UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported) October 30, 2020 (October 29, 2020)

 

(Exact name of registrant as specified in its charter)

 

Ohio		0-13507		34-1395608
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

401 Clinton Street, Defiance, OH		43512
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code (419) 783-8950

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading symbol(s)		Name of each exchange on which registererd
Common Shares, No Par Value 7,546,804 Outstanding at October 30, 2020		SBFG		The NASDAQ Stock Market, LLC (NASDAQ Capital Market)

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company        ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

 

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On October 29, 2020, SB Financial Group, Inc. (the “Company”) issued a news release reporting financial results for the third quarter 2020. A copy of the October 29, 2020 news release is furnished as Exhibit 99.1 and is incorporated herein by reference.

 

The information in this Item 2.02, including Exhibit 99.1 furnished herewith, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that Section, nor shall such information be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Not Applicable

 

(b) Not Applicable

 

(c) Not Applicable

 

(d) Exhibits

 

Exhibit No.		Description
99.1		News release issued by SB Financial Group, Inc. on October 29, 2020, reporting financial results for the third quarter 2020.

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	SB FINANCIAL GROUP, INC.
Dated:  October 30, 2020	By:	/s/ Anthony V. Cosentino
		Anthony V. Cosentino
		Chief Financial Officer

 

 

INDEX TO EXHIBITS

 

Current Report on Form 8-K

Dated October 30, 2020

 

SB Financial Group, Inc.

 

Exhibit No.		Description
99.1		News release issued by SB Financial Group, Inc. on October 29, 2020, reporting financial results for the third quarter 2020.

 

 

3

 

Exhibit 99.1

 

 

SB Financial Group Announces Third Quarter 2020 Results

 

DEFIANCE, OH, October 29, 2020 -- 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, 2020.

 

Third quarter 2020 highlights over prior-year third quarter include:

 

	●	Net income of $5.3 million up $1.5 million or 39.6 percent; diluted earnings per share (“EPS”) of $0.69 up $0.21 per share or 43.8 percent

	●	Adjusted net income, excluding for the impact of the Originated Mortgage Servicing Rights (“OMSR”) recapture of $0.3 million, of $5.0 million, with adjusted EPS of $0.65

	●	Mortgage origination volume of $200.2 million, an increase of $42.2 million, or 26.7 percent

●

Pre-tax, pre-provision income of $8.3 million up $2.5 million or 43.2 percent

 

The nine months ended September 30, 2020, highlights over the prior-year nine months include:

 

	●	Net income of $9.6 million; diluted EPS of $1.25

	●	Adjusted net income, excluding the impact of OMSR and merger costs of $3.3 million after- tax, rose to $12.9 million, up $3.2 million or 32.9 percent, with adjusted EPS of $1.67

●

Return on Average Assets (“ROA”) of 1.12 percent; adjusted ROA of 1.41 percent

 

Third quarter 2020 trailing twelve-month highlights include:

 

	●	Loan growth of $62.5 million, or 7.6 percent, which includes Paycheck Protection Program (“PPP”) loan balances of $82.1 million and loans acquired in the Edon acquisition of $15.7 million.

	●	Deposit growth of $166.1 million, or 19.6 percent, driven by PPP balances and the Edon acquisition

●

Mortgage origination volume of $662.7 million; servicing portfolio of $1.29 billion, which is up $140.0 million, or 12.1 percent

 

Highlights		Three Months Ended												Nine Months Ended
($ in thousands, except per share & ratios)		Sep. 2020				Sep. 2019				% Change				Sep. 2020				Sep. 2019				% Change
Operating revenue		$	19,677			$	14,424				36.4	%		$	47,873			$	38,287				25.0	%
Interest income			10,807				11,546				-6.4	%			32,046				33,195				-3.5	%
Interest expense			1,548				2,488				-37.8	%			5,367				6,965				-22.9	%
Net interest income			9,259				9,058				2.2	%			26,679				26,230				1.7	%
Provision for loan losses			1,800				300				500.0	%			3,700				500				640.0	%
Noninterest income			10,418				5,366				94.1	%			21,194				12,057				75.8	%
Noninterest expense			11,335				9,500				19.3	%			32,403				27,234				19.0	%
Net income			5,250				3,762				39.6	%			9,586				8,615				11.3	%
Earnings per diluted share			0.69				0.48				43.8	%			1.25				1.08				15.7	%
Return on average assets			1.73	%			1.44	%			20.1	%			1.12	%			1.13	%			-0.9	%
Return on average equity			15.01	%			11.24	%			33.5	%			9.74	%			8.67	%			12.3	%
Non-GAAP Measures
Adjusted net income		$	4,992			$	3,762				32.7	%		$	12,916			$	9,720				32.9	%
Adjusted diluted EPS			0.65				0.48				35.4	%			1.67				1.22				36.9	%
Adjusted return on average assets			1.64	%			1.44	%			13.9	%			1.41	%			1.23	%			14.6	%
Adjusted pre-tax, pre-provision income			8,016				4,924				62.8	%			19,685				12,451				58.1	%

 

“Mortgage volume continued its strong growth in the third quarter, which resulted in our net income rising from the prior year by over 40 percent.” said Mark A. Klein, Chairman, President, and CEO of SB Financial. “Our revenue diversification strategy continues to drive EPS and tangible book value growth despite the headwinds that the economy is facing in all of our markets. We continued to return capital to our shareholders in the quarter through stock buybacks and a cash dividend of nearly 15 percent of earnings.”

 

 

RESULTS OF OPERATIONS

 

Consolidated Revenue

 

Total operating revenue, consisting of net interest income and noninterest income, was up 36.4 percent from the third quarter of 2019, and up 12.5 percent to the linked quarter.

 

●

Net interest income was up 2.2 percent from the year-ago quarter, and up 4.4 percent from the linked quarter.

 

●

Net interest margin on a fully taxable equivalent basis (FTE) was down from the year-ago quarter by 52 basis points but up 9 basis points from the linked quarter as transactional cash balances were higher and PPP loans made marginal contribution.

 

●

Noninterest income was up 94 percent year over year and 21 percent from the linked quarter.

 

Mortgage Loan Business

 

Mortgage loan originations for the third quarter of 2020 were $200.2 million, up $42.2 million, or 26.7 percent, from the year-ago quarter. Total sales of originated loans were $166.2 million, up $40.8 million, or 32.6 percent. For the first nine months, SB Financial had total volume of $525.2 million, of which $210.2 million (40 percent) was new purchase/construction lending, $169.2 million (32 percent) was internal refinance, and the remaining $145.8 million (28 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 $7.9 million for the third quarter of 2020, compared to $2.5 million for the year-ago quarter. The mortgage servicing valuation adjustment for the third quarter of 2020 was a positive $0.3 million, compared to no adjustment for the third quarter of 2019. For the first nine months, the impairment on servicing rights was $3.0 million, compared to $1.4 million for the prior year nine months. The aggregate servicing valuation impairment ended the quarter at $4.3 million. The servicing portfolio at September 30, 2020, was $1.29 billion up $140.0 million or 12.1 percent, from $1.15 billion at September 30, 2019. Normal amortization is up 87 percent from the prior year due to higher refinance activity.

 

Mr. Klein noted, “Mortgage volume was steady in the quarter as we originated over $200 million in volume. In addition to strong origination levels, our pricing and hedging strategies enabled us to deliver additional mortgage banking revenue of $5.4 million or a year over year increase of over 200 percent. We were also pleased to recapture a small amount of our prior quarter’s impairment on our servicing rights.”

 

Mortgage Banking
($ in thousands)		Sep. 2020				Jun. 2020				Mar. 2020				Dec. 2019				Sep. 2019
Mortgage originations		$	200,158			$	223,671			$	101,365			$	137,528			$	157,947
Mortgage sales			166,201				204,628				84,476				127,441				125,386
Mortgage servicing portfolio			1,293,037				1,261,746				1,216,292				1,199,107				1,153,020
Mortgage servicing rights			8,535				8,168				8,974				11,017				10,447
Mortgage servicing revenue
Loan servicing fees			813				782				757				740				709
OMSR amortization			(1,308	)			(1,574	)			(597	)			(709	)			(701	)
Net administrative fees			(495	)			(792	)			160				31				8
OMSR valuation adjustment			326				(1,088	)			(2,212	)			303				-
Net loan servicing fees			(169	)			(1,880	)			(2,052	)			334				8
Gain on sale of mortgages			8,085				8,119				1,949				3,048				2,495
Mortgage banking revenue, net		$	7,916			$	6,239			$	(103	)		$	3,382			$	2,503

 

 

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 $522.4 million as of September 30, 2020, up $38.1 million or 7.9 percent compared to the prior year. For the third quarter of 2020, noninterest income as a percentage of total operating revenue was 52.9 percent. Reflective of the robust mortgage market, SB Financial’s Title Agency provided revenue in the quarter of $0.5 million, up 29 percent from the prior year.

 

For the third quarter of 2020, noninterest expense of $11.3 million was up $1.8 million year over year or 19.3 percent reflecting a 1.9 times positive operating leverage. On a year-to-date basis, when adjusted for the Edon merger costs, noninterest expense is up 14.4 percent compared to the prior year nine-month period. Operating leverage for the year is a positive 1.3 times, which will improve to 1.7 times when the merger costs are removed.

 

Mr. Klein stated, “Revenue growth was up over 36 percent from the prior year compared to operating expense growing 19 percent. We had the lowest net, noninterest expense to average assets in our history this quarter and the significant positive operating leverage was key to our earnings growth. We remain optimistic that the consumer and business momentum from this quarter will continue into the fourth quarter and translate into improved loan pipelines.”

 

Noninterest Income / Noninterest Expense
($ in thousands, except ratios)		Sep. 2020				Jun. 2020				Mar. 2020				Dec. 2019				Sep. 2019
Noninterest Income (NII)		$	10,418			$	8,615			$	2,161			$	5,959			$	5,366
NII / Total Revenue			52.9	%			49.3	%			20.2	%			40.9	%			37.2	%
NII / Average Assets			3.4	%			3.0	%			0.8	%			2.3	%			2.1	%
Total Revenue Growth			36.4	%			39.6	%			-5.6	%			16.0	%			-1.2	%
Noninterest Expense (NIE)		$	11,335			$	11,662			$	9,406			$	10,176			$	9,500
Efficiency Ratio			57.5	%			66.7	%			87.8	%			69.9	%			65.9	%
NIE / Average Assets			3.7	%			4.0	%			3.5	%			3.9	%			3.6	%
Net Noninterest Expense/Avg. Assets			-0.3				-1.0	%			-2.7	%			-1.6	%			-1.6	%
Total Expense Growth			19.3	%			28.0	%			9.0	%			15.0	%			6.2	%
Operating Leverage			1.9				1.4				-0.6				1.1				-0.2

 

Balance Sheet

 

Total assets as of September 30, 2020, were $1.22 billion, up $175.5 million, or 16.8 percent, from the year ago quarter due to the impact of the Edon acquisition and the PPP activity. Total equity as of September 30, 2020, was $141.3 million, up 5.3 percent from a year ago, and comprised 11.6 percent of total assets.

 

 

Total loans held for investment were $885.9 million at September 30, 2020, up $62.5 million, or 7.6 percent, from September 30, 2019. Commercial loans were up $71.5 million, or 49.3 percent, commercial real estate up $9.4 million or 2.6 percent and agricultural loans increasing $5.5 million or 10.5 percent. Absent the effects of the Edon acquisition and PPP loans, loan balances were down $35.4 million from the year ago quarter.

 

The investment portfolio of $135.6 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 11.1 percent of assets at September 30, 2020, and was up 66.0 percent from the year-ago period. Deposit balances of $1.01 billion at September 30, 2020, increased by $166.1 million, or 19.6 percent, since September 30, 2019. Growth from the prior year included $104.7 million in checking and $61.4 million in savings and time deposit balances.

 

Mr. Klein continued, “Asset quality was largely stable in the quarter. Our number and dollar of loans on forbearance were down 60 and 75 percent respectively from the linked quarter. We are encouraged by these trends but we also understand that further weakness is possible. To prepare for these unknowns, we decided to allocate some of our higher than expected mortgage revenue into provision this quarter. We expect to begin the PPP forgiveness process in the fourth quarter, which will help all of our 700 PPP clients who were impacted by the pandemic.”

 

Loan Balances
($ in thousands, except ratios)		Sep. 2020				Jun. 2020				Mar. 2020				Dec. 2019				Sep. 2019				Annual Growth
Commercial		$	216,667			$	222,108			$	151,538			$	151,018			$	145,147			$	71,520
% of Total			24.5	%			24.6	%			18.2	%			18.3	%			17.6	%			49.3	%
Commercial RE			371,947				375,450				378,212				369,962				362,580				9,367
% of Total			42.0	%			41.6	%			45.5	%			44.8	%			44.0	%			2.6	%
Agriculture			57,420				58,817				47,660				50,994				51,946				5,474
% of Total			6.5	%			6.5	%			5.7	%			6.2	%			6.3	%			10.5	%
Residential RE			178,393				184,684				189,738				189,290				199,036				-20,643
% of Total			20.1	%			20.6	%			22.9	%			22.9	%			24.2	%			-10.4	%
Consumer & Other			61,423				60,489				63,616				64,246				64,658				-3,235
% of Total			6.9	%			6.7	%			7.7	%			7.8	%			7.9	%			-5.0	%
Total Loans		$	885,850			$	901,548			$	830,764			$	825,510			$	823,367			$	62,483
Total Growth Percentage																							7.6	%

 

Deposit Balances
($ in thousands, except ratios)		Sep. 2020				Jun. 2020				Mar. 2020				Dec. 2019				Sep. 2019				Annual Growth
Non-Int DDA		$	225,003			$	229,042			$	170,920			$	158,357			$	152,932			$	72,071
% of Total			22.2	%			23.1	%			19.8	%			18.8	%			18.0	%			47.1	%
Interest DDA			164,248				154,143				133,722				131,084				131,655				32,593
% of Total			16.2	%			15.6	%			15.5	%			15.6	%			15.5	%			24.8	%
Savings			169,474				161,182				138,863				119,359				121,991				47,483
% of Total			16.7	%			16.3	%			16.0	%			14.1	%			14.3	%			38.9	%
Money Market			204,862				189,380				169,209				173,666				173,237				31,625
% of Total			20.2	%			19.1	%			19.6	%			20.7	%			20.4	%			18.3	%
Time Deposits			250,428				256,840				251,177				257,753				268,139				(17,711	)
% of Total			24.7	%			25.9	%			29.1	%			30.8	%			31.8	%			-6.6	%
Total Deposits		$	1,014,015			$	990,587			$	863,891			$	840,219			$	847,954			$	166,061
Total Growth Percentage																							19.6	%

 

 

Asset Quality

 

SB Financial reported nonperforming assets of $7.3 million as of September 30, 2020, up $2.7 million from the year-ago quarter. The coverage of nonperforming loans by the loan loss allowance was at 164 percent at September 30, 2020, down from 207 percent at September 30, 2019.

 

Nonperforming Assets
($ in thousands, except ratios)		Sep. 2020				Jun. 2020				Mar. 2020				Dec. 2019				Sep. 2019				Annual Change
Commercial & Agriculture		$	1,140			$	1,204			$	1,309			$	1,772			$	834			$	306
% of Total Com./Ag. loans			0.42	%			0.43	%			0.66	%			0.88	%			0.42	%			36.7	%
Commercial RE			2,475				2,484				1,816				1,826				262				2,213
% of Total CRE loans			0.67	%			0.66	%			0.48	%			0.49	%			0.07	%			844.7	%
Residential RE			2,481				2,538				2,330				1,635				1,763				718
% of Total Res. RE loans			1.39	%			1.37	%			1.23	%			0.86	%			0.89	%			40.7	%
Consumer & Other			313				308				327				267				416				(103	)
% of Total Con./Oth. loans			0.51	%			0.51	%			0.51	%			0.42	%			0.64	%			-24.8	%
Total Nonaccruing Loans			6,409				6,534				5,782				5,500				3,275				3,134
% of Total loans			0.72	%			0.72	%			0.70	%			0.67	%			0.40	%			95.7	%
Accruing Restructured Loans			789				804				816				874				825				(36	)
Total Change (%)																							-4.4	%
Total Nonaccruing & Restructured Loans			7,198				7,338				6,598				6,374				4,100				3,098
% of Total loans			0.81	%			0.81	%			0.79	%			0.77	%			0.50	%			75.6	%
Foreclosed Assets			76				382				85				305				489				(413	)
Total Change (%)																							-84.5	%
Total Nonperforming Assets		$	7,274			$	7,720			$	6,683			$	6,679			$	4,589			$	2,685
% of Total assets			0.60	%			0.64	%			0.61	%			0.64	%			0.44	%			58.5	%

 

 

The Company continued to provide payment relief to clients as needed, with total forbearance as of September 30, 2020 of 204 loans at $80.7 million. The detail on these deferrals; 19 commercial at $36.4 million down $106.3 million or 74.5%, 7 portfolio residential and consumer at $2.0 million down $8.6 million or 81.3 percent and 178 sold residential real estate at $42.3 million up $0.6 million or 1.4 percent.

 

Loans in Deferral Status ($ in thousands, except ratios)		Sep. 2020				Jun. 2020				Linked Qtr. Change
Total Commercial		$	36,366			$	142,682			$	(106,316	)
Total Consumer			28				350				(322	)
Total Portfolio Mortgage			1,959				10,274				(8,315	)
Total Balance Sheet Deferrals		$	38,353			$	153,306			$	(114,953	)
% of Total loans			4.33	%			17.00	%			-12.68	%
Total Sold Mortgage		$	42,317			$	41,751			$	566

 

Commercial High Sensitivity Portfolio Update ($ in thousands, except ratios)		Sep. 2020				Jun. 2020				Linked Qtr. Change
Hotel/Travel Accomodation		$	32,475			$	32,758			$	(283	)
Food Service/Restaurant			9,698				10,480				(782	)
Elder/Child Care			7,188				7,302				(114	)
Arts/Entertainment/Recreation			6,614				5,698				916
Education/Religious			13,412				15,083				(1,671	)
Energy			-				-				-
Total		$	69,387			$	71,321			$	(1,934	)
% of Total loans			7.83	%			7.91	%			-0.08	%

 

Webcast and Conference Call

 

The Company will hold a related conference call and webcast on October 30, 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) 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

[email protected]

 

Anthony V. Cosentino

Executive Vice President and

Chief Financial Officer

[email protected]

 

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7

 

SEC Filings