
Interest and Dividend Income $ 18,919 $ - $ 1,306 $ (1,286) $ 18,939
Interest Expense 7,314 - 155 - 7,469
Net Interest and Dividend Income 11,605 - 1,151 (1,286) 11,470
Provision for Credit Losses - Loans 12 - - - 12
Recovery for Credit Losses - Unfunded Commitments (48) - - - (48)
Net Interest and Dividend Income After Net Recovery for Credit Losses 11,641 - 1,151 (1,286) 11,506
Noninterest Income (Loss) 714 - (26) - 688
Noninterest Expense 8,978 - 6 - 8,984
Undistributed Net Income of Subsidiary - - 1,500 (1,500) -
Income Before Income Tax Expense (Benefit) 3,377 - 2,619 (2,786) 3,210
Income Tax Expense (Benefit) 591 - (31) - 560
Net Income $ 2,786 $ - $ 2,650 $ (2,786) $ 2,650
Six Months Ended June 30, 2024
Interest and Dividend Income $ 36,884 $ - $ 2,608 $ (2,566) $ 36,926
Interest Expense 13,554 - 310 - 13,864
Net Interest and Dividend Income 23,330 - 2,298 (2,566) 23,062
Recovery for Credit Losses - Loans (130) - - - (130)
Provision for Credit Losses - Unfunded Commitments 57 - - - 57
Net Interest and Dividend Income After Net Recovery for Credit Losses 23,403 - 2,298 (2,566) 23,135
Noninterest Income (Loss) 2,787 - (183) - 2,604
Noninterest Expense 17,401 - 11 - 17,412
Undistributed Net Income of Subsidiary - - 4,650 (4,650) -
Income Before Income Tax Expense (Benefit) 8,789 - 6,754 (7,216) 8,327
Income Tax Expense (Benefit) 1,573 - (93) - 1,480
Net Income $ 7,216 $ - $ 6,847 $ (7,216) $ 6,847
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Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated
(Dollars in thousands)
Three Months Ended June 30, 2023
Interest and Dividend Income $ 15,182 $ 2 $ 1,297 $ (1,278) $ 15,203
Interest Expense 3,926 - 157 - 4,083
Net Interest and Dividend Income 11,256 2 1,140 (1,278) 11,120
Provision for Credit Losses - Loans 492 - - - 492
Recovery for Credit Losses - Unfunded Commitments (60) - - - (60)
Net Interest and Dividend Income After Net Provision for Credit Losses 10,824 2 1,140 (1,278) 10,688
Noninterest Income (Loss) 810 1,545 (86) - 2,269
Noninterest Expense 8,457 1,044 - - 9,501
Undistributed Net Income of Subsidiary 357 - 1,656 (2,013) -
Income Before Income Tax Expense (Benefit) 3,534 503 2,710 (3,291) 3,456
Income Tax Expense (Benefit) 600 146 (47) - 699
Net Income $ 2,934 $ 357 $ 2,757 $ (3,291) $ 2,757
Six Months Ended June 30, 2023
Interest and Dividend Income $ 29,405 $ 3 $ 2,593 $ (2,553) $ 29,448
Interest Expense 6,433 - 311 - 6,744
Net Interest and Dividend Income 22,972 3 2,282 (2,553) 22,704
Provision for Credit Losses - Loans 572 - - - 572
Recovery for Credit Losses - Unfunded Commitments (60) - - - (60)
Net Interest and Dividend Income After Net Provision for Credit Losses 22,460 3 2,282 (2,553) 22,192
Noninterest Income (Loss) 1,911 3,501 (332) - 5,080
Noninterest Expense 16,382 2,143 5 - 18,530
Undistributed Net Income of Subsidiary 965 - 4,842 (5,807) -
Income Before Income Tax Expense (Benefit) 8,954 1,361 6,787 (8,360) 8,742
Income Tax Expense (Benefit) 1,559 396 (128) - 1,827
Net Income $ 7,395 $ 965 $ 6,915 $ (8,360) $ 6,915
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Note 10. Stock Based Compensation
The following table presents stock option information for the period indicated.
Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual
Life in Years
Outstanding Options at December 31, 2023 337,444 $ 24.11 5.6
Granted 93,950 22.12
Exercised - -
Forfeited (20,097) 24.96
Outstanding Options at June 30, 2024 411,297 $ 23.61 6.0
Exercisable Options at June 30, 2024 217,323 $ 24.32 3.5
Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years
Nonvested Options at June 30, 2024 193,974 $ 22.82 8.8
Summary of Significant Assumptions for Newly Issued Stock Options
Expected Term in Years 6.5
Expected Volatility 30.4 %
Expected Dividends $ 1.00
Risk Free Rate of Return 3.98 %
Weighted Average Grant Date Fair Value (per share) $ 4.81
The following table presents restricted stock award information for the period indicated:
Number of Shares Weighted Average Grant Date Fair Value Price Weighted Average Remaining Service Period in Years
Nonvested Restricted Stock at December 31, 2023 68,777 $ 23.16 3.8
Granted 25,410 22.12
Vested (8,033) 24.00
Forfeited (1,990) 22.63
Nonvested Restricted Stock at June 30, 2024 84,164 $ 22.78 3.3
The Company recognizes expense over a five-year vesting period for the restricted stock awards and stock options. Stock-based compensation expense related to restricted stock awards and stock options was $198,000 and $187,000 for the three months ended June 30, 2024 and 2023. Stock-based compensation expense was $376,000 and $361,000 for the six months ended June 30, 2024 and 2023.
As of June 30, 2024 and December 31, 2023, total unrecognized compensation expense was $799,000 and $505,000, respectively, related to stock options, and $1.6 million and $1.4 million, respectively, related to restricted stock awards.
Intrinsic value represents the amount by which the fair value of the underlying stock at June 30, 2024 and December 31, 2023 exceeds the exercise price of the stock options. The intrinsic value of stock options was $165,000 and $335,000 at June 30, 2024 and December 31, 2023, respectively.
At June 30, 2024 there were 287,500 shares of common stock available and reserved under the 2024 Plan to be issued as restricted stock awards or units based on the terms of the Plan. At June 30, 2024, no shares have been granted under the 2024 Plan. Under the 2021 Plan, there were 161,464 shares available at December 31, 2023 to be issued in connection with the exercise of stock
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options, and 64,586 shares to be issued as restricted stock awards or units. The 2021 Plan shall remain in effect as long as any awards are outstanding, but as a result of the approval of the 2024 Plan, no more awards can be granted under the 2021 Plan.
Note 11. Subsequent Events
The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events, to be recognizable events.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Forward-Looking Statements
This report contains certain "forward-looking statements" within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company's current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions. Management's ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:
•General and local economic conditions;
•Our ability to realize the expected cost savings and other efficiencies related to our branch optimization and operational efficiency initiatives;
•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 integrate the operations of businesses we acquire;
•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 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.
General
CB Financial Services is a bank holding company established in 2006 and headquartered in Carmichaels, Pennsylvania. CB Financial's business activity is conducted primarily through its wholly owned bank subsidiary, Community Bank.
The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from nine branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and three offices in Marshall and Ohio Counties in West Virginia. The Bank also has a loan production office in Allegheny County, a corporate center in Washington County and an operations center in Greene County, all of which are in Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area.
Overview
The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of June 30, 2024, compared to the consolidated financial condition as of December 31, 2023
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and the consolidated results of operations for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contracted services, legal and professional fees, advertising, deposit and general insurance and other expenses.
Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in southwestern Pennsylvania and Ohio Valley market areas.
Explanation of Use of Non-GAAP Financial Measures
In addition to financial measures presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information in understanding our underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Non-GAAP adjusted items impacting the Company's financial performance are identified to assist investors in providing a complete understanding of factors and trends affecting the Company's business and in analyzing the Company's operating results on the same basis as that applied by management. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with similar non-GAAP measures which may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.
The interest income on interest-earning assets, net interest rate spread and net interest margin are presented on a fully tax-equivalent ("FTE") basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory income tax rate of 21.0%. We believe the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.
The following table reconciles net interest income, net interest spread and net interest margin on a FTE basis for the periods indicated:
Three Months Ended
Six Months Ended
June 30, June 30,
2024 2023 2024 2023
(Dollars in thousands)
Interest Income (GAAP) $ 18,939 $ 15,203 $ 36,926 $ 29,448
Adjustment to FTE Basis
41 35 78 65
Interest Income (FTE) (Non-GAAP)
18,980 15,238 37,004 29,513
Interest Expense (GAAP) 7,469 4,083 13,864 6,744
Net Interest Income (FTE) (Non-GAAP)
$ 11,511 $ 11,155 $ 23,140 $ 22,769
Net Interest Rate Spread (GAAP)
2.44 % 2.78 % 2.55 % 2.95 %
Adjustment to FTE Basis
0.02 0.01 0.01 0.01
Net Interest Rate Spread (FTE) (Non-GAAP)
2.46 % 2.79 % 2.56 % 2.96 %
Net Interest Margin (GAAP)
3.18 % 3.29 % 3.27 % 3.40 %
Adjustment to FTE Basis
0.01 0.01 0.01 0.01
Net Interest Margin (FTE) (Non-GAAP)
3.19 % 3.30 % 3.28 % 3.41 %
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Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity divided by period-end common shares outstanding. We believe this non-GAAP measure serves as a useful tool to help evaluate the strength and discipline of the Company's capital management strategies and as an additional, conservative measure of the Company's total value.
June 30,
2024 		December 31, 2023
(Dollars in thousands, except share and per share data)
Stockholders' Equity (GAAP) $ 142,882 $ 139,834
Goodwill and Other Intangible Assets, Net (10,085) (10,690)
Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 132,797 $ 129,144
Common Shares Outstanding (Denominator) 5,141,911 5,118,713
Book Value per Common Share (GAAP) $ 27.79 $ 27.32
Tangible Book Value per Common Share (Non-GAAP) $ 25.83 $ 25.23
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Consolidated Statements of Financial Condition Analysis
Assets
Total assets increased $104.2 million, or 7.2%, to $1.6 billion at June 30, 2024 compared to $1.5 billion at December 31, 2023.
Cash and Securities
•Cash and due from banks increased $74.4 million, or 109.0%, to $142.6 million at June 30, 2024, compared to $68.2 million at December 31, 2023.
•Securities increased $61.7 million, or 29.8%, to $268.8 million at June 30, 2024, compared to $207.1 million at December 31, 2023. The securities balance was primarily impacted by the purchase of $69.8 million of collateralized loan obligation securities, partially offset by $6.8 million of repayments on amortizing securities.
Loans, Allowance for Credit Losses (ACL) and Credit Quality
•Total loans decreased $31.7 million, or 2.9%, to $1.08 billion at June 30, 2024 compared to $1.11 billion at December 31, 2023. This was driven by decreases in consumer, commercial real estate and residential real estate loans of $21.3 million, $8.4 million and $5.1 million, respectively, partially offset by increases in commercial and industrial loans, other loans and construction loans of $1.1 million, $1.1 million and $922,000, respectively. The decrease in consumer loans resulted from a reduction in indirect automobile loan production due to rising market interest rates and the discontinuation of this product offering as of June 30, 2023. This portfolio is expected to continue to decline as resources are allocated and production efforts are focused on more profitable commercial products. In total, $62.3 million of loans have paid off since December 31, 2023.
•The allowance for credit losses (ACL) was $9.5 million at June 30, 2024 and $9.7 million at December 31, 2023. As a result, the ACL to total loans was 0.88% at June 30, 2024 and December 31, 2023. The provision for credit losses recorded for the three months ended June 30, 2024 was a net recovery of $36,000. The provision for credit losses - loans was $12,000 and was primarily due to an increase in the required reserve for individually analyzed loans, partially offset by the impact of a decrease in loan balances while the provision for credit losses - unfunded commitments was $48,000 and was due to a decrease in loss rates.
•Net charge-offs for the three months ended June 30, 2024 were $67,000. Net charge-offs for the three months ended June 30, 2023 were $96,000, or 0.04% of average loans on an annualized basis primarily due to recoveries totaling $750,000 related to a prior year $2.7 million charged-off commercial and industrial loan.
•Nonperforming loans, which include nonaccrual loans and accruing loans past due 90 days or more, were $1.9 million at June 30, 2024 and $2.2 million at December 31, 2023. Nonperforming loans to total loans ratio was 0.17% at June 30, 2024 and 0.20% at December 31, 2023.
Liabilities
Total liabilities increased $101.1 million, or 7.7%, to $1.42 billion at June 30, 2024 compared to $1.32 billion at December 31, 2023.
Deposits
•Total deposits increased $82.6 million to $1.35 billion as of June 30, 2024 compared to $1.27 billion at December 31, 2023. Time deposits increased $115.4 million and money market deposits increased $28.9 million while interest-bearing demand, savings and non interest-bearing demand deposits decreased $38.3 million, $15.6 million and $7.8 million, respectively. Deposit changes were primarily the result of the current interest rate environment causing a shift in deposit products to higher priced money market and time deposits. Additionally, the Bank added $63.1 million of brokered certificates of deposit during the period. Brokered certificates of deposit totaled $92.1 million as of June 30, 2024 compared to $29.0 million at December 31, 2023, all mature within three months and were utilized to fund the purchase of floating rate CLO securities. At June 30, 2024, FDIC insured deposits totaled approximately 62.6% of total deposits while an additional 15.0% of deposits were collateralized with investment securities.
Accrued Interest Payable and Other Liabilities
•Accrued interest payable and other liabilities increased $18.5 million, or 128.3%, to $32.9 million at June 30, 2024, compared to $14.4 million at December 31, 2023 primarily due to the purchase of $14.7 million of syndicated loans and $7.6 million of securities which were unsettled at the end of the period.
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Stockholders' Equity
Stockholders' equity increased $3.0 million, or 2.1%, to $142.9 million at June 30, 2024, compared to $139.8 million at December 31, 2023. The key factor positively impacting stockholders' equity was $6.8 million of net income for the current period, partially offset by a $1.6 million increase in accumulated other comprehensive loss and the payment of $2.6 million in dividends since December 31, 2023.
Book value per common share (GAAP) was $27.79 at June 30, 2024 compared to $27.32 at December 31, 2023, an increase of $0.47. Tangible book value per common share (Non-GAAP) increased $0.60, or 2.4%, to $25.83 compared to $25.23 at December 31, 2023.
Refer to Explanation of Use of Non-GAAP Financial Measures in this Report.
Consolidated Results of Operations for the Three Months Ended June 30, 2024 and 2023
Overview.Net income was $2.7 million for the three months ended June 30, 2024, a decrease of $107,000 compared to net income of $2.8 million for the three months ended June 30, 2023.
Net Interest and Dividend Income.Net interest and dividend income increased $350,000, or 3.1%, to $11.5 million for the three months ended June 30, 2024 compared to $11.1 million for the three months ended June 30, 2023. Net interest margin (GAAP) decreased to 3.18% for the three months ended June 30, 2024 compared to 3.29% for the three months ended June 30, 2023. Fully Tax Equivalent (FTE) net interest margin (Non-GAAP) decreased 11 basis points (bps) to 3.19% for the three months ended June 30, 2024 compared to 3.30% for the three months ended June 30, 2023.
Interest and Dividend Income
•Interest and dividend income increased $3.7 million, or 24.6%, to $18.9 million for the three months ended June 30, 2024 compared to $15.2 million the three months ended June 30, 2023.
◦Interest income on loans increased $1.2 million, or 9.3%, to $14.7 million for the three months ended June 30, 2024 compared to $13.4 million for the three months ended June 30, 2023. The average yield on loans increased 50 bps to 5.50% compared to 5.00% resulting in a $1.3 million increase in interest income on loans. The average balance of loans decreased $2.9 million to $1.076 billion from $1.079 billion, causing a $77,000 decrease in interest income on loans. The increase in loan yield has been driven by a reduction in lower yielding consumer loans due to the discontinuation of the indirect automobile loan product with the redeployment of those funds into higher yielding commercial loan products.
◦Interest income on taxable investment securities increased $1.9 million, or 199.4%, to $2.8 million for the three months ended June 30, 2024 compared to $950,000 for the three months ended June 30, 2023 driven by a 246 bp increase in average yield coupled with a $56.7 million increase in average balances. The increase in the average yield was the result of the Bank implementing a balance sheet repositioning strategy of its portfolio of available-for-sale securities during the fourth quarter of 2023. The Company sold $69.3 million in market value of its lower yielding U.S. government agency, mortgage-backed and municipal securities with an average yield of 1.89% and purchased $69.3 million of higher yielding mortgage-backed and collateralized mortgage obligation securities with an average yield of 5.49%. The increase in volume was driven by a $74.3 million increase in the average balance of collateralized loan obligation ("CLO") securities as the Bank executed a leverage strategy to purchase these assets funded with brokered certificates of deposits.
◦Interest income on interest-earning deposits at other banks increased $592,000, to $1.3 million for the three months ended June 30, 2024 compared to $721,000 for the three months ended June 30, 2023 driven by a $47.7 million increase in average balances, partially offset by a 19 bp decrease in the average yield. The volume increase was due in part to $30.5 million in cash received from the December 2023 sale of EU.
Interest Expense
•Interest expense increased $3.4 million, or 82.9%, to $7.5 million for the three months ended June 30, 2024 compared to $4.1 million for the three months ended June 30, 2023.
◦Interest expense on deposits increased $3.2 million, or 83.9%, to $7.1 million for the three months ended June 30, 2024 compared to $3.8 million for the three months ended June 30, 2023. Rising market interest rates led to the repricing of interest-bearing demand and money market deposits and a shift in deposits from noninterest-bearing and interest-bearing demand and savings deposits into money market and time deposits which resulted in a 109 bp, or 65.8%, increase in the average cost of interest-bearing deposits compared to the three months ended June 30, 2023. This accounted for a $2.8 million increase in interest expense. Additionally, interest-bearing deposit balances increased $103.6 million, or 11.1%, to $1.0 billion as of June 30, 2024 compared to $930.1 million as of June 30, 2023, accounting for a $462,000 increase in interest expense.
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◦Interest expense on borrowed funds increased $163,000, or 67.6%, to $404,000 for the three months ended June 30, 2024 compared to $241,000 for the three months ended June 30, 2023. The average balance of borrowed funds increased $13.2 million due to $20.0 million of FHLB long-term advances added during the second quarter of 2023. The increase in the average balance accounted for a $158,000 increase in interest expense.
Average Balances and Yields.The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of 21.0% for the periods presented. As such, amounts will not agree to income as reported in the consolidated financial statements. The yields and costs for the periods indicated are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods presented.
Three Months Ended June 30,
2024 2023
Average
Balance 		Interest
and
Dividends
Yield/
Cost (1)
Average
Balance 		Interest
and
Dividends
Yield/
Cost (1)
(Dollars in thousands) (Unaudited)
Assets:
Interest-Earning Assets:
Loans, Net(2)
$ 1,076,455 $ 14,711 5.50 % $ 1,079,399 $ 13,450 5.00 %
Debt Securities
Taxable 266,021 2,844 4.28 209,292 950 1.82
Exempt From Federal Tax - - - 6,180 53 3.43
Equity Securities 2,693 27 4.01 2,693 25 3.71
Interest-Earning Deposits at Banks 101,277 1,313 5.19 53,582 721 5.38
Other Interest-Earning Assets 3,154 85 10.84 2,783 39 5.62
Total Interest-Earning Assets 1,449,600 18,980 5.27 1,353,929 15,238 4.51
Noninterest-Earning Assets 53,564 52,812
Total Assets $ 1,503,164 $ 1,406,741
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits $ 325,069 1,858 2.30 % $ 354,497 1,582 1.79 %
Money Market Accounts 214,690 1,646 3.08 194,565 1,033 2.13
Savings Accounts 184,944 52 0.11 225,175 53 0.09
Time Deposits 308,956 3,509 4.57 155,867 1,174 3.02
Total Interest-Bearing Deposits 1,033,659 7,065 2.75 930,104 3,842 1.66
Short-Term Borrowings 2 - - 480 3 2.51
Other Borrowings 34,692 404 4.68 21,026 238 4.54
Total Interest-Bearing Liabilities 1,068,353 7,469 2.81 951,610 4,083 1.72
Noninterest-Bearing Demand Deposits 272,280 326,262
Total Funding and Cost of Funds 1,340,633 2.24 1,277,872 1.28
Other Liabilities 21,867 10,920
Total Liabilities 1,362,500 1,288,792
Stockholders' Equity 140,664 117,949
Total Liabilities and Stockholders' Equity $ 1,503,164 $ 1,406,741
Net Interest Income (FTE) (Non-GAAP) (3)
$ 11,511 $ 11,155
Net Interest-Earning Assets (4)
$ 381,247 $ 402,319
Net Interest Rate Spread (FTE) (Non-GAAP) (3)(5)
2.46 % 2.79 %
Net Interest Margin (GAAP) (6)
3.18 3.29
Net Interest Margin (FTE) (Non-GAAP) (3)(6)
3.19 3.30
Return on Average Assets (1)
0.71 0.79
Return on Average Equity (1)
7.58 9.38
Average Equity to Average Assets 9.36 8.38
Average Interest-Earning Assets to Average Interest-Bearing Liabilities 135.69 142.28
(1)Annualized based on three months ended results.
(2) Net of the allowance for credit losses and includes nonaccrual loans with a zero yield and Loans Held for Sale if applicable.
(3) Refer to Explanation and Use of Non-GAAP Financial Measures in this filing for the calculation of the measure and reconciliation to the most comparable GAAP measure.
(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(6) Net interest margin represents annualized net interest income divided by average total interest-earning assets.
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Rate/Volume Analysis.The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. FTE yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21.0%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.
Three Months Ended June 30, 2024
Compared to
Three Months Ended June 30, 2023
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net $ (77) $ 1,338 $ 1,261
Debt Securities:
Taxable 316 1,578 1,894
Exempt From Federal Tax (26) (27) (53)
Equity Securities - 2 2
Cash at Other Banks 618 (26) 592
Other Interest-Earning Assets 6 40 46
Total Interest-Earning Assets 837 2,905 3,742
Interest Expense:
Deposits 462 2,761 3,223
Short-Term Borrowings (1) (2) (3)
Other Borrowings 159 7 166
Total Interest-Bearing Liabilities 620 2,766 3,386
Change in Net Interest and Dividend Income $ 217 $ 139 $ 356
Provision for Credit Losses. The provision for credit losses recorded for the three months ended June 30, 2024 was a net recovery of $36,000. The provision for credit losses - loans was $12,000 and was primarily due to an increase in the required reserve for individually analyzed loans, partially offset by the impact of a decrease in loan balances, while the provision for credit losses - unfunded commitments was a recovery of $48,000 and was due to a decrease in loss rates. This compared to an $432,000 provision for credit losses recorded for the three months ended June 30, 2023 which was required primarily due to loan growth coupled with a modeled slowdown in loan prepayment speeds.
Noninterest Income. Noninterest income decreased $1.6 million, or 69.7%, to $688,000 for the three months ended June 30, 2024, compared to $2.3 million for the three months ended June 30, 2023. This decrease resulted primarily from a $1.5 million decrease in insurance commissions as no income was recognized for the three months ended June 30, 2024 due to the December 2023 sale of Exchange Underwriters ("EU"), compared to a full quarter of income recognized for the three months ended June 30, 2023.
Noninterest Expense.Noninterest expense decreased $517,000, or 5.4%, to $9.0 million for the three months ended June 30, 2024 compared to $9.5 million for the three months ended June 30, 2023. Salaries and benefits decreased $806,000, or 15.4%, to $4.4 million primarily due to no expense related to EU recognized for the three months ended June 30, 2024 due to the December 2023 sale, compared to $823,000 of expense recognized for the three months ended June 30, 2023, partially offset by merit increases and revenue producing staff additions. Intangible amortization decreased $182,000 as a portion of the Bank's core deposit intangible was fully amortized in February 2024 and EU intangible amortization of $47,000 was realized during the three months ended June 30, 2023. FDIC assessment expense decreased $63,000 due to a decrease in the assessment rate. Data processing expense increased $293,000 costs associated with the implementation of a new loan origination system and financial dashboard platform. Occupancy expenses increased $151,000 due to $192,000 of environmental remediation costs related to a construction project on one of the Bank's office location, partially offset by $42,000 of EU occupancy expenses realized during the three months ended June 30, 2023. Pennsylvania shares tax expense increased $102,000 due to a higher taxable base due to
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the increase in equity resulting from the sale of EU.
Income Taxes.Income tax expense was $560,000 for the three months ended June 30, 2024 compared to $699,000 for the three months ended June 30, 2023. This change was primarily driven by $95,000 reversal of expense due to a prior period over accrual and a decrease in pre-tax income to $3.2 million for the three months ended June 30, 2024 compared to $3.5 million for the three months ended June 30, 2023.
Results of Operations for the Six Months Ended June 30, 2024 and 2023
Overview.Net income was $6.8 million for the six months ended June 30, 2024, an decrease of $68,000 compared to $6.9 million for the six months ended June 30, 2023.
Net Interest and Dividend Income.Net interest and dividend income increased $358,000, or 1.6% to $23.1 million for the six months ended June 30, 2024 compared to $22.7 million for the six months ended June 30, 2023. Net interest margin (GAAP) decreased to 3.27% for the six months ended June 30, 2024 compared to 3.40% for the six months ended June 30, 2023. Net interest margin (Non-GAAP FTE) decreased 13 bps to 3.28% for the six months ended June 30, 2024 compared to 3.41% the six months ended June 30, 2023.
Interest and Dividend Income
•Interest and dividend income increased $7.5 million, or 25.4%, to $36.9 million for the six months ended June 30, 2024 compared to $29.4 million for the six months ended June 30, 2023.
◦Interest income on loans increased $3.7 million, or 14.4%, to $29.5 million during the six months ended June 30, 2024 compared to $25.8 million for the six months ended June 30, 2023. The average yield on loans increased 58 bps to 5.50% for the six months ended June 30, 2024 compared to 4.92% for the six months ended June 30, 2023 resulting in a $3.1 million increase in interest income on loans. The increase in loan yield has been driven by a reduction in lower yielding consumer loans due to the discontinuation of the indirect automobile loan product with the redeployment of those funds into higher yielding commercial loan products. The average balance of loans increased $22.1 million to $1.08 billion for the six months ended June 30, 2024 compared to $1.06 billion for the six months ended June 30, 2023 resulting in a $635,000 increase in interest income on loans.
◦Interest income on taxable investment securities increased $3.2 million, or 169.0%, to $5.1 million during the six months ended June 30, 2024 compared to $1.9 million or the six months ended June 30, 2023 driven by a 229 bp increase in the average yield coupled with a $39.7 million increase in average balances. The increase in the average yield resulted in a $2.8 million increase in interest income on taxable securities and was the result of the Company implementing a balance sheet repositioning strategy of its portfolio of available-for-sale securities during the fourth quarter of 2023. The Bank sold $69.3 million in market value of its lower yielding U.S. government agency, mortgage-backed and municipal securities with an average yield of 1.89% and purchased $69.3 million of higher yielding mortgage-backed and collateralized mortgage obligation securities with an average yield of 5.49%. The increase in volume was driven by a $57.6 million increase in the average balance of CLO securities as the Company executed a leverage strategy to purchase these assets funded with brokered certificates of deposits.
◦Interest income on interest-earning deposits at other banks increased $519,000, to $2.0 million for the six months ended June 30, 2024 compared to $1.5 million for the six months ended June 30, 2023 as average balances increased $15.6 million and the average yield increased 37 bps. The volume increase was due in part to $30.5 million in cash received from the December 2023 sale of EU.
Interest Expense
•Interest expense increased $7.1 million, or 105.6%, to $13.9 million for the six months ended June 30, 2024 compared to $6.7 million for the six months ended June 30, 2023.
◦Interest expense on deposits increased $6.7 million, or 105.7%, to $13.1 million for the six months ended June 30, 2024 compared to $6.3 million for the six months ended June 30, 2023. Rising market interest rates led to the repricing of interest-bearing demand and money market deposits and a shift in deposits from non interest-bearing and interest-bearing demand and savings deposits to money market and time deposits and resulted in a 121 bp increase in the average cost of interest-bearing deposits compared to the six months ended June 30, 2023. This accounted for a $6.0 million increase in interest expense. Additionally, average interest-bearing deposits increased $94.7 million, or 10.4%, accounting for a $718,000 increase in interest expense.
◦Interest expense on borrowed funds increased $410,000, or 103.0%, to $808,000 or the six months ended June 30, 2024 compared to $398,000 for the six months ended June 30, 2023. The average balance of borrowed funds increased $15.9 million due to $20.0 million of FHLB long-term advances added during the second quarter of 2023. The increase in the average balance accounted for a $391,000 increase in interest expense.
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Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of 21% for the periods presented. As such, amounts will not agree to income as reported in the consolidated financial statements. The yields and costs for the periods indicated are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods presented.
Six Months Ended June 30,
2024 2023
Average
Balance 		Interest
and
Dividends
Yield/
Cost (1)
Average
Balance 		Interest
and
Dividends
Yield/
Cost (1)
(Dollars in thousands) (Unaudited)
Assets:
Interest-Earning Assets:
Loans, Net (2)
$ 1,082,172 $ 29,586 5.50 % $ 1,060,092 $ 25,840 4.92 %
Debt Securities
Taxable 250,912 5,148 4.10 211,213 1,914 1.81
Tax Exempt - - - 6,225 105 3.37
Equity Securities 2,693 54 4.01 2,693 49 3.64
Interest-Earning Deposits at Banks 80,082 2,045 5.11 64,455 1,526 4.74
Other Interest-Earning Assets 3,195 171 10.76 2,709 79 5.88
Total Interest-Earning Assets 1,419,054 37,004 5.24 1,347,387 29,513 4.42
Noninterest-Earning Assets 54,141 50,159
Total Assets $ 1,473,195 $ 1,397,546
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits $ 329,974 3,653 2.23 % $ 344,965 2,773 1.62 %
Savings Accounts 188,194 111 0.12 233,689 90 0.08
Money Market Accounts 209,279 3,159 3.04 203,952 1,972 1.95
Time Deposits 278,538 6,133 4.43 128,659 1,511 2.37
Total Interest-Bearing Deposits 1,005,985 13,056 2.61 911,265 6,346 1.40
Short-Term Borrowings 1 - - 910 5 1.11
Other Borrowings 34,687 808 4.68 17,850 393 4.44
Total Interest-Bearing Liabilities 1,040,673 13,864 2.68 930,025 6,744 1.46
Noninterest-Bearing Demand Deposits 275,485 344,203
Total Funding and Cost of Funds 1,316,158 2.12 1,274,228 1.07
Other Liabilities 16,559 6,959
Total Liabilities 1,332,717 1,281,187
Stockholders' Equity 140,478 116,359
Total Liabilities and Stockholders' Equity $ 1,473,195 $ 1,397,546
Net Interest Income (FTE) (Non-GAAP) (3)
$ 23,140 $ 22,769
Net Interest-Earning Assets (4)
$ 378,381 $ 417,362
Net Interest Rate Spread (FTE) (Non-GAAP) (3)(5)
2.56 % 2.96 %
Net Interest Margin (GAAP) (6)
3.27 3.40
Net Interest Margin (FTE) (Non-GAAP) (3)(6)
3.28 3.41
Return on Average Assets (1)
0.93 1.00
Return on Average Equity (1)
9.80 11.98
Average Equity to Average Assets 9.54 8.33
Average Interest-Earning Assets to Average Interest-Bearing Liabilities 136.36 144.88
(1)Annualized based on six months ended results.
(2) Net of the allowance for credit losses and includes nonaccrual loans with a zero yield and Loans Held for Sale if applicable.
(3) Refer to Explanation and Use of Non-GAAP Financial Measures in this filing for the calculation of the measure and reconciliation to the most comparable GAAP measure.
(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(6) Net interest margin represents annualized net interest income divided by average total interest-earning assets.
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Rate Volume Analysis.The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. FTE yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.
Six Months Ended June 30, 2024
Compared to
Six Months Ended June 30, 2023
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net $ 635 $ 3,111 $ 3,746
Debt Securities:
Taxable 420 2,814 3,234
Exempt From Federal Tax (52) (53) (105)
Equity Securities - 5 5
Cash at Other Banks 393 126 519
Other Interest-Earning Assets 16 76 92
Total Interest-Earning Assets 1,412 6,079 7,491
Interest Expense:
Deposits 718 5,992 6,710
Short-Term Borrowings (2) (3) (5)
Other Borrowings 393 22 415
Total Interest-Bearing Liabilities 1,109 6,011 7,120
Change in Net Interest and Dividend Income $ 303 $ 68 $ 371
Provision for Credit Losses.The provision for credit losses was a recovery of $73,000 for the six months ended June 30, 2024 due to a decrease in loan balances. This compared to a provision for credit losses of $512,000 for the six months ended June 30, 2023 which was required primarily due to loan growth coupled with a modeled slowdown in loan prepayment speeds.
Noninterest Income.Noninterest income decreased $2.5 million, or 48.7%, to $2.6 million for the six months ended June 30, 2024, compared to $5.1 million for the six months ended June 30, 2023. This decrease was primarily related to a $3.4 million, or 99.9%, decrease in insurance commissions to $3,000 for the six months ended June 30, 2024, compared to $3.4 million for the six months ended June 30, 2023 due to the sale of EU. Additionally, service fees decreased $123,000, or 13.8%, to $769,000 for six months ended June 30, 2024, compared to $892,000 for the six months ended June 30, 2023.
Partially offsetting these decreases, net gain on bank-owned life insurance claims increased $612,000 to $915,000 for the six months ended June 30, 2024 compared to $303,000 for the six months ended June 30, 2023 and net gain on disposal of premises and equipment increased $263,000 to $274,000 for the six months ended June 30, 2024 compared to $11,000 for the six months ended June 30, 2023. The gain on the disposal of premises and equipment six months ended June 30, 2024 resulted from the sale of one branch office location. Additionally, the net loss on equity securities decreased $135,000 to $197,000 for the six months ended June 30, 2024 compared to $332,000 for the six months ended June 30, 2023 which was due to a decline of in the market value of equity securities, comprised mainly of bank stocks.
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Noninterest Expense.Noninterest expense decreased $1.1 million, or 6.0%, to $17.4 million for the six months ended June 30, 2024 compared to $18.5 million for the six months ended June 30, 2023. Salaries and benefits decreased $1.3 million primarily due to no expense related to EU recognized for the six months ended June 30, 2024 due to the December 2023 sale, compared to $1.7 million of expense recognized for the six months ended June 30, 2023, partially offset by merit increases and revenue producing staff additions. Amortization of intangible assets decreased $286,000 as a component of the Bank's core deposit intangible was fully amortized in February 2024 and there was no expense related to EU recognized for the six months ended June 30, 2024 compared to $95,000 of expense recognized for the six months ended June 30, 2023. Partially offsetting these decreases, occupancy expense increased $199,000 due to $192,000 of environmental remediation costs related to a construction project on one of the Bank's office location, Pennsylvania shares tax expense increased $140,000 due to a higher taxable base due to the increase in equity resulting from the sale of EU and data processing expense increased $128,000 costs associated with the implementation of a new loan origination system and financial dashboard platform.
Income Taxes.Income tax expense decreased $347,000 to $1.5 million for the six months ended June 30, 2024 compared to $1.8 million for the six months ended June 30, 2023. The change between the periods was driven by increase in non-taxable income due to an increase in net gain on bank-owned life insurance claims and a decrease in pre-tax income from $8.3 million for the six months ended June 30, 2024 compared to pre-tax income of $8.7 million for the six months ended June 30, 2023.
Off-Balance Sheet Arrangements.
Other than loan commitments and standby and performance letters of credit, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a significant current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Refer to Note 7 in the Notes to Consolidated Financial Statements of this report for a summary of commitments outstanding as of June 30, 2024 and December 31, 2023.
Liquidity and Capital Management
Liquidity.Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company's primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are typically predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.
The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity at June 30, 2024 to satisfy its short- and long-term liquidity needs.
The Company's most liquid assets are cash and due from banks, which totaled $142.6 million at June 30, 2024. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Unpledged securities, which provide an additional source of liquidity, totaled $97.6 million at June 30, 2024. In addition, at June 30, 2024, the Company had the ability to borrow up to $487.6 million from the FHLB of Pittsburgh, of which $465.6 million was available. The Company also has the ability to borrow up to $88.1 million from the FRB through its Borrower-In-Custody line of credit agreement and the Company also maintains multiple line of credit arrangements with various unaffiliated banks totaling $50.0 million as of both June 30, 2024 and December 31, 2023, currently these credit arrangements have remained unused.
At June 30, 2024, $316.5 million, or 91.5% of total time deposits mature within one year. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these time deposits. The Company believes, however, based on past experience that a significant portion of its time deposits will remain with it, either as time deposits or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered. At June 30, 2024, the Bank's current deposit portfolio is 62.6% insured by the FDIC, and with additional coverage of 15.0% from the Bank's investment securities; of the total deposits held at the Bank only 22.4% are uninsured.
We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLB, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the FHLB in the future.
CB Financial is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its shareholders and for other corporate purposes. Its primary source of liquidity is dividend payments it receives from the Bank. The Bank's ability to pay dividends to CB Financial is subject to regulatory limitations. At June 30, 2024, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $16.5 million. The ability to pay future dividends or conduct stock
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repurchases may be limited under applicable banking regulations and regulatory policies due to expected losses for future periods and/or the inability to upstream funds from the Bank to the Company as a result of lower income or regulatory capital levels.
Capital Management.The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.
At June 30, 2024 and December 31, 2023, the Bank was categorized as "well capitalized" under the regulatory framework for prompt corrective action.
The following table presents the Bank's regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized as of the dates indicated.
June 30, 2024 December 31, 2023
Amount Ratio Amount Ratio
(Dollars in thousands)
Common Equity Tier 1 (to risk weighted assets)
Actual $ 148,803 14.62 % $ 143,654 13.64 %
For Capital Adequacy Purposes 45,789 4.50 47,385 4.50
To Be Well Capitalized 66,140 6.50 68,445 6.50
Tier 1 Capital (to risk weighted assets)
Actual 148,803 14.62 143,654 13.64
For Capital Adequacy Purposes 61,052 6.00 63,180 6.00
To Be Well Capitalized 81,403 8.00 84,240 8.00
Total Capital (to risk weighted assets)
Actual 158,887 15.61 153,861 14.61
For Capital Adequacy Purposes 81,403 8.00 84,240 8.00
To Be Well Capitalized 101,753 10.00 105,300 10.00
Tier 1 Leverage (to adjusted total assets)
Actual 148,803 9.98 143,654 10.19
For Capital Adequacy Purposes 59,655 4.00 56,385 4.00
To Be Well Capitalized 74,569 5.00 70,481 5.00
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
Management of Interest Rate Risk.The majority of the Company's assets and liabilities are monetary in nature. Consequently, the Company's most significant form of market risk is interest rate risk and a principal part of its business strategy is to manage interest rate risk by reducing the exposure of net interest income to changes in market interest rates. Accordingly, the Company's Board has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in the Company's assets and liabilities, for determining the level of risk that is appropriate given the Company's business strategy, operating environment, capital, liquidity and performance objectives; and for managing this risk consistent with the guidelines approved by the Board. Senior management monitors the level of interest rate risk and the Asset/Liability Management Committee meets on a quarterly basis to review its asset/liability policies and position and interest rate risk position, and to discuss and implement interest rate risk strategies.
The Company monitors interest rate risk through the use of a simulation model. The quarterly reports developed in the simulation model assist the Company in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within the
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Company's policy guidelines. This quantitative analysis measures interest rate risk from both a capital and earnings perspective. With regard to earnings, movements in interest rates and the shape of the yield curve significantly influence the amount of net interest income that is recognized. Movements in market interest rates significantly influence the spread between the interest earned on our interest-earning assets and the interest paid on our interest-bearing liabilities. Our internal interest rate risk analysis calculates the sensitivity of our projected net interest income over a one year period utilizing a static balance sheet assumption through which incoming and outgoing asset and liability cash flows are reinvested into similar instruments. Product pricing and earning asset prepayment speeds are adjusted for each rate scenario.
With regard to capital, our internal interest rate risk analysis calculates the sensitivity of our economic value of equity ("EVE") ratio to movements in interest rates. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. EVE attempts to quantify our economic value using a discounted cash flow methodology while the EVE ratio reflects that value as a form of capital ratio. The degree to which the EVE ratio changes for any hypothetical interest rate scenario from its base case measurement is a reflection of an institution's sensitivity to interest rate risk.
For both net interest income and capital at risk, our interest rate risk analysis calculates a base case scenario that assumes no change in interest rates. The model then measures changes throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up and down 100, 200, 300 and 400 basis points with additional scenarios modeled where appropriate. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios.
The table below sets forth, as of June 30, 2024, the estimated changes in EVE and net interest income at risk that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. Changes presented in the table below are within the policy limits approved by the Board of Directors.
EVE EVE as a Percent of Portfolio Value of Assets Net Interest
Earnings at Risk
Change in Interest Rates in Basis Points Dollar Amount Dollar Change Percent Change NPV Ratio Basis Point Change Dollar Amount Dollar Change Percent Change
(Dollars in thousands)
+400 $ 165,716 $ (31,778) (16.1) % 12.07 % (116) $ 54,813 $ 4,831 9.7 %
+300 172,711 (24,783) (12.5) 12.33 (90) 53,546 3,564 7.1
+200 181,252 (16,242) (8.2) 12.68 (55) 52,355 2,373 4.7
+100 189,859 (7,635) (3.9) 13.00 (23) 51,199 1,217 2.4
Flat 197,494 - - 13.23 - 49,982 - -
(100) 202,444 4,950 2.5 13.27 4 48,104 (1,878) (3.8)
(200) 203,220 5,726 2.9 13.05 (18) 45,994 (3,988) (8.0)
(300) 199,656 2,162 1.1 12.57 (66) 43,990 (5,992) (12.0)
(400) 189,507 (7,987) (4.0) 11.74 (149) 42,025 (7,957) (15.9)
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE and net interest income require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the table presented assumes that the composition of the Company's interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of the Company's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and net interest income and will differ from actual results. EVE calculations also may not reflect the fair values of financial instruments. For example, changes in market interest rates can increase the fair values of the Company's loans, deposits and borrowings.
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Item 4. Controls and Procedures.
(a)Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2024. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.
Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.
(b)Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, claims seeking damages for improper collection procedures or misrepresentations, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any other pending legal proceedings that we believe would have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition or future results. The risks described in such Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the three months ended June 30, 2024, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company's securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement (as such term is defined in Item 408 of SEC Regulation S-K).
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Item 6. Exhibits
3.1
3.2
31.1
Rule 13a-14(a) / 15d-14(a) Certification (Chief Executive Officer)
31.2
Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer)
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following materials for the quarter ended June 30, 2024, formatted in XBRL (Extensible Business Reporting Language); the (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements (Unaudited)
104 Cover Page Interactive Data File (Embedded within Inline XBRL contained in Exhibit 101)
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CB FINANCIAL SERVICES, INC.
(Registrant)
Date:
August 9, 2024 /s/ John H. Montgomery
John H. Montgomery
President and Chief Executive Officer
Date:
August 9, 2024
/s/ Jamie L. Prah
Jamie L. Prah
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer)
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