SB FINANCIAL GROUP, INC. Q3 FY2024 earnings call

Revenue Diversity

• Focus on growing traditional margin and fee-based revenue. Fee-based revenue at ~30% (goal 35%). Mortgage market challenging, but other fee-based areas like wealth management and title insurance growing.

Organic Growth

• Loan portfolio grew double-digit annualized, strong pipeline. Fort Wayne and Columbus markets up 18% and 12% respectively from prior year. Linked quarter loan growth ~9.8% annualized.

Deepening Relationships

• Deposit base grew $74.2 million, $44 million from linked quarter. Homebuyer Plus program met internal goal of $50 million in low-cost deposits.

Operational Excellence

• Mortgage business line key driver. Contact center expanded to 7 a.m. to 7 p.m. Cincinnati market expanded with 2 MLOs, first deal closed in September.

Asset Quality

• Ag portfolio $65 million performing well, zero loan losses. Ohio Ag Link program boosted deposits by $14 million, improved margins by over 200 basis points.

Net income was $2.7 million, with adjusted net income for servicing rights impairment at $2.4 million. Diluted earnings per share as adjusted increased to $0.41, a 3.3% increase from the prior year quarter. Tangible book value per share ended at $16.49, up 26% from the prior year. Net interest income totaled $10.2 million, a 6.8% increase from Q3 2023. Total loans increased to $1.03 billion, up ~$41 million (4.1%) from prior year and ~$25 million from linked quarter. Mortgage originations for Q3 were $71 million, with YTD at $188 million, up 12% from prior YTD. Servicing portfolio was $1.41 billion, up 2.9% from prior year and ~4.7% annualized from linked quarter. Operating expenses for first nine months up ~1% vs prior year. Asset quality metrics stable.

• Diluted earnings per share adjusted expected to continue, with margin expected to improve as market rates decline. Loan growth expected mid- to upper single digits. Mortgage originations 2025 forecasted ~20%-30% higher than 2024's ~$265 million. Marblehead acquisition expected to be accretive to earnings and franchise value.

• Mortgage market challenges due to persistent high rates. Liability-sensitive balance sheet could be affected by market rate changes. Dependence on specific markets for loan growth, needing balanced growth.

Q: About new hires in various areas?

A: Added MLOs in Cincinnati, talent in back room for compliance, Wealth Management division leader, commercial producer in Columbus market.

Q: Loan growth outlook?

A: Optimistic, mid- to upper single digits, strong pipeline with Columbus on pace for over $50 million growth in 2024 and strong pipeline for 2025.

Q: Margin dynamics and Marblehead contribution?

A: Margin improved, Marblehead acquisition's loan book and deposit base expected to add to loan book and improve margin, with potential for 330-335 range by end of 2025.

Q: Expense management and Marblehead?

A: Expenses managed, Marblehead adds to organic expansion opportunities in adjacent markets, with expenses kept in line with revenue growth expectations.