SB Financial Group, Inc. Announces Third-Quarter and Nine-Month 2016 Results

DEFIANCE, Ohio, Oct. 20, 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 third-quarter and nine-months ended September 30, 2016.

Third-quarter 2016 highlights over prior-year third quarter include:

• Net income of $2.5 million, an increase of 12.5 percent, or $0.3 million
• Diluted earnings per share (EPS) of $0.40, an increase of 14.3 percent, or $0.05 per share
• Loan growth of $78.5 million, or 14.5 percent
• Deposit growth of $88.6 million, or 15.4 percent
• Fully Taxable Equivalent (FTE) net interest margin of 3.82 percent, down 5 basis points
• Mortgage origination volume of $117.2 million, an increase of 34.8 percent, or $30.2 million; servicing portfolio of $868.8 million, up 15.7 percent, or $117.8 million

Nine-months ended September 30, 2016, highlights over prior-year nine months include:

• Net income of $6.5 million, an increase of 12.5 percent, or $0.7 million
• Diluted earnings per share of $1.01, an increase of 14.6 percent, or $0.13 per share
• Return on average assets of 1.10 percent

"Our third-quarter performance was highlighted by our strongest mortgage origination quarter ever, and included double-digit loan and deposit growth and the resolution of a $3.5 million non-performing credit," said Mark Klein, Chairman, President, and CEO of SB Financial.  "Additionally this quarter, our $0.40 per share earnings represented a meaningful contribution from each of our six primary business lines.  This strong performance further highlights our successful execution of our key strategic initiatives to drive growth for our company and value for our shareholders."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income (FTE) and noninterest income, was up 16.3 percent from the third quarter of 2015, and up 8.8 percent from the linked quarter.

• Net interest income (FTE) was up 9.6 percent from the year-ago quarter, and up 3.8 percent from the linked quarter. 
• Net interest margin (FTE) was down 5 basis points from the year-ago quarter, but up 7 basis points from the linked quarter.
• Noninterest income was up 26.9 percent from the year-ago quarter, and up 16.4 percent from the linked quarter. 
• Total revenue (FTE) for the first nine months of 2016 was $32.2 million, compared to $29.6 million for the first nine months of 2015, which is an 8.7 percent increase.

Mortgage Loan Business

Mortgage loan originations for the third quarter of 2016 were $117.2 million, up $30.2 million, or 34.8 percent, from the year-ago quarter.  Total sales of originated loans were $101.1 million, up $31.1 million, or 44.3 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 $2.7 million for the third quarter of 2016, compared to $1.8 million for the year-ago quarter, or a 51.6 percent increase.  The mortgage servicing valuation adjustment for the third-quarter 2016 was a positive $0.1 million, compared to a negative adjustment for the third quarter of 2015 of $0.1 million.  The aggregate servicing valuation impairment ended the quarter at $1.5 million.  The mortgage servicing portfolio at September 30, 2016, was $868.8 million, up $117.8 million, or 15.7 percent, from $751.0 million at September 30, 2015.

Mr. Klein noted, "The entire mortgage production team turned in the best quarter in our history.  We have again maintained a high level of new money production in the quarter, at 88 percent of total volume.  Construction volume has been a key factor in our success this year, and we continue to see momentum in this area."

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 under our management stood at $375.8 million as of September 30, 2016.  For the third quarter of 2016, fee income as a percentage of total revenue was 42.9 percent.  The servicing rights recapture positively impacted the quarter by $0.1 million. 

For the third quarter of 2016, noninterest expense (NIE) of $7.9 million, was up $1.3 million, or 19.7 percent, compared to the same quarter last year.  Total staffing levels were up 7.2 percent, due to our new branch locations and increased support in our compliance and mortgage divisions.  We also had higher commission expenses related to our mortgage loan volume.  Compared to the linked quarter, NIE was up $0.5 million, or 7.1 percent.

Mr. Klein stated, "Once again, total fee income was above 40 percent of total revenue.  Mortgage banking delivered record levels of both origination and sales during the quarter.  We continued to diversify our fee income, with both SBA lending and wealth management turning in strong quarters." 

Balance Sheet

Total assets as of September 30, 2016, were $801.8 million, up $82.6 million, or 11.5 percent, from a year ago.  Total equity as of September  30, 2016, was $86.3 million, up 7.4 percent, from a year ago, and was at 10.8 percent of total assets. 

Total loans held for investment were $619.4 million at September 30, 2016, up $78.5 million, or 14.5 percent, from September 30, 2015.  Commercial real estate loans were up $37.2 million, or 16.1 percent, and accounted for the majority of the total loan growth.  Commercial and Residential real estate loans also rose $17.5 million and $12.9 million, or 20.9 percent and 10.2 percent, respectively.

The investment portfolio, including Federal Reserve Bank and Federal Home Loan Bank stock, of $96.4 million represented 12.0 percent of assets at September 30, 2016, and was down 2.8 percent from the year-ago period.  Deposit balances of $662.1 million at September 30, 2016, increased by $88.6 million, or 15.4 percent, since September 30, 2015.  Growth from the prior year included $23.4 million in checking and $65.2 million in savings and time deposit balances.

Mr. Klein said, "We continued to add high-quality loan volume this quarter, with growth from the linked quarter of $15 million, and from the prior year we are up $79 million.  Our net interest margin came in at 3.82 percent, reflecting that growth, as well as the recapture of interest from the large, non-performing credit that paid off during the quarter." 

Asset Quality

SB Financial returned to high-performing peer asset quality during the quarter, reporting non-performing assets of $4.6 million as of September 30, 2016, down $4.0 million, or 46.5 percent, from the year-ago quarter, and down $3.7 million, or 44.7 percent, from the linked quarter.  The decrease from the prior year was the result of an existing delinquent commercial real estate credit that moved through foreclosure with full principal payoff.  SB Financial's 0.6 percent of nonperforming assets to total assets is above the top quartile in its 65-bank peer group.  The coverage of problem loans by the loan loss allowance was at 163.5 percent at September 30, 2016, up from the 85.1 percent at September 30, 2015.

Webcast and Conference Call

The Company will hold a related conference call and webcast on October 21, 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 six 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.