CBFV — CB Financial Services, Inc.

Summary of CBFV Q1 2017 Earnings Call

1. Key Financial Results and Metrics

• Transaction Announcement: CBFV announced a merger with First West Virginia, valued at approximately $49 million, with an exchange ratio of 0.9583 shares of CBFV common stock or $28.50 in cash.
• Earnings Accretion: Expected to be 0.5% accretive in 2018 and approximately 15% in 2019.
• Cost of Deposits: First West Virginia has a low-cost deposit base, with total costs at 23 basis points, enhancing CBFV's liquidity profile.
• Combined Deposits: The merger will create a bank with over $1 billion in deposits and a weighted average cost of 35 basis points.
• Efficiency Ratio: Current efficiency ratio stands at 82.3%, with plans to reduce this through identified redundancies and operational efficiencies.

2. Strategic Updates and Business Highlights

• Market Expansion: The merger allows CBFV to expand into the Ohio River Valley, leveraging First West Virginia's significant market share and low-cost deposits.
• Economic Growth Potential: The region is expected to benefit from economic resurgence driven by the Marcellus and Utica shale plays, with notable investments such as the proposed PTT Global Chemical cracker plant.
• Insurance Integration: CBFV plans to leverage its insurance brokerage, Exchange Underwriters, to cross-sell services to the new customer base in West Virginia.

3. Forward Guidance and Outlook

• Loan Growth: CBFV anticipates $155 million in incremental loan growth over three years, primarily funded through redeployment of excess liquidity.
• Capital Position: Post-merger, the tangible common equity ratio is projected to be around 8.1%, with intentions to build this up slightly over time.
• Return on Assets (ROA): Expected to improve to a range slightly above 90 basis points by 2019, with efforts to redeploy liquidity and enhance fee income through insurance services.

4. Bad News, Challenges, or Points of Concern

• Dilution: The merger will result in approximately 25% dilution to existing shareholders due to the issuance of new shares to fund the transaction.
• Integration Risks: The integration of operations and systems between CBFV and First West Virginia presents challenges, including potential redundancies and the need to streamline processes.
• Loan Loss Reserves: Progressive Bank's loan loss reserves are lower than CBFV's historical levels, which may require adjustments post-merger to align with CBFV’s conservative approach.

5. Notable Q&A Insights

• Funding the Cash Portion: CBFV confirmed it has sufficient cash on hand to cover the 20% cash portion of the purchase price.
• Cost Savings: Identified potential cost savings of 37% from operational redundancies, with plans to phase these in over time.
• Insurance Revenue Upside: Potential additional revenue from insurance services was not included in merger projections, indicating possible upside.
• Loan Growth Strategy: Initial loan growth is expected to be modest from First West Virginia, with a stronger focus on leveraging CBFV's existing markets for growth.

Overall, the call highlighted a strategic merger aimed at expanding market presence and enhancing financial metrics, while also acknowledging potential integration challenges and the need for careful management of loan growth and reserves.