SB Financial Group, Inc. Announces Improved Third Quarter 2013 Results

DEFIANCE, Ohio, Oct. 21, 2013 /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 and item processing services, today reported earnings for the third quarter ended September 30, 2013.

Consolidated earnings for SB Financial include the results of the Company's Banking Group, consisting primarily of State Bank ("State Bank" or the "Bank"), and the Company's data services subsidiary, Rurbanc Data Services, Inc. (dba "RDSI Banking Systems" or "RDSI"). For the quarter ended September 30, 2013, SB Financial reported net income of $1.3 million, or $0.28 per diluted share, compared to net income of $1.3 million, or $0.27 per diluted share for the quarter ended September 30, 2012, and net income of $1.3 million, or $0.27 per diluted share, for the quarter ended June 30, 2013.

For the nine months of 2013, net income was $4.0 million, or $0.82 per common share, compared to $3.3 million, or $0.68 per common share, for the prior-year nine month period.

Mark Klein, President and CEO of SB Financial Group, stated, "We are pleased with our third quarter results, which delivered earnings improvement compared to both the prior-year third quarter and the linked quarter.  Additionally, over the past five quarters, SB Financial has demonstrated a consistent, positive earnings trend. Overall, despite a slowdown in mortgage origination volume, we continue to make progress in the execution of our key initiatives for the year by delivering steady revenue growth, improving asset quality and expanding our service offering utilization within our existing client base."  

RESULTS OF OPERATIONS

Consolidated Revenue

Total revenue, consisting of net interest income fully tax equivalent (FTE) and noninterest income, was $9.0 million for the third quarter of 2013, up 0.1 percent, from the third quarter of 2012, and lower by $0.3 million, or 3.1 percent, from the linked quarter.  Revenue was impacted in the quarter by the 32.6 percent decline in mortgage originations from the linked quarter.

Net interest income (FTE) for the 2013 third quarter was $5.3 million, down 4.5 percent year over year, reflecting the impact of declining yields on the loan portfolio, which was partially offset by lower funding costs. The net interest margin (FTE) was 3.7 percent for the third quarter of 2013, compared to 3.9 percent for the third quarter of 2012.  Mr. Klein continued, "The current rising interest rate environment affects the banking industry as a whole, and is resulting in pressure on the yield of our loan portfolio and the volumes of our mortgage loan originations. Despite this headwind, we are confident in our ability to build on our existing mortgage business for the remainder of the year and into 2014."

Noninterest Income

Noninterest income was $3.7 million for the third quarter of 2013, up $0.3 million, or 8.9 percent, from the third quarter of 2012.  Mortgage loan originations for the third quarter of 2013 were $55.2 million, a decrease of $35.5 million, or 39.1 percent, from the $90.6 million generated in the third quarter of 2012. For the nine months ended September 30, 2013, mortgage originations were $209.1 million, down $29.8 million, or 12.5 percent, from the nine months ended September 30, 2012.

Net mortgage banking income, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.8 million for the third quarter of 2013, compared to $1.9 million for the linked quarter and $1.4 million for the year-ago third quarter. The mortgage servicing valuation adjustment in the third quarter of 2013 was a favorable $0.2 million, compared to $0.3 million for the linked quarter. The mortgage servicing portfolio at the end of the third quarter 2013 was $597.0 million, up $108.1 million, or 22.1 percent, from the end of the third quarter 2012.

SB Financial's fee income includes a diversity of services, such as wealth management, deposit fees and income from bank-owned life insurance.  Wealth management increased revenue by 3.6 percent from the year-ago quarter as assets under management, which currently stand at $339.7 million, grew by $30.2 million, or 9.8 percent, from the third quarter of 2012. Noninterest income contributed 41.3 percent of third quarter 2013 revenue (FTE); this compares to a 38.2 percent contribution of revenue (FTE) for third quarter 2012.

Gross revenue generated by RDSI, including services provided to SB Financial/State Bank, was $0.5 million for the third quarter of 2013. Net data services fees, excluding SB Financial/State Bank intercompany transactions, were $0.3 million in the third quarter of 2013, down $0.2 million from the year-ago quarter. Mr. Klein added, "We made the decision this quarter to exit the network services business and concentrate our technology efforts in item and statement processing.  We believe the reallocation of resources will better serve the Company in its long-term growth strategy."

Loan Loss Provision

The loan loss provision was $0.4 million for the third quarter of 2013, which covers the net charge-offs for the quarter of $0.3 million. Asset quality metrics include a 21.9 percent decline in non-accruing and restructured loans, and a 24.6 percent reduction in year-to-date net charge-offs from the prior-year nine-month period.  The loan loss reserve at third quarter-end 2013 was 1.5 percent of total loans, providing 97.1 percent coverage of nonperforming loans; this compares to reserve coverage of 95.9 percent at third quarter-end 2012.

Noninterest Expense

For the third quarter of 2013, noninterest expense was $6.6 million, down $0.2 million, or 2.4 percent, from the 2012 third quarter.  Year-to-date noninterest expense was $20.3 million, up 0.2 percent, from the first nine months of 2012. Compensation expense was down from the linked quarter reflecting the lower level of mortgage originations. Year-to-date FDIC insurance is down 43.0 percent, from the prior year, which reflects State Bank's improved risk profile.

"Expense control continues to be a major focus for management and we continue to reduce our fixed costs each quarter.  It is especially gratifying to have significantly lower FDIC premiums, reflecting the improvement in State Bank's asset quality and risk profile." said Mr. Klein.

Balance Sheet

Total assets as of September 30, 2013 were $633.4 million, an increase of $3.2 million, or 0.5 percent, from the third quarter-end 2012.  Total deposits as of third quarter 2013 were $521.5 million, higher by $6.3 million than the third quarter-end 2012.

Total loans held for investment (HFI) were $475.2 million at September 30, 2013 compared to $455.0 million for the prior-year quarter-end, up $20.2 million, or 4.4 percent. Commercial real estate loans accounted for the majority of growth, up $11.1 million, or 5.6 percent, and residential real estate loans, up $10.8 million, or 12.5 percent. For the nine months ended September 30, 2013, loans have increased by $11.8 million, primarily from increases in commercial and residential real estate, offsetting declines in agricultural lending.

Mr. Klein stated, "We have been pleased with our consistent loan growth over the past year, and we find the additional loan growth opportunities we are seeing across our markets encouraging. We believe that as a regionally-focused bank that we are well positioned to capture successfully these new business opportunities."

Asset Quality

SB Financial continues to improve its asset quality, reporting nonperforming assets of $8.8 million for the current quarter, lower by $0.6 million, or 6.7 percent, than the prior-year third quarter.  From the linked quarter, nonperforming assets increased due to an agricultural equipment dealer bankruptcy.  Net charge-offs of $0.3 million were just 25 basis points for the quarter and up slightly from the prior-year third quarter. Delinquency levels have declined, with the 30-89 day category totaling $0.4 million at the end of the 2013 third quarter, compared to $0.7 million for the prior-year third quarter.  Mr. Klein continued, "All of our asset quality measures, especially delinquency have shown improvement.  We have continued to add to our loan loss reserve, resisting thus far in 2013 to release loan loss reserves to impact our earnings."

Capitalization

Improving capital ratios remains an important focus of management. The Tangible equity ratio improved by 65 basis points over the past twelve months, and now stands at 6.2 percent. All bank regulatory ratios remain in excess of "well-capitalized" levels. At September 30, 2013, State Bank's Total Risk-based Capital was estimated to be $60.0 million, $21.6 million above the well-capitalized level. The Total Risk-based Capital Ratio is estimated at 12.6 percent.

About SB Financial Group

Based in Defiance, Ohio, SB Financial Group, Inc. is a financial services holding company with two wholly-owned operating subsidiaries: State Bank and RDSI Banking Systems (RDSI). State Bank operates through 17 banking centers in seven Northwestern Ohio counties, one center in Fort Wayne, Indiana; and three loan production offices: two in Columbus, Ohio and one in Angola, Indiana. State Bank offers a full range of financial services for consumers and small businesses, including wealth management, mortgage banking, commercial and agricultural lending. RDSI provides item processing services to community banks located in the Midwest. The Company's common stock is listed on the NASDAQ Global Market under the symbol SBFG.

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, insurance and mortgage industries, competitive factors specific to markets in which SB Financial Group and its subsidiaries operate, future interest rate levels, legislative and regulatory actions, capital market conditions, general economic conditions, geopolitical events, the loss of key personnel and other factors. Additional factors that could cause results to differ from those described above can be found in the Company's Annual Report on Form 10-K and documents subsequently filed by SB Financial Group with the Securities and Exchange Commission.  Forward-looking statements speak only as of the date on which they are made, and SB Financial Group 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 Group 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. Specifically, SB Financial Group provides measures based on "core operating earnings," which excludes merger, integration and restructuring expenses that are not reflective of on-going operations or not expected to recur. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results.