SB Financial Group, Inc. Announces Fourth Quarter and Twelve Month 2018 Results

DEFIANCE, Ohio, Jan. 24, 2019 /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 fourth quarter and twelve months ended December 31, 2018.

Fourth quarter 2018 highlights over prior year fourth quarter, excluding the positive impact to our 2017 fourth quarter net income of the one-time $1.7 million deferred tax liability include:

• Net income of $3.0 million, up $0.6 million or 27.2 percent
• Diluted EPS of $0.37, flat to the prior year
• Return on average assets of 1.19 percent, up 13 basis points, or 12.6 percent
• Operating revenue of $12.5 million, up $0.8 million, or 6.8 percent
• Mortgage origination volume of $78.8 million, an increase of $6.7 million, or 9.3 percent

Twelve month 2018 highlights over prior year twelve months, excluding the positive impact to our 2017 net income of the one-time $1.7 million deferred tax liability include:

• Net income of $11.6 million, an increase of $2.3 million, or 24.3 percent
• Diluted EPS of $1.51, an increase of $0.04 per share, or 2.5 percent, as a result of the higher share count associated with the $30 million common capital raise completed in the first quarter of 2018
• Return on average assets of 1.23 percent, up 13 basis points, or 12.3 percent
• Operating revenue of $49.9 million, up $4.3 million, or 9.4 percent
• Loan growth of $75.3 million, or 10.8 percent
• Deposit growth of $73.0 million, or 10.0 percent
• Mortgage origination volume of $342.1 million, an increase of $26.3 million, or 8.3 percent

"SB Financial's fourth quarter and full year net income was an improvement over the prior year of 27 and 24 percent respectively excluding the 2017 deferred tax benefit," said Mark A. Klein, Chairman, President and CEO of SB Financial.  "Organic balance sheet loan growth of $75 million for the year was our strong suit in 2018, despite some late pay downs at year end."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was up 6.8 percent from the fourth quarter of 2017, but down 1.5 percent to the linked quarter.

• Net interest income was up 12.5 percent from the year-ago quarter, and up 1.0 percent from the linked quarter.
• Net interest margin (FTE) was down 1 basis point from both the year-ago and linked quarter.
• Noninterest income for the quarter and the year were down slightly at 4.0 and 3.4 percent respectively.
• Total revenue for the full year of 2018 was $49.9 million, compared to $45.6 million for the full year of 2017, which is a 9.4 percent increase.

Mortgage Loan Business

Mortgage loan originations for the fourth quarter of 2018 were $78.8 million, up $6.7 million, or 9.3 percent, from the year-ago quarter.  Total sales of originated loans were $60.3 million, up $6.5 million, or 12.1 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 $2.0 million for the fourth quarter of 2018, compared to $2.1 million for the year-ago quarter.  The mortgage servicing valuation adjustment for the fourth quarter of 2018 was a negative $0.07 million, compared to a positive adjustment of $0.12 million for the fourth quarter of 2017.  The aggregate servicing valuation impairment ended the quarter at $0.21 million.  The mortgage servicing portfolio at December 31, 2018, was $1.08 billion, up $0.09 billion, or 9.0 percent, from $0.99 billion at December 31, 2017.

Mr. Klein noted, "Despite rising rates and inventory pressure, we increased our mortgage production this quarter compared to the prior year.  Our full year production level of $342 million is the second highest in our history and included our first loan closing from our new Indianapolis office."

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 origination volume of $1.7 million with higher sales volume resulting in gains of $0.3 million.  Wealth management assets under the Company's care stood at $423.3 million as of December 31, 2018, up $11 million from the linked quarter.  For the fourth quarter of 2018, noninterest income as a percentage of total revenue was 31.3 percent.  For the fourth quarter of 2018, noninterest expense (NIE) of $8.9 million was up $0.8 million, or 9.2 percent, compared to the same quarter last year.  Compared to the linked quarter, NIE was up $0.1 million. 

Mr. Klein stated, "Fee income levels from mortgage and SBA loan sale gains have tempered a bit this year with slightly higher rates.  Likewise, our larger balance sheet and resulting higher net interest margin, has constrained our percentage of non-interest income as a percentage of total revenue."

Balance Sheet

Total assets as of December 31, 2018, were $985.9 million, up $109.3 million, or 12.5 percent, from a year ago.  Total equity as of December 31, 2018, was $130.4 million, up 38.7 percent from a year ago, and comprised 13.2 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 $771.9 million at December 31, 2018, up $75.3 million, or 10.8 percent, from December 31, 2017.  Residential real estate loans were up $36.3 million, or 24.0 percent, with commercial loans rising $25.6 million, or 25.1 percent.

The investment portfolio of $95.2 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 9.7 percent of assets at December 31, 2018, and was up 10.1 percent from the year-ago period.  Deposit balances of $802.6 million at December 31, 2018, increased by $73.0 million, or 10.0 percent, since December 31, 2017.  Growth from the prior year included $8.5 million in checking and $64.5 million in savings and time deposit balances.

Mr. Klein continued, "Loan volumes have been strong for us all year, with consistent growth across all quarters until the pay downs this quarter.  We also had a robust deposit growth performance in the quarter and for the full year, with a double-digit growth in deposits from December of 2017.  Nonperforming assets ended the year at 40 basis points, down 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 $4.0 million as of December 31, 2018, up $0.1 million, or 2.7 percent, from the year-ago quarter.  SB Financial's nonperforming assets to total assets ratio of 0.40 percent is in the top quartile of its 65-bank peer group.  The coverage of problem loans by the loan loss allowance was at 213 percent at December 31, 2018, up from 207 percent at December 31, 2017.

Webcast and Conference Call

The Company will hold a related conference call and webcast on January 25, 2019, at 10:00 a.m. EST.  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