SB Financial Group(SBFG) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and detailed notes for periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets | ($ in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Assets | | | | Cash and due from banks | $79,463 | $25,928 | | Total assets | $1,486,301 | $1,379,517 | | Liabilities | | | | Total deposits | $1,249,822 | $1,152,605 | | Total liabilities | $1,352,653 | $1,252,009 | | Shareholders' Equity | | | | Total shareholders' equity | $133,648 | $127,508 | - Total assets increased by $106.8 million (7.7%) from December 31, 2024, to June 30, 2025, reaching $1.486 billion[8][173] - Total deposits increased by $97.2 million (8.4%) from December 31, 2024, to June 30, 2025, reaching $1.250 billion[8][173] Condensed Consolidated Statements of Income | ($ in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $18,467 | $15,654 | $35,839 | $30,954 | | Total interest expense | $6,339 | $5,995 | $12,432 | $12,115 | | Net Interest Income | $12,128 | $9,659 | $23,407 | $18,839 | | Total provision for credit losses | $597 | $- | $984 | $- | | Total noninterest income | $5,048 | $4,386 | $9,155 | $8,337 | | Total noninterest expense | $11,852 | $10,671 | $24,262 | $20,953 | | Net Income | $3,852 | $3,113 | $6,010 | $5,481 | | Basic earnings per common share | $0.60 | $0.47 | $0.93 | $0.82 | | Diluted earnings per common share | $0.60 | $0.47 | $0.93 | $0.82 | - Net income for Q2 2025 increased by 23.7% to $3.9 million, and diluted EPS rose to $0.60, driven by higher interest income on loans[157] - For the first six months of 2025, net income increased by 9.7% to $6.0 million, with diluted EPS up 13.4% to $0.93, also benefiting from higher loan interest income[165] Condensed Consolidated Statements of Comprehensive Income | ($ in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $3,852 | $3,113 | $6,010 | $5,481 | | Net effect on other comprehensive income (loss) | $1,380 | $(254) | $4,742 | $(1,970) | | Total comprehensive income | $5,232 | $2,859 | $10,752 | $3,511 | - Total comprehensive income significantly increased for both the three and six months ended June 30, 2025, primarily due to positive net effects on other comprehensive income from available-for-sale securities, contrasting with losses in the prior year[15] Condensed Consolidated Statements of Shareholders' Equity | ($ in thousands) | Balance, January 1, 2025 | Net income | Other comprehensive income | Cash dividends on common | Repurchased stock | Stock based compensation expense | Balance, June 30, 2025 | | :--------------- | :----------------------- | :--------- | :------------------------- | :----------------------- | :---------------- | :------------------------------- | :--------------------- | | Total | $127,508 | $6,010 | $4,742 | $(1,923) | $(3,030) | $341 | $133,648 | - Shareholders' equity increased from $127.5 million at January 1, 2025, to $133.6 million at June 30, 2025, driven by net income and other comprehensive income, partially offset by cash dividends and stock repurchases[17] - The Company repurchased 124,495 common shares for $2.318 million during Q2 2025 and 33,478 shares for $0.712 million during Q1 2025[17] Condensed Consolidated Statements of Cash Flows | ($ in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :----------------------------- | :----------------------------- | | Operating Activities | | | | Net cash provided by (used in) operating activities | $3,078 | $(126) | | Investing Activities | | | | Net cash provided by investing activities | $7,226 | $3,728 | | Financing Activities | | | | Net cash provided by (used in) financing activities | $43,231 | $(4,584) | | Increase (decrease) in cash and cash equivalents | $53,535 | $(982) | | Cash and cash equivalents, end of period | $79,463 | $21,983 | - Operating activities generated $3.1 million in cash for the first six months of 2025, a significant improvement from a net use of $0.1 million in the prior year, driven by higher proceeds from loan sales[19][182] - Investing activities provided $7.2 million in cash for the first six months of 2025, up from $3.7 million in the prior year, despite a $3.0 million cash payment for the Marblehead acquisition[19][183] - Financing activities provided $43.2 million in cash for the first six months of 2025, a reversal from a net use of $4.6 million in the prior year, primarily due to increases in demand and time deposits[19][184] NOTE 1—BASIS OF PRESENTATION - SB Financial Group, Inc. is a financial holding company operating through its wholly-owned subsidiaries: The State Bank and Trust Company, SBFG Title, LLC, and SB Captive, Inc. State Bank also owns State Bank Insurance, LLC[20][21] - The Company adopted ASU No. 2023-07 (Segment Reporting) on January 1, 2024, and ASU No. 2020-04 (Reference Rate Reform) through December 31, 2024, neither of which had a material impact on financial statements[24][25] - ASU No. 2023-09 (Income Tax Disclosures) and ASU No. 2024-03 (Expense Disaggregation) are not yet adopted, with the latter's impact currently being evaluated[26][27] NOTE 2 - EARNINGS PER SHARE | ($ and outstanding shares in thousands - except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income allocated to common shares and participating securities | $3,852 | $3,113 | $6,010 | $5,481 | | Weighted average shares outstanding for basic earnings per share | 6,448 | 6,692 | 6,464 | 6,703 | | Basic earnings per common share | $0.60 | $0.47 | $0.93 | $0.82 | | Diluted earnings per common share | $0.60 | $0.47 | $0.93 | $0.82 | - Basic and diluted EPS for Q2 2025 were $0.60, up from $0.47 in Q2 2024. For the six months ended June 30, 2025, basic and diluted EPS were $0.93, up from $0.82 in the prior year[29] - Weighted average basic common shares outstanding decreased to 6,448 thousand for Q2 2025 from 6,692 thousand in Q2 2024, and to 6,464 thousand for the six months ended June 30, 2025, from 6,703 thousand in the prior year[29] NOTE 3 – BUSINESS COMBINATION - Effective January 17, 2025, the Company acquired Marblehead Bancorp and its subsidiary, The Marblehead Bank, for $5.0 million in cash, aiming to expand its presence in Northwest Ohio and increase profitability[31] - The acquisition resulted in $3.9 million of goodwill and $1.7 million of core deposit intangible assets, with approximately $0.7 million in direct acquisition costs expensed[33] | ($ in thousands) | January 17, 2025 | | :--------------- | :--------------- | | Fair value of assets acquired | | | Cash and cash equivalents | $1,995 | | Investment securities | $30,123 | | Loans held for investment | $18,661 | | Goodwill | $3,919 | | Core deposit intangible | $1,710 | | Total assets acquired | $59,161 | | Fair value of liabilities assumed | | | Deposits | $53,088 | | Total liabilities assumed | $54,152 | | Total purchase price (cash) | $5,009 | NOTE 4 – AVAILABLE-FOR-SALE SECURITIES | ($ in thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :--------------- | :----------------------- | :--------------------------- | | U.S. Treasury and Government agencies | $5,832 | $7,389 | | Mortgage-backed securities | $165,314 | $169,620 | | State and political subdivisions | $9,430 | $9,407 | | Other corporate securities | $15,379 | $15,171 | | Totals | $195,955 | $201,587 | - Available-for-sale securities decreased in fair value from $201.6 million at December 31, 2024, to $196.0 million at June 30, 2025, with total unrealized losses of $32.3 million at June 30, 2025[38][41] - Management believes the declines in fair value for these securities are temporary, and no allowance for credit losses on available-for-sale securities was recorded at June 30, 2025, or December 31, 2024[41][43] NOTE 5 – LOANS AND ALLOWANCE FOR CREDIT LOSSES Loan Portfolio Composition | ($ in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Commercial & industrial | $118,984 | $124,764 | | Commercial real estate - owner occupied | $137,924 | $134,431 | | Commercial real estate - nonowner occupied | $387,747 | $345,142 | | Agricultural | $60,924 | $64,680 | | Residential real estate | $310,126 | $308,378 | | HELOC | $59,683 | $53,811 | | Consumer | $19,331 | $15,529 | | Total loans | $1,094,719 | $1,046,735 | | Allowance for credit losses | $(15,645) | $(15,096) | | Loans, net | $1,079,074 | $1,031,639 | - Total loans, net of unearned income, increased by $48.0 million (4.6%) to $1.09 billion at June 30, 2025, from $1.05 billion at December 31, 2024[47][173] - Commercial real estate (nonowner occupied) loans saw the largest increase, growing by $42.6 million to $387.7 million[47] Loan Risk Characteristics - Commercial & Industrial and Agricultural loans are primarily underwritten based on borrower cash flows, with collateral as a secondary consideration, and are susceptible to fluctuations in cash flows and collateral values[48][58] - Commercial Real Estate loans (owner and nonowner occupied) are primarily cash flow dependent and are sensitive to real estate market conditions and general economic factors, with construction loans carrying higher risks due to reliance on project success and long-term financing[49][50][54][58] - Residential Real Estate, HELOC, and Consumer loans depend on borrowers' personal income and property values, with HELOCs secured by junior liens being particularly susceptible to declining collateral values[51][58] Allowance for Credit Losses (ACL) Methodology - The ACL is estimated using relevant internal and external information, including historical credit loss experience, current conditions, and reasonable and supportable forecasts, with adjustments for loan-specific and environmental factors[53] - The Company primarily uses a Discounted Cash Flow (DCF) method for collective loan pools, with a one-year reasonable and supportable forecast period and a one-year straight-line reversion to the long-term historical average[55][56] - Key inputs for the DCF model include loan-level detail, payment structure, loss history, forecasted loss drivers (from FRED), probability of default (PD), loss given default (LGD), and prepayment/curtailment rates[57][59] ACL Activity | ($ in thousands) | Balance, beginning of period (June 30, 2025) | Initial allowance for credit losses on acquired PCD loans | Chargeoffs | Recoveries | Provision for Credit Losses | Balance, end of period (June 30, 2025) | | :--------------- | :------------------------------------------- | :---------------------------------------- | :--------- | :--------- | :-------------------------- | :------------------------------------- | | Total (3 months) | $15,391 | $- | $(49) | $3 | $300 | $15,645 | | ($ in thousands) | Balance, beginning of period (June 30, 2025) | Initial allowance for credit losses on acquired PCD loans | Chargeoffs | Recoveries | Provision for Credit Losses | Balance, end of period (June 30, 2025) | | :--------------- | :------------------------------------------- | :---------------------------------------- | :--------- | :--------- | :-------------------------- | :------------------------------------- | | Total (6 months) | $15,096 | $5 | $(135) | $5 | $674 | $15,645 | - The ACL increased by $0.55 million from December 31, 2024, to $15.6 million at June 30, 2025, due to $0.23 million from the Marblehead acquisition and $0.30 million of growth-related provision expense, partially offset by net charge-offs[65][175] Collateral-Dependent Loans | ($ in thousands) | June 30, 2025 Total | June 30, 2025 Allocated Allowance | December 31, 2024 Total | December 31, 2024 Allocated Allowance | | :--------------- | :------------------ | :-------------------------------- | :---------------------- | :------------------------------------ | | Commercial & industrial | $3,534 | $65 | $2,877 | $380 | | Residential real estate | $1,073 | $23 | $801 | $26 | | Total | $5,183 | $101 | $4,477 | $419 | - Collateral-dependent loans increased to $5.18 million at June 30, 2025, from $4.48 million at December 31, 2024, with the allocated allowance for these loans decreasing from $419 thousand to $101 thousand[69] - For collateral-dependent loans, the ACL is measured based on the fair value of collateral, adjusted for liquidation costs/discounts, with no allowance required if collateral fair value exceeds amortized cost[70] Credit Risk Profile and Loan Aging - The Company categorizes loans into risk categories (Pass, Special Mention, Substandard, Doubtful, Loss) based on borrower ability to service debt, financial information, payment history, and economic trends[71][72][73][74][75] | ($ in thousands) | June 30, 2025 Total Loans | December 31, 2024 Total Loans | | :--------------- | :------------------------ | :---------------------------- | | Pass (1 - 4) | $1,087,881 | $1,040,392 | | Special Mention (5) | $1,246 | $911 | | Substandard (6) | $4,292 | $4,991 | | Doubtful (7) | $1,300 | $441 | | Total Loans | $1,094,719 | $1,046,735 | | ($ in thousands) | June 30, 2025 Total Past Due | December 31, 2024 Total Past Due | | :--------------- | :--------------------------- | :------------------------------- | | Commercial & industrial | $3,182 | $3,281 | | Residential real estate | $1,219 | $2,023 | | Total Loans | $5,600 | $6,599 | Nonaccrual Loans - All loans past due 90 days are systematically placed on nonaccrual status, with interest reversed from income and subsequent payments applied to principal[84] | ($ in thousands) | June 30, 2025 Total nonaccrual loans | December 31, 2024 Total nonaccrual loans | | :--------------- | :----------------------------------- | :--------------------------------------- | | Commercial & industrial | $3,306 | $2,927 | | Residential real estate | $1,585 | $1,539 | | Total loans | $5,872 | $5,516 | - Total nonaccrual loans increased to $5.87 million at June 30, 2025, from $5.52 million at December 31, 2024[85] Unfunded Loan Commitments - The Company maintains an allowance for off-balance sheet credit exposures, such as unfunded lines of credit and commitments, which is classified within Other liabilities[88] - The allowance for unfunded loan commitments was $1.65 million at June 30, 2025, up from $1.34 million at the beginning of the six-month period, with a provision of $307 thousand for the six months ended June 30, 2025[90] NOTE 6 – GOODWILL - Goodwill increased to $27.16 million at June 30, 2025, from $23.24 million at December 31, 2024, primarily due to the $3.92 million acquired goodwill from the Marblehead acquisition[91] - Goodwill is not amortized but is evaluated for impairment annually or more frequently if circumstances change. A quantitative impairment test as of June 30, 2025, showed no impairment[91][93] NOTE 7 – MORTGAGE SERVICING RIGHTS - The unpaid principal balance of mortgage loans serviced for others increased to $1.46 billion at June 30, 2025, from $1.43 billion at December 31, 2024[94] | ($ in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $14,868 | $13,906 | | Mortgage servicing rights capitalized during the period | $1,182 | $1,031 | | Mortgage servicing rights amortization during the period | $(762) | $(608) | | Net change in valuation allowance | $170 | $219 | | Balance at end of period | $15,458 | $14,548 | - Mortgage servicing rights (MSR) balance increased to $15.46 million at June 30, 2025, from $14.87 million at the beginning of the six-month period, with $1.18 million capitalized and $0.76 million amortized[95] NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS - The Company uses derivative financial instruments, specifically interest rate swaps, forward contracts, and Interest Rate Lock Commitments (IRLCs), to manage economic risks and facilitate customer risk management, not for trading or speculative purposes[96][97][98] | ($ in thousands) | June 30, 2025 Notional Amount | June 30, 2025 Fair Value | December 31, 2024 Notional Amount | December 31, 2024 Fair Value | | :--------------- | :---------------------------- | :----------------------- | :-------------------------------- | :--------------------------- | | Asset Derivatives | | | | | | Interest rate swaps associated with loans | $96,374 | $1,852 | $79,235 | $4,029 | | Forward contracts | $16,077 | $96 | $11,000 | $69 | | Liability Derivatives | | | | | | Interest rate swaps associated with loans | $96,374 | $(1,852) | $79,235 | $(4,029) | | IRLCs | $25,000 | $(188) | $7,412 | $(21) | - The fair value of asset interest rate swaps decreased from $4.03 million at December 31, 2024, to $1.85 million at June 30, 2025, while IRLC liabilities increased from $(21) thousand to $(188) thousand[100] NOTE 9 – DEPOSITS | ($ in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Non interest bearing demand | $241,245 | $232,155 | | Interest bearing demand | $205,581 | $201,085 | | Savings | $282,311 | $237,987 | | Money market | $249,536 | $222,161 | | Time deposits $250,000 or less | $217,293 | $208,273 | | Time deposits greater than $250,000 | $53,856 | $50,944 | | Total Deposits | $1,249,822 | $1,152,605 | - Total deposits increased by $97.2 million (8.4%) to $1.25 billion at June 30, 2025, from $1.15 billion at December 31, 2024, with significant growth in savings and money market accounts[106][173] NOTE 10 – SHORT-TERM BORROWINGS | ($ in thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Securities sold under repurchase agreements | $15,640 | $10,585 | - Securities sold under repurchase agreements increased to $15.64 million at June 30, 2025, from $10.59 million at December 31, 2024, secured by agency and mortgage-backed securities[107] - The Company had $41.0 million in federal funds lines and borrowing capabilities at the Federal Reserve Discount Window, with no amounts drawn or pledged at June 30, 2025[108][109] NOTE 11 – FEDERAL HOME LOAN BANK (FHLB) ADVANCES - FHLB advances totaled $35.0 million at June 30, 2025, secured by $320.1 million in mortgage loans, with fixed interest rates ranging from 3.75% to 4.61%[110] | ($ in thousands) | Debt | | :--------------- | :--- | | 2026 | $12,500 | | 2027 | $5,000 | | 2028 | $17,500 | | Total | $35,000 | NOTE 12 – TRUST PREFERRED SECURITIES - The Company has $10.31 million in Trust Preferred Securities, with distributions payable quarterly at a variable rate based on 3-month CME Term SOFR plus 1.80%, maturing on September 15, 2035[111] NOTE 13 – SUBORDINATED DEBT - The Company has $20.0 million in 3.65% Fixed to Floating Rate Subordinated Notes due 2031, bearing a fixed rate until May 31, 2026, then resetting quarterly to 3-month SOFR plus 296 basis points[112][113] - The Notes are redeemable after May 31, 2026, subject to regulatory approval, and incurred approximately $0.5 million in debt issuance costs[113] NOTE 14 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES Fair Value Hierarchy and Methodologies - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[119] - Available-for-sale securities and interest rate contracts are primarily valued using Level 2 inputs, while forward contracts use Level 1, and IRLCs use Level 3 inputs[115][116][117][118] Recurring Fair Value Measurements | ($ in thousands) | June 30, 2025 Fair Value | Level 1 | Level 2 | Level 3 | | :--------------- | :----------------------- | :------ | :------ | :------ | | U.S. Treasury and Government Agencies | $5,832 | $- | $5,832 | $- | | Mortgage-backed securities | $165,314 | $- | $165,314 | $- | | Interest rate contracts - assets | $1,852 | $- | $1,852 | $- | | Forward contracts | $96 | $96 | $- | $- | | IRLCs | $(188) | $- | $- | $(188) | - Most available-for-sale securities and interest rate contracts are classified as Level 2, while forward contracts are Level 1, and IRLCs are Level 3[121] Nonrecurring Fair Value Measurements - Collateral-dependent individually evaluated loans and mortgage servicing rights are measured at fair value on a nonrecurring basis and are classified within Level 3 of the fair value hierarchy[123][124] | ($ in thousands) | June 30, 2025 Fair Value | Level 3 | | :--------------- | :----------------------- | :------ | | Collateral-dependent Individually evaluated loans | $845 | $845 | | Mortgage servicing rights | $445 | $445 | Unobservable (Level 3) Inputs | ($ in thousands) | June 30, 2025 Fair value | Valuation technique | Unobservable inputs | Range (weighted-average) | | :--------------- | :----------------------- | :------------------ | :------------------ | :----------------------- | | Collateral-dependent individually evaluated loans | $845 | Market comparable properties | Comparability adjustments (%) | 1 - 28% (14%) | | Mortgage servicing rights | $445 | Discounted cash flow | Discount rate | 10.76% | | | | | Constant prepayment rate | 5.93% | | IRLCs | $(188) | Discounted cash flow | Loan closing rates | 55% - 96% | - Key unobservable inputs for Level 3 measurements include comparability adjustments for collateral-dependent loans, discount rates and prepayment rates for MSRs, and loan closing rates for IRLCs[127] Fair Value of Other Financial Instruments - The carrying amounts of cash, interest-bearing time deposits, FHLB stock, and accrued interest approximate their fair values[128] - Fair values for loans held for sale are based on quoted market prices or discounted estimated cash flows, while loans are valued using discounted estimated future cash flows incorporating credit, liquidity, and marketability factors[129][130] | ($ in thousands) | June 30, 2025 Carrying amount | June 30, 2025 Fair value | Level 1 | Level 2 | Level 3 | | :--------------- | :---------------------------- | :----------------------- | :------ | :------ | :------ | | Financial assets | | | | | | | Cash and due from banks | $79,463 | $79,463 | $79,463 | $- | $- | | Loans, net of allowance for credit losses | $1,079,074 | $1,070,331 | $- | $- | $1,070,331 | | Financial liabilities | | | | | | | Deposits | $1,249,822 | $1,249,129 | $978,673 | $270,456 | $- | | Subordinated debt, net of issuance costs | $19,715 | $19,150 | $- | $19,150 | $- | NOTE 15 – SHARE BASED COMPENSATION - The 2017 Stock Incentive Plan allows for grants of various equity-based awards, with 202,093 shares granted out of 500,000 authorized as of June 30, 2025[137] - Restricted stock awards under the LTI Plan vest over four years, with compensation cost of $0.2 million for Q2 2025 and $0.3 million for the six months ended June 30, 2025[140] | | Shares | Weighted Average Value per Share | | :----------------------- | :----- | :------------------------------- | | Nonvested, January 1, 2025 | 54,311 | $17.15 | | Granted | 21,003 | $23.43 | | Vested | (23,234) | $17.67 | | Forfeited | (8,366) | $18.11 | | Nonvested, June 30, 2025 | 43,714 | $19.71 | NOTE 16 – OPERATING SEGMENTS - The Company operates as a single reportable segment, 'Banking,' providing community banking services including lending, banking, wealth management, and other financial services[144][145] - The Chief Executive Officer, as the chief operating decision maker (CODM), evaluates performance and allocates resources based on consolidated financial statements, with no single customer accounting for more than 10% of revenue[145] NOTE 17 – GENERAL LITIGATION - The Company is subject to ordinary course legal claims and lawsuits, but management believes their resolution will not have a material adverse effect on its financial position, results of operations, or cash flow[146] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition, results of operations, critical policies, and performance Cautionary Statement Regarding Forward-Looking Information - The report contains forward-looking statements regarding future financial performance, plans, and economic conditions, which are subject to risks and uncertainties[147] - Key risks include economic and financial market conditions (inflation, interest rates, recession), bank failures, geopolitical instability, volatility of mortgage banking income, loan portfolio performance, operational and cybersecurity risks, competition, regulatory changes, and the ability to adapt to technological changes[147][149] Overview of SB Financial - SB Financial Group, Inc. is an Ohio financial holding company, with its primary subsidiary being The State Bank and Trust Company, an Ohio-chartered commercial bank[150] - Other subsidiaries include Rurban Statutory Trust II (for Trust Preferred Securities), State Bank Insurance, LLC, SBFG Title, LLC, and SB Captive, Inc., which collectively form the Company[151][152][153] Critical Accounting Policies - The determination of the Allowance for Credit Losses (ACL) is a critical accounting policy, involving significant judgment and estimates of expected credit losses based on historical experience, current conditions, and forecasts[155] - Goodwill and Other Intangibles are recorded at fair value upon acquisition and are subject to annual impairment tests, requiring subjective judgments about future performance and potential impacts on earnings[156] Three Months Ended June 30, 2025, compared to Three Months Ended June 30, 2024 | Financial Metric | Q2 2025 ($ in thousands) | Q2 2024 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--------------- | :----------------------- | :----------------------- | :---------------------- | :--------- | | Net Income | $3,852 | $3,113 | $739 | 23.7% | | Diluted EPS | $0.60 | $0.47 | $0.13 | 27.7% | | Total Interest Income | $18,467 | $15,654 | $2,813 | 18.0% | | Net Interest Income | $12,128 | $9,659 | $2,469 | 25.6% | | Total Noninterest Income | $5,048 | $4,386 | $662 | 15.1% | | Total Noninterest Expense | $11,852 | $10,671 | $1,181 | 11.1% | | Income Taxes | $875 | $261 | $614 | 235.2% | - Net interest income increased by $2.5 million, or 25.6%, driven by an 18.0% increase in total interest income, while the net interest margin improved to 3.48% from 3.12%[160] - Total noninterest income grew by 15.1%, primarily due to increased mortgage revenue (up $0.3 million) and SBFG Title income (up $0.18 million), with recapture of mortgage servicing rights also contributing positively[161][162] - Provision for credit losses was $597 thousand in Q2 2025, compared to zero in Q2 2024, including $297 thousand for unfunded commitments and $300 thousand for growth-related provision[158] Six Months Ended June 30, 2025, compared to Six Months Ended June 30, 2024 | Financial Metric | YTD 2025 ($ in thousands) | YTD 2024 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--------------- | :------------------------ | :------------------------ | :---------------------- | :--------- | | Net Income | $6,010 | $5,481 | $529 | 9.7% | | Diluted EPS | $0.93 | $0.82 | $0.11 | 13.4% | | Total Interest Income | $35,839 | $30,954 | $4,885 | 15.8% | | Net Interest Income | $23,407 | $18,839 | $4,568 | 24.2% | | Total Noninterest Income | $9,155 | $8,337 | $818 | 9.8% | | Total Noninterest Expense | $24,262 | $20,953 | $3,309 | 15.8% | | Income Taxes | $1,306 | $742 | $564 | 76.0% | - Net interest income increased by $4.6 million, or 24.2%, with the net interest margin improving to 3.43% from 3.05%[168] - Total noninterest income increased by 9.8%, driven by higher mortgage revenue (up $0.36 million) and SBFG Title income (up $0.31 million)[169][170] - Total noninterest expense increased by $3.3 million, including over $0.7 million in one-time merger-related expenses and approximately five and a half months of Marblehead's operating expenses[171] Changes in Financial Condition | Financial Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :--------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Total assets | $1,486.3 | $1,379.5 | $106.8 | 7.7% | | Total loans, net | $1,094.7 | $1,046.7 | $48.0 | 4.6% | | Total deposits | $1,249.8 | $1,152.6 | $97.2 | 8.4% | | Borrowed funds | $80.7 | $75.6 | $5.1 | 6.7% | | Total shareholders' equity | $133.6 | $127.5 | $6.1 | 4.8% | - The allowance for credit losses increased by $0.55 million to $15.6 million, driven by the Marblehead acquisition and growth-related provision, with a non-performing asset ratio of 41 basis points and coverage on non-performing loans at 266%[175] Capital Resources - State Bank was classified as 'well capitalized' under regulatory frameworks as of June 30, 2025, maintaining capital ratios above required minimums[176] | Capital Ratio | June 30, 2025 Actual Ratio | December 31, 2024 Actual Ratio | To Be Well Capitalized Ratio | | :------------ | :------------------------- | :----------------------------- | :--------------------------- | | Tier I Capital to average assets | 10.15% | 11.09% | 5.0% | | Tier I Common equity capital to risk-weighted assets | 12.53% | 13.43% | 6.5% | | Total Risk-based capital to risk-weighted assets | 13.78% | 14.69% | 10.0% | - Management opted out of the accumulated other comprehensive income treatment under Basel III, excluding unrealized gains and losses from available-for-sale securities from regulatory capital[177] Liquidity - Liquid assets increased to $289.8 million at June 30, 2025, from $235.9 million at December 31, 2024, ensuring the Company's ability to fund loan demand and meet withdrawal requirements[178] - The Company's Liquidity Policy, overseen by the Asset/Liability Committee (ALCO), identifies primary liquidity sources, monitors liquidity, and quantifies minimum requirements[179] - The Company had approximately $157.0 million of additional FHLB borrowing capacity and $57.8 million in unpledged securities available for additional borrowings at June 30, 2025[186] Asset Liability Management - Asset liability management focuses on maintaining liquidity, maximizing net interest income, and minimizing the impact of interest rate fluctuations on earnings and capital[188][189] - The Company's primary market risk exposure is interest rate risk, which is managed through policies, procedures, and information systems, but currently does not utilize derivative financial instruments for this purpose[188][193] - The Federal Reserve Board's Joint Agency Policy Statement on Interest Rate Risk guides the Company's management process, emphasizing active board and senior management oversight[191] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material change in market risk from disclosures in the Annual Report on Form 10-K for December 31, 2024 - No material change in market risk from the information contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[195] Item 4. Controls and Procedures Management evaluated disclosure controls as effective, with no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025, ensuring timely and accurate reporting of required information[196][198] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[197] PART II – OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in ordinary course legal actions, with no material adverse effect expected on financial position - The Company is party to various legal actions arising in the ordinary course of business[200] - Management believes that the disposition or ultimate resolution of these claims will not have a material adverse effect on the Company's consolidated financial position, results of operations, and cash flow[200] Item 1A. Risk Factors Refers to detailed risk factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - A detailed discussion of the Company's risk factors is included in 'Item 1A. Risk Factors' of Part I of the Annual Report on Form 10-K for the year ended December 31, 2024[201] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the share repurchase program, including 124,495 common shares repurchased during Q2 2025 - The Company has a share repurchase program, announced December 18, 2024, authorizing the repurchase of up to 500,000 common shares through December 31, 2026[202] | Period | Total Number of Shares Purchased | Weighted Average Price Paid per Share | | :---------------- | :------------------------------- | :------------------------------------ | | 04/01/25 - 04/30/25 | - | $0.00 | | 05/01/25 - 05/31/25 | 48,786 | $19.57 | | 06/01/25 - 06/30/25 | 75,709 | $18.00 | | Total | 124,495 | $18.62 | - As of June 30, 2025, 331,599 shares remained available for repurchase under the program[203] Item 3. Defaults Upon Senior Securities This item is not applicable for the reported period - This item is not applicable[204] Item 4. Mine Safety Disclosures This item is not applicable for the reported period - This item is not applicable[204] Item 5. Other Information Confirms no other reportable information and no Rule 10b5-1 trading arrangement changes by officers - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[206] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including amendments, certifications, and Inline XBRL documents - The exhibits include Amended Articles of the Company, Certificates of Amendment, Amended and Restated Regulations, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Inline XBRL documents[208] Signatures Report signed by Chairman, President & CEO Mark A. Klein and EVP & CFO Anthony V. Cosentino on August 7, 2025 - The report was signed by Mark A. Klein, Chairman, President & CEO, and Anthony V. Cosentino, Executive Vice President & Chief Financial Officer, on August 7, 2025[212]