SB Financial Group, Inc. Announces First Quarter 2019 Results

DEFIANCE, Ohio, April 18, 2019 /PRNewswire/ -- SB Financial Group, Inc. 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 first quarter ended March 31, 2019.

First quarter 2019 highlights over prior year first quarter include:

• Net income of $2.2 million; adjusted net income of $2.8 million, up $0.3 million or 13.6 percent
• Diluted EPS of $0.28; adjusted diluted EPS of $0.35, flat to the prior year
• Mortgage origination volume of $51.4 million, a decrease of $7.1 million, or 12.1 percent

First quarter 2019 trailing twelve-month highlights include:

• Loan growth of $75.3 million, or 10.6 percent
• Deposit growth of $78.9 million, or 10.5 percent
• Mortgage origination volume of $335.0 million, an increase of $17.4 million, or 5.5 percent; servicing portfolio of $1.09 billion, up $89.3 million, or 8.9 percent

"SB Financial's first quarter GAAP results were impacted by the inversion of the rate curve, resulting in an impairment to our mortgage servicing rights.  Adjusting for that temporary event, net income was up over 13 percent," said Mark A. Klein, Chairman, President, and CEO of SB Financial.  "Organic balance sheet loan and deposit growth of $11 and $25 million, respectively, offset a softer mortgage origination quarter."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was down 5.0 percent from the first quarter of 2018, and down 9.6 percent to the linked quarter. However, when adjusting for the Originated Mortgage Servicing Rights (OMSR) temporary impairment, total revenue was up 0.9 percent from the prior year.

• Net interest income was up 8.3 percent from the year-ago quarter, but down 3.1 percent from the linked quarter.
• Net interest margin (FTE) was down 5 basis point from the year-ago quarter and down 15 basis points from the linked quarter.
• Noninterest income for the quarter was down from both year ago and linked quarter by 29 and 24 percent, respectively. Adjusting for the temporary OMSR impairment, noninterest income would be down 13 and 6 percent, respectively.

Mortgage Loan Business

Mortgage loan originations for the first quarter of 2019 were $51.4 million, down $7.1 million, or 12.1 percent, from the year-ago quarter.  Total sales of originated loans were $43.5 million, up $2.9 million, or 7.1 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 $0.9 million for the first quarter of 2019, compared to $1.6 million for the year-ago quarter.  The mortgage servicing valuation adjustment for the first quarter of 2019 was a negative $0.7 million, compared to a positive adjustment of $0.1 million for the first quarter of 2018.  The temporary impairment for the quarter was due to the inversion of the yield curve and the rapid acceleration of pre-payment speed assumptions.  The aggregate servicing valuation impairment ended the quarter at $0.9 million.  The servicing portfolio at March 31, 2019, was $1.09 billion, up $0.90 million, or 8.9 percent, from $1.0 billion at March 31, 2018.

Mr. Klein noted, "We experienced a slowing mortgage origination market this quarter as market factors and decreased inventory impacted our results.  We continue to believe our regional production model and geographic diversity will lead to greater market presence." 

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) and US Department of Agriculture (USDA) loans.  SBA and USDA activity for the quarter consisted of total origination volume of $3.0 million with sales volume of $2.2 million resulting in gains of $0.3 million.  Wealth management assets under the Company's care stood at $462.6 million as of March 31, 2019, up $39.3 million from the linked quarter and up $50.9 million from the year ago quarter.  For the first quarter of 2019, noninterest income as a percentage of total revenue was 26.5 percent (30.8 percent when adjusting for the OMSR impairment).  Results included revenue from the Company's newly acquired Title Agency, which will further add to our revenue diversity throughout 2019. 

For the first quarter of 2019, noninterest expense of $8.6 million was flat to the prior year and down $0.2 million from the linked quarter.  Lower mortgage production volumes reduced compensation expense compared to the prior year. 

Mr. Klein stated, "Fee income levels from mortgage lending were down this quarter and the OMSR temporary impairment had a significant impact on our operating results.  We closed on our Title Agency acquisition in March, and we are excited for the opportunities that this new revenue stream will offer.  We continue to pay close attention to expenses and are committed to measured expense growth, in line with revenue increases."

Balance Sheet

Total assets as of March 31, 2019, were $1.0 billion, up $95.6 million, or 10.3 percent, from a year ago.  Total equity as of March31, 2019, was $131.5 million, up 7.0 percent from a year ago, and comprised 12.9 percent of total assets. 

Total loans held for investment were $782.5 million at March 31, 2019, up $75.3 million, or 10.7 percent, from March 31, 2018.  Residential real estate loans were up $35.7 million, or 23.5 percent, with commercial loans rising $28.6 million, or 26.6 percent.

The investment portfolio of $99.9 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 9.8 percent of assets at March 31, 2019, and was up 4.4 percent from the year-ago period.  Deposit balances of $827.7 million at March31, 2019, increased by $78.9 million or 10.5 percent, since March31, 2018.  Growth from the prior year included $7.6 million in checking and $71.3 million in savings and time deposit balances.

Mr. Klein continued, "Both loan and deposit volumes were up over 10 percent from the prior year and grew 14 and 31 percent for the quarter, respectively.  Nonperforming assets to total assets ended the quarter at 42 basis points, up just 4 basis points from the prior year."

Asset Quality

SB Financial maintained its high-performance among its peers in asset quality levels for the quarter, reporting nonperforming assets of $4.3 million as of March 31, 2019, up $0.8 million, or 22.3 percent, from the year-ago quarter.  SB Financial's nonperforming assets to total assets ratio of 0.42 percent is in the top quartile of its 65-bank peer group.  The coverage of problem loans by the loan loss allowance was at 204 percent at March 31, 2019, down from 239 percent at March 31, 2018.

Webcast and Conference Call

The Company will hold a related conference call and webcast on April 18, 2019, at 5:00 p.m. EDT.  Interested parties may access the conference call by dialing 1-888-338-9469.  The webcast can be accessed at 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 offices; 19 in nine Ohio counties and one in Fort Wayne, Indiana, and 26 full-service ATMs.  The Company has seven 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

This press release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, return on average tangible common equity, total interest income – FTE, net interest income – FTE and net interest margin – FTE are used by the Company's management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders.  Although management believes these non-GAAP measures are useful to investors by providing a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Investor Contact Information: 
Anthony V. Cosentino
Executive Vice President and 
Chief Financial Officer
Tony.Cosentino@YourStateBank.com