What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 109 added, 163 removed, 312 unchanged (47% of the section changed)

27 unchanged sentences

the failure of the federal government to raise the federal debt ceiling and/or possible future

government shutdowns over budget disagreements, uncertainties surrounding the November

Presidential election and potential changes in the U.S.

Senate and House of Representatives,

slowing gross domestic product, tariffs, a U.S.

withdrawal from or significant renegotiation

of trade agreements, trade wars, and other factors beyond our control, any of which may result

in adverse impacts on 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;

government shutdowns over budget disagreements, slowing gross domestic product, tariffs,

withdrawal from or significant renegotiation of trade agreements, trade wars, and

other factors beyond our control, any of which may result in adverse impacts on 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;

and future bank failures may reduce customer confidence, affect sources of funding and liquidity,

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in customers’, suppliers’, and other counterparties’ performance and creditworthiness

may be different than anticipated due to the continuing inflationary pressures and other

economic and financial market conditions;

may be different than anticipated due to inflationary pressures and/or other economic and

financial market conditions;

● operational

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unconditional guarantee by SB Financial of the obligations of RST II.

(“RFCBC”) is an Ohio corporation and wholly owned subsidiary of SB Financial that was incorporated in August 2004.

operates as a loan subsidiary in servicing and working out problem loans.

Bank Insurance, LLC (“SBI”) is an Ohio corporation and a wholly owned subsidiary of State Bank incorporated in June 2010.

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could lead to an impairment of goodwill that could adversely impact earnings in future periods.

Months Ended September 30, 2024, compared to Three Months Ended September 30, 2023

Net income for the third quarter of 2024 was $2.4 million compared to net income of $2.7 million for the third quarter

Months Ended March 31, 2025, compared to Three Months Ended March 31, 2024

Net income for the first quarter of 2025 was $2.2 million compared to net income of $2.4 million for the first quarter

of 2024, a decrease of 8.9 percent.

Diluted earnings per share (“DEPS”) of $0.35 for the third quarter of 2024 were slightly

lower compared to the DEPS of $0.39 for the third quarter of 2023.

Net income for the third quarter of 2024 was positively impacted by

Diluted earnings per share (“DEPS”) of $0.33 for the first quarter of 2025 were slightly

lower compared to the DEPS of $0.35 for the first quarter of 2024.

Net income for the first quarter of 2025 was positively impacted by

higher interest income on loans, which was offset by higher interest expense on deposits and wholesale borrowings.

Total interest income

continues to improve and was up 11.8 percent compared to the prior year.

Mortgage loan volume was up 15.5 percent compared to the prior

year third quarter, while sales of originated loans were up 13.3 percent when compared to the third quarter of 2023.

continues to improve and was up 13.5 percent compared to the prior year first quarter.

Mortgage loan volume was down slightly compared

to the prior year first quarter;

however, sales of originated loans were up 7.3 percent when compared to the first quarter of 2024.

in the 2025 first quarter results were $0.7 million of merger related expenses and a little more than two months of activity from the

Marblehead acquisition.

for Credit Losses:

The third quarter provision for credit losses was $200,000 as compared to a $6,000 recovery of provision for

the prior year third quarter.

The Company had net charge-offs of $27,000 for the third quarter of 2024 compared to net charge-offs of

$5,000 for the year-ago quarter.

Total delinquent loans (consisting of nonaccrual loans and loans greater than 30 days past due) ended

the quarter at $6.7 million, or 0.65 percent of total loans.

The Company adopted ASC 326 on January 1, 2023, which increased the allowance

for credit losses (“ACL”) by $1.4 million.

Asset Quality Review – For the Period Ended

The first quarter provision for credit losses was $387,000 as compared to a zero provision for the prior year

first quarter.

The Company had net charge-offs of $84,000 for the first quarter of 2025 compared to net charge-offs of $57,000 for the

year-ago quarter.

The provision expense included $13,000 for unfunded commitments, $224,000 due to the Marblehead acquisition and $150,000

of growth-related provision.

Total delinquent loans (consisting of nonaccrual loans and loans greater than 30 days past due) ended the

quarter at $5.9 million, or 0.54 percent of total loans.

Asset Quality Review – For the Period

($ in thousands)

September 30,

Net charge-offs (recoveries) – QTD/YTD

Net charge-offs (recoveries) – QTD

Nonaccruing loans

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Operating revenue, consisting of net interest income (“NII”) and noninterest income, was $15.4 million for

the third quarter of 2024, an increase of $0.6 million, or 4.5 percent, from the $13.7 million generated during the third quarter of

for the third quarter of 2024 was $10.2 million, which was up $0.65 million from the prior year third quarter’s $9.5 million.

the third quarter of 2024 to the prior year third quarter, the Company’s earning assets increased $44.3 million, and the average

the first quarter of 2025, an increase of $2.3 million, or 17.2 percent, from the $13.1 million generated during the first quarter of

for the first quarter of 2025 was $11.3 million, which was up $2.1 million from the prior year first quarter’s $9.2 million.

the first quarter of 2025 to the prior year first quarter, the Company’s earning assets increased $115.6 million, and the average

yield on earning assets increased by 24 basis points.

The net interest margin for the third quarter of 2024 was 3.17 percent compared

to 3.08 percent for the third quarter of 2023.

The net interest margin for the first quarter of 2025 was 3.40 percent compared

to 2.99 percent for the first quarter of 2024.

Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing

liabilities for the third quarter of 2024 were 2.53 percent compared to 2.18 percent for the prior year third quarter.

Total noninterest income was $4.1 million for the

third quarter of 2024, which decreased slightly compared to $4.2 million for the prior year third quarter.

In addition to the mortgage

revenue detailed below, wealth management revenue was slightly up from the prior year.

Impairment of mortgage servicing rights decreased

noninterest income by $0.47 million in the quarter, compared to an impairment of $0.08 million in the prior year third quarter.

contributed revenue of $0.5 million in the third quarter of 2024, up $0.06 million from the prior year.

Noninterest income as a percentage

of average assets for the third quarter of 2024 was 1.20 percent compared to 1.24 percent for the prior year third quarter.

Bank originated $70.7 million of mortgage loans during the third quarter of 2024, of which $61.3 million were sold with the remainder

of loans held for investment.

This compares to $61.2 million originated for the third quarter of 2023, of which $54.1 million were sold

with the remainder of loans held for investment.

These third quarter 2024 originations and subsequent sales resulted in $1.3 million

of gains, up $0.1 million from the gains for the third quarter of 2023.

Net mortgage banking revenue was $1.35 million for the third

quarter of 2024 compared to $1.65 million for the third quarter of 2023.

Noninterest Expense:

Total noninterest expense for the third quarter of 2024 was $11.0 million, which was up $0.5 million compared

to $10.5 million in the prior-year third quarter.

Commission expense for mortgage origination and adding additional talent have increased

our compensation expense levels.

Income taxes for the third quarter of 2024 were $0.75 million compared to $0.54 million for the third quarter of 2023.

Months Ended September 30, 2024, compared to Nine Months Ended September 30, 2023

Net income for the first nine months of 2024 was $7.8 million compared to net income of $8.2 million for the first nine

months of 2023, a decrease of 4.6 percent.

Diluted earnings per share (“DEPS”) of $1.17 were down 0.8 percent compared to

the DEPS of $1.18 for the first nine months of 2023.

Net income for the first nine months of 2024 was negatively impacted by the Company’s

impairment of $0.25 million on its mortgage servicing rights, while net income for the first nine months of 2023 was negatively impacted

by an impairment of mortgage servicing rights of $0.04 million.

Mortgage loan volume was up 7.3 percent during the first nine months

of 2024, with a higher percentage of originated volume sold on the secondary market, as compared to the same period in 2023.

costs for the first nine months of 2024 were up nearly 40 percent as compared to the prior year first nine months.

for Credit Losses:

The first nine months of 2024 provision for credit losses was $0.2 million as compared to $0.4 million in

provision for the prior year first nine months.

Net charge-offs for the current year were $68,000 compared to net charge-offs of $88,000

for the year-ago first nine months.

Operating revenue, consisting of net interest income (NII) and noninterest income, was $41.5 million for the first nine

months of 2024, a decrease of $0.4 million, or 0.9 percent, from the $41.9 million generated during the first nine months of 2023.

NII for the first nine months of 2024 was $29.0 million,

which was down $0.7 million from NII of $29.7 million for the prior year first nine months.

The net interest margin for the first nine

months of 2024 was 3.08 percent compared to 3.18 percent for the first nine months of 2023 as funding costs increased faster than the

yield on earnings assets.

Funding costs (interest paid to consumers and other entities) for interest bearing liabilities for the first

nine months of 2024 were 2.52 percent compared to 1.85 percent for the prior year first nine months.

noninterest income was $12.5 million for the first nine months of 2024, which was up $0.3 million from $12.2 million for the prior year

first nine months.

In addition to the mortgage revenue detailed below, impairment of our mortgage servicing rights decreased noninterest

income in the first nine months by slightly over $0.2 million compared to the first nine months of 2023.

Our title agency contributed

revenue of $1.2 million in the first nine months of 2024, down $0.1 million from the prior year first nine months level of $1.3 million.

Bank originated $188.7 million of mortgage loans during the first nine months of 2024, of which $153.7 million was sold with the remainder

liabilities for the first quarter of 2025 were 2.32 percent compared to 2.55 percent for the prior year first quarter.

noninterest income was $4.1 million for the first quarter of 2025, which increased slightly compared to $4.0 million for the prior year

first quarter.

In addition to the mortgage revenue detailed below, wealth management revenue was flat compared to the prior year.

of mortgage servicing rights increased noninterest income by $0.01 million in the quarter, compared to a recapture of $0.18 million in

the prior year first quarter.

SBFG Title contributed revenue of $0.4 million in the first quarter of 2025, up $0.13 million from the

Noninterest income as a percentage of average assets for the first quarter of 2025 was 1.14 percent compared to 1.19 percent

for the prior year first quarter.

Bank originated $39.8 million of mortgage loans during the first quarter of 2025 and sold $39.3 million, with $3.8 million of loans held

for investment.

This compares to $42.9 million originated for the first quarter of 2024, of which $36.6 million were sold with the remainder

of loans held for investment.

This compares to $176.0 million originated for the first nine months of 2023, of which $127.8 million was

sold with the remainder of loans held for investment.

These 2024 year-to-date mortgage originations and subsequent sales resulted in

$3.4 million of gains, up $0.5 million from the $2.9 million in gains for the first nine months of 2023.

Net mortgage banking revenue

was $4.7 million for the first nine months of 2024 compared to $4.4 million for the first nine months of 2023.

These first quarter 2025 originations and subsequent sales resulted in $0.9 million of gains, up $0.01

million from the gains for the first quarter of 2024.

Net mortgage banking revenue was $1.46 million for the first quarter of 2025 compared

to $1.54 million for the first quarter of 2024.

Noninterest Expense:

Total noninterest expense for the first nine months of 2024 was $32.0 million, which was up $0.4 million

compared to $31.6 million in the prior-year first nine months.

Salaries and employee benefits expense was up compared to the prior year

due to higher commission levels and higher medical insurance costs.

Income taxes for the first nine months of 2024 were $1.5 million (effective rate of 16.0 percent) compared to $1.7 million

(effective rate of 17.0 percent) for the first nine months of 2023.

Total noninterest expense for the first quarter of 2025 was $12.4 million, which was up $2.1 million compared

to $10.3 million in the prior-year first quarter.

The quarter included over $0.7 million in one-time merger-related expenses.

to the prior year, the 2025 first quarter included operating expenses for approximately 75 days of activity of Marblehead.

Income taxes for the first quarter of 2025 were $0.43 million (16.7 percent) compared to $0.48 million (16.9 percent)

for the first quarter of 2024.

in Financial Condition

Total assets at September 30, 2024, were $1.39 billion,

up $50.7 million or 3.8 percent since December 31, 2023.

Total loans, net of unearned income, were $1.03 billion as of September 30, 2024,

up $29.7 million, or 3.0 percent, from year-end.

Total deposits at September 30, 2024, were $1.16 billion, an increase of $89.3 million,

or 8.3 percent, since 2023 year end.

assets at March 31, 2025, were $1.5 billion, up $121.5 million, or 8.8 percent, since December 31, 2024.

Total loans, net of unearned

income, were $1.09 billion as of March 31, 2025, up $41.5 million, or 4.0 percent, from year-end.

Total deposits at March 31, 2025, were

$1.27 billion, an increase of $118.6 million, or 10.3 percent, since 2024 year end.

funds (consisting of FHLB advances, repurchase (“REPO”) agreements, trust preferred securities and subordinated debt) totaled

$80.2 million at September 30, 2024.

This is down from year-end 2023 when borrowed funds totaled $126.9 million due to the paydown of

FHLB advances.

Total shareholders’ equity for the Company of $132.8 million now stands at 9.5 percent of total assets compared

to the December 31, 2023, level of $124.3 million or 9.3 percent of total assets.

Adjusting for the temporary impairment of Accumulated

Other Comprehensive Loss, total equity would increase to $157.7 million or 11.3 percent of total assets.

allowance for credit losses of $15.3 million is down $0.5 million from the December 2023 year-end level due to $0.07 million of net charge-offs

and $0.44 million in negative provision for loans, offset by an increase due to unfunded commitments.

$76.1 million at March 31, 2025.

This is up slightly from year-end 2024 when borrowed funds totaled $75.6 million.

Total shareholders’

equity for the Company of $131.5 million now stands at 8.8 percent of total assets compared to the December 31, 2024, level of $127.5

million or 9.2 percent of total assets.

Adjusting for the temporary impairment of Accumulated Other Comprehensive Loss, total equity

would increase to $158.4 million or 10.6 percent of total assets.

allowance for credit losses of $15.4 million is up $0.3 million from the December 2024 year-end level due to $0.09 million of net charge-offs,

$0.23 million due to the Marblehead acquisition, and $0.15 million of growth-related provision expense.

The Company has had stable asset

quality through the first nine months of 2024, with the non-performing asset ratio at 40 basis points and coverage on non-performing

quality through the first three months of 2025, with the non-performing asset ratio at 41 basis points and coverage on non-performing

loans at 254 percent.

of September 30, 2024, based on the computations for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with

of March 31, 2025, based on the computations for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with

the Federal Reserve Board, State Bank was classified as “well capitalized” under the regulatory framework for prompt corrective

To be categorized as well capitalized, State Bank must maintain capital ratios as set forth in the table below.

conditions or events since September 30, 2024, that management believes have changed State Bank’s capital classification.

adopted CECL on January 1, 2023, which reduced capital levels by $2.0 million.

The Company elected to not phase in the impact of CECL

as the reduction in capital did not have a material impact to tangible and regulatory capital levels.

Bank’s actual capital levels and ratios as of September 30, 2024, and December 31, 2023, are presented in the following table.

Capital levels are presented for State Bank only as the Company is exempt from quarterly reporting on capital levels at the holding company

conditions or events since March 31, 2025, that management believes have changed State Bank’s capital classification.

Bank’s actual capital levels and ratios as of March 31, 2025, and December 31, 2024, are presented in the following table.

levels are presented for State Bank only as the Company is exempt from quarterly reporting on capital levels at the holding company level:

To Be Well Capitalized Under Prompt

For Capital Adequacy

Capitalized Under Prompt

Corrective Action

($ in thousands)

As of September 30, 2024

As of March 31, 2025

Tier I Capital to average assets

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These assets are commonly referred to as liquid

Liquid assets totaled $271.5 million at September 30, 2024, compared to $246.7 million at December 31, 2023.

Liquid assets totaled $310.7 million at March 31, 2025, compared to $235.9 million at December 31, 2024.

risk arises from the possibility that the Company may not be able to meet the Company’s financial obligations and operating cash

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Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolio of $890.3 million

at September 30, 2024, and $807.8 million at December 31, 2023, which can and has been used to collateralize borrowings, is an additional

at March 31, 2025, and $852.6 million at December 31, 2024, which can and has been used to collateralize borrowings, is an additional

source of liquidity.

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its liquidity needs.

At September 30, 2024, all eligible commercial real estate, first mortgage residential, agricultural and multi-family

At March 31, 2025, all eligible commercial real estate, first mortgage residential, agricultural and multi-family

mortgage loans were pledged under an FHLB blanket lien.

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of the ability of the Company to maintain an adequate level of liquidity.

A discussion of the cash flow statements for the nine months

ended September 30, 2024, and September 30, 2023 follows.

Company experienced positive cash flows from operating activities for the nine months ended September 30, 2024, and September 30, 2023.

Net cash provided by operating activities was $3.5 million for the nine months ended September 30, 2024, and $7.2 million for the nine

months ended September 30, 2023.

Highlights for the current year include $153.7 million in proceeds from the sale of loans, which is

up $25.9 million from the prior year.

Originations of loans held for sale was a use of cash of $158.3 million, which is up $31.1 million

from the prior year .

For the nine months ended September 30, 2024, there was a gain on sale of loans of $3.5 million, and depreciation

and amortization on premises and equipment of $1.6 million.

Company experienced negative cash flows from investing activities for the nine months ended September 30, 2024, and September 30, 2023.

Net cash used in investing activities was $14.9 million for the nine months ended September 30, 2024, and $10.3 million for the nine

months ended September 30, 2023.

Highlights for the current year include an increase of $29.8 million in loans, which is up $2.7 million

from the prior year nine-month period.

These cash payments were offset by $14.1 million in proceeds from maturities and sales of securities,

which is down $2.9 million from the prior year nine-month period.

Company experienced positive cash flows from financing activities for the nine months ended September 30, 2024, and negative cash flows

from financing activities for the nine months ended September 30, 2023.

A discussion of the cash flow statements for the three months

ended March 31, 2025, and March 31, 2024 follows.

Company experienced positive cash flows from operating activities for the three months ended March 31, 2025, and March 31, 2024.

cash provided by operating activities was $6.7 million for the three months ended March 31, 2025, and $0.3 million for the three months

ended March 31, 2024.

Highlights for the current year include $39.3 million in proceeds from the sale of loans, which is up from $36.6

million in the prior year.

Originations of loans held for sale was a use of cash of $36.3 million, which is down from $38.4 million in

the prior year .

For the three months ended March 31, 2025, there was a gain on sale of loans of $0.9 million, and depreciation and amortization

on premises and equipment of $0.5 million.

Company experienced positive cash flows from investing activities for the three months ended March 31, 2025, and March 31, 2024.

cash provided by investing activities was $9.2 million for the three months ended March 31, 2025, and $11.7 million for the three months

ended March 31, 2024.

Highlights for the current year include an increase of $23.0 million in loans, which is up $31.6 million from the

prior year three-month period, and $3.0 million paid for the Marblehead acquisition, net of cash acquired.

These cash payments were offset

by $6.1 million in proceeds from maturing securities, and $30.1 million in proceeds from the sale of securities which were acquired from

Company experienced positive cash flows from financing activities for the three months ended March 31, 2025, and negative cash flows

from financing activities for the three months ended March 31, 2024.

Net cash provided by financing activities was $63.3 million for

the nine months ended September 30, 2024, and net cash used in financing activities was $5.6 million for the nine months ended September

the three months ended March 31, 2025, and net cash used in financing activities was $8.4 million for the three months ended March 31,

Highlights for the current period include a $45.5 million increase in transaction deposits and a $20.1 million increase in time

deposits for the nine months ended September 30, 2024.

This compares to the prior year nine-month period where transaction deposits decreased

by $54.2 million and time deposits increased by $52.9 million.

Net repayments of Federal Home Loan Bank advances for the nine months

ended September 30, 2024, were $48.6 million, compared to $0.5 million for the prior year nine-month period.

deposits for the three months ended March 31, 2025.

This reflects a $0.6 million increase in transaction deposits from the prior year

three-month period and a $22.8 million increase in time deposits.

Net repayments of Federal Home Loan Bank advances for the three months

ended March 31, 2025, were $1.0 million, compared to $48.6 million for the prior year three-month period.

Off-Balance-Sheet

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Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount

of $838.3 million were pledged to meet FHLB collateralization requirements as of September 30, 2024.

of $890.3 million were pledged to meet FHLB collateralization requirements as of March 31, 2025.

Based on the current collateralization

requirements of the FHLB, the Company had approximately $136.9 million of additional borrowing capacity at September 30, 2024.

requirements of the FHLB, the Company had approximately $145.4 million of additional borrowing capacity at March 31, 2025.

also had $64.5 million in unpledged securities available to pledge for additional borrowings.

Company has contractual obligations consisting of long-term debt obligations and operating lease obligations.

In addition, as of September

In addition, as of March

31, 2025, the Company had commitments to sell mortgage loans totaling $23.3 million.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis