SB Financial Group, Inc.

Good morning and welcome to the SB Financial fourth quarter 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 Walsh, 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 will now turn the call over to Mr. Klein.

Thank you, Sarah, and good morning, everyone. Thank you for joining us. Highlights for our fourth quarter include net income of $3.9 million, up from both the length and prior year quarters as total operating revenue with higher non-interest income and net interest income increased profitability. Pre-tax, pre-provision return on average assets at 1.43% compared to the prior quarter of just 96 basis points with return on tangible common equity of 16.6%. Total interest income of 15.1 million was up 2.2 million or 16.9% from the prior year and up 330,000 or 8.9% annualized from the length quarter. Loan balances were higher from the linked quarter by 11.2 million and have now increased 38.1 million or 4% over the prior year quarter. We had annual growth in five of our markets with Fort Wayne increasing 40% and Columbus increasing 8% and collectively representing the bulk of our loan growth. Total deposits were off by 15.1 million or 5.6% annualized compared to the linked quarter and we're down 1.5% compared to the prior year. However, deposit costs did increase by $3 million to $4.4 million or 205%. Deposit costs rose from 0.53% in the prior year to 1.62% in 2023 as DDA balances migrated to higher cost instruments. Loan to deposit ratio increased to 93.5%, which is solidly back in our historical level of the mid to low 90s and higher by nearly five basis points from the prior year. As part of our commitment to operational excellence, that includes asset quality, we continue to demonstrate top-tier performance. Our time-tested approach has led to a reduction in total non-occurring loans, now standing at 2.8 million, a decrease from the $3.3 million from the linked quarter. This improvement reflects a robust annual decline of 23.5%, bringing the ratio of non-accruing loans to total loans to appear leading 28 basis points and non-performing assets declining to $3.3 million, or 25 basis points of total assets. Our diligent oversight across all loan categories has been particularly evident in the residential real estate portfolio, which has seen a 44% decrease in non-performing assets compared to the prior year, declining from 3 million to just 1.7 million. Operational liquidity remained relevant at nearly 500 million and continued to be quite strong at 35% of total assets. Expenses this quarter were slightly lower than the previous quarter at 10.4 million compared to 10.5 million, reflecting a careful management of costs that included a reduction in FTE this quarter and overall a reduction of 17 for the entire year. Mortgage origination volume, while lower than the length in prior year quarters, did deliver a very high level of sold volume at more traditional levels around the 80 to 84 percent mark. Capital levels remain strong with Tier 1 leverage of 11 percent, common equity Tier 1 13.5, and total risk-based capital 14.7. Customer deposits below the FDIC insured threshold were nearly 80 percent of total deposits. And when we exclude any collateralized deposits, that level increases to 85 percent. In fact, Average deposit account now stands at just $26,500. We continue to work to diversify our sources of revenue, add organic balance sheet growth to deliver more scale and scope, remain intimate with our clients no matter the communication channel, and hold peer-leading asset quality constant. First, revenue diversity. The mortgage business line continues to experience significant pressure This quarter we saw mortgage originations decline to approximately $40 million and sold 84% or $33 million and brought our 2023 origination volume to just $216 million. For the full year, we sold $161 million or 75%. Interestingly, our full year volume of the $216 million I mentioned, $180 million or 83%, was from purchase contracts that materially resulted in all new households. Despite the headwinds we encountered this year in our fee-based business lines, quarterly non-interest income expanded. Our $5.5 million this quarter was up slightly compared to the prior year and the length quarter, or 37% of total revenue. For the full year, our total operating revenue eclipsed $57 million mark with non-interest income of 18 million or 31% of total revenue, just below our historical average of 37%. Our title insurance business, Peak Title, experienced a 31% decline in revenue for the year, which was in line with the residential volume we had compared to 2022. We continue to work to integrate Peak into not only other community banks in our markets, but also as a supplement to commercial real estate activities for State Bank clients. In fact, throughout 2023 at State Bank, we were able to capture 80% of the refinance business for commercial clients and just 13% of the State Bank CRE purchase contracts. In doing so, we referred over $437,000 in revenue In 2023 to our affiliate peak. As I mentioned last quarter, we intend to raise the bar for the level of revenue from refinances and purchase contracts coming to peak to 50% in 2024, be it residential or commercial. Year-to-date, third quarter 2023, state bank referred 30% of peak revenue and through this quarter, 26%. There clearly is more work to be done here. Moving on to wealth management, our total assets under management increased $24 million from the length quarter as the markets were generally all positive. This business line is contributing annualized revenue of approximately $3.7 million and is well in line with prior quarters. We also just added another financial advisor in the greater northeast Indiana Fort Wayne market. And now with the backroom fully staffed, we're prepared to grow new relationships and expand on existing ones. We feel strongly that joint calling efforts with this business line in conjunction with commercial and our private banking teams are clearly the best path to overall achievement of our growth goals. Secondly, more scale. Loan growth has now been positive for our last eight quarters, albeit well below our historical growth levels of over 8% annually. Headwinds, getting back to the average, have been higher marginal cost of funds requiring higher loan rates at inception, investor expectations, and an overall slowing economy. With largely higher fixed costs to produce our balance sheet growth given our 14-county footprint and our market leadership model, it's critical that we devise initiatives region by region by region to develop and deliver organic home growth that are all well in line with expectations for the coming year. We expect to return to our historical growth rate in 2024. Deposit levels were fairly flat for the quarter and the year, while the change in mix and incremental cost reduced margins. Likewise, Liquidity remained relatively stable throughout the quarter as we focused on deposit stability. Overall asset yields increased 104 basis points this year, while liquidity costs increased 114 basis points. And Tony will give more detail on that mix. Third, more scope. We closed just under $500,000 in SBA loans in the quarter, and for all of 2023, originations totaled $9 million. This level of production was not only below our anticipated target for the year, but it's certainly less than we feel we're capable of and falls well below the objectives we have established for this highly profitable sector. With something better than a soft landing economic scenario for 2024, We expect to return to our pre-pandemic levels of production of nearly 15 million and well into the top quartile of SBA producers throughout the United States that do SBA lending. Referrals in and among our staff and business lines continue to drive deeper relationships. In fact, for the quarter, we delivered a total of 274 referrals, 148 closed for 14.9 million. For the year, we handed off a total of nearly 1,400 referrals with 761 closing for approximately 85 million in total business. Many banks talk about interdepartmental referrals, but we do them. We have the business clients, we have the staff, and the reward system to deliver them. Rewards for both the person referring as well as the person receiving the referral know what the job to be done is, and we always keep the client at the center of the conversation. Salesforce and sales training, as we discussed last quarter, continue to accelerate. Operational excellence. Operating expense, resulting production levels and fee-based business lines and associated expenses are all down slightly in the quarter. As a result, our efficiency ratio increased to 73.5% and ironically, positions us well to improve our efficiency ratio with better production and expansion of asset on our balance sheet. All that said, we successfully managed to keep our expenses in line with a more efficient run rate, achieving close to the $10 million mark per quarter. As we move forward, we will continue to build upon these strategies to further optimize our financial performance and maintaining a prudent balance between cost revenue and net income given all of the market dynamics. And finally, asset quality. Our top tier asset quality continues to provide earnings inertia. Provision expense was a credit of $74,000 for the quarter due to unfunded commitments and was just $315,000 for the full year. Charge-offs were again low this quarter at just $4,000 and now $92,000 for the entire year, which equates to just one basis point of total loans. Our reserve coverage of non-performing loans now stands at a healthy 560% and well positions us to confront economic uncertainties. Additionally, we also experienced a significant reduction in delinquencies to just 15 basis points and arriving at now an all-time low for our company. And now Tony will provide us a little more detail on the quarter.