SB Financial Group, Inc. Announces First-Quarter 2016 Results

DEFIANCE, Ohio, April 21, 2016 /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, item and statement processing services, today reported earnings for the first quarter ended March 31, 2016.

First-quarter 2016 highlights over prior year first quarter include:

• Diluted earnings per share (EPS) of $0.26, an increase of 13.0 percent
• Net income of $1.7 million, an increase of 10.6 percent
• Return on average assets of 0.87 percent, up from 0.84 percent
• Loan growth from the prior year of $65.4 million, or 12.8 percent
• Fully tax equivalent (FTE) revenue, up 4.5 percent
• Net interest margin (FTE) of 3.75 percent, up 4 basis points
• Mortgage origination volume of $71.9 million
• Positive operating leverage for the Company; expenses up 3.8 percent
• Loan growth from the linked quarter of $19.5 million, or 3.5 percent

"I am extremely pleased to report our strong operating results for the first quarter of 2016," said Mark Klein, Chairman, President and CEO of SB Financial.  "For the quarter, our EPS of $0.26 is up 13 percent compared to $0.23 from the prior year quarter.  Further, we had $19 million of loan growth from the linked quarter, and from the prior year, we were up $65 million, or 13 percent."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income (FTE) and noninterest income, was up 4.5 percent from the first quarter of 2015, but down 1.5 percent from the linked quarter.

• Net interest income (FTE) was up 10.2 percent from the year-ago quarter, and up 2.1 percent over the linked quarter. 
• Net interest margin (FTE) was up 4 basis points from the year-ago quarter, but down 1 basis point from the linked quarter.
• Noninterest income was down 4.4 percent from the year-ago quarter, and down 7.5 percent from the linked quarter. 

Mortgage Loan Business

Mortgage loan originations for the first quarter of 2016 were $71.9 million, down $3.0 million, or 4.0 percent, from the year-ago quarter.  Total sales of originated loans were $59.4 million, down $5.0 million, or 7.7 percent from the year-ago quarter.

Net mortgage banking income, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $0.94 million for the first quarter of 2016, compared to $1.5 million for the year-ago quarter, or a 35.9 percent decline.  The mortgage servicing valuation adjustment for the  first-quarter 2016 was a negative $0.8 million, with the aggregate servicing valuation impairment ending the quarter at $1.1 million.  The mortgage servicing portfolio at March 31, 2016, was $792.7 million, up $108.3 million, or 15.8 percent, from $684.4 million at March 31, 2015.

Mr. Klein noted, "The first quarter represented another quarter of solid mortgage production with a total of $72 million.  This quarter, our new money production accounted for 88 percent of our volume, and our gain on sale was 2.3 percent.  Our positive performance was offset by the 50 basis point decline in the 10-year Treasury, which resulted in a $800 thousand impairment to our servicing rights."

Fee Income and Noninterest Expense

SB Financial's fee income includes revenue from a diverse group of services, such as wealth management, deposit fees and from sales of small business loans (SBA).  Wealth management assets managed for our 900 clients stood at $357.5 million as of March 31, 2016.  For the first quarter of 2016, fee income as a percentage of total revenue was 36.0 percent.  The servicing rights impairment negatively impacted the quarter by $0.7 million, compared to the prior year quarter.  SBA loan sale gains were $0.4 million for the first quarter of 2016, up $0.2 million from the prior year.

For the first quarter of 2016, noninterest expense (NIE) was up $0.3 million, or 3.8 percent, compared to the same quarter last year.  Total staffing levels were up 10.1 percent, due to our new branch locations and increased support in our compliance and mortgage divisions.  Compared to the linked quarter, NIE was up $0.1 million, or 0.8 percent.

Mr. Klein stated, "Total fee income, while slightly down from the linked quarter due to the servicing rights impairment, still represented more than 36 percent of total revenue.  We are especially pleased with our mortgage production, and with the growing traction from our SBA lending group, which increased loan-sale-gains by 93 percent on a year-over-year basis." 

Balance Sheet

Total assets as of March 31, 2016, were $774.8 million, up $57.3 million, or 8.0 percent, from a year ago.  Total equity as of March 31, 2016, was $83.1 million, up 7.7 percent, from a year ago, and was at 10.7 percent of total assets. 

Total loans held for investment were $577.1 million at March 31, 2016, up $65.4 million, or 12.8 percent, from March 31, 2015.  Commercial real estate loans accounted for the majority of growth, up $38.9 million, or 17.9 percent.  Residential real estate and commercial loans also rose $17.9 million and $7.1 million, or 15.6 percent and 8.3 percent, respectively.

The investment portfolio, including Federal Reserve Bank and Federal Home Loan Bank stock, of $101.7 million represented 13.1 percent of assets at March 31, 2016, and was up 4.0 percent from the year ago period.  Deposit balances of $638.0 million at March 31, 2016, increased by $59.7 million, or 10.3 percent, since March 31, 2015.  Growth from the prior year included $20.7 million in checking and $39.0 million in savings and time deposit balances.

Mr. Klein said, "Loan volume accelerated during the first quarter, and represented balance growth from the linked quarter of $19.5 million, or 14 percent annualized.  The quarter followed the equally strong fourth quarter of 2015, which had $16.8 million of loan growth. Nonperforming assets were flat from the linked quarter, but up compared to the prior year, as we continue to manage one large commercial real estate credit."

Asset Quality

SB Financial continues to maintain above peer median asset quality, reporting nonperforming assets of $8.5 million as of March 31, 2016, up $2.3 million, or 37.1 percent, from the year-ago quarter, but slightly down from the linked quarter.  The increase from the prior year was the result of an existing delinquent commercial real estate credit that has moved to foreclosure.  The Company feels the valuation of the property will approximate the loan commitment when the situation is resolved.  SB Financial's 1.1 percent of nonperforming assets to total assets remains near the top quartile in its 65-bank peer group.  The coverage of problem loans by the loan loss allowance was 89.3 percent at March 31, 2016, down from the 114.3 percent at March 31, 2015.

Webcast and Conference Call

The Company will hold a related conference call and webcast on April 22, 2016, 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 http://www.yoursbfinancial.com/investorrelations.html.  An audio replay of the call will be available on the SB Financial website.

About SB Financial Group

Headquartered in Defiance, Ohio, SB Financial is a diversified financial services holding company with two operating subsidiaries: State Bank and DCM. State Bank provides a full range of financial services for consumers and small businesses, including wealth management, mortgage banking and commercial and agricultural lending, operating through a total of 19 banking centers; 18 in nine Ohio counties and one center in Fort Wayne, Indiana, and 22 full-service ATMs.  The Company has four loan production offices located throughout the Tri-State region of Ohio, Indiana and Michigan.  DCM provides item processing services to community banks located primarily in the Midwest.  SB Financial's common stock is listed on the NASDAQ Capital Market under the symbol "SBFG".  SB Financial's preferred stock is listed on the NASDAQ Capital Market under the symbol "SBFGP".  

In May 2015, SB Financial was ranked #163 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, 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

In addition to results presented in accordance with GAAP, this release contains certain non-GAAP financial measures. Management believes that providing certain non-GAAP financial measures provides investors with information useful in understanding the Company's financial performance, its performance trends and financial position. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results.