SB Financial Group, Inc. Announces First Quarter 2020 Results

DEFIANCE, Ohio, April 23, 2020 /PRNewswire/ -- SB Financial Group, Inc. 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, 2020.

First quarter 2020 highlights over prior year first quarter include:

• Net income of $0.7 million; diluted earnings per share (EPS) of $0.09
• Adjusted net income, excluding the impact of the OMSR impairment of $2.2 million (pre-tax), of $2.4 million with EPS of $0.31
• Mortgage origination volume of $101.4 million, an increase of $49.9 million, or 97.1 percent

First quarter 2020 trailing twelve-month highlights include:

• Loan growth of $48.2 million, or 6.2 percent
• Deposit growth of $36.2 million, or 4.4 percent
• Mortgage origination volume of $495.3 million, an increase of $160.3 million, or 47.8 percent; servicing portfolio of $1.22 billion, up $0.12 billion, or 11.2 percent

"SB Financial's first quarter GAAP results were impacted by the rapid decline in market rates driven by the Federal Reserve in response to the pandemic, which resulted in a large impairment to our mortgage servicing rights.  Adjusting for that impairment, pre-tax pre-provision earnings were up three percent compared to 2019," said Mark A. Klein, Chairman, President, and CEO of SB Financial.  "Mortgage volume accelerated in the quarter as we originated over $100 million in volume.  In response to the unprecedented economic impact of the pandemic, we are actively working with our clients on both forbearance solutions as well as the new Paycheck Protection Program ("PPP") small business lending facility."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income adjusted for the impairment, was up 7.2 percent from the first quarter of 2019, and down 9.3 percent to the linked quarter.

• Net interest income was up 2.5 percent from the year-ago quarter, but down 0.6 percent from the linked quarter.
• Net interest margin on a fully taxable equivalent basis (FTE) was down from both year-ago and linked quarters by 33 and 22 basis points, respectively as more balances were held in cash due to liquidity needs.
• Adjusting for the OMSR impairment, noninterest income would be up 18 and down 23 percent, respectively.  

Mortgage Loan Business

Mortgage loan originations for the first quarter of 2020 were $101.4 million, up $49.9 million, or 97.1 percent, from the year-ago quarter.  Total sales of originated loans were $84.5 million, up $41.0 million, or 94.3 percent from the year-ago quarter.  Refinance activity accelerated in the quarter, with total refinance volume of $24.7 million or 24 percent, compared to 19 percent for all of 2019.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was a negative $0.1 million for the first quarter of 2020, compared to $0.9 million for the year-ago quarter.  The mortgage servicing valuation adjustment for the first quarter of 2020 was a negative $2.2 million, compared to a negative adjustment of $0.7 million for the first quarter of 2019.  The aggregate servicing valuation impairment ended the quarter at $3.5 million.  The servicing portfolio at March 31, 2020, was $1.22 billion, up $0.12 billion, or 11.2 percent, from $1.09 billion at March 31, 2019.  Normal amortization is up 135 percent from the prior year due to higher refinance activity.

Mr. Klein noted, "We experienced a rapid increase in mortgage activity late in the quarter as our clients reacted to the market rate declines.  As we look at our prior rolling 12 months, we have originated nearly $500 million in total volume for our clients throughout our footprint.  As expected, impairment to our servicing rights had an outsized impact on our results.  Our newest region, Indianapolis, contributed seven percent to our quarterly 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 US Department of Agriculture (USDA) loans.  SBA and USDA activity for the quarter consisted of total origination volume of $1.0 million with sales volume of $0.4 million resulting in gains of $0.07 million.  Wealth management assets under the Company's care fell to $427.1 million as of March 31, 2020 due to the market decline.  For the first quarter of 2020, noninterest income as a percentage of total operating revenue was 20.2 percent (33.8 percent when adjusting for the OMSR impairment).  Results for 2020 include a full quarter from our Title Agency compared to the prior year. 

For the first quarter of 2020, noninterest expense of $9.4 million was up $0.8 million compared to the prior year or 9.0 percent.  Higher mortgage production volumes increased compensation expense and title agency expenses are up compared to the prior year.  Data processing expenses are up due to higher activity levels from our digital banking channels.

Mr. Klein stated, "We are actively participating in the SBA's PPP program and anticipate total funding in the second quarter of $75 million.  Fee income levels from mortgage lending were up this quarter, but OMSR impairment had a significant impact on our operating results.  Our title agency acquisition in March of 2019, makes comparative results difficult; however; Peak took part in the increased mortgage activity in the quarter.  We continue to pay close attention to expenses and have begun to implement a number of actions in response to the pandemic headwinds affecting our business."

Balance Sheet

Total assets as of March 31, 2020, were $1.09 billion, up $67.0 million, or 6.6 percent, from a year ago.  Total equity as of March 31, 2020, was $135.9 million, up 3.4 percent from a year ago, and comprised 12.5 percent of total assets.  Over the last twelve months, SB Financial repurchased 319,000 shares of common stock, for an aggregate of $5.4 million. 

Total loans held for investment were $830.8 million at March 31, 2020, up $48.2 million, or 6.2 percent, from March 31, 2019.  Commercial real estate loans were up $34.2 million, or 10.0 percent, with commercial loans rising $15.3 million, or 11.3 percent.

The investment portfolio of $107.7 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 9.9 percent of assets at March 31, 2020, and was up 12.4 percent from the year-ago period.  Deposit balances of $863.9 million at March 31, 2020, increased by $36.2 million or 4.4 percent, since March 31, 2019.  Growth from the prior year included $26.2 million in checking and $10.0 million in savings and time deposit balances.

Mr. Klein continued, "Both loan and deposit volumes were up over the prior year although business activity slowed in March and lending activity beyond the U.S. Treasury programs will likely be constrained in the near term.  Nonperforming assets to total assets increased as we had an asset based commercial line that we downgraded at year end.   We ended the quarter at 61 basis points of NPA's, up 19 basis points from the prior year."

Asset Quality

SB Financial reported nonperforming assets of $6.7 million as of March 31, 2020, up $2.4 million from the year-ago quarter.  The Company took a $0.4 million charge-off on this credit in the quarter and expects further pressure on the portfolio due to the COVID-19 impact.  SB Financial's nonperforming assets to total assets ratio of 0.61 percent is up 56 percent from the prior year.  The coverage of problem loans by the loan loss allowance was at 136 percent at March 31, 2020, down from 204 percent at March 31, 2019.

Webcast and Conference Call

The Company will hold a related conference call and webcast on April 24, 2020, 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). 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 20 offices; 19 in nine Ohio counties and one in Fort Wayne, Indiana, and 22 full-service ATMs.  The Company has six loan production offices located throughout the Tri-State region of Ohio, Indiana and Michigan.  SB Financial's common stock is listed on the NASDAQ Capital Market under the symbol "SBFG". 

In May 2019, SB Financial was ranked #94 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 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.  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:

Anthony V. Cosentino

Executive Vice President and

Chief Financial Officer

Tony.Cosentino@YourStateBank.com

 

 

 

 

 

 

 

 

 

 

 

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SOURCE SB Financial Group, Inc.