CB Financial Services, Inc. (CBFV) is a bank holding company headquartered in Carmichaels, Pennsylvania, with its primary banking operations conducted through its wholly-owned subsidiary, Community Bank. Established in 2006, the company has steadily expanded its footprint and service offerings, positioning itself as a trusted financial partner in its local markets.
Business Overview and History CB Financial Services’ history can be traced back to 2006 when it was founded as a bank holding company. The company’s primary subsidiary, Community Bank, has a much longer history, dating back to its establishment in 1902. Community Bank has served the southwestern Pennsylvania and Ohio Valley markets for over a century, growing through strategic acquisitions and expanding its branch network and customer base. A significant milestone in this expansion occurred in 2015 when the bank acquired a smaller regional bank, further strengthening its presence in the region.
In 2018, the company faced a significant challenge when it encountered issues with its commercial lending portfolio. This led to an increase in non-performing loans and necessitated the strengthening of its credit risk management practices. CB Financial Services responded proactively by implementing enhanced underwriting procedures and portfolio monitoring, which helped to improve the overall credit quality of the loan portfolio.
The company’s focus has been on providing a comprehensive suite of banking services to individuals and businesses in its local markets. Community Bank offers a range of loan products, including residential and commercial real estate loans, commercial and industrial loans, and consumer loans. On the deposit side, the bank provides a variety of deposit accounts, such as checking, savings, money market, and time deposits, catering to the diverse financial needs of its customers.
Throughout its history, CB Financial Services has maintained a strong commitment to its local communities, supporting various charitable and community development initiatives. The company has also been recognized for its dedication to providing exceptional customer service and maintaining a high level of regulatory compliance.
In addition to its core banking operations, CB Financial Services previously operated a subsidiary, Exchange Underwriters, Inc. (EU), which provided property, casualty, commercial liability, surety, and other insurance products. In December 2023, the company announced the sale of substantially all of EU’s assets to World Insurance Associates, LLC, a strategic move that allowed CB Financial Services to streamline its operations and focus on its banking business. This divestiture resulted in a substantial pre-tax gain, strengthening the company’s financial position.
Financial Performance and Ratios CB Financial Services’ financial performance has been marked by a mix of stability and strategic initiatives. As of September 30, 2024, the company reported total assets of $1.56 billion, an increase of 7.3% from the $1.46 billion reported as of December 31, 2023. This growth was driven by a 30.8% increase in the company’s securities portfolio, which stood at $270.9 million as of September 30, 2024, compared to $207.1 million at the end of 2023.
The company’s loan portfolio, a key driver of interest income, stood at $1.07 billion as of September 30, 2024, a decrease of 4.0% from the $1.11 billion reported at the end of 2023. This reduction was primarily due to a decline in consumer loans, as the company discontinued its indirect automobile loan product and reallocated resources to more profitable commercial loan offerings.
CB Financial Services’ net interest income for the nine months ended September 30, 2024, was $34.5 million, up 3.3% from the $33.4 million reported for the same period in 2023. The company’s net interest margin (FTE) was 3.22% for the nine-month period, a decrease of 10 basis points compared to the 3.32% reported in the prior-year period. This compression in net interest margin was driven by the rising interest rate environment, which led to higher funding costs, particularly in the company’s deposit portfolio.
Noninterest income, which includes service fees, insurance commissions, and other sources of revenue, decreased 48.8% to $3.8 million for the nine months ended September 30, 2024, compared to $7.5 million in the same period of 2023. This decline was primarily attributable to the sale of the EU subsidiary, which had generated $4.9 million in insurance commissions in the prior-year period.
On the expense side, CB Financial Services’ noninterest expense decreased 6.5% to $26.2 million for the nine months ended September 30, 2024, compared to $28.0 million in the same period of 2023. This reduction was largely driven by lower salaries and benefits, as well as a decrease in amortization of intangible assets related to the EU divestiture.
The company’s regulatory capital ratios remained strong, with a Common Equity Tier 1 ratio of 14.79% and a Total Capital ratio of 15.76% as of September 30, 2024, well above the regulatory requirements for a “well-capitalized” institution.
For the most recent fiscal year (2023), CB Financial Services reported revenue of $42.36 million, net income of $22.55 million, operating cash flow of $14.24 million, and free cash flow of $10.94 million. In the most recent quarter (Q3 2024), the company achieved revenue of $12.14 million, net income of $3.22 million, operating cash flow of $3.07 million, and free cash flow of $2.21 million. Compared to Q3 2023, revenue increased by 12.00% and net income grew by 20.60% year-over-year. This growth was primarily driven by higher net interest income due to rising market interest rates and expansion of the commercial loan portfolio.
Liquidity and Capital Management CB Financial Services maintains a strong liquidity position, with cash and due from banks totaling $147.3 million as of September 30, 2024, an increase of 115.9% from the $68.2 million reported at the end of 2023. The company also has access to additional liquidity sources, including the ability to borrow up to $486.3 million from the Federal Home Loan Bank of Pittsburgh, of which $464.4 million was available as of the same date. Additionally, the company maintains multiple line of credit arrangements with various unaffiliated banks totaling $50.00 million as of September 30, 2024, which have remained unused.
In terms of capital management, the company’s shareholders’ equity increased 6.7% to $149.1 million as of September 30, 2024, compared to $139.8 million at the end of 2023. This growth was primarily driven by $10.1 million in net income for the current period, partially offset by $3.9 million in dividend payments.
The company’s debt-to-equity ratio stood at 0.23 as of September 30, 2024, indicating a conservative capital structure. The current ratio and quick ratio were both 0.51 as of the same date, reflecting the company’s ability to meet its short-term obligations.
Lending Activities and Deposit Products CB Financial Services’ loan portfolio is diversified across several key segments. As of September 30, 2024, the composition of the loan portfolio was as follows:
The allowance for credit losses (ACL) totaled $9.48 million as of September 30, 2024, representing 0.89% of total loans. Net charge-offs for the first nine months of 2024 were $123,000. Nonperforming loans, including nonaccrual loans and loans past due 90 days or more, were $2.00 million, or 0.19% of total loans, at the end of the third quarter.
On the deposit side, CB Financial Services reported total deposits of $1.35 billion as of September 30, 2024, an increase of $86.70 million, or 6.8%, from December 31, 2023. The deposit portfolio included:
The growth in deposits was driven by a shift towards higher-yielding money market and time deposit products, partially funded by the addition of $70.60 million in brokered certificates of deposit during the period.
Risks and Challenges CB Financial Services, like any financial institution, faces a variety of risks and challenges that could impact its future performance. Some of the key risks include:
Credit Risk: As a lender, CB Financial Services is exposed to the risk of borrower defaults, which could lead to increased provisions for credit losses and negatively impact the company’s profitability.
Regulatory Environment: The banking industry is heavily regulated, and changes in laws, regulations, or regulatory policies could impose additional compliance requirements or restrictions on the company’s operations.
Competition: CB Financial Services operates in a highly competitive market, with both larger regional banks and smaller community banks vying for the same customer base, which could pressure the company’s pricing and market share.
Reliance on Certain Geographic Markets: The majority of the company’s operations are concentrated in southwestern Pennsylvania and the Ohio Valley region, making it vulnerable to economic conditions and market disruptions in these local markets.
Outlook and Industry Trends CB Financial Services has not provided specific financial guidance for the upcoming period. However, the company’s management has emphasized its focus on continuing to grow its commercial lending portfolio, improving core deposit gathering, and maintaining a disciplined approach to expense management.
Additionally, the company’s successful divestiture of its insurance subsidiary, Exchange Underwriters, in late 2023 has allowed it to streamline its operations and concentrate on its core banking business. This strategic move is expected to enhance the company’s efficiency and profitability going forward.
The banking industry has experienced a moderate growth rate in recent years, with a compound annual growth rate (CAGR) of 3-5% for the broader industry. CB Financial Services’ recent financial performance, with revenue growth of 12.00% and net income growth of 20.60% year-over-year in Q3 2024, suggests that the company is outperforming the industry average. This growth can be attributed to the company’s focus on commercial lending and its ability to capitalize on rising interest rates.
Conclusion CB Financial Services has demonstrated resilience and a commitment to serving its local communities through its community banking model. While the company has navigated its share of challenges, such as the interest rate environment and the divestiture of its insurance subsidiary, it has also capitalized on opportunities to strengthen its core banking operations and position itself for future growth. The company’s diversified loan portfolio, stable deposit base, ample liquidity, and solid capital position provide a strong foundation for continued success.
As CB Financial Services continues to execute on its strategic initiatives, investors will be closely monitoring the company’s ability to maintain its financial stability, grow its lending portfolio, and generate sustainable returns for its shareholders. The company’s focus on commercial lending and balance sheet management, coupled with its strong performance relative to industry averages, suggests that CB Financial Services is well-positioned to navigate the current market environment and capitalize on future opportunities in its local markets.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.