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, 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; 31 Table of Contents • The ability of our customers to make scheduled loan payments; • Loan delinquency rates and trends; • Our ability to manage the risks involved in our business; • Our ability to integrate the operations of businesses we acquire; • Our ability to control costs and expenses; • Inflation, market and monetary fluctuations; • Changes in federal and state legislation and regulation applicable to our business; • Actions by our competitors; and • Other factors disclosed in the Company’s periodic reports as filed with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation. General CB Financial Services is a bank holding company established in 2006 and headquartered in Carmichaels, Pennsylvania. CB Financial’s business activity is conducted primarily through its wholly owned bank subsidiary, Community Bank. The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from nine branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and three offices in Marshall and Ohio Counties in West Virginia. The Bank also has a loan production office in Allegheny County, a corporate center in Washington County and an operations center in Greene County, all of which are in Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Overview The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of September 30, 2024, compared to the consolidated financial condition as of December 31, 2023 and the consolidated results of operations for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contracted services, legal and professional fees, advertising, deposit and general insurance and other expenses. Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in southwestern Pennsylvania and Ohio Valley market areas. Explanation of Use of Non-GAAP Financial Measures In addition to financial measures presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information in understanding our underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Non-GAAP adjusted items impacting the Company's financial performance are identified to assist investors in providing a complete understanding of factors and trends affecting the Company’s business and in analyzing the Company’s operating results on the same basis as that applied by management. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with similar non-GAAP measures which may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein. 32 Table of Contents 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 Nine Months Ended September 30, September 30, 2024 2023 2024 2023 (Dollars in thousands) Interest Income (GAAP) $ 19,773 $ 15,874 $ 56,699 $ 45,321 Adjustment to FTE Basis 42 43 118 111 Interest Income (FTE) (Non-GAAP) 19,815 15,917 56,817 45,432 Interest Expense (GAAP) 8,299 5,157 22,163 11,902 Net Interest Income (FTE) (Non-GAAP) $ 11,516 $ 10,760 $ 34,654 $ 33,530 Net Interest Rate Spread (GAAP) 2.36 % 2.54 % 2.48 % 2.80 % Adjustment to FTE Basis 0.02 0.01 0.02 0.01 Net Interest Rate Spread (FTE) (Non-GAAP) 2.38 % 2.55 % 2.50 % 2.81 % Net Interest Margin (GAAP) 3.11 % 3.13 % 3.21 % 3.31 % Adjustment to FTE Basis 0.01 0.01 0.01 0.01 Net Interest Margin (FTE) (Non-GAAP) 3.12 % 3.14 % 3.22 % 3.32 % 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. September 30, 2024 December 31, 2023 (Dollars in thousands, except share and per share data) Stockholders' Equity (GAAP) $ 149,140 $ 139,834 Goodwill and Other Intangible Assets, Net (9,820) (10,690) Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 139,320 $ 129,144 Common Shares Outstanding (Denominator) 5,129,921 5,118,713 Book Value per Common Share (GAAP) $ 29.07 $ 27.32 Tangible Book Value per Common Share (Non-GAAP) $ 27.16 $ 25.23 33 Table of Contents Consolidated Statements of Financial Condition Analysis Assets Total assets increased $105.7 million, or 7.3%, to $1.6 billion at September 30, 2024 compared to $1.5 billion at December 31, 2023. Cash and Securities • Cash and due from banks increased $79.1 million, or 115.9%, to $147.3 million at September 30, 2024, compared to $68.2 million at December 31, 2023. • Securities increased $63.8 million, or 30.8%, to $270.9 million at September 30, 2024, compared to $207.1 million at December 31, 2023. The securities balance was primarily impacted by the purchase of $69.8 million of collateralized loan obligation securities, partially offset by $10.7 million of repayments on amortizing securities . Loans, Allowance for Credit Losses (ACL) and Credit Quality • Total loans decreased $44.6 million, or 4.0%, to $1.07 billion at September 30, 2024 compared to $1.11 billion at December 31, 2023. This was driven by decreases in consumer, residential real estate, commercial real estate and commercial and industrial loans of $31.6 million, $8.9 million, $2.8 million and $2.7 million, respectively, partially offset by increases in other loans and construction loans of $1.0 million and $399,000, respectively. The decrease in consumer loans resulted from a reduction in indirect automobile loan production due to rising market interest rates and the discontinuation of this product offering as of June 30, 2023. This portfolio is expected to continue to decline as resources are allocated and production efforts are focused on more profitable commercial products. In total, $95.5 million of loans have paid off since December 31, 2023 . • The allowance for credit losses (ACL) was $9.5 million at September 30, 2024 and $9.7 million at December 31, 2023. As a result, the ACL to total loans was 0.89% at September 30, 2024 and 0.87% at December 31, 2023. The provision for credit losses recorded for the nine months ended September 30, 2024 was a net recovery of $114,000 and was primarily impacted by the decrease in loan balances. • Net charge-offs for the nine months ended September 30, 2024 were $123,000. Net recoveries for the nine months ended September 30, 2023 were $551,000, or 0.07% of average loans on an annualized basis primarily due to recoveries totaling $750,000 related to a prior year $2.7 million charged-off commercial and industrial loan. • Nonperforming loans, which include nonaccrual loans and accruing loans past due 90 days or more, were $2.0 million at September 30, 2024 and $2.2 million at December 31, 2023. Nonperforming loans to total loans ratio was 0.19% at September 30, 2024 and 0.20% at December 31, 2023. Accrued Interest Receivable and Other Assets • Accrued interest and other assets increased $7.8 million or 32.1%, to $32.1 million at September 30, 2024, compared to $24.3 million at December 31, 2023 due primarily to a $6.0 million investment in a low income housing tax credit project. Liabilities Total liabilities increased $96.3 million, or 7.3%, to $1.4 billion at September 30, 2024 compared to $1.3 billion at December 31, 2023. Deposits • Total deposits increased $86.7 million to $1.4 billion as of September 30, 2024 compared to $1.3 billion at December 31, 2023. Time deposits increased $136.5 million and money market deposits increased $19.7 million while interest-bearing demand, savings and non interest-bearing demand deposits decreased $36.5 million, $22.3 million and $10.7 million, respectively. The changes were primarily the result of the current interest rate environment causing a shift in products to higher priced money market and time deposits. Additionally, the Bank added $70.6 million of brokered certificates of deposit during the period. Brokered certificates totaled $99.6 million as of September 30, 2024 compared to $29.0 million at December 31, 2023, all of which mature within three months and were used to fund the purchase of floating rate CLO securities which reprice quarterly. At September 30, 2024, FDIC insured deposits totaled approximately 62.4% of total deposits while an additional 15.9% of total deposits were collateralized with investment securities. Accrued Interest Payable and Other Liabilities • Accrued interest payable and other liabilities increased $9.7 million, or 67.3%, to $24.1 million at September 30, 2024, compared to $14.4 million at December 31, 2023 primarily due to the purchase of $6.0 million of syndicated loans not yet settled and a $5.4 million unfunded commitment related to a low-income housing tax credit project. 34 Table of Contents Stockholders’ Equity Stockholders’ equity increased $9.3 million, or 6.7%, to $149.1 million at September 30, 2024, compared to $139.8 million at December 31, 2023. The key factors increasing stockholders’ equity were $10.1 million of net income for the current period and a $2.8 million decrease in accumulated other comprehensive loss, which were partially offset by the payment of $3.9 million in dividends since December 31, 2023. Book value per common share (GAAP) was $29.07 at September 30, 2024 compared to $27.32 at December 31, 2023, an increase of $1.75. Tangible book value per common share (Non-GAAP) increased $1.93, or 7.6%, to $27.16 compared to $25.23 at December 31, 2023. Consolidated Results of Operations for the Three Months Ended September 30, 2024 and 2023 Overview. Net income was $3.2 million for the three months ended September 30, 2024, an increase of $547,000 compared to net income of $2.7 million for the three months ended September 30, 2023. Net Interest and Dividend Income. Net interest and dividend income increased $757,000, or 7.1%, to $11.5 million for the three months ended September 30, 2024 compared to $10.7 million for the three months ended September 30, 2023. Net interest margin (GAAP) decreased to 3.11% for the three months ended September 30, 2024 compared to 3.13% for the three months ended September 30, 2023. Fully Tax Equivalent (FTE) net interest margin (Non-GAAP) decreased 2 basis points (bps) to 3.12% for the three months ended September 30, 2024 compared to 3.14% for the three months ended September 30, 2023. Interest and Dividend Income • Interest and dividend income increased $3.9 million, or 24.6%, to $19.8 million for the three months ended September 30, 2024 compared to $15.9 million the three months ended September 30, 2023. ◦ Interest income on loans increased $896,000, or 6.4%, to $14.9 million for the three months ended September 30, 2024 compared to $14.0 million for the three months ended September 30, 2023. The average yield on loans increased 47 bps to 5.60% compared to 5.13% resulting in a $1.3 million increase in interest income on loans. The average balance of loans decreased $24.7 million to $1.06 billion from $1.09 billion, causing a $357,000 decrease in interest income on loans. The increase in loan yield has been driven by a reduction in lower yielding consumer loans due to the discontinuation of the indirect automobile loan product with the redeployment of those funds into higher yielding commercial loan products. ◦ Interest income on taxable investment securities increased $2.3 million, or 249.9%, to $3.3 million for the three months ended September 30, 2024 compared to $940,000 for the three months ended September 30, 2023 driven by a 272 bp increase in average yield coupled with a $83.4 million increase in average balances. The increase in the average yield was the result of the Bank implementing a balance sheet repositioning strategy of its portfolio of available-for-sale securities during the fourth quarter of 2023. The Company sold $69.3 million in market value of its lower yielding U.S. government agency, mortgage-backed and municipal securities with an average yield of 1.89% and purchased $69.3 million of higher yielding mortgage-backed and collateralized mortgage obligation securities with an average yield of 5.49%. The increase in volume was driven by a $99.9 million increase in the average balance of collateralized loan obligation (“CLO”) securities as the Bank executed a leverage strategy to purchase these assets funded with brokered certificates of deposits. ◦ Interest income on interest-earning deposits at banks increased $698,000, to $1.4 million for the three months ended September 30, 2024 compared to $750,000 for the three months ended September 30, 2023 due to a $58.7 million increase in average balances, partially offset by a 51 bp decrease in the average yield. The volume increase was due in part to $30.5 million in cash received from the December 2023 sale of Exchange Underwriters ("EU"). Interest Expense • Interest expense increased $3.1 million, or 60.9%, to $8.3 million for the three months ended September 30, 2024 compared to $5.2 million for the three months ended September 30, 2023. ◦ Interest expense on deposits increased $3.1 million, or 66.1%, to $7.9 million for the three months ended September 30, 2024 compared to $4.8 million for the three months ended September 30, 2023. Rising market interest rates led to the repricing of interest-bearing demand and money market deposits and a shift in deposits from noninterest-bearing and interest-bearing demand and savings deposits into money market and time deposits which resulted in a 93 bp, or 46.3%, increase in the average cost of interest-bearing deposits compared to the three months ended September 30, 2023. This accounted for a $2.4 million increase in interest expense. Additionally, interest-bearing deposit balances increased $130.0 million, or 13.9%, to $1.1 billion as of September 30, 2024 compared to $937.8 million as of September 30, 2023, accounting for a $716,000 increase in interest expense. 35 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 September 30, 2024 2023 Average Balance Interest and Dividends Yield/ Cost (1) Average Balance Interest and Dividends Yield/ Cost (1) (Dollars in thousands) (Unaudited) Assets: Interest-Earning Assets: Loans, Net (2) $ 1,063,946 $ 14,987 5.60 % $ 1,088,691 $ 14,081 5.13 % Debt Securities Taxable 288,208 3,289 4.56 204,848 940 1.84 Exempt From Federal Tax — — — 6,013 52 3.46 Equity Securities 2,693 28 4.16 2,693 25 3.71 Interest-Earning Deposits at Banks 111,131 1,448 5.21 52,466 750 5.72 Other Interest-Earning Assets 3,108 63 8.06 3,292 69 8.32 Total Interest-Earning Assets 1,469,086 19,815 5.37 1,358,003 15,917 4.65 Noninterest-Earning Assets 57,602 52,885 Total Assets $ 1,526,688 $ 1,410,888 Liabilities and Stockholders' Equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits $ 316,301 1,923 2.42 % $ 363,997 2,003 2.18 % Money Market Accounts 217,148 1,726 3.16 187,012 1,141 2.42 Savings Accounts 175,753 46 0.10 212,909 54 0.10 Time Deposits 358,498 4,197 4.66 173,832 1,552 3.54 Total Interest-Bearing Deposits 1,067,700 7,892 2.94 937,750 4,750 2.01 Other Borrowings 34,702 407 4.67 34,662 407 4.66 Total Interest-Bearing Liabilities 1,102,402 8,299 2.99 972,412 5,157 2.10 Noninterest-Bearing Demand Deposits 263,650 312,016 Total Funding and Cost of Funds 1,366,052 2.42 1,284,428 1.59 Other Liabilities 15,043 9,025 Total Liabilities 1,381,095 1,293,453 Stockholders' Equity 145,593 117,435 Total Liabilities and Stockholders' Equity $ 1,526,688 $ 1,410,888 Net Interest Income (FTE) (Non-GAAP) (3) $ 11,516 $ 10,760 Net Interest-Earning Assets (4) $ 366,684 $ 385,591 Net Interest Rate Spread (FTE) (Non-GAAP) (3)(5) 2.38 % 2.55 % Net Interest Margin (GAAP) (6) 3.11 3.13 Net Interest Margin (FTE) (Non-GAAP) (3)(6) 3.12 3.14 Return on Average Assets (1) 0.84 0.75 Return on Average Equity (1) 8.80 9.03 Average Equity to Average Assets 9.54 8.32 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 133.26 139.65 (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. 36 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 September 30, 2024 Compared to Three Months Ended September 30, 2023 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) (Unaudited) Interest and Dividend Income: Loans, net $ (357) $ 1,263 $ 906 Debt Securities: Taxable 511 1,838 2,349 Exempt From Federal Tax (26) (26) (52) Equity Securities — 3 3 Cash at Other Banks 771 (73) 698 Other Interest-Earning Assets (4) (2) (6) Total Interest-Earning Assets 895 3,003 3,898 Interest Expense: Deposits 716 2,426 3,142 Other Borrowings (1) 1 — Total Interest-Bearing Liabilities 715 2,427 3,142 Change in Net Interest and Dividend Income $ 180 $ 576 $ 756 Provision for Credit Losses. The provision for credit losses recorded for the three months ended September 30, 2024 was a net recovery of $41,000. The provision for credit losses - loans was $25,000 and was primarily due to changes in qualitative factors partially offset by changes in loan portfolio concentrations and an improvement in loss rates. The provision for credit losses - unfunded commitments was a recovery of $66,000 and was due to a decrease in the unfunded commitments and the loss rate on construction loans. This compared to a $406,000 provision for credit losses recorded for the three months ended September 30, 2023 which was required primarily due to loan growth coupled with a modeled slowdown in loan prepayment speeds. Noninterest Income . Noninterest income decreased $1.2 million, or 48.9%, to $1,233,000 for the three months ended September 30, 2024, compared to $2.4 million for the three months ended September 30, 2023. This decrease resulted primarily from a $1.4 million decrease in insurance commissions as no income was recognized for the three months ended September 30, 2024 due to the December 2023 sale of EU, compared to a full quarter of income recognized for the three months ended September 30, 2023. Partially offsetting this decrease, the Company recognized a $138,000 gain on the sale of subsidiary following the final payment of remaining funds which were held in reserve to satisfy any liabilities recognized subsequent to the sale of EU. Noninterest Expense. Noninterest expense decreased $705,000, or 7.4%, to $8.8 million for the three months ended September 30, 2024 compared to $9.5 million for the three months ended September 30, 2023. Salaries and benefits decreased $808,000, or 15.0%, to $4.6 million primarily due to no expense related to EU recognized for the three months ended September 30, 2024 due to the December 2023 sale, compared to $878,000 of expense recognized for the three months ended September 30, 2023, partially offset by merit increases and revenue producing staff additions. Intangible amortization decreased $181,000 as a portion of the Bank’s core deposit intangible was fully amortized in February 2024 and EU intangible amortization of $47,000 was realized during the three months ended September 30, 2023. Data processing expense increased $58,000 costs associated with the implementation of a new loan origination system and financial dashboard platform. Occupancy expense increased $57,000 due to $130,000 of environmental remediation costs related to a construction project on one of the Bank’s office locations, partially offset by $44,000 of EU occupancy expense realized during the three months ended September 30, 2023. Pennsylvania shares tax expense increased $48,000 due to a higher taxable base due to the increase in equity resulting from the sale of EU. 37 Table of Contents Income Taxes. Income tax expense was $747,000 for the three months ended September 30, 2024 compared to $564,000 for the three months ended September 30, 2023. This change was primarily driven by an increase in pre-tax income to $4.0 million for the three months ended September 30, 2024 compared to $3.2 million for the three months ended September 30, 2023. Results of Operations for the Nine Months Ended September 30, 2024 and 2023 Overview. Net income was $10.1 million for the nine months ended September 30, 2024, an increase of $479,000 compared to $9.6 million for the nine months ended September 30, 2023. Net Interest and Dividend Income. Net interest and dividend income increased $1.1 million, or 3.3%, to $34.5 million for the nine months ended September 30, 2024 compared to $33.4 million for the nine months ended September 30, 2023. Net interest margin (GAAP) decreased to 3.21% for the nine months ended September 30, 2024 compared to 3.31% for the nine months ended September 30, 2023. Net interest margin (FTE) (Non-GAAP) decreased 10 bps to 3.22% for the nine months ended September 30, 2024 compared to 3.32% the nine months ended September 30, 2023. Interest and Dividend Income • Interest and dividend income increased $11.4 million, or 25.1%, to $56.7 million for the nine months ended September 30, 2024 compared to $45.3 million for the nine months ended September 30, 2023. ◦ Interest income on loans increased $4.6 million, or 11.6%, to $44.5 million during the nine months ended September 30, 2024 compared to $39.8 million for the nine months ended September 30, 2023. The average yield on loans increased 54 bps to 5.53% for the nine months ended September 30, 2024 compared to 4.99% for the nine months ended September 30, 2023 resulting in a $4.4 million increase in interest income on loans. The increase in loan yield has been driven by a reduction in lower yielding consumer loans due to the discontinuation of the indirect automobile loan product with the redeployment of those funds into higher yielding commercial loan products. The average balance of loans increased $6.3 million to $1.08 billion for the nine months ended September 30, 2024 compared to $1.07 billion for the nine months ended September 30, 2023 resulting in a $297,000 increase in interest income on loans. ◦ Interest income on taxable investment securities increased $5.6 million, or 195.7%, to $8.4 million during the nine months ended September 30, 2024 compared to $2.9 million for the nine months ended September 30, 2023 driven by a 245 bp increase in the average yield coupled with a $54.4 million increase in average balances. The increase in the average yield resulted in a $4.7 million increase in interest income on taxable securities and was the result of the Company implementing a balance sheet repositioning strategy of its portfolio of available-for-sale securities during the fourth quarter of 2023. The Bank sold $69.3 million in market value of its lower yielding U.S. government agency, mortgage-backed and municipal securities with an average yield of 1.89% and purchased $69.3 million of higher yielding mortgage-backed and collateralized mortgage obligation securities with an average yield of 5.49%. The increase in volume was driven by a $71.8 million increase in the average balance of CLO securities as the Company executed a leverage strategy to purchase these assets funded with brokered certificates of deposits. ◦ Interest income on interest-earning deposits at other banks increased $1.2 million, to $3.5 million for the nine months ended September 30, 2024 compared to $2.3 million for the nine months ended September 30, 2023 as average balances increased $30.0 million and the average yield increased 13 bps. The volume increase was due in part to $30.5 million in cash received from the December 2023 sale of EU. Interest Expense • Interest expense increased $10.3 million, or 86.2%, to $22.2 million for the nine months ended September 30, 2024 compared to $11.9 million for the nine months ended September 30, 2023. ◦ Interest expense on deposits increased $9.9 million, or 88.8%, to $20.9 million for the nine months ended September 30, 2024 compared to $11.1 million for the nine months ended September 30, 2023. Rising market interest rates led to the repricing of interest-bearing demand and money market deposits and a shift in deposits from non interest-bearing and interest-bearing demand and savings deposits to money market and time deposits and resulted in a 112 bp increase in the average cost of interest-bearing deposits compared to the nine months ended September 30, 2023. This accounted for a $8.5 million increase in interest expense. Additionally, average interest-bearing deposits increased $106.5 million, or 11.6%, accounting for a $1.4 million increase in interest expense. ◦ Interest expense on borrowed funds increased $410,000, or 50.9%, to $1.2 million for the nine months ended September 30, 2024 compared to $805,000 for the nine months ended September 30, 2023. The average balance of borrowed funds increased $10.6 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 $388,000 increase in interest expense. 38 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% 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. Nine Months Ended September 30, 2024 2023 Average Balance Interest and Dividends Yield/ Cost (1) Average Balance Interest and Dividends Yield/ Cost (1) (Dollars in thousands) (Unaudited) Assets: Interest-Earning Assets: Loans, Net (2) $ 1,076,052 $ 44,571 5.53 % $ 1,069,729 $ 39,924 4.99 % Debt Securities Taxable 263,433 8,437 4.27 209,069 2,853 1.82 Tax Exempt — — — 6,154 157 3.40 Equity Securities 2,693 82 4.06 2,693 74 3.66 Interest-Earning Deposits at Banks 90,507 3,493 5.15 60,474 2,276 5.02 Other Interest-Earning Assets 3,166 234 9.87 2,905 148 6.81 Total Interest-Earning Assets 1,435,851 56,817 5.29 1,351,024 45,432 4.50 Noninterest-Earning Assets 55,366 51,018 Total Assets $ 1,491,217 $ 1,402,042 Liabilities and Stockholders' Equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits $ 325,383 5,576 2.29 % $ 351,379 4,776 1.82 % Savings Accounts 184,017 157 0.11 226,686 145 0.09 Money Market Accounts 211,921 4,885 3.08 198,243 3,113 2.10 Time Deposits 305,386 10,330 4.52 143,881 3,063 2.85 Total Interest-Bearing Deposits 1,026,707 20,948 2.73 920,189 11,097 1.61 Short-Term Borrowings 1 — — 604 5 1.11 Other Borrowings 34,692 1,215 4.68 23,516 800 4.55 Total Interest-Bearing Liabilities 1,061,400 22,163 2.79 944,309 11,902 1.69 Noninterest-Bearing Demand Deposits 271,511 333,356 Total Funding and Cost of Funds 1,332,911 2.22 1,277,665 1.25 Other Liabilities 16,045 7,655 Total Liabilities 1,348,956 1,285,320 Stockholders' Equity 142,261 116,722 Total Liabilities and Stockholders' Equity $ 1,491,217 $ 1,402,042 Net Interest Income (FTE) (Non-GAAP) (3) $ 34,654 $ 33,530 Net Interest-Earning Assets (4) $ 374,451 $ 406,715 Net Interest Rate Spread (FTE) (Non-GAAP) (3)(5) 2.50 % 2.81 % Net Interest Margin (GAAP) (6) 3.21 3.31 Net Interest Margin (FTE) (Non-GAAP) (3)(6) 3.22 3.32 Return on Average Assets (1) 0.90 0.91 Return on Average Equity (1) 9.45 10.98 Average Equity to Average Assets 9.54 8.33 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 135.28 143.07 (1) Annualized based on nine 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. 39 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. Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) (Unaudited) Interest and Dividend Income: Loans, net $ 297 $ 4,350 $ 4,647 Debt Securities: Taxable 905 4,679 5,584 Exempt From Federal Tax (79) (78) (157) Equity Securities — 8 8 Cash at Other Banks 1,157 60 1,217 Other Interest-Earning Assets 14 72 86 Total Interest-Earning Assets 2,294 9,091 11,385 Interest Expense: Deposits 1,369 8,482 9,851 Short-Term Borrowings (3) (2) (5) Other Borrowings 391 24 415 Total Interest-Bearing Liabilities 1,757 8,504 10,261 Change in Net Interest and Dividend Income $ 537 $ 587 $ 1,124 Provision for Credit Losses. The provision for credit losses was a recovery of $114,000 for the nine months ended September 30, 2024 due to a decrease in loan balances. This compared to a provision for credit losses of $917,000 for the nine months ended September 30, 2023 which was required primarily due to loan growth coupled with a modeled slowdown in loan prepayment speeds. Noninterest Income. Noninterest income decreased $3.7 million, or 48.8%, to $3.8 million for the nine months ended September 30, 2024, compared to $7.5 million for the nine months ended September 30, 2023. This decrease was primarily related to a $4.9 million, or 99.9%, decrease in insurance commissions to $4,000 for the nine months ended September 30, 2024, compared to $4.9 million for the nine months ended September 30, 2023 due to the sale of EU. Additionally, service fees decreased $139,000, or 10.2%, to $1.2 million for nine months ended September 30, 2024, compared to $1.4 million for the nine months ended September 30, 2023. Partially offsetting these decreases, net gain on bank-owned life insurance claims increased $612,000 to $915,000 for the nine months ended September 30, 2024 compared to $303,000 for the nine months ended September 30, 2023 and net gain on disposal of premises and equipment increased $263,000 to $274,000 for the nine months ended September 30, 2024 compared to $11,000 for the nine months ended September 30, 2023. The gain on the disposal of premises and equipment for the nine months ended September 30, 2024 resulted from the sale of one branch office location. Additionally, the net gain (loss) on equity securities decreased $418,000 to a gain of $49,000 for the nine months ended September 30, 2024 compared to a $369,000 loss for the nine months ended September 30, 2023 which was due to an increase in the market value of equity securities, comprised mainly of bank stocks. Also during the nine months ended September 30, 2023, the Company recognized a $138,000 gain on the sale of EU following the final payment of remaining funds which were held in reserve to satisfy any liabilities recognized subsequent to the sale. 40 Table of Contents Noninterest Expense. Noninterest expense decreased $1.8 million, or 6.5%, to $26.2 million for the nine months ended September 30, 2024 compared to $28.0 million for the nine months ended September 30, 2023. Salaries and benefits decreased $2.1 million primarily due to no expense related to EU recognized for the nine months ended September 30, 2024 due to the December 2023 sale, compared to $2.6 million of expense recognized for the nine months ended September 30, 2023, partially offset by merit increases and revenue producing staff additions. Amortization of intangible assets decreased $466,000 as a component of the Bank’s core deposit intangible was fully amortized in February 2024 and there was no expense related to EU recognized for the nine months ended September 30, 2024 compared to $142,000 of expense recognized for the nine months ended September 30, 2023. Partially offsetting these decreases, occupancy expense increased $256,000 due to $323,000 of environmental remediation costs related to a construction project on one of the Bank’s office location, contracted services increased $234,000 due to costs associated with information security and cybersecurity support services and website management, Pennsylvania shares tax expense increased $188,000 due to a higher taxable base due to the increase in equity resulting from the sale of EU and data processing expense increased $187,000 costs associated with the implementation of a new loan origination system and financial dashboard platform. Income Taxes. Income tax expense decreased $165,000 to $2.2 million for the nine months ended September 30, 2024 compared to $2.4 million for the nine months ended September 30, 2023. The change between the periods was driven by a decrease in state income tax expense due to the sale of EU in December 2023 and an increase in non-taxable income higher bank-owned life insurance related income. 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 September 30, 2024 and December 31, 2023. Liquidity and Capital Management Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are typically predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity at September 30, 2024 to satisfy its short- and long-term liquidity needs. The Company’s most liquid assets are cash and due from banks, which totaled $147.3 million at September 30, 2024. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Unpledged securities, which provide an additional source of liquidity, totaled $95.8 million at September 30, 2024. In addition, at September 30, 2024, the Company had the ability to borrow up to $486.3 million from the FHLB of Pittsburgh, of which $464.4 million was available. The Company also has the ability to borrow up to $88.7 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 September 30, 2024 and December 31, 2023, currently these credit arrangements have remained unused. At September 30, 2024, $335.7 million, or 91.4% 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 September 30, 2024, the Bank's current deposit portfolio is 62.4% insured by the FDIC, and with additional coverage of 15.9% from the Bank's investment securities; of the total deposits held at the Bank only 21.7% 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. 41 Table of Contents 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 September 30, 2024, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $16.4 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 September 30, 2024 and December 31, 2023, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized as of the dates indicated. September 30, 2024 December 31, 2023 Amount Ratio Amount Ratio (Dollars in thousands) Common Equity Tier 1 (to risk weighted assets) Actual $ 150,888 14.79 % $ 143,654 13.64 % For Capital Adequacy Purposes 45,920 4.50 47,385 4.50 To Be Well Capitalized 66,329 6.50 68,445 6.50 Tier 1 Capital (to risk weighted assets) Actual 150,888 14.79 143,654 13.64 For Capital Adequacy Purposes 61,227 6.00 63,180 6.00 To Be Well Capitalized 81,636 8.00 84,240 8.00 Total Capital (to risk weighted assets) Actual 160,859 15.76 153,861 14.61 For Capital Adequacy Purposes 81,636 8.00 84,240 8.00 To Be Well Capitalized 102,045 10.00 105,300 10.00 Tier 1 Leverage (to adjusted total assets) Actual 150,888 9.96 143,654 10.19 For Capital Adequacy Purposes 60,612 4.00 56,385 4.00 To Be Well Capitalized 75,766 5.00 70,481 5.00 42 Table of Contents Loan Credit Exposure Refer to the "Lending Activities" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 for a description of each loan portfolio segment. At September 30, 2024 the Company's loans totaled $1.07 billion, representing a $44.6 million, or 4.0%, decrease compared to $1.11 billion at December 31, 2023. The table below provides the composition of the loan portfolio: September 30, 2024 December 31, 2023 (Dollars in thousands) Real Estate: Residential $ 338,926 31.8 % $ 347,808 31.3 % Commercial 464,354 43.6 % 467,154 42.1 % Construction 43,515 4.1 % 43,116 3.9 % Commercial and Industrial 108,554 10.2 % 111,278 10.0 % Consumer 80,004 7.5 % 111,643 10.1 % Other 30,402 2.8 % 29,397 2.6 % Total Loans $ 1,065,755 100.0 % $ 1,110,396 100.0 % The Company's loan portfolio is a mix of consumer and commercial credits. Overall credit exposure and portfolio compensation is managed via a credit concentration policy. The policy designates specific loan types, collateral types and loan structures to be formally tracked and assigned maximum exposure limits as a percentage of capital. Commercial lending by asset class, specific limits for Commercial Real Estate ("CRE") project types, loans secured by residential real estate, large dollar exposures and designated high risk loan categories represent examples of specifically tracked components of our concentration management process. There are no identified concentrations that exceed the assigned exposure limits. Our concentration management policy is approved by the Company's Board of Directors and is used to ensure a high-quality, well diversified portfolio that is consistent with our overall objective of maintaining an acceptable level of risk. The Company's CRE portfolio totaled $464.4 million at September 30, 2024, a decrease of $2.8 million, or 0.6%, compared to December 31, 2023. CRE loans are concentrated in the Pittsburgh metropolitan area. The tables below provides further detail of the composition of the CRE portfolio as of September 30, 2024: (Dollars in thousands) CRE Nonowner Occupied Loans Outstanding Balance Percent Average Loan Size Average LTV (1) Multifamily $ 87,877 25.89 % $ 785 78.32 % Retail Space 87,597 25.81 % 1,234 71.90 % Warehouse Space 45,157 13.31 % 1,026 59.48 % Office Space 44,625 13.15 % 826 71.24 % Manufacturing 22,609 6.66 % 1,739 61.10 % Medical Facilities 19,404 5.72 % 1,078 64.34 % Hotels 6,423 1.89 % 714 40.20 % Senior Housing 3,397 1.00 % 3,397 43.51 % Oil & Gas 3,348 0.99 % 1,674 52.22 % Other 18,386 5.58 % 657 63.11 % Total Nonowner Occupied CRE $ 338,823 100.00 % $ 963 69.11 % (1) Based on collateral value at the time of loan origination. 43 Table of Contents (Dollars in Thousands) CRE Owner Occupied Loans Outstanding Balance Percent Average Loan Size Average LTV (1) Retail Space $ 33,519 26.70 % $ 745 82.59 % Warehouse Space 24,700 19.68 % 797 55.51 % Office Space 14,140 11.26 % 488 68.63 % Medical Facilities 9,158 7.30 % 654 77.00 % Senior Housing 6,080 4.84 % 1,520 28.01 % Manufacturing 3,453 2.75 % 288 57.77 % Oil & Gas 2,019 1.61 % 404 71.18 % Other 32,462 25.86 % 373 55.92 % Total Owner Occupied CRE $ 125,531 100.00 % $ 541 65.13 % (1) Based on collateral value at the time of loan origination.