SB Financial Group Announces Second Quarter 2023 Results

DEFIANCE, Ohio, July 27, 2023 (GLOBE NEWSWIRE) -- 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 second quarter ended June 30, 2023.

Second quarter 2023 highlights over prior-year, second quarter include:

• Net income of $3.1 million increased 8.5 percent with diluted earnings per share (“EPS”) of $0.44
• Adjusted for Mortgage Servicing Rights recapture (“OMSR”), net income is higher by 16.7 percent
• Noninterest expense of $10.3 million declined 4.3 percent
• Improved asset quality with nonperforming assets declining from 37 to 26 basis points

Six months ended June 30, 2023, highlights over prior-year six months include:

• Net income of $5.5 million, down 2.2 percent
• Adjusted for OMSR recapture, net income is higher by 15.5 percent
• Noninterest expense of $21.1 million declined 2.5 percent
  

Second quarter 2023 trailing twelve-month highlights include:

• Loan growth of $89.2 million, or 10.0 percent
• Deposit decline of $0.6 million, or 0.1 percent

“We were pleased with the positive momentum we experienced this quarter in what is a difficult and volatile operating environment for Community Banks,” said Mark A. Klein, Chairman, President, and CEO of SB Financial. “We had linked quarter growth in loans and mortgage originations and deposits were down just 3.5 percent. Liquidity concerns and deposit rate competition continued to be our most significant challenge as our funding beta’s exceeded our earning asset beta’s for the first time since the Fed rate increases began in March of 2022. While margin compression consumed the narrative for the second quarter, on a positive note we did experience a further reduction in non-performing loans. Our nonperforming loan coverage ratio now stands in excess of 500 percent.”

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was up from the linked quarter by 1.4 percent but less than the prior year quarter by 0.5 percent. Operating revenue continues to be impacted by much higher funding costs and the decline in mortgage banking revenue.

• Net interest income was down 4.8 percent from the linked quarter but up 2.5 percent from the prior year quarter.
• Net interest margin was flat compared to the prior year, as the increase in Earning Asset yields and balances has been offset by higher funding costs on deposits and wholesale borrowings.
• Noninterest income was down 6.7 percent from the year ago quarter, due to lower mortgage and Title insurance volume and a reduction in the recapture of temporary servicing rights.
  

Mortgage Loan Business

Mortgage loan originations for the second quarter of 2023 were $65.4 million, down $30.1 million, or 31.5 percent, from the prior year quarter. Total sales of originated loans experienced a slight decline compared to the prior year, at $47.9 million, down $2.0 million, or 4.0 percent.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.6 million for the second quarter of 2023, down from $1.8 million for the prior year quarter. The mortgage servicing valuation adjustment for the second quarter of 2023 was a negative $0.02 million, compared to a positive adjustment of $0.2 million for the second quarter of 2022. The servicing portfolio at June 30, 2023, was $1.35 billion, which was down 1.2 percent compared to the prior year.

Mr. Klein noted, “Mortgage volume continued to be constrained by higher rates and reduced inventory in our markets. Compared to the linked quarter, we were pleased that originations were higher by $16.0 million, or 32.5 percent as we added new MLOs in several of our key markets.”

Noninterest Income and Noninterest Expense

Noninterest income for the quarter declined, from the prior year quarter by 6.7 percent; however, when compared to the linked quarter, fee income was higher by 19.0 percent. Gain-on-sale from mortgage loans, was down just slightly from the prior year; however, the increase in sale volume above 73 percent in the quarter resulted in a nearly 80 percent increase in this metric over the linked quarter. Apart from Title Insurance, our remaining fee categories, are generally in line with revenue from both the linked and prior-year quarters.

For the second quarter of 2023, noninterest expense of $10.3 million was down from both the linked and prior year quarters by over 4 percent. Rightsizing of the mortgage business line has resulted in staffing levels lower by over 5 percent compared to the prior year.

Mr. Klein stated, “Through the first half of the year, we have achieved positive operating leverage with expenses declining at nearly twice the rate of our revenue decline. When we exclude the non-core servicing rights recapture, revenue growth, year-to-date, is higher by 2.6 percent. We continue to examine all of our operations and resources as we look to manage expense levels into the second half of 2023.”