SB Financial Group, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 8, 2024. This is an annual report, not a standalone fourth-quarter filing. The company is an Ohio-based financial holding company whose principal businesses are community banking, mortgage and wealth management services, and title insurance, primarily in Ohio, Indiana, and Michigan.
Financial performance and position
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total operating revenue | $57.0 million | $57.6 million |
| Net interest income | $39.3 million | $39.4 million |
| Net interest margin, FTE | 3.16% | 3.22% |
| Net income | $12.1 million | $12.5 million |
| Diluted EPS | $1.75 | $1.77 |
| Operating cash flow | $14.0 million | $25.6 million |
- Revenue and earnings: Operating revenue fell 1.1% and net income fell 3.4%. Noninterest income declined 2.8% to $17.7 million; noninterest expense declined 0.8% to $42.0 million. Return on average assets was 0.91%, versus 0.95%; return on average equity was 10.22%, versus 9.86%.
- Interest-rate trends: Interest income rose to $58.2 million from $44.6 million, but interest expense increased much faster, to $18.9 million from $5.2 million. Deposit costs and FHLB borrowing costs were key drivers. Net interest income was nearly flat and FTE margin contracted six basis points.
- Fourth-quarter snapshot: Unaudited Q4 net income was $3.9 million, or $0.56 diluted EPS, compared with $3.5 million and $0.50 in Q4 2022. Q4 net interest income was $9.6 million versus $10.9 million.
- Balance sheet: Year-end assets were $1.343 billion, up 0.6%; loans were $1.000 billion, up 4.0%; deposits were $1.070 billion, down 1.5%. Loan growth was concentrated in residential real estate and commercial real estate.
- Deposits and liquidity: Time deposits rose 33.9% to $255.5 million, while noninterest-bearing, interest-bearing demand, savings, and money-market balances declined. Liquid assets were $246.7 million, including $102.3 million of pledged available-for-sale securities. Management reported approximately $81.9 million of additional FHLB borrowing capacity, $41.0 million of unused federal funds lines, and $105.5 million of unpledged securities; these sources may overlap. Cash and due from banks ended at $23.0 million, versus $27.8 million.
- Cash flow: Operating cash flow was positive $14.0 million; investing cash flow was negative $17.4 million, primarily reflecting loan growth; financing cash flow was negative $1.5 million, including deposit outflows, dividends, and repurchases.
- Debt: Year-end FHLB advances were $83.6 million, up from $60.0 million; repurchase agreements were $13.4 million. The company also had $10.3 million of trust preferred securities and $19.6 million of subordinated debt, net of issuance costs. FHLB advances carried rates of 3.75%–5.47% and were secured by mortgage loans.
- Capital and credit quality: Shareholders’ equity was $124.3 million, or 9.3% of assets. State Bank was classified as well capitalized: total risk-based capital was 14.67%, versus a 10.00% well-capitalized threshold. Nonperforming assets were $3.3 million, or 0.25% of assets, down from $4.5 million, or 0.33%. The allowance for credit losses was $15.8 million, or 1.58% of loans.
Material changes and unusual items
- The company adopted CECL on January 1, 2023, recording a $1.4 million increase in the loan allowance and a $1.1 million reserve for unfunded commitments; the after-tax cumulative reduction to retained earnings was approximately $2.0 million.
- Mortgage production declined: residential originations were $215.5 million versus $313.0 million in 2022. Mortgage gain-on-sale and originated servicing-rights revenue also declined, while mortgage servicing fees increased. Loans serviced for others reached $1.367 billion.
- A $1.45 million pretax gain followed the sale of the company’s Visa Class B shares in Q4. This supported noninterest income and is not necessarily recurring.
- Available-for-sale securities had gross unrealized losses of $37.8 million at year-end, largely associated with interest-rate changes. AOCI loss improved to $29.8 million from $32.1 million, but remained substantial.
- The company repurchased 244,325 shares for $3.5 million during 2023 and paid $0.52 per share in dividends, totaling $3.6 million.
Outlook, commentary, and risks
- Management’s stated strategy is to grow profitability and fee income, deepen market penetration and product use, improve operational execution, and sustain asset quality. It anticipates continuing dividends at similar levels, but gives no formal earnings, revenue, margin, or loan-growth guidance.
- Management said current liquidity was sufficient for anticipated needs and did not expect external borrowings to fund ongoing operations. It also expects cash and operating cash flow to fund planned capital expenditures.
- Principal risks include continued deposit repricing or outflows, interest-rate sensitivity, local economic weakness, real-estate collateral values, commercial real-estate and other credit exposures, and higher credit-loss estimates. The company describes its balance sheet as trending toward liability sensitivity.
- Other cited risks include competition from banks and fintechs, reliance on third-party technology providers, cybersecurity and operational disruption, regulatory and compliance costs, and the possibility of future bank-sector stress. Management reported no material cybersecurity impact to date; it noted that threats remain elevated.
- The filing reports ordinary-course legal proceedings; management does not expect resulting liability to materially affect consolidated financial position, results, or cash flows. The auditor issued an unmodified opinion on the financial statements and identified the allowance for credit losses, particularly qualitative adjustments, as a critical audit matter. The auditor did not attest to internal control effectiveness; management concluded controls were effective.
Most important facts for investors to verify
- Whether deposit balances and mix stabilize, and how much further repricing affects funding costs and net interest margin.
- Loan performance and allowance adequacy under CECL, with particular attention to commercial real estate, delinquencies, nonaccruals, and collateral values.
- Liquidity and contingent funding capacity, including pledged collateral, borrowing availability, and the maturity and pricing of time deposits and FHLB advances.
- Whether recurring fee income and mortgage activity can offset lower mortgage production and the nonrecurring Visa share-sale gain.
- Potential effects on capital, dividends, and earnings from securities valuation losses, regulatory changes, and the 2026 subordinated-note rate reset.