SB Financial Group Inc. reported earnings for the fourth quarter and 12 months ended Dec. 31, 2020.
Fourth quarter 2020 highlights over prior-year fourth quarter included: net income of $5.4 million up $2 million or 59.6%; diluted earnings per share (“EPS”) of 71 cents, up 29 cents per share or 69%; adjusted net income, excluding the impact of the Originated Mortgage Servicing Rights (OMSR) recapture, was $5.8 million, which yields an increase in adjusted EPS of 6 cents to 77 cents; mortgage origination volume of $169.0 million, an increase of $31.5 million, or 22.9%; and pre-tax, pre-provision income of $7.5 million, up $3.1 million or 70.6%.
The 12 months ended Dec. 31, 2020, highlights over the prior-year 12 months included: net income of $14.9 million, diluted EPS of $1.96; adjusted net income, excluding the impact of OMSR and Edon merger costs, rose to $18.8 million, up $5.9 million, or 46.1%, with adjusted EPS of $2.44; return on average assets (ROAA) of 1.29%, adjusted ROAA of 1.61%; loan growth of $47.2 million, or 5.7%, which includes Paycheck Protection Program (PPP) loan balances and loans acquired in the Edon acquisition; deposit growth of $213.9 million, or 25.4%, driven by PPP balances and the Edon acquisition; and mortgage origination volume of $694.2 million, servicing portfolio of $1.3 billion, which is up $101 million, or 8.4%.
“The fourth quarter completed a record year of earnings for our company. We earned 71 cents per share in the quarter, up 69% from the prior year and for the full year $1.96, which was up 30% over the prior 12 months,” said Mark Klein, chairman, president, and CEO of SB Financial. “We had significant contributions from our lending teams in the PPP initiative and our residential mortgage group originated record volume during 2020. We were especially pleased to have returned over $10 million to our shareholders in the form of dividends and buybacks this past year and to have increased shareholder book value by nearly 11%.”
Total operating revenue, consisting of net interest income and noninterest income, was up 24.7% from the fourth quarter of 2019 and for the year was up 24.9%.
Net interest income was up 7.6% from the year-ago quarter, and remained flat to the linked quarter.
Net interest margin on a fully taxable equivalent basis (FTE) was down from the year-ago quarter by 49 basis points and down 20 basis points from the linked quarter due to higher transactional cash balances, slower PPP forgiveness realization and lower mortgage volume. Loan yields are down 60 bps with the decline in the rate curve.
Non-interest income was up 49.4% year over year, but down 14.5% from the linked quarter, due to servicing rights impairment and lower mortgage volume.
Mortgage loan originations for the fourth quarter of 2020 were $169.0 million, up $31.5 million, or 22.9%, from the year-ago quarter. Total sales of originated loans were $143.2 million, up $15.7 million, or 12.3%. For the full year, SB Financial had total volume of $694.2 million, of which $290.9 million (42%) was new purchase/construction lending, $217.0 million (31%) was internal refinance, and the remaining $186.3 million (27%) was new customer refinance volume.
Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $6.2 million for the fourth quarter of 2020, compared to $3.4 million for the year-ago quarter. The mortgage servicing valuation adjustment for the fourth quarter of 2020 was a negative $0.6 million, compared to a positive adjustment of $0.3 million for the fourth quarter of 2019.
For the year, the impairment on servicing rights was $3.6 million, compared to $1.1 million for the prior year. The aggregate servicing valuation impairment ended the quarter at $4.9 million. The servicing portfolio at Dec. 31, 2020, was $1.3 billion, up $100.6 million or 8.4%, from $1.2 billion at Dec. 31. Normal amortization is up 124% from the prior year due to higher refinance activity.
Klein noted, “Our mortgage machine continued at a brisk pace in the quarter with nearly $170 million in volume and for the year we were just a few loans shy of $700 million. Our sales and processing teams set a new standard of excellence with over 3,100 units closed during the year, and the gain on sale yields continued at high levels in the quarter allowing us to overcome the effects of the servicing rights impairment. We can add to book value in the future with the potential realization of our $4.9 million in valuation impairment.”