UNITED STATES
SECURITIES AND EXCHANGECOMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly periodended
OR
For the transition periodfrom _________________to___________________________
Commission file number
(Exact name of registrantas specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
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(Former name,former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b)of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The NASDAQ Stock Market, LLC | ||||
| ( |
Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronicallyevery Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during thepreceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerate Filer ☐ Accelerated Filer ☐
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accountingstandards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
SB FINANCIAL GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 44 |
| Item 4. | Controls and Procedures | 44 |
| PART II – OTHER INFORMATION | 45 | |
| Item 1. | Legal Proceedings | 45 |
| Item 1A. | Risk Factors | 45 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 45 |
| Item 3. | Defaults Upon Senior Securities | 45 |
| Item 4. | Mine Safety Disclosures | 45 |
| Item 5. | Other Information | 45 |
| Item 6. | Exhibits | 46 |
| Signatures | 47 | |
i
PARTI – FINANCIAL INFORMATION
Item 1. Financial Statements
SB Financial Group, Inc.
Condensed Consolidated Balance Sheets
| June 2025 | December | |||||||
| ($ in thousands) | (unaudited) | 2024 | ||||||
| Assets | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest bearing time deposits | ||||||||
| Available-for-sale securities | ||||||||
| Loans held for sale | ||||||||
| Loans, net of unearned income | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Premises and equipment, net | ||||||||
| Federal Reserve and Federal Home Loan Bank Stock, at cost | ||||||||
| Foreclosed assets and other assets held for sale, net | ||||||||
| Interest receivable | ||||||||
| Goodwill | ||||||||
| Cash value of life insurance | ||||||||
| Mortgage servicing rights | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Liabilities | ||||||||
| Deposits | ||||||||
| Non interest bearing demand | $ | $ | ||||||
| Interest bearing demand | ||||||||
| Savings | ||||||||
| Money market | ||||||||
| Time deposits | ||||||||
| Total deposits | ||||||||
| Repurchase agreements | ||||||||
| Federal Home Loan Bank advances | ||||||||
| Trust preferred securities | ||||||||
| Subordinated debt net of issuance costs | ||||||||
| Interest payable | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments & Contingent Liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| Preferred stock, par value; authorized | ||||||||
| Common stock, par value; 2025 - | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost; (2025 - | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See notes to condensed consolidated financial statements (unaudited)
1
SB Financial Group, Inc.
CondensedConsolidated Statements of Income (unaudited)
| ($ in thousands, except per share data) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Interest Income | ||||||||||||||||
| Loans | ||||||||||||||||
| Taxable | $ | $ | $ | $ | ||||||||||||
| Tax exempt | ||||||||||||||||
| Securities | ||||||||||||||||
| Taxable | ||||||||||||||||
| Tax exempt | ||||||||||||||||
| Other interest income | ||||||||||||||||
| Total interest income | ||||||||||||||||
| Interest Expense | ||||||||||||||||
| Deposits | ||||||||||||||||
| Repurchase agreements & other | ||||||||||||||||
| Federal Home Loan Bank advance expense | ||||||||||||||||
| Trust preferred securities expense | ||||||||||||||||
| Subordinated debt expense | ||||||||||||||||
| Total interest expense | ||||||||||||||||
| Net Interest Income | ||||||||||||||||
| Provision for credit losses - loans | ( | ) | ( | ) | ||||||||||||
| Provision for unfunded commitments | ||||||||||||||||
| Total provision for credit losses | ||||||||||||||||
| Net interest income after provision for credit losses | ||||||||||||||||
| Noninterest Income | ||||||||||||||||
| Wealth management fees | ||||||||||||||||
| Customer service fees | ||||||||||||||||
| Gain on sale of mortgage loans & OMSR | ||||||||||||||||
| Mortgage loan servicing fees, net | ||||||||||||||||
| Gain on sale of non-mortgage loans | ||||||||||||||||
| Title insurance income | ||||||||||||||||
| Other income | ||||||||||||||||
| Total noninterest income | ||||||||||||||||
| Noninterest Expense | ||||||||||||||||
| Salaries and employee benefits | ||||||||||||||||
| Net occupancy expense | ||||||||||||||||
| Equipment expense | ||||||||||||||||
| Data processing fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Marketing expense | ||||||||||||||||
| Telephone and communications | ||||||||||||||||
| Postage and delivery expense | ||||||||||||||||
| State, local and other taxes | ||||||||||||||||
| Employee expense | ||||||||||||||||
| Other expense | ||||||||||||||||
| Total noninterest expense | ||||||||||||||||
| Income before income tax | ||||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||
| Basic earnings per common share | $ | $ | $ | $ | ||||||||||||
| Diluted earnings per common share | $ | $ | $ | $ | ||||||||||||
| Average common shares outstanding (in thousands): | ||||||||||||||||
| Basic: | ||||||||||||||||
| Diluted: | ||||||||||||||||
See notes to condensed consolidatedfinancial statements (unaudited)
2
SBFinancial Group, Inc.
CondensedConsolidated Statements of Comprehensive Income (unaudited)
| ($ in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Available for sale investment securities: | ||||||||||||||||
| Gross unrealized holding gains (losses) arising in the period | ( | ) | ( | ) | ||||||||||||
| Related tax (expense) benefit | ( | ) | ( | ) | ||||||||||||
| Net effect on other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Total comprehensive income | $ | $ | $ | $ | ||||||||||||
See notes to condensed consolidated financial statements (unaudited)
3
SBFinancial Group, Inc.
CondensedConsolidated Statements of Shareholders’ Equity (unaudited)
| Common | Additional Paid-in | Retained | Accumulated Other Comprehensive | Treasury | ||||||||||||||||||||
| ($ in thousands, except per share data) | Stock | Capital | Earnings | Loss | Stock | Total | ||||||||||||||||||
| Balance, January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Restricted stock vesting | ( | ) | ||||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Common | Additional Paid-in | Retained | Accumulated Other Comprehensive | Treasury | ||||||||||||||||||||
| ($ in thousands, except per share data) | Stock | Capital | Earnings | Loss | Stock | Total | ||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Restricted stock vesting | ( | ) | ||||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
See notes to condensed consolidated financial statements (unaudited)
4
SB Financial Group, Inc.
Condensed Consolidated Statements of CashFlows (unaudited)
| ($ in thousands) | Six Months Ended June 30, | |||||||
| 2025 | 2024 | |||||||
| Operating Activities | ||||||||
| Net Income | $ | $ | ||||||
| Items not requiring (providing) cash | ||||||||
| Depreciation and amortization | ||||||||
| 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 | ||||||||
| Recovery of mortgage servicing rights | ( | ) | ( | ) | ||||
| Proceeds from sale of loans held for sale | ||||||||
| Originations of loans held for sale | ( | ) | ( | ) | ||||
| Gain from sale of loans | ( | ) | ( | ) | ||||
| Changes in | ||||||||
| Interest receivable | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Interest payable & other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Investing Activities | ||||||||
| Purchases of available-for-sale securities | ( | ) | ||||||
| Purchases of interest bearing time deposits | ( | ) | ||||||
| Proceeds from maturities of interest bearing time deposits | ||||||||
| Proceeds from maturities of available-for-sale securities | ||||||||
| Proceeds from sales of available-for-sale securities | ||||||||
| Net change in loans | ( | ) | ( | ) | ||||
| Purchase of premises, equipment | ( | ) | ( | ) | ||||
| Purchase of bank owned life insurance | ( | ) | ||||||
| Purchase of Federal Reserve and Federal Home Loan Bank Stock | ( | ) | ( | ) | ||||
| Proceeds from sale of Federal Home Loan Bank Stock | ||||||||
| Proceeds from sale of foreclosed assets | ||||||||
| Acquisition, net of cash acquired (paid) | ( | ) | ||||||
| Net cash provided by investing activities | ||||||||
| Financing Activities | ||||||||
| Net increase in demand deposits, money market, interest checking & savings accounts | ||||||||
| Net increase in time deposits | ||||||||
| Net increase in securities sold under agreements to repurchase | ||||||||
| Proceeds from Federal Home Loan Bank advances | ||||||||
| Repayment of Federal Home Loan Bank advances | ( | ) | ( | ) | ||||
| Stock repurchase plan | ( | ) | ( | ) | ||||
| Cash dividends on common shares | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Supplemental non-cash disclosure | ||||||||
| Transfer of loans to foreclosed assets | $ | $ | ||||||
| In conjunction with the Marblehead acquisition, liabilities assumed were: | ||||||||
| Fair value of assets acquired | $ | $ | ||||||
| Cash paid in acquisition | ( | ) | ||||||
| Liabilities assumed | $ | $ | ||||||
See notes to condensed consolidated financial statements (unaudited)
5
SB FINANCIAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1—BASIS OF PRESENTATION
SB Financial Group, Inc., an Ohio corporation(“SBFG”), is a financial holding company whose principal activity is the ownership and management of its wholly-owned subsidiaries,including The State Bank and Trust Company (“State Bank”), SBFG Title, LLC (“SBFG Title”), and SB Captive, Inc.(“SB Captive”). State Bank owns all of the outstanding stock of State Bank Insurance, LLC (“SBI”). In December2024, SBFG completed the dissolution of four of its inactive subsidiaries – RFCBC, Inc., Rurbanc Data Services, Inc., Rurban MortgageCompany and SBFG Mortgage, LLC.
The consolidated financial statements includethe accounts of SBFG, State Bank, SBFG Title, SB Captive and SBI (collectively, the “Company”). All significant intercompanyaccounts and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interimfinancial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotesrequired by GAAP for complete financial statements. The financial statements reflect all adjustments that are, in the opinion of management,necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist onlyof normal recurring adjustments. Results of operations for the six-months ended June 30, 2025, are not necessarily indicative of resultsfor the complete year.
The condensed consolidated balance sheet of theCompany as of December 31, 2024, has been derived from the audited consolidated balance sheet of the Company as of that date.
For further information, refer to the consolidatedfinancial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Adoption of New Accounting Standards:
Accounting Standards Update (“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 easethe potential burden in accounting for reference rate reform. It is intended to help stakeholders during the global market-wide referencerate transition period. The guidance was initially effective as of March 12, 2020, through December 31, 2022. However, a deferral ofthe implementation of the Reference Rate Reform was issued in December of 2022, which extended the implementation through December 31,2024. The Company has implemented a replacement for the reference rate and has determined that the changes did not have a material impacton the Company’s consolidated financial statements.
ASU No. 2023-07: Segment Reporting (Topic 280) Improvements toReportable Segment Disclosures
This ASU expands operating segment disclosuresand 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 onJanuary 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 Financial Accounting StandardsBoard (“FASB”) issued ASU 2023-09: Income Taxes (Topic 740) Improvements to Income Tax Disclosures. The amendments in thisASU address investor requests for more transparency about income tax information through improvements to income tax disclosures, primarilyrelated to effective tax rate reconciliation and information related to income taxes paid, among certain other amendments to improvethe effectiveness of such disclosures. The amendments in this ASU are effective for annual periods 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 consolidatedfinancial statements.
6
ASU No. 2024-03: Income Statement –Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of IncomeStatement Expenses. The new standard requires tabular disclosure of certain costs and expenses including more detailed disclosures ofcertain categories of expenses such as employee compensation, depreciation and intangible asset amortization that are components of existingexpense captions presented on the face of the income statement. The ASU should be applied prospectively for annual reporting periodsbeginning after December 15, 2026, with retrospective application and early adoption permitted. The Company is currently evaluating theimpacts of this guidance on the Company’s Consolidated Financial Statements.
NOTE 2 - EARNINGS PER SHARE
Earnings per share (“EPS”) have beencomputed based on the weighted average number of common shares outstanding during the periods presented. The average number of commonshares used in the computation of basic and diluted earnings per share are set forth in the table below. There were no anti-dilutiveshares in 2025 or 2024.
| Three Months Ended June 30, | ||||||||
| ($ and outstanding shares in thousands - except per share data) | 2025 | 2024 | ||||||
| Distributed earnings allocated to common shares | $ | $ | ||||||
| Undistributed earnings allocated to common shares | ||||||||
| Net earnings allocated to common shares | ||||||||
| Net earnings allocated to participating securities | ||||||||
| Net Income allocated to common shares and participating securities | $ | $ | ||||||
| Weighted average shares outstanding for basic earnings per share | ||||||||
| Dilutive effect of stock compensation | ||||||||
| Weighted average shares outstanding for diluted earnings per share | ||||||||
| Basic earnings per common share | $ | $ | ||||||
| Diluted earnings per common share | $ | $ | ||||||
| Six Months Ended June 30, | ||||||||
| ($ and outstanding shares in thousands - except per share data) | 2025 | 2024 | ||||||
| Distributed earnings allocated to common shares | $ | $ | ||||||
| Undistributed earnings allocated to common shares | ||||||||
| Net earnings allocated to common shares | ||||||||
| Net earnings allocated to participating securities | ||||||||
| Net Income allocated to common shares and participating securities | $ | $ | ||||||
| Weighted average shares outstanding for basic earnings per share | ||||||||
| Dilutive effect of stock compensation | ||||||||
| Weighted average shares outstanding for diluted earnings per share | ||||||||
| Basic earnings per common share | $ | $ | ||||||
| Diluted earnings per common share | $ | $ | ||||||
7
NOTE 3 – BUSINESS COMBINATION
Effective January 17, 2025, the Company acquiredall of the outstanding common shares of Marblehead Bancorp and its subsidiary The Marblehead Bank of Marblehead, Ohio (collectively,“Marblehead”). Marblehead was headquartered in Marblehead, Ohio and had two retail offices. At closing, Marblehead Bancorpwas merged with and into SBFG, with SBFG surviving, and immediately thereafter, The Marblehead Bank was merged with and into State Bank,with State Bank surviving. Under the terms of the merger agreement, shareholders of Marblehead received fixed consideration of $
The Company accounted for the transaction underthe acquisition method of accounting, which means that the acquired assets and liabilities were recorded at fair value at the date ofacquisition.
In accordance with ASC 805, the Company expensedapproximately $
The following table summarizes the fair valueof the total consideration transferred as part of the acquisition as well as the fair value of identifiable assets and liabilities assumedas of the effective date of the transaction based on assumptions that are subject to change as management continues to evaluate as relevantinformation becomes available. If, prior to the end of the one-year measurement period for finalizing the purchase price allocation,relevant information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustmentswill be recorded in the reporting period in which the adjustment amounts are determined.
| ($ in thousands) | January 17, 2025 | |||
| Fair value of assets acquired | ||||
| Cash and cash equivalents | $ | |||
| Investment securities | ||||
| Federal Reserve and Federal Home Loan Bank stock | ||||
| Loans held for investment | ||||
| Premises and equipment | ||||
| Goodwill | ||||
| Core deposit intangible | ||||
| Other assets | ||||
| Total assets acquired | $ | |||
| Fair value of liabilities assumed | ||||
| Deposits | $ | |||
| Other liabilities | ||||
| Total liabilities assumed | ||||
| Total purchase price (cash) | $ | |||
8
Pro Forma Financial Information
The results of operations of Marblehead havebeen included in the Company’s consolidated financial statements since the acquisition date of January 17, 2025. The followingschedule includes the pro forma results for the three and six months ended June 30, 2025, and 2024, as if the Marblehead acquisitionhad occurred as of the beginning of the reporting periods presented.
| Three Months Ended | ||||||||
| Summary of Operations ($ in thousands) | Jun. 2025 | Jun. 2024 | ||||||
| Net interest income | $ | $ | ||||||
| Provision for loan losses | ||||||||
| Net interest income after provision | $ | $ | ||||||
| Non interest income | ||||||||
| Non interest expense | ||||||||
| Income before income taxes | $ | $ | ||||||
| Income tax expense* | ||||||||
| Net income to common shareholders | $ | $ | ||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted earnngs per share | $ | $ | ||||||
| * |
| Six Months Ended | ||||||||
| Summary of Operations ($ in thousands) | Jun. 2025 | Jun. 2024 | ||||||
| Net interest income | $ | $ | ||||||
| Provision for loan losses | ||||||||
| Net interest income after provision | $ | $ | ||||||
| Non interest income | ||||||||
| Non interest expense | ||||||||
| Income before income taxes | $ | $ | ||||||
| Income tax expense* | ||||||||
| Net income to common shareholders | $ | $ | ||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted earnngs per share | $ | $ | ||||||
| * | Income tax expense for Marblehead calculated using a |
9
Note4 – AVAILABLE-FOR-SALE Securities
The amortized cost and appropriate fair values,together with gross unrealized gains and losses, of securities at June 30, 2025, and December 31, 2024, were as follows:
| Gross | Gross | |||||||||||||||
| ($ in thousands) | Amortized | Unrealized | Unrealized | |||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
| June 30, 2025 | ||||||||||||||||
| U.S. Treasury and | ||||||||||||||||
| Government agencies | $ | $ | | $ | ( | ) | $ | |||||||||
| Mortgage-backed securities | ( | ) | ||||||||||||||
| State and political subdivisions | ( | ) | ||||||||||||||
| Other corporate securities | ( | ) | ||||||||||||||
| Totals | $ | $ | $ | ( | ) | $ | ||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
| December 31, 2024 | ||||||||||||||||
| U.S. Treasury and | ||||||||||||||||
| Government agencies | $ | $ | $ | ( | ) | $ | ||||||||||
| Mortgage-backed securities | ( | ) | ||||||||||||||
| State and political subdivisions | ( | ) | ||||||||||||||
| Other corporate securities | ( | ) | ||||||||||||||
| Totals | $ | $ | $ | ( | ) | $ | ||||||||||
The amortized cost and fair value of securitiesavailable-for-sale at June 30, 2025, by contractual maturity, are shown below. Expected maturities will differ from contractual maturitiesbecause 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 | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Mortgage-backed securities | ||||||||
| Totals | $ | $ | ||||||
The fair value of securities pledged as collateral,to secure public deposits and for other purposes, was $
There were no realized gains or losses from salesof available-for-sale securities for the three and six months ended June 30, 2025, or June 30, 2024.
Certain investments in debt securities are reportedin the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments was $
10
Securities with unrealized losses, aggregatedby investment class and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2025,and at December 31, 2024, are as follows:
| ($ in thousands) | Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||
| June 30, 2025 | Number of Securities | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||
| U.S. Treasury and Government agencies | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Mortgage-backed securities | ( | ) | ( | ) | ||||||||||||||||||||||||
| State and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Other corporate securities | ( | ) | ( | ) | ||||||||||||||||||||||||
| Totals | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||||
| December 31, 2024 | Number of Securities | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||
| U.S. Treasury and Government agencies | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Mortgage-backed securities | ( | ) | ( | ) | ||||||||||||||||||||||||
| State and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Other corporate securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Totals | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
Based on evaluation of available evidence, includingrecent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believesthe declines in fair value for these securities are temporary. Management reviews these securities on a quarterly basis and evaluatesif any security has a fair value less than its amortized cost. Once these securities are identified, management determines whether adecline in fair value resulted from a credit loss or other factors. In making the assessment, the Company may consider various factorsincluding the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratingsof the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditionsspecifically related to the security. If the assessment indicates that a credit loss exists, a provision is recorded to the allowancefor credit losses (the “ACL”).
Changes in the ACL are recorded as provisionfor (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 orrequirement to sell is met. At June 30, 2025, and December 31, 2024, no ACL on available-for-sale securities was recorded.
Management has made the accounting policy electionto exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Accrued interest receivableon available-for-sale debt securities totaled $
11
NOTE 5 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans that management has the intent and abilityto hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for anycharge-offs, the allowance for credit losses, any deferred fees or costs on originated loans and unamortized premiums or discounts onpurchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs overthe loan term. Generally, all loan classes are placed on nonaccrual status not later than 90 days past due, unless the loan is well-securedand in the process of collection. All interest accrued, but not collected, for loans that are placed on nonaccrual or charged-off isreversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifyingfor return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are broughtcurrent and future payments are reasonably assured.
The following table summarizes the composition of the loan portfolio:
| Total Loans | ||||||||
| ($ in thousands) | June 30, 2025 | December 31, 2024 | ||||||
| Commercial & industrial | $ | $ | ||||||
| Commercial real estate - owner occupied | ||||||||
| Commercial real estate - nonowner occupied | ||||||||
| Agricultural | ||||||||
| Residential real estate | ||||||||
| Home equity line of credit (HELOC) | ||||||||
| Consumer | ||||||||
| Total loans | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | $ | $ | ||||||
The totals shown above are net of accretablediscounts on acquired loans and deferred loan fees and costs, which totaled $
The risk characteristics of each loan portfolio segment are as follows:
Commercial & Industrial and Agricultural
Commercial & industrial loans and agriculturalloans are primarily underwritten based on the identified cash flows of the borrower and secondarily on the underlying collateral providedby the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate invalue. 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 amountsdue from its customers.
Commercial Real Estate (Owner and Nonowner Occupied)
Commercial real estate loans are viewed primarilyas cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principalamounts, and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or thebusiness conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in thereal estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estateportfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluatescommercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing singlepurpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupiedversus non-owner-occupied commercial real estate loans.
12
Construction loans are underwritten utilizingfeasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans aregenerally underwritten 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 ultimateproject. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales ofdeveloped property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitoredby on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitiveto interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
Residential Real Estate, HELOC and Consumer
Residential and consumer loans consist of twosegments – residential mortgage loans and personal loans. Residential mortgage loans are secured by 1-4 family residences and aregenerally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insuranceif that ratio is exceeded. HELOCs are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loansare secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, suchas small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of theborrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impactedby changes in property values on residential properties. Risk is mitigated by the fact that these loans are of smaller individual amountsand spread over a large number of borrowers.
Allowance for Credit Losses (ACL)
The ACL is a valuation account that is deductedfrom the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against theallowance when management believes that the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregateof amounts previously charged-off and expected to be charged-off.
Management estimates the ACL using relevant availableinformation, 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 informationare 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, orother relevant factors.
Accrued interest receivable related to loanstotaled $
The Company measures expected credit losses forloans 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, inventoryor other general business needs, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associatedwith commercial & industrial loans and lease financing agreements is the ability of borrowers to achieve business results consistentwith those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debtconsistent with the contractual terms of the loan or lease. |
| ● | CommercialReal Estate - Owner Occupied - Owner occupied commercial real estate loans consist of loans to purchase, construct, or refinanceowner occupied nonresidential properties. This includes office buildings and other commercial facilities. Commercial mortgages securedby owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projectedat loan origination. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidationof collateral will not fully satisfy the obligation as the commercial real estate collateral may be more adversely affected by conditionsin the real estate markets or in the general economy. |
13
| ● | 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, construct, 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 exceptionof the credit card and consumer loan portfolios, which are estimated using the Remaining Life Method. For each segment, a Loss DriverAnalysis (“LDA”) is performed in order to identify appropriate loss drivers and create a regression model for use in forecastingcash flows. The LDA utilizes the Company’s own Federal Financial Institutions Examination Council’s (“FFIEC”) CallReport data, as well as peer institution data.
In creating the DCF model, the Company has establisheda one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. TheCompany’s own loan-level loss data from January 2016 through June 30, 2025, contained within the model was supplemented with peerdata in most loan pools as there was not sufficient loan-level detail from prior cycles reflecting similar economic conditions as theforecasted loss drivers to result in a sound calculation.
Key inputs into the DCF model include loan-leveldetail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. The Companyutilizes data from Federal Reserve Economic Data (“FRED”) to provide economic forecasts under various scenarios, which areapplied to loan pools to reflect credit risk in the current economic environment.
14
Additional key assumptions in the DCF model includethe 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’sown PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. When possible, the Company utilizes its own LGDsfor the reasonable and supportable forecast period. When it is not possible to use the Company’s own LGDs, the LGD is derived usinga method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PDover time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDsduring the reversion period and long-term historical average. The Company utilizes its own prepayment and curtailment rates in the ACLestimate. In pools where observations are not sufficient, the Company utilizes the model’s most relevant benchmark rate.
Management also considers further adjustmentsto historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that existfor the period over which historical information is evaluated as well as other changes in qualitative factors not inherently consideredin the quantitative analyses. A number of factors are considered including economic forecast uncertainty, credit quality trends, valuationtrends, concentration risk, quality of loan review, changes in personnel, impact of rising interest rates, external factors and otherconsiderations. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. The qualitativeanalysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above. Duringeach reporting period, management also considers the need to adjust the baseline lifetime loss rates for factors that may cause expectedlosses to differ from those experienced in the historical loss periods.
Loans that do not share risk characteristicsare evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financialdifficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs asappropriate.
The Company is also required to consider expectedcredit 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 sheetand is increased or decreased through a provision for credit loss expense on the Company’s consolidated statement of income. Thecalculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected tobe funded over their estimated lives. The allowance is calculated using the same methodology, inputs and assumptions as the funded portionof loans at the segment level applied to the amount of commitments expected to be funded.
While the Company’s policies and proceduresused to estimate the ACL, as well as the resultant provision for credit losses charged to income, are considered adequate by managementand are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. Thereare factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or particular industryconditions, which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.
15
During the first quarter of 2025, the Companycompleted the acquisition of Marblehead. The Company performed an analysis of the acquired non-PCD loan portfolio as part of the acquisitionprocess and recorded a provision for credit losses of $
| ($ in thousands) For the three months ended June 30, 2025 | Balance, beginning of period | Initial allowance for credit losses on acquired PCD loans | Chargeoffs | Recoveries | Provision for Credit Losses | Balance, end of period | ||||||||||||||||||
| Commercial & industrial | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Commercial real estate - owner occupied | ( | ) | ||||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||||||
| Agricultural | ( | ) | ||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||
| HELOC | ||||||||||||||||||||||||
| Consumer | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| ($ in thousands) For the six months ended June 30, 2025 | Balance, beginning of period | Initial allowance for credit losses on acquired PCD loans | Chargeoffs | Recoveries | Provision for Credit Losses | Balance, end of period | ||||||||||||||||||
| Commercial & industrial | $ | $ | | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||||||
| Agricultural | ( | ) | ||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||
| HELOC | ( | ) | ||||||||||||||||||||||
| Consumer | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
| ($ in thousands) For the three months ended June 30, 2024 | Balance, beginning of period | Chargeoffs | Recoveries | Provision for Credit Losses | Balance, end of period | |||||||||||||||
| Commercial & industrial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate - owner occupied | ( | ) | ||||||||||||||||||
| Commercial real estate - nonowner occupied | ( | ) | ||||||||||||||||||
| Agricultural | ( | ) | ||||||||||||||||||
| Residential real estate | ( | ) | ||||||||||||||||||
| HELOC | ||||||||||||||||||||
| Consumer | ( | ) | ||||||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
16
| ($ in thousands) For the six months ended June 30, 2024 | Balance, beginning of period | Chargeoffs | Recoveries | Provision for Credit Losses | Balance, end of period | |||||||||||||||
| Commercial & industrial | $ | $ | ( | ) | $ | | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||
| Commercial real estate - nonowner occupied | ( | ) | ||||||||||||||||||
| Agricultural | ||||||||||||||||||||
| Residential real estate | ( | ) | ||||||||||||||||||
| HELOC | ||||||||||||||||||||
| Consumer | ( | ) | ( | ) | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
| ($ 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 | $ | $ | ( | ) | $ | | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ( | ) | ||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||
| Agricultural | ||||||||||||||||||||
| Residential real estate | ( | ) | ( | ) | ||||||||||||||||
| HELOC | ||||||||||||||||||||
| Consumer | ( | ) | ( | ) | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
Collateral dependent loans are loans for whichthe repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencingfinancial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as otherloans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are notincluded within the collectively evaluated loans for determining the ACL.
The following table presents an analysis of collateral-dependentloans of the Company as of June 30, 2025, and December 31, 2024.
| ($ in thousands) | Collateral Type | Allocated | ||||||||||||||
| June 30, 2025 | Real Estate | Other | Total | Allowance | ||||||||||||
| Commercial & industrial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||
| Agricultural | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| HELOC | ||||||||||||||||
| Consumer | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| ($ in thousands) | Collateral Type | Allocated | ||||||||||||||
| December 31, 2024 | Real Estate | Other | Total | Allowance | ||||||||||||
| Commercial & industrial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||
| Agricultural | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| HELOC | ||||||||||||||||
| Consumer | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Under the current expected credit loss (“CECL”)model, for collateral dependent loans, the Company has adopted the practical expedient to measure the ACL based on the fair value ofcollateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral,which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost,no allowance is required.
17
Credit Risk Profile
The Company categorizes loans into risk categoriesbased on relevant information about the ability of borrowers to service their debt such as: current financial information, historicalpayment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loansindividually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $
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 (5): Loanshave potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may resultin deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special mentionloans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, specialmention credits have characteristics which corrective management action would remedy.
Substandard (6): Loans areinadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classifiedmust have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibilitythat the Company will sustain some loss if the deficiencies are not corrected.
Doubtful (7): Loans classifiedas doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses makecollection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.
Loss (8): Loans are considereduncollectable and of such little value that continuing to carry them as assets on the Company’s financial statement is not warranted.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 basicallyworthless asset, even though partial recovery may be possible at some time in the future.
The Company evaluates the loan risk grading systemdefinitions and allowance for credit loss methodology on an ongoing basis.
18
| ($ in thousands) | Term Loans by Year of Origination | Revolving | Revolving Loans Converted | |||||||||||||||||||||||||||||||||
| June 30, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Loans | to Term | Total | |||||||||||||||||||||||||||
| Commercial & industrial | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Home equity line of credit (HELOC) | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Loans | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
19
The following table presents loan balances bycredit quality indicators and gross chargeoffs by loan category and year of origination as of December 31, 2024.
| ($ in thousands) | Term Loans by Year of Origination | Revolving | Revolving Loans Converted | |||||||||||||||||||||||||||||||||
| December 31, 2024 | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Loans | to Term | Total | |||||||||||||||||||||||||||
| Commercial & industrial | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Home equity line of credit (HELOC) | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Loans | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross chargeoffs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
20
The following tables present the Company’sloan portfolio aging analysis as of June 30, 2025, and December 31, 2024.
| ($ in thousands) | 30-59 Days | 60-89 Days | 90 Days or Greater | Total Past | ||||||||||||||||||||
| June 30, 2025 | Past Due | Past Due | Past Due | Due | Current | Total Loans | ||||||||||||||||||
| Commercial & industrial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||
| HELOC | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 30-59 Days | 60-89 Days | 90 Days or Greater | Total Past | |||||||||||||||||||||
| December 31, 2024 | Past Due | Past Due | Past Due | Due | Current | Total Loans | ||||||||||||||||||
| Commercial & industrial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||
| HELOC | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
All loans past due 90 days are systematically placed on nonaccrualstatus.
When a loan is moved to nonaccrual status, totalunpaid interest accrued to date is reversed from income. Subsequent payments are applied to the outstanding principal balance with theinterest portion of the payment recorded on the balance sheet as a contra-loan. Interest received on nonaccrual loans may be realizedonce all contractual principal amounts are received. It is at the discretion of management to determine when a loan is placed back onaccrual status once a borrower establishes a history of six consecutive timely principal and interest payments.
21
| June 30, 2025 | ||||||||||||
| ($ in thousands) | Nonaccrual loans with no allowance | Nonaccrual loans with an allowance | Total nonaccrual loans | |||||||||
| Commercial & industrial | $ | $ | $ | |||||||||
| Commercial real estate - owner occupied | ||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||
| Agricultural | ||||||||||||
| Residential real estate | ||||||||||||
| Home equity line of credit (HELOC) | ||||||||||||
| Consumer | ||||||||||||
| Total loans | $ | $ | $ | |||||||||
| December 31, 2024 | ||||||||||||
| ($ in thousands) | Nonaccrual loans with no allowance | Nonaccrual loans with an allowance | Total nonaccrual loans | |||||||||
| Commercial & industrial | $ | $ | $ | |||||||||
| Commercial real estate - owner occupied | ||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||
| Agricultural | ||||||||||||
| Residential real estate | ||||||||||||
| Home equity line of credit (HELOC) | ||||||||||||
| Consumer | ||||||||||||
| Total loans | $ | $ | $ | |||||||||
Modifications made to Borrowers Experiencing Financial Difficulty
In the normal course of business, the Companymay 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 rateadjustments, principal reductions, and amortization and maturity date extensions. These modifications allow the borrowers short-termcash relief to allow them to improve their financial condition. If a loan modification is determined to be made to a borrower experiencingfinancial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowancefor Credit Losses section of this note. For the six months ended June 30, 2025, and June 30, 2024, the Company did not modify any loansmade to borrowers experiencing financial difficulty.
The Company had no commitments to lend to borrowersexperiencing financial difficulty for which the Company had modified an existing loan as of June 30, 2025, and June 30, 2024. The Companymonitors loan payments on an ongoing basis to determine if a loan is considered to have a payment default. Determination of payment defaultinvolves analyzing the economic conditions that exist for each customer and its ability to generate positive cash flows during the loanterm. For the six months ended June 30, 2025, and June 30, 2024, the Company had no loan modifications made to borrowers experiencingfinancial 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-balancesheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standbyand commercial letters of credit when there is a contractual obligation to extend credit and when the extension of credit is not unconditionallycancellable (i.e. the commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted asa provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based ona historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to befunded over its estimated life, which are the same loss rates that are used in computing the ACL for loans. The allowance for creditlosses for unfunded loan commitments of $
22
The following table presents the balance andactivity in the ACL for unfunded loan commitments for the three and six months ended June 30, 2025, and June 30, 2024.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| ($ in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Adjustment for acquired loans | - | |||||||||||||||
| Provision for unfunded commitments | ||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
NOTE 6 – GOODWILL
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| ($ in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Acquired goodwill | ||||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
Goodwill is not amortized, but is evaluatedfor impairment annually as of December 31, or more frequently if events occur or circumstances change that indicate an impairmentmay exist. As of June 30, 2025, and December 31, 2024, the carrying amount of goodwill was $
When assessing goodwill for impairment, first,a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unitis less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill testis performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.
Goodwill was assessed for impairment using aquantitative test performed as of June 30, 2025. The estimated fair value of the reporting unit exceeded the net carrying value, andtherefore no goodwill impairment existed as of that date. No events or circumstances since the June 30, 2025 impairment test were notedthat would indicate it was more likely than not a goodwill impairment exists.
NOTE 7 – MORTGAGE SERVICING RIGHTS
Mortgage loans serviced for others are not includedin the accompanying consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others approximated $
23
The following table summarizes mortgage servicingrights capitalized and related amortization, along with activity in the related valuation allowance:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| ($ in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Mortgage servicing rights capitalized during the period | ||||||||||||||||
| Mortgage servicing rights amortization during the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net change in valuation allowance | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Valuation allowance: | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Increase (decrease) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Fair value, beginning of period | $ | $ | $ | $ | ||||||||||||
| Fair value, end of period | $ | $ | $ | $ | ||||||||||||
NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arisingfrom both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operationalrisks primarily through management of its core business activities. The Company manages economic risks, including interest rate, liquidityand credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivativefinancial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from businessactivities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interestrates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of theCompany’s known or expected cash payments principally related to certain variable-rate assets.
Non-designated Hedges
The Company does not use derivatives for tradingor speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certaincustomers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk managementstrategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a thirdparty, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associatedwith this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and theoffsetting swaps are recognized directly in earnings.
Additionally, the Company enters into forwardcontracts 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 that areentered 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 reflectedin noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value arereported in accrued income and included in Other assets in the consolidated balance sheets, while derivative instruments with a negativefair value are reported in accrued expenses and included in Other liabilities in the consolidated balance sheets.
24
The table below presents the notional amountand fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of June 30, 2025, and December 31,2024.
| June 30, 2025 | December 31, 2024 | |||||||||||||||
| ($ in thousands) | Notional | Fair | Notional | Fair | ||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
| Asset Derivatives | ||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||
| Interest rate swaps associated with loans | $ | $ | $ | $ | ||||||||||||
| Forward contracts | ||||||||||||||||
| Total contracts | $ | $ | $ | $ | ||||||||||||
| Liability Derivatives | ||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||
| Interest rate swaps associated with loans | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| IRLCs | ( | ) | ( | ) | ||||||||||||
| Total contracts | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
The fair value of interest rate swaps was estimatedusing a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCsand forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC or forwardcontract and the balance sheet date.
The following table presents the amounts includedin the consolidated statements of income for non-hedging derivative financial instruments for the three and six months ended June 30,2025, and 2024.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| ($ in thousands) | Statement of income classification | 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Interest rate swap contracts | $ | $ | $ | $ | ||||||||||||||
| IRLCs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Forward contracts | ||||||||||||||||||
The following table shows the offsetting of financial assets and derivativeassets at June 30, 2025, and at December 31, 2024.
| 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 | ||||||||||||||||||
| June 30, 2025 | ||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
25
The following table shows the offsetting of financial liabilitiesand derivative liabilities at June 30, 2025, and at December 31, 2024.
| 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 | ||||||||||||||||||
| June 30, 2025 | ||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 9 – DEPOSITS
Major classification of deposits at June 30,2025, and at December 31, 2024, were as follows:
| ($ in thousands) | June 30, 2025 | December 31, 2024 | ||||||
| Non interest bearing demand | $ | $ | ||||||
| Interest bearing demand | ||||||||
| Savings | ||||||||
| Money market | ||||||||
| Time deposits $250,000 or less | ||||||||
| Time deposits greater than $250,000 | ||||||||
| Total Deposits | $ | $ | ||||||
Included in time deposits at June 30, 2025, andat December 31, 2024, were $
NOTE 10 – SHORT-TERM BORROWINGS
| ($ in thousands) | June 30, 2025 | December 31, 2024 | ||||||
| Securities sold under repurchase agreements | $ | $ | ||||||
The Company has retail repurchase (“REPO”)agreements to facilitate cash management transactions with commercial customers. These obligations are secured by agency and mortgage-backedsecurities and such collateral is held by the Federal Home Loan Bank (“FHLB”). These securities have various maturity datesfrom 2025 through 2051. As of June 30, 2025, these REPO agreements were secured by securities with a fair value totaling $
The Company has borrowing capabilities at theFederal Reserve Discount Window (“Discount Window”) by pledging either securities or loans as collateral. As of June 30,2025, there were no borrowings drawn or securities pledged at the Discount Window.
At both June 30, 2025, and December 31, 2024,the Company had $
26
NOTE 11 – FEDERAL HOME LOAN BANK (FHLB)ADVANCES
The Company’s FHLB advances were securedby $
| ($ in thousands) | Debt | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| Total | $ | |||
NOTE 12 – TRUST PREFERRED SECURITIES
On September 15, 2005, RST II, a wholly ownedsubsidiary of the Company, closed a pooled private offering of
NOTE 13 – SUBORDINATED DEBT
On May 27, 2021, the Company entered into SubordinatedNote Purchase Agreements with qualified institutional buyers and accredited investors pursuant to which the Company issued and sold $
The Notes mature on
27
NOTE 14 – DISCLOSURES ABOUT FAIR VALUEOF ASSETS AND LIABILITIES
Fair value is the price that would be receivedto sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fairvalue measurement must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of threelevels of inputs that may be used to measure fair value:
| Level 1 | Quoted prices in active markets for identical assets or liabilities |
| Level 2 | Observable inputs other than Level 1 prices, such as quotedprices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can becorroborated 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 marketactivity and that are significant to the fair value of the assets or liabilities |
The following is a description of the valuationmethodologies and inputs used for assets measured at fair value on a recurring basis, recognized in the accompanying consolidated balancesheets, as well as the general classifications of such assets pursuant to the valuation hierarchy.
Available-for-Sale Securities
The fair values of available-for-sale securitiesare determined by various valuation methodologies. Level 2 securities include obligations of the U.S. Treasury and government agencies,mortgage-backed securities, obligations of political and state subdivisions, and other corporate securities. Level 2 inputs do not includequoted prices for individual securities in active markets; however, they do include inputs that are either directly or indirectly observablefor 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 byobservable market data by correlation or other means.
Interest Rate Contracts
The fair values of interest rate contracts arebased upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlyinginterest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties(Level 2).
Forward contracts
The fair values of forward contracts on to-be-announcedsecurities 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 usingthe 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 optiondue to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level3).
28
The following tables present the fair value measurementsof assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurementsfell at June 30, 2025, and at December 31, 2024.
| ($ in thousands) | Fair value at June 30, 2025 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| U.S. Treasury and Government Agencies | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Other corporate securities | ||||||||||||||||
| Interest rate contracts - assets | ||||||||||||||||
| Interest rate contracts - liabilities | ( | ) | ( | ) | ||||||||||||
| Forward contracts | ||||||||||||||||
| IRLCs | ( | ) | ( | ) | ||||||||||||
| ($ in thousands) | Fair value at December 31, 2024 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| U.S. Treasury and Government Agencies | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| State and political subdivisions | ||||||||||||||||
| Other corporate securities | ||||||||||||||||
| Interest rate contracts - assets | ||||||||||||||||
| Interest rate contracts - liabilities | ( | ) | ( | ) | ||||||||||||
| Forward contracts | ||||||||||||||||
| 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 beginningand ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significantunobservable (Level 3) inputs for the six months ended June 30, 2025, and 2024.
| for the Three Months Ended June 30, | for the Six Months Ended June 30, | |||||||||||||||
| ($ in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| Interest rate lock commitments | ||||||||||||||||
| Balance at beginning of period | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Total realized gains (losses) | ||||||||||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at end of period | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
The following is a description of the valuationmethodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidatedbalance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
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Collateral-dependent Individually evaluatedLoans, Net of ACL
The estimated fair value of collateral-dependentindividually evaluated loans is based on the appraised value of the collateral, less estimated cost to sell. Collateral-dependent individuallyevaluated loans are classified within Level 3 of the fair value hierarchy. This method requires obtaining an independent appraisal ofthe collateral, which is reviewed for accuracy and consistency by management. Appraisers are selected from an approved list which ismaintained by management. The appraised values are reduced by applying a discount factor to the value based on the Company’s loanreview policy. All individually evaluated loans held by the Company were collateral dependent at June 30, 2025, and at December 31, 2024.
Mortgage Servicing Rights
Mortgage servicing rights do not trade in anactive, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models associatedwith the servicing rights and discounting the cash flows using discount market rates, prepayment speeds and default rates. The servicingportfolio 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 usedin the marketplace. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
($ in thousands)
| Fair value at June 30, 2025 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Collateral-dependent Individually evaluated loans | $ | $ | $ | $ | ||||||||||||
| Mortgage servicing rights | ||||||||||||||||
($ in thousands)
| Fair value at December 31, 2024 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Collateral-dependent impaired loans | $ | $ | $ | $ | ||||||||||||
| Mortgage servicing rights | ||||||||||||||||
Level 1 - quoted prices in active markets for identical assets
Level 2 - significant other observable inputs
Level 3 - significant unobservable inputs
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Unobservable (Level 3) Inputs
The following tables present quantitative informationabout unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
| Fair value at June 30, | Valuation | Range (weighted- | ||||||||
| ($ in thousands) | 2025 | technique | Unobservable inputs | average) | ||||||
| Collateral-dependent individually evaluated loans | $ | |||||||||
| Mortgage servicing rights | ||||||||||
| IRLCs | ( | ) | ||||||||
| Fair value at December 31, | Valuation | Range (weighted- | ||||||||
| ($ in thousands) | 2024 | technique | Unobservable inputs | average) | ||||||
| Collateral-dependent impaired loans | $ | |||||||||
| Mortgage servicing rights | ||||||||||
| IRLCs | ( | ) | ||||||||
There were no changes in the inputs or methodologiesused to determine fair value at June 30, 2025, as compared to December 31, 2024.
The following methods were used to estimate thefair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.
Cash and Due From Banks, Interest BearingTime Deposits, Federal Reserve and Federal Home Loan Bank Stock, and Accrued Interest Receivable and Payable
The carrying amount approximates the fair value.
Loans Held for Sale
The fair value of loans held for sale is basedupon quoted market prices, where available, or is determined by discounting estimated cash flows using interest rates approximating theCompany’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.
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Loans
The estimated fair value of loans follows theguidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments.The “exit price” is determined based on discounted estimated future cash flows using rates that incorporate discounts forcredit, liquidity, and marketability factors.
Deposits, Short-Term Borrowings, and FHLBAdvances
Deposits include demand deposits, savings accounts,and certain money market deposits. Short-term borrowings include federal funds borrowed and REPO agreements. The carrying amount of theseinstruments approximates the fair value. The estimated fair value for fixed-maturity time deposits and FHLB advances are based on estimatesof the rate State Bank could pay on similar instruments with similar terms and maturities at June 30, 2025, and at December 31, 2024.
Loan Commitments
The fair value of loan commitments is estimatedusing the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and thepresent creditworthiness of the counterparties. The estimated fair values for other financial instruments and off-balance-sheet loancommitments approximate cost at June 30, 2025, and at December 31, 2024, and are not considered significant to this presentation.
Trust Preferred Securities
The fair value for Trust Preferred Securitiesis estimated by discounting the cash flows using an appropriate discount rate.
Subordinated Debt
The fair value for subordinated debt is estimatedby discounting the cash flows using a discount rate equal to the rate currently offered on similar borrowings.
The following table presents estimated fair valuesof the Company’s other financial instruments carried at other than fair value. The fair values of certain of these instrumentswere calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair valueis 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 certain of these financial instruments, and because managementdoes not intend to sell these financial instruments,
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| ($ in thousands) | Carrying | Fair | Fair value measurements using | |||||||||||||||||
| June 30, 2025 | amount | value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
| Financial assets | ||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | |||||||||||||||
| Interest bearing time deposits | ||||||||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Loans, net of allowance for credit losses | ||||||||||||||||||||
| Federal Reserve and FHLB Bank stock, at cost | ||||||||||||||||||||
| Interest receivable | ||||||||||||||||||||
| Financial liabilities | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| FHLB advances | ||||||||||||||||||||
| Trust preferred securities | ||||||||||||||||||||
| Subordinated debt, net of issuance costs | ||||||||||||||||||||
| Interest payable | ||||||||||||||||||||
| ($ 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Interest bearing time deposits | ||||||||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Loans, net of allowance for credit losses | ||||||||||||||||||||
| Federal Reserve and FHLB Bank stock, at cost | ||||||||||||||||||||
| Interest receivable | ||||||||||||||||||||
| Financial liabilities | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| FHLB advances | ||||||||||||||||||||
| Trust preferred securities | ||||||||||||||||||||
| Subordinated debt, net of issuance costs | ||||||||||||||||||||
| Interest payable | ||||||||||||||||||||
NOTE 15 – SHARE BASED COMPENSATION
In April 2017, the Company’s shareholdersapproved a new share-based incentive compensation plan, the SB Financial Group, Inc. 2017 Stock Incentive Plan (the “2017 Plan”),which replaced the Company’s 2008 Stock Incentive Plan. The 2017 Plan permits the Company to grant or award incentive stock options,nonqualified stock options, stock appreciation rights (“SARs”), restricted stock, and restricted stock units to employeesand non-employee directors and advisory board members of the Company and its subsidiaries. A total of
The 2017 Plan is intended to advance the interestsof the Company and its shareholders by offering employees, directors and advisory board members of the Company and its subsidiaries anopportunity to acquire or increase their ownership interest in the Company through grants of equity-based awards. The 2017 Plan permitsequity-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.
Stock option awards are granted with an exerciseprice equal to the market price of the Company’s stock at the date of grant and those option awards vest based on
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On February 5, 2013, the Company adopted a LongTerm Incentive Plan (the “LTI Plan”), which provides for awards of restricted stock in the Company 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. Thecompensation cost charged against income for awards under the LTI Plan for the three and six months ended June 30, 2025, was $
As of June 30, 2025, there was $
The table below is a summary of restricted stockactivity under the Company’s 2017 Plan for the six months ended June 30, 2025.
| Shares | Weighted- Average Value per Share | |||||||
| Nonvested, January 1, 2025 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested, June 30, 2025 | $ | |||||||
NOTE 16 – OPERATING SEGMENTS
The Company provides a range of community bankingservices, including commercial and consumer lending, personal and business banking, treasury management and merchant services, personalwealth management and brokerage services, and other financial services primarily to individuals, businesses, and municipalities. Allof the Company’s business activities are dependent and assessed based on the manner in which it supports the other activities ofthe Company.
The CODM is provided with the Company’sconsolidated statements of financial condition and operations and evaluates the Company’s operating results based on consolidatednet 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. Expendituresfor long-lived assets are also evaluated and are consistent with the reporting on the consolidated statements of cashflows. Strategicplans and budget to actual monitoring are evaluated as
NOTE 17 – GENERAL LITIGATION
The Company is subject to claims and lawsuitsthat arise primarily in the ordinary course of business. Additionally, the Company is subject to periodic examinations by various regulatoryagencies. It is the opinion of management that the disposition or ultimate resolution of any such claims, lawsuits and examinations pendingat June 30, 2025, will not have a material adverse effect on the consolidated financial position, results of operations and cash flowof the Company.
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Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-LookingInformation
This Quarterly Report on Form 10-Q, includingManagement’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain forward-looking statements,, which are not historical fact, that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.Forward-looking statements, which are provided to assist in the understanding of anticipated future financial performance, provide currentexpectations or forecasts of future events and are not guarantees of future performance. 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 financialitems; (b) statements of plans and objectives of the Company or our management or Board of Directors, including those relating to productsor services; (c) statements of future economic performance; (d) statements regarding future customer attraction or retention; and (e)statements of assumptions underlying such statements. Words such as “anticipates”, “believes”, “plans”,“intends”, “expects”, “projects”, “estimates”, “should”, “may”,“would be”, “will allow”, “will likely result”, “will continue”, “will remain”,or other similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying thosestatements. Forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties.Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differmaterially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materiallyinclude, without limitation:
| ● | current and future economic and financial market conditions, either nationally or in the states in which we do business, including 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, 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; |
| ● | recent and future bank failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the banking industry as a whole, any of which could adversely affect the Company’s business, earnings and financial condition; |
| ● | instability in global economic conditions and geopolitical matters (including the ongoing military conflicts in Ukraine and the Middle East), and volatility in financial markets, which could have a material adverse effect on our results of operations and financial condition; |
| ● | changes in interest rates resulting from national and local economic conditions and the policies of regulatory authorities, including monetary policies of the Board of Governors of the Federal Reserve System, which may adversely affect interest rates, interest margins, loan demand and interest rate sensitivity; |
| ● | the volatility of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors; |
| ● | factors that can impact the performance of our loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our borrowers and the success of construction projects that we finance; |
| ● | changes in customers’, suppliers’, and other counterparties’ performance and creditworthiness may be different than anticipated due to inflationary pressures and/or other economic and financial market conditions; |
| ● | operational risks, reputational risks, legal and compliance risks, and other risks related to potential fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, or failures, disruptions or breaches in security of our systems, including those resulting from computer viruses or cyber-attacks; |
| ● | our ability to secure sensitive or confidential client information against unauthorized disclosure or access through computer systems and telecommunication networks, including those of our third-party vendors and other service providers, which may prove inadequate; |
| ● | a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber-attacks; |
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| ● | competitive pressures and factors among financial services organizations could increase significantly, including product and pricing pressures, changes to third-party relationships and our ability to recruit and retain qualified management and banking personnel; |
| ● | unexpected losses of services of our key management personnel, or the inability to recruit and retain qualified personnel in the future; |
| ● | risks inherent in pursuing strategic growth initiatives, including integration and other risks involved in past and possible future acquisitions; |
| ● | uncertainty regarding the nature, timing, cost and effect of legislative or regulatory changes in the banking industry or otherwise affecting the Company, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry; |
| ● | changes in federal, state and/or local tax laws may adversely affect our reported financial condition or results of operations; |
| ● | changes in accounting standards, policies and practices may adversely affect our reported financial condition or results of operations; |
| ● | litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or inquiries; |
| ● | continued availability of earnings and dividends from State Bank and excess capital sufficient for us to service our debt and pay dividends to our shareholders in compliance with applicable legal and regulatory requirements; |
| ● | our ability to adapt to or comply with regulatory requirements and increasing scrutiny and evolving expectations from customers, regulators, investors and other stakeholders with respect to the Company’s environmental, social and governance (ESG) practices, which could affect our reputation and business and operating results; |
| ● | our ability to anticipate and successfully keep pace with technological changes affecting the financial services industry; |
| ● | an unexpected inability to obtain needed liquidity which could adversely affect our business, profitability, and viability as a going concern; |
| ● | the impact on our businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters (including severe weather events), pandemics, cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts; and |
| ● | other risks identified from time to time in the Company’s other filings with the Securities and Exchange Commission, including the risks identified under the heading “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024. |
Undue reliance shouldnot be placed on the forward-looking statements, which speak only as of the date hereof. Except as may be required by law, the Companyundertakes no obligation to update any forward-looking statement to reflect unanticipated events or circumstances after the date on whichthe statement is made.
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Overview of SB Financial
SB Financial Group, Inc. (“SB Financial”)is an Ohio corporation and a financial holding company registered with the Board of Governors of the Federal Reserve System (“FederalReserve Board”). SB Financial’s wholly owned subsidiary, The State Bank and Trust Company (“State Bank”), isan Ohio-chartered bank engaged in commercial banking.
Rurban Statutory Trust II (“RST II”)was established in August 2005. In September 2005, RST II completed a pooled private offering of 10,000 Trust Preferred Securities witha liquidation amount of $1,000 per security. The proceeds of the offering were loaned to SB Financial in exchange for junior subordinateddebentures of SB Financial with terms substantially similar to the Trust Preferred Securities. The sole assets of RST II are the juniorsubordinated debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by SB Financialof the obligations of RST II.
State Bank Insurance, LLC (“SBI”)is an Ohio corporation and a wholly owned subsidiary of State Bank incorporated in June 2010. SBI is an insurance company that engagesin the sale of insurance products to retail and commercial customers of State Bank.
SBFG Title, LLC (“SBFG Title”) isan Ohio corporation that was formed in March 2019. SBFG Title engages in the sale of title insurance services.
SB Captive, Inc. (“SB Captive”) isa Nevada corporation that was formed in March 2019. SB Captive pools insurance risk among like sized banking institutions.
Unless the context indicates otherwise, all referencesherein to “we”, “us”, “our”, or the “Company” refer to SB Financial and its consolidatedsubsidiaries.
Critical Accounting Policies
Note 1 to the consolidated financial statementsincluded in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, describes the significant accountingpolicies used in the development and presentation of the Company’s financial statements. The accounting and reporting policiesof the Company are in accordance with accounting principles generally accepted in the United States and conform to general practiceswithin the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions. The Company’s financial position and results of operations can be affected by theseestimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policiesthat management believes are the most important to the portrayal of the Company’s financial condition and results, and they requiremanagement to make estimates that are difficult, subjective, and/or complex.
Allowance for Credit Losses – TheCompany believes the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its othersignificant accounting policies. The allowance for credit losses is calculated with the objective of maintaining a reserve level believedby management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’sdetermination of the adequacy of the allowance for credit losses is based on periodic evaluations of past events, including historicalcredit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecaststhat affect the collectability of the remaining cash flows over the contractual term of the financial assets. However, this evaluationhas subjective components requiring material estimates, including expected default probabilities, the expected loss given default (“LGD”),the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based on historical loss experienceand forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual resultsdiffer from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in futureperiods.
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Goodwill and Other Intangibles - TheCompany records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair valueas required. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimateduseful lives using straight-line or accelerated methods and are subject to impairment if events or circumstances indicate a possibleinability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis requiresmanagement to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factorsthat may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industryconditions and changes in competition. A decrease in earnings resulting from these or other factors could lead to an impairment of goodwillthat could adversely impact earnings in future periods.
Three Months Ended June 30, 2025, comparedto Three Months Ended June 30, 2024
Net Income: Net income for thesecond quarter of 2025 was $3.9 million compared to net income of $3.1 million for the second quarter of 2024, an increase of $0.7 millionor 23.7 percent. Diluted earnings per share (“DEPS”) of $0.60 for the second quarter of 2025 were higher compared to theDEPS of $0.47 for the second quarter of 2024. Net income for the second quarter of 2025 was positively impacted by higher interest incomeon loans, which was partially offset by higher interest expense on deposits and wholesale borrowings. Total interest income continuesto improve and was up $2.8 million, or 18.0 percent, compared to the prior year second quarter. Mortgage loan volume was up 30.3 percentcompared to the prior year second quarter, with sales of originated loans up 33.1 percent when compared to the second quarter of 2024.
Provision for Credit Losses: Thesecond quarter provision for credit losses was $597,000 as compared to a zero provision for the prior year second quarter. The Companyhad net charge-offs of $46,000 for the second quarter of 2025 compared to net recoveries of $16,000 for the year-ago quarter. The provisionexpense included $297,000 for unfunded commitments, and $300,000 of growth-related provision. Total delinquent loans ended the quarterat $5.6 million, or 0.51 percent of total loans.
Asset Quality Review – For thePeriod Ended
| ($ in thousands) | June 30, 2025 | June 30, 2024 | ||||||
| Net charge-offs (recoveries) – QTD/YTD | $ | 46/130 | $ | (16)/41 | ||||
| Nonaccruing loans | 5,872 | 4,734 | ||||||
| OREO / Other Assets Owned (OAO) | 284 | 510 | ||||||
| Nonperforming assets | 6,156 | 5,244 | ||||||
| Nonperforming assets/Total assets | 0.41 | % | 0.39 | % | ||||
| Allowance for credit losses/Total loans | 1.43 | % | 1.55 | % | ||||
| Allowance for credit losses/Nonperforming loans | 266.4 | % | 329.8 | % | ||||
Consolidated Revenue: Operatingrevenue, consisting of net interest income (“NII”) and noninterest income, was $17.2 million for the second quarter of 2025,an increase of $3.1 million, or 22.3 percent, from the $14.0 million generated during the second quarter of 2024.
NII for the second quarter of 2025 was $12.1million, which was up $2.5 million from the prior year second quarter’s $9.7 million. Comparing the second quarter of 2025 to theprior year second quarter, the Company’s earning assets increased $152.5 million, and the average yield on earning assets increasedby 24 basis points. The net interest margin for the second quarter of 2025 was 3.48 percent compared to 3.12 percent for the second quarterof 2024. Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing liabilities for the secondquarter of 2025 were 2.33 percent compared to 2.48 percent for the prior year second quarter.
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Total noninterest income was $5.0 million forthe second quarter of 2025, which increased compared to $4.4 million for the prior year second quarter. Mortgage revenue increase duringthe second quarter of 2025, as detailed below, while wealth management revenue was flat compared to the prior year. Recapture of mortgageservicing rights increased noninterest income by $0.16 million in the quarter, compared to a recapture of $0.04 million in the prioryear second quarter. SBFG Title contributed revenue of $0.6 million in the second quarter of 2025, up $0.18 million from the prior year.Noninterest income as a percentage of average assets for the second quarter of 2025 was 1.35 percent compared to 1.31 percent for theprior year second quarter.
State Bank originated $97.9 million of mortgageloans during the second quarter of 2025 and sold $74.3 million, with $23.6 million of loans held for investment. This compares to $75.1million originated for the second quarter of 2024, of which $55.8 million were sold with the remainder of loans held for investment.These second quarter 2025 originations and subsequent sales resulted in $1.6 million of gains, up $0.3 million from the gains for thesecond quarter of 2024. Net mortgage banking revenue was $2.16 million for the second quarter of 2025 compared to $1.84 million for thesecond quarter of 2024.
Consolidated Noninterest Expense:Total noninterest expense for the second quarter of 2025 was $11.9 million, which was up $1.2 million compared to $10.7 million in theprior-year second quarter. The quarter included higher expenses related to increased mortgage activity. Compared to the prior year, the2025 second quarter included operating expenses for the entire quarter’s activity of Marblehead.
Income Taxes: Income taxes forthe second quarter of 2025 were $0.88 million (18.5 percent) compared to $0.26 million (7.7 percent) for the second quarter of 2024.
Six Months Ended June 30, 2025, comparedto Six Months Ended June 30, 2024
Net Income: Net income for thefirst six months of 2025 was $6.0 million compared to net income of $5.5 million for the first six months of 2024, an increase of $0.5million, or 9.7 percent. Diluted earnings per share (“DEPS”) of $0.93 for the first six months of 2025 were 13.4 percenthigher compared to DEPS of $0.82 for the first six months of 2024. Net income for the first six months of 2025 was positively impactedby higher interest income on loans, which was partially offset by higher interest expense on deposits and wholesale borrowings. Totalinterest income continues to improve and was up $4.9 million or 15.8 percent compared to the prior year first six months. Mortgage loanvolume was up $19.7 million, or 16.7 percent compared to the prior year first six months, with sales of originated loans up $21.1 million,or 22.9 percent when compared to the first six months of 2024. Included in the 2025 six months results were $0.7 million of merger relatedexpenses and a little more than five months of activity from the Marblehead acquisition.
Provision for Credit Losses: Theprovision for credit losses for the first six months of 2025 was $984,000 as compared to a zero provision for the prior year first sixmonths. The Company had net charge-offs of $130,000 for the first six months of 2025 compared to net charge-offs of $41,000 for the year-agofirst six months. The provision expense for the first six months of 2025 included $310,000 for unfunded commitments, $224,000 due tothe Marblehead acquisition and $450,000 of growth-related provision.
Consolidated Revenue: Operatingrevenue, consisting of net interest income (“NII”) and noninterest income, was $32.6 million for the first six months of2025, an increase of $5.4 million, or 19.8 percent, from the $27.2 million generated during the first six months of 2024.
NII for the first six months of 2025 was $23.4million, which was up $4.6 million from NII of $18.8 million for the prior year first six months. Comparing the first six months of 2025to the prior year first six months, the Company’s earning assets increased $133.7 million, and the average yield on earning assetsincreased by 25 basis points. The net interest margin for the first six months of 2025 was 3.43 percent compared to 3.05 percent forthe first six months of 2024. Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing liabilitiesfor the first six months of 2025 were 2.30 percent compared to 2.52 percent for the prior year first six months.
Total non-interest income was $9.2 million forthe first six months of 2025, which increased by $0.8 million compared to $8.3 million for the prior year first six months. Mortgagerevenue increased for the first six months of 2025, as detailed below, wealth management revenue was flat compared to the prior year.Recapture of mortgage servicing rights increased noninterest income by $0.17 million in the first six months, compared to a recaptureof $0.22 million in the prior year first six months. SBFG Title contributed revenue of $0.98 million in the first six months of 2025,up $0.31 million from the prior year. Noninterest income as a percentage of average assets was 1.25 percent for both the six months endedJune 30, 2025, and 2024.
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State Bank originated $137.7 million of mortgageloans during the first six months of 2025 and sold $113.6 million, with $24.1 million of loans held for investment. This compares to$118.0 million originated for the first six months of 2024, of which $92.5 million were sold with the remainder of loans held for investment.These first six months 2025 originations and subsequent sales resulted in $2.4 million of gains, up $0.36 million from the gains forthe first six months of 2024. Net mortgage banking revenue was $3.62 million for the first six months of 2025 compared to $3.39 millionfor the first six months of 2024.
Consolidated Noninterest Expense:Total noninterest expense for the first six months of 2025 was $24.3 million, which was up $3.3 million compared to $21.0 million inthe prior-year first six months. The 2025 first six months included over $0.7 million in one-time merger-related expenses. Compared tothe prior year, the 2025 first six months included operating expenses for approximately five and one half months of activity for Marblehead.
Income Taxes: Income taxes forthe first six months of 2025 were $1.31 million (17.9 percent) compared to $0.74 million (11.9 percent) for the first six months of 2024.
Changes in Financial Condition
Total assets at June 30, 2025, were $1.5 billion,up $106.8 million, or 7.7 percent, since December 31, 2024. Total loans, net of unearned income, were $1.09 billion as of June 30, 2025,up $48.0 million, or 4.6 percent, from year-end. Total deposits at June 30, 2025, were $1.25 billion, an increase of $97.2 million, or8.4 percent, since 2024 year-end.
Borrowed funds (consisting of FHLB advances,repurchase (“REPO”) agreements, trust preferred securities and subordinated debt) totaled $80.7 million at June 30, 2025.This is up slightly from year-end 2024 when borrowed funds totaled $75.6 million. Total shareholders’ equity for the Company of$133.6 million now stands at 9.0 percent of total assets compared to the December 31, 2024, level of $127.5 million, or 9.2 percent oftotal assets. Adjusting for the temporary impairment of Accumulated Other Comprehensive Loss, total equity would increase to $159.1 million,or 10.7 percent of total assets.
The allowance for credit losses of $15.6 millionis up $0.55 million from the December 2024 year-end level due to $0.13 million of net charge-offs, $0.23 million due to the Marbleheadacquisition, and $0.30 million of growth-related provision expense. The Company has had stable asset quality through the first six monthsof 2025, with the non-performing asset ratio at 41 basis points and coverage on non-performing loans at 266 percent.
Capital Resources
As of June 30, 2025, based on the computationsfor the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve Board, State Bank was classifiedas “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized,State Bank must maintain capital ratios as set forth in the table below. There are no conditions or events since June 30, 2025, thatmanagement believes have changed State Bank’s capital classification.
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State Bank’s actual capital levels andratios as of June 30, 2025, and December 31, 2024, are presented in the following table. Capital levels are presented for State Bankonly as the Company is exempt from quarterly reporting on capital levels at the holding company level:
| Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Procedures | ||||||||||||||||||||||
| ($ in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| As of June 30, 2025 | ||||||||||||||||||||||||
| Tier I Capital to average assets | $ | 152,727 | 10.15 | % | $ | 60,173 | 4.0 | % | $ | 75,216 | 5.0 | % | ||||||||||||
| Tier I Common equity capital to risk-weighted assets | 152,727 | 12.53 | % | 54,858 | 4.5 | % | 79,240 | 6.5 | % | |||||||||||||||
| Tier I Capital to risk-weighted assets | 152,727 | 12.53 | % | 73,145 | 6.0 | % | 97,526 | 8.0 | % | |||||||||||||||
| Total Risk-based capital to risk-weighted assets | 167,990 | 13.78 | % | 97,526 | 8.0 | % | 121,908 | 10.0 | % | |||||||||||||||
| 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 | % | |||||||||||||||
Regulatory capital requirements commonly referredto as “Basel III” were fully phased in as of January 1, 2019, and are reflected in the capital table above. Management optedout of the accumulated other comprehensive income treatment under the new requirements and, as such, unrealized gains and losses fromavailable-for-sale securities will continue to be excluded from State Bank’s regulatory capital.
Liquidity
Liquidity relates primarily to the Company’sability to fund loan demand, meet deposit customers’ withdrawal requirements and provide for operating expenses. Assets used tosatisfy these needs consist of cash and due from banks, federal funds sold, interest-earning deposits in other financial institutions,securities available-for-sale and loans held for sale. These assets are commonly referred to as liquid assets. Liquid assets totaled$289.8 million at June 30, 2025, compared to $235.9 million at December 31, 2024.
Liquidity risk arises from the possibility thatthe Company may not be able to meet the Company’s financial obligations and operating cash needs or may become overly reliant uponexternal funding sources. In order to manage this risk, the Board of Directors of the Company has established a Liquidity Policy thatidentifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidityrequirements. This policy designates the Asset/Liability Committee (“ALCO”) as the body responsible for meeting these objectives.The ALCO reviews liquidity regularly and evaluates significant changes in strategies that affect balance sheet or cash flow positions.Liquidity is centrally managed on a daily basis by the Company’s Chief Financial Officer and Asset Liability Manager.
The Company’s commercial real estate, firstmortgage residential, agricultural and multi-family mortgage portfolio of $896.7 million at June 30, 2025, and $852.6 million at December31, 2024, which can and has been used to collateralize borrowings, is an additional source of liquidity. Management believes the Company’scurrent liquidity level, without these borrowings, is sufficient to meet its liquidity needs. At June 30, 2025, all eligible commercialreal estate, first mortgage residential, agricultural and multi-family mortgage loans were pledged under an FHLB blanket lien.
The cash flow statements for the periods presentedprovide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintainan adequate level of liquidity. A discussion of the cash flow statements for the six months ended June 30, 2025, and June 30, 2024, follows.
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The Company experienced positive cash flows fromoperating activities for the six months ended June 30, 2025, and negative cash flows from operating activities for the six months endedJune 30, 2024. Net cash provided by operating activities was $3.1 million for the six months ended June 30, 2025, and net cash used was$0.1 million for the six months ended June 30, 2024. Highlights for the current year include $113.6 million in proceeds from the saleof loans, which is up $21.1 million from the prior year. Originations of loans held for sale was a use of cash of $118.3 million, whichis up $21.6 million from the prior year. For the six months ended June 30, 2025, there was a gain on sale of loans of $2.5 million,and depreciation and amortization on premises and equipment of $1.1 million.
The Company experienced positive cash flows frominvesting activities for the six months ended June 30, 2025, and June 30, 2024. Net cash provided by investing activities was $7.2 millionfor the six months ended June 30, 2025, and $3.7 million for the six months ended June 30, 2024. Highlights for the current year includean increase of $29.7 million in loans, which is up $24.5 million from the prior year six-month period, and $3.0 million paid for theMarblehead acquisition, net of cash acquired. These cash payments were offset by $11.5 million in proceeds from maturing securities,and $30.1 million in proceeds from the sale of securities which were acquired from Marblehead.
The Company experienced positive cash flows fromfinancing activities for the six months ended June 30, 2025, and negative cash flows from financing activities for the six months endedJune 30, 2024. Net cash provided by financing activities was $43.2 million for the six months ended June 30, 2025, and net cash usedin financing activities was $4.6 million for the six months ended June 30, 2024. Highlights for the current period include a $32.2 millionincrease in transaction deposits and a $11.9 million increase in time deposits for the six months ended June 30, 2025. This reflectsa $9.7 million decrease in transaction deposits from the prior year six-month period and a $8.9 million increase in time deposits. Netrepayments of Federal Home Loan Bank advances for the six months ended June 30, 2025, were $1.0 million, compared to $48.6 million forthe prior year six-month period.
Off-Balance-Sheet Borrowing Arrangements:
Significant additional off-balance-sheet liquidityis available in the form of FHLB advances and unused federal funds lines from correspondent banks. Management expects the risk of changesin off-balance-sheet arrangements to be immaterial to earnings.
The Company’s commercialreal estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of $896.7 million werepledged to meet FHLB collateralization requirements as of June 30, 2025. Based on the current collateralization requirements of the FHLB,the Company had approximately $157.0 million of additional borrowing capacity at June 30, 2025. The Company also had $57.8 million inunpledged securities available to pledge for additional borrowings.
The Company has contractual obligations consistingof long-term debt obligations and operating lease obligations. In addition, as of June 30, 2025, the Company had commitments to sellmortgage loans totaling $19.5 million. The Company believes that it has adequate resources to fund commitments as they arise and thatit can adjust the rate on savings and time deposits to retain deposits in changing interest rate environments. If the Company requiresfunds beyond its internal funding capabilities, advances from the FHLB of Cincinnati and other financial institutions are available.
Asset Liability Management
Asset liability management involves developing,executing and monitoring strategies to maintain appropriate liquidity, maximize net interest income and minimize the impact that significantfluctuations in market interest rates would have on current and future earnings. The business of the Company and the composition of itsbalance sheet consist of investments in interest-earning assets (primarily loans, mortgage-backed securities, and securities availablefor sale) which are primarily funded by interest-bearing liabilities (deposits and borrowings). With the exception of specific loanswhich are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes. All of theCompany’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. In addition, the Company haslimited exposure to commodity prices related to agricultural loans. The impact of changes in foreign exchange rates and commodity priceson interest rates are assumed to be insignificant. The Company’s financial instruments have varying levels of sensitivity to changesin market interest rates resulting in market risk. Interest rate risk is the Company’s primary market risk exposure; to a lesserextent, liquidity risk also impacts market risk exposure.
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Interest rate risk is the exposure ofa banking institution’s financial condition to adverse movements in interest rates. Accepting this risk can be an important sourceof profitability and shareholder value; however, excessive levels of interest rate risk could pose a significant threat to the Company’searnings and capital base. Accordingly, effective risk management that maintains interest rate risks at prudent levels is essential tothe Company’s safety and soundness.
Evaluating a financial institution’sexposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest raterisk and the organization’s quantitative level of exposure. When assessing the interest rate risk management process, the Companyseeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintaininterest rate risks at prudent levels of consistency and continuity. Evaluating the quantitative level of interest rate risk exposurerequires 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 Federal Reserve Board together withthe Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation adopted a Joint Agency Policy Statement onInterest Rate Risk effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managinginterest 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 Boardguidance and discusses the importance of these elements in the context of managing interest rate risk. Specifically, the guidance emphasizesthe 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 incomeprimarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and oweson its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institutionis exposed to lower profit margins (or losses) if it cannot adapt to interest rate changes. For example, assume that an institution’sassets carry intermediate or long-term fixed rates and that those assets are funded with short-term liabilities. If market interest ratesrise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilitiesmay not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits coulddecrease on existing assets because the institution will either have lower net interest income or possibly, net interest expense. Similarrisks exist when assets are subject to contractual interest rate ceilings, or rate-sensitive assets are funded by longer-term, fixed-rateliabilities in a declining rate environment.
There are several ways an institutioncan manage interest rate risk including: 1) matching repricing periods for new assets and liabilities, for example, by shortening orlengthening terms of new loans, investments, or liabilities; 2) selling existing assets or repaying certain liabilities; and 3) hedgingexisting assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intendedto hedge or otherwise change interest rate risk. Interest rate swaps, futures contracts, options on futures contracts, and other suchderivative financial instruments can be used for this purpose. Because these instruments are sensitive to interest rate changes, theyrequire management’s expertise to be effective. The Company does not currently utilize any derivative financial instruments tomanage interest rate risk. As market conditions warrant, the Company may implement various interest rate risk management strategies,including the use of derivative financial instruments.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management believes there has been no materialchange in the Company’s market risk from the information contained in the Company’s Annual Report on Form 10-K filed withthe Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2024.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
With the participation of the President and ChiefExecutive Officer (the principal executive officer) and the Executive Vice President and Chief Financial Officer (the principal financialofficer) of the Company, the Company’s management has evaluated the effectiveness of the Company’s disclosure controls andprocedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as ofthe end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Presidentand Chief Executive Officer and the Company’s Executive Vice President and Chief Financial Officer have concluded that:
| ● | informationrequired to be disclosed by the Company in this Quarterly Report on Form 10-Q and other reports which the Company files or submits underthe Exchange Act would be accumulated and communicated to the Company’s management, including its principal executive officer andprincipal financial officer, as appropriate to allow timely decisions regarding required disclosure; |
| ● | informationrequired to be disclosed by the Company in this Quarterly Report on Form 10-Q and other reports which the Company files or submits underthe Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules andforms; and |
| ● | theCompany’s disclosure controls and procedures were effective as of the end of the quarterly period covered by this Quarterly Reporton Form 10-Q. |
Changes in Internal Control over FinancialReporting
There wereno changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) thatoccurred during the Company’s fiscal quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.
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PARTII – OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of our business, the Companyand its subsidiaries are parties to various legal actions which we believe are incidental to the operation of our business. Althoughthe 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 materialadverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Item 1A. Risk Factors
There are certain risks and uncertainties inour business that could cause our actual results to differ materially from those anticipated. A detailed discussion of our risk factorsis included in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the year ended December31, 2024.
Item 2. Unregistered Sales of Equity Securitiesand Use of Proceeds
| (a) | Not Applicable |
| (b) | Not Applicable |
| (c) | Repurchases of Common Shares |
On December 18, 2024, the Companyannounced a share repurchase program authorizing the repurchase of up to 500,000 common shares of the Company through December 31, 2026.The table below sets forth information regarding common shares repurchased by the Company during the quarter ended June 30, 2025.
| (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 | ||||||||||||
| 04/01/25 - 04/30/25 | - | $ | 0.00 | - | 456,094 | |||||||||||
| 05/01/25 - 05/31/25 | 48,786 | 19.57 | 48,786 | 407,308 | ||||||||||||
| 06/01/25 - 06/30/25 | 75,709 | 18.00 | 75,709 | 331,599 | ||||||||||||
| Total | 124,495 | $ | 18.62 | 124,495 | 331,599 | |||||||||||
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
| (a) | None |
| (b) | None |
| (c) | During the quarter ended June 30, 2025, no director or officer(as defined in Rule 16a-1 under the Exchange Act) |
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Item 6. Exhibits
46
SIGNATURES
Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SB FINANCIAL GROUP, INC. |
| Date: August 7, 2025 | By: | /s/ Mark A. Klein |
| Mark A. Klein | ||
| Chairman, President & CEO | ||
| By: | /s/ Anthony V. Cosentino | |
| Anthony V. Cosentino | ||
| Executive Vice President & | ||
| Chief Financial Officer |
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Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Mark A. Klein, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2025, of SB Financial Group, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 7, 2025 | /s/ Mark A Klein |
| Mark A. Klein | |
| Chairman, President & CEO | |
| (Principal Executive Officer) |
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Anthony V. Cosentino, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2025, of SB Financial Group, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 7, 2025 | /s/ Anthony V. Cosentino | |
| Anthony V. Cosentino | ||
| Executive Vice President & | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
SECTION 1350 CERTIFICATION*
In connection with the Quarterly Report of SBFinancial Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2025, as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), I, Mark A. Klein, the Chief Executive Officer of the Company, certify,pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, inall material respects, the consolidated financial condition and results of operations of the Company. |
| /s/ Mark A. Klein | |
| Mark A. Klein | |
| Title: Chairman, President & CEO | |
| (Principal Executive Officer) | |
| Date: August 7, 2025 |
| * | This certification is being furnished as required by Rule 13a-14(b)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 ofthe United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subjectto the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the SecuritiesAct of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into anysuch filing. |
Exhibit 32.2
SECTION 1350 CERTIFICATION*
In connection with the Quarterly Report of SBFinancial Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2025, as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), I, Anthony V. Cosentino, the Chief Financial Officer of the Company,certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, inall material respects, the consolidated financial condition and results of operations of the Company. |
| /s/ Anthony V. Cosentino | |
| Anthony V. Cosentino | |
| Title: Executive Vice President & Chief Financial Officer | |
| (Principal Financial Officer) | |
| Date: August 7, 2025 |
| * | This certification is being furnished as required by Rule 13a-14(b)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 ofthe United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subjectto the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the SecuritiesAct of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into anysuch filing. |