SB Financial Group, Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. The company, a bank holding company with banking and data-processing operations, changed its name from Rurban Financial Corp. effective April 18, 2013. Financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net interest income | $5.18 | $5.43 | $15.82 | $15.58 |
| Provision for loan losses | $0.40 | $0.30 | $0.90 | $0.95 |
| Noninterest income | $3.71 | $3.41 | $11.10 | $10.20 |
| Noninterest expense | $6.56 | $6.73 | $20.31 | $20.27 |
| Net income | $1.34 | $1.30 | $3.98 | $3.29 |
| Diluted EPS | $0.28 | $0.27 | $0.82 | $0.68 |
| Net interest margin, as discussed by management | 3.72% | 3.91% | 3.81% | 3.77% |
Management reported total revenue growth of 0.6% for the quarter and 4.5% for the nine-month period, using fully taxable-equivalent net interest income. Quarterly margin pressure reflected a 38-basis-point decline in earning-asset yield; year-to-date margin improved slightly. Quarterly noninterest income rose, while expenses edged lower. Year-to-date revenue benefited from loan-sale gains and mortgage-servicing-rights impairment recapture; expenses were approximately flat.
Financial position, cash flow, and capital
- At September 30, 2013, total assets were $633.4 million, down 0.8% from year-end 2012. Loans, net of unearned income, were $475.2 million, up $11.8 million; deposits were $521.5 million, down $5.5 million.
- Equity was $55.5 million, or 8.8% of assets, compared with 8.4% at year-end. Available-for-sale securities were $86.6 million, down from $98.7 million; accumulated other comprehensive income fell to $0.4 million from $1.8 million.
- Cash and cash equivalents were $19.0 million. For the first nine months, operating activities provided $10.4 million, investing activities used $3.1 million, and financing activities used $7.4 million; cash decreased $0.1 million.
- Borrowings reported as notes payable, FHLB advances, and repurchase agreements totaled $31.5 million, down from $33.0 million at year-end. Trust preferred securities were an additional $20.6 million. Total liabilities were $577.9 million.
- Consolidated total capital was 13.2% of risk-weighted assets; State Bank’s ratio was 12.4%. The filing states both were well capitalized under applicable requirements.
- Management reported $27.4 million of additional FHLB borrowing capacity, $17.9 million in unpledged securities, and $11.5 million of unused federal funds lines. It stated current liquidity was sufficient.
Asset quality, risks, and outlook
- The allowance for loan losses was $7.12 million, 1.50% of loans, versus $6.81 million and 1.47% at year-end. Nonaccrual loans were $5.58 million, or 1.17% of loans; net charge-offs for the first nine months were $0.59 million.
- Nonperforming assets were reported at $8.77 million, or 1.38% of assets, compared with $9.40 million, or 1.49%, at September 2012. Foreclosed assets declined to $1.43 million from $2.37 million at year-end.
- Management attributed unrealized securities losses to higher interest rates and considered them temporary; it reported no other-than-temporary impairment. The share of the available-for-sale portfolio with unrealized losses rose to 29.9% from 6.1% at year-end.
- Interest-rate risk is the primary market risk. The company’s economic-value-of-equity analysis showed a 7.5% decline under a 100-basis-point rate decrease and a 15.4% increase under a 400-basis-point increase. Management reported no material change in market risk from its prior annual filing.
- The filing provides no specific earnings or revenue guidance. Management cautions that interim results are not necessarily indicative of full-year results. Risks include interest-rate movements, credit losses, competition, regulatory changes, and implementation of Basel III and other Dodd-Frank requirements, which may increase costs and capital or liquidity requirements.
- Four residential-real-estate TDRs modified in the prior 12 months subsequently defaulted, with a reported balance of $194,000. Management said ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- The comprehensive-income statement reports Q3 total comprehensive income as negative $1.263 million, although net income of $1.344 million less the reported $0.081 million OCI loss implies positive $1.263 million.
- The asset-quality table reports “nonaccruing and restructured loans” of $5.456 million, below nonaccrual loans of $5.580 million; confirm the intended figure and definition.
- The liquidity discussion says liquid assets were $108.0 million at June 30, 2013, while the balance-sheet amounts at September 30 for cash, available-for-sale securities, and loans held for sale also sum to about $108.0 million. Confirm the stated measurement date.
- Reconcile management’s statement that quarterly delinquent loans fell $1.4 million year over year with the loan-aging table, which shows $2.253 million past due at September 2013 versus $5.103 million at December 2012.
- Track the decline in quarterly net interest margin, commercial-and-industrial nonaccruals, mortgage origination and sale volumes, RDSI losses and client attrition, and the effects of securities valuation changes and new capital rules.