SB Financial Group Announces Fourth Quarter 2022 Results

DEFIANCE, Ohio, Jan. 26, 2023 (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 fourth quarter and twelve months ended December 31, 2022.

Fourth quarter 2022 highlights:

• Net income of $3.5 million increased six percent compared to the prior year with diluted earnings per share (“EPS”) of $0.50

• Noninterest expense of $10.3 million declined 11.2 percent from the prior year

• Loan growth of $36.8 million from the linked quarter, or 15.9 percent annualized

• Solid asset quality with nonperforming assets at 38 basis points

Twelve months ended December 31, 2022, highlights over the prior-year include:

• Net income of $12.5 million and diluted EPS of $1.77, compared to $18.3 million, or $2.56 per share or a 30.9 percent decrease

• Loans, increased $141.4 million, or 17.2 percent from the prior year, excluding Paycheck Protection Program (“PPP”) loans,

• Deposits decreased by $26.4 million, or 2.4 percent to $1.09 billion

• Mortgage origination volume of $312.6 million and a servicing portfolio of $1.35 billion

• Net recoveries on loans for the year of $13,000
  

Highlights	Three Months Ended									Twelve Months Ended
($ in thousands, except per share & ratios)	Dec. 2022			Dec. 2021			% Change			Dec. 2022			Dec. 2021			% Change
Operating revenue	$	14,613		$	15,667		-6.7	%		$	57,630		$	68,581		-16.0	%
Interest income		12,937			10,003		29.3	%			44,569			41,904		6.4	%
Interest expense		2,037			925		120.2	%			5,170			4,020		28.6	%
Net interest income		10,900			9,078		20.1	%			39,399			37,884		4.0	%
Provision for loan losses		-			-		0.0	%			-			1,050		-100.0	%
Noninterest income		3,713			6,589		-43.6	%			18,231			30,697		-40.6	%
Noninterest expense		10,269			11,567		-11.2	%			42,314			44,808		-5.6	%
Net income		3,533			3,332		6.0	%			12,521			18,277		-31.5	%
Earnings per diluted share		0.50			0.49		2.0	%			1.77			2.56		-30.9	%
Return on average assets		1.08	%		0.99	%	9.1	%			0.95	%		1.38	%	-31.2	%
Return on average equity		12.17	%		9.21	%	32.1	%			9.86	%		12.67	%	-22.2	%

“In the fourth quarter of 2022 loan growth was strong with balances growing $37 million, or 4.0 percent from the third quarter of 2022,” said Mark A. Klein, Chairman, President, and CEO of SB Financial. “And when we compare our growth to the prior year, organic loan growth was up $139.4 million or 16.9 percent. We continued to realize margin expansion as the pace of rate increases of our asset sensitive balance sheet provided greater expansion of interest income than the increased cost of funding, even as deposits repriced.”

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was up 1.0% from the linked quarter but down 6.7 percent from the fourth quarter of 2021. Operating revenue was negatively impacted by the decline in mortgage banking revenue.

• Net interest income was up 4.5 percent from the linked quarter and up 20.1 percent from the year ago quarter.

• Net interest margin on a fully taxable equivalent basis (FTE) was up from both the linked and year-ago quarters by 15 and 72 basis points, respectively, primarily from the shift in mix of our balance sheet with cash and securities reallocated to the loan portfolio. Net of PPP, net interest margin was higher by 86 basis points compared to the prior year.

• Noninterest income was down 8 percent from the linked quarter and 44 percent from the year ago quarter, respectively, due to lower mortgage volume and OMSR recapture.
  

Mortgage Loan Business

Mortgage loan originations for the fourth quarter of 2022 were $51.2 million, down $75.4 million, or 59.6 percent, from the year-ago quarter; likewise, total sales of originated loans were $23.6 million, down $87.0 million, or 78.7 percent. For the full year of 2022, SB Financial had total volume of $312.6 million, of which $250.2 million (80 percent) was new purchase/construction lending, $41.0 million was external refinance (13 percent), and the remaining $21.4 million (7 percent) was internal refinance.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.2 million for the fourth quarter of 2022, compared to $3.8 million for the year-ago quarter. The mortgage servicing valuation adjustment for the fourth quarter of 2022 was a positive $0.1 million, compared to a positive adjustment of $0.6 million for the fourth quarter of 2021. For all of 2022, the recapture of servicing rights was $1.3 million compared to a recapture of $3.4 million for the prior year. The aggregate servicing valuation impairment was $0.2 million at the end of the fourth quarter of 2022. The servicing portfolio at December 31, 2022, was $1.35 billion, which was flat to the prior year.

Mr. Klein noted, “Refinance activity for 2022 declined significantly to just 20 percent compared to 49 percent in the prior year. Our continued success in this key business line will hinge not only on the overall rate environment but our ability to attract high-producers in our expansion markets as well.”

Mortgage Banking
($ in thousands)	Dec. 2022			Sep. 2022			Jun. 2022			Mar. 2022			Dec. 2021				Annual Growth
Mortgage originations	$	51,219		$	68,557		$	95,454		$	97,394		$	126,611			$	(75,392	)
Mortgage sales		23,590			39,176			49,915			72,154			110,543				(86,953	)
Mortgage servicing portfolio		1,352,016			1,362,666			1,369,732			1,375,554			1,362,962				(10,946	)
Mortgage servicing rights		13,503			13,473			13,408			13,135			12,034				1,469
Mortgage servicing revenue
Loan servicing fees		851			858			863			861			850				1
OMSR amortization		(310	)		(396	)		(496	)		(547	)		(807	)			497
Net administrative fees		541			462			367			314			43				498
OMSR valuation adjustment		86			65			239			890			581				(495	)
Net loan servicing fees		627			527			606			1,204			624				3
Gain on sale of mortgages		550			876			1,196			1,676			3,194				(2,644	)
Mortgage banking revenue, net	$	1,177		$	1,403		$	1,802		$	2,880		$	3,818			$	(2,641	)

Noninterest Income and Noninterest Expense

Noninterest income declined for the fourth quarter, from the linked quarter and year over year. Gain-on-sale yields on mortgage loans were down significantly from the prior year and the total sales were down nearly $87 million. Wealth management revenue was down from both the prior year and linked quarter due to market declines. New sales in the wealth division were insufficient to overcome closed accounts and client distributions during 2022.

For the fourth quarter of 2022, noninterest expense of $10.3 million was down $1.3 million or 11.2 percent compared to the prior year quarter. We continue to have positive variance from our commission-based originators and medical costs eased a bit in the quarter. We continue to make headcount reductions and staffing realignment as retail transactions declined in several markets due to the continuing level of adoption of digital banking initiatives.

Mr. Klein stated, “We are committed to reducing our operating expenses to reflect not only the reduced revenue in residential mortgage lending but also, as economic expansion and contraction, dictates. Inflation concerns remain top of mind as we work to ensure our growth strategies deliver positive operating leverage.”

Noninterest Income / Noninterest Expense
($ in thousands, except ratios)	Dec. 2022			Sep. 2022			Jun. 2022			Mar. 2022			Dec. 2021				Annual Growth
Noninterest Income (NII)	$	3,713		$	4,043		$	4,673		$	5,802		$	6,589			$	(2,876	)
NII / Total Revenue		25.4	%		27.9	%		32.8	%		40.6	%		42.1	%			-16.7	%
NII / Average Assets		1.1	%		1.2	%		1.4	%		1.7	%		2.0	%			-0.9	%
Total Revenue Growth		-6.7	%		-13.2	%		-9.1	%		-46.9	%		-13.7	%			7.0	%
Noninterest Expense (NIE)	$	10,269		$	10,384		$	10,802		$	10,859		$	11,567			$	(1,298	)
Efficiency Ratio		70.2	%		71.6	%		75.6	%		75.9	%		73.7	%			-3.5	%
NIE / Average Assets		3.1	%		3.2	%		3.3	%		3.2	%		3.5	%			-0.4	%
Net Noninterest Expense/Avg. Assets		-2.0	%		-2.0	%		-1.9	%		-1.5	%		-1.5	%			-0.5	%
Total Expense Growth		-11.2	%		-7.7	%		-2.5	%		-0.5	%		8.3	%			-19.5	%

Balance Sheet

Total assets as of December 31, 2022, were $1.3 billion, or up 0.4 percent from the year ago quarter primarily due to the increase in the loan portfolio and partially offset by declines in cash and investments. Total shareholders’ equity as of December 31, 2022, was $118.4 million, down 18.3 percent from a year ago due to the valuation adjustment on the Company’s bond portfolio, which has regressed by $30.3 million. Excluding the impact of the valuation adjustment, equity increased $7.5 million or 5.2 percent. SB Financial bought back 317,000 shares of our stock during 2022 at an average price of $18.43 or 124.5 percent of tangible book value per share.

The investment portfolio of $238.8 million, represented 17.9 percent of assets at December 31, 2022, and was down $24.5 million or 9.3 percent from the year-ago period.

Total loans held for investment were $962.1 million at December 31, 2022, up $139.4 million, or 16.9 percent, from December 31, 2021.

Deposit balances of $1.09 billion at December 31, 2022, decreased by $30 million, or 2.4 percent, since December 31, 2021. Deposits have stabilized since mid-year as we have been aggressively pursuing deposit clients throughout our footprint; albeit at a higher marginal cost.

Mr. Klein continued, “Clearly, another quarter of strong loan growth was achieved even as rates continued to climb higher; loan yields are up by 78 basis points adjusted for PPP. Pressure to fund that growth increased with deposit balances rising at a slower pace; our average cost of deposits increased 30 basis points from the prior year quarter. Asset quality was stellar again this year, as we recorded net recoveries for all of 2022; our second consecutive year of this achievement.”

Loan Balances
($ in thousands, except ratios)	Dec. 2022			Sep. 2022			Jun. 2022			Mar. 2022			Dec. 2021			Annual Growth
Commercial	$	128,534		$	128,565		$	127,711		$	124,857		$	122,373		$	6,161
% of Total		13.4	%		13.9	%		14.3	%		14.7	%		14.9	%		5.0	%
Commercial RE		412,636			404,710			404,260			400,101			381,387			31,249
% of Total		42.9	%		43.7	%		45.1	%		47.0	%		46.4	%		8.2	%
Agriculture		64,388			60,522			60,586			55,741			57,473			6,915
% of Total		6.7	%		6.5	%		6.8	%		6.6	%		7.0	%		12.0	%
Residential RE		291,512			267,135			241,614			214,015			206,324			85,188
% of Total		30.3	%		28.9	%		27.0	%		25.2	%		25.1	%		41.3	%
Consumer & Other		65,005			64,317			61,440			55,957			55,157			9,848
% of Total		6.8	%		7.0	%		6.9	%		6.6	%		6.7	%		17.9	%
Total Loans	$	962,075		$	925,249		$	895,611		$	850,671		$	822,714		$	139,361
Total Growth Percentage																	16.9	%
Deposit Balances
($ in thousands, except ratios)	Dec. 2022			Sep. 2022			Jun. 2022			Mar. 2022			Dec. 2021			Annual Growth
Non-Int DDA	$	256,799		$	250,791		$	239,676		$	252,273		$	247,044		$	9,755
% of Total		23.6	%		23.1	%		22.4	%		22.2	%		22.2	%		3.9	%
Interest DDA		191,719			199,523			198,286			211,152			195,464			(3,745	)
% of Total		17.6	%		18.4	%		18.5	%		18.6	%		17.6	%		-1.9	%
Savings		191,272			201,402			215,285			236,394			237,571			(46,299	)
% of Total		17.6	%		18.5	%		20.1	%		20.8	%		21.3	%		-19.5	%
Money Market		255,995			258,975			276,274			289,699			276,462			(20,467	)
% of Total		23.6	%		23.8	%		25.8	%		25.5	%		24.8	%		-7.4	%
Time Deposits		190,880			175,202			142,258			148,553			156,504			34,376
% of Total		17.6	%		16.1	%		13.3	%		13.1	%		14.1	%		22.0	%
Total Deposits	$	1,086,665		$	1,085,893		$	1,071,779		$	1,138,071		$	1,113,045		$	(26,380	)
Total Growth Percentage																	-2.4	%

Asset Quality

SB Financial reported nonperforming assets of $5.1 million as of December 31, 2022, down $1.4 million or 21.1 percent from the year-ago quarter. The Company had small charge-offs in the quarter, but for the full year, the Company had $13,000 in net recoveries. The coverage ratio of problem loans to the loan loss allowance was at 318.6 percent at December 31, 2022.

Nonperforming Assets
($ in thousands, except ratios)	Dec. 2022			Sep. 2022			Jun. 2022			Mar. 2022			Dec. 2021			Annual Change
Commercial & Agriculture	$	114		$	114		$	140		$	142		$	143		$	(29	)
% of Total Com./Ag. loans		0.06	%		0.06	%		0.07	%		0.08	%		0.08	%		-20.3	%
Commercial RE		210			223			359			544			554			(344	)
% of Total CRE loans		0.05	%		0.06	%		0.09	%		0.14	%		0.15	%		-62.1	%
Residential RE		2,967			3,129			3,176			3,198			2,484			483
% of Total Res. RE loans		1.02	%		1.17	%		1.31	%		1.49	%		1.20	%		19.4	%
Consumer & Other		391			280			323			409			471			(80	)
% of Total Con./Oth. loans		0.60	%		0.44	%		0.53	%		0.73	%		0.85	%		-17.0	%
Total Nonaccruing Loans		3,682			3,746			3,998			4,293			3,652			30
% of Total loans		0.38	%		0.40	%		0.45	%		0.50	%		0.44	%		0.8	%
Accruing Restructured Loans		654			668			683			762			725			(71	)
Total Change (%)																	-9.8	%
Total Nonaccruing & Restructured Loans		4,336			4,414			4,681			5,055			4,377			(41	)
% of Total loans		0.45	%		0.48	%		0.52	%		0.59	%		0.53	%		-0.9	%
Foreclosed Assets and Other Assets		777			756			730			527			2,104			(1,327	)
Total Change (%)																	-63.1	%
Total Nonperforming Assets	$	5,113		$	5,170		$	5,411		$	5,582		$	6,481		$	(1,368	)
% of Total assets		0.38	%		0.40	%		0.42	%		0.42	%		0.49	%		-21.1	%

Webcast and Conference Call

The Company will hold the fourth quarter 2022 earnings conference call and webcast on January 27, 2023, 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 six 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 with the ticker 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

SB FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS - (Unaudited)

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