8-K - SBFG - Equibles

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 8-K

CURRENT REPORTPursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) August 1, 2022 (July 26, 2022)

SB FINANCIAL GROUP, INC

(Exact name of registrant as specified in its charter)

Ohio	0-13507	34-1395608
(State or other jurisdiction<br><br>of incorporation)	(Commission File Number)	(IRS Employer<br><br> <br>Identification No.)
401 Clinton Street, Defiance, OH	43512
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(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including

area code (419) 783-8950

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written<br>communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting<br>material pursuant to Rule 1 4a- 12 under the Exchange Act (17 CFR 240.1 4a- 12)
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☐	Pre-commencement<br>communications pursuant to Rule 1 4d-2(b) under the Exchange Act (17 CFR 240.1 4d-2(b))
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☐	Pre-commencement<br>communications pursuant to Rule 1 3e-4(c) under the Exchange Act (17 CFR 240.1 3e-4(c))
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

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. ☐

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, No Par Value 7,054,289 Outstanding at August 1, 2022	SBFG	The NASDAQ Stock Market, LLC<br><br> <br>(NASDAQ Capital Market)

Item 2.02. Results of Operations and Financial Condition.

On July 26, 2022, SB Financial Group, Inc. (the “Company”) hosted a conference call and webcast to discuss its financial results for the second quarter ending June 30, 2022. A copy of the transcript for the conference call and webcast is furnished as Exhibit 99.1 and is incorporated herein by reference.

The information in this Item 2.02, including Exhibit 99.1 furnished herewith, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that Section, nor shall such information be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

Item 9.01. Financial Statements and Exhibits.

(a) Not Applicable

(b) Not Applicable

(d) Exhibits

Exhibit No.	Description
99.1	Transcript of conference call and webcast conducted on July 26, 2022.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SB FINANCIAL GROUP, INC.
Dated: August 1, 2022	By:	/s/ Anthony V. Cosentino
		Anthony V. Cosentino
		Chief Financial Officer

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INDEX TO EXHIBITS

Current Report on Form 8-K

Dated August 1, 2022

SB Financial Group, Inc.

Exhibit No.	Description
99.1	Transcript of conference call and webcast conducted on July 26, 2022.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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Exhibit99.1

SBFinancial Group, Inc.

SecondQuarter 2022 Financial Results Conference Call Script

July26, 2022

Sarah / Speakers call-in #: 888-338-9469

Operator:

Good morning and welcome to the SB Financial “Second Quarter 2022 Conference Call and Webcast.” I would like to inform you that this conference call is being recorded and that all participants are in a “listen only” mode. We will begin with remarks by management and then open the conference up to the investment community for questions & answers. I will now turn the conference over to Sarah Mekus with SB Financial. Please go ahead, Sarah.

Sarah:

Good morning, everyone. I would like to remind you that this conference call is being broadcast live over the Internet and will be archived and available on our web site at ir.yourstatebank.com. Joining me today are Mark Klein, Chairman, President and CEO; Tony Cosentino, Chief Financial Officer; and Steve Walz, Chief Lending Officer.

This call may contain forward-looking statements regarding SB Financial’s performance, anticipated plans, operational results and objectives. Forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied on our call today.

We have identified a number of different factors within the Forward-Looking Statements at the end of our earnings release, which you are encouraged to review. SB Financial undertakes no obligation to update any forward-looking statement, except as required by law, after the date of this call. In addition to the financial results presented in accordance with GAAP, this call will also contain certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings release.

I will now turn the call over to Mr. Klein.

Mark:

Thank you, Sarah, and good morning everyone. Welcome to our second quarter 2022 conference call and webcast.

Highlightsfor this quarter, which included a small mortgage servicing rights recapture of $239 thousand, include:

●	Net<br> income of $2.8 million, down $1.0 million or 25 percent from the prior year quarter. On a<br> YTD basis, net income was $5.6 million, down $5.2 million or 48 percent;
●	The<br> YTD impact from the PPP initiative on our results, compared to the prior year, is a reduction<br> in revenue of $2.1 million and net income of $1.6 million;
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●	Return<br> on average assets of 0.87 percent, with diluted EPS of $0.40;
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●	Net<br> interest income of $9.6 million was up 4.8 percent from the prior year as loan growth and<br> rate increases were supplemented by the 12.4 percent reduction in interest expense;
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●	Loan<br> balances from the linked quarter rose $45 million and when we adjust for PPP balances, loans<br> were up $79.3 million or a strong 9.7 percent compared to the prior year;
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o	Annualized,<br>our first half loan growth was 17.7%.
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●	Deposits<br> declined from the linked quarter by $66 million and were down $19 million from the prior<br> year;
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●	Expenses<br> were down $274 thousand or 2.5 percent primarily due to lower mortgage commissions;
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●	Mortgage<br> origination volume for the quarter was $95 million; down over $69 million or 42 percent,<br> year over year;
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●	The<br> mortgage business line contributed $4.7 million in total revenue for the 1^st^ six<br> months of this year compared to $12.3 million for the same period in 2021;
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●	Asset<br> quality metrics improved from both the prior year and the linked quarter and our consistent<br> level of 42 basis points of nonperforming assets, remains strong;
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●	Tangible<br> book value when adjusted for OCCI is $17.53 per share.
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We continue to believe that our laser focus on our five key strategic initiatives is critical to our future success, which are:

●	Revenue<br> Diversity
●	More<br> scale through Organic growth
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●	More<br> products and services for our client base
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●	Excellence<br> in our operations and intimacy in our client communications
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●	And<br> lastly…. asset quality
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First,revenue diversity.

●	Peak<br> Title continued to bolster revenue this quarter by $697 thousand and net income by $168 thousand<br> or $0.09 EPS annualized. We made a strategic shift last quarter to follow legal protocol<br> and require title insurance on nearly all real estate transactions while driving operational<br> revenue higher with a more intentional focus on the commercial real estate segment. These<br> initiatives are responsible for the 23% increase we delivered in revenue and 12% of net income.
●	This<br> quarter, mortgage volume and loan sale gains were down from the prior year; 42 percent on<br> volume and 72 percent on gains. For the trailing twelve months, we have delivered nearly<br> $500 million in total mortgage origination volume, down 24% from 2020 and 32% from 2021.<br> Our initiatives to drive our volume of Private Client originations higher are working. This<br> quarter, 27%, or $25.5 million of our total residential real estate volume originated from<br> our PCG business line. Of this production, 41% came from the Columbus market, 22% from Northwest<br> Ohio and Northeast Indiana, and 37% from our newer Indianapolis market. Outside of our PCG<br> initiatives, higher rates and compressed inventories continued to constrain our level of<br> production.
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●	Non-interest<br> income decreased to $4.7 million from the prior year quarter of $6.5 million. The current<br> quarter includes a mortgage servicing recapture of $239 thousand compared to an impairment<br> of $99 thousand in the second quarter of 2021. Non-interest income to total revenue remained<br> relatively strong at 33 percent but well below our historical levels of nearly 40%.
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●	Our<br> Wealth Management team contributed $936 thousand in revenue and are on pace to achieve total<br> revenue in 2022 of nearly $4.0 million. Despite the volatility in the markets this year,<br> we still have in excess of $500 million in assets under management; this includes nearly<br> $38 million in our brokerage platform
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Oursecond key initiative…more scale.

●	Loan<br> growth in the quarter was very good as we were up $45 million from the linked quarter and<br> up $79 million, net of PPP, from the prior year. All of our regional markets have very strong<br> pipelines including a number of client proposals currently in credit analysis. With this<br> quarterly growth noted, we have now grown four of the last five quarters.
●	This<br> quarter saw evidence of the consumer and our small business clients drawing down their liquidity<br> as deposits declined from the linked quarter. Funding needs to support our loan pipelines<br> are much more important today, as a result of our current run-off, and we have begun to selectively<br> increase deposit rates to not only hedge higher, future interest rates but also protect existing<br> balances and grow newer relationships.
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●

Loan growth in the quarter was very good as we were up $45 million from the linked quarter and up $79 million, net of PPP, from the prior year. All of our regional markets have very strong pipelines including a number of client proposals currently in credit analysis. With this quarterly growth noted, we have now grown four of the last five quarters.

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This quarter saw evidence of the consumer and our small business clients drawing down their liquidity as deposits declined from the linked quarter. Funding needs to support our loan pipelines are much more important today, as a result of our current run-off, and we have begun to selectively increase deposit rates to not only hedge higher, future interest rates but also protect existing balances and grow newer relationships.

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Thirdis our strategy to develop deeper relationships—more scope.

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The traditional SBA market has begun to loosen a bit as the PPP focus is clearly all but gone. Thus far this year, we have originated nearly $5.5 million in qualifying SBA product. We continue to execute on strategies in each of our regions that include more calls on clients and prospects that are in either a growth mode or a business acquisition mode who have identified a strong need for capital. We remain committed to this true “compliment” to our commercial loan production machine and intend to return the production levels we experienced prior to the pandemic (2015-2019) that averaged approximately $12.3 million for that five year period.

Operationalexcellence remains our fourth key theme.

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The Mortgage business line has certainly been a key contributor to our success for the last decade. However, rate increases, operational challenges of construction lending, limited housing inventory, and a rapid rate of inflation have compressed volume. That said, we have focused on flexibility with our products and structure to maintain market share. With Freddie fixed rate pricing now at or above 5 percent for most of this year, our portfolio ARM products have become more relevant. These portfolio loans have increased our balance sheet outstanding’s and added the potential for rising margins as rates rise.

●	Expense<br> levels for the quarter were down from both the linked quarter and the prior year, driven<br> by the variable nature of our mortgage production. As we discussed last quarter, we are evaluating<br> the resources allocated to both our Mortgage and Retail business lines. Our goal is and has<br> been for the residential lending business line the past six months, to elevate our number<br> of producers in order to keep our ecosystem in balance and optimized.
●	I<br> am pleased to report that in the last 30 days we have made offers to 3 MLOs and we have landed<br> two of those producers; one in the greater Lima region and one additional in Columbus. This<br> brings our total MLOs to 25, an increase over the prior year-end of 22. Additionally, we<br> intend to selectively utilize some of our retail staff who do non-salable consumer loans<br> to originate some salable residential loans to broaden our production capacity.
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●	Likewise,<br> with walk-in visits moderating in our retail offices, due in part, by our commitment to leverage<br> our digital platforms to enable access to our clients’ data 24/7, we continue to re-evaluate<br> the hours we staff and operate our offices. This strategy hinges on the deployment of our<br> “Contact Center” we delivered in early July that seeks to provide seamless service<br> to clients using multiple communication channels Re-balancing our resources with market requirements<br> will improve efficiency.
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Ourfifth and final key initiative is asset quality

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This quarter saw again a strong result of key Asset Quality metrics. Despite the significant loan growth in the quarter, we remained quite pleased with our current allowance of nearly $14 million. During 2020 and 2021 when PPP and mortgage refinance volume was adding to our revenue, we chose to add $5.5 million to our allowance. Currently, our level of allowance to total loans is 1.54 percent and our nonperforming coverage ratio is 295 percent. Both metrics are well above the median level of our peer group.

Now, Tony will provide more details on our quarterly performance. Tony.

TONY:

Thanks Mark, and good morning, everyone. Again, for the quarter, we had GAAP net income of $2.8 million or $0.40 per diluted share. Highlights for the quarter include:

●	Total<br> operating revenue was down $1.4 million or 9.1 percent as mortgage gains from lower volume<br> and reduced sales percentage was down nearly $3.1 million or 71.9 percent. We were able to<br> offset a portion of the mortgage variance with higher title agency revenue and deposit fees;
●	Loan<br> sales delivered gains of $1.4 million from mortgage, small business and agriculture loans;
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●	Margin<br> revenue was up $436 thousand or 4.8 percent due to slightly lower funding costs and higher<br> securities revenue. Adjusted for PPP, loan interest income was higher by $468 thousand or<br> 5.5 percent;
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Now,breaking down further the second quarter income statement, beginning with our margin:

●	Our<br> average loan yield for the quarter, of 4.11 percent decreased by 22 basis points from the<br> prior year but increased 21 basis points from the linked quarter. As Mark discussed earlier<br> PPP impact on loan yields for 2021 was significant and absent that impact our average loan<br> yield would have decreased by just 9 basis points from the prior year. Overall earning asset<br> yields were up 20 basis points from the prior year and 49 from the linked quarter due to<br> the change in mix of the balance sheet, and higher loan growth. Loan yields were impacted<br> by the fees from the PPP portfolio, which were $$2.15 million for the 1^st^ six<br> months of 2021 compared to $98 thousand for the 2022 six month period.
o	As<br> we have indicated, funding needs and cost will begin to accelerate as customer liquidity<br> draws down and our loan pipelines are closed. As we look at funding costs in the current<br> quarter, our deposit cost of funds came it at 21 basis points with the cost for Interest<br> bearing liabilities at 36 basis points. This compares to 22 and 39 basis points, respectively,<br> for the linked quarter. Given the rise in funding rates, we were pleased with the negative<br> Beta on funding costs in the quarter. However, we recognize that out liquidity was a bit<br> high by our standards coming into the quarter and we expect deposit and overall funding costs<br> to rise in the coming quarters. Net interest margin at 3.16 percent, was up 22 basis points<br> from the prior year and up 34 basis points when PPP is excluded. Compared to the linked quarter<br> NIM is up 48 basis points. Our significant NIM improvement from the linked quarter was driven<br> by a positive change in mix on the asset side of the balance sheet as interest bearing cash<br> was allocated to loans and deposit levels declined. Total interest expense costs were down<br> from both the prior year and linked quarters.
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o	Total<br> non-interest income was down $1.9 million or 28.5 percent from the prior year, reflecting<br> lower mortgage origination and sales volume, which offset the $336 thousand positive swing<br> in servicing rights recapture.
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o	As<br> I discussed last quarter, gain on sale yields have seemed to stabilize at the mid 2 level.<br> Gain on sale yield for mortgage sales this quarter was 2.4 percent, which is still strong<br> historically but well off from the 3.6 percent yield from the 2^nd^ quarter of 2021.<br> This quarter our sale percentage was just 52 percent and 63 percent for the year as we have<br> done much more portfolio and private client loan originations. These levels are well off<br> from our traditional 85 percent sale percentage. Our servicing portfolio does continue to<br> grow and is now at $1.37 billion and provided revenue for the quarter of $863 thousand.
o	The<br> market value of our mortgage servicing rights improved slightly this quarter with a calculated<br> fair value of 111 basis points. This fair value level was up 27 basis points from the prior<br> year and up 6 basis points from the linked quarter. We now have a servicing rights balance<br> of $13.4 million and remaining temporary impairment of $327 thousand.
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●	We<br> have held expenses relatively flat for the last five quarters and for the year to date total<br> expenses are down 1.5 percent. We expect to trend down in the coming quarters as we adjust<br> resources in our Retail and Mortgage business lines as Mark has discussed. The impact of<br> the Mortgage business line on our efficiency ratio is significant as our 25 percent decline<br> in efficiency from 2021 would be reduced to an 11 percent decline when the results of that<br> business line are excluded
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Now,turning to the balance sheet:

o	Our<br> loans outstanding at June 30, 2022 stood at $895.6 million, which was 69.2 percent of the<br> total assets of the company. The quarter saw a significant mix shift within our earning assets<br> as we saw cash and securities decline by nearly $100 million from the linked quarter due<br> to loan growth and deposit runoff. Our loan to deposit ratio ended the quarter at 83.6 percent,<br> up nearly 6 percentage points and to our highest level since the 3^rd^ quarter of<br> 2020.
o	Looking<br> at our capital position, we finished the quarter at $124.6 million, which is down $19.5 million<br> or 13.5 percent from June 30, 2021 and our equity to asset ratio stands at 9.6 percent. However,<br> when we exclude the OCCI of $22.2 million, our equity has grown from the prior year despite<br> nearly $7 million in stock buybacks and $3.3 million in dividends. The buyback continued<br> in the quarter with 94,000 shares repurchased at an average price just above book value.
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o	We<br> did also take advantage of our liquidity and purchased some additional BOLI policies in the<br> quarter. It has been some time since we have added to this portfolio and it is a nice benefit<br> for both the Company and the participating employees.
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●	As<br> Mark commented, all of our Asset Quality metrics are improved and charge-offs were minimal<br> for both the quarter and for the year to date. Our reserve to loans was just 2 basis points<br> down from the prior year. Total delinquency levels are just 32 basis points in the quarter,<br> down 27 basis points from the linked quarter and 9 basis points down from the prior year.
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Iwill now turn the call back over to Mark.

Mark:

Thank you, Tony.

●	I<br> want to conclude with acknowledging the dividend announcement we made yesterday of $0.12<br> per share, which equates to a 30% payout ratio and a dividend yield of 2.8 percent.
●	While<br> mortgage volume and resulting gains are off considerably, marginally higher rates and a steepening<br> yield curve provided some lift to our total operating revenue. With continued organic loan<br> growth, stable deposit costs and more intentional expense control, we expect to continue<br> our earnings and growth momentum into the second half of the year.
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Now, I will turn the call back to Sarah for questions.

Sarah:

Thank you, we are now ready for our first question.

(If there is a pause in the questions): While we’re waiting for additional questions, I would like to remind you that today’s call will be accessible on our website at ir.yourstatebank.com.

Operator (at the conclusion of the Q&A):

If there are no further questions, I will now turn the call back to Mark Klein.

Mark:

Once again, thanks for joining us this morning.

We look forward to speaking with you in October to discuss our 3rd quarter 2022 results.

Good-bye.