DEFIANCE, Ohio, Oct. 22, 2014 /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 and nine months ended September 30, 2014.

Highlights include:

• Net income of $1.5 million for the third quarter represented a 22 percent increase over the linked quarter and a 13 percent increase over the year-ago quarter
• Quarterly results included a $0.43 million prepayment penalty for the early redemption of fixed rate trust preferred securities which impacted net income by $0.06 per diluted share
• Loan growth is up $30.7 million, or 6.5 percent, from the prior year
• The ratio of nonperforming assets to total assets continued to decline to 0.81 percent
• Operating expenses, excluding prepayment penalty, were flat compared with year-ago and linked quarters

"We are quite pleased with our results this quarter," said Mark Klein, President and Chief Executive Officer of SB Financial. "We continue to drive performance improvement in our company as we implement our strategic initiatives to diversify our revenue streams, achieve operational excellence and expand our market presence. We had strong results across several of our business lines, demonstrated by the $0.37** per share that we earned for the quarter, when we adjust for the one-time impact of the trust preferred securities prepayment.

Additionally, we are excited to take the next step in the development of our greater Columbus region with a new retail/private client presence to complement our existing residential and commercial lending divisions. This new full-service facility in Dublin, Ohio, will enable us to further develop our strategy to expand our number of households and strengthen our presence in existing ones. We look forward to the additional opportunities this greater commitment in a robust market brings to our franchise."

RESULTS OF OPERATIONS

Consolidated Revenue

Total revenue, consisting of net interest income on a fully tax equivalent (FTE) basis and noninterest income, was up 3.0 percent from the third quarter of 2013, and up 7.1 percent from the linked quarter.

• Net interest income (FTE) was up 3.3 percent for the third quarter, and up 1.9 percent compared to the linked quarter
• Net interest margin (FTE) was down 8 basis points for the third quarter, but up 4 basis points from the linked quarter
• Noninterest income was up $0.1 million, or 0.3 percent, for the third quarter, and up $0.5 million, or 15.6 percent, from the linked quarter

Total revenue, consisting of net interest income on an FTE basis and noninterest income, for the first nine months of 2014 was $25.4 million, compared to $27.2 million for the first nine months of 2013. The nine-month results were impacted by lower mortgage origination volume during the first quarter of 2014 and the reduction in the yield on earning assets.

Mortgage Loan Business

In line with the linked quarter, mortgage loan originations for the third quarter of 2014 were $67.5 million, up $12.3 million, or 22.3 percent, from the year-ago third quarter. For the first nine months of 2014, mortgage loan originations were $167.7 million, down from $209.1 million for the first nine months of 2013.

Net mortgage banking income, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.7 million for the third quarter of 2014, compared to $1.8 million for the year-ago quarter. The mortgage servicing valuation adjustment for the third-quarter 2014 was a positive $0.06 million, slightly improved from the linked quarter. The mortgage servicing portfolio at September 30, 2014, was $649.7 million, up $52.6 million, or 8.8 percent, from September 30, 2013.

Mr. Klein noted, "Our mortgage volumes during the quarter were strong, with $68 million in originations, driven by a higher number of originators who are helping us gain market share in the regions we serve. We expect this segment to continue to be one of our key business areas."

Fee Income and Noninterest Expense

SB Financial's fee income includes revenue from a diverse group of services, such as wealth management, deposit fees and income from bank-owned life insurance. Wealth management assets under management stood at $326.5 million as of September 30, 2014. For the third quarter of 2014, fee income as a percent of total revenue was 41.6 percent, down slightly from the prior year. For the first nine months of 2014, fee income as a percentage of total revenue was 38.5 percent.

For the third quarter of 2014, noninterest expense (NIE) was up $0.3 million, or 5.0 percent, compared to the third quarter of 2013. However, when adjusted for the $0.33 million in operating expense related to the trust preferred securities prepayment, expenses for the quarter were in line with the prior year. For the first nine months of 2014, operating expenses were down $0.7 million, or 3.6 percent, compared to the first nine months of 2013. When adjusted for the trust preferred securities prepayment, expenses for the first nine months of 2014 were down $1.1 million, or 5.2 percent, compared to the prior-year period.

"In the current interest-rate environment, our fee income continues to be a competitive strength," Mr. Klein stated. "For the third quarter, our fee income as a percentage of total revenue was 41.6 percent. We were pleased to achieve our 40-percent target level for this metric. Going forward, we will continue to look for ways to diversify our sources of revenue further." 

Balance Sheet

Total assets as of September 30, 2014, were $664.6 million, up 4.9 percent from a year ago. Total equity as of September 30, 2014, was $60.3 million, up 8.5 percent from a year ago.

Total loans held for investment (HFI) were $505.9 million at September 30, 2014, up $30.7 million, or 6.5 percent, from September 30, 2013. Residential real estate loans accounted for the majority of growth, up $11.2 million, or 11.6 percent. Commercial and commercial real estate loans rose $8.9 million and $3.2 million, respectively.

The investment portfolio, including Federal Reserve Bank and Federal Home Loan Bank stock, of $84.9 million represented 12.8 percent of assets at September 30, 2014, and was down slightly from a year ago. Deposit balances of $535.3 million at September 30, 2014, increased by $13.7 million since September 30, 2013. Growth from the prior year included $7.0 million in checking and $6.7 million in savings and time deposit balances.

Mr. Klein said, "We continued to see solid growth in our loan portfolio during the third quarter, primarily as a result of higher residential real estate loan activity. We experienced increased loan volumes across all of our markets, particularly in our lower-share markets of Columbus and Toledo."

Asset Quality

SB Financial continues to improve its asset quality, reporting nonperforming assets of $5.4 million as of September 30, 2014, down $3.4 million, or 38.8 percent, from the year-ago quarter. Already trending better than our key peer metrics, the 0.81 percent of nonperforming assets to total assets was the lowest we have recorded since the first quarter of 2007. Coverage of problem loans by the loan loss allowance was 139 percent at September 30, 2014. This quarter, our delinquency level did rise to 1.2 percent from 0.6 percent in the linked quarter. This increase is driven by one Commercial real estate loan that is in the process of restructure.

Capitalization

Improving capital ratios remains an important focus of management. The tangible equity ratio improved by 50 basis points over the past year and stood at 6.7 percent as of September 30, 2014. All bank regulatory ratios remain in excess of "well-capitalized" levels. At September 30, 2014, State Bank's Total Risk-Based Capital was estimated to be $63.0 million, $21.6 million above the "well-capitalized" level. The Total Risk-Based Capital Ratio is estimated at 12.2 percent.

The Company will hold a related conference call and webcast on October 23, 2014, at 9:00 a.m. EDT. 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 wholly-owned operating subsidiaries: State Bank and RDSI. State Bank provides a full range of financial services for consumers and small businesses, including wealth management, mortgage banking and commercial and agricultural lending, operating through 16 banking centers in seven northwestern Ohio counties and one center in Fort Wayne, Indiana, as well as three loan production offices located in Columbus, Ohio, and Angola, Indiana. RDSI provides item processing services to community banks located primarily in the Midwest. SB Financial'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 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 providing certain non-GAAP financial measures provides 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.

** See Non-GAAP Reconciliation of Income on page 11 for discussion and reconciliation.