Item 2. Management’s Discussion and Analysis
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 10 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 March 31, 2024, compared to the consolidated financial condition as of December 31, 2023 and the consolidated results of operations for the three months ended March 31, 2024 compared to the three months ended March 31, 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
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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
March 31,
2024 2023
(Dollars in thousands)
Interest Income (GAAP) $ 17,986 $ 14,244
Adjustment to FTE Basis
39 31
Interest Income (FTE) (Non-GAAP)
18,025 14,275
Interest Expense (GAAP) 6,395 2,661
Net Interest Income (FTE) (Non-GAAP)
$ 11,630 $ 11,614
Net Interest Rate Spread (GAAP)
2.67 % 3.13 %
Adjustment to FTE Basis
0.01 0.01
Net Interest Rate Spread (FTE) (Non-GAAP)
2.68 3.14
Net Interest Margin (GAAP)
3.36 % 3.51 %
Adjustment to FTE Basis
0.01 0.01
Net Interest Margin (FTE) (Non-GAAP)
3.37 3.52
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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.
March 31,
2024 December 31, 2023
(Dollars in thousands, except share and per share data)
Stockholders' Equity (GAAP) $ 141,590 $ 139,834
Goodwill and Other Intangible Assets, Net (10,349) (10,690)
Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 131,241 $ 129,144
Common Shares Outstanding (Denominator) 5,142,901 5,118,713
Book Value per Common Share (GAAP) $ 27.53 $ 27.32
Tangible Book Value per Common Share (Non-GAAP) $ 25.52 $ 25.23
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Consolidated Statements of Financial Condition Analysis
Assets
Total assets increased $17.0 million, or 1.2%, to $1.47 billion at March 31, 2024 compared to $1.46 billion at December 31, 2023.
Cash and Securities
• Cash and due from banks increased $5.5 million, or 8.0%, to $73.7 million at March 31, 2024, compared to $68.2 million at December 31, 2023.
• Securities increased $25.2 million, or 12.2%, to $232.3 million at March 31, 2024, compared to $207.1 million at December 31, 2023. The securities balance was primarily impacted by the purchase of $29.8 million of collateralized loan obligation securities, partially offset by $3.1 million of repayments on amortizing securities .
Loans, Allowance for Credit Losses (ACL) and Credit Quality
• Total loans decreased $14.1 million, or 1.3%, to $1.10 billion at March 31, 2024 compared to $1.11 billion at December 31, 2023. This was driven by decreases in consumer loans and commercial and industrial loans of $11.1 million and $8.0 million, respectively, partially offset by increases in commercial real estate loans, other loans and construction loans of $3.3 million, $1.4 million and $1.2 million, 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. The decrease in commercial and industrial loans was primarily due to the prepayment of a $20.0 million line of credit and a $5.0 million syndicated national credit.
• The allowance for credit losses (ACL) was $9.6 million at March 31, 2024 and $9.7 million at December 31, 2023. As a result, the ACL to total loans was 0.87% at March 31, 2024 and December 31, 2023. The provision for credit losses recorded for the three months ended March 31, 2024 was a net recovery of $37,000. The provision for credit losses - loans was a recovery of $143,000 and was primarily due to a decrease in loan balances while the provision for credit losses - unfunded commitments was $106,000 and was due to an increase in qualitative factors.
• Net recoveries for the three months ended March 31, 2024 were $18,000. Net recoveries for the three months ended March 31, 2023 were $756,000, or 0.29% 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 includes nonaccrual loans and accruing loans past due 90 days or more, were $2.2 million at March 31, 2024 and December 31, 2023. Nonperforming loans to total loans ratio was 0.20% at March 31, 2024 and December 31, 2023.
Liabilities
Total liabilities increased $15.2 million, or 1.2%, to $1.33 billion at March 31, 2024 compared to $1.32 billion at December 31, 2023.
Deposits
• Total deposits decreased $4.7 million to $1.262 billion as of March 31, 2024 compared to $1.267 billion at December 31, 2023. Non interest-bearing demand deposits decreased $2.6 million, interest-bearing demand deposits decreased $39.9 million and savings deposits decreased $4.5 million, while money market deposits increased $7.3 million and time deposits increased $35.0 million. Deposit changes were primarily the result of cyclical fluctuations in municipal deposits and the current interest rate environment causing a shift in deposit products to higher priced time deposits. Additionally, the Bank added $13.0 million of brokered certificates of deposit during the period. Brokered certificates of deposit totaled $42.0 million as of March 31, 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 collateralized loan obligation securities. At March 31, 2024, FDIC insured deposits totaled approximately 63.1% 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 $19.9 million, or 138.0%, to $34.3 million at March 31, 2024, compared to $14.4 million at December 31, 2023 primarily due to the purchase of $10.6 million of syndicated loans which were unfunded at the end of the period and $10.1 million of securities which were unsettled at the end of the period.
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Stockholders’ Equity
Stockholders’ equity increased $1.8 million, or 1.3%, to $141.6 million at March 31, 2024, compared to $139.8 million at December 31, 2023. The key factor positively impacting stockholders’ equity was $4.2 million of net income for the current period, partially offset by a $1.3 million increase in accumulated other comprehensive loss and the payment of $1.3 million in dividends since December 31, 2023.
Book value per share (GAAP) was $27.53 at March 31, 2024 compared to $27.32 at December 31, 2023, an increase of $0.21. Tangible book value per share (Non-GAAP) increased $0.29, or 1.1%, to $25.52 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 March 31, 2024 and 2023
Overview. Net income was $4.20 million for the three months ended March 31, 2024, an increase of $40,000 compared to net income of $4.16 million for the three months ended March 31, 2023.
Net Interest and Dividend Income. Net interest and dividend income increased $8,000, or 0.1%, to $11.59 million for the three months ended March 31, 2024 compared to $11.58 million for the three months ended March 31, 2023. Net interest margin (GAAP) decreased to 3.36% for the three months ended March 31, 2024 compared to 3.51% for the three months ended March 31, 2023. Fully Tax Equivalent (FTE) net interest margin (Non-GAAP) decreased 15 basis points (bps) to 3.37% for the three months ended March 31, 2024 compared to 3.52% for the three months ended March 31, 2023.
Interest and Dividend Income
• Interest and dividend income increased $3.7 million, or 26.3%, to $18.0 million for the three months ended March 31, 2024 compared to $14.2 million the three months ended March 31, 2023.
◦ Interest income on loans increased $2.5 million, or 19.9%, to $14.8 million for the three months ended March 31, 2024 compared to $12.4 million for the three months ended March 31, 2023. The average yield on loans increased 67 bps to 5.50% compared to 4.83% resulting in a $1.8 million increase in interest income on loans. The average balance of loans increased $47.3 million to $1.09 billion from $1.04 billion, generating $694,000 of additional 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 $1.3 million, or 138.9%, to $2.3 million for the three months ended March 31, 2024 compared to $964,000 for the three months ended March 31, 2023 driven by a 210 bp increase in average yield coupled with a $22.6 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 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%.
◦ Interest income on interest-earning deposits at other banks decreased $72,000, to $733,000 for the three months ended March 31, 2024 compared to $805,000 for the three months ended March 31, 2023 driven by a $14.3 million decrease in average balances, partially offset by a 58 bp increase in the average yield.
Interest Expense
• Interest expense increased $3.7 million, or 140.3%, to $6.4 million for the three months ended March 31, 2024 compared to $2.7 million for the three months ended March 31, 2023.
◦ Interest expense on deposits increased $3.5 million, or 139.3%, to $6.0 million for the three months ended March 31, 2024 compared to $2.5 million for the three months ended March 31, 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 to interest-bearing demand and time deposits which resulted in a 132 bp, or 116.0%, increase in the average cost of interest-bearing deposits compared to the three months ended March 31, 2023. This accounted for a $3.2 million increase in interest expense. Additionally, interest-bearing deposit balances increased $86.1 million, or 9.6%, to $978.3 million as of March 31, 2024 compared to $892.2 million as of March 31, 2023, accounting for a $298,000 increase in interest expense.
◦ Interest expense on borrowed funds increased $247,000, or 157.3%, to $404,000 for the three months ended March 31, 2024 compared to $157,000 for the three months ended March 31, 2023. The average balance of borrowed funds increased $18.7 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 $232,000 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 21.0% 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,
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)
$ 1,087,889 $ 14,877 5.50 % $ 1,040,570 $ 12,391 4.83 %
Debt Securities
Taxable 235,800 2,303 3.91 213,158 964 1.81
Exempt From Federal Tax — — — 6,270 52 3.32
Equity Securities 2,693 27 4.01 2,693 24 3.56
Interest-Earning Deposits at Banks 58,887 733 4.98 73,221 805 4.40
Other Interest-Earning Assets 3,235 85 10.57 2,633 39 6.01
Total Interest-Earning Assets 1,388,504 18,025 5.22 1,338,545 14,275 4.33
Noninterest-Earning Assets 54,910 49,703
Total Assets $ 1,443,414 $ 1,388,248
Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits $ 334,880 1,794 2.15 % $ 335,327 1,191 1.44 %
Money Market Accounts 203,867 1,514 2.99 213,443 939 1.78
Savings Accounts 191,444 59 0.12 242,298 37 0.06
Time Deposits 248,118 2,624 4.25 101,147 337 1.35
Total Interest-Bearing Deposits 978,309 5,991 2.46 892,215 2,504 1.14
Short-Term Borrowings — — — 1,344 2 0.60
Other Borrowings 34,682 404 4.69 14,641 155 4.29
Total Interest-Bearing Liabilities 1,012,991 6,395 2.54 908,200 2,661 1.19
Noninterest-Bearing Demand Deposits 278,691 362,343
Total Funding and Cost of Funds 1,291,682 1.99 1,270,543 0.85
Other Liabilities 11,441 2,953
Total Liabilities 1,303,123 1,273,496
Stockholders' Equity 140,291 114,752
Total Liabilities and Stockholders' Equity $ 1,443,414 $ 1,388,248
Net Interest Income (FTE) (Non-GAAP) (3)
$ 11,630 $ 11,614
Net Interest Rate Spread (FTE) (Non-GAAP) (3)(5)
2.68 % 3.14 %
Net Interest-Earning Assets (4)
$ 375,513 $ 430,345
Net Interest Margin (GAAP) (6)
3.36 3.51
Net Interest Margin (FTE) (Non-GAAP) (3)(6)
3.37 3.52
Return on Average Assets (1)
1.17 1.21
Return on Average Equity (1)
12.03 14.69
Average Equity to Average Assets 9.72 8.27
Average Interest-Earning Assets to Average Interest-Bearing Liabilities 137.07 147.38
(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 March 31, 2024
Compared to
Three Months Ended March 31, 2023
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest and Dividend Income:
Loans, net $ 694 $ 1,792 $ 2,486
Debt Securities:
Taxable 111 1,228 1,339
Exempt From Federal Tax (26) (26) (52)
Equity Securities — 3 3
Cash at Other Banks (170) 98 (72)
Other Interest-Earning Assets 11 35 46
Total Interest-Earning Assets 620 3,130 3,750
Interest Expense:
Deposits 298 3,189 3,487
Short-Term Borrowings (1) (1) (2)
Other Borrowings 233 16 249
Total Interest-Bearing Liabilities 530 3,204 3,734
Change in Net Interest and Dividend Income $ 90 $ (74) $ 16
Provision for Credit Losses. The provision for credit losses recorded for the three months ended March 31, 2024 was a net recovery of $37,000. The provision for credit losses - loans was a recovery of $143,000 and was primarily due to a decrease in loan balances while the provision for credit losses - unfunded commitments was $106,000 and was due to an increase in qualitative factors. This compared to an $80,000 provision for credit losses recorded for the three months ended March 31, 2023.
Noninterest Income . Noninterest income decreased $894,000, or 31.8%, to $1.9 million for the three months ended March 31, 2024, compared to $2.8 million for the three months ended March 31, 2023. This decrease resulted primarily from a $1.9 million decrease in insurance commissions as no income was recognized for the three months ended March 31, 2024 due to the December 2023 sale of EU, compared to a full quarter of income recognized for the three months ended March 31, 2023. This decrease was partially offset by net increases in gains on bank-owned life insurance and gains on the disposal of premises and equipment of $613,000 and $263,000, respectively. The gain on bank owned life insurance was $915,000 resulting from one death claim during the three months ended March 31, 2024 compared to $302,000 resulting from two death claims during the three months ended March 31, 2023. The gain on the disposal of premises and equipment was $274,000 resulting from the sale of one branch office building during the three months ended March 31, 2024 compared to $11,000 for the three months ended March 31, 2023.
Noninterest Expense. Noninterest expense decreased $600,000, or 6.6%, to $8.4 million for the three months ended March 31, 2024 compared to $9.0 million for the three months ended March 31, 2023. Salaries and benefits decreased $503,000, or 9.9%, to $4.6 million primarily due to no expense related to EU recognized for the three months ended March 31, 2024 due to the December 2023 sale, compared to $864,000 of expense recognized for the three months ended March 31, 2023, partially offset by merit increases and revenue producing staff additions. Data processing expense decreased $165,000 due to additional expenses realized during the three months ended March 31, 2023 related to a 2022 data processing conversion. Other noninterest expense decreased $164,000 and intangible amortization decreased $104,000 primarily due to EU expenses of $108,000 and $47,000, respectively, realized during the three months ended March 31, 2023. Partially offsetting these decreases, contracted services, advertising, occupancy and equipment expenses increased $134,000, $50,000, $48,000 and $46,000, respectively.
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Income Taxes. Income tax expense was $920,000 for the three months ended March 31, 2024 compared to $1.1 million for the three months ended March 31, 2023. This change was primarily driven by a decrease in pre-tax income to $5.1 million for the three months ended March 31, 2024 compared to $5.3 million for the three months ended March 31, 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 March 31, 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 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, 2024 to satisfy its short- and long-term liquidity needs.
The Company’s most liquid assets are cash and due from banks, which totaled $73.7 million at March 31, 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 $66.5 million at March 31, 2024. In addition, at March 31, 2024, the Company had the ability to borrow up to $482.0 million from the FHLB of Pittsburgh, of which $460.0 million is available. The Company also has the ability to borrow up to $97.8 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, 2024 and December 31, 2023, currently these credit arrangements have remained unused.
At March 31, 2024, $201.5 million, or 75.9% 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 time deposits or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered. At March 31, 2024, the Bank's current deposit portfolio is 63.1% 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 21.9% 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 March 31, 2024, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $16.8 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
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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, 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.
March 31, 2024 December 31, 2023
Amount Ratio Amount Ratio
(Dollars in thousands)
Common Equity Tier 1 (to risk weighted assets)
Actual $ 147,112 14.50 % $ 143,654 13.64 %
For Capital Adequacy Purposes 45,640 4.50 47,385 4.50
To Be Well Capitalized 65,924 6.50 68,445 6.50
Tier 1 Capital (to risk weighted assets)
Actual 147,112 14.50 143,654 13.64
For Capital Adequacy Purposes 60,853 6.00 63,180 6.00
To Be Well Capitalized 81,138 8.00 84,240 8.00
Total Capital (to risk weighted assets)
Actual 157,300 15.51 153,861 14.61
For Capital Adequacy Purposes 81,138 8.00 84,240 8.00
To Be Well Capitalized 101,422 10.00 105,300 10.00
Tier 1 Leverage (to adjusted total assets)
Actual 147,112 10.28 143,654 10.19
For Capital Adequacy Purposes 57,250 4.00 56,385 4.00
To Be Well Capitalized 71,563 5.00 70,481 5.00
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.