SBFG 10-Q
Sb Financial Group, Inc. (SBFG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period
ended
OR
For the transition period from _________________to___________________
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(Zip Code)
(Registrant’s telephone number, including area code)
N/A
(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
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period 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 electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is 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 check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is 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 | 43 |
| 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, Use of Proceeds, and Issuer of Purchases of Equity Securities | 45 |
| Item 3. | Defaults Upon Senior Securities | 45 |
| Item 4. | Mine Safety Disclosures | 45 |
| Item 5. | Other Information | 46 |
| Item 6. | Exhibits | 46 |
| Signatures | 47 | |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SB Financial Group, Inc.
Condensed Consolidated Balance Sheets
| ($ in thousands) | September 2023 | December | ||||||
| (unaudited) | 2022 | |||||||
| 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; 2023 - | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost; (2023 - | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See notes to condensed consolidated financial statements (unaudited)
1
SB Financial Group, Inc.
Condensed Consolidated Statements of Income (unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| ($ in thousands, except per share data) | September 30, | September 30, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 consolidated financial statements (unaudited)
2
SB Financial Group, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| ($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive gain (loss) | ||||||||||||||||
| Available for sale investment securities: | ||||||||||||||||
| Gross unrealized holding loss arising in the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Related tax benefit | ||||||||||||||||
| Net effect on other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
See notes to condensed consolidated financial statements (unaudited)
3
SB Financial Group, Inc.
Condensed Consolidated 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, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||
| Adoption of ASU 2016-13 | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Restricted stock vesting | ( | ) | ||||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Restricted stock vesting | ( | ) | ||||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Common | Additional Paid-in | Retained | Accumulated Other Comprehensive | Treasury | ||||||||||||||||||||
| ($ in thousands, except per share data) | Stock | Capital | Earnings | Loss | Stock | Total | ||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Stock dividends on common - | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Restricted stock vesting | ( | ) | ||||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends on common, $ | ( | ) | ( | ) | ||||||||||||||||||||
| Restricted stock vesting | ( | ) | ||||||||||||||||||||||
| Repurchased stock ( | ( | ) | ( | ) | ||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
See notes to condensed consolidated financial statements (unaudited)
4
SB Financial Group, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
| Nine Months Ended September 30, | ||||||||
| ($ in thousands) | 2023 | 2022 | ||||||
| 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 | ||||||||
| Impairment (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 operating activities | ||||||||
| Investing Activities | ||||||||
| Purchases of available-for-sale securities | ( | ) | ( | ) | ||||
| Proceeds from maturities of interest bearing time deposits | ||||||||
| Proceeds from maturities of available-for-sale securities | ||||||||
| Net change in loans | ( | ) | ( | ) | ||||
| Purchase of premises, equipment | ( | ) | ( | ) | ||||
| Proceeds from bank owned life insurance | ||||||||
| 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 | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Net decrease 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 used in financing activities | ( | ) | ( | ) | ||||
| 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 | $ | $ | ||||||
| Supplemental non-cash disclosure | ||||||||
| Transfer of loans to foreclosed assets | $ | $ | ||||||
| Stock dividends declared and paid | $ | $ | ||||||
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”), SB Captive, Inc. (“SB Captive”), RFCBC, Inc. (“RFCBC”), Rurbanc Data Services, Inc. dba RDSI Banking Systems (“RDSI”), and Rurban Statutory Trust II (“RST II”). RDSI is presently inactive and has had no material operations or employees since 2017. In addition, State Bank owns all of the outstanding stock of Rurban Mortgage Company (“RMC”), which is inactive, and State Bank Insurance, LLC (“SBI”).
The consolidated financial statements include the accounts of SBFG, State Bank, RFCBC, RDSI, RMC, SBFG Title, SB Captive and SBI (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required 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 only of normal recurring adjustments. Results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of results for the complete year.
The condensed consolidated balance sheet of the Company as of December 31, 2022 has been derived from the audited consolidated balance sheet of the Company as of that date.
For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
New and applicable accounting pronouncements:
ASU No. 2020-04: Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)
This guidance provides temporary options to ease the potential burden in accounting for reference rate reform. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective as of March 12, 2020 through December 31, 2022. However, a deferral of the implementation of the Reference Rate Reform was issued in December of 2022, which extends the implementation to December 31, 2024. The Company has implemented a replacement for the reference rate and has determined that the changes did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2016-13: Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
On January 1, 2023, the Company adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) (“ASC 326”) as amended. The new accounting guidance in this ASU replaces the incurred loss methodology with an expected loss methodology, which is referred to as the current expected credit loss (“CECL”) methodology. The CECL methodology is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity (“HTM”) debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments), and net investments in leases recognized by a lessor. The CECL methodology requires an entity to estimate credit losses over the life of an asset or off-balance sheet credit exposure.
6
In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities if management determines that the Company does not intend to sell and it is more likely than not, that the Company will not be required to sell the securities.
The Company adopted ASC 326 using the modified
retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting
periods beginning on or after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance
with previously applicable GAAP. The transition adjustment of the CECL adoption included an increase in the allowance for credit losses
(“ACL”) of $
| January 1, 2023 | ||||||||||||||||
| ($ in thousands) | Pre-ASC 326 adoption | Impact of ASC 326 adoption | As reported under ASC 326 | Cummulative Effect on Retained Earnings | ||||||||||||
| Allowance for credit loss on 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 ACL on loans | $ | $ | $ | $ | ||||||||||||
| ACL on off-balance sheet commitments | $ | $ | $ | $ | ||||||||||||
Allowance for Credit Losses - Securities Available-for-Sale
For available-for-sale debt securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance of any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the ACL under CECL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2023, there was no allowance for credit losses related to the available-for-sale debt securities portfolio.
Accrued interest receivable on available-for-sale
debt securities totaled $
7
Allowance for Credit Losses - Loans
The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes that the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.
Accrued interest receivable related to loans
totaled $
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments:
| ● | Commercial & Industrial - Commercial & industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial & industrial loans and lease financing agreements is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease. |
| ● | Commercial Real Estate - Owner Occupied - Owner occupied commercial real estate loans consist of loans to purchase or re-finance owner occupied nonresidential properties. This includes office buildings and other commercial facilities. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation as the commercial real estate collateral may be more adversely affected by conditions in the real estate markets or in the general economy. |
| ● | Commercial Real Estate – Nonowner Occupied - Nonowner occupied commercial real estate loans consist of loans to purchase, construct, or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as multifamily properties. The primary risk associated with nonowner occupied commercial real estate loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation as the commercial real estate collateral may be more adversely affected by conditions in the real estate markets or in the general economy. |
| ● | Agricultural - Agricultural loans consist of loans or lines of credit to finance farmland, equipment, and general business needs or other assets. The primary risk associated with agricultural loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan. |
| ● | Residential Real Estate – Residential real estate mortgage loans consist of loans to purchase or refinance the borrower’s primary dwelling, second residence or vacation home and are often secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral. |
8
| ● | Home Equity Line of Credit (HELOCs) - Home equity loans consist of home equity lines of credit 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 utilized a Discounted Cash Flow (“DCF”) method to estimate the quantitative portion of the ACL for all loan pools evaluated on a collective pooled basis, with the exception of the credit card portfolio, which was estimated using the Remaining Life Method. For each segment, a Loss Driver Analysis (“LDA”) was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA utilized the Company’s own Federal Financial Institutions Examination Council’s (“FFIEC”) Call Report data, as well as peer institution data.
In creating the DCF model, the Company has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. The Company’s own loan-level loss data from January 2016 through September 30, 2023 contained within the model is being supplemented with peer data in most loan pools as there was not sufficient loan-level detail from prior cycles reflecting similar economic conditions as the forecasted loss drivers to result in a statistically sound calculation.
Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, and loss history, and forecasted loss drivers. The Company utilizes data from Federal Reserve Economic Data (“FRED”) to provide economic forecasts under various scenarios, which are applied to loan pools to reflect model risk in the current economic environment.
Additional key assumptions in the DCF model include the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment rates. When possible, the Company utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. In all cases, the LDA is then utilized to determine the long-term historical average which is reached over the reversion period. When possible, the Company utilizes its own LGDs for the reasonable and supportable forecast period. When it is not possible to use the Company’s own LGDs, the LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. Benchmark prepayment and curtailment rates were used in the ACL estimate.
9
Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. A number of factors are considered including economic forecast uncertainty, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, impact of rising interest rates, external factors and other considerations. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. The qualitative analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above. During each reporting period, management also considers the need to adjust the baseline lifetime loss rates for factors that may cause expected losses to differ from those experienced in the historical loss periods.
Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting dated adjusted for selling costs as appropriate.
The Company is also required to consider expected credit losses associated with loan commitments over the contractual period in which it is exposed to credit risk on the underlying commitments. Any allowance for off-balance sheet credit exposures is reported in Other liabilities on the Company’s consolidated balance sheet and is increased or decreased through a provision for credit loss expense on the Company’s consolidated statement of income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same methodology, inputs and assumptions as the funded portion of loans at the segment level applied to the amount of commitments expected to be funded.
While the Company’s policies and procedures used to estimate the allowance for credit losses, as well as the resultant provision for credit losses charged to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or particular industry conditions, which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.
ASU No. 2022-02: Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures
On January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, which removed the existing measurement and disclosure requirements for loans considered to be Troubled Debt Restructurings (“TDRs”) and added additional disclosure requirements related to modifications provided to borrowers experiencing financial difficulty. Prior to adoption of ASU 2022-02, a change in contractual terms of a loan where a borrower was experiencing financial difficulty and received a concession not available through other sources was required to be disclosed as a TDR, whereas now a borrower that is experiencing financial difficulty and receives a modification in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment delay or a term extension in the current period needs to be disclosed. The amendment was adopted prospectively and had no impact on the Company’s consolidated financial statements aside from additional and revised financial statement disclosures (See Note 4 to the consolidated financial statements).
10
NOTE 2 - EARNINGS PER SHARE
Earnings per share (“EPS”) have been
computed based on the weighted average number of common shares outstanding during the periods presented.
| Three Months Ended September 30, | ||||||||
| ($ and outstanding shares in thousands - except per share data) | 2023 | 2022 | ||||||
| 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 | $ | $ | ||||||
| Nine Months Ended September 30, | ||||||||
| ($ and outstanding shares in thousands - except per share data) | 2023 | 2022 | ||||||
| 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 | $ | $ | ||||||
On January 10, 2022, the
Company announced that its Board of Directors had declared a
In connection with the
11
Note 3 – AVAILABLE-FOR-SALE Securities
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| ($ in thousands) | Cost | Gains | Losses | Fair Value | ||||||||||||
| September 30, 2023 | ||||||||||||||||
| 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, 2022 | ||||||||||||||||
| U.S. Treasury and Government agencies | $ | $ | $ | ( | ) | $ | ||||||||||
| Mortgage-backed securities | ( | ) | ||||||||||||||
| State and political subdivisions | ( | ) | ||||||||||||||
| Other corporate securities | ( | ) | ||||||||||||||
| Totals | $ | $ | $ | ( | ) | $ | ||||||||||
| Amortized | ||||||||
| ($ in thousands) | Cost | Fair 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 sales of available-for-sale securities for the three and nine months ended September 30, 2023 or September 30, 2022.
12
Certain investments in debt securities are reported
in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments was $
| ($ in thousands) | Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||
| September 30, 2023 | 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, 2022 | 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 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
The total unrealized loss in the securities portfolio
was $
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Generally, all loan classes are placed on nonaccrual status not later than 90 days past due, unless the loan is well-secured and in the process of collection. All interest accrued, but not collected, for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
13
| Total Loans | ||||||||
| ($ in thousands) | September 30, 2023 | December 31, 2022 | ||||||
| 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 deferred loan fees and costs, which totaled $
The risk characteristics of each loan portfolio segment are as follows:
Commercial & Industrial and Agricultural
Commercial & industrial and agricultural loans are primarily underwritten based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Commercial Real Estate (Owner and Nonowner Occupied)
Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied versus non-owner-occupied commercial real estate loans.
Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally 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 ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
14
Residential Real Estate, HELOC and Consumer
Residential and consumer loans consist of two segments – residential mortgage loans and personal loans. Residential mortgage loans are secured by 1-4 family residences and are generally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. HELOCs are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that these loans are of smaller individual amounts and spread over a large number of borrowers.
Allowance for Credit Losses (ACL)
The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors.
As a result of the adoption of ASC 326, the Company
recorded a $
| ($
in thousands) For the three months ended September 30, 2023 | Balance, beginning of period | Impact of Adopting ASC 326 | 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 nine months ended September 30, 2023 | Balance, beginning of period | Impact of Adopting ASC 326 | 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 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||
15
Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables contain disclosures related to the allowance for loan losses in prior periods under this methodology.
| ($ in thousands) For the three months ended September 30, 2022 | 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 nine months ended September 30, 2022 | 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, 2022 | Balance at Beginning of Period | Chargeoffs | Recoveries | Provision for Credit Losses | Balance at 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 which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the ACL.
16
| ($ in thousands) | Collateral Type | Allocated | ||||||||||||||
| September 30, 2023 | 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 CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the ACL based on the fair value of collateral. 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.
| December 31, 2022 | Commercial & industrial | Commercial real estate | Agricultural | Residential real estate | Consumer | Total | ||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||
| Ending allowance attributable to loans: | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Totals | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Loans: | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Totals | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
17
| September 30, 2022 | Commercial & industrial | Commercial real estate | Agricultural | Residential real estate | Consumer | Total | ||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||
| Ending allowance attributable to loans: | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Totals | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Loans: | ||||||||||||||||||||||||
| Individually evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Totals | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Credit Risk Profile
The Company categorizes loans into risk categories
based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical
payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans
individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $
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): Assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.
Substandard (6): Loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful (7): Loans classified as doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.
Loss (8): Loans are considered uncollectable and of such little value that continuing to carry them as assets on the Company’s financial statement is not 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 basically worthless asset, even though partial recovery may be possible at some time in the future.
The Company evaluates the loan risk grading system
definitions and allowance for loan loss methodology on an ongoing basis.
18
| ($ in thousands) | Term Loans by Year of Origination | Revolving | Revolving Loans Converted | |||||||||||||||||||||||||||||||||
| September 30, 2023 | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Loans | to Term | Total | |||||||||||||||||||||||||||
| Commercial & industrial | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Home equity line of credit (HELOC) | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Loans | ||||||||||||||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
19
| ($ in thousands) December 31, 2022 | Commercial & industrial | Commercial real estate - owner occupied | Commercial real estate - nonowner occupied | Agricultural | Residential real estate | HELOC | Consumer | Total | ||||||||||||||||||||||||
| Pass (1 - 4) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention (5) | ||||||||||||||||||||||||||||||||
| Substandard (6) | ||||||||||||||||||||||||||||||||
| Doubtful (7) | ||||||||||||||||||||||||||||||||
| Loss (8) | ||||||||||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| ($ in thousands) | 30-59 Days | 60-89 Days | Greater Than 90 Days | Total Past | ||||||||||||||||||||
| September 30, 2023 | 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 | Greater Than 90 Days | Total Past | |||||||||||||||||||||
| December 31, 2022 | 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 nonaccrual status.
When a loan is moved to nonaccrual status, total
unpaid interest accrued to date is reversed from income. Subsequent payments are applied to the outstanding principal balance with the
interest portion of the payment recorded on the balance sheet as a contra-loan. Interest received on nonaccrual loans may be realized
once all contractual principal amounts are received or when a borrower establishes a history of six consecutive timely principal and
interest payments. It is at the discretion of management to determine when a loan is placed back on accrual status upon receipt of six
consecutive timely payments.
20
| September 30, 2023 | December 31, 2022 | |||||||||||||||
| ($ in thousands) | Nonaccrual loans with no allowance | Nonaccrual loans with an allowance | Total nonaccrual loans | 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 | $ | $ | $ | $ | ||||||||||||
Impaired Loans (Prior to the Adoption of ASC 326)
Prior to the adoption of ASU 2016-13, a loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment included payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration each of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment was measured on a loan-by-loan basis for commercial, agricultural, and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogenous loans
were collectively evaluated for impairment. Accordingly, the Company did not separately identify individual consumer and residential
loans for impairment measurements, unless such loans were the subject of a restructuring agreement due to financial difficulties of the
borrower. Impaired loans less than $
21
| ($ in thousands) Twelve Months Ended | Recorded | Unpaid Principal | Related | Average Recorded | Interest Income | |||||||||||||||
| December 31, 2022 | Investment | Balance | Allowance | Investment | Recognized | |||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||
| Commercial & industrial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||
| Agricultural | ||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||
| HELOC | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| With a specific allowance recorded: | ||||||||||||||||||||
| Commercial & industrial | ||||||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||||||
| Agricultural | ||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||
| HELOC | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Totals: | ||||||||||||||||||||
| Commercial & industrial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate - owner occupied | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate - nonowner occupied | $ | $ | $ | $ | $ | |||||||||||||||
| Agricultural | $ | $ | $ | $ | $ | |||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | |||||||||||||||
| HELOC | $ | $ | $ | $ | $ | |||||||||||||||
| Consumer | $ | $ | $ | $ | $ | |||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2022 | Average Recorded | Interest Income | Average Recorded | Interest Income | ||||||||||||
| ($ in thousands) | Investment | Recognized | Investment | Recognized | ||||||||||||
| With no related allowance recorded: | ||||||||||||||||
| Commercial & industrial | $ | $ | | $ | $ | | ||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||
| Agricultural | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| HELOC | ||||||||||||||||
| Consumer | ||||||||||||||||
| With a specific allowance recorded: | ||||||||||||||||
| Commercial & industrial | ||||||||||||||||
| Commercial real estate - owner occupied | ||||||||||||||||
| Commercial real estate - nonowner occupied | ||||||||||||||||
| Agricultural | ||||||||||||||||
| Residential real estate | ||||||||||||||||
| HELOC | ||||||||||||||||
| Consumer | ||||||||||||||||
| Totals: | ||||||||||||||||
| Commercial & industrial | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - owner occupied | $ | $ | $ | $ | ||||||||||||
| Commercial real estate - nonowner occupied | $ | $ | $ | $ | ||||||||||||
| Agricultural | $ | $ | $ | $ | ||||||||||||
| Residential real estate | $ | $ | $ | $ | ||||||||||||
| HELOC | $ | $ | $ | $ | ||||||||||||
| Consumer | $ | $ | $ | $ | ||||||||||||
22
Modifications made to Borrowers Experiencing Financial Difficulty
In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. These modifications allow the borrower short-term cash relief to allow them to improve their financial condition. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowance for Credit Losses section of this note.
For the nine months ended September 30, 2023, the Company did not modify any loans made to borrowers experiencing financial difficulty.
The Company had no commitments to lend to borrowers experiencing financial difficulty for which the Company had modified an existing loan as of September 30, 2023. The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and its ability to generate positive cash flows during the loan term. For the nine-month period ended September 30, 2023, the Company had no loan modifications made to borrowers experiencing financial difficulty for which there was a payment default within the 12 months following the modification date.
Unfunded Loan Commitments
The Company maintains an allowance for off-balance
sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby
and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally
cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision
for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical
funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over
its estimated life, which are the same loss rates that are used in computing the ACL for loans. The allowance for credit losses for unfunded
loan commitments of $
| Three Months Ended | Nine Months Ended | |||||||
| ($ in thousands) | September 30, 2023 | September 30, 2023 | ||||||
| Balance, beginning of period | $ | | $ | |||||
| Adjustment for adoption of ASU 2016-13 | ||||||||
| Provision for unfunded commitments | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
NOTE 5 – GOODWILL
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| ($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Measurement period adjustments | ||||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
Goodwill is not amortized but is evaluated for impairment annually, and on an interim basis if events or circumstances change that indicate an impairment may exist.
23
As of September 30, 2023 and December 31, 2022,
the carrying amount of goodwill was $
Goodwill was assessed for impairment using a quantitative test performed as of August 31, 2023. The estimated fair value of the reporting unit exceeded the net carrying value, and therefore no goodwill impairment existed as of that date. No events or circumstances since the August 31, 2023 impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.
NOTE 6 – MORTGAGE SERVICING RIGHTS
Mortgage loans serviced for others are not included
in the accompanying consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others approximated $
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| ($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| 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 7 – DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to certain variable-rate assets.
24
Non-designated Hedges
The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.
Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into 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 are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.
| September 30, 2023 | December 31, 2022 | |||||||||||||||
| Notional | Fair | Notional | Fair | |||||||||||||
| ($ in thousands) | Amount | Value | Amount | Value | ||||||||||||
| Asset Derivatives | ||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||
| Interest rate swaps associated with loans | $ | $ | $ | $ | ||||||||||||
| IRLCs | ||||||||||||||||
| Forward contracts | ||||||||||||||||
| Total contracts | $ | $ | $ | $ | ||||||||||||
| Liability Derivatives | ||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||
| Interest rate swaps associated with loans | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| IRLCs | ( | ) | ( | ) | ||||||||||||
| Forward contracts | ||||||||||||||||
| Total contracts | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
The fair value of interest rate swaps were estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC or forward contract and the balance sheet date.
25
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
| ($ in thousands) | Statement of income classification | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Interest rate swap contracts | $ | $ | $ | $ | ||||||||||||||
| IRLCs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Forward contracts | ||||||||||||||||||
| Gross | Gross amounts offset | Net
amounts of assets presented | Gross
amounts not offset in the consolidated balance sheet | |||||||||||||||||||||
| ($ in thousands) | amounts
of recognized assets | in
the consolidated balance sheet | in
the consolidated balance sheet | Financial instruments | Cash collateral received | Net amount | ||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross | Gross
amounts offset | Net
amounts of liabilities presented | Gross
amounts not offset in the consolidated balance sheet | |||||||||||||||||||||
| ($ in thousands) | amounts
of recognized liabilities | in the consolidated balance sheet | in the consolidated balance sheet | Financial instruments | Cash collateral pledged | Net amount | ||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 8 – DEPOSITS
| ($ in thousands) | September 30, 2023 | December 31, 2022 | ||||||
| Non interest bearing demand | $ | $ | ||||||
| Interest bearing demand | ||||||||
| Savings | ||||||||
| Money market | ||||||||
| Time deposits less than $250,000 | ||||||||
| Time deposits $250,000 or greater | ||||||||
| Total Deposits | $ | $ | ||||||
Included in time deposits at September 30, 2023
and December 31, 2022 were $
26
NOTE 9 –
| ($ in thousands) | September 30, 2023 | December 31, 2022 | ||||||
| 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-backed
securities and such collateral is held by the Federal Home Loan Bank (“FHLB”).
The Company has borrowing capabilities at the
Federal Reserve Discount Window (“Discount Window”) and the Bank Term Funding Program (“BTFP”) by pledging either
securities or loans as collateral. As of September 30, 2023, there was $
At September 30, 2023 and December 31, 2022, the
Company had $
NOTE 10 – FEDERAL HOME LOAN BANK (FHLB) ADVANCES
The Company’s FHLB advances were secured
by $
| ($ in thousands) | Debt | |||
| 2023 | $ | |||
| 2026 | $ | |||
| 2028 | ||||
| Total | $ | |||
NOTE 11 – TRUST PREFERRED SECURITIES
On September 15, 2005, RST II, a wholly-owned
subsidiary of the Company, closed a pooled private offering of
27
NOTE 12 – SUBORDINATED DEBT
On May 27, 2021, the Company entered into Subordinated
Note Purchase Agreements (collectively, the “Purchase Agreements’’) with qualified institutional buyers and accredited investors
(collectively, the “Purchasers”) pursuant to which the Company issued and sold $
The Notes mature on June 1, 2031 and bear interest
at a fixed rate of
NOTE 13 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels 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 quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities |
| Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities |
The following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis, recognized in the accompanying consolidated balance sheets, 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 securities are 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 include quoted prices for individual securities in active markets; however, they do include inputs that are either directly or indirectly observable for the individual security being valued. Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates. Also included are inputs derived principally from or corroborated by observable market data by correlation or other means.
Interest Rate Contracts
The fair values of interest rate contracts are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlying interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties (Level 2).
28
Forward contracts
The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets or benchmarked thereto (Level 1).
Interest Rate Lock Commitments (IRLCs)
The fair value of IRLCs are determined using the projected sale price of individual loans based on changes in the market interest rates, projected “pull-through” rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3).
| ($ in thousands) | Fair value at September 30, 2023 | (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, 2022 | (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
29
| for the Three Months Ended September 30, | for the Nine Months Ended September 30, | |||||||||||||||
| ($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Interest rate lock commitments | ||||||||||||||||
| Balance at beginning of period | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at end of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
Collateral-dependent Individually evaluated Loans, Net of ACL
The estimated fair value of collateral-dependent individually evaluated loans (or impaired loans prior to the adoption of ASC 326) is based on the appraised value of the collateral, less estimated cost to sell. Collateral- dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. This method requires obtaining an independent appraisal of the collateral, which is reviewed for accuracy and consistency by management. Appraisers are selected from an approved list which is maintained by management. The appraised values are reduced by applying a discount factor to the value based on the Company’s loan review policy. All individually evaluated loans held by the Company were collateral dependent at September 30, 2023 and December 31, 2022.
Mortgage Servicing Rights
Mortgage servicing rights do not trade in an active,
open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models associated with the
servicing rights and discounting the cash flows using discount market rates, prepayment speeds and default rates. The servicing portfolio
has been valued using all relevant positive and negative cash flows including servicing fees; miscellaneous income and float; marginal
costs of servicing; the cost of carry of advances; and foreclosure losses; and applying certain prevailing assumptions used in the marketplace.
Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
30
| ($ in thousands) | Fair value at September 30, 2023 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Collateral-dependent Individually evaluated loans | $ | $ | $ | $ | ||||||||||||
| Mortgage servicing rights | ||||||||||||||||
| ($ in thousands) | Fair value at December 31, 2022 | (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
Unobservable (Level 3) Inputs
| Fair value at | Range | |||||||||||
| ($ in thousands) | September 30, 2023 | Valuation technique | Unobservable inputs | (weighted- average) | ||||||||
| Collateral-dependent individually evaluated loans | $ | |||||||||||
| Mortgage servicing rights | ||||||||||||
| IRLCs | ( | ) | ||||||||||
| Fair value at | Range | |||||||||||
| ($ in thousands) | December 31, 2022 | Valuation technique | Unobservable inputs | (weighted- average) | ||||||||
| Collateral-dependent impaired loans | $ | |||||||||||
| Mortgage servicing rights | ||||||||||||
| IRLCs | ( | ) | ||||||||||
There were no changes in the inputs or methodologies used to determine fair value at September 30, 2023 as compared to December 31, 2022.
31
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.
Cash and Due From Banks, 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 based upon quoted market prices, where available, or is determined by discounting estimated cash flows using interest rates approximating the Company’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.
Loans
The estimated fair value of loans follows the guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments. The “exit price” is determined based on discounted estimated future cash flows using rates that incorporate discounts for credit, liquidity, and marketability factors.
Deposits, Short-Term Borrowings, and FHLB Advances
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 these instruments approximates the fair value. The estimated fair value for fixed-maturity time deposits and FHLB advances are based on estimates of the rate State Bank could pay on similar instruments with similar terms and maturities at September 30, 2023 and December 31, 2022.
Loan Commitments
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The estimated fair values for other financial instruments and off-balance-sheet loan commitments approximate cost at September 30, 2023 and December 31, 2022 and are not considered significant to this presentation.
Trust Preferred Securities
The fair value for Trust Preferred Securities is estimated by discounting the cash flows using an appropriate discount rate.
Subordinated Debt
The fair value for subordinated debt is estimated by discounting the cash flows using a discount rate equal to the rate currently offered on similar borrowings.
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The following table presents estimated fair values
of the Company’s other financial instruments carried at other than fair value. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the
estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Because no market exists for certain of these financial instruments, and because management does not
intend to sell these financial instruments,
| ($ in thousands) | Carrying | Fair | Fair value measurements using | |||||||||||||||||
| September 30, 2023 | 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 loan 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, 2022 | 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 loan 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 14 – SHARE BASED COMPENSATION
In April 2017, the Company’s shareholders
approved 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 employees
and non-employee directors and advisory board members of the Company and its subsidiaries. A total of
The 2017 Plan is intended to advance the interests of the Company and its shareholders by offering employees, directors and advisory board members of the Company and its subsidiaries an opportunity to acquire or increase their ownership interest in the Company through grants of equity-based awards. The 2017 Plan permits equity-based awards to be used to attract, motivate, reward and retain highly competent individuals upon whose judgment, initiative, leadership and efforts are key to the success of the Company by encouraging those individuals to become shareholders of the Company.
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Stock option awards are granted with an exercise
price equal to the market price of the Company’s stock at the date of grant and those option awards vest based on five years of
continuous service and have
On February 5, 2013, the Company adopted a Long
Term Incentive (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. The compensation cost charged
against income for awards under the LTI Plan for the three and nine months ended September 30, 2023 was $
As of September 30, 2023, there was $
| Shares | Weighted- Average Value per Share | |||||||
| Nonvested, January 1, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested, September 30, 2023 | $ | |||||||
NOTE 15 – GENERAL LITIGATION
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. Additionally, the Company is subject to periodic examinations by various regulatory agencies. It is the opinion of management that the disposition or ultimate resolution of any such claims, lawsuits and examinations pending at September 30, 2023, will not have a material adverse effect on the consolidated financial position, results of operations and cash flow of the Company.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations 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 financial items; (b) statements of plans and objectives of the Company or our management or Board of Directors, including those relating to products or 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 those statements. 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 differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, 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 conflict in Ukraine and the recent conflicts involving Israel and Hamas), 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 impacts and duration of the continuing recovery from the COVID-19 pandemic and its impacts on national, regional and local economies, supply chains, labor markets and on our customers, counterparties, employees and third-party service providers; | |
| ● | 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; | |
| ● | the transition away from LIBOR as a reference rate for financial contracts, which could negatively impact our income and expenses and the value of various financial contracts; | |
| ● | changes in customers’, suppliers’, and other counterparties’ performance and creditworthiness may be different than anticipated due to the continuing inflationary pressures and other economic and financial market conditions; | |
| ● | 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; |
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| ● | our ability to secure sensitive or confidential client information against unauthorized disclose 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; | |
| ● | 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; | |
| ● | and unexpected inability to obtain needed liquidity which could adversely affect our business, profitability, and viability as a going concern; 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, 2022, as supplemented by “Item IA. Risk Factors” of Part II of the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2023, and June 30, 2023. |
Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statement to reflect unanticipated events or circumstances after the date on which the 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 Federal Reserve Board. SB Financial’s wholly-owned subsidiary, The State Bank and Trust Company (“State Bank”), is an 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 with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to SB Financial in exchange for junior subordinated debentures of SB Financial with terms substantially similar to the Trust Preferred Securities. The sole assets of RST II are the junior subordinated debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by SB Financial of the obligations of RST II.
RFCBC, Inc. (“RFCBC”) is an Ohio corporation and wholly-owned subsidiary of SB Financial that was incorporated in August 2004. RFCBC operates as a loan subsidiary in servicing and working out problem loans.
State Bank Insurance, LLC (“SBI”) is an Ohio corporation and a wholly-owned subsidiary of State Bank incorporated in June of 2010. SBI is an insurance company that engages in the sale of insurance products to retail and commercial customers of State Bank.
SBFG Title, LLC (“SBFG Title”) is an Ohio corporation that was formed in March 2019. SBFG Title engages in the sale of title insurance services.
SB Captive, Inc. (“SB Captive”) is a Nevada corporation that was formed in March 2019. SB Captive pools insurance risk among like sized banking institutions.
Unless the context indicates otherwise, all references herein to “we”, “us”, “our”, or the “Company” refer to SB Financial and its consolidated subsidiaries.
Critical Accounting Policies
Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 describes the significant accounting policies used in the development and presentation of the Company’s financial statements. The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective, and/or complex.
Allowance for Credit Losses – The Company believes the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’s determination of the adequacy of the allowance for credit losses is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected loss given default (“LGD”), the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.
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Goodwill and Other Intangibles - The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line or accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition. A decrease in earnings resulting from these or other factors could lead to an impairment of goodwill that could adversely impact earnings for future periods.
Three Months Ended September 30, 2023 compared to Three Months Ended September 30, 2022
Net Income: Net income for the third quarter of 2023 was $2.7 million compared to net income of $3.3 million for the third quarter of 2022, a decrease of 19.6 percent. Diluted earnings per share (“DEPS”) of $0.39 were down 17.0 percent from DEPS of $0.47 for the third quarter of 2022. Net income for the third quarter of 2023 was positively impacted by higher loan income, which was offset by significantly higher interest expense cost on deposits and wholesale borrowings. Mortgage loan volume was down 10.7 percent compared to the prior year third quarter, but sales of originated loans were up 38.1 percent when compared to the third quarter of 2022.
Provision for Credit Losses: The third quarter provision for credit losses was a credit of $6 thousand driven by a reduction in the balance of unfunded commitments as compared to no ($0) provision for the prior year quarter. Net charge-offs for the quarter were $5,000 compared to net recoveries of $23,000 for the year-ago quarter. Total delinquent loans ended the quarter at $3.3 million, or 0.33 percent of total loans. The Company adopted ASC 326 on January 1, 2023, which increased the allowance for credit losses (“ACL”) by $1.4 million.
Asset Quality Review – For the Period Ended ($ in thousands) | September 30, 2023 | September 30, 2022 | ||||||
| Net charge-offs – QTD/YTD | $5/$88 | ($23)/($19 | ) | |||||
| Nonaccruing loans | 3,329 | 3,746 | ||||||
| OREO / Other Assets Owned (OAO) | 629 | 756 | ||||||
| Nonperforming assets | 3,958 | 4,502 | ||||||
| Nonperforming assets/Total assets | 0.30 | % | 0.35 | % | ||||
| Allowance for credit losses/Total loans | 1.60 | % | 1.49 | % | ||||
| Allowance for credit losses/Nonperforming loans | 474.3 | % | 369.0 | % | ||||
Consolidated Revenue: Total revenue, consisting of net interest income and noninterest income, was $13.7 million for the third quarter of 2023, a decrease of $0.8 million, or 5.3 percent, from the $14.5 million generated during the third quarter of 2022.
Net interest income (“NII”) for the third quarter of 2023 was $9.5 million, which was down $0.9 million from the prior year third quarter’s $10.4 million. Comparing the third quarter of 2023 to the prior year third quarter, the Company’s earning assets increased $29.2 million, and the average yield on earning assets increased by 89 basis points. The net interest margin for the third quarter of 2023 was 3.08 percent compared to 3.45 percent for the third quarter of 2022. Funding costs (interest paid to consumers and other entities) for interest bearing liabilities for the third quarter of 2023 were 2.18 percent compared to 0.58 percent for the prior year second quarter. The increase in funding costs has been driven by the rapid increase in the Federal Funds borrowing rate and the increased competition among banks for funding sources.
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Noninterest income was $4.2 million for the third quarter of 2023, which was up $0.1 million, or 3.0 percent from the prior year third quarter’s $4.0 million. In addition to the mortgage revenue detailed below, wealth management revenue was $0.8 million for the third quarter of 2023. Impairment of our mortgage servicing rights decreased noninterest income by $0.1 million in the quarter, compared to a recapture of $0.1 million in the prior year third quarter. Our title agency contributed revenue of $0.4 million in the third quarter of 2023, down $0.05 million from the prior year. Noninterest income as a percentage of average assets for the third quarter of 2023 was 1.24 percent compared to 1.24 percent for the prior year third quarter.
State Bank originated $61.2 million of mortgage loans during the third quarter of 2023, of which $54.1 million were sold with the remainder of loans held for investment. This compares to $68.6 million originated for the third quarter of 2022, of which $39.2 million were sold with the remainder of loans held for investment. These third quarter 2023 originations and subsequent sales resulted in $1.2 million of gains, up $0.3 million from the gains for the third quarter of 2022. Net mortgage banking revenue was $1.6 million for the third quarter of 2023 compared to $1.4 million for the third quarter of 2022. The economic headwinds of higher interest rates and limited housing supply in our markets has kept overall production down below historical levels.
Consolidated Noninterest Expense: Noninterest expense for the third quarter of 2023 was $10.5 million, which was up $0.1 million compared to $10.4 million in the prior-year third quarter. Overall head count is down from the prior year quarter by 6.0 percent as we continue to right size the mortgage business line. Commission expense for both mortgage and Small Business Administration (“SBA”) is down compared to the prior year due to the lower total origination volume. We had several non-recurring items in the quarter that elevated other operating expense including a check fraud and a contingent liability from a portfolio review.
Income Taxes: Income taxes for the third quarter of 2023 were $0.5 million (effective rate of 16.7 percent) compared to $0.7 million (effective rate of 18.2 percent) for the third quarter of 2022.
Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022
Net Income: Net income for the first nine months of 2023 was $8.2 million compared to net income of $9.0 million for the prior year nine months, a decrease of 8.6 percent. DEPS of $1.18 were down from the DEPS of $1.27 for the first nine months of 2022. Net income for the first nine months of 2023 was negatively impacted by the Company’s temporary impairment of mortgage servicing rights of $0.04 million, while net income for the 2022 first nine months was positively impacted by a recapture of mortgage servicing rights of $1.19 million. Mortgage loan volume was down over 32 percent during the first nine months of 2023, and sold loans on those originations were down $33.4 million or 21 percent compared to the prior year nine-month period. Funding costs for the first nine months of 2023 are up over 400 percent as compared to the prior year first nine months.
Provision for Credit Losses: The first nine months of 2023 provision for credit losses was $0.4 million as compared to no ($0) provision for the prior year first nine months. Net charge-offs for the current year were $88,000 compared to net recoveries of $19,000 for the year-ago first nine months.
Consolidated Revenue: Total revenue, consisting of net interest income and noninterest income, was $41.9 million for the first nine months of 2023, a decrease of $1.1 million, or 2.6 percent, from the $43.0 million generated during the first nine months of 2022.
Net interest income (“NII”) for the first nine months of 2023 was $29.7 million, which was up $1.2 million from the prior year first nine months $28.5 million. The net interest margin for the first nine months of 2023 was 3.18 percent compared to 3.08 percent for the first nine months of 2022 as the yield on earnings assets increased at a slower pace than funding costs. Funding costs (interest paid to consumers and other entities) for interest bearing liabilities for the first nine months of 2023 were 1.85 percent compared to 0.45 percent for the prior year first nine months.
Noninterest income was $12.2 million for the first nine months of 2023, which was down $2.3 million from the prior year first nine months $14.5 million. In addition to the mortgage revenue detailed below, recapture of our mortgage servicing rights impairment increased noninterest income in the prior year first nine months by over $1.1 million compared to the 2023 first nine months. Our title agency contributed revenue of $1.3 million in the first nine months of 2023, down $0.5 million from the prior year first nine months level of $1.8 million.
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State Bank originated $176.0 million of mortgage loans during the first nine months of 2023, of which $127.8 million was sold with the remainder of loans held for investment. This compares to $261.4 million originated for the first nine months of 2022, of which $161.2 million was sold with the remainder of loans held for investment. These 2023 year-to-date originations and subsequent sales resulted in $2.9 million of gains, down $0.9 million from the $3.7 million in gains for the first nine months of 2022. Net mortgage banking revenue was $4.4 million for the first nine months of 2023 compared to $6.1 million for the first nine months of 2022.
Consolidated Noninterest Expense: Noninterest expense for the first nine months of 2023 was $31.6 million, which was down $0.5 million compared to $32.0 million in the prior-year first nine months. Commission and benefit expense continues to be lower compared to the prior year due to lower staffing levels and compressed volume in Residential Mortgage and SBA.
Income Taxes: Income taxes for the first nine months of 2023 were $1.7 million (effective rate of 17.0 percent) compared to $2.0 million (effective rate of 18.1 percent) for the first nine months of 2022.
Changes in Financial Condition
Total assets at September 30, 2023 were $1.33 billion, a decrease of $9.2 million, or 0.7 percent, since December 31, 2022. Total loans, net of unearned income, were $989.0 million as of September 30, 2023, up $26.9 million, or 2.8 percent, from year-end.
Total deposits at September 30, 2023 were $1.09 billion, a decrease of $1.3 million, or 0.1 percent, since 2022 year end. The Company had approximately $180.2 million and $220.1 million of uninsured deposits as of September 30, 2023 and December 31, 2022, respectively. Uninsured deposit amounts are estimated based on the portions of customer account balances that exceed the FDIC insurance limit of $250,000.
Borrowed funds (consisting of FHLB advances, repurchase (“REPO”) agreements, trust preferred securities and subordinated debt) totaled $106.0 million at September 30, 2023. This is up from year-end 2022 when borrowed funds totaled $104.8 million due to slightly higher levels of REPOS. Total equity for the Company of $112.3 million now stands at 8.5 percent of total assets compared to the December 31, 2022, level of $118.4 million and 8.9 percent of total assets. Adjusting for the temporary impairment of Accumulated Other Comprehensive Loss, total equity would increase to $151.9 million or 11.5% of total assets.
The allowance for credit losses of $15.8 million is up $2.0 million from the December 2022 year-end level due to adding $1.4 million for the adoption of CECL, and $0.4 million for the first nine months of provision net of charge-offs. The Company has had stable to slightly improving asset quality through the first nine months of 2023 with the non-performing asset ratio at 30 basis points and coverage on non-performing loans at 474 percent.
Capital Resources
As of September 30, 2023, based on the computations for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve Board, State Bank was classified as “well capitalized” under the regulatory framework for prompt corrective 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 September 30, 2023 that management believes have changed State Bank’s capital classification. The Company adopted CECL on January 1, 2023, which reduced capital levels by $2.0 million. The Company elected to not phase in the impact of CECL as the reduction in capital did not have a material impact to tangible and regulatory capital levels.
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State Bank’s actual capital levels and ratios as of September 30, 2023 and December 31, 2022 are presented in the following table. Capital levels are presented for State Bank only as the Company is exempt from quarterly reporting on capital levels at the holding company level:
| To Be Well Capitalized Under | ||||||||||||||||||||||||
| For Capital Adequacy | Prompt Corrective | |||||||||||||||||||||||
| Actual | Purposes | Action Procedures | ||||||||||||||||||||||
| ($ in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| As of September 30, 2023 | ||||||||||||||||||||||||
| Tier I Capital to average assets | $ | 148,908 | 10.99 | % | $ | 54,199 | 4.0 | % | $ | 67,749 | 5.0 | % | ||||||||||||
| Tier I Common equity capital to risk-weighted assets | 148,908 | 13.56 | % | 49,416 | 4.5 | % | 71,379 | 6.5 | % | |||||||||||||||
| Tier I Capital to risk-weighted assets | 148,908 | 13.56 | % | 65,888 | 6.0 | % | 87,851 | 8.0 | % | |||||||||||||||
| Total Risk-based capital to risk-weighted assets | 162,670 | 14.81 | % | 87,851 | 8.0 | % | 109,814 | 10.0 | % | |||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||
| Tier I Capital to average assets | $ | 146,678 | 11.06 | % | $ | 53,069 | 4.0 | % | $ | 66,336 | 5.0 | % | ||||||||||||
| Tier I Common equity capital to risk-weighted assets | 146,678 | 13.42 | % | 49,200 | 4.5 | % | 71,067 | 6.5 | % | |||||||||||||||
| Tier I Capital to risk-weighted assets | 146,678 | 13.42 | % | 65,600 | 6.0 | % | 87,466 | 8.0 | % | |||||||||||||||
| Total Risk-based capital to risk-weighted assets | 160,346 | 14.67 | % | 87,466 | 8.0 | % | 109,333 | 10.0 | % | |||||||||||||||
Regulatory capital requirements commonly referred to as “Basel III” were fully phased in as of January 1, 2019 and are reflected in the September 30, 2023 capital table above. Management opted out of the accumulated other comprehensive income treatment under the new requirements and, as such, unrealized gains and losses from available-for-sale securities will continue to be excluded from State Bank’s regulatory capital.
Liquidity
Liquidity relates primarily to the Company’s ability to fund loan demand, meet deposit customers’ withdrawal requirements and provide for operating expenses. Assets used to satisfy 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 $236.2 million at September 30, 2023, compared to $270.8 million at December 31, 2022.
Liquidity risk arises from the possibility that the Company may not be able to meet the Company’s financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, the Board of Directors of the Company has established a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements. 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, first mortgage residential, agricultural and multi-family mortgage portfolio of $803.0 million at September 30, 2023 and $730.9 million at December 31, 2022, which can and has been used to collateralize borrowings, is an additional source of liquidity. Management believes the Company’s current liquidity level, without these borrowings, is sufficient to meet its liquidity needs. At September 30, 2023, all eligible commercial real estate, first mortgage residential and multi-family mortgage loans were pledged under an FHLB blanket lien.
The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain an adequate level of liquidity. A discussion of the cash flow statements for the nine months ended September 30, 2023 and 2022 follows.
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The Company experienced positive cash flows from operating activities for the nine months ended September 30, 2023 and September 30, 2022. Net cash provided by operating activities was $7.2 million for the nine months ended September 30, 2023 and $12.8 million for the nine months ended September 30, 2022. Highlights for the current year include $127.8 million in proceeds from the sale of loans, which is down $37.5 million from the prior year. Originations of loans held for sale was a use of cash of $127.2 million, which is down from the prior year by $31.1 million. For the nine months ended September 30, 2023, there was a gain on sale of loans of $3.1 million, and depreciation and amortization on premises and equipment of $1.7 million.
The Company experienced negative cash flows from investing activities for the nine months ended September 30, 2023 and September 30, 2022. Net cash used in investing activities was $10.3 million for the nine months ended September 30, 2023 and $133.0 million for the nine months ended September 30, 2022. Highlights for the current year include an increase of $27.1 million in loans, which is down $75.6 million from the prior year nine-month period. These cash payments were offset by $17.0 million in proceeds from maturities and sales of securities, which is down $12.9 million from the prior year nine-month period.
The Company experienced negative cash flows from financing activities for the nine months ended September 30, 2023 and September 30, 2022. Net cash used by financing activities was $5.6 million for the nine months ended September 30, 2023 and $1.4 million for the nine months ended September 30, 2022. Highlights for the current period include a $54.2 million decrease in transaction deposits and a $52.9 million increase in time deposits for the nine months ended September 30, 2023. This compares to the prior year nine-month period where transaction deposits decreased by $45.9 million and time deposits increased by $18.7 million. Net repayments of Federal Home Loan Bank advances for the nine months ended September 30, 2023 were $0.5 million, compared to net proceeds of $29.5 million for the prior year nine-month period.
Off-Balance-Sheet Borrowing Arrangements:
Significant additional off-balance-sheet liquidity is available in the form of FHLB advances and unused federal funds lines from correspondent banks. Management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings.
The Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of $803.0 million were pledged to meet FHLB collateralization requirements as of September 30, 2023. Based on the current collateralization requirements of the FHLB, the Company had approximately $100.5 million of additional borrowing capacity at September 30, 2023. The Company also had $110.5 million in unpledged securities available to pledge for additional borrowings.
The Company has contractual obligations consisting of long-term debt obligations and operating lease obligations. In addition, as of September 30, 2023, the Company had commitments to sell mortgage loans totaling $9.3 million. The Company believes that it has adequate resources to fund commitments as they arise and that it can adjust the rate on savings and time deposits to retain deposits in changing interest rate environments. If the Company requires funds 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 significant fluctuations in market interest rates would have on current and future earnings. The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans, mortgage-backed securities, and securities available for sale) which are primarily funded by interest-bearing liabilities (deposits and borrowings). With the exception of specific loans which are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. In addition, the Company has limited exposure to commodity prices related to agricultural loans. The impact of changes in foreign exchange rates and commodity prices on interest rates are assumed to be insignificant. The Company’s financial instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk. Interest rate risk is the Company’s primary market risk exposure; to a lesser extent, liquidity risk also impacts market risk exposure.
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Interest rate risk is the exposure of a banking institution’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value; however, excessive levels of interest rate risk could pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest rate risks at prudent levels is essential to the Company’s safety and soundness.
Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest rate risk and the organization’s quantitative level of exposure. When assessing the interest rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest rate risks at prudent levels of consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and asset quality (when appropriate).
The Federal Reserve Board together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation adopted a Joint Agency Policy Statement on Interest Rate Risk effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest rate risk, which will form the basis for ongoing evaluation of the adequacy of interest rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve Board guidance and discusses the importance of these elements in the context of managing interest rate risk. Specifically, the guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk management process that effectively identifies, measures and controls interest rate risk.
Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest rate changes. For example, assume that an institution’s assets carry intermediate or long-term fixed rates and that those assets are funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will either have lower net interest income or possibly, net interest expense. Similar risks exist when assets are subject to contractual interest rate ceilings, or rate-sensitive assets are funded by longer-term, fixed-rate liabilities in a declining rate environment.
There are several ways an institution can manage interest rate risk including: 1) matching repricing periods for new assets and liabilities, for example, by shortening or lengthening terms of new loans, investments, or liabilities; 2) selling existing assets or repaying certain liabilities; and 3) hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest rate risk. Interest rate swaps, futures contracts, options on futures contracts, and other such derivative financial instruments can be used for this purpose. Because these instruments are sensitive to interest rate changes, they require management’s expertise to be effective. The Company does not currently utilize any derivative financial instruments to manage 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 material change in the Company’s market risk from the information contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
With the participation of the President and Chief Executive Officer (the principal executive officer) and the Executive Vice President and Chief Financial Officer (the principal financial officer) of the Company, the Company’s management has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s President and Chief Executive Officer and the Company’s Executive Vice President and Chief Financial Officer have concluded that:
| ● | information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and other reports which the Company files or submits under the Exchange Act would be accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure; |
| ● | information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and other reports which the Company files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and |
| ● | the Company’s disclosure controls and procedures were effective as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. |
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of our business, the Company and its subsidiaries are parties to various legal actions which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Item 1A. Risk Factors
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. A detailed discussion of our risk factors is included in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as supplemented by “Item 1A. Risk Factors” of Part II of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023 and June 30, 2023.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
| (a) | Not Applicable |
| (b) | Not Applicable |
| (c) | Repurchases of Common Shares |
On December 21, 2022, the Company announced a share repurchase program authorizing the repurchase of up to 500,000 common shares of the Company through December 31, 2024. The table below sets forth information regarding common shares repurchased by the Company during the quarter ended September 30, 2023.
| (c) | (d) | |||||||||||||||
| Period | (a) Total Number of Shares Purchased | (b) 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 | ||||||||||||
| 07/01/23 - 07/31/23 | 17,473 | $ | 13.30 | 17,473 | 316,149 | |||||||||||
| 08/01/23 - 08/31/23 | 7,585 | 14.30 | 7,585 | 308,564 | ||||||||||||
| 09/01/23 - 09/30/23 | 18,756 | 14.58 | 18,756 | 289,808 | ||||||||||||
| Total | 43,814 | $ | 14.02 | 43,814 | 289,808 | |||||||||||
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Not applicable
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Item 6. Exhibits
Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange 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: November 9, 2023 | 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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