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

Highlights	Three Months Ended										Six Months Ended
($ in thousands, except per share & ratios)	Jun. 2022			Jun. 2021			% Change				Jun. 2022			Jun. 2021			% Change
Operating revenue	$	14,266		$	15,694		-9.1	%			$	28,545		$	36,241		-21.2	%
Interest income		10,474			10,163		3.1	%				19,869			20,868		-4.8	%
Interest expense		881			1,006		-12.4	%				1,799			2,086		-13.8	%
Net interest income		9,593			9,157		4.8	%				18,070			18,782		-3.8	%
Provision for loan losses		-			-		0.0	%				-			750		-100.0	%
Noninterest income		4,673			6,537		-28.5	%				10,475			17,459		-40.0	%
Noninterest expense		10,802			11,076		-2.5	%				21,661			21,985		-1.5	%
Net income		2,834			3,761		-24.6	%				5,647			10,842		-47.9	%
Earnings per diluted share		0.40			0.52		-23.1	%				0.79			1.49		-47.0	%
Return on average assets		0.87	%		1.13	%	-23.0	%				0.85	%		1.66	%	-48.8	%
Return on average equity		8.88	%		10.42	%	-14.8	%				8.46	%		15.09	%	-43.9	%
Non-GAAP Measures
Adjusted net income	$	2,643		$	3,840		-31.2	%			$	4,754		$	8,783		-45.9	%
Adjusted diluted EPS		0.37			0.53		-30.2	%				0.67			1.21		-44.6	%
Adjusted return on average assets		0.81	%		1.16	%	-30.2	%				0.78	%		1.50	%	-48.0	%
Adjusted pre-tax, pre-provision income		3,223			4,717		-31.7	%				5,754			10,900		-47.2	%

“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.”

Mortgage Banking
($ in thousands)	Jun. 2022			Mar. 2022			Dec. 2021			Sep. 2021			Jun. 2021
Mortgage originations	$	95,454		$	97,394		$	126,611		$	152,623		$	164,883
Mortgage sales		49,915			72,154			110,543			123,083			119,064
Mortgage servicing portfolio		1,369,732			1,375,554			1,362,962			1,341,439			1,323,804
Mortgage servicing rights		13,408			13,135			12,034			11,194			10,678
Mortgage servicing revenue
Loan servicing fees		863			861			850			850			830
OMSR amortization		(496	)		(547	)		(807	)		(943	)		(948	)
Net administrative fees		367			314			43			(93	)		(118	)
OMSR valuation adjustment		239			890			581			248			(99	)
Net loan servicing fees		606			1,204			624			155			(217	)
Gain on sale of mortgages		1,196			1,676			3,194			3,947			4,255
Mortgage banking revenue, net	$	1,802		$	2,880		$	3,818		$	4,102		$	4,038

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.”

Noninterest Income / Noninterest Expense
($ in thousands, except ratios)	Jun. 2022			Mar. 2022			Dec. 2021			Sep. 2021			Jun. 2021
Noninterest Income (NII)	$	4,673		$	5,802		$	6,589		$	6,649		$	6,537
NII / Total Revenue		32.8	%		40.6	%		42.1	%		39.9	%		41.7	%
NII / Average Assets		1.4	%		1.7	%		2.0	%		2.0	%		2.0	%
Total Revenue Growth		-9.1	%		-46.9	%		-13.7	%		-15.3	%		-10.3	%
Noninterest Expense (NIE)	$	10,802		$	10,859		$	11,567		$	11,256		$	11,076
Efficiency Ratio		75.6	%		75.9	%		73.7	%		67.4	%		70.5	%
NIE / Average Assets		3.3	%		3.2	%		3.5	%		3.4	%		3.3	%
Net Noninterest Expense/Avg. Assets		-1.9	%		-1.5	%		-1.5	%		-1.4	%		-1.4	%
Total Expense Growth		-2.5	%		-0.5	%		8.3	%		-0.7	%		-5.0	%

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.”

Loan Balances
($ in thousands, except ratios)	Jun. 2022			Mar. 2022			Dec. 2021			Sep. 2021			Jun. 2021			Annual Growth
Commercial	$	127,711		$	124,857		$	122,373		$	138,085		$	149,998		$	(22,287	)
% of Total		14.3	%		14.7	%		14.9	%		16.3	%		17.6	%		-14.9	%
Commercial RE		404,260			400,101			381,387			387,858			389,287			14,973
% of Total		45.1	%		47.0	%		46.4	%		45.8	%		45.8	%		3.8	%
Agriculture		60,586			55,741			57,473			57,374			50,895			9,691
% of Total		6.8	%		6.6	%		7.0	%		6.8	%		6.0	%		19.0	%
Residential RE		241,614			214,015			206,324			207,571			203,294			38,320
% of Total		27.0	%		25.2	%		25.1	%		24.5	%		23.9	%		18.8	%
Consumer & Other		61,440			55,957			55,157			55,660			57,039			4,401
% of Total		6.9	%		6.6	%		6.7	%		6.6	%		6.7	%		7.7	%
Total Loans	$	895,611		$	850,671		$	822,714		$	846,548		$	850,513		$	45,098
Total Growth Percentage																	5.3	%
Deposit Balances
($ in thousands, except ratios)	Jun. 2022			Mar. 2022			Dec. 2021			Sep. 2021			Jun. 2021			Annual Growth
Non-Int DDA	$	239,676		$	252,273		$	247,044		$	258,857		$	240,572		$	(896	)
% of Total		22.4	%		22.2	%		22.2	%		23.3	%		22.0	%		-0.4	%
Interest DDA		198,286			211,152			195,464			189,130			187,023			11,263
% of Total		18.5	%		18.6	%		17.6	%		17.0	%		17.1	%		6.0	%
Savings		215,285			236,394			237,571			246,414			235,231			(19,946	)
% of Total		20.1	%		20.8	%		21.3	%		22.2	%		21.6	%		-8.5	%
Money Market		276,274			289,699			276,462			258,741			255,512			20,762
% of Total		25.8	%		25.5	%		24.8	%		23.3	%		23.4	%		8.1	%
Time Deposits		142,258			148,553			156,504			158,518			172,696			(30,438	)
% of Total		13.3	%		13.1	%		14.1	%		14.3	%		15.8	%		-17.6	%
Total Deposits	$	1,071,779		$	1,138,071		$	1,113,045		$	1,111,660		$	1,091,034		$	(19,255	)
Total Growth Percentage																	-1.8	%

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.

Nonperforming Assets ($ in thousands, except ratios)	Jun. 2022			Mar. 2022			Dec. 2021			Sep. 2021			Jun. 2021			Annual Change
Commercial & Agriculture	$	140		$	142		$	143		$	144		$	375		$	(235	)
% of Total Com./Ag. loans		0.07	%		0.08	%		0.08	%		0.07	%		0.19	%		-62.7	%
Commercial RE		359			544			554			566			1,026			(667	)
% of Total CRE loans		0.09	%		0.14	%		0.15	%		0.15	%		0.26	%		-65.0	%
Residential RE		3,176			3,198			2,484			2,056			1,751			1,425
% of Total Res. RE loans		1.31	%		1.49	%		1.20	%		0.99	%		0.86	%		81.4	%
Consumer & Other		323			409			471			422			463			(140	)
% of Total Con./Oth. loans		0.53	%		0.73	%		0.85	%		0.76	%		0.81	%		-30.2	%
Total Nonaccruing Loans		3,998			4,293			3,652			3,188			3,615			383
% of Total loans		0.45	%		0.50	%		0.44	%		0.38	%		0.43	%		10.6	%
Accruing Restructured Loans		683			762			725			805			758			(75	)
Total Change (%)																	-9.9	%
Total Nonaccruing & Restructured Loans		4,681			5,055			4,377			3,993			4,373			308
% of Total loans		0.52	%		0.59	%		0.53	%		0.47	%		0.51	%		7.0	%
Foreclosed Assets and Other Assets		730			527			2,104			1,601			1,603			(873	)
Total Change (%)																	-54.5	%
Total Nonperforming Assets	$	5,411		$	5,582		$	6,481		$	5,594		$	5,976		$	(565	)
% of Total assets		0.42	%		0.42	%		0.49	%		0.42	%		0.46	%		-9.5	%

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

		SB FINANCIAL GROUP, INC.
		CONSOLIDATED BALANCE SHEETS - (Unaudited)
					June				March				December				September				June
			($ in thousands)			2022				2022				2021				2021				2021
ASSETS
	Cash and due from banks				$	29,567			$	130,003			$	149,511			$	138,015