PFB : Q3 2021 MD&A

Management's Discussion and Analysis

For the three and nine month periods ended September 30, 2021 and 2020

Management's discussion and analysis (MD&A)

The following discussion and analysis of the consolidated results of operations and financial condition of PFB Corporation ("PFB" or the "Corporation") should be read in conjunction with the Corporation's unaudited condensed interim consolidated financial statements for the three and nine month periods ended September 30, 2021 and 2020 and notes thereto and in conjunction with the Corporation's annual MD&A for the year ended December 31, 2020.

PFB's unaudited condensed interim consolidated financial statements for the three and nine month periods ended September 30, 2021 and 2020 have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting.

Management is required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. Management believes that the estimates and assumptions are reasonably based on information available at the time that such estimates and assumptions were made. These estimates and assumptions have been discussed with the Audit Committee of the Board of Directors of the Corporation. Actual results may differ under different assumptions and conditions.

In this MD&A, unless otherwise indicated, results for the third quarter of 2021 (three and nine month periods ended September 30, 2021) are compared with results from the third quarter of 2020. This MD&A has been prepared as of October 22, 2021. All figures in this MD&A are stated in thousands of Canadian dollars, except where stated otherwise.

1. Advisory regarding forward looking statements

Securities laws encourage public issuers to disclose forward-looking information in their management's discussion and analysis (MD&A) so that investors can get a better understanding of future prospects and make informed investment decisions. Forward-looking information and statements included in this interim MD&A about PFB's objectives and management's expectations, beliefs, intentions or strategies for the future are not guarantees of future performance and should not be unduly relied upon.

All forward-looking statements reflect management's current views as at October 22, 2021, with respect to future events, and they are subject to certain risks, uncertainties and assumptions that may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such risks, uncertainties and assumptions include, but are not limited to: general economic conditions; the cost and availability of capital; actions by government authorities; actions by regulatory authorities; availability of raw materials; changes in raw materials prices; currency exchange rates; interest rates; competitor activity; industry pricing pressures; seasonality of the construction industry; and weather related factors. A more detailed assessment of the risks that could cause actual results to materially differ from current expectations can be found in the Risk Management and Assessment section of the Corporation's annual MD&A or in the Risk Factors section of the Annual Information Form for the year ended December 31, 2020.

2. Summary of quarterly financial data

		2021				2020		2019
	Qtr. 3	Qtr. 2	Qtr. 1		Qtr. 4	Qtr. 3	Qtr. 2	Qtr. 1		Qtr. 4
Sales	$ 47,981	$ 40,049	$ 26,058	$ 37,059	$ 41,986	$ 31,518	$ 24,233	$ 36,824
Gross profit	13,182	9,760	6,735	12,024	15,417	9,531	5,737	10,461
Gross profit margin %	27.5	24.4	25.8	32.4	36.7	30.2	23.7	28.4
Operating income	7,771	4,737	2,309	6,959	9,975	5,088	770	5,237
Net income	5,800	3,247	1,654	4,993	7,331	3,750	346	3,695
Earnings per share:
Basic	0.85	0.48	0.24	0.73	1.09	0.56	0.05	0.55
Diluted	0.81	0.46	0.23	0.70	1.08	0.55	0.05	0.54
Adjusted EBITDA1	8,831	5,804	3,383	8,047	11,065	6,278	1,909	6,363
Adjusted EBITDA per share1	$ 1.30	$ 0.85	$ 0.50	$ 1.18	$ 1.64	$ 0.94	$ 0.29	$ 0.95

1 Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Definitions of non-IFRS measures used in the above table, along with relevant other notes, are detailed in Section 18 of this MD&A.

1

3. Consolidated statements of income (unaudited)

	Three month periods	Nine month periods
	ended September 30	ended September 30
	2021	2020	2021	2020

Sales	$ 47,981	$ 41,986	$ 114,088	$ 97,737
Cost of sales	(34,799)	(26,569)	(84,411)	(67,052)
Gross profit	13,182	15,417	29,677	30,685
Selling expenses	(3,135)	(3,118)	(8,891)	(8,995)
Administrative expenses	(2,232)	(2,317)	(5,940)	(5,956)
Other (losses) gains		(44)		(7)		(29)		99
Operating income		7,771		9,975	14,817	15,833
Insurance claim - gain		-		-		-		65
Investment income		5		5		32		55
Finance costs		(264)		(278)		(802)		(850)
Income before taxes		7,512		9,702	14,047	15,103
Income taxes expense	(1,712)	(2,371)	(3,346)	(3,676)
Net income for the period	$ 5,800	$ 7,331	$ 10,701	$ 11,427
Earnings per share - $ per share
Basic	$	0.85	$	1.09	$	1.57	$	1.70
Diluted	$	0.81	$	1.08	$	1.50	$	1.68

The Corporation's operations follow seasonal patterns in the construction industry which influences the timing of sales and earnings in the annual reporting cycle. Sales in the first and fourth quarter of each year are typically the lowest in the annual reporting cycle.

4. Consolidated results of operations

Sales

Consolidated sales were a record high for a third quarter reporting period. Consolidated sales were $47,981 in the three month period ended September 30, 2021, an increase of $5,995 or 14.3% from sales of $41,986 in the comparative three month period of 2020. USA segment sales accounted for all of the sales growth in the current quarter.

In the nine month period ended September 30, 2021, consolidated sales were $114,088, an increase of $16,351 or 16.7% from sales of $97,737 in the comparative nine month period of 2020. The increase in sales occurred in both the Canadian and USA operating segments on strong demand for all product lines over the nine-month period.

Gross profit

Consolidated gross profit was $13,182 in the three month period ended September 30, 2021, as compared to $15,417 in the comparative three-month period of 2020, a decrease of $2,235. Gross profit margin of 27.5% in the current quarter compared to a gross profit margin of 36.7% in Q3/20. The decrease in gross profit margin is attributable to higher raw material input costs which were partially offset by operating efficiencies in labour and overhead costs on significantly increased volumes.

Consolidated gross profit was $29,677 in the nine month period ended September 30, 2021, as compared to $30,685 in the comparative nine month period of 2020, an unfavourable variance of $1,008. The reduction in gross profit resulted from significantly higher raw material input costs and were partially offset by higher sales on increased volumes. Gross profit margin of 26.0% in the current nine month period declined from gross profit margin of 31.4% reported in the comparative nine month period.

The appreciation of the Canadian currency in the current three and nine month periods, compared to the respective prior periods, decreased the cost of raw materials, which are purchased in US dollars. Similarly, the depreciation of the US

2

dollar had the offsetting effect of reducing consolidated sales over the nine month period, when US transactions are consolidated into Canadian currency.

Selling and administrative expenses

In the current quarter, combined selling and administrative expenses were $68 lower than in the comparative quarter of 2020 aligning with management's continued focus on controlling discretionary spending. In the current quarter, selling and administrative expenses have decreased as a percentage of sales to 11.2% for the current quarter contrasted with 12.9% in the comparative quarter, as a result of ongoing spending controls and leverage from increased sales.

In the nine month period ended September 30, 2021, selling and administrative expenses combined were $120 lower than in the comparative nine month period of 2020. For the nine month period, selling and administrative expenses are lower as a percentage of sales at 13.0% for the nine months of 2021 compared to 15.3% for the comparative period.

Operating income

Operating income of $7,771 in the current quarter compared to operating income of $9,975 reported in Q3/20, a decline of $2,204.

In the nine month period ended September 30, 2021, operating income of $14,817 compared to operating income of $15,833 reported in the comparative nine month period of 2020, a decline of $1,016.

Income before taxes

In the current quarter, income before taxes of $7,512 was reported, as compared to income before taxes of $9,702 in Q3/20, a decrease of $2,190.

In the nine-month period, ended September 30, 2021, income before taxes of $14,047 as compared to income before taxes of $15,103 reported in the comparative nine-month period of 2020, an unfavourable variance of $1,056.

Income taxes

Income tax expense in the current quarter was $1,712 as compared to income tax expense of $2,371 in Q3/20. The most current, effective income tax rate of 23.8%, applied for the nine-month period is reasonably representative of the blended tax rate expected for 2021.

Net income

Net income of $5,800 in the current quarter compares to net income of $7,331 reported in the comparative quarter of 2020, a decrease of $1,531. In the nine-month period ended September 30, 2021, net income of $10,701 compared to net income of $11,427 in the comparative nine month period of 2020, a decrease of $726.

Earnings per share

Basic and diluted earnings per share in the current quarter were $0.85 and $0.81, respectively, as compared to basic and diluted earnings per share of $1.09 and $1.08, respectively, reported in Q3/20.

In the nine-month period ended September 30, 2021, basic and diluted earnings per share of $1.57 and $1.50, respectively, as compared to basic and diluted earnings per share of $1.70 and $1.68, respectively, reported in the comparative nine month period of 2020.

5. Reportable operating segments

The Corporation has two reportable operating segments:

	Operating segments	Description of segments
	Canada	Manufacturing and sales operations located in Canada for expanded
		polystyrene (EPS) products and structural insulating panels
		Brands: Plasti-Fab® EPS Product Solutions®; Advantage ICF System®; and
		Insulspan® SIPS; DuroFoam®
	United States of America (USA)	Manufacturing and sales operations located in the USA for EPS products,
		building systems and structures, design services and installations
		Brands: Plasti-Fab® EPS Product Solutions®; Insulspan® SIPS;
		DuroSpanTM; Riverbend® Timber Framing; Precision Craft® Log &
		Timber Homes; M.T.N. DesignSM; Total Home Solution®; Point
		ZeroTM; TimberScape TM
		3

The company operates individual legal entities in Canada and the USA which are reported as operating segments and revenue is reported in accordance with that segmentation.

Each operating segment mirrors the Corporation's accounting policies (as described in Note 2 to the audited consolidated financial statements for the years ended December 31, 2020 and 2019 and Note 3 of the unaudited condensed interim consolidated financial statements for the three and nine month periods ended September 30, 2021) and its internal controls and reporting systems.

Segment performance predominantly focuses on operating results and the manner in which resources are allocated based on Canadian and USA operations, respectively. The Canadian segment primarily derives its revenues from the sale of expanded polystyrene ("EPS") foam products, which it manufactures at its facilities in Canada. The USA segment primarily derives its revenues from the sale of EPS foam products, customized log and timber structures made at its facilities in the United States which typically include design and installation services that together provide the basis for a bundled sale of its manufactured products.

The chief operating decision maker evaluates performance on the basis of operating income or loss, as reported on a periodic basis. This performance measure is considered to be the most relevant in evaluating the results of each operating segment.

5.1 Segment sales and operating income

Segment sales represent sales revenues directly attributable to each segment after inter-segment sales have been eliminated (see supplemental disclosures in the other segment information table). There are varying levels of integration between each segment.

Segment operating income represents the income reported by each segment excluding any allocations of corporate income or expenses, and foreign exchange gains or losses arising on inter-segment settlements.

Information regarding each reportable operating segment for the three and nine month periods ended September 30, 2021 and 2020, is set out below:

Three month periods ended September 30		Sales revenues	Operating income
				2021		2020			2021		2020
Canada	$	26,049	$	26,550		$	4,594	$	6,848
USA		21,932		15,436			3,087		2,909
Total for segments		$	47,981	$	41,986			7,681		9,757
Corporate - income							89		219
Foreign exchange gain (loss) on inter-segment settlements							1		(1)
Consolidated operating income
					$	7,771	$	9,975
Nine month periods ended September 30		Sales revenues			Operating income
				2021		2020			2021		2020
Canada	$	67,791	$	60,759		$	9,978	$	10,954
USA		46,297		36,978			4,450		4,365
Total for segments	$	114,088	$	97,737			14,428		15,319
Corporate - income							365		520
Foreign exchange gain (loss) on inter-segment settlements							24		(6)
Consolidated operating income						$ 14,817	$	15,833

4