SB Financial Group(SBFG) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements for SB Financial Group, Inc. as of June 30, 2022, showing decreased assets and net income Condensed Consolidated Balance Sheets Total assets decreased to $1.29 billion by June 30, 2022, while total loans increased, and shareholders' equity declined due to unrealized losses | ($ in thousands) | June 30, 2022 (unaudited) | December 31, 2021 (audited) | | :--- | :--- | :--- | | Total Assets | $1,293,972 | $1,330,854 | | Cash and due from banks | $29,567 | $149,511 | | Loans, net | $881,810 | $808,909 | | Total Liabilities | $1,169,416 | $1,185,925 | | Total deposits | $1,071,779 | $1,113,045 | | Total Shareholders' Equity | $124,556 | $144,929 | Condensed Consolidated Statements of Income Net income for Q2 2022 decreased to $2.8 million, and for the six months to $5.6 million, primarily due to reduced noninterest income | ($ in thousands, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $9,593 | $9,157 | $18,070 | $18,782 | | Provision for loan losses | - | - | - | $750 | | Total Noninterest Income | $4,673 | $6,537 | $10,475 | $17,459 | | Gain on sale of mortgage loans & OMSR | $1,196 | $4,255 | $2,872 | $10,114 | | Total Noninterest Expense | $10,802 | $11,076 | $21,661 | $21,985 | | Net Income | $2,834 | $3,761 | $5,647 | $10,842 | | Diluted EPS | $0.40 | $0.52 | $0.79 | $1.49 | Notes to Condensed Consolidated Financial Statements Detailed notes disclose upcoming CECL adoption, loan portfolio growth, stable credit quality, and increased unrealized losses on available-for-sale securities - The company will adopt the new CECL standard (ASU 2016-13) for financial instruments and credit losses, replacing the current incurred loss model with an expected loss model, effective January 1, 2023[22][25] - A 5% common stock dividend was declared on January 10, 2022, and paid on February 4, 2022, increasing the authorized number of common shares from 10,000,000 to 10,500,000[31][33] - Total unrealized losses in the available-for-sale securities portfolio increased significantly to $28.1 million as of June 30, 2022, from $3.6 million at December 31, 2021, with no other-than-temporary-impairment determined[38] - As of June 30, 2022, all loans previously modified under Section 4013 of the CARES Act due to COVID-19 had returned to normal payment terms[73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the decline in net income due to rising interest rates impacting mortgage banking, alongside strong loan growth and stable asset quality Results of Operations Net income and diluted EPS significantly declined in Q2 and H1 2022, primarily due to reduced mortgage loan volume and noninterest income - Q2 2022 net income was negatively impacted by a significant decline in mortgage loan volume and sales due to rising interest rates, reduced refinance activity, and constrained housing inventories, with PPP-related revenue also down by $2.05 million compared to Q2 2021[146] - For the first six months of 2022, net interest income decreased by $0.7 million to $18.1 million, primarily because PPP loan fees and interest fell to $0.1 million from $2.2 million in the prior-year period[158] | Asset Quality Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Nonperforming assets/Total assets | 0.42% | 0.46% | | Allowance for loan losses/Total loans | 1.54% | 1.56% | | Nonaccruing loans ($ in thousands) | $3,998 | $3,615 | Changes in Financial Condition Total assets decreased to $1.29 billion, while loans grew 8.9%, deposits declined, and shareholders' equity reduced due to investment portfolio losses - Total loans, net of unearned income, grew by $73.0 million (8.9%) to $895.6 million since year-end 2021[163] - Total equity decreased from 10.9% to 9.6% of total assets, driven by a $20.4 million increase in the unrealized loss on the company's investment portfolio[164] Capital Resources and Liquidity State Bank remains well-capitalized with a 13.21% Tier 1 Capital ratio, despite a decrease in liquid assets, maintaining FHLB borrowing capacity | Capital Ratios (State Bank) | June 30, 2022 | To Be Well Capitalized | | :--- | :--- | :--- | | Tier I Capital to average assets | 10.72% | > 5.0% | | Tier I Common equity capital to risk-weighted assets | 13.21% | > 6.5% | | Tier I Capital to risk-weighted assets | 13.21% | > 8.0% | | Total Risk-based capital to risk-weighted assets | 14.46% | > 10.0% | - Liquid assets, including cash, securities available-for-sale, and loans held for sale, totaled $301.7 million at June 30, 2022, compared to $422.9 million at December 31, 2021[169] Quantitative and Qualitative Disclosures About Market Risk No material change in the company's market risk has occurred since the Annual Report on Form 10-K for December 31, 2021 - There has been no material change in the Company's market risk since the year ended December 31, 2021[193] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[194][196] - No changes occurred during the fiscal quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[195] PART II – OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal actions, with no expected material adverse effect on its financial condition or operations - The company is party to various legal actions incidental to its business, but management does not expect any resulting liability to have a material adverse effect on its financial condition[197] Risk Factors This section refers to the Annual Report on Form 10-K for detailed risk factors, noting no material changes since December 31, 2021 - For a detailed discussion of risk factors, the report refers to "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021[198] Unregistered Sales of Equity Securities and Use of Proceeds The company continued its share repurchase program, buying 94,211 common shares at an average price of $18.07 during Q2 2022 | Period | Total Shares Purchased | Weighted Average Price Paid per Share | | :--- | :--- | :--- | | 04/01/22 - 04/30/22 | 17,766 | $19.10 | | 05/01/22 - 05/31/22 | 33,068 | $18.07 | | 06/01/22 - 06/30/22 | 43,377 | $17.65 | | Total Q2 2022 | 94,211 | $18.07 | - The company's share repurchase program, originally authorized through May 31, 2022, was extended by the board of directors through December 31, 2022[199]