SB Financial Group Announces Third Quarter 2021 Results

DEFIANCE, Ohio, Oct. 28, 2021 /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 third quarter and nine months ended September 30, 2021.

Third quarter 2021 highlights over prior-year third quarter include:

• Net income of $4.1 million; diluted earnings per share ("EPS") of $0.58 or a 15.9 percent decrease
• Adjusted net income, excluding the impact of the Originated Mortgage Servicing Rights ("OMSR") impairment of $250,000 was $3.9 million, with EPS of $0.56
• Mortgage origination volume of $152.6 million, reflects a decrease of $47.5 million, or 23.8 percent

Third quarter 2021 highlights over the linked quarter include:

• Net income up $342,000 with EPS increasing $0.06 or 11.5 percent
• Loan growth excluding the impact of Paycheck Protection Program ("PPP") was up $20.6 million or 10 percent annualized

Nine months ended September 30, 2021, highlights over prior-year nine months include:

• Net income of $14.9 million and diluted EPS of $2.08, compared to $9.6 million, or $1.25 per share or a 66.4 percent increase
• Adjusted net income, excluding the impact of OMSR activity and merger costs, was $12.7 million, down $227,000 or 1.8 percent with EPS of $1.76, up $0.09 or 5.4 percent

Third quarter 2021 trailing twelve-month highlights include:

• Loans, excluding the impact of PPP loan balances from both years of $10.2 and $82.1 million, respectively, increased $32.6 million, or 4.1 percent from the prior year
• Deposits grew by $97.7 million, or 9.6 percent to $1.11 billion at quarter end
• Mortgage origination volume of $642.3 million; servicing portfolio of $1.34 billion, which is up $48.4 million, or 3.7 percent

Highlights	Three Months Ended					Nine Months Ended
($ in thousands, except per share & ratios)	Sep. 2021	Sep. 2020	% Change			Sep. 2021	Sep. 2020	% Change
Operating revenue	$      16,673	$      19,677	-15.3%			$      52,914	$      47,873	10.5%
Interest income	11,033	10,807	2.1%			31,901	32,046	-0.5%
Interest expense	1,009	1,548	-34.8%			3,095	5,367	-42.3%
Net interest income	10,024	9,259	8.3%			28,806	26,679	8.0%
Provision for loan losses	300	1,800	-83.3%			1,050	3,700	-71.6%
Noninterest income	6,649	10,418	-36.2%			24,108	21,194	13.7%
Noninterest expense	11,256	11,335	-0.7%			33,241	32,403	2.6%
Net income	4,103	5,250	-21.8%			14,945	9,586	55.9%
Earnings per diluted share	0.58	0.69	-15.9%			2.08	1.25	66.4%
Return on average assets	1.23%	1.73%	-28.9%			1.51%	1.12%	34.8%
Return on average equity	11.35%	15.01%	-24.4%			13.84%	9.74%	42.1%
Non-GAAP Measures
Adjusted net income	$        3,907	$        4,992	-21.7%			$      12,690	$      12,917	-1.8%
Adjusted diluted EPS	0.56	0.65	-13.8%			1.76	1.67	5.4%
Adjusted return on average assets	1.17%	1.64%	-28.7%			1.34%	1.41%	-5.0%
Adjusted pre-tax, pre-provision income	5,169	8,016	-35.5%			17,569	18,444	-4.7%

"The third quarter saw significant PPP forgiveness, which drove our EPS up nearly 12 percent from the linked quarter" said Mark A. Klein, Chairman, President, and CEO of SB Financial.   "Loan growth net of PPP was up compared to the prior year quarter and we have now had positive loan growth, excluding PPP, in each of the last two quarters."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was down 15.3 percent from the third quarter of 2020, but up 6.2 percent from the linked quarter.

• Net interest income was up from the year-ago quarter by 8.3 percent, and up 9.5 percent from the linked quarter.
• Net interest margin on a fully taxable equivalent basis (FTE) was down from the year-ago quarter by 20 basis points and flat to the linked quarter, as cash balances continued to be higher than normal, which was offset by higher PPP forgiveness.
• Noninterest income was down 36 percent from the year ago quarter as mortgage volume and gain on sale yields trended lower. This compares to a two percent increase from the linked quarter.

Mortgage Loan Business

Mortgage loan originations for the third quarter of 2021 were $152.6 million, down $47.5 million, or 23.8 percent, from the year-ago quarter.  Total sales of originated loans were $123.1 million, down $43.1 million, or 25.9 percent, from the year-ago quarter.  For the first nine months of 2021, SB Financial had total volume of $473.8 million, of which $236.2 million (50 percent) was new purchase/construction lending, $118.5 million was external refinance (25 percent), and the remaining $119.1 million (25 percent) was internal refinance.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $4.1 million for the third quarter of 2021, compared to $7.9 million for the year-ago quarter.  The mortgage servicing valuation adjustment for the third quarter of 2021 was a positive $248,000, compared to a positive adjustment of $326,000 for the third quarter of 2020.  For the first nine months of 2021, the recapture of servicing rights was $2.9 million compared to impairment of $3.0 million for the prior year nine months.  The aggregate servicing valuation impairment ended the quarter at $2.0 million.  The servicing portfolio at September 30, 2021, was $1.34 billion, up $48.4 million, or 3.7 percent, from $1.29 billion at September 30, 2020.  

Mr. Klein noted, "This quarter had relatively strong mortgage origination of $153 million, which while down 24 percent from the prior year, was down just seven percent from the linked quarter.  We continue to be positive about our mortgage pipeline as construction and private client activity remain strong.  We now have a total of 24 Mortgage Originators that represents an increase of four from the prior year which includes the addition of two originators in our Ft. Wayne growth market."

Noninterest Income and Noninterest Expense

SB Financial's noninterest income for the quarter was down 36 percent from the prior year but up compared to the linked quarter by approximately two percent.  The gain on sale mortgage loan yields were down 165 basis points from the prior year with the total dollars of sales down $43.1 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 $508,000. 

For the third quarter of 2021, noninterest expense of $11.3 million was flat to the prior year and up slightly to the linked quarter.  For the first nine months, noninterest expense of $33.2 million was up $838,000 or 2.6 percent compared to the prior year first nine months.  Operating leverage for the nine months of 2021 compared to the prior year was positive with revenue growth of 10.5 percent exceeding expense growth of 2.6 percent by 4.1 times.

Balance Sheet

Total assets as of September 30, 2021, were $1.33 billion, up $111.5 million, or 9.2 percent, from the year ago quarter due to higher liquidity levels and PPP activity.  Total shareholders' equity as of September 30, 2021, was $144.3 million, up 2.1 percent from a year ago, and comprised 10.9 percent of total assets. 

Total loans held for investment were $846.5 million at September 30, 2021, down $39.3 million, or 4.4 percent, from September 30, 2020.  Excluding PPP activity from both years, loan balances were up $32.6 million, or 4.1 percent.

The investment portfolio of $254.1 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 19.1 percent of assets at September 30, 2021, and was up 87.4 percent from the year-ago period.  Deposit balances of $1.11 billion at September 30, 2021, increased by $97.6 million, or 9.6 percent, since September 30, 2020.  Growth from the prior year included $58.7 million in checking and $38.9 million in savings and time deposit balances.

Mr. Klein continued, "Our lending teams were very busy in the quarter as we had solid loan growth for the second consecutive quarter and we assisted a number of clients in submitting PPP forgiveness applications.  We also had two non-performing credits that paid off in the quarter, resulting in lower NPA balances and recapture of prior non-accrual interest.  Our coverage of non-performing loans is now above 350 percent and we continue to have no loans on COVID deferral."

Asset Quality

SB Financial reported nonperforming assets of $5.6 million as of September 30, 2021, down $1.7 million or 23.1 percent from the year-ago quarter.  The Company took $206,000 in net recoveries in the quarter.  The coverage of problem loans by the loan loss allowance was at 351 percent at September 30, 2021, up from 164 percent at September 30, 2020.

Webcast and Conference Call

The Company will hold a related conference call and webcast on October 29, 2021, 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, including SB Financial, or 4% 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 Officer
[email protected]

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