EDGAR 10-K Filing

Company CIK: 767405
Filing Year: 2025
Filename: 767405_10-K_2025_0001213900-25-021622.json

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ITEM 1. BUSINESS
Item 1. Business.
Certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Cautionary Statement Regarding Forward-Looking Information” under Item 1A. Risk Factors on page 13 of this Annual Report on Form 10-K.
General
SB Financial Group, Inc., an Ohio corporation (the “SB Financial”), is a financial holding company subject to regulation under the Bank Holding Company Act of 1956, as amended, and to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or the “FRB”). SB Financial was organized in 1983. The executive offices of the SB Financial are located at 401 Clinton Street, Defiance, Ohio 43512.
Through its direct and indirect subsidiaries, SB Financial is engaged in a variety of financial activities, including commercial banking, and wealth management services, as explained in more detail below.
As used in this Annual Report on Form 10-K, the “Company” refers to SB Financial and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to the registrant, SB Financial.
The State Bank and Trust Company
The State Bank and Trust Company (“State Bank”) is an Ohio state-chartered bank and wholly owned subsidiary of SB Financial. State Bank offers a full range of commercial banking services, including checking accounts, savings accounts, money market accounts and time certificates of deposit; automatic teller machines (“ATMs”); commercial, consumer, agricultural and residential mortgage loans; personal and corporate trust services; commercial leasing; bank credit card services; safe deposit box rentals; internet banking; private client group services; and other personalized banking services. The trust and financial services division of State Bank offers various trust and financial services, including asset management services for individuals and corporate employee benefit plans, as well as brokerage services through Cetera Investment Services, an unaffiliated company. State Bank presently operates 25 banking centers, located within the Ohio counties of Allen, Defiance, Franklin, Fulton, Hancock, Lucas, Paulding, Ottawa, Williams and Wood, and one banking center located in Allen County, Indiana. State Bank also presently operates seven loan production offices, located in Franklin and Lucas Counties, Ohio, Boone, Hamilton and Steuben Counties, Indiana, and Monroe County, Michigan. At December 31, 2024, State Bank had 244 full-time equivalent employees.
SBFG Title, LLC
SBFG Title, LLC dba Peak Title Agency (“SBFG Title”) was formed as an Ohio limited liability company in January 2019 and purchased all of the assets and real estate of an Ohio-based title agency effective March 15, 2019. SBFG Title is a wholly owned subsidiary of SB Financial. SBFG Title provides title insurance and operates two locations within the Ohio Counties of Franklin and Williams. At December 31, 2024, SBFG Title had 8 full-time equivalent employees.
SBT Insurance
SBT Insurance, LLC (“SBI”) is an Ohio corporation and wholly owned subsidiary of State Bank. SBI is an insurance company that engages in the sale of insurance products to retail and commercial customers of State Bank. At December 31, 2024, SBI had no employees.
SB Captive
SB Captive, Inc. (“SB Captive”) is a Nevada corporation and wholly owned subsidiary of SB Financial. SB Captive is a self-insurance company that provides coverage to State Bank and SB Financial. The purpose of the SB Captive is to mitigate insurance risk by participating in a pool with other banks. At December 31, 2024, SB Captive had no employees.
Rurban Statutory Trust II
Rurban Statutory Trust II (“RST II”) is a trust that was organized in August 2005. In September 2005, RST II closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures with terms similar to the Capital Securities. The sole assets of RST II are the junior subordinated debentures and the back-up obligations, which in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of RST II under the Capital Securities.
Dissolved Subsidiaries
In December 2024, the Company completed the dissolution of four of its inactive subsidiaries: RFCBC, Inc., Rurbanc Data Services Inc., Rurban Mortgage Company, and SBFG Mortgage, LLC.
Competition
The Company experiences significant competition in attracting depositors and borrowers. Competition in lending activities comes principally from other commercial banks in the lending areas of State Bank, and to a lesser extent, from savings associations, insurance companies, governmental agencies, credit unions, securities brokerage firms, finance companies, financial technology companies (“fintechs”) and pension funds. The primary factors in competing for loans are interest rates and overall banking services.
State Bank’s competition for deposits comes from other commercial banks, savings associations, money market funds and credit unions as well as from insurance companies, securities brokerage firms, and fintechs. The primary factors in competing for deposits are interest rates paid on deposits and convenience of office location. State Bank operates in the highly competitive wealth management services field and its competition consists primarily of other bank wealth management departments.
Supervision and Regulation
The following is a summary discussion of the significant statutes and regulations applicable to the Company. This discussion is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are described. Also, such statutes, regulations and policies are continually under review by the U.S. Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to the Company could have a material effect on our business.
Regulation of Bank Holding Companies and Their Subsidiaries in General
SB Financial is a financial holding company and, as such, is subject to regulation under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). SB Financial is subject to the reporting requirements of, and examination and regulation by, the FRB. The FRB has extensive enforcement authority over bank holding companies, including, without limitation, the ability to assess civil money penalties, issue cease and desist or removal orders, and require that a bank holding company divest subsidiaries, including its subsidiary banks. In general, the FRB may initiate enforcement actions for violations of laws and regulations and for unsafe or unsound practices. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the bank holding company or its subsidiaries.
The Bank Holding Company Act requires the prior approval of the FRB before a financial or bank holding company may acquire direct or indirect ownership or control of more than 5 percent of the voting shares of any bank (unless the bank is already majority owned by the bank holding company), acquire all or substantially all of the assets of another bank or another financial or bank holding company, or merge or consolidate with any other bank holding company. Subject to certain exceptions, the Bank Holding Company Act also prohibits a financial or bank holding company from acquiring 5 percent or more of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. The primary exception to this prohibition allows a bank holding company to own shares in any company the activities of which the FRB had determined, as of November 19, 1999, to be so closely related to banking as to be a proper incident thereto.
In April 2020, the FRB adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the Bank Holding Company Act. The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the FRB generally views as supporting a facts-and-circumstances determination that one company controls another company. The FRB’s final rule applies to questions of control under the Bank Holding Company Act but does not extend to the Change in Bank Control Act.
As a result of the Gramm-Leach-Bliley Act of 1999, also known as the Financial Services Modernization Act of 1999, which amended the Bank Holding Company Act, bank holding companies that are financial holding companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (1) financial in nature or incidental to such financial activity (as determined by the FRB in consultation with the Secretary of the Treasury), or (2) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. Activities that are financial in nature include securities underwriting dealing and market-making, insurance underwriting and agency, and merchant banking activities. On January 2, 2019, SB Financial elected, and received approval from the FRB, to become a financial holding company.
Various requirements and restrictions under the laws of the United States and the State of Ohio affect the operations of State Bank, including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, and limitations on branching.
Various consumer laws and regulations also affect the operations of State Bank. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) established the Consumer Financial Protection Bureau (the “CFPB”), which regulates consumer financial products and services and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive or abusive acts or practices and ensures consistent enforcement of laws so that consumers have access to fair, transparent and competitive markets for consumer financial products and services. Since it was established, the CFPB has exercised extensively its rulemaking and interpretative authority.
The Federal Home Loan Bank (the “FHLB”) provide credit to their members in the form of advances. As a member of the FHLB of Cincinnati, State Bank must maintain certain minimum investments in the capital stock of the FHLB of Cincinnati. State Bank was in compliance with these requirements at December 31, 2024.
Federal Reserve System
The FRB requires all depository institutions to maintain reserves at specified levels against their transaction accounts, primarily checking accounts. In response to the COVID-19 pandemic, the FRB reduced reserve requirement ratios to 0 percent effective on March 26, 2020, to support lending to households and businesses. The reserve requirement ratio remained at 0 percent as of December 31, 2024.
Economic Growth, Regulatory Relief and Consumer Protection Act
On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eased restrictions on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding companies with consolidated assets of less than $100 billion, including the Company, are no longer subject to enhanced prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including the Company, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with consolidated assets in excess of $50 billion and so did not apply to the Company even before the enactment of the Regulatory Relief Act.
Restrictions on Dividends
There can be no assurance as to the amount of dividends which may be declared in future periods with respect to the common shares of the Company, since such dividends are subject to the discretion of the Company’s Board of Directors, cash needs, and general business conditions, dividends from the Company’s subsidiaries and applicable governmental regulations and policies.
The ability of the Company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends that may be declared by State Bank and the Company’s other subsidiaries. State Bank may not pay dividends to the Company if, after paying such dividends, it would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. In addition, State Bank must obtain the approval of the FRB and the Ohio Division of Financial Institutions (the “ODFI”) if a dividend in any year would cause the total dividends for that year to exceed the sum of the current year’s net profits and the retained net profits for the preceding two years, less required transfers to surplus. At December 31, 2024, State Bank had $24.7 million of excess earnings over the preceding three years.
Payment of dividends by State Bank may be restricted at any time at the discretion of the regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice. Moreover, the FRB expects the Company to serve as a source of strength to its subsidiary bank, which may require it to retain capital for further investment in the subsidiary, rather than for dividends to shareholders of the Company.
The Company’s ability to pay dividends on its shares is also conditioned upon the payment, on a current basis, of quarterly interest payments on the subordinated debentures underlying the Company’s trust preferred securities. In addition, under the terms of the Company’s fixed-to-floating rate subordinated debt, the Company’s ability to pay dividends on its shares is conditioned upon the Company continuing to make required principal and interest payments, and not incurring an event of default, with respect to the subordinated debt.
Transactions with Affiliates and Insiders
The Company and State Bank are separate and distinct legal entities. The FRB’s Regulation W and various other legal limitations restrict State Bank from lending funds to, or engaging in other “covered transactions” with, the Company (or any other affiliate), generally limiting such covered transactions with any one affiliate to 10 percent of State Bank’s capital and surplus and limiting all such covered transactions with all affiliates to 20 percent of State Bank’s capital and surplus. Covered transactions, including extensions of credit, sales of securities or assets and provision of services, also must be on terms and conditions consistent with safe and sound banking practices, including credit standards, that are substantially the same or at least as favorable to State Bank as those prevailing at the time for transactions with unaffiliated companies.
A bank’s authority to extend credit to executive officers, directors and greater than 10 percent shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the FRB. Among other things, these loans must be made on terms (including interest rates charged and collateral required) that are substantially the same as those offered to unaffiliated individuals or be made as part of a benefit or compensation program and on terms widely available to employees, and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these persons is based, in part, on the bank’s capital position, and certain approval procedures must be followed in making loans which exceed specified amounts.
Federally insured banks are subject, with certain exceptions, to certain additional restrictions (including collateralization) on extensions of credit to their parent holding companies or other affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower. In addition, such banks are prohibited from engaging in certain tying arrangements in connection with any extension of credit or the providing of any property or service.
Regulatory Capital
The risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standard” (Basel I), published by the Basel Committee on Banking Supervision (the “Basel Committee”). In July 2013, the United States banking regulators issued new capital rules applicable to smaller banking organizations which also implement certain of the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). Community banking organizations, including the Company and State Bank, began transitioning to the new rules on January 1, 2015. The new minimum capital requirements became effective on January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phased in from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015 through January 1, 2019.
The Basel III Capital Rules include (a) a minimum common equity tier 1 capital ratio of 4.5%, (b) a minimum Tier 1 capital ratio of 6.0%, (c) a minimum total capital ratio of 8.0%, and (d) a minimum leverage ratio of 4.0%.
Common equity for the common equity tier 1 capital ratio generally includes common stock (plus related surplus), retained earnings, accumulated other comprehensive income (unless an institution elects to exclude such income from regulatory capital), and limited amounts of minority interests in the form of common stock, subject to applicable regulatory adjustments and deductions.
Tier 1 capital generally includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain deductions.
Tier 2 capital, which can be included in the total capital ratio, generally consists of other preferred stock and subordinated debt meeting certain conditions plus limited amounts of the allowance for credit losses (“ACL”), subject to specified eligibility criteria, less applicable deductions.
The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).
Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the banking organization does not hold a capital conservation buffer of greater than 2.5 percent composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter.
In September 2019, the FRB, along with other federal bank regulatory agencies, issued a final rule, effective January 1, 2020, that gave community banks, including State Bank, the option to calculate a simple leverage ratio to measure capital adequacy if the community banks met certain requirements. Under the rule, a community bank was eligible to elect the Community Bank Leverage Ratio (“CBLR”) framework if it had less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a leverage ratio greater than 9.0%. Qualifying institutions that elected to use the CBLR framework (each, a “CBLR Bank”) and that maintain a leverage ratio of greater than 9.0% will be considered to have satisfied the risk-based and leverage capital requirements in the regulatory agencies’ generally applicable capital rules and to have met the well-capitalized ratio requirements. No CBLR Bank was required to calculate or report risk-based capital, and each CBLR Bank could opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rule. Pursuant to the CARES Act, on August 26, 2020, the federal banking agencies adopted a final rule that temporarily lowered the CBLR threshold and provided a gradual transition back to the prior level. Specifically, the CBLR threshold was reduced to 8.0% for the remainder of 2020, increased to 8.5% for 2021, and returned to 9.0% on January 1, 2022. This final rule became effective on October 1, 2020. The Company did not utilize the CBLR in assessing capital adequacy and continued to follow existing capital rules.
In December 2018, the federal banking agencies issued a final rule to address regulatory capital treatment of credit loss allowances under the current expected credit loss (“CECL”) model (accounting standard). The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model. Upon the Company’s adoption of CECL effective January 1, 2023, the Company recognized a one-time cumulative effect adjustment (increase) to the ACL of $1.4 million and did not elect to utilize the three-year phase in. The Company’s risk-based capital ratios remained in excess of “well-capitalized” levels after the impact of the one-time cumulative effect adjustment.
At December 31, 2024, State Bank was in compliance with all of the regulatory capital requirements to which it was subject. For State Bank’s capital ratios, see Note 16 to the Consolidated Financial Statements under Item 8 of this Report on Form 10-K (the “Consolidated Financial Statements”).
The FRB has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled state-chartered member banks. At each successively lower defined capital category, a bank is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the FRB has less flexibility in determining how to resolve the problems of the institution. In addition, the FRB generally can downgrade a bank’s capital category, notwithstanding its capital level, if, after notice and opportunity for hearings, the bank is deemed to be engaged in an unsafe or unsound practice, because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an unsafe or unsound condition. State Bank’s capital at December 31, 2024, met the standards for the highest capital category, a “well-capitalized” bank.
In April 2015, the FRB issued a final rule which increased the size limitation for qualifying bank holding companies under the FRB’s Small Bank Holding Company Policy Statement from $500 million to $1 billion of total consolidated assets. In August 2018, the FRB issued an interim final rule, as required by the Regulatory Relief Act, to further increase size limitations under the Small Bank Holding Company Policy Statement to $3 billion of total consolidated assets. The Company continues to qualify under the Small Bank Holding Company Policy Statement for exemption from the FRB’s consolidated risk-based capital and leverage rules at the holding company level.
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (the “FDIC”) is an independent federal agency, which insures the deposits of federally insured banks and savings associations up to certain prescribed limits and safeguards the safety and soundness of financial institutions. The general insurance limit is $250,000 per separately insured depositor. This insurance is backed by the full faith and credit of the United States government.
As insurer, the FDIC is authorized to conduct examinations of and to require reporting by insured institutions, including State Bank, to prohibit any insured institution from engaging in any activity the FDIC determines to pose a threat to the Deposit Insurance Fund (the “DIF”), and to take enforcement actions against insured institutions. The FDIC may terminate insurance of deposits of any institution if the FDIC finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or other regulatory agency.
The FDIC assesses a quarterly deposit insurance premium on each insured institution based on risk characteristics of the insured institution to the DIF, with institutions deemed less risky paying lower rates. Currently, assessments for institutions with less than $10 billion of total assets are based on financial measures and supervisory ratings derived from statistical models that estimate the probability of failure within three years. The FDIC may increase or decrease the range of assessments uniformly, except that no adjustments can deviate more than two basis points from the base assessment without notice and comment rule making. The FDIC may also impose special assessments in emergency situations, which fund the DIF. The FDIC has established 2 percent as the Designated Reserve Ratio (“DRR”), which is the amount in the DIF as a percentage of all DIF insured deposits. In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35 percent by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act required the FDIC to offset the effect on insured institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. Although the FDIC’s rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets of $10 billion or more to be paid until the DRR reached 1.35%. The DRR met the statutory minimum of 1.35% on September 30, 2018. As a result, the previous surcharge imposed on banks with assets of $10 billion or more was lifted. In addition, preliminary assessment credits have been determined by the FDIC for banks with assets of less than $10 billion, which had previously contributed to the increase of the DRR to 1.35%.
On June 30, 2019, the DRR reached 1.40%, and the FDIC applied credits for banks with assets of less than $10 billion (“small bank credits”) beginning September 30, 2019. As of June 30, 2020, the DRR fell below the minimum DRR to 1.30%. As a result, the FDIC adopted a restoration plan requiring the restoration of the DRR to 1.35% within eight years (September 30, 2028). The FDIC rules further changed the method of determining risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk. As of September 30, 2022, the DRR was 1.26%. Because the DRR remained below the statutory minimum, the FDIC adopted a final rule in October 2022 increasing the assessment rate from three basis points to five basis points beginning with the first quarterly assessment period of 2023. In the FDIC’s most recent semiannual update for the Amended Restoration Plan in October 2024, the FDIC noted a 6 basis point increase in the reserve ratio, from 1.15% as of December 31, 2023 to 1.21% as of June 30, 2024. The FDIC staff projected that the reserve ratio remains on track to reach the statutory minimum of 1.35% ahead of the deadline of September 30, 2028. As a result, the FDIC staff recommended no changes to the Amended Restoration Plan and all scheduled assessment rates were maintained.
On November 16, 2023, the FDIC adopted a final rule implementing a special assessment to recover the loss to the DIF arising from the protection of uninsured depositors following the failures of Silicon Valley Bank and Signature Bank. The assessment base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits reported for the quarter ended December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. The FDIC began collecting the special assessment at an annual rate of approximately 13.4 basis points, over eight quarterly assessment periods, beginning with the first quarter of 2024. Because State Bank’s uninsured deposits were less than $5 billion for the quarter ended December 31, 2022, State Bank is not subject to this special assessment.
The FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance fund and may initiate enforcement actions against a bank, after first giving the institution’s primary regulatory authority an opportunity to take such action. The FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, order or condition imposed by the FDIC.
Community Reinvestment Act
The Community Reinvestment Act (the “CRA”) requires State Bank’s primary federal regulatory agency, the FRB, to assess State Bank’s record in meeting the credit needs of the communities served by State Bank. The FRB assigns one of four ratings: outstanding, satisfactory; needs to improve or substantial noncompliance. The rating assigned to a financial institution is considered in connection with various applications submitted by the financial institution or its holding company to its banking regulators, including applications to acquire another financial institution or to open or close a branch office. In addition, all subsidiary banks of a financial holding company must maintain a satisfactory or outstanding rating in order for the financial holding company to avoid limitations on its activities. State Bank received a satisfactory rating in its most recent CRA examination.
On October 24, 2023, the federal banking agencies, including the FRB, issued a final rule designed to strengthen and modernize the regulations implementing the CRA. The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry, including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations, and tailor CRA evaluations and data collection to bank size and type. The applicability date for the majority of the changes to the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. The Company is still evaluating and cannot predict the impact the changes to the CRA may have on its operations at this time.
SEC and NASDAQ Regulation
The Company is subject to the jurisdiction of the Securities and Exchange Commission (the “SEC”) and certain state securities authorities relating to the offering and sale of its securities. The Company is subject to the registration, reporting and other regulatory requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules adopted by the SEC under those acts. The Company’s common shares are listed on The NASDAQ Capital Market (“NASDAQ”) under the symbol “SBFG”. As a result, the Company is subject to NASDAQ rules and regulations applicable to listed companies.
The SEC has adopted rules and regulations governing, among other matters, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. The SEC has also approved corporate governance rules promulgated by NASDAQ. The Company has adopted and implemented a Code of Conduct and Ethics and a copy of that policy can be found on the Company’s website at www.YourSBFinancial.com by first clicking “Corporate Overview” and then “Governance Documents”. The Company has also adopted charters of the Audit Committee, the Compensation Committee and the Governance and Nominating Committee, which charters are available on the Company’s website at www.YourSBFinancial.com by first clicking “Corporate Overview” and then “Governance Documents”.
USA Patriot Act and Anti-Money Laundering Act
The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”) gives the United States government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Title III of the Patriot Act encourages information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions. Among other requirements, Title III and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. State Bank has established policies and procedures that State Bank believes comply with the requirements of the Patriot Act.
The Anti-Money Laundering Act of 2020 (the “AMLA”), which amends the Bank Secrecy Act of 1970 (the “BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower initiatives and protections.
Office of Foreign Assets Control Regulation
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. State Bank is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
Executive and Incentive Compensation
The Dodd-Frank Act requires that the federal banking agencies, including the FRB and the FDIC, issue a rule related to incentive-based compensation. No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a proposed rule was published in 2016, and again in 2024, that expanded upon a prior proposed rule published in 2011. The proposed rule is intended to: (i) prohibit incentive-based payment arrangements that the banking agencies determine could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to material financial loss; (ii) require the board of directors of those financial institutions to take certain oversight actions related to incentive-based compensation; and (iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator. Although a final rule has not been issued, the Company has undertaken efforts to ensure that the Company’s incentive compensation plans do not encourage inappropriate risks, consistent with the principles identified above.
In June 2010, the FRB, the Office of the Comptroller of the Currency (the “OCC”) and the FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, described above.
The FRB and the OCC review, as part of their respective regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company and State Bank, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Public company compensation committee members must meet heightened independence requirements and consider the independence of compensation consultants, legal counsel and other advisors to the compensation committee. A compensation committee must have the authority to hire advisors and to have the public company fund reasonable compensation of such advisors.
SEC regulations require public companies to provide various disclosures about executive compensation in annual reports and proxy statements and to present to their shareholders a non-binding vote on the approval of executive compensation.
Following the adoption of additional listing requirements in 2023 to comply with the Dodd-Frank Act and rules adopted by the SEC in October 2022, public companies are now required to adopt and implement “clawback” policies for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating a restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within the three completed fiscal years immediately preceding the date the issuer is required to prepare a restatement and would cover all executives who received incentive awards. The Company’s clawback policy adopted in accordance with these listing standards is included as Exhibit 97.
Consumer Protection Laws and Regulations
Banks are subject to regular examination to ensure compliance with federal consumer protection statutes and regulations, including, but not limited to, the following:
● The Equal Credit Opportunity Act (prohibiting discrimination in any credit transaction on the basis of any of various criteria);
● The Truth in Lending Act (requiring that credit terms are disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably);
● The Fair Housing Act (making it unlawful for a lender to discriminate in housing-related lending activities against any person on the basis of certain criteria);
● The Home Mortgage Disclosure Act (requiring financial institutions to collect data that enables regulatory agencies to determine whether financial institutions are serving the housing credit needs of the communities in which they are located);
● The Real Estate Settlement Procedures Act (requiring that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers’ costs); and
● Privacy provisions of the Gramm-Leach-Bliley Act (requiring financial institutions to establish policies and procedures to restrict the sharing of non-public customer data with non-affiliated parties and to protect customer information from unauthorized access).
The banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of a specific banking or consumer finance law.
Financial Privacy Provisions
Federal and state regulations limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
State Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information. These guidelines describe the federal bank regulatory agencies’ expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack. If State Bank fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.
In November 2021, the OCC, the FRB and the FDIC issued a final rule, which became effective in May 2022, requiring banking organizations that experience a computer-security incident to notify certain entities. A computer-security incident occurs when actual or potential harm to the confidentiality, integrity, or availability of an information system or the information occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the computer-security incident as soon as possible and no later than 36 hours after the bank determines a computer-security incident that rises to the level of a notification incident has occurred. These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into larger incidents. This rule also requires bank service providers to notify their bank organization customers of a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.
Furthermore, the Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, will require, once administrative rules are adopted, certain covered entities, including those in the financial services industry, to report a covered cyber incident to the U.S. Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (“CISA”) within 72 hours after a covered entity reasonably believes an incident has occurred. Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. The Company expects this trend of state-level activity in those areas to continue and is continually monitoring developments in the states in which our customers are located.
On July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents in Current Reports on Form 8-K and detailed information regarding their cybersecurity risk management, strategy, and governance on an annual basis in their Annual Reports on Form 10-K. See ITEM 1C. CYBERSECURITY. Public companies are now required to report on Form 8-K any cybersecurity incident they determine to be material within four business days of making that determination. These SEC rules, and related regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking laws and regulations.
In the ordinary course of business, the Company relies on electronic communications and information systems to conduct its operations and to store sensitive data. The Company employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. The Company employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. The Company also regularly invests in new products and technology to further enhance these tools and mechanisms. Notwithstanding the strength of the Company’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, the Company has not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, the Company’s systems and those of its customers and third-party service providers are under constant threat and it is possible that the Company could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.
Effect of Environmental Regulation
Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of the Company. The Company believes that the nature of its operations has little, if any, environmental impact. The Company, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the near future. The Company may be required to make capital expenditures for environmental control facilities related to properties which they may acquire through foreclosure proceedings in the future; however, the amount of such capital expenditures, if any, is not currently determinable.
Effects of Government Monetary Policy
The earnings of the Company are affected by general and local economic conditions and by the policies of various governmental regulatory authorities. In particular, the FRB regulates money and credit conditions and interest rates to influence general economic conditions, primarily through open market acquisitions or dispositions of United States Government securities, varying the discount rate on member bank borrowings and setting reserve requirements against member and nonmember bank deposits. FRB monetary policies have had a significant effect on the interest income and interest expense of commercial banks, including State Bank, and are expected to continue to do so in the future.
Human Capital Resources
Our employees are vital to our success in the financial services industry. As a human-capital intensive business, the long-term success of our company depends on our people. Our goal is to ensure that we have the right talent, in the right place, at the right time. We do that through our commitment to attracting, developing and retaining our employees.
We strive to attract individuals who are people-focused and share our values. We have a comprehensive program dedicated to selecting new talent and enhancing the skills of our employees. In our recruiting efforts, we strive to have a diverse group of candidates to consider for our roles.
We have designed a compensation structure that we believe is attractive to our current and prospective employees. We also offer our employees the opportunity to participate in a variety of professional and leadership development programs. Our programs include a variety of industry, product, technical, professional, business development, leadership and regulatory topics. These programs are available online and in-person. In addition, we encourage all employees to be involved in the communities we serve through various volunteer activities.
We seek to retain our employees by using their feedback to create and continually enhance programs that support their needs. We use company-wide surveys to solicit feedback from our employees. We have a formal annual goal setting and performance review process for our employees. We promote a values-based culture, an important factor in retaining our employees. Our training, to share and communicate our culture to all employees, plays an important part in this process. We are committed to having a diverse workforce, and an inclusive work environment is a natural extension of our culture. We are committed to ensuring that all our employees feel welcomed, valued, respected and heard so that they can fully contribute their unique talents for the benefit of our customers, their careers, our company and our communities.
We monitor and evaluate various turnover and attrition metrics throughout our organization. Our annualized voluntary turnover is relatively low, as is the case for turnover of our top performers, a record which we attribute to our strong values-based culture, commitment to career development, and attractive compensation and benefit programs.
At December 31, 2024, the Company employed approximately 252 full-time equivalent employees to whom a variety of benefits are provided. Management considers its relationship with its employees to be good.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this Annual Report on Form 10-K, and in other statements that we make from time to time in filings by the Company with the SEC, in press releases, and in oral and written statements made by or with the approval of the Company which are not statements of historical fact constitute forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include: (a) projections of income or expense, earnings per share, the payment or non-payment of dividends, capital structure and other financial items; (b) statements of plans and objectives of the Company or our Board of Directors or management, including those relating to products and services; (c) statements of future economic performance; (d) statements of future customer attraction or retention; and (e) statements of assumptions underlying these statements. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as “anticipates”, “believes”, “estimates”, “expects”, “intends”, “may”, “plans”, “projects”, “should”, “will allow”, “will continue”, “will likely result”, “will remain”, “would be”, or similar expressions.
The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements. We desire to take advantage of the “safe harbor” provisions of the Reform Act.
Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those factors discussed in the Risk Factors below. There is also the risk that the Company’s management or Board of Directors incorrectly analyzes these risks and forces, or that the strategies the Company develops to address them are unsuccessful.
Forward-looking statements speak only as of that date on which they are made. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made. All forward-looking statements attributable to the Company or any person acting on our behalf are qualified in their entirety by the following cautionary statements.
Risk Factors
The following sets forth certain risk factors that we are believe are relevant to the Company and its business. These risk factors are not presented in any particular order and do not constitute all of the risks that may affect our business. Additional risks that are not presently known or that we currently deem to be immaterial could also have a material adverse impact on our business, financial condition, or results of operations.
Economic, Market and Political Risks:
Changes in economic and political conditions could adversely affect our earnings through declines in deposits, loan demand, the ability of our customers to repay loans and the value of collateral securing our loans.
Our success depends to a large extent upon local and national economic conditions, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, an increasing federal government budget deficit, the failure of the federal government to raise the federal debt ceiling and/or possible future U.S. government shutdowns over budget disagreements, slowing gross domestic product, tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars, and other factors beyond our control may adversely affect our deposit levels and composition, the quality of investment securities available for purchase, demand for loans, the ability of our borrowers to repay their loans, and the value of the collateral securing loans made by us. Disruptions in U.S. and global financial markets, and changes in oil production in the Middle East also affect the economy and stock prices in the U.S., which can affect our earnings capital, as well as the ability of our customers to repay loans. Because we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings and cash flows. In addition, our lending and deposit gathering activities are concentrated primarily in Northwest and Central Ohio. As a result, our success depends in large part on the general economic conditions of these areas, particularly given that a significant portion of our lending relates to real estate located in this region. Therefore, adverse changes in the economic conditions in these areas could adversely impact our earnings and cash flows.
Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition.
The macroeconomic environment in the U.S. is susceptible to global events and volatility in financial markets. In addition, trade negotiations between the U.S. and other nations, including negotiations related to recent tariffs and threats of tariffs by the U.S., remain uncertain and could adversely impact economic and market conditions for the Company and our clients and counterparties. Instability in global economic conditions and geopolitical matters, such as military conflicts in Ukraine and the Middle East, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition. For example, on February 24, 2022, Russian military forces invaded Ukraine, and sustained conflict and disruption in the region have occurred and remains likely to continue. In addition, the October 7, 2023, attack by Hamas in Israel has resulted in prolonged conflict and disruption in the Middle East. Although the length, impact and outcome of the ongoing war in Ukraine and the conflict in the Middle East are highly unpredictable, these conflicts have resulted, and could continue to result, in significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences, as well as increases in cyberattacks and espionage. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and the Company’s business for an unknown period of time. Any of the above-mentioned events or disruptions could affect our business, financial condition and operating results, and may also magnify the impact of other risks described in this Form 10-K.
We may be unable to manage interest rate risks, which could reduce our net interest income.
Our results of operations are affected principally by net interest income, which is the difference between interest earned on loans and investments and interest expense paid on deposits and other borrowings. The spread between the yield on our interest-earning assets and our overall cost of funds may be compressed, and our net interest income may continue to be adversely impacted by changing rates. We cannot predict or control changes in interest rates. National, regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the FRB, affect the movement of interest rates and our interest income and interest expense. If the interest rates paid on deposits and other borrowed funds increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected in a declining rate environment if the interest paid for deposits decrease more slowly than the interest rates received on loans and other investments.
In addition, certain assets and liabilities may react in different degrees to changes in market interest rates. For example, interest rates on some types of assets and liabilities may fluctuate prior to changes in broader market interest rates, while interest rates on other types may lag behind. While the bulk of our variable rate commercial assets have interest rate floors, some of our assets, such as adjustable rate mortgages, have features that restrict changes in their interest rates, including rate caps.
We believe that the impact on our cost of funds will depend on a number of factors, including but not limited to, the competitive environment in the banking sector for deposit pricing, opportunities for clients to invest in other markets such as fixed income and equity markets, and the propensity of customers to invest in their businesses. The effect on our net interest income from a change in interest rates will ultimately depend on the extent to which the aggregate impact of loan re-pricings exceeds the impact of increases in our cost of funds.
Changes in interest rates may affect the level of voluntary prepayments on our loans and may also affect the level of financing or refinancing by customers. Changes in interest rates may also negatively affect the ability of the Company’s borrowers to repay their loans, particularly as interest rates rise and adjustable rate loans become more expensive.
Interest rates are highly sensitive to many factors that are beyond our control. Some of these factors include: inflation, recession, unemployment, money supply, international disorders, and instability in domestic and foreign financial markets. The Company’s management uses various measures to monitor interest rate risk and believes it has implemented effective asset and liability management strategies to reduce the potential adverse effects of changes in interest rates on the Company’s financial condition and results of operations. Management also periodically adjusts the mix of assets and liabilities to manage interest rate risk. However, any significant, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.
Risks Related to Our Business Operations:
If our actual credit losses exceed our allowance for credit losses, our net income will decrease.
Our loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant credit losses, which could have a material adverse effect on our operating results. In accordance with accounting principles generally accepted in the United States, we maintain an ACL to provide for loan defaults and non-performance, which when combined, we refer to as the ACL. Our ACL may not be adequate to cover actual credit losses, and future provisions for credit losses could have a material adverse effect on our operating results. Our ACL is based on prior experience, as well as an evaluation of the risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and ACL. We cannot guarantee that we will not further increase the ACL or that regulators will not require us to increase this allowance. Either of these occurrences could have a material adverse effect on our financial condition and results of operations.
Moreover, the Financial Accounting Standards Board (the “FASB”) has changed its requirements for establishing the ACL. On June 16, 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13 “Financial Instruments - Credit Losses”, which replaced the incurred loss model with an expected loss model and is referred to as the CECL model. Under the incurred loss model, loans were recognized as impaired when there was no longer an assumption that future cash flows would be collected in full under the originally contracted terms. Under the CECL model, financial institutions are required to use historical information, current conditions and reasonable forecasts to estimate the expected loss over the life of the loan. The transition to the CECL model requires significantly greater data requirements and changes to methodologies to accurately account for expected losses under the new parameters. If the methodologies and assumptions that we use in the CECL model are proven to be incorrect or inadequate, the ACL may not be sufficient, resulting in the need for additional ACL to be established, which could have a material adverse impact on our financial condition and results of operations.
The new CECL accounting guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019. However, the FASB deferred the effective date for this ASU for smaller reporting companies, such as the Company, to annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2022. The Company recognized a one-time cumulative effect adjustment (increase) to the ACL of $1.4 million upon adoption as of January 1, 2023. In addition, the Company established a related reserve for unfunded commitments of $1.1 million as of January 1, 2023.
If real estate markets or the economy in general deteriorate, State Bank may experience increased delinquencies and credit losses. The ACL may not be sufficient to cover actual loan-related losses. Additionally, banking regulators may require State Bank to increase its ACL in the future, which could have a negative effect on the Company’s financial condition and results of operations. Additions to the ACL will result in a decrease in net earnings and capital and could hinder our ability to grow our assets.
Any significant increase in our ACL or loan charge offs, including increases required by applicable regulatory authorities, might have a material adverse effect on the Company’s financial condition and results of operations.
Our success depends upon our ability to attract and retain key personnel.
Our success depends upon the continued service of our senior management team and upon our ability to attract and retain qualified financial services personnel. Competition for qualified employees is intense. We cannot guarantee that we will be able to retain our existing key personnel or attract additional qualified personnel. If we lose the services of our key personnel, or are unable to attract additional qualified personnel, our business, financial condition and results of operations could be adversely affected.
We depend upon the accuracy and completeness of information about customers.
In deciding whether to extend credit or enter into other transactions with customers, we may rely on information provided to us by customers, including financial statements and other financial information. We may also rely on representations of customers as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer, and we may also rely on the audit report covering those financial statements. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with generally accepted accounting principles or that are materially misleading.
We may not be able to grow, and if we do, we may have difficulty managing that growth.
Our business strategy is to continue to grow our assets and expand our operations, including through potential strategic acquisitions. Our ability to grow depends, in part, upon our ability to expand our market share, successfully attract core deposits, and to identify loan and investment opportunities as well as opportunities to generate fee-based income. We can provide no assurance that we will be successful in increasing the volume of our loans and deposits at acceptable levels and upon terms acceptable to us. We also can provide no assurance that we will be successful in expanding our operations organically or through strategic acquisitions while managing the costs and implementation risks associated with this growth strategy.
We expect to continue to experience growth in the number of our employees and customers and the scope of our operations, but we may not be able to sustain our historical rate of growth or continue to grow our business at all. Our success will depend upon the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships, and to hire, train and manage our employees. In the event that we are unable to perform all these tasks and meet these challenges effectively, including continuing to attract core deposits, our operations, and consequently our earnings, could be adversely impacted.
Acquisitions or other expansion may adversely impact our financial condition and results of operations.
We have completed various acquisitions of other financial institutions and branches and assets of other financial institutions in the past, including our recent acquisition of Marblehead Bancorp, Inc. and its banking subsidiary, The Marblehead Bank, on January 17, 2025. In the future, we may acquire other financial institutions or branches or assets of other financial institutions. We may also open new branches, enter into new lines of business, or offer new products or services. Any such acquisition or expansion of our business will involve a number of expenses and risks, which may include some or all of the following:
● the time and expense associated with identifying and evaluating potential acquisitions or expansions;
● the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to target institutions;
● the time and costs of evaluating new markets, hiring local management and opening new offices, and the delay between commencing these activities and the generation of profits from the expansion;
● any financing required in connection with an acquisition or expansion;
● the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;
● entry into unfamiliar markets and the introduction of new products and services into our existing business;
● the possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
● the risk of loss of key employees and customers.
We may incur substantial costs to expand, and we can give no assurance that such expansion will result in the levels of profits we expect. Neither can we assure that integration efforts for any future acquisitions will be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders.
We are exposed to a number of operational risks.
We are exposed to many types of operational risk, including reputational risk, legal and compliance risk, cybersecurity risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.
Given the volume of transactions we process, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process our transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control (for example, cyberattacks or electrical or telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) and to the risk that our (or our vendors’) consumer compliance, business continuity and data security systems prove to be inadequate.
Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, acquisitions, social media and other marketing activities, and from actions taken by governmental regulators and community organizations in response to any of the foregoing activities. Negative public opinion could adversely affect our ability to attract and keep customers, could expose us to potential litigation and regulatory action, and could have a material adverse effect on the price of our common shares or result in heightened volatility of our stock price.
Recent and future bank failures may adversely affect the Company’s business, earnings and financial condition.
The failure of other banks can have significant impacts on the national, regional and local banking industry and the business environment in which the Company operates. The bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California during 2023 caused a degree of panic and uncertainty in the investor community and among bank customers generally. Similar bank failures may occur in the future, which could reduce customer confidence, affect sources of funding and liquidity (for example, by increasing the withdrawal or transfer of deposits by customers), increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the banking industry as a whole. The Company will continue to monitor future potential bank failures and/or volatility within the banking industry in general, along with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the banking industry.
We could experience an unexpected inability to obtain needed liquidity which could adversely affect our business, profitability, and viability a going concern.
Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities and is essential to a financial institution’s business. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets, and its access to alternative sources of funds. The bank failures in 2023 exemplify the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. If we become unable to obtain funds when needed, it could have a material adverse effect on our business, financial condition, and results of operations.
Our information systems may experience an interruption or security breach.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of our information systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failure, interruption or security breach of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability.
Unauthorized disclosure of sensitive or confidential client information, or breaches in security of our systems, could severely harm our business.
We collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both third-party service providers and us. State Bank’s necessary dependence upon automated systems to record and process State Bank’s transactions poses the risk that technical system flaws, employee errors, tampering or manipulation of those systems, or attacks by third parties will result in losses and may be difficult to detect. We have security and backup and recovery systems in place, as well as a business continuity plan, to ensure the computer systems will not be inoperable, to the extent possible. We also routinely review documentation of such controls and backups related to third party service providers. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. In recent years, some banks have experienced cyberattacks with the goal and effect of disrupting the ability of the bank to process transactions. Other businesses and organizations have been victims of ransomware attacks in which the business becomes unable to access its own information and is presented with a demand to pay a ransom in order to once again have access to its information.
We could be adversely affected if one of our employees or a third-party service provider causes a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. State Bank is further exposed to the risk that the third-party service providers may be unable to fulfill their contractual obligations (or will be subject to the same risks as we are). These disruptions may interfere with service to our customers, cause additional regulatory scrutiny and result in a financial loss or liability. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.
Misconduct by employees could include fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information. We may not be able to prevent employee errors or misconduct, and the precautions we take to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject us to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.
In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers.
We have implemented security controls to prevent unauthorized access to our computer systems, and we require that our third-party service providers maintain similar controls. However, the Company’s management cannot be certain that these measures will be successful. A security breach of the computer systems and loss of confidential information, such as customer account numbers and related information, could result in a loss of customers’ confidence and, thus, loss of business. We could also lose revenue if competitors gain access to confidential information about our business operations and use it to compete with us. While we maintain specific “cyber” insurance coverage, which would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage.
Further, we may be affected by data breaches at retailers and other third parties who participate in data interchanges with us and our customers that involve the theft of customer credit and debit card data, which may include the theft of our debit card PIN numbers and commercial card information used to make purchases at such retailers and other third parties. Such data breaches could result in us incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on our results of operations.
There can be no assurance that we will not suffer such cyber-attacks or other information security breaches (or attempted breaches) or incur resulting losses in the future. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, and our plans to continue to implement internet and mobile banking capabilities to meet customer demand. As cyber and other data security threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance protective measures or to investigate and remediate any security vulnerabilities.
All of the types of cybersecurity incidents discussed above could result in damage to the Company’s reputation, loss of customer business, litigation, increased regulatory scrutiny and potential enforcement actions, repairs of system damage, increased investments in cybersecurity (such as obtaining additional technology, making organizational changes, deploying additional personnel, training personnel and engaging consultants), increased insurance premiums, and loss of investor confidence and a reduction in the price of our common shares, all of which could result in financial loss and material adverse effects on the Company’s results of operations and financial condition.
Our business could be adversely affected through third parties who perform significant operational services on our behalf.
The third parties performing operational services for the Company are subject to risks similar to those faced by the Company relating to cybersecurity, breakdowns or failures of their own systems, or misconduct of their employees. Like many other community banks, State Bank also relies, in significant part, on a single vendor for the systems which allow State Bank to provide banking services to State Bank’s customers.
One or more of the third parties utilized by us may experience a cybersecurity event or operational disruption and, if any such event does occur, it may not be adequately addressed, either operationally or financially, by such third party. Certain of these third parties may have limited indemnification obligations to us in the event of a cybersecurity event or operational disruption or may not have the financial capacity to satisfy their indemnification obligations.
Financial or operational difficulties of a third-party provider could also impair our operations if those difficulties interfere with such third party’s ability to serve the Company. If a critical third-party provider is unable to meet the needs of the Company in a timely manner, or if the services or products provided by such third party are terminated or otherwise delayed and if the Company is not able to develop alternative sources for these services and products quickly and cost-effectively, our business could be materially adversely affected.
Additionally, regulatory guidance adopted by federal banking regulators addressing how banks select, engage and manage their third-party relationships, affects the circumstances and conditions under which we work with third parties and the cost of managing such relationships.
Strong competition within our market area may reduce our ability to attract and retain deposits and originate loans.
We face competition both in originating loans and in attracting deposits within our market area. We compete for clients by offering personal service and competitive rates on our loans and deposit products. The type of institutions we compete with include large regional financial institutions, community banks, thrifts and credit unions operating within our market areas. Nontraditional sources of competition for loan and deposit dollars come from captive auto finance companies, mortgage banking companies, internet banks, brokerage companies, insurance companies, fintechs and direct mutual funds. As a result of their size and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer. We expect competition to remain intense in the future due to legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. In addition, to stay competitive in our markets we may need to adjust the interest rates on our products to match the rates offered by our competitors, which could adversely affect our net interest margin. As a result, our profitability depends upon our continued ability to successfully compete in our market areas while achieving our investment objectives.
We may be required to repurchase loans we have sold or indemnify loan purchasers under the terms of the sale agreements, which could adversely affect our liquidity, results of operations and financial statements.
When State Bank sells a mortgage loan, it agrees to repurchase or substitute a mortgage loan if it is later found to have breached any representation or warranty State Bank made about the loan or if the borrower is later found to have committed fraud in connection with the origination of the loan. While we have underwriting policies and procedures designed to avoid breaches of representations and warranties as well as borrower fraud, there can be no assurance that no breach or fraud will ever occur. Required repurchases, substitutions or indemnifications could have an adverse impact on our liquidity, results of operations and financial statements.
We are subject to environmental liability risk associated with lending activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws and evolving regulation may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws and regulations or more stringent interpretations or enforcement policies with respect to existing laws or regulations may increase our exposure to environmental liability. Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition and results of operations.
Legislative, Legal and Regulatory Risks:
FDIC insurance premiums may increase materially, which could negatively affect our profitability.
The FDIC insures deposits at FDIC insured financial institutions, including State Bank. The FDIC charges the insured financial institutions premiums to maintain the DIF at a certain level. During 2008 and 2009, there were higher levels of bank failures which dramatically increased resolution costs of the FDIC and depleted the deposit insurance fund. The FDIC collected a special assessment in 2009 to replenish the DIF and also required a prepayment of an estimated amount of future deposit insurance premiums. In October 2022, the FDIC adopted a final rule increasing the assessment rate from three basis points to five basis points beginning with the first quarterly assessment period of 2023. The FDIC recently adopted rules revising the assessments in a manner benefiting banks with assets totaling less than $10 billion. There can be no assurance, however, that assessments will not be changed in the future.
We operate in a highly regulated industry, and the laws and regulations that govern our operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in, or failure to comply with the same, may adversely affect the Company.
The banking industry is highly regulated. We are subject to supervision, regulation and examination by various federal and state regulators, including the FRB, the ODFI, the SEC, the CFPB, the FDIC, Financial Industry Regulatory Authority, Inc. (“FINRA”), and various state regulatory agencies. The statutory and regulatory framework that governs the Company is generally designed to protect depositors and customers, the DIF, the U.S. banking and financial system, and financial markets as a whole and not to protect shareholders. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on our business activities (including foreclosure and collection practices), limit the dividends or distributions that we can pay, and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in capital than would otherwise be required under generally accepted accounting principles in the United States of America. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. Both the scope of the laws and regulations and the intensity of the supervision to which we are subject have increased in recent years in response to the perceived state of the financial services industry, as well as other factors such as technological and market changes. Such regulation and supervision may increase our costs and limit our ability to pursue business opportunities. Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject the Company to restrictions on business activities, fines, and other penalties, any of which could adversely affect results of operations, the capital base, and the price of our common shares. Further, any new laws, rules, or regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition.
Legislative or regulatory changes or actions could adversely impact our business.
The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, borrowers, the DIF and the banking system as a whole, and not to benefit our shareholders.
Regulations affecting banks and financial services businesses are undergoing continuous change, and management cannot predict the effect of these changes. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us or our ability to increase the value of our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a financial institution, the classification of assets held by a financial institution, the adequacy of a financial institution’s ACL and the ability to complete acquisitions. Additionally, actions by regulatory agencies against us could cause us to devote significant time and resources to defending our business and may lead to penalties that materially affect us and our shareholders. Even the reduction of regulatory restrictions could have an adverse effect on us and our shareholders if such lessening of restrictions increases competition within our industry or our market area.
Changes in accounting standards could influence our results of operations.
The accounting standard setters, including the FASB, the SEC and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be difficult to predict and can materially affect how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, which would result in the restatement of our financial statements for prior periods.
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make significant estimates that affect the financial statements. Due to the inherent nature of these estimates, actual results may vary materially from management’s estimates.
Noncompliance with the Bank Secrecy Act (BSA) and other anti-money laundering statutes and regulations could cause a material financial loss.
The BSA and the Patriot Act contain anti-money laundering and financial transparency provisions intended to detect and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The BSA, as amended by the Patriot Act, requires depository institutions and their holding companies to undertake activities including maintaining an anti-money laundering program, verifying the identity of clients, monitoring for and reporting suspicious transactions, reporting on cash transactions exceeding specified thresholds, and responding to requests for information by regulatory authorities and law enforcement agencies. The Financial Crimes Enforcement Network (“FinCEN”), a unit of the U.S. Department of the Treasury that administers the BSA, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the federal bank regulatory agencies, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws, which includes a codified risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.
There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control (“OFAC”). If the Company’s policies, procedures, and systems are deemed deficient, or if the policies, procedures, and systems of the financial institutions that the Company has already acquired or may acquire in the future are deficient, the Company may be subject to liability, including fines and regulatory actions such as restrictions on State Bank’s ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain planned business activities, including acquisition plans, which could negatively impact our business, financial condition, and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for the Company.
We may be the subject of litigation, which could result in legal liability and damage to our business and reputation.
From time to time, we may be subject to claims or legal action from customers, employees or others. Financial institutions like the Company and State Bank are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding our business. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other large financial institutions, we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information.
Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operations. In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all.
Risks Related to Our Capital and Common Shares:
Our ability to pay cash dividends is limited, and we may be unable to pay cash dividends in the future even if we elect to do so.
We are dependent primarily upon the earnings of our operating subsidiaries for funds to pay dividends on our common shares. The payment of dividends by us is also subject to regulatory restrictions. As a result, any payment of dividends in the future will be dependent, in large part, on our ability to satisfy these regulatory restrictions and our subsidiaries’ earnings, capital requirements, financial condition and other factors. There can be no assurance as to if or when the Company may pay dividends or as to the amount of any dividends which may be declared and paid to shareholders in future periods. Failure to pay dividends on our shares could have a material adverse effect on the market price of our shares.
A limited trading market exists for our common shares, which could lead to price volatility.
The ability to sell our common shares depends upon the existence of an active trading market for those shares. While our shares are listed for trading on the NASDAQ Capital Market, there is moderate trading volume in these shares. As a result, shareholders may be unable to sell our shares at the volume, price and time desired. The limited trading market for our shares may cause fluctuations in the market value of our shares to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market. In addition, even if a more active market of our shares should develop, we cannot guarantee that such a market will continue.
The market price of our common shares may be subject to fluctuations and volatility.
The market price of our common shares may fluctuate significantly due to, among other things, changes in market sentiment regarding our operations, financial results or business prospects, the banking industry generally or the macroeconomic outlook. Certain events or changes in the market or banking industry generally are beyond our control. In addition to the other risk factors contained or incorporated by reference herein, factors that could affect our trading price:
● our actual or anticipated operating and financial results, including how those results vary from the expectations of management, securities analysts and investors;
● changes in financial estimates or publications of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other financial institution;
● failure to declare dividends on our common shares from time to time;
● reports in the press or investment community generally or relating to our reputation or the financial services industry;
● developments in our business or operations or in the financial sector generally;
● any future offerings by us of our common shares;
● any future offerings by us of debt or preferred shares, which would be senior to our common shares upon liquidation and for purposes of dividend distributions;
● legislative or regulatory changes affecting our industry generally or our business and operations specifically;
● the operating and share price performance of companies that investors consider to be comparable to us;
● announcements of strategic developments, acquisitions, restructurings, dispositions, financings and other material events by us or our competitors;
● actions by our current shareholders, including future sales of common shares by existing shareholders, including our directors and executive officers;
● proposed or final regulatory changes or developments;
● anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us; and
● other changes in U.S. or global financial markets, global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility.
Equity markets in general and our common shares have experienced volatility over the past few years. The market price of our common shares may continue to be subject to volatility unrelated to our operating performance or business prospects, which could result in a decline in the market price of our common shares.
Investors could become subject to regulatory restrictions upon ownership of our common shares.
Under the federal Change in Bank Control Act, a person may be required to obtain prior approval from the Federal Reserve Board before acquiring 10 percent or more of our common shares or the power to directly or indirectly control our management, operations, or policies.
We have implemented anti-takeover devices that could make it more difficult for another company to purchase us, even though such a purchase may increase shareholder value.
In many cases, shareholders may receive a premium for their shares if we were purchased by another company. Ohio law and our Amended Articles of Incorporation, as amended, and Amended and Restated Regulations, as amended, make it difficult for anyone to purchase us without the approval of our Board of Directors. Consequently, a takeover attempt may prove difficult, and shareholders may not realize the highest possible price for their securities.
We may be compelled to seek additional capital in the future, but capital may not be available when needed.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In addition, federal banking agencies have proposed extensive changes to their capital requirements; including raising required amounts and eliminating the inclusion of certain instruments from the calculation of capital. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect to raise additional capital. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot be assured of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.
General Risk Factors:
Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.
The policies of the FRB impact us significantly. The FRB regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. FRB policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the FRB could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations.
Changes in tax laws could adversely affect our performance.
We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to tax laws could have a material adverse effect on our results of operations; fair values of net deferred tax assets and obligations of state and political subdivisions held in our investment securities portfolio. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made.
The preparation of our financial statements requires the use of estimates that may vary from actual results.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make significant estimates that affect the financial statements. Two of our most critical estimates are the level of the ACL and the accounting for goodwill and other intangibles. Because of the inherent nature of these estimates, we cannot provide complete assurance that we will not be required to adjust earnings for significant unexpected loan losses, nor that we will not recognize a material provision for impairment of our goodwill. For additional information regarding these critical estimates, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 31 of this Annual Report on Form 10-K.
We may experience increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to the Company’s environmental, social and governance (“ESG”) practices.
Financial institutions are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG practices and disclosure. Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights. Increased ESG-related compliance costs for the Company as well as among our suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our common shares. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
We need to constantly update our technology in order to compete and meet customer demands.
The financial services market, including banking services, is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and may enable us to reduce costs. Our future success will depend, in part, on our ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in our operations. Some of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect our growth, revenue and profit.
Climate change, severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business.
Natural disasters, including severe weather events of increasing strength and frequency due to climate change, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us or our customers. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue or cause us to incur additional expenses.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties.
The Company’s principal executive offices are located at 401 Clinton Street, Defiance, Ohio. State Bank owns this facility, with a portion of the facility utilized as a retail banking center. In addition, State Bank owns the land and buildings occupied by 23 of its banking centers and leases two other properties used as banking centers. The Company also occupies office space from various parties for loan production and other business purposes on varying lease terms. There is no outstanding mortgage debt on any of the properties which are owned by State Bank.
Listed below are the banking centers, loan production offices and service facilities of the Company and their addresses, all of which are located in Allen, Defiance, Delaware, Franklin, Fulton, Hancock, Lucas, Paulding, Williams and Wood counties of Ohio; Allen, Boone, Hamilton and Steuben counties of Indiana; and Monroe county of Michigan:
SB Financial Group, Inc. Property List as of December 31, 2024
($ in thousands) Description/Address Leased/
Owned Total
Deposits
12/31/24
Main Banking Center & Corporate Office
Clinton Street, Defiance, OH Owned $ 301,890
Banking Centers/Drive-Thru’s
West High Street, Bryan, OH Owned 63,596
Third Street, Defiance, OH (Drive-thru) Owned N/A
North Clinton Street, Defiance, OH Leased 34,140
Main Street, Delta, OH Owned 19,953
West Dublin Granville Road, Dublin, OH Owned 88,108
North Michigan Avenue, Edgerton, OH Owned 11,091
East Lincoln Street, Findlay, OH Owned 25,926
South Main Street Suite A, Findlay, OH Leased
Coldwater Road, Fort Wayne, IN Owned 29,979
North Main Street, Bowling Green, OH Owned 24,782
Main Street, Luckey, OH Owned 29,604
East Morenci Street, Lyons, OH Owned 24,437
West Market Street, Lima, OH Owned 66,383
East Main Street, Montpelier, OH Owned 43,168
North First Street, Oakwood, OH Owned 23,915
North Main Street, Paulding, OH Owned 84,437
East South Boundary Street, Perrysburg, OH Owned 12,689
South State Street, Pioneer, OH Owned 37,896
Monroe Street, Sylvania, OH Owned 56,438
Main Street, Walbridge, OH Owned 28,278
North Michigan Street, Edon, OH Owned 58,790
North Shoop Avenue, Wauseon, OH Owned 86,972
Loan Production Offices
North Wayne Street, Angola, IN Owned N/A
Lantern Road, Suite 240, Fishers, IN Leased N/A
Granville Street, Gahanna, OH Owned N/A
Secor Road, Lambertville, MI Leased N/A
Monroe Street, Suite 108, Toledo, OH Leased N/A
South Main Street, Suite 102, Zionsville, IN Leased N/A
Service Facilities (SBT/ SBFG Title)
East Holland Street, Archbold, OH Leased N/A
West Butler Street, Bryan OH Owned N/A
Antares Avenue, Columbus, OH Owned N/A
Baltimore Road, Defiance, OH Leased N/A
Total deposits
$ 1,152,605
SB Captive operates from office space located at 101 Convention Center Dr.,Suite 850, Las, Vegas, NV 89109.
The Company’s subsidiaries have several noncancellable leases for business use that expire over the next five years. Aggregate rental expense for these leases was $0.20 million and $0.19 million for the years ended December 31, 2024, and 2023, respectively.
Future minimum lease payments under operating leases are:
($ in thousands)
$ 275
Thereafter
Total minimum lease payments $ 1,355

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
In the ordinary course of our business, the Company and its subsidiaries are parties to various legal actions, which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not Applicable
Supplemental Item: Information about our Executive Officers
The following table lists the names and ages of the executive officers of the Company as of February 21, 2025, the positions presently held by each executive officer, and the principal occupation(s) and business experience of each executive officer during the past five years. Unless otherwise indicated, each person has held his or her principal occupation(s) for more than five years.
Name
Age
Position(s) Held with the Company and
its Subsidiaries and Principal Occupation(s)
Mark A. Klein
Chairman of the Company since April 2015; Director of the Company since February 2010; President and Chief Executive Officer of the Company since January 2010 and of State Bank since January 2006; Director of State Bank since 2006; President of RDSI since October 2011; Member of State Bank Trust Investment Review Committee since March 2007.
Anthony V. Cosentino
Executive Vice President and Chief Financial Officer of the Company and State Bank since March 2010; Chief Financial Officer of RDSI since October 2011; Member of State Bank Trust Investment Review Committee since June 2010.
Ernesto Gaytan
Executive Vice President and Chief Technology Innovation Officer of the Company and State Bank since November 2017.
Steven R. Walz
Executive Vice President and Chief Lending Officer of State Bank since December 2021; Senior Vice President and Chief Lending Officer of State Bank from September 2021 through December 2021; Senior Vice President and Chief Credit Officer of State Bank from November 2017 through November 2019; Vice President and Senior Credit Analyst of State Bank from September 2012 through November 2017; Assistant Vice President and Commercial Services Officer of State Bank from September 2011 to September 2012; Assistant Vice President and Credit Analyst of State Bank from January 2010 through September 2012; Began working for State Bank in October 2007 as a Credit Analyst; Mr. Walz left State Bank in November 2019 to work as President for K&P Medical Transport, LLC. prior to rejoining State Bank in September 2021.
Keeta J. Diller
Executive Vice President of the Company since July 2019; Executive Vice President and Chief Operations Officer of State Bank since August 2024; Executive Vice President and Chief Risk Officer from July 2019 to August 2024; Senior Vice President and Chief Enterprise Risk Management Officer of State Bank from August 2018 through July 2019; Senior Vice President and Audit Coordinator and Director of Operations of State Bank from December 2011 through August 2018; Vice President and Internal Auditor of State Bank from January 2010 through December 2011; Corporate Secretary for the Company since 1996; Began working for State Bank in February 1990 as the Accounting Supervisor.
David A. Homoelle
Residential Real Estate Executive of State Bank since April 2024; Columbus Regional President and Residential Real Estate Executive of State Bank from May 2021 through April 2024; Columbus Regional President of State Bank from November 2007 through May 2021; Began working for State Bank in November 2007 as a Columbus Regional President.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common shares are traded on the NASDAQ Capital Market under the symbol “SBFG”. There were 6,493,526 common shares outstanding as of December 31, 2024, which were held by approximately 1,115 record holders.
The Company paid quarterly dividends on its common shares in the aggregate amounts of $0.56 per share and $0.52 per share in 2024 and 2023, respectively. The Company presently anticipates continuing to pay quarterly dividends in the future at similar levels. However, there is no guarantee that dividends on our common shares will continue in the future.
The ability of the Company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends that may be declared by State Bank and the Company’s other subsidiaries. Payment of dividends by State Bank may be restricted at any time at the discretion of the regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice. These provisions could have the effect of limiting the Company’s ability to pay dividends on its outstanding shares. Moreover, the Federal Reserve Board expects the Company to serve as a source of strength to its subsidiary banks, which may require it to retain capital for further investment in State Bank, rather than for dividends to shareholders of the Company. The Company’s ability to pay dividends on its shares is also conditioned upon the payment, on a current basis, of quarterly interest payments on the subordinated debentures underlying the Company’s trust preferred securities. In addition, under the terms of the Company’s fixed-to-floating rate subordinated debt, the Company’s ability to pay dividends on its shares is conditioned upon the Company continuing to make required principal and interest payments, and not incurring an event of default, with respect to the subordinated debt.
Performance Graph
The following performance graph compares the five-year total shareholder return of the Company’s common shares, based on an initial investment on December 31, 2019, and assuming reinvestment of dividends, against two indices - the NASDAQ Composite Index and the KBW NASDAQ Bank Index. This Performance Graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be deemed to be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates this Performance Graph by reference into such filing.
Period Ending
Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24
SB Financial Group, Inc. 100.00 95.27 104.99 97.59 91.79 129.56
NASDAQ Composite Index 100.00 144.92 177.06 119.45 172.77 223.87
KBW NASDAQ Bank Index 100.00 89.69 124.06 97.52 96.65 132.60
Source: S&P Global Market Intelligence
© 2025
Issuer Purchases of Equity Securities
The table below reflects the common shares repurchased by the Company during the three months ended December 31, 2024. On December 18, 2024, the Company’s Board of Directors approved a share repurchase program authorizing the repurchase of 500,000 shares through December 31, 2026. As of December 31, 2024, the Company had repurchased 17,460 shares, and 482,540 shares remained available for purchase under this program. The December 18, 2024, share repurchase program replaced the Company’s prior repurchase program announced on December 21, 2022, under which an aggregate 500,000 common shares of the Company were repurchased through December 2024.
(a) (b) (c) (d)
Period Total Number of
Shares Purchased Weighted Average
Price Paid per
Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs Maximum Number
of Shares that May
Yet be Purchased
Under the Plans or
Programs
10/01/24 - 10/31/24 25,651 $ 19.79 25,651 87,354
11/01/24 - 11/30/24 33,296 20.59 33,296 54,058
12/01/24 - 12/31/24 71,518 21.69 71,518 482,540
Total 130,465 $ 21.04 130,465 482,540

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved].

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
SB Financial Group, Inc. (“SB Financial”), is a financial holding company registered with the Federal Reserve Board and subject to regulation under the Bank Holding Company Act of 1956, as amended. Through its direct and indirect subsidiaries, including The State Bank and Trust Company (“State Bank”), SB Financial is engaged in commercial and retail banking, wealth management and private client financial services.
The following discussion provides a review of the consolidated financial condition and results of operations of SB Financial and its subsidiaries (collectively, the “Company”). This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and related Notes as of and for the years ended December 31, 2024, and 2023 included in this Annual Report on Form 10-K.
Strategic Discussion
The focus and strategic goal of the Company is to grow into and remain a top decile (>90th percentile) independent financial services company. The Company intends to achieve and maintain that goal by executing our five key initiatives.
Increase profitability through ongoing diversification of revenue streams: For the twelve months ended December 31, 2024, the Company generated $17.0 million in noninterest income, or 29.9 percent of total operating revenue, from fee-based products. These revenue sources include fees generated from saleable residential mortgage loans, retail deposit products, wealth management services, saleable business-based loans (small business and farm service) and title agency revenue. For the twelve months ended December 31, 2023, the Company generated $17.7 million in noninterest income, or 31.1 percent of total operating revenue from fee-based products.
Strengthen our penetration in all markets served: Over our 122-year history of continuous operation in Northwest Ohio, we have established a significant presence in our traditional markets in Defiance, Fulton, Paulding and Williams counties in Ohio. In our newer markets of Bowling Green, Columbus, Findlay, Toledo (Ohio) and Ft. Wayne (Indiana), our current market penetration is minimal, but we believe our potential for growth is significant. Over the past few years, we have expanded and committed additional resources to our presence in the Findlay and Edgerton markets in particular; however, we continue to seek to expand the presence and penetration in all of our markets. On January 17, 2025, we established our presence in Ottawa County with the acquisition of The Marblehead Bank located in Marblehead, Ohio.
Expand product utilization by new and existing customers: As of December 31, 2024, we operated in 14 counties in Northwest Ohio, Central Ohio and Northeast Indiana with 23 full-service offices, 23 ATM’s and seven loan production offices. Combined in the 14 counties of operation, we command 0.94 percent of the deposit market share, which has steadily grown. In our traditional markets of Northwest Ohio, the deposit market share is 4.40 percent.
Deliver gains in operational excellence: Our management team believes that becoming and remaining a high-performance financial services company will depend upon seamlessly and consistently delivering operational excellence, as demonstrated by the Company’s leadership in the origination and servicing of residential mortgage loans. As of December 31, 2024, the Company serviced 8,750 residential mortgage loans with an aggregate principal balance of $1.43 billion. As of December 31, 2023, the Company serviced 8,549 loans with an aggregate principal balance of $1.37 billion.
Sustain asset quality: As of December 31, 2024, the Company’s asset quality metrics remained strong. Specifically, total nonperforming assets were $5.5 million, or 0.40 percent of total assets. Total delinquent loans at December 31, 2024 were 0.63 percent of total loans. As of December 31, 2023, the Company had total nonperforming assets of $3.3 million, or 0.25 percent of total assets. Total delinquent loans at December 31, 2023 were 0.15 percent of total loans.
The successful execution of these five strategies has enabled the Company to improve financial performance across a broad series of metrics. These metrics over the last five years are outlined in the following table. Specifically, the Company has increased total assets by $121.7 million, or 9.7 percent. The growth has been on both sides of the balance sheet over the five-year period, with loans growing $174.0 million or 19.9 percent and deposits growing $103.6 million or 9.9 percent.
During the prior five-year period, the Company has raised capital through the issuance of debt securities to the market, which has improved capital significantly and expanded liquidity for potential strategic expansion. Strategic expansion has also occurred during the period with the acquisition of a small community bank (The Edon State Bank of Edon, Ohio) in 2020, the opening of three branch offices and the acquisition of two full-service title agencies. As detailed in Note 23, we closed on an acquisition of another small community bank in Marblehead, Ohio on January 17, 2025.
Financial Highlights
Year Ended December 31,
($ in thousands, except per share data)
Earnings 2021
Interest income $ 64,349 $ 58,152 $ 44,569 $ 41,904 $ 42,635
Interest expense 24,427 18,879 5,170 4,020 6,705
Net interest income 39,922 39,273 39,399 37,884 35,930
Provision for loan losses - 1,050 4,500
Noninterest income 17,017 17,721 18,231 30,697 30,096
Noninterest expense 42,959 41,962 42,314 44,808 43,087
Provision for income taxes 2,386 2,622 2,795 4,446 3,495
Net income 11,470 12,095 12,521 18,277 14,944
Net income available to common shareholders 11,470 12,095 12,521 18,277 14,944
Per Common Share Data
Basic earnings $ 1.72 $ 1.77 $ 1.79 $ 2.58 $ 1.96
Diluted earnings 1.72 1.75 1.77 2.56 1.96
Cash dividends declared 0.56 0.52 0.48 0.44 0.40
Total equity per share 19.64 18.50 17.08 21.05 19.39
Average Balances
Average total assets $ 1,361,274 $ 1,334,644 $ 1,318,781 $ 1,322,253 $ 1,161,396
Average equity 124,742 118,315 126,963 144,223 139,197
Ratios
Return on average total assets 0.84 % 0.91 % 0.95 % 1.38 % 1.29 %
Return on average equity 9.19 10.22 9.86 12.67 10.74
Cash dividend payout ratio1 32.87 29.62 27.25 17.18 20.54
Average equity to average assets 9.16 8.86 9.63 10.91 11.99
Period End Totals
Total assets $ 1,379,517 $ 1,343,249 $ 1,335,633 $ 1,330,854 $ 1,257,839
Available-for-sale securities 201,587 219,708 238,780 263,259 149,406
Loans held for sale 6,770 2,525 2,073 7,472 7,234
Total loans & leases 1,046,735 1,000,212 962,075 822,714 872,723
Allowance for credit losses 15,096 15,786 13,818 13,805 12,574
Total deposits 1,152,605 1,070,205 1,086,665 1,113,045 1,049,011
Advances from FHLB 35,000 83,600 60,000 5,500 8,000
Trust preferred securities 10,310 10,310 10,310 10,310 10,310
Subordinated debt, net 19,690 19,642 19,594 19,546 -
Total equity 127,508 124,342 118,428 144,929 142,923
1 Cash dividends on common shares divided by net income available to common.
Critical Accounting Policies and Estimates
The accounting and reporting policies of the Company are in accordance with generally accepted accounting principles in the United States and conform to general practices within the banking industry. The Company’s significant accounting policies are described in detail in the Notes to the Company’s Consolidated Financial Statements for the years ended December 31, 2024 and 2023. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective or complex.
Allowance for Credit Losses: The Company believes the determination of the ACL involves a higher degree of judgment and complexity than its other significant accounting policies. The ACL is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’s determination of the adequacy of the ACL is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.
Goodwill and Other Intangibles: The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition.
Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
An effective tax rate of 21% is used to determine after-tax components of other comprehensive income (loss) included in the statements of shareholders’ equity.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
Changes in Financial Condition
Total assets at December 31, 2024, were $1.38 billion, compared to $1.34 billion at December 31, 2023. Loans (excluding loans held for sale) were $1.05 billion at December 31, 2024, compared to $1.00 billion at December 31, 2023. Total deposits were $1.15 billion at December 31, 2024, compared to $1.07 billion at December 31, 2023. The Company continued to allocate the reductions in our bond portfolio, from scheduled amortization, into higher yielding loan balances.
The following are the condensed average balance sheets of the Company for the years ending December 31 and includes the interest earned or paid, and the average interest rate, on each asset and liability:
($ in thousands) Average
Average Average
Average Average
Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets
Taxable securities/cash $ 247,026 $ 6,844 2.77 % $ 254,133 $ 6,092 2.40 % $ 330,549 $ 5,798 1.75 %
Non-taxable securities 6,393 2.28 % 7,181 2.37 % 8,106 2.44 %
Loans, net1 1,014,375 57,359 5.65 % 985,217 51,890 5.27 % 888,116 38,573 4.34 %
Total earning assets 1,267,794 64,349 5.08 % 1,246,531 58,152 4.67 % 1,226,771 44,569 3.63 %
Cash and due from banks 4,388
4,035
7,296
Allowance for credit losses (15,536 )
(15,478 )
(13,808 )
Premises and equipment 20,929
22,990
24,137
Other assets 83,699
76,566
74,385
Total assets $ 1,361,274
$ 1,334,644
$ 1,318,781
Liabilities
Savings and interest-bearing demand deposits $ 643,710 $ 11,073 1.72 % $ 619,906 $ 7,599 1.23 % $ 693,271 $ 2,258 0.33 %
Time deposits 259,818 9,962 3.83 % 236,665 7,109 3.00 % 159,401 1,219 0.76 %
Repurchase agreements & other 14,336 1.07 % 15,765 0.47 % 20,481 0.19 %
Advances from FHLB 39,092 1,721 4.40 % 55,044 2,603 4.73 % 16,420 3.14 %
Trust preferred securities 10,310 7.17 % 10,310 6.94 % 10,310 3.50 %
Subordianted debt 19,655 3.96 % 19,616 3.97 % 19,570 3.98 %
Total interest-bearing liabilities 986,921 24,427 2.48 % 957,306 18,879 1.97 % 919,453 5,170 0.56 %
Demand deposits 227,445
237,976
252,899
Other liabilities 22,156
21,047
19,466
Total liabilities 1,236,522
1,216,329
1,191,818
Shareholders’ equity 124,742
118,315
126,963
Total liabilities and shareholders’ equity $ 1,361,264
$ 1,334,644
$ 1,318,781
Net interest income (tax equivalent basis)
$ 39,922
$ 39,273
$ 39,399
Net interest income as a percent
of average interest-earning assets - GAAP measure
3.15 %
3.15 %
3.21 %
Net interest income as a percent of average
interest-earning assets - Non-GAAP measure 2
3.16 %
3.16 %
3.22 %
-- Computed on a fully tax equivalent basis (FTE)
1 Nonaccruing loans and loans held for sale are included in the average balances.
2 Interest on tax exempt securities and loans is computed on a tax equivalent basis using a 21 percent statutory tax rate, and added to the net interest income. The tax equivalent adjustment was $0.14, $0.14 and $0.11 million in 2024, 2023 and 2022, respectively.
The following tables set forth the effect of volume and rate changes on interest income and expense for the periods indicated. For purposes of these tables, changes in interest due to volume and rate were determined as follows:
● Volume variance - change in volume multiplied by the previous year’s rate.
● Rate variance - change in rate multiplied by the previous year’s volume.
● Rate/volume variance - change in volume multiplied by the change in rate. This variance allocates the volume variance and rate variance in proportion to the relationship of the absolute dollar amount of the change in each.
Total
Variance Variance Attributable To
($ in thousands) 2024/2023 Volume Rate
Interest income
Taxable securities $ 752 $ (170 ) $ 922
Non-taxable securities1 (24 ) (19 ) (5 )
Loans, net of unearned income and deferred fees1 5,469 1,536 3,933
Total interest income 6,197 1,346 4,851
Interest expense
Savings and interest-bearing demand deposits 3,474 3,182
Time deposits 2,853 2,158
Repurchase agreements & other (7 )
Advances from FHLB (882 ) (754 ) (128 )
Trust preferred securities -
Subordinated debt - - -
Total interest expense 5,548 5,322
Net interest income $ 649 $ 1,119 $ (470 )
1 Interest on non-taxable securities and loans has been adjusted to fully tax equivalent
The maturity distribution and weighted-average interest rates of debt securities available-for-sale at December 31, 2024, are set forth in the table below. The weighted-average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at a premium or discount:
Maturing
Weighted
Weighted
Weighted
Weighted
Weighted
Within Average 1-5 Average 5-10 Average After Average
Average
($ in thousands) Year Yield Years Yield Years Yield Years Yield Total Yield
Available-for-sale:
U.S. Treasury and Government agencies $ 2,138 4.08 % $ 817 3.39 % $ 4,434 1.46 % -
$ 7,389 1.84 %
Mortgage-backed securities 2.95 % 16,536 1.38 % 8,645 1.97 % 143,683 1.90 % 169,620 1.86 %
State and political subdivisions -
2.61 % 3,446 3.75 % 5,685 2.35 % 9,407 2.83 %
Other corporate securities -
-
15,171 3.69 % -
15,171 3.69 %
Total securities by maturity $ 2,894 3.78 % $ 17,629 1.49 % $ 31,696 2.92 % $ 149,368 1.92 % $ 201,587 2.04 %
($ in thousands) Years Ended December 31,
Total loans % Change
Commercial business & agriculture $ 189,298 $ 191,932 -1.4 %
Commercial real estate 479,573 424,041 13.1 %
Residential real estate 308,378 318,123 -3.1 %
Consumer & other 69,340 65,673 5.6 %
Total loans 1,046,589 999,769 4.7 %
Net deferred costs (fees) -67.0 %
Total loans, net deferred costs (fees) 1,046,735 1,000,212 4.7 %
Loans held for sale $ 6,770 $ 2,525 168.1 %
Total deposits % Change
Noninterest bearing demand $ 232,155 $ 228,713 1.5 %
Interest-bearing demand 201,085 166,413 20.8 %
Savings & money market 460,148 419,570 9.7 %
Time deposits 259,217 255,509 1.5 %
Total deposits 1,152,605 1,070,205 7.7 %
Total shareholders’ equity $ 127,508 $ 124,342 2.5 %
Loans held for investment (“HFI”) increased $46.5 million, or 4.7 percent, to $1.05 billion at December 31, 2024, which was due to an increase in commercial real estate lending during 2024. The Company allowed the residential real estate to amortize and minimal new production on the balance sheet was generated.
Concentrations of Credit Risk: The Company makes commercial, real estate and installment loans to customers located mainly in the Tri-State region of Ohio, Indiana and Michigan. Commercial loans include loans collateralized by commercial real estate, business assets and, in the case of agricultural loans, crops and farm equipment and the loans are expected to be repaid from cash flow from operations of businesses. As of December 31, 2024, commercial business and agricultural loans made up approximately 18.0 percent of the HFI loan portfolio while commercial real estate loans accounted for approximately 43.9 percent of the HFI loan portfolio. As of December 31, 2024, residential first mortgage loans, which are secured by first mortgages on residential real estate, made up approximately 30.0 percent of the HFI portfolio, while consumer loans to individuals, which are primarily secured by consumer assets, made up approximately 6.5 percent of the HFI loan portfolio.
Maturities and Sensitivities of Loans to Changes in Interest Rates: The following table shows the maturity distribution of loans outstanding as of December 31, 2024. The amounts have been categorized between loans with a fixed or floating interest rate (floating rate loans have an adjustable interest rate that changes based on a rate index).
Maturities and Sensitivities of Loans to Changes in Interest Rates
As of December 31, 2024
($ in thousands) Within
one year After one,
but within
five years After five,
but within
fifteen years After
fifteen years Total
Loans with fixed interest rates:
Commercial & industrial $ 1,063 $ 31,732 $ 17,717 $ 17 $ 50,529
Commercial real estate - owner occupied 2,962 6,044 6,889 - 15,895
Commercial real estate - nonowner occupied 4,012 32,770 8,217 45,215
Agricultural 4,979 7,014 1,525 14,293
Residential real estate 1,300 12,550 29,277 44,056
HELOC - - - - -
Consumer 4,026 7,177 - 12,110
Total $ 14,138 $ 83,631 $ 53,294 $ 31,035 $ 182,098
Loans with floating interest rates:
Commercial & industrial $ 23,696 $ 16,178 $ 32,533 $ 1,828 $ 74,235
Commercial real estate - owner occupied 5,768 10,013 48,570 54,185 118,536
Commercial real estate - nonowner occupied 1,016 65,696 97,472 135,743 299,927
Agricultural 3,954 20,444 25,484 50,387
Residential real estate 10,198 253,325 264,322
HELOC 40,791 12,635 53,811
Consumer 1,981 1,438 - - 3,419
Total $ 33,347 $ 98,082 $ 250,008 $ 483,200 $ 864,637
Total loans:
Commercial & industrial $ 24,759 $ 47,910 $ 50,250 $ 1,845 $ 124,764
Commercial real estate - owner occupied 8,730 16,057 55,459 54,185 134,431
Commercial real estate - nonowner occupied 5,028 98,466 105,689 135,959 345,142
Agricultural 1,280 8,933 27,458 27,009 64,680
Residential real estate 1,663 1,365 22,748 282,602 308,378
HELOC 40,791 12,635 53,811
Consumer 6,007 8,615 - 15,529
Total loans $ 47,485 $ 181,713 $ 303,302 $ 514,235 $ 1,046,735
Total deposits increased $82.4 million, or 7.7 percent, to $1.15 billion at December 31, 2024. The State of Ohio Homebuyer Plus program impacted transactional deposit growth during 2024, as the Company added approximately $50 million in lower cost deposits from this program.
The average amount of deposits and weighted-average rates paid are summarized as follows for the years ended December 31:
Average Average Average Average Average Average
($ in thousands) Amount Rate Amount Rate Amount Rate
Savings and interest bearing demand deposits $ 643,710 1.72 % $ 619,906 1.23 % $ 693,271 0.33 %
Time deposits 259,818 3.83 % 236,665 3.00 % 159,401 0.76 %
Non interest bearing demand deposits 227,445 - 237,976 - 252,899 -
Totals $ 1,130,973 1.86 % $ 1,094,547 1.35 % $ 1,105,571 0.31 %
Time deposits that exceeded the FDIC insurance limit of $250,000 are summarized as follows:
($ in thousands)
Three months or less $ 4,912 $ 6,637
Over three months through six months 7,249 1,599
Over six months and through twelve months 6,533 5,209
Over twelve months 4,750 8,935
Total $ 23,444 $ 22,380
Shareholders’ equity at December 31, 2024, was $127.5 million, or 9.2 percent of total assets compared to $124.3 million or 9.3 percent of total assets at December 31, 2023. Retained earnings increased during the year due to earnings of $11.5 million less dividends paid to common shareholders of $3.8 million and repurchases of Company common shares of $4.7 million. The fair market value of the bond portfolio declined slightly during 2024 due to the valuation adjustment on the portfolio, which resulted in accumulated other comprehensive loss (“AOCI”) rising to $30.2 million from $29.8 million.
The Company continued to repurchase its own common shares during the year under the Company’s publicly announced share repurchase programs. Specifically, the Company repurchased 253,817 shares during 2024 at an average price of $18.43 per share. On December 18, 2024, the Company’s Board of Directors approved a share repurchase program authorizing the repurchase of 500,000 shares through December 31, 2026. As of December 31, 2024, the Company had repurchased a total of 17,460 shares, and 482,540 shares remained available for purchase, under this program. The December 18, 2024, share repurchase program replaced the Company’s prior repurchase program announced on December 21, 2022, under which an aggregate of 500,000 common shares of the Company were repurchased through December 2024.
Asset Quality Years Ended December 31,
($ in thousands) % Change
Nonaccruing loans $ 5,516 $ 2,818 95.7 %
Foreclosed assets and other assets held for sale, net - N/M
Nonperforming assets 5,516 3,329 65.7 %
Net charge-offs/(recoveries) 171.7 %
Provision for credit losses -60.6 %
Allowance for credit losses 15,096 15,786 -4.4 %
Nonaccruing loans/total loans 0.53 % 0.28 % 87.0 %
Allowance/nonaccruing loans 273.7 % 560.2 % -51.1 %
Nonperforming assets/total assets 0.40 % 0.25 % 61.3 %
Net charge offs/average loans 0.01 % 0.01 % 0.0 %
Allowance/loans 1.44 % 1.58 % -8.6 %
Allowance/nonperforming loans 273.68 % 560.18 % -51.1 %
Nonperforming assets totaled $5.5 million, or 0.40 percent of total assets at December 31, 2024, an increase of $2.2 million, or 65.7 percent from 2023. The Company had total net charge-offs on loans of $250,000 in 2024, as compared to net charge-offs of $92,000 in 2023. The Company’s ACL at December 31, 2024, now covers nonperforming loans at 274 percent, down from 560 percent at December 31, 2023.
The following schedule presents an analysis of the ACL, average loan data and related ratios at December 31 for the years indicated:
($ in thousands) Provision for
Credit Losses Net (Chargeoffs)
Recoveries Average Loans Ratio of
annualized net
(chargeoffs) recoveries to
average loans
December 31, 2024
Commercial & industrial $ 891 $ (228 ) $ 123,238 -0.19 %
Commercial real estate - owner occupied (146 ) - 131,168 0.00 %
Commercial real estate - nonowner occupied - 311,855 0.00 %
Agricultural - 63,580 0.00 %
Residential real estate (1,603 ) (3 ) 314,066 0.00 %
HELOC - 50,240 0.00 %
Consumer (39 ) (19 ) 13,204 -0.14 %
Total $ (440 ) $ (250 ) $ 1,007,351 -0.02 %
December 31, 2023
Commercial & industrial $ 110 $ - $ 124,435 0.00 %
Commercial real estate - owner occupied - 118,583 0.00 %
Commercial real estate - nonowner occupied - 301,072 0.00 %
Agricultural - 59,720 0.00 %
Residential real estate (52 ) 313,034 -0.02 %
HELOC - 46,576 0.00 %
Consumer (40 ) 15,470 -0.26 %
Total $ 688 $ (92 ) $ 978,890 -0.01 %
December 31, 2022
Commercial & industrial $ (227 ) $ - $ 126,496 0.00 %
Commercial real estate - owner occupied (868 ) - 122,031 0.00 %
Commercial real estate - nonowner occupied - 276,805 0.00 %
Agricultural - 58,745 0.00 %
Residential real estate - 239,162 0.00 %
HELOC (45 ) 43,210 0.03 %
Consumer (162 ) - 14,039 0.00 %
Total $ - $ 13 $ 880,488 0.00 %
The ACL balance and the provision for credit losses are determined by management based upon periodic reviews of the loan portfolio. In addition, management considers the level of charge offs on loans, as well as the fluctuations of charge offs and recoveries on loans, in the factors which caused these changes. Estimating the risk of loss and the amount of loss is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, economic conditions, information about specific borrower situations, including their financial position and collateral values, and other factors and estimates which are subject to change over time.
The Company has substantially increased its reserve level over the last several years. Specifically, the Company’s ACL balance has increased from $8.8 million at December 31, 2019 to $15.1 million at December 31, 2024, which reflects an increase of $6.3 million, or 72 percent. This increase was the result of $6.8 million in provision expense during the period and $1.0 million in net charge-offs over the five-year period. The reserve increased during 2023 due to the one-time CECL adjustment of $1.4 million taken in January of 2023 upon the Company’s adoption of the CECL methodology.
The following schedule provides a breakdown of the ACL allocated by type of loan and related ratios at December 31 for the years indicated:
Allowance
Amount Percentage
of Loans In
Each
Category to
Total Loans Allowance
Amount Percentage
of Loans In
Each
Category to
Total Loans Allowance
Amount Percentage
of Loans In
Each
Category to
Total Loans
($ in thousands)
Commercial & industrial $ 2,666 17.7 % $ 2,003 12.7 % $ 1,663 12.0 %
Commercial real estate - owner occupied 1,806 12.0 % 1,952 12.4 % 1,696 12.3 %
Commercial real estate - nonowner occupied 5,721 37.9 % 5,718 36.2 % 4,584 33.2 %
Agricultural 5.9 % 2.8 % 4.4 %
Residential real estate 3,330 22.1 % 4,936 31.3 % 4,438 32.1 %
HELOC 3.4 % 3.2 % 4.0 %
Consumer 1.1 % 1.4 % 2.0 %
$ 15,096 100.0 % $ 15,786 100.0 % $ 13,818 100.0 %
Regulatory capital reporting is required for State Bank only, as the Company is currently exempt from quarterly regulatory capital level measurement pursuant to the Small Bank Holding Company Policy Statement. As of December 31, 2024, State Bank met all regulatory capital levels required to be considered well-capitalized (see Note 16 to the Consolidated Financial Statements).
On May 27, 2021, the Company issued and sold $20.0 million in aggregate principal amount of its 3.65% Fixed to Floating Rate Subordinated Notes due 2031 in a private placement exempt from the registration requirements under the Securities Act. The Subordinated Notes bear interest at a fixed rate of 3.65% through May 31, 2026. From June 1, 2026 to the maturity date or earlier redemption of the Subordinated Notes, the interest rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month Secured Overnight Financing Rate (“SOFR”) provided by the Federal Reserve Bank of New York plus 296 basis points. The Subordinated Notes have a maturity of 10 years.
Earnings Summary - 2024 vs. 2023
Net income for 2024 was $11.5 million, or $1.72 per diluted share, compared with net income of $12.1 million, or $1.75 per diluted share, for 2023. State Bank reported net income for 2024 of $13.0 million, which was down slightly from the $13.3 million of net income in 2023. SBFG Title reported net income for 2024 of $0.36 million, which was up from net income of $0.24 million for 2023.
Positive results for 2024 included loan growth of $46.5 million, with deposits higher by $82.4 million. Deposit growth was boosted by the Company’s participation in the State of Ohio’s Homebuyer Plus program. For the full year of 2024, residential real estate loan production was $261.3 million, with $4.6 million of revenue from gains on sale. The level of mortgage origination was up from the $215.5 million in 2023. The Company’s loans serviced for others ended the year at $1.427 billion, up slightly from $1.367 billion at December 31, 2023.
Operating revenue was steady at $57.0 million as increased mortgage volume offset the sale of Visa B shares that occurred in 2023 of $1.4 million. SBFG Title revenue also remained level at $1.64 million.
Operating expense increased by $1.0 million, or 2.4 percent, from $42.0 million in 2023 to $43.0 million in 2024, due to higher incentive and commission levels, which were partially offset by moving higher medical costs to the Captive.
Results of Operations
Years Ended December 31,
($ in thousands, except per share data) % Change
Total assets $ 1,379,517 $ 1,343,249 2.7 %
Total investments 201,588 219,708 -8.2 %
Loans held for sale 6,770 2,525 168.1 %
Loans, net of unearned income 1,046,735 1,000,212 4.7 %
Allowance for credit losses 15,096 15,786 -4.4 %
Total deposits 1,152,605 1,070,205 7.7 %
Total operating revenue1 $ 56,939 $ 56,994 -0.1 %
Net interest income 39,922 39,273 1.7 %
Loan loss provision -60.6 %
Noninterest income 17,017 17,721 -4.0 %
Noninterest expense 42,959 41,962 2.4 %
Net income 11,470 12,095 -5.2 %
Diluted earnings per share 1.72 1.75 -1.7 %
1 Operating revenue equals net interest income plus noninterest income.
Net interest income was $39.9 million for 2024 and increased slightly from net interest income of $39.3 million for 2023. Average earning assets increased slightly to $1.27 billion in 2024, compared to $1.25 billion in 2023, primarily due to the increase in our loan portfolio, partially offset by lower cash and securities. The consolidated 2024 full year net interest margin on a fully-taxable equivalent (“FTE”) basis was 3.16 percent compared to 3.16 percent for the full year of 2023.
Provision for credit losses was taken in 2024 in the amount of $0.12 million compared to $0.32 million taken during 2023. For 2024, net charge-offs totaled $0.25 million or 0.02 percent of average loans, compared to net charge-offs of $0.01 million or 0.01 percent of average loans, for 2023.
Noninterest Income Years Ended December 31,
($ in thousands) % Change
Wealth management fees $ 3,511 $ 3,532 -0.6 %
Customer service fees 3,467 3,403 1.9 %
Gains on sale of residential loans & OMSR’s 4,564 3,609 26.5 %
Mortgage loan servicing fees, net 2,183 2,101 -3.9 %
Gain on sale of non-mortgage loans -66.0 %
Title insurance income 1,635 1,635 0.0 %
Other 1,511 3,012 -49.8 %
Total noninterest income $ 17,017 $ 17,721 -4.0 %
Total noninterest income was $17.0 million for 2024 compared to $17.7 million for 2023, representing a decrease of $0.7 million, or 4.0 percent, year-over-year. Gains on sale of residential mortgage loans was up from 2023 by $0.96 million, or 26.5 percent. The Company sold $216.0 million of originated mortgages into the secondary market in 2024, which due to being higher than the amortization on the serviced portfolio, increased the size of our serviced loan portfolio to $1.428 billion at December 31, 2024 from $1.367 billion at December 31, 2023. Sales of non-mortgage loans (small business and farm credits) in 2024 was just $0.7 million. The Company saw its wealth management assets under management increase by $45.9 million to $547.7 million at December 31, 2024, with total wealth management fees of $3.5 million.
Noninterest Expense Years Ended December 31,
($ in thousands) % Change
Salaries & employee benefits $ 23,603 $ 22,777 3.6 %
Net occupancy expense 2,884 3,096 -6.8 %
Equipment expense 4,333 4,078 6.3 %
Data processing fees 3,075 2,659 15.6 %
Professional fees 2,927 3,024 -3.2 %
Marketing expense 5.0 %
Telephone and communications 4.8 %
Postage and delivery expense 3.5 %
State, local and other taxes -4.4 %
Employee expense 16.2 %
Other expense 2,704 3,033 -10.8 %
Total noninterest expense $ 42,959 $ 41,962 2.4 %
Total noninterest expense was $43.0 million for 2024 compared to $42.0 million for 2023, representing a $1.0 million, or 2.4 percent, increase year-over-year. Total full-time equivalent employees ended 2024 at 252, which was up 1 from year end 2023.
Earnings Summary - 2023 vs. 2022
Net income for 2023 was $12.1 million, or $1.75 per diluted share, compared with net income of $12.5 million, or $1.77 per diluted share, for 2022. State Bank reported net income for 2023 of $13.3 million, which was down slightly from the $13.4 million of net income in 2022. SBFG Title reported net income for 2023 of $0.24 million, which was down from net income of $0.39 million for 2022.
Positive results for 2023 included loan growth of $38.1 million, while deposits were slightly lower by $16.5 million. The Company completed the final forgiveness in January of 2023 from the nearly 1,200 PPP loans processed during 2020 and 2021. The mortgage banking business line was impacted by the rapidly rising rates, which contributed to the reduction in both balance growth and gains on sale. For the full year of 2023, residential real estate loan production was $215.5 million, with $3.6 million of revenue from gains on sale. The level of mortgage origination was down from the $313.0 million in 2022. The Company’s loans serviced for others ended the year at $1.367 billion, up slightly from $1.352 billion at December 31, 2022.
Operating revenue decreased just slightly by $0.6 million, or 1.1 percent, from $57.6 million in 2022 to $57.0 million in 2023 due to decreased originated mortgage servicing rights (“OMSR”) recapture, significantly lower mortgage gain revenue offset by a $1.4 million gain on the sale of equity securities. SBFG Title revenue decreased by $0.6 million to $1.6 million for 2023.
Operating expense decreased by $0.35 million, or 0.8 percent, from $42.3 million in 2022 to $42.0 million in 2023, due to lower incentive and commission levels, which were partially offset by higher medical costs and increased spending on technology.
Goodwill, Intangibles and Capital Purchases
The Company completed its most recent annual goodwill impairment review as of December 31, 2024. Due to declines in the Company’s share price, a quantitative evaluation of goodwill was completed as of September 30, 2024, which revealed that impairment was not warranted. No events have occurred since that assessment, which would warrant impairment. At December 31, 2024, the Company concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment. The Company’s goodwill is further discussed in Note 6 to the Consolidated Financial Statements.
Management plans to continue from time to time to purchase additional premises and equipment and improve current facilities to meet the current and future needs of the Company’s customers. These purchases will include buildings, leasehold improvements, furniture and equipment. Management expects that cash on hand and cash generated from current operations will fund these capital expenditures and purchases.
Liquidity
Liquidity relates primarily to the Company’s ability to fund loan demand, meet deposit customers’ withdrawal requirements and provide for operating expenses. Sources used to satisfy these needs consist of cash and due from banks, interest-bearing deposits in other financial institutions, securities available-for-sale, loans held for sale and borrowings from various sources. These assets, excluding the borrowings, are commonly referred to as liquid assets. Liquid assets were $235.9 million at December 31, 2024, which included pledged available-for-sale securities of $132.8 million, compared to liquid assets of $246.7 million at December 31, 2023.
The Company does not have material cash requirements for capital expenditures over the next year. Any cash needs for capital requirements would be funded by cash existing at the Company.
The Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolio of $852.6 million at December 31, 2024, can and is readily used to collateralize borrowings, which is an additional source of liquidity. Management believes the Company’s current liquidity level, without these borrowings, is sufficient to meet its current and anticipated liquidity needs. At December 31, 2024, all eligible commercial real estate, residential first, multi-family mortgage and agricultural loans were pledged under a FHLB blanket lien.
Significant additional off balance-sheet liquidity is available in the form of FHLB advances, unused federal funds lines from correspondent banks and the national certificate of deposit market. Management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings. Based on the current collateralization requirements of the FHLB, approximately $142.5 million of additional borrowing capacity existed at December 31, 2024.
At December 31, 2024 and 2023, the Company had $41.0 million in federal funds lines available. The Company also had $66.8 million in unpledged securities at December 31, 2024 available for additional borrowings.
The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash as well as an indication of the ability of the Company to maintain an adequate level of liquidity. A discussion of the cash flow statements for 2024 and 2023 follows:
The Company experienced positive cash flows from operating activities in 2024 and 2023. Net cash from operating activities was $9.5 million and $14.0 million for the years ended December 31, 2024 and 2023, respectively. Significant operating items for 2024 included gain on sale of loans of $4.7 million and net income of $11.5 million. Cash provided by the sale of loans held for sale were $216.0 million. Cash used in the origination of loans held for sale were $217.8 million.
The Company experienced negative cash flows from investing activities in 2024 and 2023. Net cash used in investing activities was $28.9 million and $17.4 million for the years ended December 31, 2024 and 2023, respectively. A net increase in loans of $46.8 million was the primary change in 2024. The primary change for 2023 was a net increase in loans of $38.7 million. The Company had proceeds from repayments, maturities, sales and calls of securities of $18.8 million and $22.2 million in 2024 and 2023, respectively.
The Company experienced positive cash flows from financing activities in 2024 and negative cash flows in 2023. Net cash provided by financing activities was $22.5 million and net cash used in financing activities was $1.5 million for the years ended December 31, 2024 and 2023, respectively. The increase in deposits of $82.4 million attributed to the positive cash flows in 2024 and the decrease in deposits of $16.5 million attributed to the negative cash flows in 2023.
The Company uses an Economic Value of Equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE analysis calculates the net present value of the Company’s assets and liabilities in rate shock environments that range from -400 basis points to +400 basis points. The results of this analysis are reflected in the following table, which reflects the Company’s neutral balance sheet that directionally is trending to a liability sensitive position:
Economic Value of Equity
December 31, 2024
($ in thousands)
Change in rates $ Amount $ Change % Change
+400 basis points $ 258,979 $ 10,652 4.29 %
+300 basis points 258,247 9,920 3.99 %
+200 basis points 253,713 5,386 2.17 %
+100 basis points 250,545 2,218 0.89 %
Base Case 248,327 - -
-100 basis points 240,798 (7,529 ) -3.03 %
-200 basis points 229,540 (18,787 ) -7.57 %
-300 basis points 213,379 (34,948 ) -14.07 %
-400 basis points 190,188 (58,139 ) -23.41 %
Economic Value of Equity
December 31, 2023
($ in thousands)
Change in rates $ Amount $ Change % Change
+400 basis points $ 206,660 $ (9,716 ) -4.49 %
+300 basis points 211,240 (5,136 ) -2.37 %
+200 basis points 211,639 (4,737 ) -2.19 %
+100 basis points 213,900 (2,476 ) -1.14 %
Base Case 216,376 - -
-100 basis points 213,526 (2,850 ) -1.32 %
-200 basis points 206,761 (9,616 ) -4.44 %
-300 basis points 195,925 (20,452 ) -9.45 %
-400 basis points 196,802 (19,574 ) -9.05 %

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Asset liability management involves developing, executing and monitoring strategies to maintain appropriate liquidity, maximize net interest income and minimize the impact that significant fluctuations in market interest rates would have on current and future earnings. The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans, mortgage-backed securities, and securities available-for-sale) which are primarily funded by interest-bearing liabilities (deposits and borrowings). With the exception of specific loans which are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. In addition, the Company has limited exposure to commodity prices related to agricultural loans. The impact of changes in foreign exchange rates and commodity prices on interest rates are assumed to be insignificant. The Company’s financial instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk. Interest rate risk is the Company’s primary market risk exposure; to a lesser extent, liquidity risk also impacts market risk exposure.
Interest rate risk is the exposure of a banking institution’s financial condition and results to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value; however, excessive levels of interest rate risk could pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest rate risks at prudent levels is essential to the Company’s safety and soundness.
Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest rate risk and the organization’s quantitative level of exposure. When assessing the interest rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest rate risks at prudent levels of consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and asset quality (when appropriate).
The FRB together with the OCC and the FDIC adopted a Joint Agency Policy Statement on interest rate risk effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest rate risk, which will form the basis for ongoing evaluation of the adequacy of interest rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve guidance and discusses the importance of these elements in the context of managing interest rate risk. Specifically, the guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk management process that effectively identifies, measures and controls interest rate risk.
Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest rate changes. For example, assume that an institution’s assets carry intermediate or long-term fixed rates and that those assets are funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will either have lower net interest income or possibly, net interest expense. Similar risks exist when assets are subject to contractual interest rate ceilings, or rate-sensitive assets are funded by longer-term, fixed-rate liabilities in a declining rate environment.
There are several ways an institution can manage interest rate risk including: 1) matching repricing periods for new assets and liabilities, for example, by shortening or lengthening terms of new loans, investments, or liabilities; 2) selling existing assets or repaying certain liabilities; and 3) hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest rate risk. Interest rate swaps, futures contracts, options on futures contracts, and other such derivative financial instruments can be used for this purpose. Because these instruments are sensitive to interest rate changes, they require management’s expertise to be effective. The Company has not purchased derivative financial instruments in the past, but during 2024 and 2023 the Company entered into interest rate swap agreements as an accommodation to certain loan customers (see Note 8 to the Consolidated Financial Statements). The Company may purchase such instruments in the future if market conditions are favorable.
The Company manages its interest rate risk by the employment of strategies to assure that desired levels of both interest-earning assets and interest-bearing liabilities mature or reprice with similar time frames. Such strategies include: 1) loans receivable which are renewed (and repriced) annually, 2) variable rate loans, 3) certificates of deposit with terms from one month to six years, 4) securities available-for-sale which mature at various times primarily from one through ten years, 5) federal funds borrowings with terms of one day to 90 days, and 6) FHLB borrowings with terms of one day to ten years.
Management believes the most significant impact on financial results is the Company’s ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities and actively manages loan, security, and liability maturities in order to protect against the effects of wide interest rate fluctuations on net income and shareholders’ equity.
For additional quantitative and qualitative information regarding the Company’s interest rate risk, refer to the section captioned “Liquidity” under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K, which is incorporated herein by reference.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements and Notes thereto and other supplementary data follow.
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets as of December 31, 2024, and 2023
Consolidated Statements of Income for the Years ended December 31, 2024, and 2023
Consolidated Statements of Comprehensive Income for the Years ended December 31, 2024 and 2023
Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2024, and 2023
Consolidated Statements of Cash Flows for the Years ended December 31, 2024, and 2023
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (Forvis Mazars, LLP) (PCAOB ID: 686)
SB Financial Group, Inc.
Consolidated Balance Sheets
at December 31,
($ in thousands)
Assets
Cash and due from banks $ 25,928 $ 22,965
Interest bearing time deposits 1,565 1,535
Available-for-sale securities 201,587 219,708
Loans held for sale 6,770 2,525
Loans, net of unearned income 1,046,735 1,000,212
Allowance for credit losses (15,096 ) (15,786 )
Premises and equipment, net 20,456 21,378
Federal Reserve and Federal Home Loan Bank Stock, at cost 5,223 7,279
Foreclosed assets and other assets held for sale, net -
Interest receivable 4,908 4,657
Goodwill 23,239 23,239
Cash value of life insurance 30,685 29,121
Mortgage servicing rights 14,868 13,906
Other assets 12,649 11,999
Total assets $ 1,379,517 $ 1,343,249
Liabilities and shareholders’ equity
Liabilities
Deposits
Non interest bearing demand $ 232,155 $ 228,713
Interest bearing demand 201,085 166,413
Savings 237,987 216,965
Money market 222,161 202,605
Time deposits 259,217 255,509
Total deposits 1,152,605 1,070,205
Repurchase agreements 10,585 13,387
Federal Home Loan Bank advances 35,000 83,600
Trust preferred securities 10,310 10,310
Subordinated debt net of issuance costs 19,690 19,642
Interest payable 2,351 2,443
Other liabilities 21,468 19,320
Total liabilities 1,252,009 1,218,907
Commitments & Contingent Liabilities
Shareholders’ Equity
Preferred stock, no par value; authorized 200,000 shares; 2024 - 0 shares outstanding, 2023 - 0 shares outstanding - -
Common stock, no par value; 2024 - 10,500,000 shares authorized, 8,525,375 shares issued; 2023 - 10,500,000 shares authorized, 8,525,375 shares issued 61,319 61,319
Additional paid-in capital 15,194 15,124
Retained earnings 116,186 108,486
Accumulated other comprehensive loss (30,234 ) (29,831 )
Treasury stock, at cost; (2024 - 1,977,538 common shares; 2023 - 1,756,733 common shares) (34,957 ) (30,756 )
Total shareholders’ equity 127,508 124,342
Total liabilities and shareholders’ equity $ 1,379,517 $ 1,343,249
See Notes to Consolidated Financial Statements
SB Financial Group, Inc.
Consolidated Statements of Income
Years Ended December 31,
($ in thousands, except per share data)
Interest Income
Loans
Taxable $ 56,863 $ 51,407
Tax exempt
Securities
Taxable 4,870 5,245
Tax exempt
Other interest income 1,974
Total interest income 64,349 58,152
Interest Expense
Deposits 21,035 14,708
Repurchase agreements & other
Federal Home Loan Bank advance expense 1,721 2,603
Trust preferred securities expense
Subordinated debt expense
Total interest expense 24,427 18,879
Net Interest Income 39,922 39,273
Provision (benefit) for credit losses - loans (440 )
Provision (benefit) for unfunded commitments (373 )
Total provision for credit losses
Net interest income after provision for credit losses 39,798 38,958
Noninterest Income
Wealth management fees 3,511 3,532
Customer service fees 3,467 3,403
Gain on sale of mortgage loans & OMSR 4,565 3,609
Mortgage loan servicing fees, net 2,183 2,101
Gain on sale of non-mortgage loans
Title insurance income 1,635 1,635
Net gain on sale of securities -
1,453
Other income 1,511 1,559
Total noninterest income 17,017 17,721
Noninterest Expense
Salaries and employee benefits 23,603 22,777
Net occupancy expense 2,884 3,096
Equipment expense 4,333 4,078
Data processing fees 3,075 2,659
Professional fees 2,927 3,024
Marketing expense
Telephone and communications
Postage and delivery expense
State, local and other taxes
Employee expense
Other expense 2,704 3,033
Total noninterest expense 42,959 41,962
Income before income tax 13,856 14,717
Provision for income taxes 2,386 2,622
Net Income $ 11,470 $ 12,095
Basic earnings per common share $ 1.72 $ 1.77
Diluted earnings per common share $ 1.72 $ 1.75
See Notes to Consolidated Financial Statements
SB Financial Group, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31,
($ in thousands)
Net income $ 11,470 $ 12,095
Other comprehensive income (loss)
Investment securities available for sale Available-for-sale investment securities:
Gross unrealized holding gain (loss) arising in the period (510 ) 2,897
Related tax benefit (expense) (608 )
Net effect on other comprehensive income (loss) (403 ) 2,289
Total comprehensive income $ 11,067 $ 14,384
See Notes to Consolidated Financial Statements
SB Financial Group, Inc.
Consolidated Statements of Shareholders’ Equity
Years Ended December 31,
Common Additional
Paid-in Retained Accumulated
Other
Comprehensive Treasury
($ in thousands, except per share data) Stock Capital Earnings Loss Stock Total
January 1, 2024 $ 61,319 $ 15,124 $ 108,486 $ (29,831 ) $ (30,756 ) $ 124,342
Net income
11,470
11,470
Other comprehensive loss
(403 )
(403 )
Dividends on common, $0.56 per share
(3,770 )
(3,770 )
Restricted stock vesting
(567 )
-
Repurchased stock (253,817 shares)
(4,768 ) (4,768 )
Stock based compensation expense
December 31, 2024 $ 61,319 $ 15,194 $ 116,186 $ (30,234 ) $ (34,957 ) $ 127,508
Common Additional
Paid-in Retained Accumulated
Other
Comprehensive Treasury
($ in thousands, except per share data) Stock Capital Earnings Loss Stock Total
January 1, 2023 $ 61,319 $ 15,087 $ 101,966 $ (32,120 ) $ (27,824 ) $ 118,428
Net income
12,095
12,095
Other comprehensive income
2,289
2,289
CECL initial adjustment
(1,991 )
(1,991 )
Dividends on common, $0.52 per share
(3,584 )
(3,584 )
Restricted stock vesting
(539 )
-
Repurchased stock (244,325 shares)
(3,471 ) (3,471 )
Stock based compensation expense
December 31, 2023 $ 61,319 $ 15,124 $ 108,486 $ (29,831 ) $ (30,756 ) $ 124,342
See Notes to Consolidated Financial Statements
SB Financial Group, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
($ in thousands)
Operating Activities
Net Income $ 11,470 $ 12,095
Items not requiring (providing) cash
Depreciation and amortization 2,151 2,235
Provision for credit losses
Expense of share-based compensation plan
Amortization of premiums and discounts on securities
Amortization of intangible assets
Amortization of originated mortgage servicing rights 1,335 1,242
Impairment (recovery) of mortgage servicing rights (41 )
Deferred income taxes 2,017 1,878
Proceeds from sale of loans held for sale 216,031 161,183
Originations of loans held for sale (217,822 ) (159,292 )
Gain from sale of loans (4,710 ) (4,038 )
Net gains on sales of securities - (1,453 )
Changes in
Interest receivable (251 ) (566 )
Other assets (2,656 ) 3,876
Interest payable & other liabilities (4,724 )
Net cash provided by operating activities 9,451 13,989
Investing Activities
Purchases of available-for-sale securities (1,677 ) (723 )
Proceeds from maturities of interest bearing time deposits 1,184 1,686
Purchase of interest bearing time deposits (1,214 ) (1,090 )
Proceeds from maturities of available-for-sale securities 18,794 22,170
Net change in loans (46,773 ) (38,736 )
Purchase of premises, equipment (1,229 ) (958 )
Proceeds from bank owned life insurance -
Purchase of bank owned life insurance (800 ) -
Purchase of Federal Reserve and Federal Home Loan Bank Stock - (953 )
Proceeds from sale of Federal Reserve and Federal Home Loan Bank Stock 2,056 -
Proceeds from sale of foreclosed assets
Net cash used in investing activities (28,948 ) (17,390 )
Financing Activities
Net increase (decrease) in demand deposits, money market, interest checking & savings accounts 86,108 (81,089 )
Net increase (decrease) in time deposits (3,708 ) 64,629
Net decrease in securities sold under agreements to repurchase (2,802 ) (1,536 )
Proceeds from Federal Home Loan Bank advances 133,000 810,500
Repayment of Federal Home Loan Bank advances (181,600 ) (786,900 )
Stock repurchase plan (4,768 ) (3,471 )
Dividends on common shares (3,770 ) (3,584 )
Net cash provided by (used in) financing activities 22,460 (1,451 )
Increase (decrease) in cash and cash equivalents 2,963 (4,852 )
Cash and cash equivalents, beginning of year 22,965 27,817
Cash and cash equivalents, end of year $ 25,928 $ 22,965
Supplemental cash flow information
Interest paid $ 24,519 $ 17,205
Income taxes paid $ 417 $ -
Supplemental non-cash disclosure
Transfer of loans to foreclosed assets $ - $ 507
See Notes to Consolidated Financial Statements
SB Financial Group, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2024 and 2023
Note 1:	 Organization and Summary of Significant Accounting Policies
Organization and Nature of Operations
SB Financial Group, Inc. (“SB Financial”) is a financial holding company whose principal activity is the ownership and management of its wholly-owned subsidiaries, The State Bank and Trust Company (“State Bank”), SBFG Title, LLC dba Peak Title Agency (“SBFG Title”), and SB Captive, Inc. (“SB Captive”). State Bank owns all the outstanding stock of State Bank Insurance, LLC (“SBI”). In December 2024, the Company completed the dissolution of four of its inactive subsidiaries - RFCBC, Inc., Rurbanc Data Services Inc., Rurban Mortgage Company and SBFG Mortgage, LLC. The “Company” refers to SB Financial and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to the registrant, SB Financial.
The Company is primarily engaged in providing a full range of banking and wealth management services to individual and corporate customers primarily located in Ohio, Indiana, and Michigan. The Company is subject to competition from other financial institutions in its market areas. The Company is regulated by certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company, State Bank, SBFG Title, SB Captive, and SBI. All significant intercompany accounts and transactions were eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the ACL, loan servicing rights, and fair value of financial instruments.
Significant Accounting Policies
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2024 and 2023, cash equivalents consisted primarily of interest-bearing and noninterest bearing demand deposit balances held by correspondent banks.
At December 31, 2024, the Company’s correspondent cash accounts exceeded federally insured limits by $0.6 million. Additionally, the Company had approximately $18.4 million of cash held by the Federal Reserve Bank (“FRB”) and the Federal Home Loan Bank (“FHLB”), which is not federally insured.
Securities
Available-for-sale securities, which include any debt security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses are recorded, net of related income tax effects, in other comprehensive income.	
Amortization of premiums and accretion of discounts are recorded as interest income from securities. Realized gains and losses are recorded as net security gains (losses). Gains and losses on sales of securities are determined on the specific-identification method.
The Company has made a policy election to exclude accrued interest from the amortized cost basis of securities and report accrued interest separately in other assets on the consolidated balance sheets. A security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to securities reversed against interest income for the years ended December 31, 2024, or 2023.
Allowance for Credit Losses - Available-for-Sale Securities
For available-for-sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income as a provision for credit losses. For available-for-sale securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.
Changes in the ACL are recorded as provision for (or reversal of) credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met. At December 31, 2024, no ACL on available-for-sale securities was recorded.
Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Should a decline in fair value be the result of credit losses or other factors, the security would be moved into a nonaccrual status and all accrued interest be reversed. Accrued interest receivable on available-for-sale debt securities totaled $0.6 million at December 31, 2024.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income. The Company utilizes third-party hedges to minimize the impact of interest rate risk fluctuations, and their impact is realized through noninterest income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for any charge offs, the ACL, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Generally, loans are placed on nonaccrual status not later than 90 days past due. Past due status is based on the contractual terms of the loan. All interest accrued, but not collected for loans that are placed on nonaccrual or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Credit Losses - Loans
The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes that the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments:
● Commercial & Industrial - Commercial & industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial & industrial loans and lease financing agreements is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease.
● Commercial Real Estate - Owner Occupied - Owner occupied commercial real estate loans consist of loans to purchase or re-finance owner occupied nonresidential properties. This includes office buildings and other commercial facilities. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation as the commercial real estate collateral may be more adversely affected by conditions in the real estate markets or in the general economy.
● Commercial Real Estate - Nonowner Occupied - Nonowner occupied commercial real estate loans consist of loans to purchase, construct, or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as multifamily properties. The primary risk associated with nonowner occupied commercial real estate loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation as the commercial real estate collateral may be more adversely affected by conditions in the real estate markets or in the general economy.
● Agricultural - Agricultural loans consist of loans or lines of credit to finance farmland, equipment, and general business needs or other assets. The primary risk associated with agricultural loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan.
● Residential Real Estate - Residential real estate mortgage loans consist of loans to purchase or refinance the borrower’s primary dwelling, second residence or vacation home and are often secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral.
● Home Equity Line of Credit (HELOCs) - Home equity loans consist of HELOCs and other lines of credit secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by junior liens as a substantial decline in value could render the junior lien position effectively unsecured.
● Consumer - Consumer loans consist of loans to finance unsecured home improvements, personal assets, such as automobiles or recreational vehicles, and revolving lines of credit that can be secured or unsecured. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.
The Company utilizes a Discounted Cash Flow (“DCF”) method to estimate the quantitative portion of the ACL for all loan pools evaluated on a collective pooled basis, with the exception of the credit card portfolio, which was estimated using the Remaining Life Method. For each segment, a Loss Driver Analysis (“LDA”) was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA utilized the Company’s own Federal Financial Institutions Examination Council’s (“FFIEC”) Call Report data, as well as peer institution data.
In creating the DCF model, the Company has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. The Company’s own loan-level loss data contained within the model is being supplemented with peer data in most loan pools as there was not sufficient loan-level detail from prior cycles reflecting similar economic conditions as the forecasted loss drivers to result in a sound calculation.
Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. The Company utilizes data from Federal Reserve Economic Data (“FRED”) to provide economic forecasts under various scenarios, which are applied to loan pools to reflect credit risk in the current economic environment.
Additional key assumptions in the DCF model include the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment rates. When possible, the Company utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. When possible, the Company utilizes its own LGDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own LGDs, the LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. The Company’s own prepayment and curtailment rates were used in the ACL estimate.
Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. A number of factors are considered including economic forecast uncertainty, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, impact of rising interest rates, external factors and other considerations. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. The qualitative analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above. During each reporting period, management also considers the need to adjust the baseline lifetime loss rates for factors that may cause expected losses to differ from those experienced in the historical loss periods.
Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting dated adjusted for selling costs as appropriate.
The Company is also required to consider expected credit losses associated with loan commitments over the contractual period in which it is exposed to credit risk on the underlying commitments. Any allowance for off-balance sheet credit exposures is reported in Other liabilities on the Company’s consolidated balance sheet and is increased or decreased through a provision for credit loss expense on the Company’s consolidated statement of income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same methodology, inputs and assumptions as the funded portion of loans at the segment level applied to the amount of commitments expected to be funded.
While the Company’s policies and procedures used to estimate the ACL, as well as the resultant provision for credit losses charged to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or particular industry conditions, which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method for buildings and equipment over the estimated useful lives of the assets. Leasehold improvements are capitalized and depreciated using the straight-line method over the terms of the respective leases.
Long-lived Asset Impairment
The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset’s cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) Stock
FRB and FHLB stock are required investments for institutions that are members of the FRB and FHLB systems. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.
Foreclosed Assets and Other Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of the carrying amount or the fair value less cost to sell. Revenue and expenses from operations related to foreclosed assets and changes in the valuation allowance are included in net income or expense from foreclosed assets.
Goodwill
Goodwill is tested for impairment annually or upon a triggering event. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value.
Core Deposits and Other Intangibles
Intangible assets are being amortized on a straight-line basis over weighted-average periods ranging from one to eight years. Such assets are periodically evaluated as to the recoverability of their carrying value. Purchased software is being amortized using the straight-line method over periods ranging from one to three years.
Derivatives
The Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into interest rate lock commitments (“IRLCs”) with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts are entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.
The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with the changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while the derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.
For exchange-traded contracts, fair value is based on quoted market prices. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation.
Mortgage Servicing Rights
Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance (Accounting Standards Codification “ASC” 860-50), servicing rights from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company subsequently measures each class of servicing asset using the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment based on fair value at each reporting date.
Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost of service, the discount rate, the custodial earning rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.
Each class of separately recognized servicing assets subsequently measured using the amortization method is evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. Changes in valuation allowances are reported with “Mortgage loan servicing fees, net” in the income statement. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.
Share-Based Employee Compensation Plan
At December 31, 2024 and 2023, the Company had a share-based employee compensation plan that permits the grant of stock options, restricted stock and other share-based awards to employees, directors and advisory board members of the Company and its subsidiaries (see Note 18 to the Consolidated Financial Statements).
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company - put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before the maturity or the ability to unilaterally cause the holder to return specific assets.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the term “upon examination” also includes resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiaries. With a few exceptions, the Company is no longer subject to U.S. Federal, State and Local examinations by tax authorities for the years before 2020. As of December 31, 2024, the Company had no uncertain income tax positions.
Treasury Shares
Treasury stock is stated at cost. Cost is determined by the weighted-average cost method.
Earnings Per Share
Earnings per share (“EPS”) is computed using the two-class method. Basic EPS represent income available to common shareholders divided by the weighted-average number of common shares outstanding during each period. Diluted EPS reflect additional potential common shares that may be issued by the Company related solely to outstanding stock options or awards which are determined using the treasury stock method. Treasury stock shares are not deemed outstanding for EPS calculations.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), net of applicable income taxes. Other comprehensive income (loss) includes unrealized appreciation (depreciation) on available-for-sale securities. AOCI consists solely of the cumulative unrealized gains and losses on available-for-sale securities net of income tax.
Subordinated Debt
At December 31, 2024, the Company had subordinated debt obligations of $20.0 million related to its 3.65% Fixed to Floating Rate Subordinated Notes due 2031, which were issued and sold by the Company on May 27, 2021. The Subordinated Notes were issued in order to provide additional funds for various corporate obligations of the Company, including share buybacks, acquisition costs and organic asset growth (see Note 13 to the Consolidated Financial Statements).
Revenue Recognition
The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or services are provided and collectability is reasonably assured. The Company’s principal source of revenue is interest income from loans and leases and investment securities. The Company also earns noninterest income from various banking and financial services offered through State Bank.
Interest income is the largest source of revenue for the Company and is primarily recognized on an accrual basis.
Noninterest income is earned through a variety of financial and transaction services provided to corporate and consumer clients such as trust and wealth advisory, deposit account, debit card, mortgage banking and title insurance.
Adoption of New Accounting Standards:
ASU No. 2020-04: Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)
This guidance provides temporary options to ease the potential burden in accounting for reference rate reform. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective as of March 12, 2020 through December 31, 2022. However, a deferral of the implementation of the Reference Rate Reform was issued in December of 2022, which extends the implementation to December 31, 2024. The Company has implemented a replacement for the reference rate and has determined that the changes did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2023-02: Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (ASU 2023-02)
This ASU permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization if certain conditions are met. A reporting entity makes an accounting policy election to apply the proportional amortization method on a tax-credit-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments. The Company adopted the standard using a modified retrospective transition approach to the amendments related to our low income housing tax credit (“LIHTC”) investments that are eligible to apply proportional amortization. The adoption of this standard did not have a material effect on the Company’s operating results or financial condition.
ASU No. 2023-07: Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures
This ASU expands operating segment disclosures and requires all segment disclosures to be reported in both annual and interim periods. The new standard requires disclosure of the following: significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) for reportable segments; the title and position of the CODM as well as how the CODM uses the reported measure(s) of profit and loss to assess segment performance; and “other segment items” by reportable segment and a description of its composition. The Company adopted the standard on January 1, 2024, and its adoption did not have a material effect on our financial statements.
Accounting Standards not yet adopted:
ASU No. 2023-09: Income Taxes (Topic 740): Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures, primarily related to effective tax rate reconciliation and information related to income taxes paid, among certain other amendments to improve the effectiveness of such disclosures. The amendments of this ASU are effective for fiscal years beginning after December 15, 2024 and are to be applied on a prospective basis. Adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.
Note 2: Earnings Per Share
Earnings Per Share (“EPS”) is computed using the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the applicable period, excluding participating securities. Participating securities include non-vested restricted stock awards. Non-vested restricted stock awards are considered participating securities to the extent the holders of these securities receive non-forfeitable dividends at the same rate as holders of common shares. Diluted EPS is computed using the weighted-average number of shares determined for the basic EPS plus the dilutive effect of stock compensation using the treasury stock method. EPS for the years ended December 31, 2024 and 2023 is computed as follows:
Twelve Months Ended
December 31,
($ and outstanding shares in thousands - except per share data)
Distributed earnings allocated to common shares $ 3,770 $ 3,584
Undistributed earnings allocated to common shares 7,666 8,482
Net earnings allocated to common shares 11,436 12,066
Net earnings allocated to participating securities
Net Income allocated to common shares and participating securities $ 11,470 $ 12,095
Weighted average shares outstanding for basic earnings per share 6,660 6,829
Dilutive effect of stock compensation
Weighted average shares outstanding for diluted earnings per share 6,680 6,917
Basic earnings per common share $ 1.72 $ 1.77
Diluted earnings per common share $ 1.72 $ 1.75
There were no anti-dilutive shares in 2024 or 2023.
Note 3:	 Available-for-Sale Securities
The amortized cost and appropriate fair values, together with gross unrealized gains and	losses,	of available-for-sale securities at December 31, 2024 and December 31, 2023 were as follows:
Gross Gross
($ in thousands) Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
December 31, 2024
U.S. Treasury and Government agencies $ 8,120 $ -
$ (731 ) $ 7,389
Mortgage-backed securities 203,646 (34,030 ) 169,620
State and political subdivisions 10,893 -
(1,486 ) 9,407
Other corporate securities 17,200 -
(2,029 ) 15,171
Totals $ 239,859 $ 4 $ (38,276 ) $ 201,587
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
December 31, 2023
U.S. Treasury and Government agencies $ 7,339 $ 1 $ (823 ) $ 6,517
Mortgage-backed securities 221,717 (32,853 ) 188,867
State and political subdivisions 11,212 (1,322 ) 9,898
Other corporate securities 17,200 -
(2,774 ) 14,426
Totals $ 257,468 $ 12 $ (37,772 ) $ 219,708
The amortized cost and fair value of securities available-for-sale at December 31, 2024, by contractual maturity, are shown below. Expected maturities differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Fair
($ in thousands) Cost Value
Within one year $ 2,140 $ 2,140
Due after one year through five years 1,125 1,093
Due after five years through ten years 26,023 23,049
Due after ten years 6,925 5,685
36,213 31,967
Mortgage-backed securities 203,646 169,620
Totals $ 239,859 $ 201,587
The fair value of securities pledged as collateral, to secure public deposits and for other purposes, was $115.5 million at December 31, 2024, and $89.7 million at December 31, 2023. Securities delivered for repurchase agreements (not included above) were $17.3 million at December 31, 2024 and $19.7 million at December 31, 2023.
Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. There were 138 securities and 139 securities reported with amounts less than their historical value at December 31, 2024 and 2023, respectively. Total fair value of these investments was $201.3 million and $217.0 million at December 31, 2024 and 2023, respectively, which was approximately 99 percent and 99 percent, respectively, of the Company’s available-for-sale investment portfolio.
The following tables present securities with unrealized losses at December 31, 2024 and 2023:
($ in thousands)
Less than 12 Months 12 Months or Longer Total
Number of
Securities Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
December 31, 2024
U.S. Treasury and Government agencies $ 1,929 $ -
$ 5,460 $ (731 ) $ 7,389 $ (731 )
Mortgage-backed securities -
$ -
169,286 (34,030 ) 169,286 (34,030 )
State and political subdivisions 1,319 $ (21 ) 8,088 (1,465 ) 9,407 (1,486 )
Other corporate securities $ (115 ) 14,786 (1,914 ) 15,171 (2,029 )
Totals $ 3,633 $ (136 ) $ 197,620 $ (38,140 ) $ 201,253 $ (38,276 )
Less than 12 Months 12 Months or Longer Total
Number of
Securities Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
December 31, 2023
U.S. Treasury and Government agencies $ -
$ -
$ 6,022 $ (823 ) $ 6,022 $ (823 )
Mortgage-backed securities -
-
188,508 (32,853 ) 188,508 (32,853 )
State and political subdivisions -
-
8,541 (1,322 ) 8,541 (1,322 )
Other corporate securities -
-
13,926 (2,774 ) 13,926 (2,774 )
Totals $ -
$ -
$ 216,997 $ (37,772 ) $ 216,997 $ (37,772 )
Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. Management reviews these securities on a quarterly basis and evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, management determines whether a decline in fair value resulted from a credit loss or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, a provision is recorded to the ACL.
Note 4:	 Loans and Allowance for Credit Losses
The following tables present the categories of loans at December 31, 2024, and 2023:
Total Loans
($ in thousands)
Commercial & industrial $ 124,764 $ 126,716
Commercial real estate - owner occupied 134,431 126,717
Commercial real estate - nonowner occupied 345,142 297,323
Agricultural 64,680 65,659
Residential real estate 308,378 318,123
Home equity line of credit (HELOC) 53,811 47,845
Consumer 15,529 17,829
Total loans 1,046,735 1,000,212
Allowance for credit losses (15,096 ) (15,786 )
Loans, net $ 1,031,639 $ 984,426
The Company makes commercial, agri-business, consumer and residential loans to customers throughout its defined market area. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
Listed below is a summary of loan commitments, unused lines of credit, and standby letters of credit as of December 31, 2024, and 2023.
($ in thousands)
Loan commitments and unused lines of credit $ 224,895 $ 201,605
Standby letters of credit 1,184
Totals $ 225,810 $ 202,789
The risk characteristics of each loan portfolio segment are as follows:
Commercial & Industrial and Agricultural
Commercial & industrial and agricultural loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Commercial Real Estate (Owner and Nonowner Occupied)
Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus non-owner-occupied loans.
Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
Residential Real Estate, Home Equity Line of Credit (“HELOC”) and Consumer
Residential and consumer loans consist of two segments - residential mortgage loans and personal loans. Residential mortgage loans are secured by 1-4 family residences and are generally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. HELOCs are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that these loans are of smaller individual amounts and spread over a large number of borrowers.
Allowance for Credit Losses (ACL)
The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors.
The following table summarizes the activity related to the ACL for the twelve months ended December 31, 2024.
($ in thousands)
For the twelve months ended
December 31, 2024 Balance,
beginning of
period Chargeoffs Recoveries Provision for Credit Losses Balance,
end of
period
Commercial & industrial $ 2,003 $ (233 ) $ 5 $ 891 $ 2,666
Commercial real estate - owner occupied 1,952 -
-
(146 ) 1,806
Commercial real estate - nonowner occupied 5,718 -
-
5,721
Agricultural -
-
Residential real estate 4,936 (3 ) -
(1,603 ) 3,330
HELOC -
-
Consumer (53 ) (39 )
Total $ 15,786 $ (289 ) $ 39 $ (440 ) $ 15,096
As a result of the adoption of ASC 326, the Company recorded a $1.4 million increase to the ACL as a cumulative-effect adjustment on January 1, 2023. The following table summarizes the activity related to the ACL for the twelve months ended December 31, 2023.
($ in thousands)
For the twelve months ended
December 31, 2023 Balance, beginning of period Impact of
Adopting
ASC 326 Chargeoffs Recoveries Provision for Credit Losses Balance,
end of
period
Commercial & industrial $ 1,663 $ 230 $ -
$ -
$ 110 $ 2,003
Commercial real estate - owner occupied 1,696 -
-
1,952
Commercial real estate - nonowner occupied 4,584 1,015 -
-
5,718
Agricultural (194 ) -
-
Residential real estate 4,438 (53 ) 4,936
HELOC (76 ) -
-
Consumer (17 ) (65 )
Total $ 13,818 $ 1,372 $ (118 ) $ 26 $ 688 $ 15,786
Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the ACL.
The following table presents an analysis of collateral-dependent loans of the Company as of December 31, 2024.
($ in thousands) Collateral Type Allocated
December 31, 2024 Real Estate Other Total Allowance
Commercial & industrial $ 2,252 $ 625 $ 2,877 $ 380
Commercial real estate - owner occupied -
Commercial real estate - nonowner occupied -
-
Agricultural -
-
-
-
Residential real estate -
HELOC -
-
-
-
Consumer -
-
-
-
Total $ 3,852 $ 625 $ 4,477 $ 419
($ in thousands) Collateral Type Allocated
December 31, 2023 Real Estate Other Total Allowance
Commercial & industrial $ 604 $ -
$ 604 $ 97
Commercial real estate - owner occupied -
-
-
-
Commercial real estate - nonowner occupied -
Agricultural -
-
-
-
Residential real estate 1,023 -
1,023
HELOC -
-
-
-
Consumer -
-
-
-
Total $ 1,911 $ -
$ 1,911 $ 155
Credit Risk Profile
The Company categorizes loans into risk categories (loan grades) based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Pass (grades 1 - 4): Loans which management has determined to be performing as expected and in agreement with the terms established at the time of loan origination.
Special Mention (grade 5): Assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.
Substandard (grade 6): Loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardized the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful (grade 7): Loans classified as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.
Loss (grade 8): Loans are considered uncollectable and of such little value that continuing to carry them as assets on the Company’s financial statement is not feasible. Loans will be classified as loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.
The Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis. The following table presents loan balances by credit quality indicators and gross chargeoffs by year of origination as of December 31, 2024.
Revolving Loans
($ in thousands) Term Loans by Year of Origination Revolving Converted
December 31, 2022 Prior Loans to Term Total
Commercial & industrial
Pass (1 - 4) $ 22,688 $ 12,927 $ 12,813 $ 14,207 $ 9,101 $ 10,022 $ 36,363 $ 3,204 $ 121,325
Special Mention (5) - - - - -
Substandard (6) - - - - 1,147 2,493
Doubtful (7) - - - -
Loss (8) - - - - - - - - -
Total $ 22,688 $ 13,435 $ 13,398 $ 14,411 $ 9,234 $ 10,743 $ 37,535 $ 3,320 $ 124,764
Current period gross chargeoffs $ - $ 42 $ 25 $ 23 $ 143 $ - $ - $ - $ 233
Commercial real estate - owner occupied
Pass (1 - 4) $ 15,070 $ 30,372 $ 20,002 $ 24,406 $ 13,491 $ 30,140 $ 463 $ 49 $ 133,993
Special Mention (5) - - - - - - - - -
Substandard (6) - - - - - - -
Doubtful (7) - - - - - -
Loss (8) - - - - - - - - -
Total $ 15,070 $ 30,372 $ 20,002 $ 24,413 $ 13,921 $ 30,141 $ 463 $ 49 $ 134,431
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial real estate - nonowner occupied
Pass (1 - 4) $ 94,098 $ 47,026 $ 50,942 $ 40,584 $ 39,093 $ 72,609 $ 118 $ - $ 344,470
Special Mention (5) - - - - - - -
Substandard (6) - - - - - -
Doubtful (7) - - - - - - - - -
Loss (8) - - - - - - - - -
Total $ 94,496 $ 47,026 $ 51,096 $ 40,584 $ 39,093 $ 72,729 $ 118 $ - $ 345,142
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Agricultural
Pass (1 - 4) $ 8,100 $ 8,295 $ 14,482 $ 10,748 $ 2,618 $ 8,967 $ 11,470 $ - $ 64,680
Special Mention (5) - - - - - - - - -
Substandard (6) - - - - - - - - -
Doubtful (7) - - - - - - - - -
Loss (8) - - - - - - - - -
Total $ 8,100 $ 8,295 $ 14,482 $ 10,748 $ 2,618 $ 8,967 $ 11,470 $ - $ 64,680
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Residential real estate
Pass (1 - 4) $ 31,291 $ 41,982 $ 100,375 $ 76,146 $ 28,237 $ 28,797 $ - $ - $ 306,828
Special Mention (5) - - - - - - - - -
Substandard (6) - - - - 1,550
Doubtful (7) - - - - - - - - -
Loss (8) - - - - - - - - -
Total $ 31,291 $ 42,261 $ 100,375 $ 76,402 $ 28,287 $ 29,762 $ - $ - $ 308,378
Current period gross chargeoffs $ - $ - $ - $ 3 $ - $ - $ - $ - $ 3
Home equity line of credit (HELOC)
Pass (1 - 4) $ - $ - $ - $ 12 $ 18 $ 51 $ 46,908 $ 6,591 $ 53,580
Special Mention (5) - - - - - - - - -
Substandard (6) - - - - - 231
Doubtful (7) - - - - - - - - -
Loss (8) - - - - - - - - -
Total $ - $ - $ - $ 12 $ 18 $ 99 $ 47,047 $ 6,635 $ 53,811
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Consumer
Pass (1 - 4) $ 1,909 $ 1,993 $ 3,247 $ 725 $ 319 $ 94 $ 7,229 $ - $ 15,516
Special Mention (5) - - - - - - - - -
Substandard (6) - - - - - - -
Doubtful (7) - - - - - - - - -
Loss (8) - - - - - - - - -
Total $ 1,909 $ 1,993 $ 3,260 $ 725 $ 319 $ 94 $ 7,229 $ - $ 15,529
Current period gross chargeoffs $ - $ - $ - $ 5 $ 2 $ - $ 46 $ - $ 53
Total Loans
Pass (1 - 4) $ 173,156 $ 142,595 $ 201,861 $ 166,828 $ 92,877 $ 150,680 $ 102,551 $ 9,844 $ 1,040,392
Special Mention (5) - - - -
Substandard (6) - 480 1,806 1,286 4,991
Doubtful (7) - - - -
Loss (8) - - - - - - - - -
Total Loans $ 173,554 $ 143,382 $ 202,613 $ 167,295 $ 93,490 $ 152,535 $ 103,862 $ 10,004 $ 1,046,735
Current period gross chargeoffs $ - $ 42 $ 25 $ 31 $ 145 $ - $ 46 $ - $ 289
The following table presents loan balances by credit quality indicators and gross chargeoffs by year of origination as of December 31, 2023.
Revolving Loans
($ in thousands) Term Loans by Year of Origination Revolving Converted
December 31, 2023 2020 Prior Loans to Term Total
Commercial & industrial
Pass (1 - 4) $ 17,239 $ 18,076 $ 19,143 $ 10,573 $ 7,449 $ 5,965 $ 45,831 $ 444 $ 124,720
Special Mention (5) - - - - 1,136
Substandard (6) - - - -
Doubtful (7) - - 5
Loss (8) - - - - - - - - -
Total $ 17,434 $ 18,848 $ 19,369 $ 10,637 $ 7,475 $ 6,342 $ 46,082 $ 529 $ 126,716
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial real estate - owner occupied
Pass (1 - 4) $ 29,253 $ 21,427 $ 26,808 $ 12,931 $ 12,881 $ 20,409 $ 112 $ 173 $ 123,994
Special Mention (5) - - - 2,338 - - - 2,696
Substandard (6) - - - - - - - - -
Doubtful (7) - - - - - -
Loss (8) - - - - - - - - -
Total $ 29,253 $ 21,427 $ 26,834 $ 15,269 $ 13,240 $ 20,409 $ 112 $ 173 $ 126,717
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial real estate - nonowner occupied
Pass (1 - 4) $ 52,915 $ 67,285 $ 47,658 $ 46,364 $ 30,561 $ 47,895 $ 2,377 $ - $ 295,055
Special Mention (5) - - - - 1,134 - - 1,972
Substandard (6) - - - - - -
Doubtful (7) - - - - - - -
Loss (8) - - - - - - - - -
Total $ 52,915 $ 67,285 $ 47,658 $ 46,364 $ 31,399 $ 49,307 $ 2,395 $ - $ 297,323
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Agricultural
Pass (1 - 4) $ 9,496 $ 16,131 $ 12,940 $ 3,029 $ 1,859 $ 9,801 $ 12,403 $ - $ 65,659
Special Mention (5) - - - - - - - - -
Substandard (6) - - - - - - - - -
Doubtful (7) - - - - - - - - -
Loss (8) - - - - - - - - -
Total $ 9,496 $ 16,131 $ 12,940 $ 3,029 $ 1,859 $ 9,801 $ 12,403 $ - $ 65,659
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Residential real estate
Pass (1 - 4) $ 53,013 $ 110,531 $ 85,075 $ 31,558 $ 10,425 $ 22,564 $ 1,816 $ 1,300 $ 316,282
Special Mention (5) - - - - - - - - -
Substandard (6) - - 920 - - 1,820
Doubtful (7) - - - - - - -
Loss (8) - - - - - - - - -
Total $ 53,013 $ 110,531 $ 85,436 $ 31,612 $ 10,910 $ 23,505 $ 1,816 $ 1,300 $ 318,123
Current period gross chargeoffs $ - $ - $ 32 $ 21 $ - $ - $ - $ - $ 53
Home equity line of credit (HELOC)
Pass (1 - 4) $ - $ - $ 46 $ 18 $ 85 $ 94 $ 40,932 $ 6,492 $ 47,667
Special Mention (5) - - - - - 178
Substandard (6) - - - - - - - - -
Doubtful (7) - - - - - - - - -
Loss (8) - - - - - - - - -
Total $ - $ - $ 46 $ 18 $ 85 $ 153 $ 40,952 $ 6,591 $ 47,845
Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
Consumer
Pass (1 - 4) $ 3,296 $ 5,142 $ 1,429 $ 740 $ 221 $ 128 $ 6,863 $ - $ 17,819
Special Mention (5) - - - - - - -
Substandard (6) - - - - - - -
Doubtful (7) - - - - - - - - -
Loss (8) - - - - - - - - -
Total $ 3,296 $ 5,151 $ 1,429 $ 741 $ 221 $ 128 $ 6,863 $ - $ 17,829
Current period gross chargeoffs $ - $ 12 $ 8 $ 11 $ - $ - $ - $ 34 $ 65
Total Loans
Pass (1 - 4) $ 165,212 $ 238,592 $ 193,099 $ 105,213 $ 63,481 $ 106,856 $ 110,334 $ 8,409 $ 991,196
Special Mention (5) - - 2,403 1,196 1,333 5,983
Substandard (6) - 510 1,211 2,284
Doubtful (7) - - 5
Loss (8) - - - - - - - - -
Total Loans $ 165,407 $ 239,373 $ 193,712 $ 107,670 $ 65,189 $ 109,645 $ 110,623 $ 8,593 $ 1,000,212
Current period gross chargeoffs $ - $ 12 $ 40 $ 32 $ - $ - $ - $ 34 $ 118
The following tables present the Company’s loan portfolio aging analysis as of December 31, 2024 and 2023:
($ in thousands) 30-59 Days 60-89 Days Greater Than 90 Days Total
December 31, 2024 Past Due Past Due Past Due Past Due Current Total Loans
Commercial & industrial $ 354 $ -
$ 2,927 $ 3,281 $ 121,483 $ 124,764
Commercial real estate - owner occupied -
-
134,002 134,431
Commercial real estate - nonowner occupied -
-
344,772 345,142
Agricultural -
-
-
-
64,680 64,680
Residential real estate 1,021 2,023 306,355 308,378
HELOC 276 53,535 53,811
Consumer - 15,309 15,529
Total Loans $ 893 $ 1,063 $ 4,643 $ 6,599 $ 1,040,136 $ 1,046,735
30-59 Days 60-89 Days Greater Than 90 Days Total
December 31, 2023 Past Due Past Due Past Due Past Due Current Total Loans
Commercial & industrial $ 26 $ -
$ 658 $ 684 $ 126,032 $ 126,716
Commercial real estate - owner occupied -
-
-
-
126,717 126,717
Commercial real estate - nonowner occupied -
-
297,294 297,323
Agricultural -
-
-
-
65,659 65,659
Residential real estate -
317,506 318,123
HELOC -
47,770 47,845
Consumer 122 17,707 17,829
Total Loans $ 114 $ 263 $ 1,150 $ 1,527 $ 998,685 $ 1,000,212
All loans past due 90 days are systematically placed on nonaccrual status.
When a loan is moved to nonaccrual status, total unpaid interest accrued to date is reversed from income. Subsequent payments are applied to the outstanding principal balance with the interest portion of the payment recorded on the balance sheet as a contra-loan. Interest received on nonaccrual loans may be realized once all contractual principal amounts are received or when a borrower establishes a history of six consecutive timely principal and interest payments. It is at the discretion of management to determine when a loan is placed back on accrual status upon receipt of six consecutive timely payments.
The categories of nonaccrual loans as of December 31, 2024 and December 31, 2023 are presented in the following table.
December 31, 2024
($ in thousands) Nonaccrual loans with no allowance Nonaccrual loans with an allowance Total nonaccrual loans
Commercial & industrial $ 2,301 $ 626 $ 2,927
Commercial real estate - owner occupied
Commercial real estate - nonowner occupied -
Agricultural -
-
-
Residential real estate 1,428 1,539
Home equity line of credit (HELOC) -
Consumer -
Total loans $ 4,349 $ 1,167 $ 5,516
December 31, 2023
($ in thousands) Nonaccrual loans with no allowance Nonaccrual loans with an allowance Total nonaccrual loans
Commercial & industrial $ 651 $ 97 $ 748
Commercial real estate - owner occupied -
Commercial real estate - nonowner occupied -
Agricultural -
-
-
Residential real estate 1,694 1,712
Home equity line of credit (HELOC) -
Consumer -
Total loans $ 2,703 $ 115 $ 2,818
Modifications made to Borrowers Experiencing Financial Difficulty
In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. These modifications provide the borrowers with short-term cash relief to allow them to improve their financial condition. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowance for Credit Losses section of this Note.
For the twelve months ended December 31, 2024, the Company did not modify any loans made to borrowers experiencing financial difficulty. The Company had no commitments to lend to borrowers experiencing financial difficulty for which the Company had modified an existing loan as of December 31, 2024.
The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and its ability to generate positive cash flows during the loan term. For the twelve-month period ended December 31, 2024, the Company had no loan modifications made to borrowers experiencing financial difficulty for which there was a payment default within the 12 months following the modification date.
Unfunded Loan Commitments
The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the ACL for loans. The ACL for unfunded loan commitments is classified on the balance sheet within Other liabilities.
The following table presents the balance and activity in the ACL for unfunded loan commitments for the twelve months ended December 31, 2024, and 2023.
($ in thousands)
Balance, beginning of period $ 776 $ -
Adjustment for adoption of ASU 2016-13 -
1,149
Provision for unfunded commitments (373 )
Balance, end of period $ 1,340 $ 776
Related Party Loans
Loans to directors and their related interests, including loans to companies for which directors are principal owners and executive officers are presented in the following table at December 31:
($ in thousands)
Balance at beginning of period $ 435 $ 521
Effect of change in compostion of directors and executive officers -
-
New Term Loans -
-
Repayment of term loans (33 ) (144 )
Changes in balances of revolving lines of credit
Balance at end of period $ 450 $ 435
Note 5: Premises and Equipment
Major classifications of premises and equipment stated at cost were as follows at December 31:
($ in thousands)
Land $ 3,563 $ 3,563
Buildings and improvements 27,798 27,663
Equipment 16,902 15,842
Construction in process
48,464 47,235
Less accumulated depreciation (28,008 ) (25,857 )
Net premises and equipment $ 20,456 $ 21,378
Note 6: Goodwill and Intangibles
The balance of goodwill was $23.2 million for the twelve months ended December 31, 2024, and December 31, 2023.
Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. Goodwill is tested on the last day of the last quarter of each calendar year. At December 31, 2024, the Company determined that no events had occurred to change the assessment from the quantitative analysis, and it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.
Carrying basis and accumulated amortization of intangible assets were as follows at December 31:
($ in thousands) Gross
Carrying Accumulated Gross
Carrying Accumulated
Amount Amortization Amount Amortization
Core deposits intangible $ 660 $ (303 ) $ 660 $ (236 )
Customer relationship intangible -
-
(200 )
Banking intangibles $ 660 $ (303 ) $ 860 $ (436 )
Amortization expense for intangibles for the years ended December 31, 2024 and 2023 was $0.07 million and $0.09 million, respectively. Estimated amortization expense for each of the following five years is immaterial.
Note 7: Mortgage Banking and Servicing Rights
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others approximated $1.4 billion at both December 31, 2024, and 2023. Contractually specified servicing fees of approximately $3.5 million and $3.4 million were included in mortgage loan servicing fees in the consolidated income statement for the years ended December 31, 2024, and 2023, respectively.
The following table summarizes mortgage servicing rights capitalized and related amortization, along with activity in the related valuation allowance at December 31:
($ in thousands)
Carrying amount, beginning of year $ 13,906 $ 13,503
Mortgage servicing rights capitalized during the year 2,256 1,695
Mortgage servicing rights amortization during the year (1,335 ) (1,242 )
Net change in valuation allowance (50 )
Carrying amount, end of year $ 14,868 $ 13,906
Valuation allowance:
Beginning of year $ 227 $ 177
Increase (reduction) (41 )
End of year $ 186 $ 227
Fair value, beginning of period $ 17,125 $ 15,754
Fair value, end of period $ 17,782 $ 17,125
Note 8: Derivative Financial Instruments
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to certain variable-rate assets.
The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.
Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into IRLCs with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts that are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.
The table below presents the notional amount and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized at December 31:
($ in thousands) Notional Fair Notional Fair
Amount Value Amount Value
Asset Derivatives
Derivatives not designated as hedging instruments
Interest rate swaps associated with loans $ 79,235 $ 4,029 $ 68,381 $ 3,638
IRLCs - - 7,466
Forward contracts 11,000 - -
Total contracts $ 90,235 $ 4,098 $ 75,847 $ 3,683
Liability Derivatives
Derivatives not designated as hedging instruments
Interest rate swaps associated with loans $ 79,235 $ (4,029 ) $ 68,381 $ (3,638 )
IRLCs 7,412 (21 ) - -
Forward contracts - - 10,750 (37 )
Total contracts $ 86,647 $ (4,050 ) $ 79,131 $ (3,675 )
The fair value of interest rate swaps were estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.
The following table presents the amounts included in the consolidated statements of income for non-hedging derivative financial instruments for the twelve months ended December 31, 2024, and 2023.
Amount of gain (loss)
($ in thousands) Statement of income classification 2024 2023
Interest rate swap contracts Other income $ 240 $ 132
IRLCs Gain on sale of mortgage loans & OMSR (66 ) 65
Forward contracts Gain on sale of mortgage loans & OMSR 105 (63 )
The following table shows the offsetting of financial assets and derivative assets at December 31, 2024, and 2023.
Gross
amounts of Gross
amounts
offset
in the Net amounts
of assets
presented
in the Gross amounts not offset
in the consolidated
balance sheet
($ in thousands) recognized
assets consolidated
balance sheet consolidated
balance sheet Financial
instruments Cash collateral
received Net
amount
December 31, 2024
Interest rate swaps $ 4,172 $ 143 $ 4,029 $ -
$ 3,130 $ 899
December 31, 2023
Interest rate swaps $ 3,957 $ 319 $ 3,638 $ -
$ 2,900 $ 738
The following table shows the offsetting of financial liabilities and derivative liabilities at December 31, 2024, and 2023.
Gross
amounts of Gross
amounts
offset
in the Net amounts
of liabilities
presented
in the Gross amounts not offset
in the consolidated
balance sheet
($ in thousands) recognized
liabilities consolidated
balance sheet consolidated
balance sheet Financial
instruments Cash collateral
pledged Net
amount
December 31, 2024
Interest rate swaps $ 4,172 $ 143 $ 4,029 $ -
$ -
$ 4,029
December 31, 2023
Interest rate swaps $ 3,957 $ 319 $ 3,638 $ -
$ - $ 3,638
Note 9: Interest-Bearing Deposits
Interest-bearing time deposits in denominations of $250,000 or more totaled $53.7 million on December 31, 2024, and $54.1 million on December 31, 2023.
At December 31, 2024, the scheduled maturities of time deposits were as follows:
($ in thousands)
$ 215,039
40,163
2,900
Thereafter -
Total $ 259,217
Included in time deposits at December 31, 2024 and 2023 were $58.2 million and $56.5 million, respectively, of deposits which were obtained through the Certificate of Deposit Account Registry Service (“CDARS”). This service allows deposit customers to maintain fully insured balances in excess of the $250,000 FDIC insurance limit without the inconvenience of having multi-banking relationships. Under the reciprocal program that the Company is currently participating in, customers agree to allow their deposits to be placed with other participating banks in the CDARS program in insurable amounts under $250,000. In exchange, other banks in the program agree to place their deposits with the Company also in insurable amounts under $250,000.
Deposits of directors and their associates, including deposits of companies for which directors are principal owners and executive officers, totaled $4.3 million and $5.2 million at December 31, 2024, and 2023, respectively.
Note 10: Short-Term Borrowings
($ in thousands)
Securities Sold Under Repurchase Agreements $ 10,585 $ 13,387
The Company has retail repurchase agreements to facilitate cash management transactions with commercial customers. These obligations were secured by agency securities of $3.9 million and $4.5 million as of December 31, 2024, and 2023, respectively, and mortgage-backed securities of $13.4 million and $15.2 million for 2024 and 2023, respectively. The collateral is held at the FHLB and has maturities from 2025 through 2051. At December 31, 2024, these repurchase agreements totaled $10.6 million. The maximum amount of outstanding agreements at any month end during 2024 and 2023 totaled $26.9 million and $24.6 million, respectively, and the monthly average of such agreements totaled $14.3 million and $15.8 million during 2024 and 2023, respectively. The repurchase agreements mature within one month.
The Company has borrowing capabilities at the Federal Reserve Discount Window (“Discount Window”) by pledging either securities or loans as collateral. As of December 31, 2024, there were no borrowings drawn at the Discount Window.
At December 31, 2024 and 2023, the Company had $41.0 million in federal funds lines, of which none were drawn.
Note 11: Federal Home Loan Bank (FHLB) Advances
The FHLB advances were secured by $303.3 million in mortgage loans at December 31, 2024. Advances consisted of fixed and variable interest rates from 3.75 to 4.61 percent. Fixed rate advances are subject to restrictions or penalties in the event of prepayment. Aggregate annual maturities of FHLB advances at December 31, 2024, were:
($ in thousands) Debt
$ 12,500
5,000
17,500
Total $ 35,000
Note 12: Trust Preferred Securities
On September 15, 2005, RST II, a wholly-owned subsidiary of the Company, closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures with terms similar to the Capital Securities. Distributions on the Capital Securities are payable quarterly at a variable rate that is currently based upon the 3-month CME Group Benchmark Administration (“CME”) Term Secured Overnight Financing Rate (“SOFR”) as adjusted by the relevant spread adjustment plus 1.80 percent and are included in interest expense in the Consolidated Financial Statements. These securities may be included in Tier 1 capital and may be prepaid at any time without penalty (with certain limitations applicable) under current regulatory guidelines and interpretations. The balance of the Capital Securities as of December 31, 2024, and 2023 was $10.3 million, with a maturity date of September 15, 2035.
Note 13: Subordinated Debt
On May 27, 2021, the Company entered into Subordinated Note Purchase Agreements with qualified institutional buyers and accredited investors pursuant to which the Company issued and sold $20.0 million in aggregate principal amount of its 3.65% Fixed to Floating Rate Subordinated Notes due 2031 (the “Notes”). The Notes were sold by the Company in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended.
The Notes mature on June 1, 2031, and bear interest at a fixed rate of 3.65% through May 31, 2026. From June 1, 2026, to the maturity date or earlier redemption of the Notes, the interest rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month SOFR provided by the Federal Reserve Bank of New York plus 296 basis points. The Company may redeem the Notes at any time after May 31, 2026, and at any time in whole, but not in part, upon the occurrence of certain events. Any redemption of the Notes will be subject to prior regulatory approval. The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately $0.5 million, which are being amortized over the life of the Notes. There is $0.3 million of unamortized expense as of December 31, 2024.
Note 14: Income Taxes
The provision for income taxes includes these components:
For The Year Ended
December 31,
($ in thousands)
Taxes currently payable $ 369 $ 744
Deferred provision 2,017 1,878
Income tax expense $ 2,386 $ 2,622
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
For The Year Ended
December 31,
($ in thousands)
Computed at the statutory rate (21%) $ 2,910 $ 3,091
Increase (decrease) resulting from
Tax exempt interest (135 ) (117 )
BOLI income (160 ) (187 )
Sec. 831(b) election (147 ) (198 )
Other (82 )
Actual tax expense $ 2,386 $ 2,622
The tax effects of temporary differences related to deferred taxes shown on the balance sheets are:
For The Year Ended
December 31,
($ in thousands)
Deferred tax assets
Allowance for credit losses $ 3,170 $ 3,315
Unrealized losses on available-for-sale securities 8,037 7,929
Capitalized research and development costs
Accrued bonus
Net operating loss 2,758
Other
13,131 15,035
Deferred tax liabilities
Depreciation (849 ) (983 )
Mortgage servicing rights (3,122 ) (2,920 )
Purchase accounting adjustments (1,475 ) (1,488 )
Prepaids (434 ) (475 )
Net deferred loan costs (31 ) (93 )
Section 475 MTM (8,037 ) (7,929 )
FHLB stock dividends (67 ) (122 )
(14,015 ) (14,010 )
Net deferred tax (liability) asset $ (884 ) $ 1,025
At December 31, 2024, and 2023, the Company had $3.8 million and $13.1 million, respectively, in net operating losses. No valuation allowance was recorded as these are expected to be fully utilized and have no expiration.
Note 15: Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss represents reclassifications out of unrealized gains and losses on available-for-sale securities net of income tax. There were no reclassifications for the years ending December 31, 2024, and 2023.
Note 16: Regulatory Matters
As of December 31, 2024, based on its call report computations, State Bank was classified as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, State Bank must maintain capital ratios as set forth in the table below. There are no conditions or events since December 31, 2024, that management believes have changed State Bank’s capital classification.
State Bank’s actual capital amounts and ratios are presented in the following table. Capital levels are presented for State Bank only as the Company is exempt from quarterly reporting at the holding company level:
To Be Well Capitalized
Under Prompt
For Capital Adequacy Corrective Action
Actual Purposes Procedures
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2024
Tier I Capital to average assets $ 156,122 11.09 % $ 56,290 4.0 % $ 70,363 5.0 %
Tier I Common equity capital to risk-weighted assets $ 156,122 13.43 % $ 52,297 4.5 % $ 75,541 6.5 %
Tier I Capital to risk-weighted assets $ 156,122 13.43 % $ 69,730 6.0 % $ 92,973 8.0 %
Total Risk-based capital to risk-weighted assets $ 170,672 14.69 % $ 92,973 8.0 % $ 116,216 10.0 %
As of December 31, 2023
Tier I Capital to average assets $ 148,049 10.93 % $ 54,185 4.0 % $ 67,732 5.0 %
Tier I Common equity capital to risk-weighted assets $ 148,049 13.42 % $ 49,640 4.5 % $ 71,702 6.5 %
Tier I Capital to risk-weighted assets $ 148,049 13.42 % $ 66,186 6.0 % $ 88,249 8.0 %
Total Risk-based capital to risk-weighted assets $ 161,872 14.67 % $ 88,249 8.0 % $ 110,311 10.0 %
The above minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The capital conservation buffer was 2.50 percent at December 31, 2024 and the Company still would have met the minimum capital requirements when the capital buffer is considered. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. Management believes that State Bank met all capital adequacy requirements to which State Bank was subject as of December 31, 2024.
Note 17: Employee Benefits
The Company has a share-based incentive compensation plan that permits the grant of stock options, restricted stock and other share-based awards to employees, directors and advisory board members of the Company and its subsidiaries. In addition, the Company has instituted a long-term incentive program, with the objective of rewarding senior management through grants of restricted common shares of the Company (see Note 18 to the Consolidated Financial Statements).
The Company has a retirement savings 401(k) plan covering substantially all employees. The Company provides a safe harbor matching contribution equal to 100% of an employees’ salary deferral amounts up to 4% of the employees’ eligible compensation. Employees are immediately vested in their voluntary contributions and in any Company safe harbor matching contributions. Any discretionary contribution made by the Company is fully vested after three years of credited service. Employer contributions charged to expense for 2024 and 2023 were $0.6 million and $0.6 million, respectively.
Also, the Company has Supplemental Executive Retirement Plan (“SERP”) Agreements with certain active and retired officers. The agreements provide monthly payments for up to 15 years that equal 15 percent to 25 percent of average compensation prior to retirement or death. The charges to expense for the current agreements were $0.2 million and $0.2 million for 2024 and 2023, respectively.
Additional life insurance is provided to certain officers through bank-owned life insurance (“BOLI”) policies. By way of a separate split-dollar agreement, each policy’s interests are divided between the Company and the insured’s beneficiary. The Company owns the policy’s cash value and a portion of the policy net death benefit, over and above the cash value assigned to the insured’s beneficiary. The cash surrender value of all life insurance policies totaled $30.7 million and $29.1 million at December 31, 2024 and 2023, respectively.
The Company has a noncontributory employee stock ownership plan (“ESOP”) covering substantially all employees of the Company and its subsidiaries. Voluntary contributions are made by the Company to the plan. Each eligible employee is vested based upon years of service, including prior years of service. The Company’s contributions to the account of each employee become fully vested after three years of service. Benefit expense for the value of the stock purchased is recorded equal to the fair market value of the stock when contributions, which are determined annually by the Board of Directors of the Company, are made to the ESOP. Allocated shares in the ESOP at December 31, 2024 and 2023, were 304,286 and 328,187, respectively.
Dividends on allocated shares in the ESOP are recorded as dividends and charged to retained earnings. Compensation expense is recorded equal to the fair market value of the stock when contributions, which are determined annually by the Board of Directors of the Company, are made to the ESOP. ESOP expense for the years ended December 31, 2024 and 2023, was $0.0 million and $0.1 million, respectively.
Note 18: Share-Based Compensation Plan
In April 2017, the shareholders approved a new share-based incentive compensation plan, the SB Financial Group, Inc. 2017 Stock Incentive Plan (the “2017 Plan”). This plan permits the grant or award of incentive stock options, nonqualified stock options, stock appreciation rights (“SAR’s”), restricted stock, and restricted stock units (“RSU’s”) for up to 500,000 common shares of the Company.
The 2017 Plan is intended to advance the interests of the Company and its shareholders by offering employees, directors and advisory board members of the Company and its subsidiaries an opportunity to acquire or increase their ownership interest in the Company through grants of equity-based awards. The 2017 Plan permits equity-based awards to be used to attract, motivate, reward and retain highly competent individuals upon whose judgment, initiative, leadership and efforts are key to the success of the Company by encouraging those individuals to become shareholders of the Company.
Option awards are granted with an exercise price equal to the market price of the Company’s common shares at the date of grant and those option awards vest based on five years of continuous service and have 10-year contractual terms. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model. There were no options granted in 2024 or 2023. There were no stock options outstanding as of December 31, 2024 or 2023, and no compensation expense was charged against income with respect to option awards under the Plan for the years ended December 31, 2024, or 2023.
As of December 31, 2024, there was no unrecognized compensation cost related to incentive option share-based compensation arrangements granted under the 2017 Plan.
Pursuant to the Long Term Incentive (“LTI”) Plan, the Company awards restricted common shares of the Company under the 2017 Plan to certain key executives. These restricted stock awards vest over a four-year period and are intended to assist the Company in retention of key executives. During 2024 and 2023, the Company met certain performance targets and restricted stock awards were approved by the Board. The compensation cost charged against income for the LTI Plan was $0.6 million and $0.6 million for 2024 and 2023, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $0.1 million and $0.1 million for 2024 and 2023, respectively.
A summary of restricted stock activity under the Company’s LTI Plan as of December 31, 2024, and changes during the year ended is presented below:
Shares Weighted-
Average
Value
per Share
Nonvested, January 1, 2024 48,966 $ 18.49
Granted 38,776 15.63
Vested (33,431 ) 17.36
Forfeited -
-
Nonvested, December 31, 2024 54,311 $ 17.15
As of December 31, 2024, there was $0.6 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to the restricted stock awards under the 2017 Plan which were granted in accordance with the LTI Plan. That cost is expected to be recognized over a weighted-average period of 1.67 years.
Note 19: Disclosures About Fair Value of Assets and Liabilities
Pursuant to ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy exists in ASC 820 for fair value measurements based upon the inputs to the valuation of an asset or liability:
Level 1:	Quoted prices in active markets for identical assets or liabilities
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis, recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
Available-for-sale securities
The fair value of available-for-sale securities are determined by various valuation methodologies. Level 2 securities include obligations of U.S. government agencies, mortgage-backed securities, obligations of political and state subdivisions, and corporate securities. Level 2 inputs do not include quoted prices for individual securities in active markets; however, they do include inputs that are either directly or indirectly observable for the individual security being valued. Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates. Also included are inputs derived principally from or corroborated by observable market data by correlation or other means.
Interest rate contracts
The fair values of interest rate contracts are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlying interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties.
Forward contracts
The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets or benchmarked thereto (Level 1).
Interest Rate Lock Commitments (IRLCs)
The fair value of IRLCs are determined using the projected sale price of individual loans based on changes in the market interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3).
The following table presents the fair value measurements of securities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at December 31, 2024 and 2023:
($ in thousands) Fair value at
December 31,
(Level 1) (Level 2) (Level 3)
U.S. Treasury and Government Agencies $ 7,389 $ -
$ 7,389 $ -
Mortgage-backed securities 169,620 -
169,620 -
State and political subdivisions 9,407 -
9,407 -
Other corporate securities 15,171 -
15,171 -
Interest rate contracts - assets 4,029 -
4,029 -
Interest rate contracts - liabilities (4,029 ) -
(4,029 ) -
Forward contracts -
-
IRLCs (21 ) -
-
(21 )
($ in thousands) Fair value at
December 31,
(Level 1) (Level 2) (Level 3)
U.S. Treasury and Government Agencies $ 6,517 $ -
$ 6,517 $ -
Mortgage-backed securities 188,867 -
188,867 -
State and political subdivisions 9,898 -
9,898 -
Other corporate securities 14,426 -
14,426 -
Interest rate contracts - assets 3,638 -
3,638 -
Interest rate contracts - liabilities (3,638 ) -
(3,638 ) -
Forward contracts (37 ) (37 ) -
-
IRLCs - -
Level 1 - quoted prices in active markets for identical assets
Level 2 - significant other observable inputs
Level 3 - significant unobservable inputs
The following table reconciles the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs for the years ended December 31, 2024, and 2023.
for the Twelve Months Ended
December 31,
($ in thousands)
Interest rate lock commitments
Balance at beginning of period $ 45 $ (20 )
Change in fair value (66 )
Balance at end of period $ (21 ) $ 45
The following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
Collateral-Dependent Individually Evaluated Loans, Net of ACL
Loans for which it is probable the Company will not collect all principal and interest due according to contractual terms are measured for collateral dependency. The estimated fair value of collateral-dependent loans is based on the appraised value of the collateral, less estimated cost to sell. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy. This method requires obtaining independent appraisals of the collateral from a list of preapproved appraisers, which are reviewed for accuracy and consistency by the Company. The appraised values are reduced by applying a discount factor to the value based on the Company’s loan review policy. All individually evaluated loans held by the Company were collateral dependent at December 31, 2024 and 2023.
Mortgage Servicing Rights
Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models associated with the servicing rights and discounting the cash flows using discount market rates, prepayment speeds and default rates. The servicing portfolio has been valued using all relevant positive and negative cash flows including servicing fees, miscellaneous income and float; marginal costs of servicing; the cost of carry of advances; and foreclosure losses; and applying certain prevailing assumptions used in the marketplace. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy. These mortgage servicing rights are tested for impairment on a quarterly basis.
The following tables presents the fair value measurements of assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at December 31, 2024 and 2023:
($ in thousands) Fair value at
December 31,
(Level 1) (Level 2) (Level 3)
Collateral-dependent Individually evaluated loans $ 1,167 $ -
$ -
$ 1,167
Mortgage servicing rights 1,814 -
-
1,814
($ in thousands) Fair value at
December 31,
(Level 1) (Level 2) (Level 3)
Collateral-dependent impaired loans $ 864 $ -
$ -
$ 864
Mortgage servicing rights 1,896 -
-
1,896
Level 1 - quoted prices in active markets for identical assets
Level 2 - significant other observable inputs
Level 3 - significant unobservable inputs
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at December 31, 2024 and 2023:
($ in thousands) Fair value at
December 31,
2024 Valuation technique Unobservable inputs Range
(weighted- average)
Collateral-dependent individually evaluated loans $ 1,167 Market comparable properties Comparability adjustments (%) 24 - 404% (84 %)
Mortgage servicing rights 1,814 Discounted cash flow Discount rate 11.13 %
Constant prepayment rate 7.30 %
P&I earnings credit 4.44 %
T&I earnings credit 4.49 %
Inflation for cost of servicing 3.50 %
IRLCs (21 ) Discounted cash flow Loan closing rates 64% - 99 %
($ in thousands) Fair value at
December 31,
2023 Valuation technique Unobservable inputs Range
(weighted- average)
Collateral-dependent impaired loans $ 864 Market comparable properties Comparability adjustments (%) 2 - 100% (25 %)
Mortgage servicing rights 1,896 Discounted cash flow Discount rate 11.01 %
Constant prepayment rate 7.16 %
P&I earnings credit 5.33 %
T&I earnings credit 5.13 %
Inflation for cost of servicing 3.50 %
IRLCs 45 Discounted cash flow Loan closing rates 27% - 91 %
The mortgage servicing rights portfolio is measured for fair value by an independent third party. The valuation of the portfolio hinges on a number of quantitative factors. These factors include, but are not limited to, a discount rate applied to the cash flows, and an assumption of future principal prepayments. The prepayment assumptions are based upon the historical performance of the Company’s portfolio as well as market metrics.
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.
Cash and Due From Banks, Interest Bearing Time Deposits, FRB and FHLB Stock and Interest Receivable and Payable
Fair value is determined to be the carrying amount for these items (which include cash on hand, due from banks, and federal funds sold) because they represent cash or mature in 90 days or less, and do not represent unanticipated credit concerns.
Loans Held for Sale
The fair value of loans held for sale is based upon quoted market prices, where available, or is determined by discounting estimated cash flows using interest rates approximating the Company’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.
Loans
The estimated fair value of loans follows the guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments. The fair value calculation at that date discounted estimated future cash flows using rates that incorporated discounts for credit, liquidity, and marketability factors.
Deposits, Repurchase Agreements and FHLB Advances
Deposits include demand deposits, savings accounts and certain money market deposits. The carrying amount approximates the fair value. The estimated fair value for fixed-maturity time deposits, as well as borrowings, is based on estimates of the rate the Company could pay on similar instruments with similar terms and maturities at December 31, 2024 and 2023.
Loan Commitments
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The estimated fair values for other financial instruments and off-balance-sheet loan commitments approximate cost at December 31, 2024 and 2023 and are not considered significant to this presentation.
Trust Preferred Securities
The fair value for Trust Preferred Securities is estimated by discounting the cash flows using an appropriate discount rate.
Subordinated Debt
The fair value for Subordinated Debt is estimated by discounting the cash flows using an appropriate discount rate.
The following tables present estimated fair values of the Company’s financial instruments. The fair values of certain instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for these financial instruments, and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
($ in thousands) Carrying Fair Fair value measurements using
December 31, 2024 amount value (Level 1) (Level 2) (Level 3)
Financial assets
Cash and due from banks $ 25,928 $ 25,928 $ 25,928 $ -
$ -
Interest bearing time deposits 1,565 1,565 -
1,565 -
Loans held for sale 6,770 6,861 -
6,861 -
Loans, net of allowance for credit losses 1,031,639 1,033,064 -
-
1,033,064
Federal Reserve and FHLB Bank stock, at cost 5,223 5,223 -
5,223 -
Interest receivable 4,908 4,908 -
4,908 -
Financial liabilities
Deposits $ 1,152,605 $ 1,155,747 $ 893,388 $ 262,359 $ -
Repurchase agreements 10,585 10,585 -
10,585 -
FHLB advances 35,000 34,782 -
34,782 -
Trust preferred securities 10,310 9,495 -
9,495 -
Subordinated debt, net of issuance costs 19,690 19,155 -
19,155 -
Interest payable 2,351 2,351 -
2,351 -
($ in thousands) Carrying Fair Fair value measurements using
December 31, 2023 amount value (Level 1) (Level 2) (Level 3)
Financial assets
Cash and due from banks $ 22,965 $ 22,965 $ 22,965 $ -
$ -
Interest bearing time deposits 1,535 1,535 -
1,535 -
Loans held for sale 2,525 2,565 -
2,565 -
Loans, net of allowance for loan losses 984,426 964,216 -
-
964,216
Federal Reserve and FHLB Bank stock, at cost 7,279 7,279 -
7,279 -
Interest receivable 4,657 4,657 -
4,657 -
Financial liabilities
Deposits $ 1,070,205 $ 1,078,028 $ 814,696 $ 263,332 $ -
Repurchase agreements 13,387 13,387 -
13,387 -
FHLB advances 83,600 83,368 -
83,368 -
Trust preferred securities 10,310 9,759 -
9,759 -
Subordinated debt, net of issuance costs 19,642 19,435 -
19,435 -
Interest payable 2,443 2,443 -
2,443 -
Note 20: Parent Company Financial Information
Presented below is condensed financial information of the parent company only:
Condensed Balance Sheets
($ in thousands)
Assets
Cash & cash equivalents $ 1,339 $ 6,468
Investment in banking subsidiaries 147,057 139,502
Investment in nonbanking subsidiaries 6,451 6,279
Other assets 2,846 2,726
Total assets $ 157,693 $ 154,975
Liabilities
Trust preferred securities $ 10,000 $ 10,000
Sub debt net of issuance cost 19,690 19,642
Borrowings from nonbanking subsidiaries
Other liabilities & accrued interest payable
Total liabilities 30,185 30,633
Shareholders’ equity 127,508 124,342
Total liabilities and shareholders’ equity $ 157,693 $ 154,975
Condensed Statements of Income
($ in thousands)
Dividends from subsidiaries:
Banking subsidiaries $ 5,000 $ 10,000
Nonbanking subsidiaries -
Total income 5,000 10,700
Expenses
Interest expense 1,506 1,494
Other expense 1,854 1,616
Total expenses 3,360 3,110
Income before income tax 1,640 7,590
Income tax benefit (693 ) (652 )
Income (loss) before equity in undistributed income of subsidiaries 2,333 8,242
Equity in undistributed income of subsidiaries
Banking subsidiaries 7,960 3,290
Nonbanking subsidiaries 1,177
Total 9,137 3,853
Net income $ 11,470 $ 12,095
Condensed Statements of Comprehensive Income
($ in thousands)
Net income $ 11,470 $ 12,095
Other comprehensive income:
Available-for-sale investment securities:
Gross unrealized holding gain (loss) arising in the period (510 ) 2,897
Related tax (expense) benefit (608 )
Net effect on other comprehensive income (loss) (403 ) 2,289
Total comprehensive income $ 11,067 $ 14,384
Condensed Statements of Cash Flows
($ in thousands)
Operating activities
Net income $ 11,470 $ 12,095
Items not requiring (providing) cash
Equity in undistributed net income of subsidiaries (9,245 ) (3,853 )
Stock compensation expense
Other assets
Other liabilities (496 ) (228 )
Net cash provided by operating activities 3,253 8,820
Investing activities
Return of capital from nonbanking subsidiary -
Net cash provided by investing activities -
Financing activities
Dividends on common shares (3,770 ) (3,584 )
Repurchase of common shares (4,768 ) (3,471 )
Other financing activities
Net cash used in financing activities (8,490 ) (7,007 )
Net change in cash and cash equivalents (5,129 ) 1,813
Cash and cash equivalents at beginning of year 6,468 4,655
Cash and cash equivalents at end of year $ 1,339 $ 6,468
Note 21: Quarterly Financial Information (unaudited)
Quarterly Financial Information (unaudited)
Years ended December 31,
($ in thousands, except per share data)
December September June March
Interest income $ 16,847 $ 16,548 $ 15,654 $ 15,300
Interest expense 5,950 6,362 5,995 6,120
Net interest income 10,897 10,186 9,659 9,180
Provision for loan losses (76 ) -
-
Noninterest income 4,557 4,123 4,386 3,951
Noninterest expense 11,003 11,003 10,671 10,282
Income tax expense 481
Net income $ 3,635 $ 2,354 $ 3,113 $ 2,368
Basic earnings per common share $ 0.55 $ 0.35 $ 0.47 $ 0.35
Diluted earnings per common share $ 0.55 $ 0.35 $ 0.47 $ 0.35
Dividends per share $ 0.145 $ 0.140 $ 0.140 $ 0.135
December September June March
Interest income $ 15,126 $ 14,796 $ 14,406 $ 13,824
Interest expense 5,542 5,260 4,577 3,500
Net interest income 9,584 9,536 9,829 10,324
Provision for loan losses (74 ) (6 )
Noninterest income 5,531 4,163 4,361 3,666
Noninterest expense 10,369 10,481 10,339 10,773
Income tax expense 517
Net income $ 3,883 $ 2,687 $ 3,075 $ 2,450
Basic earnings per common share $ 0.58 $ 0.39 $ 0.45 $ 0.35
Diluted earnings per common share $ 0.56 $ 0.39 $ 0.45 $ 0.35
Dividends per share $ 0.135 $ 0.130 $ 0.130 $ 0.125
Note 22: Operating Segments
The Company provides a range of community banking services, including commercial and consumer lending, personal and business banking, treasury management and merchant services, personal wealth management and brokerage services, and other financial services primarily to individuals, businesses, and municipalities. All of the Company’s business activities are dependent and assessed based on the manner in which it supports the other activities of the Company.
The chief operating decision maker (“CODM”) of the Company is the Chief Executive Officer, who along with others in the Company’s executive management, evaluates performance and allocates resources based upon analysis of the Company as one operating segment. The activities of the Company comprise one reportable segment, "Banking." All the consolidated assets are attributable to the Banking segment. The accounting policies of the Banking segment are the same as those described in the Note 1 “Organization and Summary of Significant Accounting Policies.”
The CODM is provided with the Company’s consolidated statements of financial condition and operations and evaluates the Company’s operating results based on consolidated net interest income, non-interest income, non-interest expense, and net income, which can be seen on the consolidated statement of operations. These results are used to benchmark the Company against its competitors. Other significant non-cash items assessed by the CODM are depreciation, amortization and provision for credit losses consistent with the reporting on the consolidated statements of cash flows. Expenditures for long-lived assets are also evaluated and are consistent with the reporting on the consolidated statements of cash flows. Strategic plans and budget to actual monitoring are evaluated as one reportable segment. The actual results are used in assessing performance of the segment, determining the allocation of resources, and in establishing management’s compensation. Information reported internally for performance assessment by the chief operating decision maker is identical to that which is shown in the Consolidated Statements of Income. All revenues were derived from banking operations for the years ended December 31, 2024, and 2023, and there was no customer that accounted for more than 10% of the Company's consolidated revenue.
Note 23: Subsequent Event
On January 17, 2025, the Company completed the acquisition of Marblehead Bancorp, Inc., parent company of The Marblehead Bank of Marblehead, Ohio. Under the terms of the merger agreement, shareholders of Marblehead Bancorp received $196.31 in cash in exchange for each share of Marblehead Bancorp common stock for a transaction valued in aggregate at approximately $5.0 million. The Company has engaged third-party consultants to assist with determining the fair value of assets and liabilities acquired from Marblehead as of the acquisition date. That determination is in process and is expected to be completed with the Company’s March 31, 2025, 10Q filing .
Report of Independent Registered Public Accounting Firm
To the Shareholders, Board of Directors, and Audit Committee
SB Financial Group, Inc.
Defiance, Ohio
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of SB Financial Group, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years ended December 31, 2024 and 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowances for Credit Losses
As discussed in Note 1 to the consolidated financial statements, The Company’s loan portfolio totaled $1.047 billion as of December 31, 2024, and the associated allowance for credit losses (“ACL”) on loans was $15.096 million. As discussed in Notes 1 and 4 to the consolidated financial statements, the Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools.
We have identified the ACL, and more specifically the qualitative adjustments applied in the ACL, as a critical audit matter. The principal consideration for our determination is the high degree of judgment and subjectivity in auditing the assumptions utilized by management in calculating the qualitative reserve component. This required a high degree of judgement due to the nature and extent of audit evidence and effort required to address this matter.
The primary procedures we performed related to this critical audit matter included:
● Obtained an understanding of the Company’s process and internal controls for establishing the ACL, including the selection, application and related adjustments of the qualitative factor components of the ACL.
● Evaluated the relevancy and reliability of the underlying data used to derive the qualitative factors, including comparison to internal, external and/or peer data to ensure movement in a directionally consistent manner.
● Assessed the appropriateness and reasonableness of the qualitative factor adjustments, including evaluating management’s judgments as to which factors and relevant assessed risks impacted the qualitative adjustments for each loan pool.
● Evaluated the reasonableness of the assumptions utilized by management in calculating the qualitative reserve component.
● Tested the accuracy of the mathematical application of the qualitative factors to adjust the historical loss experience.
/s/ Forvis Mazars, LLP
We have served as the Company’s auditor since 2002.
Indianapolis, Indiana
March 7, 2025

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not Applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
With the participation of the Chief Executive Officer (the principal executive officer) and the Chief Financial Officer (the principal financial officer) of the Company, the Company’s management has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based on that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that:
● Information required to be disclosed by the Company in this Annual Report on Form 10-K and other reports which the Company files or submits under the Exchange Act would be accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure;
● Information required to be disclosed by the Company in this Annual Report on Form 10-K and other reports which the Company files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
● The Company’s disclosure controls and procedures were effective as of the end of the fiscal year covered by this Annual Report on Form 10-K.
Management’s Report on Internal Control Over Financial Reporting
The Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in conformity with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
● Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company and its consolidated subsidiaries;
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company and its consolidated subsidiaries are being made only in accordance with authorizations of management and directors of the Company; and
● Provide reasonable assurance regarding prevention of timely detection of unauthorized acquisition, use or disposition of the assets of the Company and its consolidated subsidiaries that could have a material effect on the financial statements.
With the supervision and participation of our Chief Executive Officer and our Chief Financial Officer, management assessed the effectiveness of the Company’s internal controls over financial reporting as of December, 31, 2024, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment and those criteria, management concluded that, as of December 31, 2024, the Company’s internal control over financial reporting was effective.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Controls Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
(a) None.
(b) During the quarter ended December 31, 2024, no director or 16 officer (as defined under Rule 16a-1 of the Exchange Act) adopted or terminated any Rule 10b5-1 trading arrangements or any non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
The information required by Item 401 of SEC Regulation S-K concerning the directors of the Company and the nominees for election as directors of the Company at the Annual Meeting of Shareholders to be held on April 16, 2025 (the “2025 Annual Meeting”), is incorporated herein by reference from the disclosure included in the Company’s definitive Proxy Statement relating to the 2025 Annual Meeting (the “2025 Proxy Statement”), under the caption “PROPOSAL NO. 1 - ELECTION OF DIRECTORS”. The information concerning the executive officers of the Company required by Item 401 of SEC Regulation S-K is set forth in the portion of Part I of this Annual Report on Form 10-K entitled “Supplemental Item: Information about our Executive Officers.”
Compliance with Section 16(a) of the Exchange Act
The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from the disclosure included in the Company’s 2025 Proxy Statement under the caption “SECTION 16(a) REPORTS” To the extent that disclosure of information is required.
Committee Charters and Code of Conduct and Ethics
The Company’s Board of Directors has adopted charters for each of the Audit Committee, the Compensation Committee and the Governance and Nominating Committee. Copies of these charters are available on the Company’s Internet website at www.YourSBFinancial.com by first clicking “Corporate Overview” and then “Governance Documents”. The Company has adopted a Code of Conduct and Ethics that applies to the Company’s directors, officers and employees. A copy of the Code of Conduct and Ethics is available on the Company’s Internet website at www.YourSBFinancial.com by first clicking “Corporate Overview” and then “Governance Documents”. Interested persons may also obtain copies of the Code of Conduct and Ethics, the Audit Committee charter, the Compensation Committee charter and the Governance and Nominating Committee charter, without charge, by writing to SB Financial Group, Inc., Attn: Keeta J. Diller, 401 Clinton Street, Defiance, OH 43512.
Insider Trading Arrangements and Policies
The Company has adopted an Insider Trading Policy that governs the purchase, sale, and/or dispositions of the Company’s securities by directors, officers and employees that is designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of the Insider Trading Policy is filed as Exhibit 10 to this Form 10-K.
Audit Committee
The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “MEETINGS AND COMMITTEES OF THE BOARD - Audit Committee” in the Company’s 2025 Proxy Statement.
Nominating Committee
The procedures by which shareholders of the Company may recommend nominees to the Company’s Board of Directors are described under the caption “CORPORATE GOVERNANCE - Nominations of Directors” in the Company’s 2025 Proxy Statement. The procedures by which shareholders of the Company many recommend nominees to the Company’s Board of Directors have not materially changed from those described in the Company’s definitive Proxy Statement for the 2024 Annual Meeting of Shareholders held on April 17, 2024.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required by this item is incorporated herein by reference to the information contained in the Company’s 2025 Proxy Statement under the captions “COMPENSATION OF EXECUTIVE OFFICERS”, “EQUITY INCENTIVE PLAN INFORMATION”, “DIRECTOR COMPENSATION”, “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION”, “PAY VERSUS PERFORMANCE” AND “DIRECTOR COMPENSATION”.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure included in the Company’s 2025 Proxy Statement under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT”.
Equity Compensation Plan Information
The SB Financial Group, Inc. 2017 Stock Incentive Plan (the “2017 Plan”) was approved by the shareholders of the Company at the 2017 Annual Meeting of Shareholders.
The following table shows, as of December 31, 2024, the number of common shares issuable upon exercise of outstanding stock options, the weighted-average exercise price of those stock options, and the number of common shares remaining for future issuance under the Company’s equity compensation plans (excluding common shares issuable upon exercise of outstanding stock options):
Equity compensation plans approved by security holders
($ in thousands, except per share data) 2017 Plan
a) Number of securities to be issued upon exercise of outstanding options, warrants and rights -
b) Weighted-average exercise price of outstanding options, warrants and rights $ -
c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in row a) 310,544

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosure contained in the Company’s 2025 Proxy Statement under the caption “TRANSACTIONS WITH RELATED PERSONS”.
The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosure contained in the Company’s 2025 Proxy Statement under the caption “CORPORATE GOVERNANCE - Director Independence”.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
The information required to be disclosed in this Item 14 is incorporated herein by reference from the disclosure contained in the Company’s 2025 Proxy Statement under the caption “AUDIT COMMITTEE DISCLOSURE”.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements
The following consolidated financial statements are incorporated by reference from Item 8 hereof:
● Consolidated Balance Sheets as of December 31, 2024 and 2023
● Consolidated Statements of Income for the Years ended December 31, 2024 and 2023
● Consolidated Statements of Comprehensive Income (Loss) for the Years ended December 31, 2024 and 2023
● Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2024 and 2023
● Consolidated Statements of Cash Flows for Years ended December 31, 2024 and 2023
● Notes to Consolidated Financial Statements
● Report of Independent Registered Public Accounting Firm (Forvis Mazars, LLP)
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a)(3) Exhibits
The documents listed in the Index to Exhibits that immediately precedes the signature page of this Form 10-K are filed/furnished with this Form 10-K as exhibits or incorporated into this Form 10-K by reference as noted. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K is identified as such in the Index to Exhibits.
(b) Exhibits
The documents listed in the Index to Exhibits that immediately precedes the signature page of this Form 10-K are filed/furnished with this Form 10-K as exhibits or incorporated into this Form 10-K by reference as noted.
(c) Financial Statement Schedules
None.