SB Financial Group, Inc. Announces Third-Quarter and Nine-Month 2015 Results

DEFIANCE, Ohio, Oct. 26, 2015 /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 third quarter and nine months ended September 30, 2015.

Third-quarter 2015 highlights over prior year include:

• GAAP net income of $2.3 million, an increase of 49.6 percent; Fully-diluted 33.5 percent
• Return on average assets of 1.26 percent, up from 0.90 percent
• Loan growth up $35.0 million, or 6.9 percent
• Fully tax equivalent (FTE) revenue up 9.3 percent
• Net interest margin (FTE) of 3.87 percent up 23 basis points
• Mortgage origination volume of $87.0 million, up $19.5 million, or 28.9 percent
• Positive operating leverage for the Company; expenses down 3.8 percent

Nine-Months 2015 highlights over the prior-year, period include:

• GAAP net income of $5.8 million, an increase of 53.9 percent
• Return on average assets of 1.07 percent, up from 0.75 percent
• Total revenue (FTE) up 16.8 percent
• Total operating expense up 2.5 percent
• Positive operating leverage of 6.6 times

"I am extremely pleased to report our operating results revealing the best earnings quarter for SB Financial since the fourth quarter of 2003," said Mark Klein, Chairman, President and Chief Executive Officer of SB Financial.  "For the full year, our fully diluted EPS of $0.89 per share is up 17.1 percent.  In addition, we opened two new loan production offices; one in Tiffin, Ohio and our first in the Michigan market of Lambertville.  Additionally, our new full-service location in Dublin, Ohio is set to open this week."

RESULTS OF OPERATIONS

Consolidated Revenue

Total revenue, consisting of net interest income (FTE) and noninterest income, was up 9.3 percent from the third quarter of 2014, but down 1.8 percent from the linked quarter.

• Net interest income (FTE) was up 13.2 percent for the third quarter, and up 5.3 percent compared to the linked quarter.
• Net interest margin (FTE) was up 23 basis points for the third quarter, and up 9 basis points from the linked quarter.
• Net interest margin was impacted by the payoff of the fixed rate trust preferred securities late in the third quarter of 2014. For the third quarter of 2015, this early payoff increased margin by 16 basis points.
• Noninterest income was up 3.8 percent for the third quarter, but down 11.1 percent from the linked quarter.
• Total revenue (FTE), for the first nine months of 2015 was $29.6 million compared to $25.4 million for the first nine months of 2014, which is a 16.8 percent increase. The increase was due to higher mortgage volume of $87 million and Small Business Administration Loan (SBA) sale gains of $0.72 million.

Mortgage Loan Business

Mortgage loan originations for the third quarter of 2015 were $87.0 million, up $19.5 million, or 28.8 percent, from the year-ago third quarter.  For the year, originations are $255.5 million, up $87.9 million or 52.4 percent.  Total sales of originated loans are up 55.2 percent to $214.2 million for the year.

Net mortgage banking income, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.79 million for the third quarter of 2015, compared to $1.73 million for the year-ago quarter.  The mortgage servicing valuation adjustment for the third-quarter 2015 was a negative $0.14 million.  The aggregate servicing valuation impairment ended the quarter at $0.36 million.  The mortgage servicing portfolio at September 30, 2015, was $751.0 million, up $101.3 million, or 15.6 percent, from $649.7 million at September 30, 2014.

Mr. Klein noted, "The third quarter production represented another quarter of solid mortgage production with a total of $87 million; a 29 percent increase from the prior year.  This quarter, our new money production accounted for 93 percent of our volume, and our gain on sale was a healthy 1.49 percent.  Both of these metrics represent a strong performance in all of our markets served, as well as new business and disciplined pricing for State Bank."

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 $310.7 million as of September 30, 2015.  For the third quarter of 2015, fee income as a percentage of total revenue was 39.4 percent and 40.8 percent year to date.  

For the third quarter of 2015, noninterest expense (NIE) was down $0.3 million, or 3.8 percent, compared to the same quarter last year.  Compared to the linked quarter, NIE was down $0.2 million, or 2.8 percent. 

Mr. Klein stated, "Total fee income, while slightly down from a strong linked quarter, still represented over 39 percent of total revenue.  We are especially pleased with our mortgage production and now we are gaining traction from our SBA lending group, which has increased loan-sale-gains by 390 percent on a year to date basis." 

Balance Sheet

Total assets as of September 30, 2015, were $719.2 million, up 8.2 percent from a year ago.  Total equity as of September 30, 2015, was $80.3 million, up 33.3 percent from a year ago.  Equity balances included the net impact of the capital-raise completed in the fourth quarter of 2014, which added $14.0 million to total equity through the public offering of depository shares, each representing a 1/100^th interest in the 6.50 percent Noncumulative Convertible Preferred Shares, Series A.

Total loans held for investment were $540.9 million at September 30, 2015, up $35.0 million, or 6.9 percent, from September 30, 2014.  Residential real estate loans accounted for the majority of growth, up $19.1 million, or 17.8 percent.  Commercial real estate and agricultural loans also rose $18.3 million and $1.9 million, or 8.6 percent, and 4.4 percent, respectively.

The investment portfolio, including Federal Reserve Bank and Federal Home Loan Bank stock, of $99.2 million represented 13.8 percent of assets at September 30, 2015, and was up 16.9 percent from a year ago.  Deposit balances of $573.6 million at September 30, 2015, increased by $38.3 million, or 7.2 percent, since September 30, 2014.  Growth from the prior year included $19.2 million in checking and $19.1 million in savings and time deposit balances.

Mr. Klein said, "Loan volume accelerated this quarter, as we had balance growth from the linked quarter of $18.5 million or 14 percent annualized.  Nonperforming assets were impacted by a commercial real estate credit that has been periodically delinquent over the past year.  While this specific credit moved our NPA ratio above 1 percent for the first time since March of 2014, we feel it will be resolved positively in the near term."

Asset Quality

SB Financial continues to maintain above peer median asset quality, reporting nonperforming assets of $8.5 million as of September 30, 2015, up $3.1 million, or 58.6 percent, from the year-ago quarter.  The increase 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 1.18 percent of nonperforming assets to total assets remains near the top quartile in its 64-bank peer group.  The coverage of problem loans by the loan loss allowance was 85.1 percent at September 30, 2015, down from the 139.2 percent at September 30, 2014.

Webcast and Conference Call

The Company will hold a related conference call and webcast on October 27, 2015, at 2:30 p.m. EST.  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 wholly-owned operating subsidiaries: State Bank and 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 eight Ohio counties and one center in Fort Wayne, Indiana, with 18 full service ATMs.  The Company has four loan production offices located throughout the Tri-State region of Ohio, Indiana and Michigan.  RDSI 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 depository shares, each representing a 1/100^th interest in the preferred shares, Series A are 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") as of December 31, 2014.

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.