SB Financial Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. SB Financial is an Ohio-based financial holding company whose principal subsidiary, State Bank, conducts commercial banking. Unless otherwise noted, financial figures are in millions of dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net interest income | $9.18 | $10.32 | Down $1.14 |
| Noninterest income | $3.95 | $3.67 | Up $0.29 |
| Total revenue | $13.13 | $13.99 | Down 6.1% |
| Noninterest expense | $10.28 | $10.77 | Down $0.49 |
| Provision for credit losses | $0 | $0.25 | Down $0.25 |
| Net income | $2.37 | $2.45 | Down 3.3% |
| Diluted EPS | $0.35 | $0.35 | Unchanged |
| Net interest margin | 2.99% | 3.37% | Down 38 basis points |
- Interest income rose to $15.30 million from $13.82 million, but interest expense increased to $6.12 million from $3.50 million. Management attributed higher funding costs to rising market rates and competition for deposits.
- Average yield on earning assets increased 48 basis points, while funding costs rose to 2.55% from 1.46%. Earning assets decreased $1.3 million year over year.
- Noninterest income growth included improved mortgage gains and servicing fees. Mortgage originations were $42.9 million versus $49.4 million; loans sold were $36.6 million versus $25.8 million. Net mortgage banking revenue was $1.45 million versus $1.21 million.
- Noninterest expense declined 4.6%; management cited lower headcount and continued resizing of the mortgage business.
Financial condition, cash flow and capital
- At March 31, total assets were $1.336 billion, down $7.2 million from year-end 2023. Loans were $991.6 million, down $8.7 million; deposits were $1.112 billion, up $42.1 million.
- Cash and due from banks were $26.6 million. Management reported liquid assets of $247.0 million, approximately unchanged from year-end. Uninsured deposits were estimated at $242.6 million, versus $229.5 million at year-end.
- Borrowed funds totaled $77.9 million, down from $126.9 million at year-end, primarily reflecting a $48.6 million net repayment of FHLB advances. FHLB advances outstanding were $35.0 million; repurchase agreements were $12.9 million, trust preferred securities $10.3 million, and subordinated debt net of issuance costs $19.7 million.
- Q1 cash flows were $0.3 million provided by operating activities, $11.7 million provided by investing activities, and $8.4 million used in financing activities. Cash increased $3.6 million to $26.6 million.
- Shareholders’ equity was $123.7 million, or 9.3% of assets. Accumulated other comprehensive loss was $31.5 million, largely related to securities valuation. Management stated equity would be $155.3 million, or 11.6% of assets, excluding that temporary impairment.
- State Bank was classified as well capitalized. At March 31, its Tier 1 leverage ratio was 11.17%, Tier 1 common equity to risk-weighted assets was 13.84%, and total risk-based capital was 15.09%.
Credit quality, risks and unusual items
- The allowance for credit losses was $15.6 million, or 1.58% of loans, down $0.1 million from year-end. Net charge-offs were $57,000 versus $61,000 a year earlier; the quarter’s provision was zero.
- Nonaccrual loans totaled $2.43 million, down from $2.82 million at year-end. Total past-due loans were $2.74 million; nonperforming assets were $2.94 million, or 0.22% of assets. Management described asset quality as stable to slightly improving.
- Available-for-sale securities had a fair value of $213.2 million, down from $219.7 million at year-end, with $39.9 million of gross unrealized losses. Management considered the declines temporary; no credit-loss allowance was recorded for these securities.
- Management identifies interest-rate and liquidity risk, deposit competition, borrower repayment and collateral values, commercial real estate and construction exposure, mortgage-income volatility, cybersecurity, operational and regulatory risks, and broader economic and geopolitical conditions as risks. It noted $139.0 million of additional FHLB borrowing capacity and $100.5 million of unpledged securities available for borrowing.
- No specific earnings or financial guidance was provided. Management cautioned that quarterly results are not necessarily indicative of full-year results. Ordinary-course litigation and regulatory examinations were not expected by management to have a material adverse effect.
- The company repurchased 30,048 shares under its announced plan during the quarter for $521,000; 206,309 shares remained authorized for repurchase through December 31, 2024. The $0.135-per-share dividend totaled $917,000.
Most important facts for investors to verify
- Whether deposit pricing and funding costs stabilize, and how that affects net interest margin and earnings.
- Deposit composition and concentration, including the estimated $242.6 million of uninsured deposits, and the company’s access to contingent funding.
- Credit trends in commercial real estate, commercial and agricultural lending, including delinquencies, nonaccrual loans, charge-offs, and the adequacy of the allowance.
- How interest rates affect the securities portfolio’s unrealized losses, tangible equity, liquidity, and future net interest income.
- The sustainability of mortgage banking and servicing revenue given lower originations and management’s mortgage-business resizing.