CB Financial Services(CBFV) - 2025 Q2 - Quarterly Results

Financial Performance Overview Q2 2025 Financial Highlights Q2 2025 net interest margin expanded to 3.54% due to lower funding costs and higher asset yields, maintaining strong asset quality - Total assets grew to $1.52 billion, driven by strong commercial loan production funded by an increase in core deposit accounts[4] - The company is repositioning its balance sheet by redeploying funds from indirect auto and residential mortgage loans into higher-yielding commercial loans, which now constitute 59% of the loan portfolio, up from 53% YoY[4] - Net Interest Margin (NIM) improved to 3.54% for Q2 2025 from 3.27% in Q1 2025, due to a reduced cost of funds (1.89% from 2.03%) and an increased yield on earning assets (5.31% from 5.17%)[4] - Noninterest expenses decreased by $1.1 million quarter-over-quarter to $8.7 million, primarily due to $1.0 million in one-time expenses related to a reduction in force in the previous quarter[4] - Asset quality remains strong, with nonperforming loans to total loans at 0.16% as of June 30, 2025[5] Key Financial Metrics (Q2 2025 vs. Prior Periods) Q2 2025 profitability significantly increased with GAAP Net Income rising to $3.9 million and Diluted EPS more than doubling to $0.74 Quarterly Financial Performance (GAAP) | Metric | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :--- | :--- | :--- | :--- | | Net Income | $3.95 | $1.91 | $2.65 | | Diluted EPS | $0.74 | $0.35 | $0.51 | | Pre-Provision Net Revenue (PPNR) | $4.72 | $2.30 | $3.17 | Year-to-Date Financial Performance (GAAP) | Metric (Six Months Ended) | June 30, 2025 ($M) | June 30, 2024 ($M) | | :--- | :--- | :--- | | Net Income | $5.86 | $6.85 | | Diluted EPS | $1.09 | $1.33 | Dividend Declaration The Board approved a 4.0% increase in the quarterly cash dividend, reflecting confidence in financial performance and shareholder returns - A quarterly cash dividend of $0.26 per share was declared, representing a 4.0% increase The dividend is payable around August 29, 2025, to stockholders of record as of August 15, 2025[10] Management Commentary Strategic Initiatives and Outlook Management expressed a positive outlook, highlighting successful balance sheet repositioning and strategic initiatives like the Specialty Treasury Payments & Services program - Management credits the Q2 net interest margin expansion to a reduced cost of funds from a better deposit mix, disciplined pricing, and recent federal funds rate cuts[6] - The loan portfolio grew by $18.2 million (1.7%) since year-end, driven by commercial real estate and C&I loans, with steady loan demand expected to continue[7] - The company is advancing its Specialty Treasury Payments & Services program, a key long-term strategic initiative aimed at driving revenue and core deposit growth, with a target launch in late 2025[8] - A strategic shift in deposit mix is underway, with a focus on reducing time deposits (down $16.7 million since year-end) and an eventual plan to replace brokered CDs with deposits from treasury initiatives[9] Detailed Financial Review (Q2 2025) Net Interest and Dividend Income Net interest income increased 9.3% year-over-year to $12.5 million, driven by a 36 basis point expansion in FTE Net Interest Margin to 3.55% Net Interest Margin (NIM) Comparison | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | NIM (GAAP) | 3.54% | 3.18% | | FTE NIM (Non-GAAP) | 3.55% | 3.19% | - Interest income on loans grew $822 thousand (5.6%) YoY, as the average loan yield increased by 18 bps to 5.68% This was achieved despite rate cuts, thanks to the redeployment of funds from lower-yielding consumer loans to higher-yielding commercial products[17] - Interest expense on deposits decreased by $1.3 million (19.0%) YoY The cost of interest-bearing deposits fell 47 bps to 2.28% due to a favorable change in deposit mix and recent federal funds rate decreases[17] Provision for Credit Losses A minimal provision for credit losses of $8 thousand was recorded in Q2 2025, offset by loan recoveries and provisions for unfunded commitments - The company recorded a net provision for credit losses of $8 thousand in Q2 2025, compared to a net recovery of $36 thousand in Q2 2024[14] Noninterest Income Noninterest income rose by 35.3% year-over-year to $931 thousand, primarily driven by increased service fees from corporate deposit and health reimbursement accounts - Noninterest income increased by $243 thousand YoY, mainly due to a $205 thousand increase in service fees[15] Noninterest Expense Noninterest expense decreased by 2.6% year-over-year to $8.7 million, driven by lower occupancy and amortization costs despite increased salaries and benefits - Key drivers of the YoY expense decrease include: - Occupancy expense: down $324 thousand - Intangible amortization: down $264 thousand (fully amortized in 2024) - Data processing: down $250 thousand[16] - Salaries and benefits increased by $663 thousand (15.0%) YoY to $5.1 million, attributed to merit increases, hiring of revenue-producing staff, and higher insurance costs, partially offset by savings from the recent reduction in force[16][18] Statement of Financial Condition Review Total assets grew to $1.52 billion, supported by increased loans and deposits with an improved mix, leading to higher stockholders' equity Assets Total assets increased by $36.4 million (2.5%) since year-end 2024, reaching $1.52 billion, driven by cash, securities, and loan portfolio growth Asset Changes (since Dec 31, 2024) | Asset Category | Change ($M) | Change (%) | | :--- | :--- | :--- | | Total Assets | +$36.4 | +2.5% | | Cash and due from banks | +$14.9 | +30.1% | | Securities | +$5.0 | +1.9% | | Total loans | +$18.2 | +1.7% | Loans and Credit Quality Total loans grew by $18.2 million (1.7%) driven by commercial lending, while credit quality remained excellent with nonperforming loans at 0.16% - Loan growth was led by commercial real estate (+$27.7 million) and commercial & industrial loans (+$26.2 million), while consumer loans decreased (-$13.1 million) due to the discontinuation of the indirect auto loan product[24] - The allowance for credit losses (ACL) to total loans was 0.88% at June 30, 2025[24] - Nonperforming loans remained stable at $1.8 million, representing 0.16% of total loans[24] Liabilities and Deposits Total liabilities increased due to a 2.0% growth in total deposits to $1.31 billion, with an improved deposit mix favoring lower-cost accounts - Total deposits increased by $25.9 million (2.0%) since year-end 2024[22] - The deposit mix shifted favorably: interest-bearing demand, non-interest-bearing demand, and savings deposits grew, while time deposits and money market accounts decreased[22] - Brokered time deposits increased to $79.0 million from $39.0 million at year-end, used to fund purchases of floating-rate CLO securities[22] Stockholders' Equity Stockholders' equity increased by $984 thousand since year-end to $148.4 million, driven by net income partially offset by share repurchases and dividends - The increase in equity was driven by net income of $5.9 million, partially offset by treasury share purchases and dividend payments of $6.8 million and $2.5 million respectively[25] Book Value Per Share | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Book Value per Share | $29.84 | $28.71 | | Tangible Book Value per Share (Non-GAAP) | $27.88 | $26.82 | Consolidated Financial Statements Selected Consolidated Financial Information Consolidated financial statements show total assets at $1.52 billion, total loans at $1.11 billion, and total deposits at $1.31 billion, with Q2 net income of $3.9 million Condensed Balance Sheet (As of June 30, 2025) | Category | Amount (in millions) | | :--- | :--- | | Total Assets | $1,517.98 | | Loans, Net | $1,101.10 | | Total Deposits | $1,309.43 | | Total Liabilities | $1,369.62 | | Stockholders' Equity | $148.36 | Condensed Income Statement (Three Months Ended June 30, 2025) | Category | Amount (in millions) | | :--- | :--- | | Net Interest and Dividend Income | $12.54 | | Total Noninterest Income | $0.93 | | Total Noninterest Expense | $8.75 | | Income Before Income Tax Expense | $4.72 | | Net Income | $3.95 | Key Ratios (Q2 2025) | Ratio | Value | | :--- | :--- | | Return on Average Assets | 1.06% | | Return on Average Equity | 10.76% | | Efficiency Ratio | 64.94% | | Nonperforming Loans to Total Loans | 0.16% | | Tier 1 Leverage (Bank only) | 10.49% | Average Balances and Yields Average balance sheets detail asset yields and liability costs, with Q2 2025 showing an average yield on interest-earning assets of 5.31% and a cost of funds of 1.89% Q2 2025 Average Balances and Yields/Costs | Category | Average Balance ($M) | Yield/Cost (%) | | :--- | :--- | :--- | | Total Interest-Earning Assets | $1,421.5 | 5.31% | | Total Loans, Net | $1,098.7 | 5.68% | | Total Interest-Bearing Liabilities | $1,050.4 | 2.38% | | Total Funding | $1,321.1 | 1.89% | Six Months Ended June 30, 2025 Average Balances and Yields/Costs | Category | Average Balance ($M) | Yield/Cost (%) | | :--- | :--- | :--- | | Total Interest-Earning Assets | $1,413.0 | 5.24% | | Total Interest-Bearing Liabilities | $1,046.5 | 2.46% | | Total Funding | $1,314.6 | 1.96% | Non-GAAP Financial Measures Explanation and Reconciliation Non-GAAP financial measures like Tangible Book Value and Adjusted Net Income are used to provide a clearer understanding of underlying operational performance - Non-GAAP measures are used to facilitate comparisons with other financial services companies and to provide a complete understanding of factors and trends affecting the business[46] Reconciliation of Book Value to Tangible Book Value (per share) | Metric (as of June 30, 2025) | Value | | :--- | :--- | | Book Value per Common Share (GAAP) | $29.84 | | Tangible Book Value per Common Share (Non-GAAP) | $27.88 | Reconciliation of Net Income to Adjusted Net Income (Q2 2025 vs Q1 2025) | (in millions) | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Net Income (GAAP) | $3.95 | $1.91 | | Adjustments (net of tax) | $0.00 | $0.81 | | Adjusted Net Income (Non-GAAP) | $3.95 | $2.72 |