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, 2024. 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; • Changes in market interest rates, deposit flows, demand for loans, real estate values and competition; 27 Table of Contents • Competitive products and pricing; • The ability of our customers to make scheduled loan payments; • Loan delinquency rates and trends; • Our ability to manage the risks involved in our business; • Our ability to integrate the operations of businesses we acquire; • Our ability to control costs and expenses; • Inflation, market and monetary fluctuations; • Changes in federal and state legislation and regulation applicable to our business; • Actions by our competitors; and • Other factors disclosed in the Company’s periodic reports as filed with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation. General CB Financial Services is a bank holding company established in 2006 and headquartered in Carmichaels, Pennsylvania. CB Financial’s business activity is conducted primarily through its wholly owned bank subsidiary, Community Bank. The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from nine branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and three offices in Marshall and Ohio Counties in West Virginia. The Bank also has a loan production office in Allegheny County, a corporate center in Washington County and an operations center in Greene County, all of which are in Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Overview The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of March 31, 2025, compared to the consolidated financial condition as of December 31, 2024 and the consolidated results of operations for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. 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 the 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 28 Table of Contents 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, 2025 2024 (Dollars in thousands) Interest Income (GAAP) $ 17,847 $ 17,986 Adjustment to FTE Basis 56 39 Interest Income (FTE) (Non-GAAP) 17,903 18,025 Interest Expense (GAAP) 6,536 6,395 Net Interest Income (FTE) (Non-GAAP) $ 11,367 $ 11,630 Net Interest Rate Spread (GAAP) 2.61 % 2.67 % Adjustment to FTE Basis 0.02 0.01 Net Interest Rate Spread (FTE) (Non-GAAP) 2.63 % 2.68 % Net Interest Margin (GAAP) 3.27 % 3.36 % Adjustment to FTE Basis 0.01 0.01 Net Interest Margin (FTE) (Non-GAAP) 3.28 % 3.37 % 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, 2025 December 31, 2024 (Dollars in thousands, except share and per share data) Stockholders' Equity (GAAP) $ 148,289 $ 147,378 Goodwill and Other Intangible Assets, Net (9,732) (9,732) Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator) $ 138,557 $ 137,646 Common Shares Outstanding (Denominator) 5,099,069 5,132,654 Book Value per Common Share (GAAP) $ 29.08 $ 28.71 Tangible Book Value per Common Share (Non-GAAP) $ 27.17 $ 26.82 29 Table of Contents Consolidated Statements of Financial Condition Analysis Assets Total assets increased $1.9 million, or 0.1%, to $1.483 billion at March 31, 2025 compared to $1.482 billion at December 31, 2024. Cash and Securities • Cash and due from banks increased $11.7 million, or 23.6%, to $61.3 million at March 31, 2025, compared to $49.6 million at December 31, 2024. • Securities decreased $3.5 million, or 1.3%, to $258.7 million at March 31, 2025, compared to $262.2 million at December 31, 2024. The securities balance was primarily impacted by principal repayments on amortizing securities and the sale of equity securities, partially offset by an increase in the market value of the portfolio. Loans, Allowance for Credit Losses (ACL) and Credit Quality • Total loans decreased $4.1 million, or 0.4%, to $1.088 billion at March 31, 2025 compared to $1.093 billion at December 31, 2024. This was driven by decreases in consumer, commercial and industrial and residential real estate loans of $8.7 million, $4.6 million and $3.2 million, respectively, partially offset by increases in commercial real estate and other loans of $11.8 million and $701,000, respectively. The decrease in consumer loans resulted from a reduction in indirect automobile loan production due to 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. Excluding the $8.3 million decrease in indirect automobile loans, total loans increased $4.2 million, or 0.4%. Loan production totaled $28.6 million while $15.6 million of loans paid off since December 31, 2024. • The allowance for credit losses (ACL) was $9.82 million at March 31, 2025 and $9.81 million at December 31, 2024. As a result, the ACL to total loans was 0.90% at both March 31, 2025 and December 31, 2024. The provision for credit losses recorded for the three months ended March 31, 2025 was a net recovery of $40,000 and was primarily impacted by a decrease in unfunded commitments and funding rates. • Net charge-offs for the three months ended March 31, 2025 were $54,000, or 0.02% of average loans on an annualized basis. Net recoveries for the three months ended March 31, 2024 were $18,000, or 0.01% of average loans on an annualized basis. • Nonperforming loans, which include nonaccrual loans and accruing loans past due 90 days or more, were $2.4 million at March 31, 2025 and $1.8 million at December 31, 2024. The increase resulted from a $1.1 million residential real estate loan collateralized by mortgages on nine rental real estate properties moving to nonaccrual status during the quarter as a result of past due payments and failure to provide updated financial information. At March 31, 2025, the loan was current. Nonperforming loans to total loans ratio was 0.22% at March 31, 2025 and 0.16% at December 31, 2024. Accrued Interest Receivable and Other Assets • Accrued interest and other assets decreased $1.4 million or 4.4%, to $30.1 million at March 31, 2025, compared to $24.8 million at December 31, 2024 due primarily to a $6.0 million investment in a low income housing tax credit project. Liabilities Total liabilities increased $1.0 million, or 0.1%, to $1.34 billion at March 31, 2025 compared to $1.33 billion at December 31, 2024. Deposits • Total deposits decreased $2.4 million to $1.281 billion as of March 31, 2025 compared to $1.284 billion at December 31, 2024. Time deposits decreased $29.1 million and money market deposits decreased $3.5 million while interest-bearing demand, savings and non interest-bearing demand deposits increased $24.4 million, $6.2 million and $504,000, respectively. This favorable change in the deposit mix was the result of an increased focus on building core banking relationships while strategically reducing time deposit only relationships. Brokered time deposits totaled $39.0 million as of March 31, 2025 and December 31, 2024, all of which mature within three months and were utilized to fund the purchase of floating rate CLO securities. At March 31, 2025, FDIC insured deposits totaled approximately 62.3% of total deposits while an additional 15.2% of total deposits were collateralized with investment securities. Accrued Interest Payable and Other Liabilities • Accrued interest payable and other liabilities increased $3.4 million, or 21.3%, to $19.3 million at March 31, 2025, compared to $16.0 million at December 31, 2024 primarily due to the purchase of $3.0 million of syndicated loans not yet settled. 30 Table of Contents Stockholders’ Equity Stockholders’ equity increased $911,000, or 0.6%, to $148.3 million at March 31, 2025, compared to $147.4 million at December 31, 2024. The key factors increasing stockholders’ equity were $1.9 million of net income for the current period and a $1.9 million decrease in accumulated other comprehensive loss, which were partially offset by $2.4 million of treasury shares purchased under the stock repurchase program and the payment of $1.3 million in dividends since December 31, 2024. Book value per common share (GAAP) was $29.08 at March 31, 2025 compared to $28.71 at December 31, 2024, an increase of $0.37. Tangible book value per common share (Non-GAAP) increased $0.35, or 1.3%, to $27.17 compared to $26.82 at December 31, 2024. Consolidated Results of Operations for the Three Months Ended March 31, 2025 and 2024 Overview. Net income was $1.9 million for the three months ended March 31, 2025, a decrease of $2.3 million compared to net income of $4.2 million for the three months ended March 31, 2024. Net Interest and Dividend Income. Net interest and dividend income decreased $280,000, or 2.4%, to $11.3 million for the three months ended March 31, 2025 compared to $11.6 million for the three months ended March 31, 2024. Net interest margin (GAAP) decreased to 3.27% for the three months ended March 31, 2025 compared to 3.36% for the three months ended March 31, 2024. Fully Tax Equivalent (FTE) net interest margin (Non-GAAP) decreased 9 basis points (bps) to 3.28% for the three months ended March 31, 2025 compared to 3.37% for the three months ended March 31, 2024. Interest and Dividend Income • Interest and dividend income decreased $139,000, or 0.8%, to $17.8 million for the three months ended March 31, 2025 compared to $18.0 million the three months ended March 31, 2024. ◦ Interest income on loans decreased $310,000, or 2.1%, to $14.5 million for the three months ended March 31, 2025 compared to $14.8 million for the three months ended March 31, 2024. The average balance of loans decreased $12.8 million to $1.08 billion from $1.09 billion, causing a $293,000 decrease in interest income on loans. The average yield on loans remained stable at 5.50% for both periods despite a 100 bp reduction in the federal funds rate since September 2024. While this led to the downward repricing of variable and adjustable rate loans, the impact was negated 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 $474,000, or 20.6%, to $2.8 million for the three months ended March 31, 2025 compared to $2.3 million for the three months ended March 31, 2024 driven by a $42.6 million increase in average balances coupled with an 8 bp increase in average yield. The increase in volume was driven by a $56.2 million increase in the average balance of collateralized loan obligation (“CLO”) securities as the Bank executed a leverage strategy during 2024 to purchase these assets funded with cash reserves and brokered certificates of deposits. ◦ Interest income on interest-earning deposits at other banks decreased $274,000 to $459,000 for the three months ended March 31, 2025 compared to $733,000 for the three months ended March 31, 2024 driven by a 91 bp decrease in the average yield and a $13.8 million decrease in average balances. The decrease in the yield was primarily related to the Federal Reserve’s recent reductions in the federal funds rate. Interest Expense • Interest expense increased $141,000, or 2.2%, to $6.5 million for the three months ended March 31, 2025 compared to $6.4 million for the three months ended March 31, 2024. ◦ Interest expense on deposits increased $120,000, or 2.0%, to $6.1 million for the three months ended March 31, 2025 compared to $6.0 million for the three months ended March 31, 2024. Interest-bearing deposit balances increased $27.5 million, or 2.8%, to $1.0 billion as of March 31, 2025 compared to $978.3 million as of March 31, 2024, accounting for a $120,000 increase in interest expense. ◦ While interest expense increased compared to the same quarter in the prior year, it decreased $1.4 million, or 17.3%, to $6.5 million for the three months ended March 31, 2025 compared to $7.9 million for the three months ended December 31, 2024. Interest-bearing deposits decreased $62.2 million as the Bank strategically reduced brokered deposits and time deposit only relationships. Additionally, the cost of interest-bearing deposits declined from 2.79% for the three months ended December 31, 2024 compared to 2.46% for the three months ended March 31, 2025 due to the change in the deposit mix and the recent Federal Reserve federal funds rate decreases. 31 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 March 31, 2025 2024 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) $ 1,075,083 $ 14,584 5.50 % $ 1,087,889 $ 14,877 5.50 % Debt Securities Taxable 278,362 2,777 3.99 235,800 2,303 3.91 Equity Securities 2,674 28 4.19 2,693 27 4.01 Interest-Earning Deposits at Banks 45,056 459 4.07 58,887 733 4.98 Other Interest-Earning Assets 3,196 55 6.98 3,235 85 10.57 Total Interest-Earning Assets 1,404,371 17,903 5.17 1,388,504 18,025 5.22 Noninterest-Earning Assets 63,324 54,910 Total Assets $ 1,467,695 $ 1,443,414 Liabilities and Stockholders' Equity: Interest-Bearing Liabilities: Interest-Bearing Demand Deposits $ 317,799 1,526 1.95 % $ 334,880 1,794 2.15 % Money Market Accounts 230,634 1,726 3.04 203,867 1,514 2.99 Savings Accounts 172,322 41 0.10 191,444 59 0.12 Time Deposits 285,093 2,818 4.01 248,118 2,624 4.25 Total Interest-Bearing Deposits 1,005,848 6,111 2.46 978,309 5,991 2.46 Short-Term Borrowings 1,985 23 4.70 — — — Other Borrowings 34,723 402 4.70 34,682 404 4.69 Total Interest-Bearing Liabilities 1,042,556 6,536 2.54 1,012,991 6,395 2.54 Noninterest-Bearing Demand Deposits 265,522 278,691 Total Funding and Cost of Funds 1,308,078 2.03 1,291,682 1.99 Other Liabilities 11,854 11,441 Total Liabilities 1,319,932 1,303,123 Stockholders' Equity 147,763 140,291 Total Liabilities and Stockholders' Equity $ 1,467,695 $ 1,443,414 Net Interest Income (FTE) (Non-GAAP) (3) $ 11,367 $ 11,630 Net Interest-Earning Assets (4) $ 361,815 $ 375,513 Net Interest Rate Spread (FTE) (Non-GAAP) (3)(5) 2.63 % 2.68 % Net Interest Margin (GAAP) (6) 3.27 3.36 Net Interest Margin (FTE) (Non-GAAP) (3)(6) 3.28 3.37 Return on Average Assets (1) 0.53 1.17 Return on Average Equity (1) 5.24 12.03 Average Equity to Average Assets 10.07 9.72 Average Interest-Earning Assets to Average Interest-Bearing Liabilities 134.70 137.07 (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. 32 Table of Contents Rate/Volume Analysis . The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. FTE yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21.0%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns. Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) (Unaudited) Interest and Dividend Income: Loans, net $ (293) $ — $ (293) Debt Securities: Taxable 426 48 474 Equity Securities — 1 1 Cash at Other Banks (155) (119) (274) Other Interest-Earning Assets (1) (29) (30) Total Interest-Earning Assets (23) (99) (122) Interest Expense: Deposits 120 — 120 Short-Term Borrowings 23 — 23 Other Borrowings (3) 1 (2) Total Interest-Bearing Liabilities 140 1 141 Change in Net Interest and Dividend Income $ (163) $ (100) $ (263) Provision for Credit Losses. The provision for credit losses recorded for the three months ended March 31, 2025 was a net recovery of $40,000. The provision for credit losses - loans was $68,000 and was primarily due to an increase in specific reserves required on individually evaluated loans and qualitative adjustments on economic factors. The provision for credit losses - unfunded commitments was a recovery of $108,000 and was due to decreases in unfunded commitments and funding rates. This compared to a net recovery of $37,000 recorded for the three months ended March 31, 2024 as 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. Noninterest Income . Noninterest income decreased $1.1 million, or 58.9%, to $787,000 for the three months ended March 31, 2025, compared to $1.9 million for the three months ended March 31, 2024. This decrease resulted primarily as prior period results included a $915,000 gain on bank owned life insurance resulting from one death claim and a $274,000 gain on the disposal of premises and equipment from the sale of one branch office building. Noninterest Expense. Noninterest expense increased $1.4 million, or 16.3%, to $9.8 million for the three months ended March 31, 2025 compared to $8.4 million for the three months ended March 31, 2024. Salaries and benefits increased $1.5 million, or 31.9%, to $6.0 million primarily due to $1.0 million of one-time non-recurring expenses recognized for the three months ended March 31, 2025 associated with the previously announced reduction in force, merit increases, revenue producing staff additions and higher insurance benefit costs. Data processing expense increased $105,000 due to costs associated with a new loan origination system and financial dashboard platform implemented during mid-2024. Equipment expense increased $66,000 due to higher depreciation expense associated with interactive teller machines, security system upgrades and other equipment placed into service in 2024. Legal and professional fees increased $50,000 primarily due to timing differences related to external audit and tax services. Contracted services increased $29,000 due to costs associated with website administration and equity compensation management added during mid-2024 and treasury product consulting services started in the current year. These increases were partly offset as intangible amortization decreased $341,000 as the Bank’s core deposit intangibles were fully amortized in 2024. 33 Table of Contents Income Taxes. Income tax expense was $427,000 for the three months ended March 31, 2025 compared to $920,000 for the three months ended March 31, 2024. This change was primarily driven by a decrease in pre-tax income to $2.3 million for the three months ended March 31, 2025 compared to $5.1 million for the three months ended March 31, 2024. 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, 2025 and December 31, 2024. 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 March 31, 2025 to satisfy its short- and long-term liquidity needs. The Company’s most liquid assets are cash and due from banks, which totaled $61.3 million at March 31, 2025. 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 $95.6 million at March 31, 2025. In addition, at March 31, 2025, the Company had the ability to borrow up to $508.3 million from the FHLB of Pittsburgh, of which $486.4 million was available. The Company also has the ability to borrow up to $75.2 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, 2025 and December 31, 2024, currently these credit arrangements have remained unused. At March 31, 2025, $237.3 million, or 88.6% 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, 2025, the Bank's current deposit portfolio is 62.3% insured by the FDIC, and with additional coverage of 15.2% from the Bank's investment securities; of the total deposits held at the Bank only 22.5% 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, 2025, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $15.1 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. 34 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 March 31, 2025 and December 31, 2024, 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, 2025 December 31, 2024 Amount Ratio Amount Ratio (Dollars in thousands) Common Equity Tier 1 (to risk weighted assets) Actual $ 153,046 14.94 % $ 152,238 14.78 % For Capital Adequacy Purposes 46,104 4.50 46,366 4.50 To Be Well Capitalized 66,595 6.50 66,973 6.50 Tier 1 Capital (to risk weighted assets) Actual 153,046 14.94 152,238 14.78 For Capital Adequacy Purposes 61,473 6.00 61,821 6.00 To Be Well Capitalized 81,963 8.00 82,428 8.00 Total Capital (to risk weighted assets) Actual 163,448 15.95 162,733 15.79 For Capital Adequacy Purposes 81,963 8.00 82,428 8.00 To Be Well Capitalized 102,454 10.00 103,035 10.00 Tier 1 Leverage (to adjusted total assets) Actual 153,046 10.36 152,238 9.98 For Capital Adequacy Purposes 59,092 4.00 60,996 4.00 To Be Well Capitalized 73,864 5.00 76,245 5.00 35 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, 2024 for a description of each loan portfolio segment. At March 31, 2025, the Company's loans totaled $1.088 billion, representing a $4.1 million, or 0.4%, decrease compared to $1.093 billion at December 31, 2024. The table below provides the composition of the loan portfolio: March 31, 2025 December 31, 2024 (Dollars in thousands) Real Estate: Residential $ 334,744 30.8 % $ 337,990 30.9 % Commercial 497,316 45.7 % 485,513 44.4 % Construction 54,597 5.0 % 54,705 5.0 % Commercial and Industrial 107,419 9.9 % 112,047 10.3 % Consumer 61,854 5.7 % 70,508 6.5 % Other 32,564 2.9 % 31,863 2.9 % Total Loans $ 1,088,494 100.0 % $ 1,092,626 100.0 % 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 $497.3 million at March 31, 2025, a increase of $11.8 million, or 2.4%, compared to December 31, 2024. CRE loans are concentrated in the Pittsburgh metropolitan area. The tables below provides further detail of the composition of the CRE portfolio as of March 31, 2025: (Dollars in thousands) CRE Nonowner Occupied Loans Outstanding Balance Percent Average Loan Size Average LTV (1) Multifamily $ 93,705 24.20 % $ 781 76.42 % Retail Space 95,974 24.78 % 1,315 71.00 % Warehouse Space 60,870 15.72 % 1,416 59.69 % Office Space 49,974 12.91 % 961 67.10 % Manufacturing 22,127 5.71 % 1,702 59.90 % Medical Facilities 18,851 4.87 % 1,109 65.40 % Hotels 3,316 0.86 % 3,316 42.48 % Senior Housing 13,773 3.56 % 1,530 59.68 % Oil & Gas 5,269 1.36 % 1,054 45.16 % Other 23,366 6.03 % 835 59.69 % Total Nonowner Occupied CRE $ 387,225 100.00 % $ 1,073 67.44 % (1) Based on collateral value at the time of loan origination. 36 Table of Contents (Dollars in Thousands) CRE Owner Occupied Loans Outstanding Balance Percent Average Loan Size Average LTV (1) Retail Space $ 30,807 27.98 % $ 670 75.96 % Warehouse Space 19,057 17.31 % 560 52.65 % Office Space 8,327 7.57 % 333 86.72 % Medical Facilities 8,965 8.14 % 690 76.12 % Manufacturing 3,395 3.08 % 309 56.67 % Oil & Gas 670 0.61 % 45 33.88 % Hotels 5,918 5.38 % 1,973 27.21 % Other 32,952 29.93 % 428 56.08 % Total Owner Occupied CRE $ 110,091 100.00 % $ 481 63.41 % (1) Based on collateral value at the time of loan origination.