SB Financial Group(US:SBFG)2024-03-08 20:18Operations and Workforce - As of December 31, 2023, State Bank operates 22 banking centers and 6 loan production offices, employing a total of 243 full-time equivalent employees[16]. - The Company has a wholly owned subsidiary, SBFG Title, which operates three locations and had 8 full-time equivalent employees as of December 31, 2023[17]. - The Company employed approximately 251 full-time equivalent employees as of December 31, 2023, and management considers its relationship with employees to be good[99]. - The annualized voluntary turnover rate is relatively low, attributed to the Company's strong values-based culture and commitment to career development[98]. Financial Performance - At December 31, 2023, State Bank had $30.3 million of excess earnings over the preceding three years, which may influence future dividend declarations[38]. - The Company reported net income of $12.1 million for the year ended December 31, 2023, compared to $12.5 million in 2022[211]. - The cash dividend payout ratio for 2023 was 29.62%, compared to 27.25% in 2022[211]. - For the twelve months ended December 31, 2023, the Company generated $17.7 million in noninterest income, accounting for 31.1% of total operating revenue, down from $18.2 million or 31.6% in 2022[203]. Regulatory Compliance - The Company is subject to regulation under the Bank Holding Company Act and must maintain compliance with various capital and operational requirements[28]. - The Federal Reserve Board requires all depository institutions to maintain reserves at specified levels, with the reserve requirement ratio at 0% as of December 31, 2023[35]. - The Company must obtain prior approval from the Federal Reserve Board for significant acquisitions or mergers, ensuring compliance with regulatory standards[29]. - The Company’s subsidiaries, including State Bank, are subject to various consumer laws and regulations, impacting their operations and compliance requirements[33]. - The Company is subject to SEC regulations and NASDAQ rules, impacting its reporting and governance practices[69]. - The Dodd-Frank Act mandates that public companies adopt "clawback" policies for incentive compensation, applicable to payments made within the last three fiscal years[81]. - The Company has established policies to comply with the USA Patriot Act and Anti-Money Laundering Act, ensuring proper identification and reporting of suspicious activities[71][73]. - The Company has no unresolved staff comments, indicating a clean regulatory standing[174]. Capital and Dividends - The ability to pay dividends is contingent upon the financial performance of State Bank and regulatory approvals, with no assurance on future dividend amounts[37]. - The ability to pay dividends is limited by regulatory restrictions and the financial performance of operating subsidiaries[160]. - The Company paid quarterly dividends of $0.52 per share in 2023, compared to $0.48 per share in 2022, with future dividends anticipated at similar levels[192]. Risk Factors - The Company faces significant competition in attracting depositors and borrowers, primarily from other commercial banks and financial technology companies[25]. - The Company may experience significant credit losses if actual credit losses exceed the ACL, which could adversely affect operating results[113]. - The macroeconomic environment in the U.S. is susceptible to global events and volatility in financial markets, which could materially affect the Company's results of operations[107]. - Recent bank failures, such as those of Silicon Valley Bank and Signature Bank, may negatively impact customer confidence and the overall banking environment[130]. - The company could experience liquidity issues that adversely affect its business and profitability, especially in light of recent bank failures[131]. - The company is exposed to various operational risks, including cybersecurity risks and the potential for employee misconduct[125]. - The banking industry is subject to extensive regulation, which can increase compliance costs and limit business opportunities[150]. - Regulatory changes may adversely affect the company's ability to increase business value and could lead to significant penalties[152]. Asset and Loan Management - Total assets increased by $303.8 million, or 29.3%, over the last five years, with loans growing by $174.7 million or 21.2% and deposits increasing by $230.0 million or 27.4%[208]. - As of December 31, 2023, the Company serviced 8,549 residential mortgage loans with an aggregate principal balance of $1.37 billion, up from 8,514 loans totaling $1.35 billion in 2022[206]. - Total nonperforming assets were $3.3 million, or 0.25% of total assets, as of December 31, 2023, down from $5.1 million or 0.38% in 2022[207]. - The Company recognized a one-time cumulative effect adjustment (increase) to the Allowance for Credit Losses (ACL) of $1.4 million upon adopting the CECL model on January 1, 2023[57]. Market Position and Strategy - The Company commands 4.4% of the deposit market share across 14 counties in Northwest Ohio, Central Ohio, and Northeast Indiana[205]. - The Company aims to grow into a top decile independent financial services company by executing five key strategic initiatives[202]. - The Company emphasizes the need for constant technology updates to remain competitive in the rapidly changing financial services market[172]. Environmental and Social Governance - The Company is facing increasing scrutiny regarding its environmental, social, and governance (ESG) practices, which may lead to higher operational costs[171]. - Compliance with environmental regulations has not materially affected the Company's capital expenditures or earnings[92]. - Environmental liability risks associated with lending activities could lead to significant remediation costs and impact property values[148]. Cybersecurity - The Company employs a layered cybersecurity approach to protect sensitive data and has not experienced significant data loss or financial losses from cyber-attacks to date[91]. - Cybersecurity risks are regularly assessed, with the Company adopting aspects of the NIST cybersecurity framework to manage these risks effectively[175]. - The board of directors oversees the Company's risk management process, including cybersecurity risks, through its Audit & Risk Management Committee[178]. - The Company has not experienced material adverse effects from cybersecurity threats, maintaining stable business operations and financial condition[177]. Future Considerations - The company may face challenges in managing growth and expanding operations, including through potential strategic acquisitions[121]. - Future acquisitions or expansions may involve significant expenses and risks, including the time and costs associated with identifying and evaluating potential opportunities[123]. - The company may need to seek additional capital in the future, which may not be available on favorable terms[167]. - Changes in tax laws could adversely affect the company's performance and the demand for its loan products[169].