CB Financial Services, Inc. 10-Q

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, 2021. 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; • The scope and duration of economic contraction as a result of the COVID-19 pandemic and its effects on the Company’s business and that of the Company’s customers; • Government action in response to the COVID-19 pandemic and its effects on the Company's business and that of the Company's customers; • 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. Many of these risks and uncertainties have been elevated by and may continue to be elevated by the COVID-19 pandemic. The ability to predict the impact of the ongoing COVID-19 pandemic on the Company’s future operating results with any precision is difficult and depends on many factors beyond our control. 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 11 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 28 Table of Contents 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. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, Inc., the Bank’s wholly owned subsidiary that is a full-service, independent insurance agency located in Washington County. 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 March 31, 2022, compared to the financial condition as of December 31, 2021 and the consolidated results of operations for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. 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 provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, insurance commissions, 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 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. 29 Table of Contents 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 March 31, 2022 2021 (Dollars in thousands) Interest Income (GAAP) $ 10,616 $ 10,988 Adjustment to FTE Basis 40 40 Interest Income (FTE) (Non-GAAP) 10,656 11,028 Interest Expense (GAAP) 723 1,011 Net Interest Income (FTE) (Non-GAAP) $ 9,933 $ 10,017 Net Interest Rate Spread (GAAP) 2.98 % 2.91 % Adjustment to FTE Basis 0.01 0.01 Net Interest Rate Spread (FTE) (Non-GAAP) 2.99 2.92 Net Interest Margin (GAAP) 3.08 % 3.04 % Adjustment to FTE Basis 0.02 0.01 Net Interest Margin (FTE) (Non-GAAP) 3.10 3.05 Allowance for loan losses to total loans, excluding PPP loans, is a non-GAAP measure that serves as a useful measurement to evaluate the allowance for loan losses without the impact of SBA guaranteed loans. March 31, 2022 December 31, 2021 (Dollars in thousands) Allowance for Loan Losses (Numerator) $ 11,595 $ 11,582 Total Loans 1,020,642 $ 1,020,796 PPP Loans (8,242) (24,523) Total Loans, Excluding PPP Loans (Non-GAAP) (Denominator) $ 1,012,400 $ 996,273 Allowance for Loan Losses to Total Loans (GAAP) 1.14 % 1.13 % Allowance for Loan Losses to Total Loans, Excluding PPP Loans (Non-GAAP) 1.15 % 1.16 % 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. March 31, 2022 December 31, 2021 (Dollars in thousands, except share and per share data) Stockholders' Equity (GAAP) $ 122,156 $ 133,124 Goodwill and Other Intangible Assets, Net (14,582) (15,027) Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 107,574 $ 118,097 Common Shares Outstanding (Denominator) 5,156,897 5,260,672 Book Value per Common Share (GAAP) $ 23.69 $ 25.31 Tangible Book Value per Common Share (Non-GAAP) $ 20.86 $ 22.45 30 Table of Contents Consolidated Statements of Financial Condition Analysis Assets. Total assets increased $13.2 million, or 0.9%, to $1.44 billion at March 31, 2022, compared to $1.43 billion at December 31, 2021. The change is primarily due to increases in cash and due from banks and in securities. Cash and Securities • Cash and due from banks increased $3.9 million, or 3.3%, to $123.6 million at March 31, 2022, compared to $119.7 million at December 31, 2021. The change is primarily due to an increase in deposits as further described below in the Liabilities section. The increase was partially offset by purchases of securities detailed in the below Securities section. • Securities increased $6.1 million, or 2.7%, to $231.1 million at March 31, 2022, compared to $225.0 million at December 31, 2021. Current period activity included $26.8 million of purchases and $8.3 million of paydowns. The purchases were made to earn a higher yield on excess cash. In addition, there was a $12.4 million decrease in the market value of the debt securities portfolio due primarily to increases in market interest rates and a $7,000 loss in market value in the equity securities portfolio, which is primarily comprised of bank stocks. Payroll Protection Program (“PPP”) Update • PPP loans decreased $16.3 million to $8.2 million at March 31, 2022 compared to $24.5 million at December 31, 2021. $274,000 of net PPP loan origination fees were unearned at March 31, 2022 compared to $678,000 at December 31, 2021. $404,000 of net PPP loan origination fees were recognized for the three months ended March 31, 2022 compared to $321,000 for the three months ended December 31, 2021. Loans, Allowance for Loan Losses and Credit Quality • Total loans held for investment decreased $154,000 or 0.02%, to $1.02 billion at March 31, 2022 compared to $1.02 billion at December 31, 2021. Excluding the net decline of $16.3 million in PPP loans in the current period, loans increased $16.1 million. Average loans for the three months ended March 31, 2022 increased $4.4 million compared to the three months ended December 31, 2021. An increase in consumer loans was the primary driver in the average balance change, offset by increased payoffs in residential and commercial and industrial loans. • The allowance for loan losses was $11.6 million at both March 31, 2022 and December 31, 2021. As a result, the allowance for loan losses to total loans was 1.14% at March 31, 2022 compared to 1.13% at December 31, 2021. The allowance for loan losses to total loans, excluding PPP loans, was 1.15% at March 31, 2022 compared to 1.16% at December 31, 2021. The lack of change in the allowance for loan losses was primarily due to consistent loan balances between the periods and no significant changes in qualitative factors. • Net recoveries for the three months ended March 31, 2022 were $13,000, or 0.01% of average loans on an annualized basis. Net charge-offs for the three months ended March 31, 2021 were $46,000, or 0.02% of average loans on an annualized basis. • Nonperforming loans, which includes nonaccrual loans, accruing loans past due 90 days or more, and accruing loans that are considered troubled debt restructurings, were $7.3 million at March 31, 2022 compared to $7.3 million at December 31, 2021. Nonperforming loans to total loans ratio was 0.72% at March 31, 2022 compared to 0.71% at December 31, 2021. Other • Intangible Assets decreased $445,000 to $4.9 million at March 31, 2022 compared to $5.3 million at December 31, 2021 due to amortization expense of $445,000 recognized during the period. • Accrued Interest Receivable and Other Assets increased $3.7 million, or 28.8% to $16.5 million at March 31, 2022, compared to $12.9 million at December 31, 2021 This change is primarily driven by deferred taxes as a result of the increase in market interest rates and the resulting decrease in the market value of the portfolio. • There was one loan in forbearance at March 31, 2022 totaling $128,000, compared to no loans in forbearance at December 31, 2021. Liabilities. Total liabilities increased $24.2 million, or 1.9%, to $1.32 billion at March 31, 2022 compared to $1.29 billion at December 31, 2021. Deposits • Total deposits increased $23.7 million to $1.25 billion as of March 31, 2022 compared to $1.23 billion at December 31, 2021. Noninterest bearing demand deposits, NOW accounts and savings accounts increased $14.3 million, $7.9 million and $8.1 million, respectively, partially offset by a decrease of $7.5 million in time deposits. Annualized deposit growth 31 Table of Contents rate was 7.7%. Average total deposits decreased $54.6 million, primarily in time deposits, for the three months ended March 31, 2022 compared to the three months ended December 31, 2021. Borrowed Funds • Short-term borrowings decreased $47,000, or 0.12%, to $39.2 million at March 31, 2022, compared to $39.3 million at December 31, 2021. At March 31, 2022 and December 31, 2021, short-term borrowings were comprised entirely of securities sold under agreements to repurchase, which are related to business deposit customers whose funds, above designated target balances, are transferred into an overnight interest-earning investment account by purchasing securities from the Bank’s investment portfolio under an agreement to repurchase. Stockholders’ Equity. Stockholders’ equity decreased $11.0 million, or 8.3%, to $122.2 million at March 31, 2022, compared to $133.1 million at December 31, 2021. • Net income was $3.0 million for the three months ended March 31, 2022. • Accumulated other comprehensive income decreased $9.7 million primarily due to the effect of market interest rate increases on the Company’s debt securities. • The Company declared and paid $1.2 million in dividends to common stockholders in the current period. • The Company repurchased $3.4 million of its common stock as part of its stock repurchase program that was completed on February 15, 2022 • Book value per share (GAAP) was $23.69 at March 31, 2022 compared to $25.31 at December 31, 2021, a decrease of $1.62. Tangible book value per share (Non-GAAP) decreased $1.59, or 7.1%, to $20.86 compared to $22.45 at December 31, 2021. Refer to Explanation of Use of Non-GAAP Financial Measures in this Report. Consolidated Results of Operations for the Three Months Ended March 31, 2022 and 2021 Overview. Net income was $3.0 million for the three months ended March 31, 2022, an increase of $202,000 compared to net income of $2.8 million for the three months ended March 31, 2021. Net Interest and Dividend Income. Net interest and dividend income decreased $84,000, or 0.8%, to $9.9 million for the three months ended March 31, 2022 compared to $10.0 million for the three months ended March 31, 2021. Net interest margin (FTE) (Non-GAAP) increased 5 basis points (“bps”) to 3.10% for the three months ended March 31, 2022 compared to 3.05% the three months ended March 31, 2021. Net interest margin (GAAP) increased to 3.08% for the three months ended March 31, 2022 compared to 3.04% for the three months ended March 31, 2021. Interest and Dividend Income • Interest and dividend income decreased $372,000, or 3.4%, to $10.6 million for the three months ended March 31, 2022 compared to $11.0 million the three months ended March 31, 2021. ◦ Interest income on loans decreased $595,000, or 5.9%, to $9.6 million for the three months ended March 31, 2022 compared to $10.1 million for the three months ended March 31, 2021. The average balance of loans decreased $22.6 million and the average yield decreased 15 bps to 3.85% compared to the three months ended March 31, 2021. ◦ Interest and fee income on PPP loans was $445,000 for the three months ended March 31, 2022 and contributed 13 bps to loan yield, compared to $676,000 for the three months ended March 31, 2021, which contributed 5 bps to loan yield. ◦ The impact of the accretion of the credit mark on acquired loan portfolios was $56,000 for the three months ended March 31, 2022 compared to $138,000 for the three months ended March 31, 2021, or 2 bps in the current period compared to 6 bps in the prior period. ◦ Interest income on taxable investment securities increased $259,000, or 40.1%, to $905,000 for the three months ended March 31, 2022 compared to $646,000 for the three months ended March 31, 2021 driven by a $93.0 million increase in average investment securities balances and 42 bps decrease in average yield. Interest Expense • Interest expense decreased $288,000, or 28.5%, to $723,000 for the three months ended March 31, 2022 compared to $1.0 million for the three months ended March 31, 2021. ◦ Interest expense on deposits decreased $417,000, or 44.0%, to $530,000 for the three months ended March 31, 2022 compared to $947,000 for the three months ended March 31, 2021. While average interest-earning deposits decreased $38.6 million compared to the three months ended March 31, 2021, controlling the deposit cost structure as deposit balances decreased combined with non-renewal or repricing of higher-cost time deposit resulted in an 18 32 Table of Contents bp, or 41.4%, decrease in average cost compared to the three months ended March 31, 2021. In addition, average time deposits and the related average cost decreased $55.1 million and 30 bps, respectively. 33 Table of Contents Average Balances and Yields . The following tables present 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 March 31, 2022 2021 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) $ 1,009,210 $ 9,573 3.85 % $ 1,031,853 $ 10,168 4.00 % Debt Securities Taxable 215,906 905 1.68 122,883 646 2.10 Tax Exempt 10,195 84 3.30 12,943 96 2.97 Marketable Equity Securities 2,693 22 3.27 2,632 20 3.04 Interest Bearing Deposits at Other Banks 59,296 22 0.15 157,962 36 0.09 Other Interest-Earning Assets 3,483 50 5.82 3,909 62 6.43 Total Interest-Earning Assets 1,300,783 10,656 3.32 1,332,182 11,028 3.36 Noninterest-Earning Assets 122,288 92,550 Total Assets $ 1,423,071 $ 1,424,732 Liabilities and Stockholders' Equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits $ 276,603 48 0.07 % $ 259,065 77 0.12 % Savings 243,786 19 0.03 239,850 32 0.05 Money Market 192,425 41 0.09 197,395 98 0.20 Time Deposits 132,015 422 1.30 187,114 740 1.60 Total Interest-Bearing Deposits 844,829 530 0.25 883,424 947 0.43 Short-Term Borrowings Securities Sold Under Agreements to Repurchase 37,884 19 0.20 41,094 23 0.23 Other Borrowings 17,604 174 4.01 7,200 41 2.31 Total Interest-Bearing Liabilities 900,317 723 0.33 931,718 1,011 0.44 Noninterest-Bearing Demand Deposits 384,188 349,108 Other Liabilities 8,554 8,869 Total Liabilities 1,293,059 1,289,695 Stockholders' Equity 130,012 135,037 Total Liabilities and Stockholders' Equity $ 1,423,071 $ 1,424,732 Net Interest Income (FTE) (Non-GAAP) (3) $ 9,933 $ 10,017 Net Interest Rate Spread (FTE) (Non-GAAP) (3)(4) 2.99 % 2.92 % Net Interest-Earning Assets (5) $ 400,466 $ 400,464 Net Interest Margin (GAAP) (6) 3.08 3.04 Net Interest Margin (FTE) (Non-GAAP) (3)(6) 3.10 3.05 Return on Average Assets (1) 0.87 0.81 Return on Average Equity (1) 9.50 8.54 Average Equity to Average Assets 9.14 9.48 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 144.48 142.98 PPP Loans $ 14,673 $ 445 12.30 $ 56,945 $ 676 4.81 (1) Annualized based on three months ended results. (2) Net of the allowance for loan losses, and includes nonaccrual loans with a zero yield (3) See section entitled "Explanation of Use of Non-GAAP Financial Measures" appearing earlier in this quarterly report. (4) 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. (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (6) Net interest margin represents annualized net interest income divided by average total interest-earning assets. 34 Table of Contents 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 March 31, 2022 Compared to Three Months Ended March 31, 2021 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) (Unaudited) Interest and Dividend Income: Loans, net $ (218) $ (377) $ (595) Debt Securities: Taxable 408 (149) 259 Exempt From Federal Tax (22) 10 (12) Marketable Equity Securities 1 1 2 Other Interest-Earning Assets (6) (6) (12) Total Interest-Earning Assets 134 (506) (372) Interest Expense: Deposits (40) (377) (417) Short-Term Borrowings: Securities Sold Under Agreements to Repurchase (1) (3) (4) Other Borrowings 88 45 133 Total Interest-Bearing Liabilities 47 (335) (288) Change in Net Interest and Dividend Income $ 87 $ (171) $ (84) Provision for Loan Losses. There was no provision for loan losses for either the three months ended March 31, 2022 or the three months ended March 31, 2021. The provision for loan losses remaining constant was primarily due to consistent loan balances between the periods and no significant changes in qualitative factors. Noninterest Income . Noninterest income decreased $561,000, or 17.7%, to $2.6 million for the three months ended March 31, 2022, compared to $3.2 million for the three months ended March 31, 2021. • Insurance commissions increased $203,000 to $1.8 million for the three months ended March 31, 2022 compared to $1.6 million for the three months ended March 31, 2021. The increase in insurance commissions was primarily driven by contingency fees of $114,000. Contingency fees are profit sharing commissions that are contingent upon several factors including, but not limited to, eligible written premiums, earned premiums, incurred losses, policy cancellations and stop loss charges which resulted from the higher than lock-in amounts received. • Net (loss) gain on securities decreased $454,000 to a $7,000 loss for the three months ended March 31, 2022 compared to a $447,000 gain for the three months ended March 31, 2021. The change was driven by a $229,000 decrease in fair market value of equity securities between the three months ended March 31, 2021 and three months ended March 31, 2022, in addition to a $225,000 net gain on sale of debt securities during the three months ended March 31, 2021, compared to no gain recognized in the three months ended March 31, 2022. • Net gain on sale of loans decreased $86,000 as there were no loans sold for the three months ended March 31, 2022. • Other income was $65,000 for the three months ended March 31, 2022 compared to $180,000 for the three months ended March 31, 2021, the Company recognized a recapture of a temporary impairment on mortgage servicing rights in the current quarter of $59,000, compared to the prior period recapture of temporary impairment of $172,000. 35 Table of Contents Noninterest Expense. Noninterest expense decreased $739,000, or 7.9%, to $8.7 million for the three months ended March 31, 2022 compared to $9.4 million for the three months ended March 31, 2021, primarily due to the implementation of branch optimization initiatives completed during 2021 which established a lower expense base. Partially offsetting the lower expense base in the first quarter were investment in executive leadership tasked with implementing growth initiatives. • Salaries and employee benefits decreased $329,000 to $4.6 million for the three months ended March 31, 2022 compared to $4.9 million for the three months ended March 31, 2021. The decrease was primarily related to prior year branch optimization, including the consolidation of six branches in June 2021 and the divestiture of two branches in December 2021, partially offset by costs for new strategic executive team members hired during the three months ended March 31, 2022. • Occupancy expense decreased $24,000 to $686,000 for the three months ended March 31, 2022 compared to $710,000 for the three months ended March 31, 2021. The decrease is primarily due to branch consolidations and divestitures in the prior year, reducing the Company's physical footprint, and partially offset by increased maintenance costs due to improvements at remaining locations. • Contracted services decreased $100,000 to $587,000 for the three months ended March 31, 2022 compared to $687,000 for the three months ended March 31, 2021. The decrease was primarily driven by a change in expense for occupancy management services, partially offset by increases in operational efficiency strategic expenses, Current Expected Credit Losses ("CECL") implementation expense and contracted recruiting spend. • Amortization of intangible assets decreased $87,000 to $445,000 for the three months ended March 31, 2022 compared to $532,000 for the three months ended March 31, 2021 primarily due to impairment recognized in the later half of 2021 on the core deposit intangible asset from the announcement of the branch divestitures, and the corresponding sale of the related deposits, which reduced the remaining amount of intangible assets to amortize. Income Taxes. Income tax expense was $803,000 for the three months ended March 31, 2022 compared to income tax expense of $911,000 for the three months ended March 31, 2021. This change was primarily related to a prior period income tax adjustment that resulted from amended tax returns as a result of the CARES Act. 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 March 31, 2022 and December 31, 2021. 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 mortgage 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 March 31, 2022 to satisfy its short- and long-term liquidity needs. The Company’s most liquid assets are cash and due from banks, which totaled $123.6 million at March 31, 2022. 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 $83.7 million at March 31, 2022. In addition, at March 31, 2022, the Company had the ability to borrow up to $430.9 million from the FHLB of Pittsburgh, of which $347.8 million is available. The Company also has the ability to borrow up to $102.7 million 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 March 31, 2022 and December 31, 2021. At March 31, 2022, $72.2 million, or 55.9% 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 36 Table of Contents time deposits or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered. 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 March 31, 2022, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $18.3 million. The ability to pay future dividends or conduct stock 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 March 31, 2022 and December 31, 2021, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. At March 31, 2022, the Bank's capital ratios were not affected by loans modified in accordance with Section 4013 of the CARES Act. In addition, PPP loans received a zero-percent risk weight under the regulatory capital rules regardless of whether they were pledged as collateral to the Federal Reserve Bank's PPP lending facility, but were included in the Bank's leverage ratio requirement due to the Bank not pledging the loans as collateral to the PPP lending facility. 37 Table of Contents 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. March 31, 2022 December 31, 2021 Amount Ratio Amount Ratio (Dollars in thousands) Common Equity Tier 1 (to risk weighted assets) Actual $ 115,291 11.99 % $ 113,086 11.95 % For Capital Adequacy Purposes 43,264 4.50 42,571 4.50 To Be Well Capitalized 62,492 6.50 61,491 6.50 Tier 1 Capital (to risk weighted assets) Actual 115,291 11.99 113,086 11.95 For Capital Adequacy Purposes 57,685 6.00 56,761 6.00 To Be Well Capitalized 76,914 8.00 75,682 8.00 Total Capital (to risk weighted assets) Actual 126,886 13.20 124,668 13.18 For Capital Adequacy Purposes 76,914 8.00 75,682 8.00 To Be Well Capitalized 96,142 10.00 94,602 10.00 Tier 1 Leverage (to adjusted total assets) Actual 115,291 8.19 113,086 7.76 For Capital Adequacy Purposes 56,306 4.00 58,307 4.00 To Be Well Capitalized 70,383 5.00 72,884 5.00