SB Financial Group, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars; financial statement figures are generally in millions unless otherwise noted.
Business context
SB Financial is an Ohio-based financial holding company whose principal subsidiary, State Bank, provides commercial and retail banking, lending, wealth management and trust services across Ohio, Indiana and Michigan. The company also operates a title agency. State Bank had 22 banking centers and six loan production offices at year-end.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets at year-end | $1,335.6 million | $1,330.9 million |
| Loans held for investment, net of deferred fees | $962.1 million | $822.7 million |
| Total deposits | $1,086.7 million | $1,113.0 million |
| Net interest income | $39.4 million | $37.9 million |
| Net interest margin, fully tax-equivalent | 3.22% | 3.06% |
| Noninterest income | $18.2 million | $30.7 million |
| Noninterest expense | $42.3 million | $44.8 million |
| Net income | $12.5 million | $18.3 million |
| Diluted earnings per share | $1.77 | $2.56 |
| Return on average assets / equity | 0.95% / 9.86% | 1.38% / 12.67% |
Fourth quarter: Net income was $3.5 million and diluted EPS was $0.50. Net interest income was $10.9 million; the quarter had no loan-loss provision.
Cash flow and liquidity: Operating cash flow was $25.6 million, investing cash flow was negative $165.7 million and financing cash flow was positive $18.4 million. Cash and cash equivalents fell to $27.8 million from $149.5 million. Liquid assets were $270.8 million, down from $422.9 million. Management cited approximately $80.9 million of additional FHLB borrowing capacity, $56.0 million of available federal funds lines and $166.5 million of unpledged securities; it considered liquidity adequate for anticipated needs.
Debt and capital: Year-end obligations included $60.0 million of FHLB advances, $14.9 million of repurchase agreements, $10.3 million of trust preferred securities and $19.6 million of subordinated debt net of issuance costs. State Bank was classified as well-capitalized, with a 14.67% total risk-based capital ratio and an 11.06% Tier 1 leverage ratio. Consolidated shareholders’ equity was $118.4 million, or 8.9% of assets, versus $144.9 million, or 10.9%, in 2021.
Asset quality: Nonperforming assets were $5.1 million, or 0.38% of assets, compared with $6.5 million, or 0.49%, a year earlier. The allowance for loan losses was $13.8 million, equal to 1.44% of loans; net recoveries were approximately $13,000. No loan-loss provision was recorded in 2022.
Material changes versus 2021
- Net income declined 31.5% and diluted EPS fell 30.9%. Operating revenue declined 16.0% to $57.6 million, primarily reflecting sharply lower mortgage-sale and mortgage servicing rights-related income.
- Net interest income increased 4.0%, and fully tax-equivalent net interest margin expanded 16 basis points, benefiting from higher rates and a shift from cash and securities toward loans. Interest expense also rose as funding costs increased.
- Loans grew 16.9%, led by residential real estate and commercial real estate lending. Management said more residential production was retained on balance sheet when secondary-market pricing was less competitive.
- Deposits declined 2.4% after substantial growth in 2021. Savings and money-market balances fell while time deposits increased 22.0%, reflecting customers seeking higher returns.
- Mortgage origination was $313.0 million, down from $600.0 million in 2021; mortgage-sale gains and related income fell to $4.3 million from $17.3 million.
- Noninterest expense decreased 5.6%, mainly due to lower incentive compensation and commissions, partly offset by higher equipment, professional and marketing costs.
- Unrealized losses on available-for-sale securities drove a $30.3 million after-tax decline in other comprehensive income. Accumulated other comprehensive loss reached $32.1 million, contributing to the decrease in reported equity.
- Year-end cash and cash equivalents decreased by $121.7 million, while FHLB advances rose from $5.5 million to $60.0 million. The company repurchased approximately 317,000 shares for about $5.9 million and paid $0.48 per share in cash dividends, up from $0.44.
Outlook, commentary and risks
- Management’s stated strategy is to grow as a high-performing independent financial services company through profitability diversification, deeper market penetration, increased product use, operational excellence and asset quality. The filing gives no numerical earnings or revenue guidance.
- The company anticipated continuing quarterly dividends at similar levels, but emphasized that future dividends are discretionary and subject to regulatory, capital, cash and subsidiary-dividend constraints.
- CECL adoption was expected January 1, 2023. Management estimated a $1–$2 million increase in the allowance for credit losses and a separate $1–$2 million reserve for unfunded commitments. It expected to retain well-capitalized status and did not plan to use the permitted three-year capital phase-in.
- Key risks include interest-rate and funding-cost changes, deposit competition and outflows, credit deterioration and real estate collateral values, concentration in regional markets and real estate lending, mortgage business volatility, cybersecurity and reliance on third-party service providers, regulatory changes, and geopolitical and broader economic uncertainty.
- Management reported no goodwill impairment for 2022. The auditor issued an unmodified opinion on the financial statements and identified the loan-loss allowance as a critical audit matter. Management concluded internal controls over financial reporting were effective; the auditor did not provide an internal-control attestation. Ordinary-course legal matters were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether loan growth and improved margin can offset deposit competition, rising funding costs and continued weakness in mortgage-sale revenue.
- Deposit trends, deposit pricing and the use, cost and maturity of the $60 million of FHLB advances.
- The effect of CECL adoption on credit-loss allowances, unfunded commitment reserves, earnings and regulatory capital.
- Whether the large unrealized securities losses remain temporary and how they affect tangible capital, equity and liquidity under changing rates.
- Credit quality in commercial and residential real estate portfolios, including loan delinquencies, nonperforming assets and reserve adequacy.
- Future dividend and repurchase decisions relative to capital, liquidity and the holding company’s funding needs.