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CB Financial Services, Inc. ("CB" or the "Company") (NASDAQGM:CBFV), the holding company of Community Bank (the "Bank"), implemented a balance sheet repositioning strategy of its portfolio of available-for-sale investment securities.
The Bank sold $79.4 million in book value of its lower-yielding investment securities, with an average yield of 1.89%, for an estimated after-tax realized loss of $8.0 million. Investment securities sold included $49.0 million of U.S. government agency securities, $20.0 million of mortgage-backed securities issued by the U.S. government-sponsored agencies and $10.4 million of municipal securities.
In addition, the Bank purchased $69.3 million of higher-yielding mortgage-backed securities/collateralized mortgage obligations issued by U.S. government-sponsored agencies with an average yield of 5.49%, all of which were all classified as available-for-sale at time of purchase.
President and CEO John H. Montgomery stated, "We elected to proactively reposition our securities portfolio during the fourth quarter, which we anticipate will provide significant earnings benefit as we enter 2024. We expect the repositioning will add approximately 17 basis points to our net interest margin and approximately $0.36 to earnings per share. In conjunction with the recent sale of our insurance agency subsidiary, we believe this is a prudent use of capital designed to enhance long-term shareholder value as well as improve earnings."
On an annualized basis, the purchased securities have a positive spread differential of about 360 basis points over the securities that were sold, which is expected to add approximately $1.8 million of after-tax earnings. The Bank expects to recover the estimated $8.0 million after-tax realized loss on the sale of securities in about 4.3 years.
The loss on the sale of securities is expected to have a neutral impact on the Company's consolidated shareholders' equity and tangible book value per share. After the repositioning, the Bank's regulatory capital levels remained well above those required to be categorized as well-capitalized.
The Company expects the balance sheet repositioning to be accretive to earnings, net interest margin and return on assets in future periods.
Posted In: CBFV
