SB FINANCIAL GROUP, INC. 10-K

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 7,407,034 common shares outstanding as of December 31, 2020, which were held by approximately 1,236 record holders. The Company paid quarterly dividends on its common shares in the aggregate amounts of $0.40 per share and $0.36 per share in 2020 and 2019, 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. 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. Period Ending Index 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 SB Financial Group, Inc. 100.00 147.20 172.30 155.92 190.51 181.48 NASDAQ Composite Index 100.00 108.87 141.13 137.12 187.44 271.64 SNL U.S. Bank NASDAQ Index 100.00 138.65 145.97 123.04 154.47 132.56 Source: S&P Global Market Intelligence © 2021 34 The table below reflects the common shares repurchased by the Company during the three months ended December 31, 2020. The Company has 253,360 shares remaining of the 500,000 approved under the existing share repurchase program which was authorized on July 21, 2020 and expires December 31, 2021. (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 10/01/20 - 10/31/20 44,641 $ 15.50 118,158 381,842 11/01/20 - 11/30/20 62,349 18.20 180,507 319,493 12/01/20 - 12/31/20 66,133 18.38 246,640 253,360 Totals 173,123 $ 17.57 246,640 253,360 Item 6. Selected Financial Data. Financial Highlights Year Ended December 31, ($ in thousands, except per share data) 2020 2019 2018 2017 2016 Earnings Interest income $ 42,635 $ 44,400 $ 39,479 $ 32,480 $ 29,051 Interest expense 6,705 9,574 6,212 4,094 3,198 Net interest income 35,930 34,826 33,267 28,386 25,853 Provision for loan losses 4,500 800 600 400 750 Noninterest income 30,096 18,016 16,624 17,217 17,889 Noninterest expense 43,087 37,410 34,847 31,578 30,091 Provision for income taxes 3,495 2,659 2,806 2,560 4,117 Net income 14,944 11,973 11,638 11,065 8,784 Preferred stock dividends - 950 975 975 975 Net income available to common 14,944 11,023 10,663 10,090 7,809 Per Common Share Data Basic earnings $ 1.96 $ 1.71 $ 1.72 $ 2.10 $ 1.60 Diluted earnings 1.96 1.51 1.51 1.74 1.38 Cash dividends declared 0.40 0.36 0.32 0.28 0.24 Total equity per share 19.39 17.53 16.36 15.03 13.75 Total tangible equity per share 16.30 15.23 15.39 13.27 11.59 Average Balances Average total assets $ 1,161,396 $ 1,027,932 $ 947,266 $ 854,569 $ 789,045 Average equity 139,197 133,190 121,094 89,538 84,540 Ratios Return on average total assets 1.29 % 1.16 % 1.23 % 1.29 % 1.11 % Return on average equity 10.74 8.99 9.61 12.36 10.39 Cash dividend payout ratio 1 20.54 23.84 19.60 13.50 15.11 Average equity to average assets 11.99 12.96 12.78 10.48 10.71 Period End Totals Total assets $ 1,257,839 $ 1,038,577 $ 986,828 $ 876,627 $ 816,005 Total investments; fed funds sold 149,406 100,948 90,969 82,790 90,128 Loans held for sale 7,234 7,258 4,445 3,940 4,434 Total loans & leases 872,723 825,510 771,883 696,615 644,433 Allowance for loan losses 12,574 8,755 8,167 7,930 7,725 Total deposits 1,049,011 840,219 802,552 729,600 673,073 Advances from FHLB 8,000 16,000 16,000 18,500 26,500 Trust preferred securities 10,310 10,310 10,310 10,310 10,310 Total equity 142,923 136,094 130,435 94,000 86,548 1 Cash dividends on common shares divided by net income available to common. 35 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, 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 footnotes as of and for the years ended December 31, 2020 and 2019. Strategic Discussion The focus and strategic goal of the Company is to grow into and remain a top decile (>90 th 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, 2020, the Company generated $30.1 million in noninterest income, or 45.6 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, 2019, the Company generated $18.0 million in revenue from fee-based products, or 34.1 percent of total operating revenue. Strengthen our penetration in all markets served: Over our 118-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. We have expanded and committed additional resources to our presence in the Findlay and Wauseon markets. We continue to seek to expand the presence and penetration in all of our markets. Expand product utilization by new and existing customers: As of December 31, 2020, we served 32,519 households and provided 95,210 products and services (2.93 products & services per household) to these households. Our strategy is to continue to expand the scope of our relationship with each household via our dynamic “on-boarding” process. Proactively identifying client needs is a key ingredient of our value proposition. As of December 31, 2019, we served 30,377 households and provided 91,154 products and services (3.00 products & services per household) to these households. 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, 2020, the Company serviced 8,543 residential mortgage loans with a principal balance of $1.3 billion. As of December 31, 2019, the Company serviced 8,155 loans with a principal balance of $1.2 billion. Sustain asset quality: As of December 31, 2020, the Company’s asset quality metrics remained strong. Specifically, total nonperforming assets were $7.3 million, or 0.58 percent of total assets. Total delinquent loans at December 31, 2020 were 0.75 percent of total loans. As of December 31, 2019, the Company had total nonperforming assets of $5.3 million, or 0.51 percent of total assets. Total delinquent loans at December 31, 2019 were 0.28 percent of total loans. 36 Critical Accounting Policies 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, 2020 and 2019. 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 Loan Losses: The allowance for loan losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan losses each quarter based on changes, if any, in the nature and amount of problem assets and associated collateral, underwriting activities, loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge offs. The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for credit losses relating to impaired loans is based on each impaired loan’s observable market price, the collateral for certain collateral-dependent loans, or the discounted cash flows using the loan’s effective interest rate. Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent, but undetected, losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the subjective nature of individual loan valuations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are also factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of imprecise risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment. 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. Deferred Tax Liability: The Company has evaluated its deferred tax liability to determine if it is more likely than not that the liability will be realized in the future. The Company’s most recent evaluation has determined that the Company will more likely than not be able to realize the remaining deferred tax liability. Income Tax Accounting: The Company files a consolidated federal income tax return. The provision for income taxes is based upon income in the consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in rates on the deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. 37 Changes in Financial Condition Total assets at December 31, 2020, were $1.26 billion, compared to $1.04 billion at December 31, 2019. Loans (excluding loans held for sale) were $872.7 million at December 31, 2020, compared to $825.5 million at December 31, 2019. Total deposits were $1.05 billion at December 31, 2020, compared to $840.2 million at December 31, 2019. Deposit and loan balances were elevated due to the PPP initiative and the acquisition of the Edon State Bank. Total equity was $142.9 million at December 31, 2020, up 5.0 percent from $136.1 million at December 31, 2019. Net income less dividends increase retained earnings by $11.8 million for 2020. ($ in thousands) Years Ended December 31, Total loans 2020 2019 % Change Commercial business & agriculture $ 258,507 $ 202,761 27.5 % Commercial real estate 370,984 366,782 1.1 % Residential real estate 182,076 193,159 -5.7 % Consumer & other 61,156 62,808 -2.6 % Loans held for investment $ 872,723 $ 825,510 5.7 % Loans held for sale $ 7,234 $ 7,258 -0.3 % Total deposits 2020 2019 % Change Noninterest bearing demand $ 251,649 $ 158,357 58.9 % Interest-bearing demand 176,785 131,084 34.9 % Savings & money market 391,028 293,025 33.4 % Time deposits 229,549 257,753 -10.9 % Total deposits $ 1,049,011 $ 840,219 24.8 % Total shareholders’ equity $ 142,923 $ 136,094 5.0 % Loans held for investment increased $47.2 million, or 5.7 percent, to $872.7 million at December 31, 2020. The largest component of this increase was in commercial business loans, which rose $55.7 million. The 2020 results were impacted by the Company’s participation in the PPP, which increased commercial balances by approximately $70.5 million. In addition, the Company acquired the Edon State Bank in June of 2020 that increased loan balances by $16.4 million. Deposits increased $208.8 million, or 24.9 percent, to $1.05 billion at December 31, 2020. Deposit growth for the year included $139.0 million in demand deposits and $98.0 million in savings and money market deposits. The Company added approximately $51.0 million in deposit balances from the Edon State Bank acquisition in 2020. 38 Stockholders’ equity at December 31, 2020, was $142.9 million or 11.4 percent of total assets compared to $136.1 million or 13.1 percent of total assets at December 31, 2019. Asset Quality Years Ended December 31, ($ in thousands) 2020 2019 % Change Nonaccruing loans $ 6,426 $ 5,500 16.8 % Accruing restructured loans (TDRs) 810 874 -7.3 % OREO & repossessed assets 23 305 -92.5 % Nonperforming assets 7,259 6,679 8.7 % Net charge offs 681 212 221.2 % Loan loss provision 4,500 800 462.5 % Allowance for loan losses 12,574 8,755 43.6 % Nonperforming assets/total assets 0.58 % 0.64 % -9.3 % Net charge offs/average loans 0.08 % 0.03 % 166.7 % Allowance/loans 1.44 % 1.06 % 35.9 % Allowance/nonperforming loans 173.22 % 137.35 % 26.1 % Nonperforming assets consisting of loans, Other Real Estate Owned (“OREO”) and accruing TDRs totaled $7.3 million, or 0.58 percent of total assets at December 31, 2020, an increase of $0.6 million or 8.7 percent from 2019. Net charge offs were up during 2020, at $0.68 million, which was a $0.47 million increase compared to 2019. The Company’s loan loss allowance at December 31, 2020, now covers nonperforming loans at 174 percent, up from 137 percent at December 31, 2019. As detailed in the risk factors, the CARES Act provided for significant consumer and small business relief due to the impact of the COVID-19 pandemic. The Company provided payment relief to a number of consumer and small business customers throughout 2020. As detailed in the table below, loans in forbearance/deferral status as of December 31, 2020 were $23.2 million. An additional $11.7 million of sold mortgage relationships were also in deferral at year-end. Loans in Deferral Status Linked Qtr. ($ in thousands, except ratios) Dec. 2020 Sep. 2020 Jun. 2020 Change Total Commercial $ 23,175 $ 36,366 $ 142,682 $ (13,191 ) Total Consumer - 28 350 (28 ) Total Portfolio Mortgage - 1,959 10,274 (1,959 ) Total Balance Sheet Deferrals $ 23,175 $ 38,353 $ 153,306 $ (15,178 ) % of Total loans 2.66 % 4.33 % 17.00 % -1.67 % Total Sold Mortgage $ 11,685 $ 42,317 $ 41,751 $ (30,632 ) Regulatory capital reporting is required for State Bank only, as the Company is now exempt from quarterly regulatory capital level measurement pursuant to the Small Bank Holding Company Policy Statement. As of December 31, 2020, State Bank met all regulatory capital levels required to be considered well-capitalized (See Note 17 to the Consolidated Financial Statements). Earnings Summary – 2020 vs. 2019 Net income for 2020 was $14.9 million, or $1.96 per diluted share, compared with net income of $12.0 million and net income available to common of $11.0 million, or $1.51 per diluted share, for 2019. State Bank reported net income for 2020 of $16.0 million, which was up from the $12.5 million in net income in 2019. SBFG Title reported net income for 2020 of $0.6 million, which was up from the $0.3 million in 2019. Positive results for 2020 included loan growth of $47.2 million, and deposit growth of $208.8 million. The mortgage banking business line continues to contribute significant revenues, with residential real estate loan production of $694.2 million for the year, resulting in $25.4 million of revenue from gains on sale. The level of mortgage origination was up from the $445.3 million in 2019. The Company’s loans serviced for others ended the year at $1.3 billion, up from $1.2 billion at December 31, 2019. The Company realized over $1.4 million in revenue from the PPP initiative. 39 Operating revenue was up compared to the prior year by $13.2 million, or 25.0 percent, which was impacted by a $3.6 million temporary OMSR impairment. Our 2020 results include the full year impact from SBFG Title with net income of $0.6 million, and SB Captive, with net income of $0.9 million. Net interest margin on a fully tax equivalent basis (“FTE”) for 2020 was 3.36 percent, down 46 basis points from 2019. Operating expense was up compared to the prior year by $5.7 million, or 15.2 percent, due to compensation and fringe benefit cost increases as a result of higher mortgage commission levels. Operating leverage (growth in revenue divided by growth in operating expense) for the year was a positive 1.6 times. Net charge offs for 2020 of $0.68 million resulted in a loan loss provision of $4.5 million, compared to net charge offs of $0.21 million and a $0.8 million loan loss provision in 2019. Results of Operations Years Ended December 31, ($ in thousands, except per share data) 2020 2019 % Change Total assets $ 1,257,839 $ 1,038,577 21.1 % Total investments 149,406 100,948 48.0 % Loans held for sale 7,234 7,258 -0.3 % Loans, net of unearned income 872,723 825,510 5.7 % Allowance for loan losses 12,574 8,755 43.6 % Total deposits 1,049,011 840,219 24.8 % Total operating revenue 1 $ 66,026 $ 52,842 24.9 % Net interest income 35,930 34,826 3.2 % Loan loss provision 4,500 800 462.5 % Noninterest income 30,096 18,016 67.1 % Noninterest expense 43,087 37,410 15.2 % Net income 14,944 11,973 24.8 % Net income available to common shareholders 14,944 11,023 35.6 % Diluted earnings per share 1.96 1.51 29.8 % 1 Operating revenue equals net interest income plus noninterest income. Net Interest Income Years Ended December 31, ($ in thousands) 2020 2019 % Change Total net interest income $ 35,930 $ 34,826 3.2 % Net interest income was $35.9 million for 2020 compared to $34.8 million for 2019, an increase of $1.1 million or 3.2 percent. Average earning assets increased to $1.07 billion in 2020, compared to $915.0 million in 2019, an increase of $157.4 million or 17.2 percent due to higher loan volume. The consolidated 2020 full year net interest margin on an FTE basis decreased 46 basis points to 3.36 percent compared to 3.82 percent for the full year of 2019. PPP activity during 2020 increased margin revenue by $2.0 million for the full year of 2020. We will continue to realize fee income from the forgiveness of these Phase I PPP loans throughout 2021 and we are beginning Phase II of the program in early 2021. 40 Provision for loan losses of $4.5 million was taken in 2020 compared to $0.8 million taken for 2019. For 2020, net charge offs totaled $0.68 million, or 0.08 percent of average loans. This charge off level was higher than 2019, in which net charge offs were $0.21 million or 0.03 percent of average loans. Noninterest Income Years Ended December 31, ($ in thousands) 2020 2019 % Change Wealth management fees $ 3,245 $ 3,093 4.9 % Customer service fees 2,807 2,761 1.7 % Gains on sale of residential loans & OMSR’s 25,350 8,413 201.3 % Mortgage loan servicing fees, net (5,138 ) (397 ) 1194.2 % Gain on sale of non-mortgage loans 453 1,255 -63.9 % Title Insurance income 1,913 1,120 70.8 % Net gain on sale of securities - 206 N/M Gain (loss) on sale/disposal of assets 3 (5 ) -160.0 % Other 1,463 1,570 -6.8 % Total noninterest income $ 30,096 $ 18,016 67.1 % Total noninterest income was $30.1 million for 2020 compared to $18.0 million for 2019, representing an increase of $12.1 million, or 67.0 percent, year-over-year. This increase was driven by a 201.3 percent increase in gains on sale of residential real estate loans and the addition of our title agency. The Company sold $598.5 million of originated mortgages into the secondary market in 2020, which allowed our serviced loan portfolio to grow to $1.3 billion at December 31, 2020 from $1.2 billion at December 31, 2019. The higher servicing balance of the portfolio led to the 13.7 percent increase in mortgage loan servicing income. Sales of non-mortgage loans (small business and farm credits) decreased in 2020 as compared to 2019, as SBA activity was focused on the PPP initiative. The Company continued to expand its wealth management assets under care, which resulted in a 4.9 percent increase in wealth fee income. Noninterest Expense Years Ended December 31, ($ in thousands) 2020 2019 % Change Salaries & employee benefits $ 25,397 $ 22,064 15.1 % Net occupancy expense 2,891 2,603 11.1 % Equipment expense 3,186 2,828 12.7 % Data processing fees 3,055 1,973 54.8 % Professional fees 3,307 2,476 33.6 % Marketing expense 658 895 -26.5 % Telephone and communications 535 466 14.8 % Postage and delivery expense 415 340 22.1 % State, local and other taxes 1,146 1,092 4.9 % Employee expense 535 795 -32.7 % Other expense 1,962 1,878 4.5 % Total noninterest expense $ 43,087 $ 37,410 15.2 % Total noninterest expense was $43.1 million for 2020 compared to $37.4 million for 2019, representing a $5.7 million, or 15.2 percent, increase year-over-year. Total full-time equivalent employees ended 2020 at 244, which was down 8 from year end 2019. Salaries and benefits were driven by higher compensation costs in the mortgage division. Professional fees were higher due to higher spending on legal in connection with acquisition activities. The addition of our title agency added $0.5 million in operating expense for the year. Our acquisition of The Edon State Bank Company of Edon, Ohio in June 2020 added $1.2 million in merger related non-recurring expense and a minimal amount of ongoing operating expense. (See Notes 3 and 8 to the Consolidated Financial Statements for additional information) 41 Earnings Summary – 2019 vs. 2018 Net income for 2019 was $12.0 million, and net income available to common shareholders was $11.0 million, or $1.51 per diluted share, compared with net income of $11.6 million and net income available to common of $10.7 million, or $1.51 per diluted share, for 2018. State Bank reported net income for 2019 of $12.5 million, which was down from the $12.9 million in net income in 2018. SBFG Title reported net income for 2019 of $0.3 million. Positive results for 2019 included loan growth of $53.6 million, and deposit growth of $37.7 million. The mortgage banking business line continues to contribute significant revenues, with residential real estate loan production of $445.3 million for the year, resulting in $8.4 million of revenue from gains on sale. The level of mortgage origination was up from the $342.1 million in 2018. The Company’s loans serviced for others ended the year at $1.2 billion, up from $1.1 billion at December 31, 2018. Operating revenue was up compared to the prior year by $3.0 million, or 5.9 percent, which was impacted by a $1.1 million temporary OMSR impairment. Our 2019 results include the impact from our two new subsidiaries: SBFG Title with net income of $0.3 million and SB Captive with net income of $0.9 million. Net interest margin on a fully tax equivalent basis (“FTE”) for 2019 was 3.82 percent, down 13 basis points from 2018. Operating expense was up compared to the prior year by $2.6 million, or 7.4 percent, due to compensation and fringe benefit cost increases as a result of higher mortgage commission levels. Net charge offs for 2019 of $0.21 million resulted in a loan loss provision of $0.8 million, compared to net charge offs of $0.36 million and a $0.6 million loan loss provision in 2018. Goodwill, Intangibles and Capital Purchases The Company completed its most recent annual goodwill impairment test as of December 31, 2020. At December 31, 2020, the Company’s reporting unit 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. The main changes to goodwill for the year included the purchase of the Edon State Bank. The Company’s goodwill is further reviewed in Note 8 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 $303.2 million at December 31, 2020, compared to $135.3 million at December 31, 2019. The Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolio of $608.4 million at December 31, 2020, 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, 2020, all eligible commercial real estate, residential first, multi-family mortgage and agricultural loans were pledged under a Federal Home Loan Bank (“FHLB”) blanket lien. 42 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 $103.5 million of additional borrowing capacity existed at December 31, 2020. At December 31, 2020 and 2019, the Company had $41.0 million in federal funds lines available. The Company also had $67.5 million in unpledged securities at December 31, 2020 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 2020 and 2019 follows: The Company experienced positive cash flows from operating activities in 2020 and 2019. Net cash from operating activities was $23.9 million and $18.8 million for the years ended December 31, 2020 and 2019, respectively. Significant operating items for 2020 included gain on sale of loans of $25.8 million and net income of $14.9 million. Cash provided by the sale of loans held for sale were $603.2 million. Cash used in the origination of loans held for sale were $582.5 million. The Company experienced negative cash flows from investing activities in 2020 and 2019. Net cash used in investing activities was $57.2 million and $67.6 million for the years ended December 31, 2020 and 2019, respectively. The changes for 2020 include the purchase of available-for-sale securities of $129.8 million, and net increase in loans of $31.7 million. The changes for 2019 include the purchase of available-for-sale securities of $22.5 million and net increase in loans of $65.5 million. The Company had proceeds from repayments, maturities, sales and calls of securities of $84.0 million and $22.5 million in 2020 and 2019, respectively. The Company experienced positive cash flows from financing activities in 2020 and 2019. Net cash from financing activities was $146.9 million and $27.5 million for the years ended December 31, 2020 and 2019, respectively. Positive cash flows of $157.7 million and $37.7 million is attributable to the change in deposits for 2020 and 2019, respectively. The Company uses an Economic Value of Equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE analysis calculates the net present value of the Company’s assets and liabilities in rate shock environments that range from -400 basis points to +400 basis points. The results of this analysis are reflected in the following table. 43 Economic Value of Equity December 31, 2020 ($ in thousands) Change in rates $ Amount $ Change % Change +400 basis points $ 243,779 $ 61,586 33.80 % +300 basis points 231,590 49,398 27.11 % +200 basis points 217,936 35,743 19.62 % +100 basis points 202,260 20,067 11.01 % Base Case 182,193 - - -100 basis points 154,509 (27,684 ) -15.19 % Economic Value of Equity December 31, 2019 ($ in thousands) Change in rates $ Amount $ Change % Change +400 basis points $ 222,686 $ 26,861 13.72 % +300 basis points 218,252 22,427 11.45 % +200 basis points 212,838 17,013 8.69 % +100 basis points 205,405 9,580 4.89 % Base Case 195,825 - - -100 basis points 180,152 (15,673 ) -8.00 % -200 basis points 156,430 (39,395 ) -20.12 % Tabular Disclosure of Contractual Obligations The following table details the Company’s contractual obligations as of December 31, 2020, which were comprised of long-term debt obligations, other debt obligations, operating lease obligations and other long-term liabilities. Long-term debt obligations are comprised of FHLB Advances of $8.0 million. Other debt obligations are comprised of Trust Preferred securities of $10.3 million and operating leases of $1.6 million. The other long-term liabilities include time deposits of $229.5 million. Payment due by period ($ in thousands) Less than 1 - 3 3 - 5 More than Contractual obligations Total 1 year years years 5 years Long-term debt obligations $ 8,000 $ 2,500 $ 5,500 $ - $ - Other debt obligations 10,310 - - - 10,310 Operating lease obligations 1,611 195 276 257 883 Other long-term liabilities Reflected on the registrant’s balance sheet under GAAP 229,549 156,761 65,917 6,689 182 Totals $ 249,470 $ 159,456 $ 71,693 $ 6,946 $ 11,375 44