SB Financial Group, Inc. Announces Fourth-Quarter and Full-Year 2016 Results

DEFIANCE, Ohio, Jan. 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 fourth-quarter and twelve-months ended December 31, 2016.

Fourth-quarter 2016 highlights over prior-year fourth quarter include:

• Net income of $2.3 million, an increase of 24.0 percent, or $0.4 million
• Return on average assets of 1.14 percent, up 11.8 percent, or 12 basis points
• Diluted earnings per share (EPS) of $0.37, an increase of 27.6 percent, or $0.08 per share
• Loan growth of $25.1 million, or 16.2 percent annualized
• Deposit growth of $10.9 million, or 6.6 percent annualized
• Fully Taxable Equivalent (FTE) net interest margin of 3.69 percent, down 7 basis points
• Mortgage origination volume of $83.5 million, an increase of 24.3 percent, or $16.3 million; servicing portfolio of $899.7 million, up 16.5 percent, or $127.2 million

Full-year highlights over prior-year twelve months include:

• Net income of $8.8 million, an increase of 15.3 percent, or $1.2 million
• Return on average assets of 1.11 percent, up 4.7 percent, or 5 basis points
• Diluted earnings per share of $1.38, an increase of 16.0 percent, or $0.19 per share
• Loan growth of $86.8 million, or 15.6 percent
• Deposit growth of $86.6 million, or 14.8 percent
• Nonperforming assets to total assets ended the year at 65 basis points

"SB Financial Group's fourth-quarter results were strong, providing the best year-over-year earnings performance for our Company since 2003," said Mark Klein, Chairman, President, and CEO of SB Financial.  "Diluted EPS for the quarter was $0.37, up $0.08 or 28 percent, and the full year came in at $1.38, up $0.19 or 16 percent.  In addition, our balance sheet grew this quarter with $25 million of loan growth and we originated $83.5 million of residential mortgage volume, all while maintaining a very healthy ratio of nonperforming assets at 65 basis points."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was up 21.5 percent from the fourth quarter of 2015, and up 0.8 percent from the linked quarter.

• Net interest income was up 11.2 percent from the year-ago quarter, and flat to the linked quarter.
• Net interest margin (FTE) was down 7 basis points from the year-ago quarter, and down 13 basis points from the linked quarter.
• Noninterest income was up 38.0 percent from the year-ago quarter, and up 2.3 percent from the linked quarter.
• Total operating revenue for the full year of 2016 was $43.7 million, compared to $39.1 million for the full year of 2015, which is a 12.0 percent increase.

Mortgage Loan Business

Mortgage loan originations for the fourth quarter of 2016 were $83.5 million, up $16.3 million, or 24.3 percent, from the year-ago quarter.  Total sales of originated loans were $81.7 million, up $25.4 million, or 45.1 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 $3.3 million for the fourth quarter of 2016, compared to $1.8 million for the year-ago quarter, or an 89.5 percent increase.  The mortgage servicing valuation adjustment for the fourth quarter 2016 was a positive $1.2 million, compared to a negative adjustment for the fourth quarter of 2015 of $0.1 million.  The aggregate servicing valuation impairment ended the quarter at $0.2 million.  The mortgage servicing portfolio at December 31, 2016, was $899.7 million, up $127.2 million, or 16.5 percent, from $772.5 million at December 31, 2015.

Mr. Klein noted, "Our highest origination year on record with volume of $383 million culminated with a fourth quarter performance that was higher than the prior year by 24 percent.  Our $9.0 million in mortgage banking revenue for the year was all core earnings, and was higher by 23 percent than in 2015."

Noninterest 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 care stood at $378.1 million as of December 31, 2016.  For the fourth quarter of 2016, fee income as a percentage of total revenue was 43.6 percent.  The recapture of servicing rights positively impacted the quarter by $1.2 million. 

For the fourth quarter of 2016, noninterest expense (NIE) of $7.9 million, was up $1.0 million, or 14.9 percent, compared to the same quarter last year.  New branch locations and increased support in the Company's compliance and mortgage divisions raised staffing levels by 6.1 percent.  We also had higher commission expenses related to our mortgage loan volume.  Compared to the linked quarter, NIE was down $0.1 million, or 0.9 percent.

Mr. Klein stated, "The servicing rights impairment recapture of $1.2 million was an important factor in quarterly results, however the net effect of that item over all of 2016 was minimal.  We continue to have solid fee income contributions from all of our business lines.  Our pipeline in SBA is very strong and we expect to expand loan sale gains in the coming quarters." 

Balance Sheet

Total assets as of December 31, 2016, were $816.0 million, up $82.9 million, or 11.3 percent, from a year ago.  Total equity as of December 31, 2016, was $86.5 million, up 6.5 percent, from a year ago, and was at 10.6 percent of total assets. 

Total loans held for investment were $644.4 million at December 31, 2016, up $86.8 million, or 15.6 percent, from December 31, 2015.  Commercial real estate loans were up $41.9 million, or 17.3 percent, and accounted for the majority of the total loan growth., Commercial (C & I) and Residential real estate loans also rose $22.5 million and $11.6 million, or 26.0 percent and 8.9 percent, respectively.

The investment portfolio, including Federal Reserve Bank and Federal Home Loan Bank stock, of $93.9 million represented 11.5 percent of assets at December 31, 2016, and was flat to the year-ago period.  Deposit balances of $673.1 million at December 31, 2016, increased by $86.6 million, or 14.8 percent, since December 31, 2015.  Growth from the prior year included $17.2 million in checking and $69.4 million in savings and time deposit balances.

Mr. Klein said, "The $25 million of loan growth for the quarter brought our total for 2016 to $87 million, which is a 15 percent growth rate.  Our asset quality remains top-tier with our allowance coverage of non-performing loans increasing to a strong 179 percent." 

Asset Quality

SB Financial returned to high-performing peer asset quality levels during the quarter, reporting non-performing assets of $5.3 million as of December 31, 2016, down $3.1 million, or 36.9 percent, from the year-ago quarter.  The decrease from the prior year resulted from the full principal payoff of an existing delinquent commercial real estate credit that moved through foreclosure with full principal payoff.  SB Financial's nonperforming assets to total assets of 0.65 percent is in the top quartile of its 65-bank peer group.  The coverage of problem loans by the loan loss allowance was at 178.5 percent at December 31, 2016, up from the 85.8 percent at December 31, 2015.

Webcast and Conference Call

The Company will hold a related conference call and webcast on January 20, 2017, at 11:00 a.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 operating subsidiaries: State Bank and Diverse Computer Marketeres (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 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 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 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.