SB Financial Group Announces Fourth Quarter Results and Record Full Year 2021 earnings

DEFIANCE, Ohio, Jan. 27, 2022 /PRNewswire/ -- SB Financial Group, Inc. (NASDAQ: SBFG) ("SB Financial" or the "Company"), a diversified financial services company providing full-service community banking, mortgage banking, wealth management, private client and title insurance services today reported earnings for the fourth quarter and twelve months ended December 31, 2021.

Fourth quarter 2021 highlights for the fourth quarter include:

• Net income of $3.3 million; diluted earnings per share ("EPS") of $0.49 or a 31.0 percent decrease year over year
• Adjusted net income, excluding the positive impact of the Originated Mortgage Servicing Rights ("OMSR") recovery of $581,000 was $2.9 million, with EPS of $0.42
• Mortgage origination volume of $126.7 million, reflects a decrease of $42.3 million, or 25.0 percent

Full year 2021 highlights over the prior year include:

• Net income of $18.3 million, which is the highest in history for the Company, with EPS of $2.56 or a 30.6 percent increase
• Loans increased $18.5 million, or 2.3 percent year over year excluding the impact of Paycheck Protection Program ("PPP") loan balances in 2020 and 2021 of $2.0 and $70.6 million, respectively
• Deposits increased by $64.0 million, or 6.1 percent to $1.11 billion
• Mortgage origination volume of $600.0 million, was a decline of $94.2 million or 13.6 percent with the mortgage servicing portfolio increasing by $63.3 million to $1.36 billion, or 4.9 percent
• Provision expense of $1.1 million declined 76.7 percent from the year ago period, with net recoveries of $181,000 in 2021, compared to net charge offs of $681,000 in 2020

"The fourth quarter completed the highest earnings performance for our Company in our history," said Mark A. Klein, Chairman, President, and CEO of SB Financial.   "We have completed nearly all of the PPP forgiveness and we are looking forward to a return to a bit more normal operating environment with the onset of the new year.  Our team made meaningful progress this year in the face of a fairly challenging environment."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was down 13.7 percent from the fourth quarter of 2020, and down 6.0 percent from the linked quarter.

• Net interest income was down from the year-ago quarter by 1.9 percent, and down 9.4 percent from the linked quarter as the impact of PPP forgiveness declined.
• Net interest margin on a fully taxable equivalent basis (FTE) was down from the year-ago and linked quarter by 32 basis points, as cash balances continued to be higher than normal, and PPP balances were down to $2.0 million.
• Noninterest income was down 26 percent from the year ago quarter as mortgage volume and gain on sale yields trended lower.

Mortgage Loan Business

Mortgage loan originations for the fourthquarter of 2021 were $126.6 million, down $42.4 million, or 25.1 percent, from the year-ago quarter.  Total sales of originated loans were $110.5 million, down $32.6 million, or 22.8 percent, from the year-ago quarter.  For the twelve months of 2021, SB Financial had total volume of $600.0 million, of which $305.3 million (51 percent) was new purchase/construction lending, $152.2 million (25 percent) was external refinance, and the remaining $142.4 million (24 percent) was internal refinance.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $3.8 million for the fourth quarter of 2021, compared to $6.2 million for the year-ago quarter.  The mortgage servicing valuation adjustment for the fourth quarter of 2021 was a positive $581,000, compared to a negative adjustment of $611,000 for the fourth quarter of 2020.  For the twelve months of 2021, the recapture of servicing rights was $3.4 million compared to impairment of $3.6 million for the prior year twelve months.  The aggregate servicing valuation impairment ended the quarter at $1.5 million.  The servicing portfolio at December 31, 2021, was $1.36 billion, up $63.3 million, or 4.9 percent, from $1.30 billion at December 31, 2020.  

Mr. Klein noted, "Mortgage originations of $127 million reflected the normal cyclical nature of the business line and also reflected the decline in refinance volume, which was down 20 percent from the linked quarter.  We recaptured nearly $600,000 on our service rights impairment in the quarter, and as rates rise into 2022, potentially, the remaining $1.5 million would add to net income.  We ended the year with strong origination teams in all of our markets, with the commitment to add originators across our footprint to achieve our volume targets."

Noninterest Income and Noninterest Expense

SB Financial's noninterest income for the quarter was down 26 percent from the prior year.  The gain on sale mortgage loan yields were down 214 basis points from the prior year with the total dollars of sales down $32.7 million.  Wealth management revenue was up over 14 percent from the prior year due to higher retention levels and growth in the equity sector.  SB Financial's Title Agency provided revenue in the quarter of $528,000.  For the twelve months, noninterest income of $30.7 million was up $600,000 or 2.0 percent year over year.  Fee income as a percent of total revenue finished 2021 at 44.8 percent.

For the fourthquarter of 2021, noninterest expense of $11.6 million was up 8.3 percent from the prior year.  For the twelve months of 2021, noninterest expense of $44.8 million was up $1.7 million or 4.0 percent compared to the prior year.  This increase, in part, reflects our ongoing investment in technology and enhanced customer solutions.

Balance Sheet

Total assets as of December 31, 2021, were $1.33 billion, up $73.0 million, or 5.8 percent, year over year due to higher liquidity levels.  Total shareholders' equity as of December 31, 2021, was $144.9 million, up 1.4 percent year over year, and represented 10.9 percent of total assets. 

Total loans held for investment were $822.7 million at December 31, 2021, down $50.0 million, or 5.7 percent, from December 31, 2020.  Excluding PPP activity from both years, loan balances were up $18.5 million, or 2.3 percent.

The investment portfolio of $268.6 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 20.2 percent of assets at December 31, 2021, and was up 87.4 percent year over year.  Deposit balances of $1.11 billion at December 31, 2021, increased by $64.0 million, or 6.1 percent, since December 31, 2020.  Growth from the prior year included $14.1 million in checking and $49.9 million in savings and time deposit balances.

Mr. Klein continued, "Our lenders are pleased to get the PPP process in the rear view mirror and get back out to connect with clients and drive organic growth.  Pipelines are generally strong and we expect to add lenders in key urban markets to drive growth in 2022.  Subsequent to year end, we have an agreement in principle to sell the largest OREO property in our portfolio, which will reduce NPA's to nearly 35 basis points when closed.  Our coverage of non-performing loans ended the year at 315 percent, nearly double the coverage from the prior year."

Asset Quality

SB Financial reported nonperforming assets of $6.5 million as of December 31, 2021, which was down $778,000 or 10.7 percent year over year.  The Company recorded $7,000 in net recoveries in the quarter, and total net recoveries of $181,000 for the year.  Our loan loss reserve of $13.8 million is up $1.2 million or 9.8 percent year over year and represents 1.68 percent of total loans.

Webcast and Conference Call

The Company will hold a related conference call and webcast on January 28, 2022, at 11:00 a.m. EDT.  Interested parties may access the conference call by dialing 1-888-338-9469.  The webcast can be accessed at ir.yourstatebank.com.  An audio replay of the call will be available on the Company's website.

About SB Financial Group                                                                          

Headquartered in Defiance, Ohio, SB Financial is a diversified financial services holding company for the State Bank & Trust Company (State Bank) and SBFG Title, LLC dba Peak Title (Peak Title).  State Bank provides a full range of financial services for consumers and small businesses, including wealth management, private client services, mortgage banking and commercial and agricultural lending, operating through a total of 23 offices; 22 in nine Ohio counties and one in Fort Wayne, Indiana, and 24 full-service ATMs. State Bank has five loan production offices located throughout the Tri-State region of Ohio, Indiana and Michigan.  Peak Title provides title insurance and opinions throughout the Tri-State region. SB Financial's common stock is listed on the NASDAQ Capital Market under the symbol "SBFG".

In May 2021, SB Financial was named to the Keefe, Bruyette & Woods, Inc. "Bank Honor Roll" of superior performers as revealed in EPS increases for 10 consecutive years.  The honor roll review determined that just 16 banks in the U.S., including SB Financial, or 4 percent of the nearly 400 banks screened, qualified for inclusion.

Forward-Looking Statements

Certain statements within this document, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties and actual results may differ materially from those predicted by the forward-looking statements. These risks and uncertainties include, but are not limited to, the duration and scope of the COVID-19 outbreak in the United States and the market areas in which SB Financial and its subsidiaries operate, including the impact to the state and local economies of prolonged shelter in place orders and the pandemic generally, risks and uncertainties inherent in the national and regional banking industry, changes in economic conditions in the market areas in which SB Financial and its subsidiaries operate, changes in policies by regulatory agencies, changes in accounting standards and policies, changes in tax laws, fluctuations in interest rates, demand for loans in the market areas in SB Financial and its subsidiaries operate, increases in FDIC insurance premiums, changes in the competitive environment, losses of significant customers, geopolitical events, the loss of key personnel and other risks identified in SB Financial's Annual Report on Form 10-K and documents subsequently filed by SB Financial with the Securities and Exchange Commission.  Forward-looking statements speak only as of the date on which they are made, and SB Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, except as required by law. All subsequent written and oral forward-looking statements attributable to SB Financial or any person acting on its behalf are qualified by these cautionary statements.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). Non-GAAP financial measures, specifically pre-tax, pre-provision income, tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, return on average tangible common equity, total interest income – FTE, net interest income – FTE and net interest margin – FTE are used by the Company's management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders.  In addition, the Company excludes the non-GAAP items of OMSR impairment and merger related costs from net income to report an adjusted net income level.  Although management believes these non-GAAP measures are useful to investors by providing a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Investor Contact Information:

Mark A. KleinChairman, President and Chief Executive OfficerMark.Klein@YourStateBank.comAnthony V. CosentinoExecutive Vice President and Chief Financial OfficerTony.Cosentino@YourStateBank.com