SB Financial Group Announces Record First Quarter 2021 Results

DEFIANCE, Ohio, April 30, 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 first quarter ended March 31, 2021.

First quarter 2021 highlights over prior-year first quarter include:

• Net income of $7.1 million up $6.4 million or 939.6 percent; diluted earnings per share ("EPS") of $0.97, up $0.88 per share or 977.8 percent, which was the highest quarterly earnings in Company history
• Adjusted net income, excluding the impact of the Originated Mortgage Servicing Rights ("OMSR") recapture, was $4.9 million, which yields a decrease in adjusted EPS of $0.29 to $0.68. Adjusted EPS was up $0.37, or 119.4, percent from adjusted EPS in the prior-year quarter
• Mortgage origination volume of $155.8 million, an increase of $54.5 million, or 53.7 percent
• Pre-tax, pre-provision income of $9.6 million, up $8.3 million or 639.7 percent

The twelve months ended March 31, 2021, highlights over the prior-year twelve months include:

• Loan growth of $17.4 million, or 2.1 percent, which includes Paycheck Protection Program ("PPP") loan balances and loans acquired in the Edon acquisition
• Deposit growth of $256.3 million, or 29.7 percent, driven by consumer and small business liquidity and the Edon acquisition
• Mortgage origination volume of $748.7 million; servicing portfolio of $1.3 billion, which is up $87.8 million, or 7.2 percent

"The first quarter marks a record quarter in earnings for our Company.  We earned $0.97 per share in the quarter up significantly from the prior year as we recaptured servicing rights impairment and continued to deliver higher mortgage and PPP volume," said Mark A. Klein, Chairman, President, and CEO of SB Financial.   "Our Residential Mortgage group originated strong volume of $156 million, and we processed nearly $40 million of PPP forgiveness from the first phase, while originating over $22 million in the second phase."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was up 91.9 percent from the first quarter of 2020.

• Net interest income was up 12.6 percent from the year-ago quarter, and up 4.0 percent from the linked quarter.
• Net interest margin on a fully taxable equivalent basis (FTE) was down from the year-ago quarter by 27 basis points but was flat to the linked quarter due to higher transactional cash balances, PPP forgiveness realization and mortgage volume. Loan yields were down 12 basis points in total from the prior year as the decline in loan pricing was offset by PPP forgiveness.
• Noninterest income was up 405.4 percent year over year and up 22.7 percent from the linked quarter, due to servicing rights recapture and mortgage volume.

Mortgage Loan Business

Mortgage loan originations for the first quarter of 2021 were $155.8 million, up $54.5 million, or 53.7 percent, from the year-ago quarter.  Total sales of originated loans were $136.7 million, up $52.2 million, or 61.8 percent.  For the trailing twelve months, SB Financial had total volume of $694.2 million, of which $290.9 million (42 percent) was new purchase/construction lending, $217.0 million (31 percent) was internal refinance, and the remaining $186.3 million (27 percent) was new customer refinance volume.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $8.2 million for the first quarter of 2021, compared to a loss of $0.1 million for the year-ago quarter.  The mortgage servicing valuation adjustment for the first quarter of 2021 was a positive $2.7 million, compared to a negative adjustment of $2.2 million for the first quarter of 2020.  The aggregate servicing valuation impairment ended the quarter at $2.2 million.  The servicing portfolio at March 31, 2021, was $1.3 billion up $87.8 million or 7.2 percent, from $1.2 billion at March 31, 2020.  Normal amortization was up 99 percent from the prior year due to higher refinance activity.

Mr. Klein noted, "Carrying the momentum from a record breaking 2020, we originated $156 million in residential mortgages in the quarter.  Gain on sale yields remained robust and our hedge allowed us to manage the volatility of the rate fluctuations throughout the quarter.  We did see more competitive pricing in the quarter and the availability of homes for purchase in several of our markets continues to be a strain on activity.  Refinance volume also maintained a strong pace in the quarter at over 62 percent of our total volume."

Noninterest Income and Noninterest Expense

SB Financial's noninterest income includes revenue from a diverse group of services, such as wealth management, deposit fees, residential loan sales, and the sale of Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) loans.  Wealth management assets under the Company's care were $576.5 million as of March 31, 2021, up $149.4 million, or 35.0 percent, compared to the prior year.  For the first quarter of 2021, noninterest income as a percentage of total operating revenue was 53.2 percent, due to the recapture, with the adjusted level at 46.1 percent.  Reflective of the robust mortgage market, the Company's Title Agency provided revenue in the quarter of $0.5 million, nearly double from the prior year. 

For the first quarter of 2021, noninterest expense of $10.9 million was up $1.5 million year over year, or 16.0 percent, reflecting a 5.7 times positive operating leverage.  Mortgage commission was up due to the 55 percent increase in volume, and we have expanded our technology spend in order to increase the digital options for both our clients and employees.

Mr. Klein stated, "The recapture of over one half of our servicing rights impairment drove our non-interest income levels significantly higher in the quarter.  We saw higher than expected mortgage volume in the quarter, which was up 55 percent from the prior year and only down 7 percent from the linked quarter.  Due to the strong revenue for the quarter, operating leverage was a positive 5.7 times.  After our participation in the first phase of PPP with $84 million in originations, we are assisting small businesses again with $28 million thus far in originations in the second phase.  Operating expense was up due to increased mortgage volume, however we are still below anticipated expense levels for marketing and client outreach."

Balance Sheet

Total assets as of March 31, 2021, were $1.33 billion, up $237.6 million, or 21.8 percent, from the year ago quarter due to the impact of the Edon acquisition and PPP activity.  Total equity as of March 31, 2021, was $144.0 million, up 5.9 percent from a year ago, and comprised 10.9 percent of total assets. 

Total loans held for investment were $848.2 million at March 31, 2021, up $17.4 million, or 2.1 percent, from March 31, 2020.  Commercial loans were up $27.6 million, or 18.2 percent, commercial real estate up $7.2 million or 1.9 percent and agricultural loans increased $0.7 million, or 1.6 percent.   Absent the effects of the Edon acquisition and PPP loans, loan balances were down $51.4 million from the year ago quarter.

The investment portfolio of $183.2 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 13.8 percent of assets at March 31, 2021, and was up 63.0 percent from the year-ago period.  Deposit balances of $1.12 billion at March 31, 2021, increased by $256.3 million, or 29.7 percent, since March 31, 2020.  Growth from the prior year included $160.0 million in checking and $96.3 million in savings and time deposit balances.

Mr. Klein continued, "Asset quality remained stable, with non-performing assets down 11 percent from the linked quarter and net recoveries this quarter in loan losses.  Despite these strong metrics, we continued to add to our allowance due to potential long term impact from the pandemic.  Our reserve level is now at $13.3 million and when adjusted for PPP balances represents a strong 1.68 percent of our total loans."

Asset Quality

SB Financial reported nonperforming assets of $6.5 million as of March 31, 2021, down $0.2 million from the year-ago quarter.  The coverage of nonperforming loans by the loan loss allowance was at 207 percent at March 31, 2021, up from 136 percent at March 31, 2020.  

The Company continued to provide payment relief to clients as needed, with total commercial forbearances at March 31, 2021 of $4.9 million.  Additionally, sold mortgage loans in forbearance totaled $5.7 million, which is down $6.0 million from the linked quarter. 

Webcast and Conference Call

The Company will hold a related conference call and webcast on May 3, 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 22 offices; 21 in nine Ohio counties and one in Fort Wayne, Indiana, and 23 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 2020, SB Financial was ranked #125 on the American Banker Magazine's list of Top 200 Publicly Traded Community Banks and Thrifts based on three-year average return on equity ("ROE").

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