Carol Robbins; Senior Vice President and Controller; SB Financial Group Inc
Mark Klein; President and Chief Executive Officer of State Bank; SB Financial Group Inc
Anthony Cosentino; Chief Financial Officer, Executive Vice President of the Company and State Bank; SB Financial Group Inc
Good morning and welcome to the SB Financial Group Inc third quarter, 2024 conference call and webcast. I would like to inform you that this call, 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 Carol Robbins with SB Financial. Please go ahead, Carol.
Carol Robbins
Thanks Dave. Good morning, everyone. I would 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. your statebank.com.
Joining me today are Mark Klein, Chairman, President and CEO Tony Cosentino, Chief Financial Officer and Steve Walls, 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 earning 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 fully looking statements. These statements speak only as of the date made and the financial undertakes no obligation to update them.
I will now turn the call over to Mr. Klein.
Mark Klein
Thank you, Carol and good morning, everyone. Welcome to our third quarter conference call and webcast highlights for the quarter include net income of $2.7 million. And when adjusted for the servicing rights impairment, net income was $2.4 million loaded earnings per share as adjusted increased to $0.41 a 3.3% increase from the adjusted $0.40 that we delivered in the prior year quarter hands will book value per share of the quarter at $16.49. Up from the $13.9 last year or a 26% increase net interest income totaled $10.2 million. An increase of 6.8% from the $9.5 million in the third quarter of 2023.
From the linked quarter, margin revenue was up 527,000 or a 22% increase on an annualized basis.
Total loans increased to $1.03 billion up by nearly $41 million or 4.1% from the prior year quarter and higher compared to the linked quarter by nearly $25 million.
The linked quarter growth would equate to an approximate 9.8% annualized increase.
Our year-to-date return on tangible equity was down slightly from the prior year but still a solid 10.4% mortgage originations for the quarter were $71 million and year-to-date we've now originated$ 188 million.
The annual origination level is up 12% from the prior year-to-date.
The servicing portfolio improved to $1.41 billion, which was up from both the prior year by 2.9%. And from the linked quarter by approximately 4.7% annualized operating expenses for the first 9 months were up approximately 1% compared to the prior year, same period. And finally, asset quality metrics remain stable compared to the linked quarter.
Our strategic path forward remains hinged on our five key strategic initiatives we've discussed in many quarters first revenue diversity, we remain focused on growing both our traditional margin revenue and fee based revenue.
A larger balance sheet is delivering the former and the real estate mortgage business line continues to contribute to the latter while the mortgage market remains challenging and persistent high rates, constraining our momentum. We have fortunately seen continued growth in other fee based areas such as wealth management and our title insurance business.
Our growth remains our goal remains to consistently drive our fee based revenue to the 35% level. All else remaining constant current levels at approximately 30% still places well into the top quartile of our peer group of 65 publicly traded US banks between 500million and 2.6 billion organic growth for greater scale. We achieved a double digit annualized growth rate in our loan portfolio this quarter and we continue to have a very strong pipeline in a number of our markets.
In fact, our Fort Wayne and Columbus markets were up 18% and 12% respectively from the prior year.
But our fractional market growth is not good enough for a model to not have all of our reasons contributing to our growth.
We expect to have more of our reasons with a positive year over year loan portfolio growth in 2025 deepening existing client relationships or more scope.
Our deposit base grew by $74.2 million to $1.16 billion and was up over $44 million from the linked quarter.
Revisiting the home buyer plus program that we've discussed extensively. We have met our internal goal of $50 million and acquiring low cost deposits and we are always pleased to assist pros prospective home buyers with a state of Ohio subsidized initiative that for us included over 100 new client relationships and of course, always operational excellence.
We continue to add additional talent throughout the organization as we remain focused on using technology market consolidations and disruptions to acquire new client relationships, drive greater services per household in existing ones and leverage customized communication channels to identify more diverse client opportunities in the digital space.
And finally, asset quality was certainly stable to the link quarter compared to the prior year, our level of criticized loans declined 41% and our classified loans were reduced by 11%.
Taking a little closer look at revenue diversity. Our mortgage business line originated $71 million volume. An increase of nearly 16% from the $61 million over the prior year quarter, mortgage sales of $61 million represented 87% of our total originations.
Our capacity remains nearly double the level of our current trailing 12 months of origination volume, but we remain bullish on the business line and expect that our 2025 volume level will be at least 20% to 30% higher than the 2024 forecasted level of approximately $265 million.
No income was down slightly at $4.1 million as the impact of several non-core items including the impairment of our mortgage servicing rights halted the quarter over quarter growth that we had experienced during 2024.
Our title business and wealth management services have steadily improved all year and we remain positive about their continued contribution to our revenue and bottom line net income.
Regarding the wealth management business line, new sales this year have actually exceeded our expectations and we've added new sales talent that we expect to be fully integrated and delivering new clients and new assets under our care. In 2025 on the scale, front deposit growth has accelerated again as I indicated earlier. This quarter. We were up by $44.3 million compared to the linked quarter and up 6.8% from the prior year quarter.
Our deposit cost of funds was 1.94% this quarter, up from 1.86% in the June quarter and 1.53% in the third quarter of 2023.
The trend line continues to move higher but certainly at a much slower pace.
Given our neutral to slightly liability sensitive balance sheet. We anticipate that a measured gradual decline and overall market rates will strengthen our net interest margin in the coming quarters, loan growth continues to gain traction. In fact, this quarter, we had our strongest level of length quarter growth in over 2 years.
The pipelines are much stronger today and Columbus is on pace to deliver over 50 million in growth for the full year of 2024.
We've not touched on the quality of our egg portfolio much in the last several years, but our $65 million portfolio continues to perform very well with virtually zero loan losses. Representing the prudent approach, we take to provide liquidity to our ag producers.
Farmers in our region continue to experience high yields with over 80% of our clients now carrying some form of crop insurance to supplement our net interest margin. We have aggressively pursued the State of Ohio Egg L program which has bolstered our deposit base by $14 million and improved margins on these funds by well over 200 basis points.
A strong equity foundation remains a prerequisite to our growth and this quarter, it continued to improve.
We are very comfortable with our capital strategy and feel we have a significant level of capital to continue to take advantage of multiple strategic options in terms of deepening existing relationships. In other words, more scope, we continue to embrace technology to enhance client engagement. This quarter, we expanded the services of our contact center to 7 a.m. to 7 p.m. This move has made a positive contribution to our level of client care and bolsters our quest for greater brand loyalty. Although slightly more costly, we feel this will be a strong differentiator for a company as we capitalize on market disruptions.
Organic expansion continues to be a focus.
We have selectively added to our talent pool this year with expansions in Columbus and Cincinnati, new sales emphasis and capacity and wealth management and recommitting to the Northern Indiana market.
We believe that these selective growth strategies will deliver positive results through the fourth quarter this year and well on into 2025 speaking to operational excellence, the mortgage business line remains a key driver, our levels of client care and the residential real estate business line or even as we have maintained a stable portfolio of nearly 9,000 households that we service and one that now generates over $3.5 million in fees annually.
The headwinds that we have experienced this year continue to reflect both the lack of available inventory and the continued pressure of higher mortgage rates.
That said our pipeline has improved of late exceeding $30 million up 30% from the run rate as slight movement down in rates has moved some clients from the sidelines.
Although refinance volume is still well below our historical levels, it now represents 10% of our current pipeline as we discussed in prior quarters. we have expanded our presence in a new market. Specifically, we are focusing on the Cincinnati market is one that is similar characteristics to the Columbus and Indianapolis markets.
We're now up and running with (two MIOs) in that market and we closed our first deal in September with a solid pipeline scheduled for the fourth quarter.
We think once fully integrated that Cincinnati initiative will match and potentially exceed the production of our other urban markets.
Finally, asset quality always a hallmark of our company from origination to our expansive review process.
We had minimal charge offs in the quarter with delinquencies slightly higher at just 65 basis points.
Clearly, our commitment to growing our balance sheet and loan portfolio in Columbus and other markets will require us to remain steadfast in our credit underwriting and ensure that our loan review, early warning signs are in tune with the ever changing economic cycles and I'll turn it over to Tony Costantino our CFO for additional comments on the quarter, Tony,