SB Financial Group Announces Second Quarter 2022 Results

DEFIANCE, Ohio, July 25, 2022 (GLOBE NEWSWIRE) -- 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 second quarter and six months ended June 30, 2022.

Second quarter 2022 highlights over prior-year second quarter include:

• Net income of $2.8 million; diluted earnings per share (“EPS”) of $0.40 or a 23.1 percent decrease
• Adjusted net income, excluding the impact of the Originated Mortgage Servicing Rights (“OMSR”) recapture of $0.2 million was $2.6 million, with EPS of $0.37
• Mortgage origination volume of $95.5 million, reflects a decrease of $69.4 million, or 42.1 percent

Six months ended June 30, 2022, highlights over prior-year six months include:

• Net income of $5.6 million and diluted EPS of $0.79, compared to $10.8 million, or $1.49 per share or a 47.0 percent decrease
• Adjusted net income, excluding the impact of OMSR activity of $4.8 million, down $4.0 million or 45.9 percent

Second quarter 2022 trailing twelve-month highlights include:

• Loans excluding Paycheck Protection Program (“PPP”) loans, increased $79.3 million, or 9.7 percent from the prior year
• Deposits decreased by $19.3 million, or 1.8 percent to $1.07 billion at quarter end
• Mortgage origination volume of $472.1 million; servicing portfolio of $1.37 billion, which is up $0.05 billion, or 3.5 percent

“We had very strong loan growth this quarter of $45 million, which is in addition to the $28 million in growth we achieved in Q1,” said Mark A. Klein, Chairman, President, and CEO of SB Financial. “For the first half of 2022 we have grown our loan balances by 8.9 percent over 2021 year end. This growth was across all categories and we had positive growth from nearly all of our regions. The prime rate increases coupled with the loan growth resulted in interest income increasing over 11 percent from the linked quarter.”

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was down 9.1 percent from the second quarter of 2021, and flat from the linked quarter.

• Net interest income was up from the year-ago quarter by 4.8 percent, and up 13.2 percent from the linked quarter.
• Net interest margin on a fully taxable equivalent basis (FTE) was up from both year-ago and linked quarters by 23 and 49 basis points, respectively, as loan balances were up $44.9 million from the linked quarter. Net of PPP, our net interest margin is higher by 34 basis points compared to the prior year.
• Noninterest income was down 29 and 19 percent from the year ago and linked quarters, respectively, due to lower mortgage volume and OMSR recapture.

Mortgage Loan Business

Mortgage loan originations for the second quarter of 2022 were $95.5 million, down $69.4 million, or 42.1 percent, from the year-ago quarter; likewise, total sales of originated loans were $49.9 million, down $69.1 million, or 58.1 percent.   For the first six months of 2022, SB Financial had total volume of $192.8 million, of which $141.4 million (73 percent) was new purchase/construction lending, $33.0 million was external refinance (17 percent), and the remaining $18.4 million (10 percent) was internal refinance.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.8 million for the second quarter of 2022, compared to $4.0 million for the year-ago quarter. The mortgage servicing valuation adjustment for the second quarter of 2022 was a positive $0.2 million, compared to a negative adjustment of $0.1 million for the second quarter of 2021. For the first six months of 2022, the recapture of servicing rights was $1.1 million compared to a recapture of $2.6 million for the prior year six months. The aggregate servicing valuation impairment ended the quarter at $0.3 million.   The servicing portfolio at June 30, 2022, was $1.37 billion, up $0.05 billion, or 3.5 percent, from $1.32 billion at June 30, 2021.

Mr. Klein noted, “With fixed rate saleable mortgage rates above 5 percent for most of the quarter, we have continued to be flexible by originating more portfolio product with a special emphasis on the Private Client segment. We continue to look for ways to improve our efficiency in the mortgage business line and are committed to adding additional originators to capture market share and balance the entire business-line ecosystem.”

Noninterest Income and Noninterest Expense

SB Financial’s noninterest income for the quarter was down from the prior year and the linked quarter by 29 and 19 percent, respectively. Gain on sale yields on mortgage loan sales were down over 100 basis points from the prior year and the total dollars of sales were down over $69 million. Wealth management revenue was flat from the prior year as our retention efforts and new sales offset general market declines. SB Financial’s title agency, Peak Title, continued to transition to serving all of the Company’s needs by increasing commercial volume and with our new market expansions; as a result, revenue was up 31 percent compared to the prior year.

For the second quarter of 2022, noninterest expense of $10.8 million was down $0.3 million or 2.5 percent compared to the prior year. Decreased mortgage volume has been the main driver of lower operating expenses.

Mr. Klein stated, “We are committed to lowering our operating costs in both the Mortgage and Retail business lines to reflect not only lower volumes but also the change in consumer behavior of a more robust adoption of digital banking solutions.”

Balance Sheet

Total assets as of June 30, 2022, were $1.29 billion, down $0.02 billion, or 1.4 percent, from the year ago quarter due to declining deposit levels as the consumer began to put their excess liquidity to use in the economy. Total shareholders’ equity as of June 30, 2022, was $124.6 million, down 13.5 percent from a year ago due to the valuation adjustment on the Company’s bond portfolio. Absent that negative impact, equity increased $3.2 million or 2.3 percent. SB Financial bought back 94,211 shares of our stock in the quarter at an average price of $18.08 or 122 percent of tangible book value.

Total loans held for investment were $895.6 million at June 30, 2022, up $45.1 million, or 5.3 percent, from June 30, 2021. Excluding PPP activity from both years, loan balances were up $79.3 million, or 9.7 percent.

The investment portfolio of $271.5 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 21.0 percent of assets at June 30, 2022, and was up 25.1 percent from the year-ago period. Deposit balances of $1.07 billion at June 30, 2022, decreased by $0.02 billion, or 1.8 percent, since June 30, 2021.

Mr. Klein continued, “Loan growth from the linked quarter met and exceeded our expectations and we remain very positive about the loan pipelines in all of our markets.   The consumer and our small business clients began to utilize their liquidity as we saw deposit and cash levels decline this quarter.”

Asset Quality

SB Financial reported nonperforming assets of $5.4 million as of June 30, 2022, down $0.6 million or 9.5 percent from the year-ago quarter. The Company took minimal charge-offs in the quarter, and for the year, had just $4,000 in net charge-offs. The coverage of problem loans by the loan loss allowance was at 290 percent at June 30, 2022.

Webcast and Conference Call

The Company will hold a related conference call and webcast on July 26, 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 title opinions throughout the Tri-State region. SB Financial’s common stock is listed on the NASDAQ Capital Market under the symbol “SBFG”.

In April 2022, SB Financial was named to the Keefe, Bruyette & Woods, Inc. “Bank Honor Roll” of superior performers that consistently reported increases in earnings per share over the last decade. The honor roll review determined that just 17 banks in the U.S., including SB Financial, or five percent of all 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. Klein        Chairman, President and         Chief Executive Officer        Mark.Klein@YourStateBank.com

Anthony V. Cosentino        Executive Vice President and         Chief Financial Officer        Tony.Cosentino@YourStateBank.com