SB Financial Group, Inc. Announces Second-Quarter and Six-Month 2016 Results

DEFIANCE, Ohio, July 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 second-quarter and six-months ended June 30, 2016.

Second-quarter 2016 highlights over prior-year second quarter include:

• Net income of $2.3 million, an increase of 13.8 percent
• Diluted earnings per share (EPS) of $0.35, an increase of 12.9 percent
• Loan growth from the prior year of $82.4 million, or 15.8 percent, and from the linked quarter $27.6 million, or 4.8 percent
• Deposit growth from the prior year of $85.4 million, or 15.2 percent
• Fully Taxable Equivalent (FTE) net interest margin of 3.75 percent, down 1 basis point
• Mortgage origination volume of $110.2 million, an increase of 17.7 percent; servicing portfolio $831.8 million

Six-months ended June 30, 2016, highlights over prior-year six months include:

• Net income of $3.9 million, an increase of 12.4 percent
• Diluted earnings per share of $0.61, an increase of 13.0 percent

"We continued to execute successfully on our strategy to move our overall performance to a higher level," said Mark Klein, Chairman, President and CEO of SB Financial.  "Our results for the second quarter reflected this progress, with a 12.9 percent increase in EPS compared to the prior-year quarter."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income (FTE) and noninterest income, was up 5.0 percent from the second quarter of 2015, and up 12.5 percent from the linked quarter.

• Net interest income (FTE) was up 11.2 percent from the year-ago quarter, and up 5.1 percent over the linked quarter. 
• Net interest margin (FTE) was down 1 basis point from the year-ago quarter, and flat to the linked quarter.
• Noninterest income was down 3.1 percent from the year-ago quarter, but up 25.2 percent from the linked quarter. 
• Total revenue (FTE) for the first six months of 2016 was $20.5 million compared to $19.5 million for the first six months of 2015, which is a 4.8 percent increase.

Mortgage Loan Business

Mortgage loan originations for the second quarter of 2016 were $110.2 million, up $16.6 million, or 17.7 percent, from the year-ago quarter.  Total sales of originated loans were $95.2 million, up $15.3 million, or 19.2 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 $2.0 million for the second quarter of 2016, compared to $2.3 million for the year-ago quarter, or a 12.3 percent decrease.  The mortgage servicing valuation adjustment for the second-quarter 2016 was a negative $0.5 million, compared to a positive adjustment for the second quarter of 2015 of $0.3 million.  The aggregate servicing valuation impairment ended the quarter at $1.5 million.  The mortgage servicing portfolio at June 30, 2016, was $831.8 million, up $108.7 million, or 15.0 percent, from $723.1 million at June 30, 2015.

Mr. Klein noted, "The entire mortgage production team turned in one of our best quarters in recent years.  Our effective efforts drove portfolio growth to an all-time high, as new money production accounted for 90 percent of our volume.  Our strong performance was offset by the 35 basis point decline in the 10-year Treasury, which resulted in an additional $500 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 within our 900 accounts stood at $367.2 million as of June 30, 2016. For the second quarter of 2016, fee income as a percentage of total revenue was 40.1 percent. The servicing rights impairment negatively impacted the quarter by $0.5 million. 

For the second quarter of 2016, noninterest expense (NIE) of $7.4 million, was up $0.6 million, or 8.6 percent, compared to the same quarter last year. Total staffing levels were up 7.7 percent, due to our new branch locations and increased support in our compliance and mortgage divisions.  Compared to the linked quarter, NIE was up $0.5 million, or 7.4 percent.

Mr. Klein stated, "Once again, total fee income was up significantly, even with the impairment of our mortgage servicing rights; non-interest income continues to represent more than 40 percent of total revenue. Our strategy to diversify our revenue streams is delivering bottom-line improvement." 

Balance Sheet

Total assets as of June 30, 2016, were $793.2 million, up $86.0 million, or 12.2 percent, from a year ago.  Total equity as of June 30, 2016, was $85.0 million, up 8.7 percent, from a year ago, and was at 10.7 percent of total assets. 

Total loans held for investment were $604.8 million at June 30, 2016, up $82.4 million, or 15.8 percent, from June 30, 2015.  Commercial real estate loans accounted for the majority of growth, up $37.9 million, or 16.9 percent.  Residential real estate and commercial loans also rose $18.6 million and $16.4 million, or 15.9 percent and 19.4 percent, respectively.

The investment portfolio, including Federal Reserve Bank and Federal Home Loan Bank stock, of $96.2 million represented 12.1 percent of assets at June 30, 2016, and was down 6.2 percent from the year-ago period.  Deposit balances of $648.3 million at June 30, 2016, increased by $85.4 million, or 15.2 percent, since June 30, 2015.  Growth from the prior year included $16.9 million in checking and $68.5 million in savings and time deposit balances.

Mr. Klein said, "Loan growth for the quarter of $28 million continued to drive net interest income and top-line revenue higher.  For the year, loan balances have grown more than $47 million and provided the expansion of our operating revenue by more than 25 percent from the linked quarter.  Our growth comes on the heels of our hard work to achieve and maintain top-quartile asset quality metrics." 

Asset Quality

SB Financial continues to maintain above peer median asset quality, reporting nonperforming assets of $8.2 million as of June 30, 2016, up $2.8 million, or 52.9 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 1.0 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 92.3 percent at June 30, 2016, down from the 134.6 percent at June 30, 2015.

Webcast and Conference Call

The Company will hold a related conference call and webcast on July 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 five 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 2016, SB Financial was ranked #160 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 including certain non-GAAP financial measures will provide 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.