SB Financial Group, Inc. Announces Second-Quarter and Six-Month 2014 Results

DEFIANCE, Ohio, July 28, 2014 /PRNewswire/ -- SB Financial Group, Inc. (NASDAQ: SBFG), a diversified financial services company providing full-service community banking, mortgage banking, wealth management and item processing services, today reported earnings for the second quarter and six months ended June 30, 2014.

• Second-quarter earnings of $1.2 million, a 27 percent increase over the linked quarter
• Loan growth of 9.1 percent, up $42.1 million from the prior year, up $24.2 million from the linked quarter
• Nonperforming assets at 0.93 percent of total assets
• Operating expenses declined 6.4 percent from the prior year

"This was a very encouraging quarter for our Company. Improved economic conditions led to a more stable housing environment and lower unemployment. We saw increased loan demand in our traditional markets, as well as our low-share markets of Toledo and Columbus. Our growth this quarter reflects the improved market conditions and optimism of our customers," said Mark Klein, President and Chief Executive Officer of SB Financial Group. 

RESULTS OF OPERATIONS

Consolidated Revenue

Total revenue, consisting of net interest income on a fully tax equivalent (FTE) basis and noninterest income, was down 6.8 percent from the second quarter of 2013, but up 15.5 percent from the linked quarter.

• Net interest income (FTE) was down 1.9 percent for the second quarter, but up 8.6 percent compared to the linked quarter
• Net interest margin (FTE) was down 26 basis points for the second quarter, but up 14 basis points to the linked quarter
• Noninterest income was down $0.5 million, or 13.7 percent, for the second quarter, but up $0.7 million, or 28.8 percent, for the linked quarter
• Total revenue, consisting of net interest income on a fully tax equivalent basis and noninterest income, for the first six months of 2014 was $16.1 million, compared to $18.2 million for the first six months of 2013. The change was due primarily to lower mortgage volume and continued compression of net interest margin.

Mortgage Loan Business

For the second quarter of 2014, mortgage loan originations were $66.6 million, down $15.4 million, or 18.8 percent, from the year-ago second quarter, but up $33.0 million, or 98.1 percent, from the linked quarter. For the first six months of 2014, mortgage loan originations were $100.2 million, from $153.9 million in the first six-months of 2013.

Net mortgage banking income, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.4 million for the second quarter of 2014, compared to $1.9 million for the year-ago quarter. The mortgage servicing valuation adjustment for the second-quarter 2014 was a negative $0.08 million, slightly worse than the linked quarter. The mortgage servicing portfolio at June 30, 2014, was $627.2 million, up $52.1 million, or 9.1 percent, from June 30, 2013.

Mr. Klein noted, "Mortgage volume returned to more normalized levels for our bank this quarter. The purchase market continued to dominate our production, contributing 96 percent of our $67 million in new originations in the quarter. We continue to add originators and take market share in all of our markets."

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 income from bank-owned life insurance. Wealth management assets under management stood at $332.3 million as of the second quarter of 2014. For the quarter, fee income as a percent of total revenue was 38.6 percent, down slightly from the prior year. For the first six months, fee income as a percentage of total revenue was 36.8 percent.

For the second quarter of 2014, noninterest expense (NIE) was down $0.5 million, or 6.4 percent, compared to the second quarter of 2013. For the first six months of 2014, operating expenses are down $1.0 million, or 7.6 percent, compared to the prior year first six months. While volume related costs were up slightly this quarter, we continue to see reductions in credit costs, employee benefits, and the reduction in state tax due to Ohio's new financial institution tax.

"Our fee income continues to be a competitive strength, particularly in the current interest-rate environment." Mr. Klein noted. "We are especially pleased that our fee income as a percentage of total revenue for the second-quarter 2014 was 38.6 percent, which is approaching the 40 percent level we target to achieve. We continue to manage our operating expenses, down over $1.0 million from the prior year." 

Balance Sheet

Total assets as of June 30, 2014, were $662.5 million, up 4.9 percent from the year-ago quarter. Total equity as of June 30, 2014, was $59.0 million, up 8.5 percent from the year-ago quarter.

Total loans held for investment (HFI) were $506.1 million at June 30, 2014, up $42.1 million, or 9.1 percent, from the year-ago quarter. Commercial real estate loans accounted for the majority of growth, up $16.0 million, or 8.0 percent. Commercial and residential real estate loans rose $7.7 million and $11.8 million, respectively. Consumer loans included the growth in our branded credit card portfolio, with $1.0 million in balances and $6.4 million in available credit lines.

The investment portfolio of $89.3 million represented 13.5 percent of assets at June 30, 2014, which was down slightly from the prior year. Deposit balances of $524.1 million at June 30, 2014, increased by $12.7 million since June 30, 2013. Growth from the prior year included $9.2 million in checking and $3.5 million in time deposit balances.

Mr. Klein stated, "We saw broad and diverse growth in our loan portfolio this quarter compared to the year-ago quarter. All of our markets contributed to the higher loan volume, especially our lower market-share regions of Columbus and Toledo."

Asset Quality

SB Financial continues to improve its asset quality, reporting nonperforming assets of $6.2 million as of June 30, 2014, down $1.4 million, or 18.6 percent, from the year-ago quarter. Our 0.93 percent level of nonperforming to total assets was the lowest since the first quarter of 2007. Coverage of problem loans by the loan loss allowance was 116 percent at June 30, 2014.

"Our total past due loans declined to 58 basis points at quarter end, and our nonperforming asset percentage reached a seven-year low. The wide diversity in our markets provides a unique balance, which drives growth in higher quality assets," stated Mr. Klein. "Achieving and maintaining top-quartile asset quality continues to be a primary focus for us."

Capitalization

Improving capital ratios remains an important focus of management. The tangible equity ratio improved by 50 basis points over the past year and stood at 6.5 percent as of June 30, 2014. All bank regulatory ratios remain in excess of "well-capitalized" levels. At June 30, 2014, State Bank's Total Risk-Based Capital was estimated to be $61.6 million, $21.9 million above the "well-capitalized" level. The Total Risk-Based Capital Ratio is estimated at 12.4 percent.

The company will hold a related conference call and webcast today at 3:00 p.m. EDT. Interested parties may access the conference call by dialing 1-888-317-6016. 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 Group website.

About SB Financial Group

Headquartered in Defiance, Ohio, SB Financial Group, Inc. is a diversified financial services holding company with two wholly-owned operating subsidiaries: State Bank and RDSI Banking Systems (RDSI). 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 17 banking centers in seven northwestern Ohio counties and one center in Fort Wayne, Indiana, as well as three loan production offices located in Columbus, Ohio, and Angola, Indiana. RDSI provides item processing services to community banks located primarily in the Midwest. SB Financial Group, Inc.'s common stock is listed on the NASDAQ Global Market under the symbol SBFG.

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, insurance and mortgage industries, competitive factors specific to markets in which SB Financial Group and its subsidiaries operate, future interest rate levels, legislative and regulatory actions, capital market conditions, general economic conditions, geopolitical events, the loss of key personnel and other factors. Additional factors that could cause results to differ from those described above can be found in the Company's Annual Report on Form 10-K and documents subsequently filed by SB Financial Group with the Securities and Exchange Commission.  Forward-looking statements speak only as of the date on which they are made, and SB Financial Group 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 Group 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. Specifically, SB Financial Group provides measures based on "core operating earnings," which excludes merger, integration and restructuring expenses that are not reflective of on-going operations or not expected to recur. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results.

SOURCE SB Financial Group, Inc.