RESULTS OF OPERATIONS

Consolidated Revenue

Total interest income for the third quarter was up $3.0 million or 25.8 percent from the prior year and from the linked quarter was up nearly 11 percent on an annualized basis, as the yield on earning assets increased 89 basis points to 4.78 percent.   However, deposit and other funding costs have risen at a faster pace, reducing net interest margin to 3.08 percent, down 37 basis points compared to the prior year and 7 basis points compared to the linked quarter.

Noninterest income was up from the prior year but down compared to the linked quarter, reflecting higher margins from gain on sale and relative growth in the mortgage sector, offset by weakness in our SBA volume and gain on sale. Wealth management revenues are under pressure from weaker equity markets and a reduction in client assets. For the full year, adjusting for the OMSR recapture, total noninterest income decreased $1.1 million or 8.2 percent due to our mortgage origination and sale volume being lower by 32.7 and 20.7 percent, respectively.

Mortgage Loan Business

Mortgage loan originations for the third quarter of 2023 were $61.2 million, down $7.4 million, or 10.7 percent, from the prior year quarter. Total sales of originated loans increased compared to the prior year, reaching $54.1 million, up $14.9 million, or 38.1 percent as we adjusted pricing and reduced duration risk in order to transition from portfolio production.

Net mortgage banking revenue, comprising gains on the sale of mortgage loans and net loan servicing fees, totaled $1.6 million for the third quarter, up from $1.4 million for the prior year quarter and slightly higher from the linked quarter. The mortgage servicing valuation adjustment was a negative $0.1 million, compared to a positive adjustment of $0.1 million for the prior year quarter. The servicing portfolio at September 30, 2023, was $1.37 billion, an increase of $4.5 million compared to the prior year.

Mr. Klein noted, “Our mortgage volume has remained below historical levels as we adjust to a much higher interest rate environment and limited movement of housing inventory and resulting mortgage activity. Historically, we have seen 20 to 30 percent of our volume from refinance transactions, which is down this year to just 9 percent, further impacting production levels.”

Noninterest Income and Noninterest Expense

Noninterest income for the quarter increased from the prior year quarter by 3.0 percent and was just slightly below the linked quarter. Gain-on-sale from mortgage loans, was up $0.3 million or 37.8 percent from the prior year. Our sale percentage of originated volume returned to more historical levels with the 88 percent achieved for the quarter marking our highest since early 2020.

For the third quarter of 2023, noninterest expense of $10.5 million was slightly higher than both the prior year and linked quarters. We encountered some one-time expenses in the quarter related to check fraud, which elevated expense levels above our current run rate.

Mr. Klein stated, “As revenue levels have declined, we have been focused on reducing resources and controllable expenses throughout the Company. Our total headcount is down over 7 percent and expenses have declined 1.4 percent for the nine months compared to the prior nine month period.”

Balance Sheet

As of September 30, 2023, total assets were $1.33 billion, a slight decrease from the linked quarter, and 1.8 percent higher compared to the prior year. Total shareholders’ equity at September 30, 2023, was $112.3 million. Excluding the impact of the investment portfolio net unrealized losses, equity rose to $151.9 million, reflecting a 2.6 percent increase. During the quarter, we repurchased 43,814 shares of our Company stock and we have declared cash dividends of $0.39 per share for the nine-month period, an 8.5 percent increase from the prior period.   The investment portfolio of $212.8 million was down $30.5 million or 12.5 percent from a year ago and now constitutes 16.0 percent of total assets.

Total loans held for investment were up $63.8 million or 6.9 percent compared to the prior year. The Allowance for Credit Losses ended the quarter at $15.8 million or 1.60 percent of total loans. The reserve is higher by $2.0 million, or 14.2 percent compared to the prior year due to CECL and negligible charge-offs in the current year. Deposit balances of $1.09 billion at September 30, 2023, were level to the prior year, but were higher compared to the linked quarter by $14.2 million.

Mr. Klein continued, “Loan balances were higher compared to the linked quarter, and we have now grown loans quarter over quarter for seven consecutive quarters.   Our commercial pipelines of $44 million remain under pressure in most of our markets, but we continue to aggressively call to expand relationships from both internal and external clients. Asset quality continues to remain stable, and our coverage of non-performing loans has increased to nearly five times at quarter end.”

Asset Quality

SB Financial reported nonperforming assets totaling $4.0 million as of September 30, 2023, marking a decrease of $0.5 million or 12.1 percent from the same quarter last year, despite a slight increase from the linked quarter. The coverage ratio for problem loans, has notably strengthened, improving nearly 100 basis points from the previous year. The enhancement is attributed to both the expansion of the allowance, following a CECL adjustment of $1.4 million, and a concurrent reduction in problem loans.

Webcast and Conference Call

The Company will hold the third quarter 2023 earnings conference call and webcast on October 31, 2023, at 11:00 a.m. EDT. Interested parties may access the conference call by dialing 1-888-338-9469. The webcast can be accessed at ir.yourstatebank.com. An audio replay of the call will be available on the Company’s website.

About SB Financial Group

Headquartered in Defiance, Ohio, SB Financial is a diversified financial services holding company for the State Bank & Trust Company (State Bank) and SBFG Title, LLC dba Peak Title (Peak Title). State Bank provides a full range of financial services for consumers and small businesses, including wealth management, private client services, mortgage banking and commercial and agricultural lending, operating through a total of 23 offices: 22 in nine Ohio counties and one in Fort Wayne, Indiana, and 23 ATMs. State Bank has six loan production offices located throughout the Tri-State region of Ohio, Indiana and Michigan. Peak Title provides title insurance and title opinions throughout the Tri-State region. SB Financial’s common stock is listed on the NASDAQ Capital Market with the ticker symbol “SBFG”.

In May 2023, SB Financial was valued #163 on the American Banker Magazine’s list of top 200 publicly traded Community Bank and Thrifts based on three-year average return on equity.

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

This press release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). Non-GAAP financial measures, specifically pre-tax, pre-provision income, tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, return on average tangible common equity, total interest income – FTE, net interest income – FTE and net interest margin – FTE are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. In addition, the Company excludes the OMSR impairment from both net income and non-interest income to report non-GAAP adjusted levels. Although management believes these non-GAAP measures are useful to investors by providing a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Investor Contact Information:

Mark A. Klein
        Chairman, President and
        Chief Executive Officer
        Mark.Klein@YourStateBank.com

Anthony V. Cosentino
        Executive Vice President and
        Chief Financial Officer
        Tony.Cosentino@YourStateBank.com