SB Financial Group Announces Third Quarter 2022 Results

DEFIANCE, Ohio, Nov. 01, 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 third quarter and nine months ended September 30, 2022.

Third quarter 2022 highlights:

• Net income of $3.3 million; diluted earnings per share (“EPS”) of $0.47 or a 19.0 percent decrease compared to the prior year third quarter as increased Net Interest Income was offset by Noninterest Income headwinds
• Noninterest expense of $10.4 million declined 3.9 percent from the linked quarter
• Loan growth of $29.6 million from the linked quarter, or 13.2 percent annualized
• Deposit growth of $14.1 million from the linked quarter, or 5.3 percent annualized
• Margin expansion of 8.7 percent from the linked quarter
• Strong asset quality with Nonperforming assets at 40 basis points and net recoveries in the quarter

Nine months ended September 30, 2022, highlights over prior-year nine months include:

• Net income of $9.0 million and diluted EPS of $1.27, compared to $14.9 million, or $2.08 per share or a 38.9 percent decrease

Third quarter 2022 trailing twelve-month highlights include:

• Loans excluding Paycheck Protection Program (“PPP”) loans, increased $81.5 million, or 9.6 percent from the prior year
• Deposits decreased by $25.8 million, or 2.3 percent to $1.09 billion
• Mortgage origination volume of $388.0 million; servicing portfolio of $1.36 billion up 1.6 percent

“In the third quarter of 2022 we achieved another strong loan origination performance as loans grew $30 million, or 3.3 percent from the second quarter of 2022, or 13.2 percent annualized” said Mark A. Klein, Chairman, President, and CEO of SB Financial. “Compared to prior year, net of PPP, organic loan growth was up $81.5 million or 9.6 percent. Strong loan growth and the increase in loan yields led to net interest margin expansion which partially offset the decline in mortgage revenue. Deposit balances stabilized during the quarter, however as short-term rates continue to rapidly increase our funding costs are beginning to rise.”

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, up 1.5% from the linked quarter and down 13.2 percent from the third quarter of 2021. Operating revenue was negatively impacted by the expected decline in mortgage banking revenue.

• Net interest income was up 8.7 percent from the linked quarter and up 4.1 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 30 and 25 basis points, respectively, primarily from the increase in loan balances of $29.6 million from the linked quarter. Net of PPP, net interest margin is higher by 55 basis points compared to the prior year.
• Noninterest income was down 13 and 39 percent from the linked and year ago quarters, respectively, due to lower mortgage volume and OMSR recapture.

Mortgage Loan Business

Mortgage loan originations for the third quarter of 2022 were $68.6 million, down $84.1 million, or 55.1 percent, from the year-ago quarter; likewise, total sales of originated loans were $39.2 million, down $83.9 million, or 68.2 percent.   For the first nine months of 2022, SB Financial had total volume of $261.4 million, of which $202.5 million (77.5 percent) was new purchase/construction lending, $39.0 million was external refinance (14.9 percent), and the remaining $19.9 million (7.6 percent) was internal refinance.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.4 million for the third quarter of 2022, compared to $4.1 million for the year-ago quarter. The mortgage servicing valuation adjustment for the third quarter of 2022 was a positive $0.1 million, compared to a positive adjustment of $0.2 million for the third quarter of 2021. For the first nine months of 2022, the recapture of servicing rights was $1.2 million compared to a recapture of $2.9 million for the prior year nine months. The aggregate servicing valuation impairment ended the quarter at $0.3 million.   The servicing portfolio at September 30, 2022, was $1.36 billion, up $0.02 billion, or 1.6 percent, from $1.34 billion at September 30, 2021.

Mr. Klein noted, “Refinance activity declined to just 10.9 percent of mortgage originations in the quarter from 52.0 percent in the prior year as higher rates continue to significantly impact our Residential mortgage business line. We continue to believe that this business segment offers us the opportunity to drive new households as a number of our competitors have begun to abandon the residential market.”

Noninterest Income and Noninterest Expense

SB Financial’s noninterest income for the quarter was down from the prior year and the linked quarter by 39 and 13 percent, respectively. Gain on sale yields on mortgage loans were down nearly 100 basis points from the prior year and the total dollars of sales were down nearly $84 million. Wealth management revenue was down slightly from the prior year as market declines have had an adverse effect on the market value of assets under management. SB Financial’s title agency, Peak Title, was down just 6 percent from the prior year, as commercial transaction volume increased despite the residential mortgage slowdown.

For the third quarter of 2022, noninterest expense of $10.4 million was down $0.9 million or 7.7 percent compared to the prior year.

Reduced expenses due to lower mortgage volume, has offset higher equipment expense related to technology improvements.

Mr. Klein stated, “We executed on a number of FTE reductions in our residential mortgage business line in the third quarter as we thoughtfully right sized resources to combat lower volume. We continue to believe that fee income across all of our other business lines remains strong and has reduced our reliance on mortgage sale gains.”

Balance Sheet

Total assets as of September 30, 2022, were $1.3 billion, or down 2.0 percent from the year ago quarter primarily due to the decrease in the investment portfolio. Total shareholders’ equity as of September 30, 2022, was $114.6 million, down 20.6 percent from a year ago due to the valuation adjustment on the Company’s bond portfolio, which has increased $32.7 million. Absent that negative impact, equity increased $3.1 million or 2.1 percent. SB Financial bought back 77,326 shares of our stock in the quarter at an average price of $17.27 or 132.1 percent of tangible book value per share.

The investment portfolio of $248.5 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 19.1 percent of assets at September 30, 2022, and was down 2.2 percent from the year-ago period. Compared to the linked quarter, the investment portfolio was down $23.0 million as the amortization cash flow was used to fund higher margin loan growth.

Total loans held for investment were $925.2 million at September 30, 2022, up $78.7 million, or 9.3 percent, from September 30, 2021. Excluding PPP activity from both years, loan balances were up $81.5 million, or 9.6 percent.

Deposit balances of $1.09 billion at September 30, 2022, decreased by $0.03 billion, or 2.3 percent, since September 30, 2021. Deposits grew $14.1 million from the linked quarter.

Mr. Klein continued, “The loan growth from closing deals from our strong pipelines improved the mix of our balance sheet as we also reduced the investment portfolio and funded additional growth with higher cost deposits. Our ability to grow interest bearing liabilities in the quarter was a positive while increasing those rates by just 19 bps from the linked quarter. We continue to see solid asset quality and are on pace to achieve zero net charge-offs for the full year of 2022.”

Asset Quality

SB Financial reported nonperforming assets of $5.2 million as of September 30, 2022, down $0.4 million or 7.6 percent from the year-ago quarter. The Company had net recoveries in the quarter, and for the year-to-date, the Company had $19,000 in net recoveries. The coverage ratio of problem loans to the loan loss allowance was at 313.3 percent at September 30, 2022.

Webcast and Conference Call

The Company will hold the third quarter 2022 earnings conference call and webcast on November 2, 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 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        [email protected]

Anthony V. Cosentino        Executive Vice President and         Chief Financial Officer        [email protected]