CB Financial Services 10Q 2023 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


			☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 001-36706


			CB FINANCIAL SERVICES, INC.
			(Exact name of registrant as specified in its charter)


Pennsylvania						51-0534721
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


100 N. Market Street, Carmichaels, PA						15320
(Address of principal executive offices)						(Zip Code)


			(724) 966-5041
			(Registrant’s telephone number, including area code)


			N/A
			(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Common stock, par value $0.4167 per share

CBFV

The Nasdaq Stock Market, LLC

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


			Large accelerated filer ☐						Accelerated filer ☐
			Non-accelerated filer ☒						Smaller reporting company ☒
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 10, 2023, the number of shares outstanding of the Registrant’s Common Stock was 5,110,038.

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FORM 10-Q

INDEX


			Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			1
Consolidated Statements of Financial Condition			1
Consolidated Statements of Income			2
Consolidated Statements of Comprehensive Income (Loss)			3
Consolidated Statements of Changes In Stockholders’ Equity			4
Consolidated Statements of Cash Flows			5
Notes to the Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			30
Item 3. Quantitative and Qualitative Disclosure about Market Risk.			39
Item 4. Controls and Procedures.			40
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.			41
Item 1A. Risk Factors.			41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			41
Item 3. Defaults Upon Senior Securities.			41
Item 4. Mine Safety Disclosures.			41
Item 5. Other Information.			42
Item 6. Exhibits			42
SIGNATURES			43

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	(Unaudited) March 31, 2023		December 31, 2022
(Dollars in thousands, except per share and share data)

ASSETS
Cash and Due From Banks:
Interest Bearing	$	85,533	$	82,957
Non-Interest Bearing	18,012		20,743
Total Cash and Due From Banks	103,545		103,700

Securities:
Available-for-Sale Debt Securities, at Fair Value	186,559		187,360
Equity Securities, at Fair Value	2,466		2,698
Total Securities	189,025		190,058

Loans, Net of Allowance for Credit Losses of $10,270 and $12,819 at March 31, 2023 and December 31, 2022, Respectively	1,061,595		1,037,054

Premises and Equipment, Net	17,732		17,844
Bank-Owned Life Insurance	24,943		25,893
Goodwill	9,732		9,732
Intangible Assets, Net	3,068		3,513
Accrued Interest Receivable and Other Assets	21,068		21,144
TOTAL ASSETS	$	1,430,708	$	1,408,938

LIABILITIES

Deposits:
Non-Interest Bearing Demand Deposit Accounts	$	350,911	$	390,405
NOW Accounts	359,051		311,825
Money Market Accounts	206,174		209,125
Savings Accounts	234,935		248,022
Time Deposits	130,449		109,126
Total Deposits	1,281,520		1,268,503

Short-Term Borrowings	121		8,060
Other Borrowings	14,648		14,638
Accrued Interest Payable and Other Liabilities	17,224		7,582
TOTAL LIABILITIES	1,313,513		1,298,783

STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized	—		—
Common Stock, $0.4167 Par Value; 35,000,000 Shares Authorized, 5,730,908 Shares Issued and 5,116,830 Shares Outstanding at March 31, 2023, with 5,708,433 and 5,100,189 Shares Issued and Outstanding at December 31, 2022.	2,388		2,379
Capital Surplus	84,118		83,953
Retained Earnings	68,834		63,861
Treasury Stock, at Cost (614,078 and 608,244 Shares at March 31, 2023 and December 31, 2022, Respectively)	(13,927)		(13,797)
Accumulated Other Comprehensive Loss	(24,218)		(26,241)
TOTAL STOCKHOLDERS' EQUITY	117,195		110,155
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,430,708	$	1,408,938

The accompanying notes are an integral part of these consolidated financial statements

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended March 31,
	2023		2022
(Dollars in thousands, except share and per share data)

INTEREST AND DIVIDEND INCOME
Loans, Including Fees	$	12,371	$	9,551
Investment Securities:
Taxable	964		905
Tax-Exempt	41		66
Dividends	24		22
Other Interest and Dividend Income	844		72
TOTAL INTEREST AND DIVIDEND INCOME	14,244		10,616
INTEREST EXPENSE
Deposits	2,504		530
Short-Term Borrowings	2		19
Other Borrowings	155		174
TOTAL INTEREST EXPENSE	2,661		723
NET INTEREST AND DIVIDEND INCOME	11,583		9,893
Provision For Credit Losses - Loans	80		—
Provision For Credit Losses - Unfunded Commitments	—		—
NET INTEREST AND DIVIDEND INCOME AFTER PROVISION FOR CREDIT LOSSES	11,503		9,893
NONINTEREST INCOME
Service Fees	445		526
Insurance Commissions	1,922		1,798
Other Commissions	144		89
Net Gain on Sales of Loans	2		—
Net Loss on Securities	(232)		(7)
Net Gain on Purchased Tax Credits	7		14

Net Gain (Loss) on Disposal of Fixed Assets	11		(8)
Income from Bank-Owned Life Insurance	140		136
Net Gain on Bank-Owned Life Insurance Claims	302		—
Other Income	69		65
TOTAL NONINTEREST INCOME	2,810		2,613
NONINTEREST EXPENSE
Salaries and Employee Benefits	5,079		4,565
Occupancy	701		686
Equipment	218		210
Data Processing	857		485
FDIC Assessment	152		209
PA Shares Tax	260		240
Contracted Services	147		587
Legal and Professional Fees	182		152
Advertising	79		116
Other Real Estate Owned (Income)	(37)		(38)
Amortization of Intangible Assets	445		445


Other Expense	945		999
TOTAL NONINTEREST EXPENSE	9,028		8,656
Income Before Income Tax Expense	5,285		3,850
Income Tax Expense	1,129		803
NET INCOME	$	4,156	$	3,047
EARNINGS PER SHARE
Basic	$	0.81	$	0.59
Diluted	0.81		0.58
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	5,109,597		5,198,194
Diluted	5,115,705		5,220,887

The accompanying notes are an integral part of these consolidated financial statements

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended March 31,
	2023		2022
(Dollars in thousands)

Net Income	$	4,156	$	3,047

Other Comprehensive Income (Loss):
Change in Unrealized Gain (Loss) on Investment Securities Available-for-Sale	2,580		(12,351)
Income Tax Effect	(557)		2,660



Other Comprehensive Income (Loss), Net of Income Tax Effect	2,023		(9,691)
Total Comprehensive Income (Loss)	$	6,179	$	(6,644)

The accompanying notes are an integral part of these consolidated financial statements

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


Three Months Ended March 31, 2023	Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(Dollars in thousands, except share and per share data)

December 31, 2022	5,708,433	$	2,379	$	83,953	$	63,861	$	(13,797)	$	(26,241)	$	110,155
Adoption of Accounting Standard ASU 2016-13	—	—		—		2,092		—		—		2,092
Balance as of January 1, 2023, adjusted	5,708,433	$	2,379	$	83,953	$	65,953	$	(13,797)	$	(26,241)	$	112,247
Comprehensive Income:
Net Income	—	—		—		4,156		—		—		4,156
Other Comprehensive Income	—	—		—		—		—		2,023		2,023
Restricted Stock Awards Granted	22,475	9		(9)		—		—		—		—

Stock-Based Compensation Expense	—	—		174		—		—		—		174

Treasury stock purchased, at cost (5,834 shares)	—	—		—		—		(130)		—		(130)
Dividends Paid ($0.25 Per Share)	—	—		—		(1,275)		—		—		(1,275)
March 31, 2023	5,730,908	$	2,388	$	84,118	$	68,834	$	(13,927)	$	(24,218)	$	117,195


Three Months Ended March 31, 2022	Shares Issued	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
(Dollars in thousands, except share and per share data)

December 31, 2021	5,680,993	$	2,367	$	83,294	$	57,534	$	(9,144)	$	(927)	$	133,124
Comprehensive Loss:
Net Income	—	—		—		3,047		—		—		3,047
Other Comprehensive Loss	—	—		—		—		—		(9,691)		(9,691)
Restricted Stock Awards Forfeited	—	—		4		—		(4)		—		—
Restricted Stock Awards Granted	20,765	9		(9)		—		—		—		—
Stock-Based Compensation Expense	—	—		130		—		—		—		130
Exercise of Stock Options	—	—		3		—		164		—		167
Treasury Stock Purchased, at cost (131,840 shares)	—	—		—		—		(3,383)		—		(3,383)
Dividends Paid ($0.24 Per Share)	—	—		—		(1,238)		—		—		(1,238)
March 31, 2022	5,701,758	$	2,376	$	83,422	$	59,343	$	(12,367)	$	(10,618)	$	122,156

The accompanying notes are an integral part of these consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Three Months Ended March 31,	2023		2022
(Dollars in thousands)

OPERATING ACTIVITIES
Net Income	$	4,156	$	3,047
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities
Net Amortization on Securities	22		17
Depreciation and Amortization	710		637
Provision for Credit Losses	80		—





Loss on Securities	232		7
Gain on Purchased Tax Credits	(7)		(14)
Income from Bank-Owned Life Insurance	(140)		(136)

Proceeds From Mortgage Loans Sold	140		—
Originations of Mortgage Loans for Sale	(138)		—
Gain on Sale of Loans	(2)		—
Gain on Sale of Other Real Estate Owned and Repossessed Assets	—		(1)
Noncash Expense for Stock-Based Compensation	174		130
(Increase) Decrease in Accrued Interest Receivable	(33)		94
Net (Gain) Loss on Disposal of Fixed Assets	(11)		8
Increase in Taxes Payable	1,129		956

Increase in Accrued Interest Payable	109		60

Other, Net	810		(1,640)
NET CASH PROVIDED BY OPERATING ACTIVITIES	7,231		3,165
INVESTING ACTIVITIES
Investment Securities Available for Sale:
Proceeds From Principal Repayments and Maturities	3,359		8,328
Purchases of Securities	—		(26,826)

Net (Increase) Decrease in Loans	(15,865)		223
Purchase of Premises and Equipment	(204)		(186)
Proceeds from Disposal of Premises and Equipment	36		—

Proceeds From a Claim on Bank-Owned Life Insurance	1,392		—
Proceeds From Sale of Other Real Estate Owned	—		37
(Increase) Decrease in Restricted Equity Securities	223		(26)

NET CASH USED IN INVESTING ACTIVITIES	(11,059)		(18,450)
FINANCING ACTIVITIES
Net Increase in Deposits	13,017		23,700
Net Decrease in Short-Term Borrowings	(7,939)		(47)


Cash Dividends Paid	(1,275)		(1,238)
Treasury Stock, Purchases at Cost	(130)		(3,383)
Exercise of Stock Options	—		167
NET CASH PROVIDED BY FINANCING ACTIVITIES	3,673		19,199
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(155)		3,914
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR	103,700		119,674
CASH AND DUE FROM BANKS AT END OF PERIOD	$	103,545	$	123,588

The accompanying notes are an integral part of these consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Three Months Ended March 31,	2023		2022
(Dollars in thousands)

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid For:
Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $2,540 and $616, Respectively)	$	2,552	$	486

SUPPLEMENTAL NONCASH DISCLOSURE:



Proceeds receivable from claims on bank-owned life insurance	1,392		—
Other Real Estate Acquired in Settlement of Loans	248		—



Syndicated Loans Purchased not Settled	8,943		—
Right of Use Asset Recognized	77		1,175
Lease Liability Recognized	75		1,175

The accompanying notes are an integral part of these consolidated financial statements

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters”). CB Financial, the Bank and Exchange Underwriters are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with general practice within the banking industry. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition and income and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, other-than-temporary impairment evaluations of securities, goodwill and intangible assets impairment, and the valuation of deferred tax assets.

In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations at the dates and for the periods presented. All these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Interim results are not necessarily indicative of results for a full year.

The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events, to be recognizable events.

Nature of Operations

The Company derives substantially all its income from banking and bank-related services which include interest income on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest and dividend income on securities, insurance commissions, and fees generated from deposit services to its customers. The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered in Carmichaels, 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. The Bank operates 10 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, and three branches in Marshall and Ohio Counties in West Virginia. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, a full-service, independent insurance agency.

Critical Accounting Policies; Use of Critical Accounting Estimates

The disclosures below supplements the accounting policies previously disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC. The updates reflect the adoption of Financial Accounting Standard Board ("FASB") ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, referred to as ASC 326 or, more commonly, referred to as Current Expected Credit Losses (CECL).

Allowance for Credit Losses (ACL)

On January 1, 2023, the Company adopted ASU 2016-13, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology. The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption resulted in a decrease of $3.4 million to the Company’s ACL related to loans receivable (ACL - Loans) and an increase of $718,000 in ACL

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for unfunded commitments (ACL - Unfunded Commitments). The net impact resulted in a $2.1 million increase to retained earnings, net of deferred taxes.

The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for credit losses is reported separately as a contra-asset on the consolidated statement of financial condition. The expected credit loss for unfunded loan commitments is reported on the Consolidated Statement of Financial Condition in other liabilities while the provision for credit losses related to unfunded commitments is reported in provision for credit losses - unfunded commitments in the Consolidated Statements of Income.

Allowance for Credit Losses on Loans Receivable

The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.

The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments include residential mortgage, commercial real estate mortgages, construction, commercial business, consumer and other. For most segments the Company calculates estimated credit losses using a probability of default and loss given default methodology, the results of which are applied to the aggregated discounted cash flow of each individual loan within the segment. The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company estimates the allowance for credit losses on loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts. The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts. After the reasonable and supportable forecast period, the Company reverts, on a straight-line basis, to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructurings will be executed with an individual borrower or the renewal option is included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual loans, and the effect of external factors such as competition, legal and regulatory requirements, among others. Furthermore, the Company considers the inherent uncertainty in quantitative models that are built upon historical data.

Individually Evaluated Loans

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

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Allowance for Credit Losses on Off-Balance Sheet Commitments

The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancellable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. As noted above, the allowance for credit losses on unfunded loan commitments is included in other liabilities on the Consolidated Statement of Financial Condition and the related credit expense is recorded in provision for credit losses - unfunded commitments in the Consolidated Statements of Income.

Allowance for Credit Losses on Available for Sale Securities

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses.

Changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued Interest Receivable

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans and available for sale securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $3.5 million at March 31, 2023 and is excluded from the estimate of credit losses. Accrued interest receivable on available of sale securities, also a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $534,000, at March 31, 2023 and is excluded from the estimate of credit losses.

Recent Accounting Standards

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 that extends the period of time preparers can utilize the reference rate reform relief guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt). To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. For all entities, the amendments in ASU 2022-06 are effective upon issuance. As of March 31, 2023, the Company has identified approximately $126.0 million in outstanding loan balances and a $5.0 million corporate debt security tied to the LIBOR reference rate. The Company has not yet made any contract modifications. The Company is currently evaluating the potential impact of this guidance on its consolidated statements of financial statements and results of operations.

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Note 2. Earnings Per Share

There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statements of Income is used as the numerator.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.


	Three Months Ended March 31,
	2023		2022
(Dollars in thousands, except share and per share data)

Net Income	$	4,156	$	3,047

Weighted-Average Basic Common Shares Outstanding	5,109,597		5,198,194
Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)	6,108		22,693
Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding	5,115,705		5,220,887

Earnings Per Share:
Basic	$	0.81	$	0.59
Diluted	0.81		0.58

The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents for the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effects would be anti-dilutive.


	Three Months Ended March 31,
	2023	2022
Stock Options	224,076	155,138
Restricted Stock	49,527	37,865

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Note 3. Securities

The following table presents the amortized cost and fair value of securities available-for-sale at the dates indicated:


	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(Dollars in thousands)

Available-for-Sale Debt Securities:
U.S. Government Agencies	$	53,994	$	—	$	(8,243)	$	45,751
Obligations of States and Political Subdivisions	14,052		1		(363)		13,690
Mortgage-Backed Securities - Government-Sponsored Enterprises	44,873		—		(4,415)		40,458
Collateralized Mortgage Obligations - Government Sponsored Enterprises	95,022		—		(15,847)		79,175
Corporate Debt	9,486		—		(2,001)		7,485
Total Available-for-Sale Debt Securities	217,427		1		(30,869)		186,559

Equity Securities:
Mutual Funds							889
Other							1,577
Total Equity Securities							2,466
Total Securities							$	189,025


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(Dollars in thousands)

Available-for-Sale Debt Securities:
U.S. Government Agencies	$	53,993	$	—	$	(9,359)	$	44,634
Obligations of States and Political Subdivisions	14,053		—		(711)		13,342
Mortgage-Backed Securities - Government-Sponsored Enterprises	46,345		—		(4,918)		41,427
Collateralized Mortgage Obligations - Government Sponsored Enterprises	96,930		—		(17,288)		79,642
Corporate Debt	9,487		—		(1,172)		8,315
Total Available-for-Sale Debt Securities	220,808		—		(33,448)		187,360

Equity Securities:
Mutual Funds							875
Other							1,823
Total Equity Securities							2,698
Total Securities							$	190,058

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The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated:


	March 31, 2023
	Less than 12 months					12 Months or Greater					Total
	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
(Dollars in thousands)

U.S. Government Agencies	—	$	—	$	—	13	$	45,751	$	(8,243)	13	$	45,751	$	(8,243)
Obligations of States and Political Subdivisions	31	12,104		(349)		2	1,043		(14)		33	13,147		(363)
Mortgage Backed Securities- Government Sponsored Enterprises	24	14,133		(611)		18	26,325		(3,804)		42	40,458		(4,415)
Collateralized Mortgage Obligations - Government Sponsored Enterprises	2	82		—		20	79,093		(15,847)		22	79,175		(15,847)
Corporate Debt	—	—		—		3	7,485		(2,001)		3	7,485		(2,001)
Total	57	$	26,319	$	(960)	56	$	159,697	$	(29,909)	113	$	186,016	$	(30,869)


	December 31, 2022
	Less than 12 months					12 Months or Greater					Total
	Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
(Dollars in thousands)

U.S. Government Agencies	1	$	2,600	$	(400)	12	$	42,034	$	(8,959)	13	$	44,634	$	(9,359)
Obligations of States and Political Subdivisions	34	13,342		(711)		—	—		—		34	13,342		(711)
Mortgage Backed Securities- Government Sponsored Enterprises	34	19,433		(1,018)		8	21,994		(3,900)		42	41,427		(4,918)
Collateralized Mortgage Obligations - Government Sponsored Enterprises	12	25,395		(3,393)		10	54,247		(13,895)		22	79,642		(17,288)
Corporate Debt	1	1,665		(335)		2	6,650		(837)		3	8,315		(1,172)
Total	82	$	62,435	$	(5,857)	32	$	124,925	$	(27,591)	114	$	187,360	$	(33,448)

For debt securities, the Company does not believe that any individual unrealized loss as of March 31, 2023 or December 31, 2022, represents a credit related impairment. The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate a credit related impairment. The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer. The unrealized losses on securities

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at March 31, 2023 and December 31, 2022 relate principally to changes in market interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell, and it is more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

Total securities available to be pledged have a fair value of $179.1 million at March 31, 2023 and $179.0 million at December 31, 2022 of which securities with a fair value of $172.9 million and $175.6 million at March 31, 2023 and December 31, 2022, respectively, were pledged to secure uninsured public deposits, short-term borrowings and for other purposes as required or permitted by law.

The following table presents the scheduled maturities of debt securities as of the date indicated:


	March 31, 2023
	Amortized Cost		Fair Value
(Dollars in thousands)

Due in One Year or Less	$	245	$	245
Due after One Year through Five Years	23,554		21,204
Due after Five Years through Ten Years	60,797		52,746
Due after Ten Years	132,831		112,364
Total	$	217,427	$	186,559

The following table presents the gain and loss on equity securities from both realized sales and unrealized market adjustments for the periods indicated. There were no realized gain or loss on sales of debt securities for the periods indicated, All gains and losses presented in the table below are reported in Net Loss on Securities on the Consolidated Statements of Income.


	Three Months Ended March 31,
	2023		2022
(Dollars in thousands)






Equity Securities
Net Unrealized Loss Recognized on Securities Held	$	(232)	$	(7)
Net Realized Gain Recognized on Securities Sold	—		—
Net Loss on Equity Securities	$	(232)	$	(7)
Net Loss on Securities	$	(232)	$	(7)

Note 4. Loans and Allowance for Credit Losses

The Company’s loan portfolio is segmented to enable management to monitor risk and performance. Real estate loans are further segregated into three classes. Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate. Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate. The commercial and industrial segment consists of loans to finance the activities of commercial customers. The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit.

Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient.

Commercial real estate loans generally present a higher level of credit risk than loans secured by residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.

Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied

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properties used for businesses. Construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion.

Commercial and industrial loans are generally secured by inventories, accounts receivable, and other business assets, which present collateral risk.

Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan.

The following table presents the classifications of loans as of the dates indicated.


	March 31, 2023		December 31, 2022
(Dollars in thousands)

Real Estate:
Residential	$	332,840	$	330,725
Commercial	452,770		436,805
Construction	39,522		44,923
Commercial and Industrial	79,501		70,044
Consumer	146,081		146,927
Other	21,151		20,449
Total Loans	1,071,865		1,049,873
Allowance for Credit Losses	(10,270)		(12,819)
Loans, Net	$	1,061,595	$	1,037,054

Included in total loans above are unamortized net deferred loan fees of $1.3 million and $1.2 million at March 31, 2023 and December 31, 2022, respectively.

The Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first four categories are not considered criticized and are aggregated as “pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as Loss are considered uncollectible and of such little value that continuance as an asset is not warranted.

The following table presents the Company’s loans by year of origination, loan segmentation and risk indicator summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of March 31, 2023. There were no loans in the criticized category of loss.

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	Classified Loans by Origination Year (as of March 31, 2023)
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Real Estate:
Residential
Pass	$	7,837	$	42,965	$	44,803	$	60,872	$	41,078	$	118,135	$	14,247	$	329,937
Special Mention	—		—		519		12		—		421		—		952
Substandard	—		—		168		—		—		1,783		—		1,951
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	7,837		42,965		45,490		60,884��		41,078		120,339		14,247		332,840
Commercial
Pass	17,003		76,891		88,230		50,562		54,631		123,778		1,846		412,941
Special Mention	—		—		1,519		3,005		5,171		18,451		—		28,146
Substandard	—		—		—		—		1,649		10,034		—		11,683
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	17,003		76,891		89,749		53,567		61,451		152,263		1,846		452,770
Construction
Pass	2,492		11,332		14,902		7,714		—		—		1,055		37,495
Special Mention	—		673		1,047		—		—		—		—		1,720
Substandard	—		—		—		—		—		307		—		307
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	2,492		12,005		15,949		7,714		—		307		1,055		39,522
Commercial and Industrial
Pass	15,853		18,397		10,020		6,483		4,079		3,877		10,265		68,974
Special Mention	—		—		—		22		7		7,396		2,700		10,125
Substandard	—		—		—		11		—		—		—		11
Doubtful	—		—		—		—		—		391		—		391
Loss	—		—		—		—		—		—		—		—
Total	15,853		18,397		10,020		6,516		4,086		11,664		12,965		79,501
Consumer
Pass	13,116		62,753		34,584		15,872		7,089		8,395		4,081		145,890
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		77		—		—		—		114		—		191
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	13,116		62,830		34,584		15,872		7,089		8,509		4,081		146,081
Other
Pass	—		13,810		51		710		1,365		4,313		851		21,100
Special Mention	—		—		—		—		—		51		—		51
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	—		13,810		51		710		1,365		4,364		851		21,151
Total Loans	$	56,301	$	226,898	$	195,843	$	145,263	$	115,069	$	297,446	$	35,045	$	1,071,865
Gross Charge Offs (1)	$	—	$	22	$	7	$	—	$	—	$	8	$	16	$	53

(1) Gross charge-offs for the three months ended March 31, 2023, were related to consumer loans. There were no other charge-offs for the other loan categories in the current period.

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The following table presents the Company’s loan segmentation and risk indicator summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of December 31, 2022, prior to the adoption of ASU 2016-13:


	December 31, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
(Dollars in Thousands)

Real Estate:
Residential	$	327,531	$	1,180	$	2,014	$	—	$	330,725
Commercial	395,168		29,680		11,957		—		436,805
Construction	42,693		1,912		318		—		44,923
Commercial and Industrial	58,562		10,977		90		415		70,044
Consumer	146,807		—		120		—		146,927
Other	20,394		55		—		—		20,449
Total Loans	$	991,155	$	43,804	$	14,499	$	415	$	1,049,873

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated.


	March 31, 2023
	Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
(Dollars in Thousands)

Real Estate:
Residential	$	328,957	$	2,475	$	30	$	—	$	2,505	$	1,378	$	332,840
Commercial	449,075		93		160		—		253		3,442		452,770
Construction	39,522		—		—		—		—		—		39,522
Commercial and Industrial	77,101		1,968		30		—		1,998		402		79,501
Consumer	145,094		749		47		—		796		191		146,081
Other	21,151		—		—		—		—		—		21,151
Total Loans	$	1,060,900	$	5,285	$	267	$	—	$	5,552	$	5,413	$	1,071,865


	December 31, 2022
	Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
(Dollars in Thousands)

Real Estate:
Residential	$	325,591	$	3,451	$	34	$	—	$	3,485	$	1,649	$	330,725
Commercial	434,933		58		—		—		58		1,814		436,805
Construction	44,923		—		—		—		—		—		44,923
Commercial and Industrial	69,621		8		—		—		8		415		70,044
Consumer	145,887		854		66		—		920		120		146,927
Other	20,449		—		—		—		—		—		20,449
Total Loans	$	1,041,404	$	4,371	$	100	$	—	$	4,471	$	3,998	$	1,049,873

Additional interest income that would have been recorded if the loans that were nonaccrual at March 31, 2023 were current was $33,000 for the three months ended March 31, 2023, and $79,000 for the three months ended March 31, 2022.

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The following table sets forth the amounts for amortized cost basis of loans on nonaccrual status, loans past due 90 days still accruing, and categories of nonperforming assets at the date indicated.


	March 31, 2023
	Nonaccrual With No ACL		Nonaccrual With ACL		Loans Past Due 90 Days Still Accruing		Total Nonperforming Loans
(Dollars in Thousands)

Nonaccrual Loans:
Real Estate:
Residential	$	1,378	$	—	$	—	$	1,378
Commercial	3,442		—		—		3,442

Commercial and Industrial	402		—		—		402
Consumer	191		—		—		191
Total Nonaccrual Loans	$	5,413	$	—	$	—	5,413

Other Real Estate Owned:
Residential							211
Commercial							37
Total Other Real Estate Owned							248

Total Nonperforming Assets							$	5,661

No interest income on nonaccrual loans was recognized during the three months ended March 31, 2023.

In conjunction with the adoption of ASU 2016-13, ASU 2022-02 was adopted and eliminates the troubled debt restructurings ("TDR") recognition and measurement. With the elimination of TDRs, ASU 2022-02 requires that all modifications and refinancing, including those with borrowers that are experiencing financial difficulty are subject to the modification guidance in ASC 310-20. Loan modifications could meet the definition of a new loan if certain terms of the loan are modified to the benefit of the lender and the modification to the terms of the loan are more than minor. Both of these criteria have to be met to define the modification as a new loan. If a loan modification meets the criteria of new loan, then the new loan should include the remaining net investment in the original loan, additional funds advanced, fees received, and direct loan origination costs with the refinancing or restructuring. Additionally, the effective interest rate should be recalculated based on the amortized cost basis of the new loan and reassess contractual cash flow. For the three months ended March 31, 2023, there were no new loan modifications to borrowers experiencing financial difficulty in the past 12 months under the current guidance.

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The following table sets forth the amounts and categories of nonperforming assets at the dates indicated as of December 31, 2022, prior to the adoption of ASU 2016-13. Included in nonperforming loans and assets are TDRs, which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section.


	December 31, 2022
(Dollars in Thousands)

Nonaccrual Loans:
Real Estate:
Residential	$	1,649
Commercial	1,814

Commercial and Industrial	415
Consumer	120
Total Nonaccrual Loans	3,998

Accruing Loans Past Due 90 Days or More:



Total Accruing Loans Past Due 90 Days or More	—
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	3,998

Troubled Debt Restructurings, Accruing:
Real Estate
Residential	534
Commercial	1,260
Commercial and Industrial	7
Total Troubled Debt Restructurings, Accruing	1,801

Total Nonperforming Loans	5,799






Total Nonperforming Assets	$	5,799

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $855,000 and $1.4 million at March 31, 2023 and December 31, 2022, respectively.

The activity in the ACL - Loans is summarized below by primary segments as of March 31, 2023 :


	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

December 31, 2022	$	2,074	$	5,810	$	502	$	2,313	$	1,517	$	—	$	603	$	12,819
Impact of ASC 326 - Loans	137		(3,244)		488		(1,057)		774		120		(603)		(3,385)
Charge-offs	—		—		—		—		(53)		—		—		(53)
Recoveries	13		—		—		758		38		—		—		809
(Recovery) Provision for Credit Losses - Loans	(68)		490		(185)		(17)		(178)		38		—		80
March 31, 2023	$	2,156	$	3,056	$	805	$	1,997	$	2,098	$	158	$	—	$	10,270

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The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (accrued interest payable and other liabilities on the Consolidated Statement of Financial Condition), with adjustments to the reserve recognized in provision for credit losses - unfunded commitments on the Consolidated Statement of Income. The Company’s activity in the allowance for credit losses on unfunded commitments for the periods ended was as follows:


(in thousands)	Allowance for Credit Losses
Balance at December 31, 2022	$	—
Impact of CECL adoption	718
Provision for credit losses	—
Balance at March 31, 2023	$	718

Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL - Loans is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. During the three months ended March 31, 2023, there were no loans that required a credit loss to be individually assigned.

The following tables present the activity in the allowance for credit losses summarized by primary segments and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated, prior to the adoption of ASU 2016-13.


	December 31, 2022
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	—	$	21	$	—	$	3	$	—	$	—	$	—	$	24
Collectively Evaluated for Potential Impairment	$	2,074	$	5,789	$	502	$	2,310	$	1,517	$	—	$	603	$	12,795


	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

December 31, 2021	$	1,420	$	5,960	$	1,249	$	1,151	$	1,050	$	—	$	752	$	11,582
Charge-offs	(17)		—		—		—		(20)		—		—		(37)
Recoveries	2		—		—		11		37		—		—		50
Provision (Recovery)	67		366		(545)		(32)		225		—		(81)		—
March 31, 2022	$	1,472	$	6,326	$	704	$	1,130	$	1,292	$	—	$	671	$	11,595

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	March 31, 2022
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	—	$	—	$	84	$	96	$	—	$	—	$	—	$	180
Collectively Evaluated for Potential Impairment	$	1,472	$	6,326	$	620	$	1,034	$	1,292	$	—	$	671	$	11,415

The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated, prior to the adoption of ASU 2016-13. At December 31, 2022, commercial and industrial loans include $126,000 of PPP loans collectively evaluated for potential impairment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.


	December 31, 2022
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	1,042	$	13,217	$	318	$	512	$	—	$	—	$	15,089
Collectively Evaluated for Potential Impairment	329,683		423,588		44,605		69,532		146,927		20,449		1,034,784
Total Loans	$	330,725	$	436,805	$	44,923	$	70,044	$	146,927	$	20,449	$	1,049,873

The following table presents changes in the accretable discount on the loans acquired at fair value at the dates indicated.


	Accretable Discount
(Dollars in Thousands)

December 31, 2022	$	487
Accretable Yield	(61)
March 31, 2023	$	426

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Pre Adoption of ASC 326 – Impaired Loans

For periods prior to the adoption of CECL, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. The following table presents a summary of the loans considered to be impaired as of the date indicated.


	December 31, 2022
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)

With No Related Allowance Recorded:
Real Estate:
Residential	$	1,042	$	—	$	1,047	$	1,085	$	51
Commercial	11,609		—		11,766		10,928		549
Construction	318		—		318		403		19
Commercial and Industrial	505		—		777		734		35
Total With No Related Allowance Recorded	$	13,474	$	—	$	13,908	$	13,150	$	654

With A Related Allowance Recorded:
Real Estate:

Commercial	$	1,608	$	21	$	1,608	$	954	$	79
Construction	—		—		—		830		36
Commercial and Industrial	7		3		7		253		1
Total With A Related Allowance Recorded	$	1,615	$	24	$	1,615	$	2,037	$	116

Total Impaired Loans
Real Estate:
Residential	$	1,042	$	—	$	1,047	$	1,085	$	51
Commercial	13,217		21		13,374		11,882		628
Construction	318		—		318		1,233		55
Commercial and Industrial	512		3		784		987		36
Total Impaired Loans	$	15,089	$	24	$	15,523	$	15,187	$	770

The recorded investment of loans evaluated for impairment decreased $1.4 million at March 31, 2023 compared to December 31, 2022 and was primarily related to commercial real estate loans.

Note 5. Short-Term Borrowings

Borrowings with original maturities of one year or less are classified as short-term and may consist of borrowings with the Federal Home Loan Bank ("FHLB"), securities sold under agreements to repurchase or borrowings on revolving lines of credit with the Federal Reserve Bank or other correspondent banks. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are overnight sweep accounts with next-day maturities utilized by commercial customers to earn interest on their funds. Securities are pledged as collateral under these agreements in an amount at least equal to the outstanding balance and the collateral pledging requirements are monitored on a daily basis.

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The following table sets forth the components of short-term borrowings as of the dates indicated.


	March 31, 2023				December 31, 2022
	Amount		Weighted Average Rate		Amount		Weighted Average Rate
(Dollars in thousands)

Federal Funds Purchased:
Average Balance Outstanding During the Period	$	2	5.40	%	$	—	—	%
Maximum Amount Outstanding at any Month End	—				—

Securities Sold Under Agreements to Repurchase:
Balance at Period End	$	121	0.10	%	$	8,060	0.19	%
Average Balance Outstanding During the Period	1,342		0.60		27,381		0.23
Maximum Amount Outstanding at any Month End	121				39,219

Securities Collaterizing the Agreements at Period-End:
Carrying Value	10,935				10,947
Market Value	9,587				9,396

Note 6. Fair Value Disclosure

FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value.

The three levels of fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs.

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques.

This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated Statements of Financial Condition as of the dates indicated, by level within the fair value hierarchy. The majority of the Company’s securities are included in Level 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the three months ended March 31, 2023 or year ended December 31, 2022.

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	Fair Value Hierarchy	March 31, 2023		December 31, 2022
(Dollars in thousands)

Securities:
Available-for-Sale Debt Securities
U.S. Government Agencies	Level 2	$	45,751	$	44,634
Obligations of States and Political Subdivisions	Level 2	13,690		13,342
Mortgage-Backed Securities - Government-Sponsored Enterprises	Level 2	40,458		41,427
Collateralized Mortgage Obligations - Government Sponsored Enterprises	Level 2	79,175		79,642
Corporate Debt	Level 2	7,485		8,315
Total Available-for-Sale Debt Securities		186,559		187,360

Equity Securities
Mutual Funds	Level 1	889		875
Other	Level 1	1,577		1,823
Total Equity Securities		2,466		2,698
Total Securities		$	189,025	$	190,058

The following table presents the financial assets on the Consolidated Statements of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount. The table also presents the significant unobservable inputs used in the fair value measurements.

Financial Asset

Fair Value Hierarchy

March 31,
2023

Valuation
Techniques

Significant Unobservable Inputs

Range

Weighted Average

(Dollars in thousands)

OREO

Level 3

248

Appraisal of Collateral (1)

Liquidation Expenses (2)

26.6%

Financial Asset

Fair Value Hierarchy

December 31,
2022

Valuation
Techniques

Significant Unobservable Inputs

Range

Weighted Average

(Dollars in thousands)

Individually Evaluated Loans

Level 3

1,591

Appraisal of Collateral (1)

Appraisal Adjustments (2)

7.2%

(1)Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable.

(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal.

Expected credit losses on individually evaluated loans deemed to be collateral dependent are valued based upon the lower of amortized cost or fair value of the underlying collateral less costs to sell. Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. At March 31, 2023, the Company did not have any loans that would be required to be remeasured. At December 31, 2022, the fair value of individually evaluated loans consists of the loan balances of $1.6 million less their specific valuation allowances of $24,000.

The fair value of mortgage servicing rights ("MSRs") is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3. MSRs are reported in Other Assets in the Consolidated Statements of Financial Condition and are amortized into mortgage servicing income in Other Income in the Consolidated Statements of Income. At March 31, 2023 and December 31, 2022, the Company did not have any MSRs that would be required to be remeasured.

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OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy.

Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated.


		March 31, 2023				December 31, 2022
	Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
(Dollars in thousands)

Financial Assets:
Cash and Due From Banks:
Interest Bearing	Level 1	$	85,533	$	85,533	$	82,957	$	82,957
Non-Interest Bearing	Level 1	18,012		18,012		20,743		20,743
Securities	See Above	189,025		189,025		190,058		190,058

Loans, Net	Level 3	1,061,595		1,027,571		1,037,054		1,011,098

Restricted Stock	Level 2	2,526		2,526		2,749		2,749
Mortgage Servicing Rights	Level 3	608		961		633		1,000
Accrued Interest Receivable	Level 2	4,016		4,016		3,983		3,983
Financial Liabilities:

Deposits	Level 2	1,281,520		1,276,964		1,268,503		1,264,846
Short-Term Borrowings	Level 2	121		121		8,060		8,060
Other Borrowed Funds
FHLB Borrowings	Level 2	—		—		—		—
Subordinated Debt	Level 2	14,648		12,628		14,638		13,490
Accrued Interest Payable	Level 2	464		464		355		355

Note 7. Commitments and Contingent Liabilities

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated.


	March 31, 2023		December 31, 2022
(Dollars in thousands)

Standby Letters of Credit	$	110	$	110
Performance Letters of Credit	1,056		1,064
Construction Mortgages	54,564		45,722
Personal Lines of Credit	7,507		6,824
Overdraft Protection Lines	5,061		5,241
Home Equity Lines of Credit	23,043		22,784
Commercial Lines of Credit	77,907		74,921
Total Commitments	$	169,248	$	156,666

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the letter. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets.

Note 8. Leases

The Company evaluates contracts at commencement to determine if a lease is present. The Company’s lease contracts are all classified as operating leases and create operating right-of-use (“ROU”) assets and corresponding lease liabilities on the Consolidated Statements of Financial Condition. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported in Accrued Interest Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition.

The following tables present the lease expense, ROU assets, weighted average term, discount rate and maturity analysis of lease liabilities for operating leases for the periods and dates indicated.


	Three Months Ended March 31,
	2023		2022
(Dollars in thousands)

Operating Lease Expense	$	77	$	82
Short-Term Lease Expense	—		—
Variable Lease Expense	7		7
Total Lease Expense	$	84	$	89

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	March 31, 2023			December 31, 2022
(Dollars in thousands)

Operating Leases:
ROU Assets	$	1,864		$	1,926
Weighted Average Lease Term in Years	7.97			8.13
Weighted Average Discount Rate	2.87		%	2.87		%


	March 31, 2023
(Dollars in thousands)

Maturity Analysis:
Due in One Year	$	359
Due After One Year to Two Years	347
Due After Two Years to Three Years	248
Due After Three Years to Four Years	233
Due After Four to Five Years	231
Due After Five Years	832
Total	$	2,250
Less: Present Value Discount	237
Lease Liabilities	$	2,013

There were no new lease agreements entered into during the three months ended March 31, 2023. During the three months ended March 31, 2022, the Company entered into a new lease agreement for the McMurray, PA branch, for a 10-year term ending March 31, 2032.

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Note 9. Other Noninterest Expense

The details of other noninterest expense for the Company’s Consolidated Statements of Income for the periods indicated are as follows:


	Three Months Ended March 31,
	2023		2022
(Dollars in thousands)

Non-Employee Compensation	$	151	$	131
Printing and Supplies	54		80
Postage	103		103
Telephone	144		139
Charitable Contributions	34		42
Dues and Subscriptions	79		58
Loan Expenses	57		127
Meals and Entertainment	15		30
Travel	54		39
Training	33		18
Bank Assessment	52		47
Insurance	74		62
Miscellaneous	95		123
Total Other Noninterest Expense	$	945	$	999

Note 10. Segment and Related Information

At March 31, 2023, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services. CB Financial is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank. Exchange Underwriters has an independent board of directors from the Company and is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products.

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The following is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated.


	Community Bank		Exchange Underwriters, Inc.		CB Financial Services, Inc.		Net Eliminations		Consolidated
(Dollars in thousands)

March 31, 2023
Assets	$	1,432,201	$	5,638	$	132,069	$	(139,200)	$	1,430,708
Liabilities	1,317,172		1,441		14,874		(19,974)		1,313,513
Stockholders' Equity	115,029		4,197		117,195		(119,226)		117,195

December 31, 2022
Assets	$	1,409,510	$	5,585	$	124,879	$	(131,036)	$	1,408,938
Liabilities	1,301,783		1,996		14,724		(19,720)		1,298,783
Stockholders' Equity	107,727		3,589		110,155		(111,316)		110,155














Three Months Ended March 31, 2023
Interest and Dividend Income	$	14,223	$	2	$	1,294	$	(1,275)	$	14,244
Interest Expense	2,506		—		155		—		2,661
Net Interest and Dividend Income	11,717		2		1,139		(1,275)		11,583
Provision for Credit Losses	80		—		—		—		80
Net Interest and Dividend Income After Provision for Credit Losses	11,637		2		1,139		(1,275)		11,503
Noninterest Income (Loss)	1,100		1,956		(246)		—		2,810
Noninterest Expense	7,924		1,099		5		—		9,028
Undistributed Net Income of Subsidiary	608		—		3,187		(3,795)		—
Income Before Income Tax Expense (Benefit)	5,421		859		4,075		(5,070)		5,285
Income Tax Expense (Benefit)	959		251		(81)		—		1,129
Net Income	$	4,462	$	608	$	4,156	$	(5,070)	$	4,156


	Community Bank		Exchange Underwriters, Inc.		CB Financial Services, Inc.		Net Eliminations		Consolidated
(Dollars in thousands)

Three Months Ended March 31, 2022
Interest and Dividend Income	$	10,596	$	1	$	1,279	$	(1,260)	$	10,616
Interest Expense	567		—		156		—		723
Net Interest and Dividend Income	10,029		1		1,123		(1,260)		9,893
Provision for Credit Losses	—		—		—		—		—
Net Interest and Dividend Income After Provision for Credit Losses	10,029		1		1,123		(1,260)		9,893
Noninterest Income	777		1,797		39		—		2,613
Noninterest Expense	7,645		1,007		4		—		8,656
Undistributed Net Income of Subsidiary	561		—		1,852		(2,413)		—
Income Before Income Tax Expense (Benefit)	3,722		791		3,010		(3,673)		3,850
Income Tax Expense (Benefit)	610		230		(37)		—		803
Net Income (Loss)	$	3,112	$	561	$	3,047	$	(3,673)	$	3,047

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Note 11. Stock Based Compensation

The following table presents stock option information for the period indicated.


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
Outstanding Options at December 31, 2022	283,748	$	24.52	5.6
Granted	61,475	22.01
Exercised	—	—
Forfeited	(747)	(28.02)
Outstanding Options at March 31, 2023	344,476	$	24.06	6.2

Exercisable Options at March 31, 2023	189,749	$	24.53	3.7

	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Service Period in Years
Nonvested Options at March 31, 2023	154,727	$	23.49	9.3

Summary of Significant Assumptions for Newly Issued Stock Options
Expected Term in Years				6.5
Expected Volatility				29.4		%
Expected Dividends				$	1.00
Risk Free Rate of Return				3.64		%
Weighted Average Grant Date Fair Value (per share)				$	4.50

The following table presents restricted stock award information for the period indicated


	Number of Shares	Weighted Average Grant Date Fair Value Price		Weighted Average Remaining Service Period in Years
Nonvested Restricted Stock at December 31, 2022	64,125	$	24.32	4.3
Granted	22,475	22.01
Vested	(4,088)	26.25
Forfeited	—	—
Nonvested Restricted Stock at March 31, 2023	82,512	$	23.60	4.3

The Company recognizes expense over a five-year vesting period for the restricted stock awards and stock options. Stock-based compensation expense related to restricted stock awards and stock options was $174,000 and $130,000 for the three months ended March 31, 2023 and 2022.

As of March 31, 2023 and December 31, 2022, total unrecognized compensation expense was $673,000 and $430,000, respectively, related to stock options, and $1.8 million and $1.4 million, respectively, related to restricted stock awards.

Intrinsic value represents the amount by which the fair value of the underlying stock at March 31, 2023 and December 31, 2022 exceeds the exercise price of the stock options. The intrinsic value of stock options was $28,000 and $25,000 at March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023 and December 31, 2022, respectively, there were 215,672 and 333,335 shares available under the Plan to be issued in connection with the exercise of stock options, and 86,269 and 133,334 shares that may be issued as restricted stock awards or units. Restricted stock awards or units may be issued above this amount provided that the number of shares reserved for stock options is reduced by two and one-half shares for each restricted stock award or unit share granted.

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Note 12. Subsequent Events

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, 2022.

Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include, but are not limited to, the following:

•General and local economic conditions;

•Our ability to realize the expected cost savings and other efficiencies related to our branch optimization and operational efficiency initiatives;

•Changes in market interest rates, deposit flows, demand for loans, real estate values and competition;

•Competitive products and pricing;

•The ability of our customers to make scheduled loan payments;

•Loan delinquency rates and trends;

•Our ability to manage the risks involved in our business;

•Our ability to integrate the operations of businesses we acquire;

•Our ability to control costs and expenses;

•Inflation, market and monetary fluctuations;

•Changes in federal and state legislation and regulation applicable to our business;

•Actions by our competitors; and

•Other factors disclosed in the Company’s periodic reports as filed with the Securities and Exchange Commission.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

General

CB Financial Services is a bank holding company established in 2006 and headquartered in Carmichaels, Pennsylvania. CB Financial’s business activity is conducted primarily through its wholly owned bank subsidiary, Community Bank.

The Bank is a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank operates from 10 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and three offices in Marshall and Ohio Counties in West Virginia. The Bank also has a loan production office in Allegheny County, a corporate center in Washington County and an operations center in Greene County, all of which are in Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, Inc., the Bank’s wholly owned subsidiary that is a full-service, independent insurance agency located in Washington County.

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, 2023, compared to the consolidated financial condition as of December 31, 2022 and the consolidated results of operations for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

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Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges on deposit accounts, insurance commissions, income from bank-owned life insurance and other income. Noninterest expense consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contracted services, legal and professional fees, advertising, deposit and general insurance and other expenses.

Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in southwestern Pennsylvania and Ohio Valley market areas.

Explanation of Use of Non-GAAP Financial Measures

In addition to financial measures presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information in understanding our underlying results of operations or financial position and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Non-GAAP adjusted items impacting the Company's financial performance are identified to assist investors in providing a complete understanding of factors and trends affecting the Company’s business and in analyzing the Company’s operating results on the same basis as that applied by management. Although we believe that these non-GAAP financial measures enhance the understanding of our business and performance, they should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

The interest income on interest-earning assets, net interest rate spread and net interest margin are presented on a fully tax-equivalent (“FTE”) basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory income tax rate of 21.0%. We believe the presentation of net interest income on a FTE basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

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,
	2023			2022
(Dollars in thousands)

Interest Income (GAAP)	$	14,244		$	10,616
Adjustment to FTE Basis	31			40
Interest Income (FTE) (Non-GAAP)	14,275			10,656
Interest Expense (GAAP)	2,661			723
Net Interest Income (FTE) (Non-GAAP)	$	11,614		$	9,933

Net Interest Rate Spread (GAAP)	3.12		%	2.98		%
Adjustment to FTE Basis	0.01			0.01
Net Interest Rate Spread (FTE) (Non-GAAP)	3.13			2.99

Net Interest Margin (GAAP)	3.51		%	3.08		%
Adjustment to FTE Basis	0.01			0.02
Net Interest Margin (FTE) (Non-GAAP)	3.52			3.10

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Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity divided by period-end common shares outstanding. We believe this non-GAAP measure serves as a useful tool to help evaluate the strength and discipline of the Company's capital management strategies and as an additional, conservative measure of the Company’s total value.


	March 31, 2023		December 31, 2022
(Dollars in thousands, except share and per share data)

Stockholders' Equity (GAAP)	$	117,195	$	110,155
Goodwill and Other Intangible Assets, Net	(12,800)		(13,245)
Tangible Common Equity or Tangible Book Value (Non-GAAP) (Numerator)	$	104,395	$	96,910

Common Shares Outstanding (Denominator)	5,116,830		5,100,189

Book Value per Common Share (GAAP)	$	22.90	$	21.60

Tangible Book Value per Common Share (Non-GAAP)	$	20.40	$	19.00

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Consolidated Statements of Financial Condition Analysis

Assets

Total assets increased $21.8 million, or 1.5%, to $1.43 billion at March 31, 2023 compared to $1.41 billion at December 31, 2022.

Cash and Securities

•Cash and due from banks decreased $155,000, or 0.1%, to $103.5 million at March 31, 2023, compared to $103.7 million at December 31, 2022.

•Securities decreased $1.0 million, or 0.5%, to $189.0 million at March 31, 2023, compared to $190.1 million at December 31, 2022. The securities balance was primarily impacted by $3.4 million of repayments on mortgage-backed and collateralized mortgage obligation securities and a $232,000 decrease in the market value in the equity securities portfolio, which is primarily comprised of bank stocks. These decreases were partially offset by a $2.6 million increase in the market value of the debt securities portfolio.

Loans, Allowance for Credit Losses ("ACL") and Credit Quality

•Total loans increased $22.0 million, or 2.1%, to $1.07 billion at March 31, 2023 compared to $1.05 billion at December 31, 2022. Loan growth was driven by increases in commercial real estate, commercial and industrial loans and residential mortgages of $16.0 million, $9.5 million, and $2.1 million, respectively, partially offset by decreases in construction real estate and consumer loans of $5.4 million and $846,000, respectively. Growth in commercial and industrial loans included the purchase of $8.9 million of syndicated loans.

•The ACL - Loans was $10.3 million at March 31, 2023 and $12.8 million at December 31, 2022. As a result, the ACL - Loans to total loans was 0.96% at March 31, 2023 compared to 1.22% at December 31, 2022. The change in the ACL -Loans was primarily due to the Company's adoption of CECL. Contributing to the change in ACL - Loans was a prior year charge-off of $2.7 million and qualitative factors that significantly impacted the incurred loss model driven by historical activity compared to the newly adopted CECL methodology that is centered around using a forecast approach. At adoption, the Company decreased its ACL - Loans by $3.4 million.

•Net recoveries for the three months ended March 31, 2023 were $756,000, or 0.29% of average loans on an annualized basis. This is due to recoveries totaling $750,000 related to the prior year commercial and industrial charged-off loan for $2.7 million. Net recoveries for the three months ended March 31, 2022 were $13,000, or 0.01% of average loans on an annualized basis.

•Nonperforming loans, which includes nonaccrual loans and accruing loans past due 90 days or more, were $5.4 million at March 31, 2023 compared to $5.8 million at December 31, 2022. The decrease of $386,000 was due to the Company's adoption of CECL removing the trouble debt restructured (TDR) designation for loans previously identified as a TDR but performing for approximately $1.8 million, mainly offset by a $1.4 million commercial real estate loan relationship that moved to non-accrual in the current period. Current nonperforming loans to total loans ratio was 0.51% compared to 0.55% at December 31, 2022.

Other

•Intangible assets decreased $445,000, or 11.4%, to $3.1 million at March 31, 2023 compared to $3.5 million at December 31, 2022 primarily due to amortization expense recognized during the period.

Liabilities

Total liabilities increased $14.7 million, or 1.1%, to $1.31 billion at March 31, 2023 compared to $1.30 billion at December 31, 2022.

Deposits

•Total deposits increased $13.0 million to $1.28 billion as of March 31, 2023 compared to $1.27 billion at December 31, 2022, an annualized increase of 4.1%. Interest-bearing demand deposits increased $47.2 million and time deposits increased $21.3 million, while non interest-bearing demand deposits decreased $39.5 million and savings deposits decreased $13.1 million. The increase in interest-bearing demand deposits is primarily the result of higher interest rates attracting more customers and/or additional deposits from existing customers. FDIC insured deposits totaled approximately 62.9% of total deposits at March 31, 2023.

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Borrowings

•Short-term borrowings decreased $7.9 million, or 98.5%, to $121,000 at March 31, 2023, compared to $8.1 million at December 31, 2022. At March 31, 2023 and December 31, 2022, short-term borrowings were comprised entirely of securities sold under agreements to repurchase. This decrease is due to accounts that were transitioned into other deposit products and account for a portion of the interest-bearing demand deposit increase.

Accrued Interest Payable and Other Liabilities

•Accrued interest payable and other liabilities increased $9.6 million, or 127.2%, to $17.2 million at March 31, 2023, compared to $7.6 million at December 31, 2022 primarily due to the purchase of $8.9 million of syndicated loans which were unfunded at the end of the period.

Stockholders’ Equity

Stockholders’ equity increased $7.0 million, or 6.4%, to $117.2 million at March 31, 2023, compared to $110.2 million at December 31, 2022.

•Net income was $4.2 million for the three months ended March 31, 2023.

•Accumulated other comprehensive loss decreased $2.0 million primarily due to the effect of changes in market interest rates on the fair value of the Company’s debt securities.

•On April 21, 2022, a $10.0 million repurchase program was authorized, with the Company repurchasing 67,864 shares at an average price of $22.45 per share since the inception of the plan. In total, the Company repurchased $130,000 of common stock since December 31, 2022.

•The Company declared and paid $1.3 million in dividends to common stockholders in the current period.

•Book value per share (GAAP) was $22.90 at March 31, 2023 compared to $21.60 at December 31, 2022, an increase of $1.30. Tangible book value per share (Non-GAAP) increased $1.40, or 7.4%, to $20.40 compared to $19.00 at December 31, 2022. Refer to Explanation of Use of Non-GAAP Financial Measures in this Report.

Consolidated Results of Operations for the Three Months Ended March 31, 2023 and 2022

Overview. Net income was $4.2 million for the three months ended March 31, 2023, an increase of $1.1 million compared to net income of $3.0 million for the three months ended March 31, 2022.

Net Interest and Dividend Income. Net interest and dividend income increased $1.7 million, or 17.1%, to $11.6 million for the three months ended March 31, 2023 compared to $9.9 million for the three months ended March 31, 2022. Net interest margin (GAAP) increased to 3.51% for the three months ended March 31, 2023 compared to 3.08% for the three months ended March 31, 2022. Fully Tax Equivalent (FTE) net interest margin (Non-GAAP) increased 42 basis points (bps) to 3.52% for the three months ended March 31, 2023 compared to 3.10% for the three months ended March 31, 2022.

Interest and Dividend Income

•Interest and dividend income increased $3.6 million, or 34.2%, to $14.2 million for the three months ended March 31, 2023 compared to $10.6 million the three months ended March 31, 2022.

◦Interest income on loans increased $2.8 million, or 29.5%, to $12.4 million for the three months ended March 31, 2023 compared to $9.6 million for the three months ended March 31, 2022. The average balance of loans increased $31.4 million to $1.04 billion from $1.01 billion, generating $311,000 of additional interest income on loans, and the average yield increased 98 bps to 4.83% compared to 3.85% causing a $2.5 million increase in interest income on loans.

◦Interest and fee income on PPP loans was $445,000 for the three months ended March 31, 2022, which contributed 13 bps to loan yield while the current year quarter was not materially impacted by PPP loan-related interest and fee income.

◦The impact of the accretion of the credit mark on acquired loan portfolios was $61,000 for the three months ended March 31, 2023 compared to $56,000 for the three months ended March 31, 2022, or 2 bps in the current and prior period.

◦Interest income on taxable investment securities increased $59,000, or 6.5%, to $964,000 for the three months ended March 31, 2023 compared to $905,000 for the three months ended March 31, 2022 as the average yield increased 13 bps, partially offset by a $2.7 million decrease in the average balance.

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◦Interest income on interest bearing deposits at other banks increased $772,000, to $805,000 for the three months ended March 31, 2023 compared to $33,000 for the three months ended March 31, 2022 as average balances increased $15.3 million and the average yield increased 410 bps. Higher cash balances were maintained as a result of increased deposits while the increase in the average yield was the result of market interest rate increases.

Interest Expense

•Interest expense increased $1.9 million, or 268.0%, to $2.7 million for the three months ended March 31, 2023 compared to $723,000 for the three months ended March 31, 2022.

◦Interest expense on deposits increased $2.0 million, or 372.5%, to $2.5 million for the three months ended March 31, 2023 compared to $530,000 for the three months ended March 31, 2022. Average interest-earning deposit balances increased $47.4 million, or 5.6%, to $892.2 million as of March 31, 2023 compared to $844.8 million as of March 31, 2022, and rising interest rates led to the repricing of demand and money market deposits and resulted in a 89 bps, or 349.8%, increase in average cost compared to the three months ended March 31, 2022. Partially offsetting this increase, the average balance of time deposits and the related average cost decreased $30.9 million and 5 bps, respectively.

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Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. Average balances are derived from daily balances over the periods indicated. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. FTE yield adjustments have been made for tax exempt loan and securities interest income utilizing a marginal federal income tax rate of 21.0% for the periods presented. As such, amounts will not agree to income as reported in the consolidated financial statements. The yields and costs for the periods indicated are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods presented.


	Three Months Ended March 31,
	2023						2022
	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)	$	1,040,570	$	12,391	4.83	%	$	1,009,210	$	9,573	3.85	%
Debt Securities
Taxable	213,158		964		1.81		215,906		905		1.68
Exempt From Federal Tax	6,270		52		3.32		10,195		84		3.30
Equity Securities	2,693		24		3.56		2,693		22		3.27
Interest Bearing Deposits at Banks	74,555		805		4.32		59,296		33		0.22
Other Interest-Earning Assets	2,633		39		6.01		3,483		39		4.54
Total Interest-Earning Assets	1,339,879		14,275		4.32		1,300,783		10,656		3.32
Noninterest-Earning Assets	48,369						122,288
Total Assets	$	1,388,248					$	1,423,071

Liabilities and Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-Bearing Demand Deposits	$	335,327	1,191		1.44	%	$	276,603	48		0.07	%
Savings	242,298		37		0.06		243,786		19		0.03
Money Market	213,443		939		1.78		192,425		41		0.09
Time Deposits	101,147		337		1.35		132,015		422		1.30
Total Interest-Bearing Deposits	892,215		2,504		1.14		844,829		530		0.25
Short-Term Borrowings
Securities Sold Under Agreements to Repurchase	1,344		2		0.60		37,884		19		0.20
Other Borrowings	14,641		155		4.29		17,604		174		4.01
Total Interest-Bearing Liabilities	908,200		2,661		1.19		900,317		723		0.33
Noninterest-Bearing Demand Deposits	362,343						384,188
Other Liabilities	2,953						8,554
Total Liabilities	1,273,496						1,293,059
Stockholders' Equity	114,752						130,012
Total Liabilities and Stockholders' Equity	$	1,388,248					$	1,423,071
Net Interest Income (FTE) (Non-GAAP) (3)			$	11,614					$	9,933
Net Interest Rate Spread (FTE) (Non-GAAP) (3)(5)					3.13	%					2.99	%
Net Interest-Earning Assets (4)	$	431,679					$	400,466
Net Interest Margin (GAAP) (6))					3.51						3.08
Net Interest Margin (FTE) (Non-GAAP) (3)(6)					3.52						3.10
Return on Average Assets (1)					1.21						0.87
Return on Average Equity (1)					14.69						9.50
Average Equity to Average Assets					8.27						9.14
Average Interest-Earning Assets to Average Interest-Bearing Liabilities					147.53						144.48
PPP Loans	$	100	$	3	12.17		$	14,673	$	445	12.30

(1)Annualized based on three months ended results.

(2) Net of the allowance for credit losses and includes nonaccrual loans with a zero yield and Loans Held for Sale if applicable.

(3) Refer to Explanation and Use of Non-GAAP Financial Measures in this filing for the calculation of the measure and reconciliation to the most comparable GAAP measure.

(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(6) Net interest margin represents annualized net interest income divided by average total interest-earning assets.

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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. FTE yield adjustments have been made for tax exempt loan and securities income utilizing a marginal federal income tax rate of 21.0%. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. The total column represents the sum of the prior columns.


	Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
	Increase (Decrease) Due to
	Volume		Rate		Total
(Dollars in thousands) (Unaudited)

Interest and Dividend Income:
Loans, net	$	311	$	2,507	$	2,818
Debt Securities:
Taxable	(10)		69		59
Exempt From Federal Tax	(33)		1		(32)
Equity Securities	—		2		2
Cash at Other Banks	19		753		772
Other Interest-Earning Assets	(11)		11		—
Total Interest-Earning Assets	276		3,343		3,619

Interest Expense:
Deposits	18		1,956		1,974
Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase	(30)		13		(17)
Other Borrowings	(30)		11		(19)
Total Interest-Bearing Liabilities	(42)		1,980		1,938
Change in Net Interest and Dividend Income	$	318	$	1,363	$	1,681

Provision for Credit Losses. Effective January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The provision for credit losses in the first quarter of 2023 was calculated using CECL and resulted in an $80,000 provision for credit losses recorded for the three months ended March 31, 2023 compared to no provision for credit losses recorded for the three months ended March 31, 2022.

Noninterest Income. Noninterest income increased $197,000, or 7.5%, to $2.8 million for the three months ended March 31, 2023, compared to $2.6 million for the three months ended March 31, 2022. This increase was primarily related to a $302,000 increase in net gains on bank-owned life insurance claims resulting from two death claims and an increase of $124,000 in insurance commissions primarily driven by contingency income which resulted from the timing of lock-in amounts received and core business including commercial and personal insurance lines. These increases were partially offset by an increase in net losses on securities of $225,000.

Noninterest Expense. Noninterest expense increased $372,000, or 4.3%, to $9.0 million for the three months ended March 31, 2023 compared to $8.7 million for the three months ended March 31, 2022. Salaries and benefits increased $514,000, or 11.3%, to $5.1 million primarily due to merit increases and staffing additions, while data processing expense increased $372,000, or 76.7%, to $857,000, due to increased ongoing costs related to the fourth quarter 2022 core conversion. Conversely, contracted services decreased $440,000 to $147,000 for the three months ended March 31, 2023 compared to $587,000 for the three months ended March 31, 2022

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Income Taxes. Income tax expense was $1.1 million for the three months ended March 31, 2023 compared to $803,000 for the three months ended March 31, 2022. This change was primarily driven by an increase in pre-tax income to $5.3 million for the three months ended March 31, 2023 compared to $3.9 million for the three months ended March 31, 2022.

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, 2023 and December 31, 2022.

Liquidity and Capital Management

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s primary sources of funds consist of deposit inflows, loan repayments and maturities, calls and sales of securities. While maturities and scheduled amortization of loans and securities are typically predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities. The Company believes that it had sufficient liquidity at March 31, 2023 to satisfy its short- and long-term liquidity needs.

The Company’s most liquid assets are cash and due from banks, which totaled $103.5 million at March 31, 2023. 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 $16.1 million at March 31, 2023. In addition, at March 31, 2023, the Company had the ability to borrow up to $449.7 million from the FHLB of Pittsburgh, of which $447.8 million is available. The Company also has the ability to borrow up to $120.7 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 March 31, 2023 and December 31, 2022, currently these credit arrangements have remained unused.

At March 31, 2023, $70.7 million, or 54.2% of total time deposits mature within one year. If these time deposits do not remain with the Company, the Company will be required to seek other sources of funds. Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than it currently pays on these time deposits. The Company believes, however, based on past experience that a significant portion of its time deposits will remain with it, either as time deposits or as other deposit products. The Company has the ability to attract and retain deposits by adjusting the interest rates offered. The Bank's current deposit portfolio is 62.9% uninsured by the FDIC, and with additional coverage of 12.7% from the Bank's investment securities; of the total deposits held at the Bank only 24.4% 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, 2023, CB Financial (on an unconsolidated, stand-alone basis) had liquid assets of $16.6 million. The ability to pay future dividends or conduct stock repurchases may be limited under applicable banking regulations and regulatory policies due to expected losses for future periods and/or the inability to upstream funds from the Bank to the Company as a result of lower income or regulatory capital levels.

Capital Management. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer

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comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.

At March 31, 2023 and December 31, 2022, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action. At March 31, 2023, the Bank's capital ratios were not affected by loans modified in accordance with Section 4013 of the CARES Act.

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, 2023				December 31, 2022
	Amount		Ratio		Amount		Ratio
(Dollars in thousands)

Common Equity Tier 1 (to risk weighted assets)
Actual	$	126,912	12.60	%	$	121,188	12.33	%
For Capital Adequacy Purposes	45,339		4.50		44,221		4.50
To Be Well Capitalized	65,490		6.50		63,875		6.50

Tier 1 Capital (to risk weighted assets)
Actual	126,912		12.60		121,188		12.33
For Capital Adequacy Purposes	60,452		6.00		58,961		6.00
To Be Well Capitalized	80,603		8.00		78,615		8.00

Total Capital (to risk weighted assets)
Actual	137,900		13.69		133,478		13.58
For Capital Adequacy Purposes	80,603		8.00		78,615		8.00
To Be Well Capitalized	100,754		10.00		98,269		10.00

Tier 1 Leverage (to adjusted total assets)
Actual	126,912		9.24		121,188		8.66
For Capital Adequacy Purposes	54,957		4.00		55,969		4.00
To Be Well Capitalized	68,697		5.00		69,962		5.00

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

Management of Interest Rate Risk. The majority of the Company’s assets and liabilities are monetary in nature. Consequently, the Company’s most significant form of market risk is interest rate risk and a principal part of its business strategy is to manage interest rate risk by reducing the exposure of net interest income to changes in market interest rates. Accordingly, the Company’s Board has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in the Company’s assets and liabilities, for determining the level of risk that is appropriate given the Company’s business strategy, operating environment, capital, liquidity and performance objectives; and for managing this risk consistent with the guidelines approved by the Board. Senior management monitors the level of interest rate risk and the Asset/Liability Management Committee meets on a quarterly basis to review its asset/liability policies and position and interest rate risk position, and to discuss and implement interest rate risk strategies.

The Company monitors interest rate risk through the use of a simulation model. The quarterly reports developed in the simulation model assist the Company in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within the Company’s policy guidelines. This quantitative analysis measures interest rate risk from both a capital and earnings perspective. With regard to earnings, movements in interest rates and the shape of the yield curve significantly influence the amount of net interest income that is recognized. Movements in market interest rates significantly influence the spread between the interest earned on our interest-earning assets and the interest paid on our interest-bearing liabilities. Our internal interest rate risk analysis calculates the sensitivity of our projected net interest income over a one year period utilizing a static balance sheet assumption through which incoming and outgoing asset and liability cash flows are reinvested into similar instruments. Product pricing and earning asset prepayment speeds are adjusted for each rate scenario.

With regard to capital, our internal interest rate risk analysis calculates the sensitivity of our economic value of equity (“EVE”) ratio to movements in interest rates. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. EVE attempts to quantify our economic value using a discounted

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cash flow methodology while the EVE ratio reflects that value as a form of capital ratio. The degree to which the EVE ratio changes for any hypothetical interest rate scenario from its base case measurement is a reflection of an institution’s sensitivity to interest rate risk.

For both net interest income and capital at risk, our interest rate risk analysis calculates a base case scenario that assumes no change in interest rates. The model then measures changes throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up and down 100, 200, 300 and 400 basis points with additional scenarios modeled where appropriate. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios.

The table below sets forth, as of March 31, 2023, the estimated changes in EVE and net interest income at risk that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.


	EVE						EVE as a Percent of Portfolio Value of Assets				Net Interest Earnings at Risk
Change in Interest Rates in Basis Points	Dollar Amount		Dollar Change		Percent Change		NPV Ratio		Basis Point Change		Dollar Amount		Dollar Change		Percent Change
(Dollars in thousands)

+400	$	162,903	$	(49,138)	(23.2)	%	13.37	%		(217)	$	50,209	$	(133)	(0.3)	%
+300	173,483		(38,558)		(18.2)		13.87			(167)	50,227		(115)		(0.2)
+200	186,233		(25,808)		(12.2)		14.48			(106)	50,292		(50)		(0.1)
+100	199,734		(12,307)		(5.8)		15.08			(46)	50,341		(1)		—
Flat	212,041		—		—		15.54			—	50,342		—		—
(100)	221,111		9,070		4.3		15.74			20	49,254		(1,088)		(2.2)
(200)	225,305		13,264		6.3		15.59			5	47,547		(2,795)		(5.6)
(300)	225,532		13,491		6.4		15.19			(35)	45,629		(4,713)		(9.4)
(400)	217,187		5,146		2.4		14.29			(125)	43,642		(6,700)		(13.3)

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE and net interest income require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the table presented assumes that the composition of the Company’s interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and net interest income and will differ from actual results. EVE calculations also may not reflect the fair values of financial instruments. For example, changes in market interest rates can increase the fair values of the Company’s loans, deposits and borrowings.

Item 4. Controls and Procedures.

(a)Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.

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Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

(b)Changes in Internal Control Over Financial Reporting

Effective January 1, 2023, CB Financial Service, Inc. adopted the CECL accounting standard. The Company designed new controls and modified existing controls as part of its adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data.

Except for the change in controls relating to the adoption of the CECL accounting standard, there were no other changes in the Company’s internal control over financial reporting in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, claims seeking damages for improper collection procedures or misrepresentations, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any other pending legal proceedings that we believe would have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition or future results. The risks described in such Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Company made the following purchases of its common stock during the three months ended March 31, 2023.



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of the Publicly Announced Program	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
January 1-31, 2023	556	$	21.71	556	$	8,591,057
February 1-28, 2023	695	22.05		695	$	8,575,732
March 1-31, 2023	4,435	22.40		4,435	$	8,476,392
Total	5,686	$	22.29	5,686

(1) On April 21, 2022, the Company announced that the Board had approved a program commencing on May 2, 2022 to repurchase up to $10.0 million of the Company's outstanding common stock. This repurchase program expired on May 1, 2023. In connection with the program, the Company purchased a total of 74,656 shares of the Company's common stock at an average price of $22.38 per share.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

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Item 5. Other Information.

None.

Item 6. Exhibits


			3.1			Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4 filed on June 13, 2014 (File No. 333-196749))
			3.2			Bylaws, as amended (incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on May 20, 2020)
			31.1			Rule 13a-14(a) / 15d-14(a) Certification (Chief Executive Officer)
			31.2			Rule 13a-14(a) / 15d-14(a) Certification (Chief Financial Officer)
			32.1			Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
			101			The following materials for the quarter ended March 31, 2023, formatted in XBRL (Extensible Business Reporting Language); the (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements (Unaudited)
			104			Cover Page Interactive Data File (Embedded within Inline XBRL contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		CB FINANCIAL SERVICES, INC.
		(Registrant)

Date:	May 12, 2023	/s/ John H. Montgomery
		John H. Montgomery
		President and Chief Executive Officer

Date:	May 12, 2023	/s/ Jamie L. Prah
		Jamie L. Prah
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

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CB Financial Services (CBFV) 10-Q2023 Q1 Quarterly report

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