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 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. 31 Table of Contents 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, 2022, compared to the financial condition as of December 31, 2021 and the consolidated results of operations for the six months ended June 30, 2022 compared to the six months ended June 30, 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. 32 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 Six Months Ended June 30, June 30, 2022 2021 2022 2021 (Dollars in thousands) Interest Income (GAAP) $ 10,958 $ 10,820 $ 21,574 $ 21,808 Adjustment to FTE Basis 34 43 71 89 Interest Income (FTE) (Non-GAAP) 10,992 10,863 21,645 21,897 Interest Expense (GAAP) 795 886 1,518 1,897 Net Interest Income (FTE) (Non-GAAP) $ 10,197 $ 9,977 $ 20,127 $ 20,000 Net Interest Rate Spread (GAAP) 3.00 % 2.72 % 3.00 % 2.81 % Adjustment to FTE Basis 0.01 0.02 0.01 0.01 Net Interest Rate Spread (FTE) (Non-GAAP) 3.01 2.74 3.01 2.82 Net Interest Margin (GAAP) 3.12 % 2.84 % 3.10 % 2.94 % Adjustment to FTE Basis 0.01 0.01 0.01 0.01 Net Interest Margin (FTE) (Non-GAAP) 3.13 2.85 3.11 2.95 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. June 30, 2022 December 31, 2021 (Dollars in thousands) Allowance for Loan Losses (Numerator) $ 12,833 $ 11,582 Total Loans 1,027,969 $ 1,020,796 PPP Loans (3,853) (24,523) Total Loans, Excluding PPP Loans (Non-GAAP) (Denominator) $ 1,024,116 $ 996,273 Allowance for Loan Losses to Total Loans (GAAP) 1.25 % 1.13 % Allowance for Loan Losses to Total Loans, Excluding PPP Loans (Non-GAAP) 1.25 % 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. June 30, 2022 December 31, 2021 (Dollars in thousands, except share and per share data) Stockholders' Equity (GAAP) $ 113,772 $ 133,124 Goodwill and Other Intangible Assets, Net (14,136) (15,027) Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 99,636 $ 118,097 Common Shares Outstanding (Denominator) 5,128,333 5,260,672 Book Value per Common Share (GAAP) $ 22.18 $ 25.31 Tangible Book Value per Common Share (Non-GAAP) $ 19.43 $ 22.45 33 Table of Contents Consolidated Statements of Financial Condition Analysis Assets Total assets decreased $39.0 million, or 2.7%, to $1.39 billion at June 30, 2022, compared to $1.43 billion at December 31, 2021. Cash and Securities • Cash and due from banks decreased $38.6 million, or 32.2%, to $81.1 million at June 30, 2022, compared to $119.7 million at December 31, 2021. The change is primarily due to a decrease in deposits as further described below in the Liabilities section. • Securities decreased $11.5 million, or 5.1%, to $213.5 million at June 30, 2022, compared to $225.0 million at December 31, 2021. Current period activity included $26.8 million of purchases, and $17.0 million of pay downs. The purchases were made to earn a higher yield on excess cash. In addition, there was a $21.0 million decrease in the market value of the debt securities portfolio, primarily due to the increase in market interest rates, and a $206,000 loss in market value in the equity securities portfolio, which is primarily comprised of bank stocks. Payroll Protection Program (“PPP”) Update • PPP loans decreased $20.7 million to $3.9 million at June 30, 2022 compared to $24.5 million at December 31, 2021. • $144,000 of net PPP loan origination fees were unearned at June 30, 2022 compared to $678,000 at December 31, 2021. $130,000 of net PPP loan origination fees were earned in the three months ended June 30, 2022 compared to $404,000 for the three months ended March 31, 2022. Loans, Allowance for Loan Losses and Credit Quality • Total loans held for investment increased $7.2 million, or 0.70%, to $1.03 billion at June 30, 2022 compared to $1.02 billion at December 31, 2021. Excluding the net decline of $20.7 million in PPP loans in the current period, loans increased $27.8 million. • The allowance for loan losses was $12.8 million at June 30, 2022 and $11.6 million at December 31, 2021. As a result, the allowance for loan losses to total loans was 1.25% at June 30, 2022 compared to 1.13% at December 31, 2021. The allowance for loan losses to total loans, excluding PPP loans, was 1.25% at June 30, 2022 compared to 1.16% at December 31, 2021. The change in the allowance for loan losses was primarily due to adjustments to historical loss factors and changes in qualitative factors in particular economic and industry conditions since December 31, 2021. • Net charge-offs for the three months ended June 30, 2022 were $2.5 million, or 1.01% of average loans on an annualized basis. Net recoveries for the three months ended June 30, 2021 were $19,000, or 0.01% of average loans on an annualized basis. Net charge-offs for the six months ended June 30, 2022 were $2.5 million, or 0.50% of average loans on an annualized basis. Net charge-offs for the six months ended June 30, 2021 were $27,000, or 0.01% 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 $5.8 million at June 30, 2022 compared to $7.3 million at December 31, 2021. Nonperforming loans to total loans ratio was 0.57% at June 30, 2022 compared to 0.71% at December 31, 2021. Other • Intangible Assets decreased $891,000, or 17.0%, to $4.4 million at June 30, 2022 compared to $5.3 million at December 31, 2021 primarily due to amortization expense recognized during the period. • Accrued interest receivable and other assets increased $5.9 million, or 45.9%; to $18.8 million at June 30, 2022, compared to $12.9 million at December 31, 2021. This change was primarily driven by deferred taxes as a result of the increase in market interest rates conditions and the decrease in the market value of the securities portfolio. Liabilities Total liabilities decreased $19.7 million, or 1.5%, to $1.27 billion at June 30, 2022 compared to $1.29 billion at December 31, 2021. Deposits • Total deposits decreased $11.4 million to $1.22 billion as of June 30, 2022 compared to $1.23 billion at December 31, 2021, an annualized decrease of 1.9%. Interest-bearing demand deposits and time deposits decreased $7.2 million and 34 Table of Contents $11.5 million, respectively, partially offset by increases in noninterest bearing demand deposits and savings accounts by $3.4 million and $10.7 million, respectively. Borrowings • Short-term borrowings decreased $7.1 million, or 18.1%, to $32.2 million at June 30, 2022, compared to $39.3 million at December 31, 2021. At June 30, 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 $19.4 million, or 14.6%, to $113.8 million at June 30, 2022, compared to $133.1 million at December 31, 2021. On February 15, 2022, the Company completed its stock repurchase program that was implemented on June 10, 2021. On April 21, 2022, a new $10 million repurchase program was authorized, with the Company repurchasing 27,439 shares at an average price of $22.06 per share during the second quarter. • Net income was $3.2 million for the six months ended June 30, 2022. • Accumulated other comprehensive loss decreased $16.5 million primarily due to the effect of market interest rate increases on the Company’s debt securities. • In total, the Company has repurchased $4.0 million since December 31, 2021 • The Company declared and paid $2.5 million in dividends to common stockholders in the current period. • Book value per share (GAAP) was $22.18 at June 30, 2022 compared to $25.31 at December 31, 2021, a decrease of $3.13. Tangible book value per share (Non-GAAP) decreased $3.02, or 13.5%, to $19.43 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 June 30, 2022 and 2021 Overview. Net income was $118,000 for the three months ended June 30, 2022, an increase of $341,000 compared to net loss of $223,000 for the three months ended June 30, 2021. Net Interest and Dividend Income. Net interest and dividend income increased $229,000, or 2.3%, to $10.2 million for the three months ended June 30, 2022 compared to $9.9 million for the three months ended June 30, 2021. Net interest margin (GAAP) increased to 3.12% for the three months ended June 30, 2022 compared to 2.84% for the three months ended June 30, 2021. Net interest margin (FTE) (Non-GAAP) increased 28 basis points (bps) to 3.13% for the three months ended June 30, 2022 compared to 2.85% for the three months ended June 30, 2021. Interest and Dividend Income • Interest and dividend income increased $138,000, or 1.3%, to $11.0 million for the three months ended June 30, 2022 compared to $10.8 million the three months ended June 30, 2021. ◦ Interest income on loans decreased $203,000, or 2.0%, to $9.7 million for the three months ended June 30, 2022 compared to $9.9 million for the three months ended June 30, 2021. The average balance of loans decreased $9.0 million to $1.01 billion from $1.02 billion and the average yield decreased 5 bps to 3.88% compared to 3.93%. ◦ Interest and fee income on PPP loans was $144,000 for the three months ended June 30, 2022 and contributed 4 bps to loan yield, compared to $636,000 for the three months ended June 30, 2021, which contributed 3 bps to loan yield. ◦ The impact of the accretion of the credit mark on acquired loan portfolios was $75,000 for the three months ended June 30, 2022 compared to $153,000 for the three months ended June 30, 2021, or 3 bps in the current period compared to 6 bps in the prior period. ◦ Interest income on taxable investment securities increased $353,000, or 55.6%, to $988,000 for the three months ended June 30, 2022 compared to $635,000 for the three months ended June 30, 2021 driven by a $103.6 million increase in average balance partially offset by a 31 bps decrease in average yield. Interest Expense • Interest expense decreased $91,000, or 10.3%, to $795,000 for the three months ended June 30, 2022 compared to $886,000 for the three months ended June 30, 2021. 35 Table of Contents ◦ Interest expense on deposits decreased $223,000, or 27.0%, to $604,000 for the three months ended June 30, 2022 compared to $827,000 for the three months ended June 30, 2021. While average interest-earning deposit balances decreased $74.5 million, or 8%, from $900.1 million as of June 30, 2021 compared to $825.6 million as of June 30, 2022, controlling the deposit cost structure combined with non-renewal or repricing of higher-cost time deposit resulted in a 8 bps, or 21.7%, decrease in average cost compared to the three months ended June 30, 2021. In addition, the average balance of time deposits and the related average cost decreased $49.7 million and 24 bps, respectively. These decreases are partially offset by a 9 bps increase in interest-bearing demand deposit average cost as well as an increase in average other borrowings of $11.6 million or 193.5% to $17.6 million as of June 30, 2022 compared to $6.0 million as of June 30, 2021, which was driven by an increase in subordinated debt balance. 36 Table of Contents 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, 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) $ 1,007,874 $ 9,751 3.88 % $ 1,016,868 $ 9,959 3.93 % Debt Securities Taxable 228,315 988 1.73 124,685 635 2.04 Exempt From Federal Tax 9,109 73 3.21 12,276 94 3.06 Equity Securities 2,693 20 2.97 2,649 24 3.62 Interest Bearing Deposits at Banks 56,379 122 0.87 242,348 106 0.17 Other Interest-Earning Assets 3,235 38 4.71 4,044 45 4.46 Total Interest-Earning Assets 1,307,605 10,992 3.37 1,402,870 10,863 3.11 Noninterest-Earning Assets 84,323 82,794 Total Assets $ 1,391,928 $ 1,485,664 Liabilities and Stockholders' Equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits (3) $ 260,655 111 0.17 % $ 275,752 55 0.08 % Savings (3) 248,356 20 0.03 247,238 25 0.04 Money Market (3) 188,804 61 0.13 199,652 71 0.14 Time Deposits (3) 127,832 412 1.29 177,506 676 1.53 Total Interest-Bearing Deposits (3) 825,647 604 0.29 900,148 827 0.37 Short-Term Borrowings Securities Sold Under Agreements to Repurchase 34,135 18 0.21 49,325 24 0.20 Other Borrowings 17,611 173 3.94 6,000 35 2.34 Total Interest-Bearing Liabilities 877,393 795 0.36 955,473 886 0.37 Noninterest-Bearing Demand Deposits 391,975 387,317 Other Liabilities 4,415 7,999 Total Liabilities 1,273,783 1,350,789 Stockholders' Equity 118,145 134,875 Total Liabilities and Stockholders' Equity $ 1,391,928 $ 1,485,664 Net Interest Income (FTE) (Non-GAAP) (4) $ 10,197 $ 9,977 Net Interest Rate Spread (FTE) (Non-GAAP) (4)(6) 3.01 % 2.74 % Net Interest-Earning Assets (5) $ 430,212 $ 447,397 Net Interest Margin (GAAP) (7)) 3.12 2.84 Net Interest Margin (FTE) (Non-GAAP) (4)(7) 3.13 2.85 Return on Average Assets (1) 0.03 (0.06) Return on Average Equity (1) 0.40 (0.66) Average Equity to Average Assets 8.49 9.08 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 149.03 146.82 PPP Loans $ 5,546 $ 144 10.41 $ 57,661 $ 636 4.42 (1) Annualized based on three months ended results. (2) Net of the allowance for loan losses and includes nonaccrual loans with a zero yield and Loans Held for Sale if applicable. (3) Includes Deposits Held for Sale that were sold in December 2021. (4) 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. (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (6) 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. (7) Net interest margin represents annualized net interest income divided by average total interest-earning assets. 37 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 June 30, 2022 Compared to Three Months Ended June 30, 2021 (Decrease) Increase Due to Volume Rate Total (Dollars in thousands) (Unaudited) Interest and Dividend Income: Loans, net $ (82) $ (126) $ (208) Debt Securities: Taxable 462 (109) 353 Exempt From Federal Tax (26) 5 (21) Marketable Equity Securities — (4) (4) Other Interest-Earning Assets (10) 3 (7) Total Interest-Earning Assets 211 (82) 129 Interest Expense: Deposits (54) (169) (223) Short-Term Borrowings: Securities Sold Under Agreements to Repurchase (7) 1 (6) Other Borrowings 102 36 138 Total Interest-Bearing Liabilities 41 (132) (91) Change in Net Interest and Dividend Income $ 170 $ 50 $ 220 Provision for Loan Losses. There was $3.8 million provision for loan losses for the three months ended June 30, 2022 compared with a recovery of $1.2 million for the three months ended June 30, 2021. The increased provision for loan losses was primarily due to a provision for a single loan charge-of f of $2.7 million (pre-tax) with respect to a commercial and industrial loan. As previously reported, the charge-off relates to a borrower which is ceasing operations and carried a $3.5 million revolving line of credit which had an outstanding balance of $2.7 million. The remaining increase to the provision was a result of adjustments made to historical loss factors and changes in qualitative factors in particular economic and industry conditions between the three months ended June 30, 2022 and three months ended June 30, 2021. Noninterest Income . Noninterest income decreased $114,000, or 5.1%, to $2.1 million for the three months ended June 30, 2022, compared to $2.2 million for the three months ended June 30, 2021. The decrease was largely due to a $210,000 reduction in securities gains due to a decline of $199,000 in the market value of equity securities, comprised mainly of bank stocks, partially offset by a $160,000 increase in insurance commissions. The increase in insurance commissions was primarily driven by contingency income which resulted from the higher than lock-in amounts received and core business including commercial and personal insurance lines. In addition, net gain on sale of loans decreased $31,000 as there were no loans sold during the three months ended June 30, 2022. Noninterest Expense. Noninterest expense decreased $5.3 million, or 38.7%, to $8.4 million for the three months ended June 30, 2022 compared to $13.7 million for the three months ended June 30, 2021, compared to $8.7 million for the three months ended March 31, 2022. The primary drivers were decreases of $2.3 million and $1.2 million related to the writedown of fixed assets and intangible impairment associated with branch consolidation and sale initiatives in 2021, respectively. In addition, salaries and benefits decreased $537,000 and occupancy decreased $248,000, primarily related to the reduction of footprint and related headcount resulting from the consolidation and sale of branches during 2021. Contracted services decreased $402,000 to 38 Table of Contents $348,000 for the three months ended June 30, 2022 compared to $750,000 for the three months ended June 30, 2021. This was a result of branch optimization initiatives completed in the prior year. Income Taxes. Income tax benefit was $44,000 for the three months ended June 30, 2022 compared to income tax benefit of $146,000 for the three months ended June 30, 2021. This change was primarily driven by pre-tax income of $74,000 for the three months ended June 30, 2022 compared to pre-tax loss of $369,000 for the three months ended June 30, 2021, due to expenses incurred from the branch consolidation efforts in the three months ended June 30, 2021 which were not incurred in the three months ended June 30, 2022 Results of Operations for the Six Months Ended June 30, 2022 and 2021 Overview. Net income was $3.2 million for the six months ended June 30, 2022, an increase of $543,000 compared to net income of $2.6 million for the six months ended June 30, 2021. Net Interest and Dividend Income. Net interest and dividend income increased $145,000, or 0.7% to $20.1 million for the six months ended June 30, 2022 compared to $19.9 million for the six months ended June 30, 2021. Net interest margin (Non-GAAP FTE) increased 16 bps to 3.11% for the six months ended June 30, 2022 compared to 2.95% the six months ended June 30, 2021. Net interest margin (GAAP) increased to 3.10% for the six months ended June 30, 2022 compared to 2.94% for the six months ended June 30, 2021. Interest and Dividend Income • Interest and dividend income decreased $234,000, or 1.1%, to $21.6 million for the six months ended June 30, 2022 compared to $21.8 million for the six months ended June 30, 2021. ◦ Interest income on loans decreased $798,000 or 4.0% to $19.3 million during the six months ended June 30, 2022 compared to $20.1 million for the six months ended June 30, 2021. Average loans decreased $15.8 million, and the loan yield for the six months ended June 30, 2022 decreased 10 bps to 3.86% compared to 3.96% for the six months ended June 30, 2021. ◦ Interest and fee income on PPP loans was $589,000 for the six months ended June 30, 2022 and contributed 8 bps to loan yield, compared to $1.3 million for the six months ended June 30, 2021, which contributed loan yield 4 bps in the prior period. ◦ The impact of the accretion of the credit mark on acquired loan portfolios was $130,000 for the six months ended June 30, 2022 compared to $291,000 for the six months ended June 30, 2021, or 3 bps in the current period compared to 5 bps in the prior period. ◦ Interest income on taxable investment securities increased $612,000, or 47.8%, to $1.9 million for the six months ended June 30, 2022 compared to $1.3 million for the six months ended June 30, 2021 driven by a $98.4 million increased in average taxable investment securities balance and partially offset by a 37 bps decrease in average yield. Interest Expense • Interest expense decreased $379,000, or 20.0%, to $1.5 million for the six months ended June 30, 2022 compared to $1.9 million for the six months ended June 30, 2021. ◦ Interest expense on deposits decreased $640,000, or 36.1%, to $1.1 million for the six months ended June 30, 2022 compared to $1.8 million for the six months ended June 30, 2021. While average interest-bearing deposits decreased $56.6 million, controlling the deposit cost structure combined with non-renewal or repricing of higher-cost time deposit resulted in a resulted in a 13 bps decrease in average cost compared to the six months ended June 30, 2021. In addition, the average balance of time deposits and the related average cost decreased $52.4 million and 28 bps, respectively. These decreases are partially offset by a 2 bps increase in interest-bearing demand deposit average cost as well as an increase in average other borrowings of $11.0 million or 166.9% to $17.6 million as of June 30, 2022 compared to $6.6 million as of June 30, 2021, which was driven by an increase in subordinated debt balance. 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 39 Table of Contents 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, 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) $ 1,008,539 $ 19,322 3.86 % $ 1,024,319 $ 20,131 3.96 % Debt Securities Taxable 222,144 1,893 1.70 123,790 1,281 2.07 Tax Exempt 9,649 156 3.23 12,608 192 3.05 Marketable Equity Securities 2,693 42 3.12 2,641 44 3.33 Interest Bearing Deposits at Other Banks 57,829 156 0.54 200,388 150 0.15 Other Interest-Earning Assets 3,358 76 4.56 3,977 99 5.02 Total Interest-Earning Assets 1,304,212 21,645 3.35 1,367,723 21,897 3.23 Noninterest-Earning Assets 103,201 87,645 Total Assets $ 1,407,413 $ 1,455,368 Liabilities and Stockholders' Equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits (3) $ 268,585 160 0.12 % $ 267,455 133 0.10 % Savings (3) 246,084 38 0.03 243,565 57 0.05 Money Market (3) 190,605 102 0.11 198,530 168 0.17 Time Deposits (3) 129,914 834 1.29 182,283 1,416 1.57 Total Interest-Bearing Deposits (3) 835,188 1,134 0.27 891,833 1,774 0.40 ST Borrowings Securities Sold Under Agreements to Repurchase 36,000 37 0.21 45,232 47 0.21 Other Borrowings 17,608 347 3.97 6,597 76 2.32 Total Interest-Bearing Liabilities 888,796 1,518 0.34 943,662 1,897 0.41 Noninterest-Bearing Demand Deposits 388,103 368,318 Other Liabilities 6,468 8,433 Total Liabilities 1,283,367 1,320,413 Stockholders' Equity 124,046 134,955 Total Liabilities and Stockholders' Equity $ 1,407,413 $ 1,455,368 Net Interest Income (FTE) (Non-GAAP) (4) $ 20,127 $ 20,000 Net Interest Rate Spread (FTE) (Non-GAAP) (4)(6) 3.01 % 2.82 % Net Interest-Earning Assets (5) $ 415,416 $ 424,061 Net Interest Margin (GAAP) (7) 3.10 2.94 Net Interest Margin (FTE) (Non-GAAP) (4)(7) 3.11 2.95 Return on Average Assets (1) 0.45 0.36 Return on Average Equity (1) 5.15 3.92 Average Equity to Average Assets 8.81 9.27 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 146.74 144.94 PPP Loans $ 10,085 $ 589 11.78 $ 57,305 $ 1,313 4.62 (1) Annualized based on three months ended results. (2) Net of the allowance for loan losses and includes nonaccrual loans with a zero yield and Loans Held for Sale if applicable. (3) Includes Deposits Held for Sale that were sold in December 2021. (4) 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. (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (6) 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. (7) Net interest margin represents annualized net interest income divided by average total interest-earning assets. 40 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%. 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, 2022 Compared to Six Months Ended June 30, 2021 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) (Unaudited) Interest and Dividend Income: Loans, net $ (306) $ (503) $ (809) Debt Securities: Taxable 874 (262) 612 Exempt From Federal Tax (46) 10 (36) Marketable Equity Securities 1 (3) (2) Other Interest-Earning Assets (14) (9) (23) Total Interest-Earning Assets 342 (594) (252) Interest Expense: Deposits (96) (544) (640) Short-Term Borrowings: Securities Sold Under Agreements to Repurchase (10) — (10) Other Borrowings 190 81 271 Total Interest-Bearing Liabilities 84 (463) (379) Change in Net Interest and Dividend Income $ 258 $ (131) $ 127 Provision for Loan Losses. The provision for loan losses was $3.8 million for the six months ended June 30, 2022, compared to a $1.2 million recovery for the six months ended June 30, 2021.The increased provision for loan losses was primarily due to a provision for a single loan charge-of f of $2.7 million (pre-tax) with respect to a commercial and industrial loan. As previously reported, the charge-off relates to a borrower which is ceasing operations and carried a $3.5 million revolving line of credit which had an outstanding balance of $2.7 million. The remaining increase to the provision was a result of adjustments made to historical loss factors and changes in qualitative factors in particular economic and industry conditions. Noninterest Income. Noninterest income decreased $675,000, or 12.5%, to $4.7 million for the six months ended June 30, 2022, compared to $5.4 million for the six months ended June 30, 2021. The decrease was primarily due to the net loss on securities of $206,000 for the six months ended June 30, 2022 compared to net gain on securities of $458,000 for the six months ended June 30, 2021, which was largely due to a decline of $439,000 in the market value of equity securities, comprised mainly of bank stocks. In addition, net gain on sales of loans decreased $117,000 as there were no loans sold during for the six months ended June 30, 2022 compared to $117,000 for the six months ended June 30, 2021. These changes are partially offset by an increase of $363,000, or 12.9%, in insurance commissions to $3.2 million for the six months ended June 30, 2022, compared to $2.8 million for the six months ended June 30, 2021 due to higher than lock-in amounts received and core business including commercial and personal insurance lines. Noninterest Expense. Noninterest expense decreased $6.1 million, or 26.2%, to $17.1 million for the six months ended June 30, 2022 compared to $23.1 million for the six months ended June 30, 2021. The primary drivers were decreases of $1.2 million and $2.3 million as previously noted related to the writedown of fixed assets and intangible impairment associated with branch consolidation and sale initiatives in 2021, respectively. In addition, salaries and benefits decreased $866,000 and occupancy decreased $272,000, primarily related to the reduction of footprint and related headcount resulting from the consolidation and sale of branches during 2021. Contracted services decreased $502,000 to $935,000 for the six months ended June 30, 2022 compared 41 Table of Contents to $1.4 million for the six months ended June 30, 2021. This was a result of branch optimization initiatives completed in the prior year. Income Taxes. Income tax expense decreased $6,000 to $759,000 for the six months ended June 30, 2022 compared to $765,000 for the six months ended June 30, 2021. The lack of significant change between the periods is consistent with the lack of significant change in pre-tax income, as pre-tax income was $3.9 million for the six months ended June 30, 2022 compared to pre-tax income of $3.4 million for the six months ended June 30, 2021. 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, 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 June 30, 2022 to satisfy its short- and long-term liquidity needs. The Company’s most liquid assets are cash and due from banks, which totaled $81.1 million at June 30, 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 $18.2 million at June 30, 2022. In addition, at June 30, 2022, the Company had the ability to borrow up to $440.1 million from the FHLB of Pittsburgh, of which $434.4 million is available. The Company also has the ability to borrow up to $106.2 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 June 30, 2022 and December 31, 2021. At June 30, 2022, $72.9 million, or 58.2% 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. 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, 2022, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $17.2 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. 42 Table of Contents 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, 2022 and December 31, 2021, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. At June 30, 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. 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, 2022 December 31, 2021 Amount Ratio Amount Ratio (Dollars in thousands) Common Equity Tier 1 (to risk weighted assets) Actual $ 114,705 11.83 % $ 113,086 11.95 % For Capital Adequacy Purposes 43,628 4.50 42,571 4.50 To Be Well Capitalized 63,019 6.50 61,491 6.50 Tier 1 Capital (to risk weighted assets) Actual 114,705 11.83 113,086 11.95 For Capital Adequacy Purposes 58,171 6.00 56,761 6.00 To Be Well Capitalized 77,562 8.00 75,682 8.00 Total Capital (to risk weighted assets) Actual 126,832 13.08 124,668 13.18 For Capital Adequacy Purposes 77,562 8.00 75,682 8.00 To Be Well Capitalized 96,952 10.00 94,602 10.00 Tier 1 Leverage (to adjusted total assets) Actual 114,705 8.33 113,086 7.76 For Capital Adequacy Purposes 55,085 4.00 58,307 4.00 To Be Well Capitalized 68,856 5.00 72,884 5.00