SB Financial Group, Inc. Announces Third-Quarter and Nine-Month 2018 Results

DEFIANCE, Ohio, Oct. 18, 2018 /PRNewswire/ -- SB Financial Group, Inc. (NASDAQ: SBFG) ("SB Financial" or the "Company"), a diversified financial services company providing full-service community banking, mortgage banking and wealth management, today reported earnings for the third-quarter and nine months ended September 30, 2018.

Third-quarter 2018 highlights over prior-year third quarter include:

• Net income of $3.1 million, an increase of 14.5 percent
• Operating revenue of $12.7 million, up $0.6 million, or 5.0 percent
• Return on average assets of 1.30 percent, up 3 basis points, or 2.4 percent
• Diluted earnings per share (EPS) of $0.39, a decrease of $0.04 per share, or 9.3 percent
• Mortgage origination volume of $95.3 million, an increase of $6.1 million, or 6.8 percent

Nine-month 2018 highlights over prior-year nine months include:

• Net income of $8.7 million, an increase of $1.6 million, or 23.4 percent
• Operating revenue of $37.3 million, up $3.5 million, or 10.3 percent
• Return on average assets of 1.24 percent, up 13 basis points, or 11.7 percent
• Diluted EPS of $1.14, an increase of $0.03 per share, or 2.7 percent
• Mortgage origination volume of $263.2 million, an increase of $19.5 million, or 8.0 percent

Third-quarter 2018, trailing twelve-month highlights include:

• Total assets increased to $979.2 million, up $118.7 million, or 13.8 percent
• Loan growth of $96.6 million, or 14.3 percent
• Deposit growth of $72.6 million, or 10.1 percent
• Mortgage origination volume of $335.3 million, an increase of $8.1 million, or 2.5 percent; servicing portfolio of $1.07 billion, up $0.09 billion, or 8.9 percent

"SB Financial's third-quarter net income was up 14 percent compared to the prior-year quarter," said Mark A. Klein, Chairman, President and CEO of SB Financial.  Loan volume was again strong, as we added $18 million in the quarter and $75 million for the nine months, while our non-performing assets held steady at 35 basis points."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was up 5.0 percent from the third quarter of 2017, and flat to the linked quarter.

• Net interest income was up 17.4 percent from the year-ago quarter, and up 1.2 percent from the linked quarter.
• Net interest margin (FTE) was up 15 basis points from the year-ago quarter, but down 18 basis points from the linked quarter.
• Noninterest income was down 13.5 percent from the year-ago quarter, and flat to the linked quarter.

Mortgage Loan Business

Mortgage loan originations for the third quarter of 2018 were $95.3 million, up $6.1 million, or 6.8 percent, from the year-ago quarter.  Total sales of originated loans were $80.6 million, up $3.7 million, or 4.8 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 $2.3 million for the third quarter of 2018, compared to $2.4 million for the year-ago quarter.  The mortgage servicing valuation adjustment for the third quarter 2018 was a negative $0.06 million, compared to a negative adjustment of $0.04 million for the third quarter of 2017.  The aggregate servicing valuation impairment ended the quarter at $0.14 million.  The mortgage-servicing portfolio at September 30, 2018, was $1.07 billion, up $0.09 billion, or 8.9 percent, from $0.98 billion at September 30, 2017.

Mr. Klein noted, "Mortgage volumes were down from the linked quarter but up nearly 7 percent from the year ago quarter.  To ensure we remain on plan, we have recently leveraged our regional real estate expertise into one of the Midwest's most dynamic markets – Indianapolis, which should add another productive mortgage region to the Company."

Noninterest Income and Noninterest Expense

SB Financial's noninterest income includes revenue from a diverse group of services, such as wealth management, deposit fees, residential loan sales and the sale of Small Business Administration (SBA) loans.  SBA activity for the quarter consisted of total sold loan volume of $0.9 million and gains of $0.1 million.  Wealth management assets under the Company's care stood at $412.2 million as of September 30, 2018.  For the third quarter of 2018, noninterest income as a percentage of total revenue was 33.0 percent. 

For the third quarter of 2018, noninterest expense (NIE) of $8.8 million was up $0.5 million, or 6.1 percent, compared to the same quarter last year.  Compared to the linked quarter, NIE was up $0.2 million.  Mr. Klein stated, "Fee income levels have slowed this year with lower mortgage sales and in the quarter we had some timing issues with the sale of several SBA credits."

Balance Sheet

Total assets as of September 30, 2018, were $979.2 million, up $118.7 million, or 13.8 percent, from a year ago.  Total equity as of September 30, 2018, was $127.1 million, up 39.8 percent from a year ago, and comprised 13.0 percent of total assets.  Both the equity and total assets reflect the $30 million common capital raise completed in the first quarter of 2018.

Total loans held for investment were $771.7 million at September 30, 2018, up $96.6 million, or 14.3 percent, from September 30, 2017.  Commercial real estate loans were up $36.8 million, or 11.5 percent, with residential real estate rising $36.7 million, or 26.0 percent.

The investment portfolio of $88.2 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 9.0 percent of assets at September 30, 2018, and was down 0.9 percent from the year-ago period.  Deposit balances of $789.4 million at September 30, 2018, increased by $72.6 million, or 10.1 percent, since September 30, 2017.  Growth from the prior year included $10.3 million in checking and $62.3 million in savings and time deposit balances.

Mr. Klein continued, "Loan volumes have been strong for us all year, with total growth of $97 million, or 14 percent, from the prior year.  Our loan pipelines remain consistent and we ended the quarter just short of the $1 billion total asset level.  Additionally, we maintained strong asset quality in the quarter, with net charge offs only $6,000 and nonperforming assets at 35 basis points."

Asset Quality

SB Financial maintained its high performance among its peers in asset quality levels for the quarter, reporting nonperforming assets of $3.4 million as of September 30, 2018, down $0.3 million, or 8.2 percent, from the year-ago quarter.  SB Financial's nonperforming assets to total assets ratio of 0.35 percent is in the top quartile of its 65-bank peer group.  The coverage of problem loans by the loan loss allowance was at 256 percent at September 30, 2018, up from 213 percent at September 30, 2017.

Webcast and Conference Call

The Company will hold a related conference call and webcast on October 19, 2018, 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 for the State Bank & Trust Company (State Bank). State Bank provides a full range of financial services for consumers and small businesses, including wealth management, private client services, mortgage banking and commercial and agricultural lending, operating through a total of 20 banking centers; 19 in nine Ohio counties and one center in Fort Wayne, Indiana, and 26 full-service ATMs.  The Company has six loan production offices located throughout the Tri-State region of Ohio, Indiana and Michigan.  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 2018, SB Financial was ranked #72 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.