SB Financial Group, Inc.

2023 Conference Call and Webcast. I would like to inform you that this conference call is being recorded and that all participants are in a listen-only mode. We will begin with remarks by management and then open the conference up to the investment community for questions and answers. I will now turn the conference over to Sarah Mekas with SB Financial. Please go ahead, Sarah.

Thank you, and good morning, everyone. I'd like to remind you that this conference call is being broadcast live over the internet and will be archived and available on our website at ir.yourstatebank.com. Joining me today are Mark Klein, Chairman, President, and CEO, Tony Cosentino, Chief Financial Officer, and Steve Wall, Chief Lending Officer. Today's presentation may contain forward-looking information, cautionary statements about this information, as well as reconciliations of non-GAAP financial measures are included in today's earnings release materials, as well as our SEC filings. These materials are available on our website, and we encourage participants to refer to them for a complete discussion of risk factors and forward-looking statements. These statements speak only as of the date made, and SB Financial undertakes no obligation to update them. I'll now turn the call over to Mr. Klein.

Thank you, Sarah, and good morning, everyone. Welcome to our third quarter conference call and webcast. Highlights for the quarter include net income of $2.7 million down from both the length and prior quarters as funding costs and lower mortgage volume have impacted profitability. Pre-tax, pre-provision return on average assets of 96 basis points with return on tangible common equity of 10.8%. Total interest income of $14.8 million was up 3 million or 25.8% from the prior year and up 390,000 or 10.8% annualized from the linked quarter. Loan balances were higher from the linked quarter by just 4.2 million, but have now risen nearly 64 million or 7% over the prior year quarter. Our expansion markets in Fort Wayne and Columbus were the catalyst growing 29 and 15% respectively. Deposits were higher by 14.1 million, or 5.2% annualized compared to the link quarter, and remained steady to the prior quarter, albeit with higher funding costs that rose from 46 basis points to 176 basis points. Loan-to-deposit ratio of 91.1%, our second consecutive quarter above 91% and higher by nearly six basis points from the prior year. Operational liquidity of nearly 500 million, that is 35% of total assets and sufficient to meet all of our growth needs and noticeably, we have not needed at any time to access the Federal Reserve term funding program. Expenses were slightly higher than the run rate discord that Tony will touch on shortly, as we had some non-recurring items that impacted results. Mortgage origination value, while lower than the length and prior year quarters, did show a very high and a more traditional level of sold volume at 88%. Capital levels remain strong with Tier 1 leverage of 11%, common equity Tier 1 of 13.6%, and total capital or total risk-based capital of 14.8%. Customer deposits for the company that are below the FDIC insured threshold were nearly 84% of total deposits. And when we exclude any collateralized deposits, that level increased to 89%. And finally, asset quality metrics remain strong with delinquency levels at 33 basis points and near-to-date net charge-offs of only one basis point. We continue to concentrate on our five key initiatives. That's revenue diversity, it's all about net interest income and fee-based revenue, more scale in our current households, more scope, and operational excellence and asset quality. First, revenue diversity. The mortgage business line has been under significant pressure this year from not only higher rates, but also the lack of inventory in most of our markets. This quarter was reflective of not only the new lower level of activity, but also the ongoing size of our pipeline. The expectation is that the 15 to 20 million per month level of volume will continue for the majority of the next six months. We have, as previously indicated, been actively moving away from residential portfolio growth by changes to pricing with an emphasis on shorter duration products. It was encouraging that we sold 88% of our production in the quarter, and the yields on those sales were in line with what we achieved in the last four quarters. Despite the headwinds that all banks have encountered this year, including us, quarterly non-interest income has remained fairly stable. Our $4.2 million this quarter was up slightly to the prior year, but down slightly from the linked quarter. We have settled into a 30% level of fee income to total revenue, which, while down from our very high historical levels of high 30s to low 40s, would still place us well into the top quartile of our peer group. As we look at our year-to-date results, the negative impact from the mortgage business line, with $1.2 million of servicing right impairment and an additional $900,000 due to lower gain on sale, has clearly overshadowed a decent year in our other fee-based business lines. As such, we remain committed to our title insurance business, and despite the obvious headwinds from the residential sector, we are pleased with the progress we have made this year in making Peak Title the number one choice for our clients in our markets. For the current year, our State Bank commercial team has delivered over $145,000 of revenue or 11% of PEAK's total revenue for the year, which is over double the commercial revenue from the prior year. This commercial contribution is nearly as high as our internal residential level of contribution for the year. We continue to emphasize the quality and capacity of our PEAK business line to all of our clients. As I indicated in our second quarter webcast, our goal continued to be to generate 50% of PEEQ's revenue, all else remaining constant. This quarter, State Bank delivered 34% of PEEQ's revenue and now claims 30% of their revenue year-to-date. We spent the majority of the quarter integrating our new wealth management leader, mitigating the loss of a prior wealth advisor, remaining connected with our current wealth management client, and developing new contacts as well. However, revenue growth has been challenged by the downward pressure in the equity markets and our need to identify more wealth advisors. Regardless, this business line continues to deliver a stable $3.7 to $4 million in annual revenue and continues to provide us a competitive advantage over our community bank peers. It remains a great complement to our private banking and commercial customer basis and helps ensure that we are providing our clients a comprehensive solution to all their financial needs. Secondly, more scale. Loan growth from our linked quarter rose slightly as I previously stated. Consecutive Euro quarter over quarter growth dating back seven quarters has been a noticeable achievement in our overall balance sheet growth. We understand that growth will become more difficult as we look out to a potentially further slowing in the economy. Based on that scenario, our response will be to work twice as hard to deliver the same or better results. By doubling our calling efforts to our clients, as well as our prospects that are tied to our competitors, a number of whom have stepped away from lending, we expect that when the economy does turn, we'll be better positioned to achieve pre-pandemic levels of loan growth. Growing deposits from the next quarter was a key achievement, as we have worked extremely hard this past year to maintain our deposit levels on par with the prior year. We have given our bankers the flexibility to elevate every deposit conversation with clients to ensure we are keeping and growing those valued relationships. Obviously, maintaining that deposit level has come at a reduction of our net interest margin with our Year-to-date deposit cost of funds up 101 basis points from the prior year. Keeping that rise less than the increase in our earning asset yields that have risen to 119 basis points does feel like an accomplishment in this rather challenging environment. Third, more scope. We closed just under $1 million in SBA loans this quarter, and thus far for 2023, we have originated $7.4 million. That production, which we anticipate will approximate $10 million for this year, is certainly less than our capacity and well below the goals we have set for this very profitable sector. With the increases in prime lending rate, we intend to adjust our traditional pricing model to drive portfolio balances and revenue higher. Fortunately, we are often able to attract the entire deposit relationship with each new SBA credit. Also, when coupled with our strong credit culture and the added safety net of the government guarantee, asset quality elevates and revenue stabilizes. We expect to expand our fourth quarter successes and provide the impetus to a stronger 2024 in the SBA arena. As we have discussed in prior quarters, our investment in technology to help us better identify and target clients for business expansion continues. We are in the midst of our Salesforce integration project, and we are confident that both our corporate sales champion and consulting sales approach with each client will bring us closer to a bigger bank process, but with a community bank feel. As a result, We have accelerated sales trainings for each of our staff members with a focus to retain 100% of our current clients and deliver a strong community bank brand for all prospects alike. Operational excellence, our fourth key thing. Operating expenses were up just slightly in the linked quarter as we had some check fraud and other portfolio non-recurring items. However, a large portion of our expense base is variable and tied to the number of units produced in our SBA and mortgage business lines. As those volumes have declined, the associated compensation levels have also declined. We've also taken steps to reduce the fixed costs of both of these areas by reducing support staff and shifting responsibilities to departments with excess capacity. In fact, from the prior year, total FTE is down 17 or 6%, reflecting those impacts. Beginning in the fourth quarter, we will identify initiatives to further improve our efficiency ratio. That said, we expect that our fourth quarter expense level will reflect a more efficient run rate near the $10 million per quarter range. And finally, to deliver more value to our commercial client base, we recently launched a comprehensive calling strategy across our entire footprint to deliver and potentially implement positive pay risk mitigation software to protect our 1,700 client accounts from fraud as well as constrain our operational risk. And finally, asset quality. Charge-offs were, again, low this quarter, just 5,000, and for the year we've had just 88,000, which equates to just one basis point of total loans. In fact, we have to go back 13 quarters to identify a period with net charge-offs exceeding just 65,000. In addition, our reserve coverage of non-performing loans at 474% gives us great comfort moving forward that our asset quality is strong, stable, and prepared to confront any additional weaknesses in the economy. While the underwriting and dynamic loan administration are clearly the common threats here, we had a slight uptick in delinquencies from the link quarter, which were all in the under 60-day category. Clients involved in the increase are now current, and we would expect that when we report our 2023 year in delinquencies, they'll be back in the mid-20 basis point range. We also do not anticipate having any material level of delinquencies in the near-term in the portfolio outside of identified non-performing credits. And Tony Cosentino, our CFO, will give you a few more details on the quarter. Tony? Thanks, Mark.