SB Financial Group, Inc. Announces Third-Quarter and Nine-Month 2017 Results

DEFIANCE, Ohio, Oct. 19, 2017 /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, 2017.

Third-quarter 2017 highlights over prior-year third quarter include:

• Net income of $2.7 million, an increase of 6.9 percent, or $0.2 million
• Return on average assets of 1.27 percent
• Diluted earnings per share (EPS) of $0.43, an increase of 7.5 percent, or $0.03 per share
• Mortgage origination volume of $89.2 million, a decrease of 23.9 percent, or $28.0 million from $117.2 million

Nine-months ended September 30, 2017 highlights over prior-year nine months include:

• Net income of $7.0 million, an increase of 8.8 percent, or $0.6 million
• Return on average assets of 1.11 percent
• Diluted earnings per share (EPS) of $1.11, an increase of 9.9 percent, or $0.10 per share

Trailing twelve months (TTM) ended September 30, 2017 results compared to same period prior year:

• Loan growth of $55.7 million, or 9.0 percent vs. $78.5 million, or 14.5 percent
• Deposit growth of $54.7 million, or 9.0 percent vs. $88.6 million, or 15.4 percent
• Servicing portfolio of $979.3 million, up 12.7 percent, or $110.5 million
• Diluted earnings per share (EPS) of $1.48, an increase of 13.8 percent, or $0.18 per share

"We are encouraged to report a nearly 7 percent increase in earnings for the third quarter, coupled with improved asset quality and 9 percent loan growth," said Mark A. Klein, Chairman, President and CEO of SB Financial.  "Despite a softer residential mortgage origination market, we achieved success with higher loan growth, SBA gains and controlled expenses."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was up 3.8 percent from the third quarter of 2016, and up 6.1 percent from the linked quarter.

• Net interest income was up 8.9 percent from the year-ago quarter, and up 4.3 percent from the linked quarter.
• Net interest margin (FTE) was down 1 basis point from the year-ago quarter, but up 8 basis points from the linked quarter.
• Noninterest income was down 3.1 percent from the year-ago quarter, but up 8.9 percent from the linked quarter.
• Total revenue for the first nine months of 2017 was $33.9 million compared to $32.0 million for the first nine months of 2016, which is a 6.0 percent increase.

Mortgage Loan Business

Mortgage loan originations for the third quarter of 2017 were $89.2 million, down $28.0 million, or 23.9 percent, from the year-ago quarter.  Total sales of originated loans were $76.9 million, down $24.2 million, or 24.0 percent from the year-ago quarter.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $2.4 million for the third quarter of 2017, compared to $2.7 million for the year-ago quarter, or a 9.9 percent decrease.  The mortgage servicing valuation adjustment for the third quarter 2017 was a negative $0.04 million, compared to a positive adjustment of $0.07 million for the third quarter of 2016.  The aggregate servicing valuation impairment ended the quarter at $0.3 million.  The mortgage-servicing portfolio at September 30, 2017, was $979.3 million, up $110.5 million, or 12.7 percent, from $868.8 million at September 30, 2016.

Mr. Klein noted, "Mortgage originations were down from the prior year and linked quarter due to lower market activity reflecting the limited availability of inventory.  We were able to improve profitability from the linked quarter with better pricing and pipeline management.  Again this quarter, 95 percent of our volume was from new clients 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 and the sale of small business loans (SBA).  SBA activity for the quarter was strong, with total loan volume of $4.1 million and gains of $0.2 million.  Wealth management assets under the Company's care stood at $429.8 million as of September 30, 2017.  Noninterest income as a percentage of total revenue was 40.1 percent. 

For the third quarter of 2017, noninterest expense (NIE) of $8.3 million, was up $0.4 million, or 4.5 percent, compared to the same quarter last year.  The increase was due mainly to staffing increases and higher marketing costs.  Compared to the linked quarter, NIE was up $0.5 million, or 6.1 percent.

Mr. Klein stated, "Fee income continues to be a strength, with 39 percent of total revenue for the year.  SBA and wealth management have increased their contribution offsetting the slowdown in residential mortgage." 

Balance Sheet

Total assets as of September 30, 2017, were $860.5 million, up $58.7 million, or 7.3 percent, from a year ago.  Total equity as of September 30, 2017, was $90.9 million, up 5.4 percent from a year ago, and was at 10.6 percent of total assets. 

Total loans held for investment were $675.1 million at September 30, 2017, up $55.7 million, or 9.0 percent, from September 30, 2016.  Commercial real estate loans were up $51.4 million, or 19.1 percent, and accounted for the majority of the total loan growth.  Commercial (C&I) also rose $3.5 million, or 3.4 percent, from the prior period.

The investment portfolio of $89.1 million, including Federal Reserve Bank and Federal Home Loan Bank stock, represented 10.3 percent of assets at September 30, 2017, and was down 7.7 percent from the year-ago period.  Deposit balances of $716.8 million at September 30, 2017, increased by $54.7 million, or 8.3 percent, since September 30, 2016.  Growth from the prior year included $2.6 million in checking and $52.1 million in savings and time deposit balances.

"Loan growth was strong for the quarter, up nearly $23 million, a 14 percent annualized rate," said Mr. Klein.  "Most importantly we were able to fund the bulk of our year-over-year loan growth with retail deposit balances."

Asset Quality

SB Financial maintained its high-performing peer asset quality level during the quarter, reporting non-performing assets of $3.7 million as of September 30, 2017, down $0.8 million, or 18.0 percent, from the year-ago quarter.  SB Financial's nonperforming assets to total assets ratio of 0.43 percent is down from 0.57 percent at September 30, 2016.  The coverage of problem loans by the loan loss allowance was at 213.3 percent at September 30, 2017, up from the 163.5 percent at September 30, 2016.

"The quarter saw a reduction in our nonperforming ratio to just 43 basis points," said Mr. Klein.  "With net charge-offs for the year of $165,000, our asset quality continues to be at the top of our peer group."

Webcast and Conference Call

The Company will hold a related conference call and webcast on October 20, 2017, 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 Diverse Computer Marketers (DCM). 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 19 banking centers; 18 in nine Ohio counties and one center in Fort Wayne, Indiana, and 24 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 and statement production 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 2017, SB Financial was ranked #145 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.