SB Financial Group, Inc.

Good day and welcome to the SB Financial Group first quarter 2021 conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Sarah Mikas. Please go ahead.

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.yourstatebank.com. Joining me today are Mark Klein, Chairman, President, and CEO, Tony Cosentino, Chief Financial Officer, Ernesto Guyton, Chief Technology, Innovation, and Operations Officer, and John Gaffman, Senior Lending Officer. This call may contain forward-looking statements regarding SB Financial's performance, anticipated plans, operational results, and objectives. Forward-looking statements are based on management's expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied on our call today. We have identified a number of different factors within the forward-looking statements at the end of our earnings release, which you are encouraged to review. SB Financial undertakes no obligation to update any forward-looking statement except as required by law after the date of this call. In addition to the financial results presented in accordance with GAAP, this call will also contain certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings release. I will now turn the call over to Mr. Klein.

Thank you, Sarah, and good morning, everyone. Welcome to our first quarter 2021 conference call and webcast. Let me start by pausing for a moment and recognizing all of our 250 staff members who contributed to delivering the largest quarterly earnings in our history. While the growth was bolstered by the servicing rights recapture, the adjusted net income was still extremely strong, reflecting higher mortgage gains, accelerated PPP forgiveness, and controlled expenses. Highlights for this quarter, which included a $2.7 million pre-tax mortgage servicing rate recapture, include net income of $7.1 million, up $6.4 million, or a large 940% increase over the prior year quarter. And when we adjust for the non-GAAP impact in both 21 and 20, net income was 4.9 million, which is still up 2.5 million, or 104%. Adjusted return on assets was 1.54%, up from the adjusted prior year quarter of just 0.92%. Pre-tax, pre-provision return on assets for the quarter was 3.01%. Net interest income of $9.6 million was up 12.6% from the prior year as the slight increase in interest income was supplemented by a large 48% reduction in interest expense. Loan balances from the linked quarter declined $25 million due to loan payoffs and accelerated PPP forgiveness, but did grow $17 million from the prior year. Posits continued their rise, up $71 million from the linked quarter and up $256 million from the prior year. Expenses were up $1.5 million or 16% due to higher mortgage commissions and our targeted investments in technology. Revenue growth of 92% led to positive operating leverage of 5.7 times. Mortgage resignation volume increased to $156 million, up over $54 million or 54% year-over-year. Asset quality metrics improved from both the prior year and linked quarter, and our level of 49 basis points of non-performing assets remained strong. We set aside $750,000 in provision during the quarter, all of which was related to potential long-term impacts and unknowns in the pandemic. Client loan deferrals were down substantially from the link quarter with the dollar amounts of loans in forbearance status declining in excess of 18 million and now stand at just 4.9 million. And finally, we realized our first de novo office expansion since 2015 into the Edgerton, Ohio market. In our recent annual meeting and all of our quarters before, we've reiterated our future success lies in our ability to drive our five key strategic initiatives. Revenue growth and diversity, more scale through balance sheet growth and organic growth, more products and services in each household, better operational efficiency and intimacy with our client communications, and asset quality. First, revenue diversity. This quarter, mortgage volume and loan sale gains were up from the prior year, 54% on volume and 201% on gains. but down 8% on volume and 19% on gains to the length quarter. The lower gains are a result in part of our origination volume of private client mortgages we're beginning to book in our portfolio that I'll discuss in just a moment. Non-interest income increased to 10.9 million from the prior year quarter of just 2.2 million. The current quarter includes a mortgage servicing rate recapture of $2.7 million compared to an impairment of $2.2 million in the first quarter of 2020. Non-interest income to total revenue achieved a record level of 53%. Peak title continued to ride the mortgage volume momentum with another strong quarter. Revenue was up 97% from the prior year and level to the linked quarter. We've started to see results from our efforts to expand peak's presence into more of the commercial lending transaction arena. Commercial title policy revenue was nearly $29,000 in the quarter, which is all new business to our company. For the last 12 months, we have delivered nearly $750 million in total mortgage origination volume. While we had solid contributions from all four of our mortgage regions in the quarter, Columbus led the charge with over 60%. Our newest region, Indianapolis, continued to gain traction with their volume of $8.1 million for the quarter. up 21% from the prior year. Our wealth management team expanded their calling efforts to clients and coupled with positive momentum in the market, we achieved another record high in total assets under management of $577 million. The 35% improvement from the prior year was elevated due to the pandemic impact, but the $750,000 of revenue from the business line in the quarter, up 11%, was certainly meaningful to our results. We now have an expanded footprint to pursue with the Eden acquisition, which we are supplementing in the Williams County market with another office expansion at Edgerton, Ohio. Like Eden, Edgerton is now significantly underbanked and has significant deposit base, agricultural lending that we know well, and wealth management opportunities. Second key initiative, more scale. Loan growth was challenging in the quarter as PPP activities consumed our calling officers, while client liquidity led to some early payoffs. Our $17 million in growth from the prior year is elevated due to our PPP loans and the loans we acquired from the Eden acquisition. As we adjust growth for these items year over year, our loan balances would fall on a core basis by $52 million. While pipelines remain solid in most of our markets, we do expect loan demand and growth to be a bit constrained in the near term due to our solid underwriting requirements. Our deposit base expanded to $1.12 billion, up $256 million, or 30%, as I mentioned, year over year. Our clients have valued stability and safety over earning basis points as their liquidity continued to build. In fact, over 60% of our deposit growth over the past 12 months has been in checking account balances. Longer term, these deposits will potentially decline, but in the interim, they certainly constrain our interest costs and help us to maintain our margins. Loan production has been good, but government stimulus funds, PPP diversion, low cap rates on investments, and client liquidity have tempered our traditional high single-digit growth history. Third is our strategy to develop deeper relationships. We ended the quarter with $54 million in PPP loans outstanding. with 32 million remaining from the 84 million we originated in the first phase and 22 million from the recently initiated phase two. Roughly 60% of our first round borrowers have also applied for assistance with us in the second round. The second phase has consisted of lower dollar loans and an average loan size of approximately 83,000, which is less than 70% of the average size of the loan of 121,000 from phase one. In addition to the smaller average loan size in the second phase, our customer mix has also been a bit different. We have taken significantly more applications from the agricultural sector, and the smaller Schedule C filers have been more active under the second phase as well. Operational excellence, theme four. Mortgage refinance activity rebounded a bit in the quarter as the uptick in rates prompted a number of customers to move from standby status to active applications. For the quarter, 35% of our volume came from internal refinances and another 27% from external competitors' refinancing transactions. Our pipelines have remained strong and we think that the uptick in rates recently will not be a significant headwind in meeting our volume expectations. That said, we are concerned that the lack of housing inventory could negatively impact our volume. However, to ensure we optimize our business line operational capacity, we developed a new portfolio product this quarter for our private client borrowers. This portfolio product requires higher credit quality, delivers a slightly higher LTV, and fixes the rate for 15 years. As a result, we have booked or approved to close nearly 13 million in portfolio balances so far this year. Interestingly, to date, average loan size is 704,000, average credit bureau is 769, and average LTV is 86.5%. More services in these coveted households will be the theme here. Expense levels for the quarter were up from the prior year. As we have been discussing for a number of quarters, some of our focused investments on technology were realized in the quarter. We have acknowledged that our infrastructure and client origination systems needed to be upgraded in order to prepare us for the future of customized client communications. In fact, some of our competitors have viewed the digital space as a substitute for client interactions, whereas we are viewing it as a complement to our business line in order to deliver greater value to each of our clients. As a result, our revenue growth over the past 18 to 24 months has allowed us to cover these investments very effectively. In fact, operating leverage, as I mentioned, for the quarter was 5.7 times, and even when adjusting for the servicing rights impact, it's still a very strong 2.4 times. Fifth and final, asset quality. At quarter end, we had loans in forbearance with a total dollar amount of $4.9 million, which is down by over $18 million from the linked quarter, or 79%. In addition, we had $5.7 million in sold mortgage loans that have availed themselves of the CARES Act deferral program. We are very encouraged by the resiliency of our client base and the improvement in operating metrics that had previously been under pressure from the pandemic. We are over a year now into the pandemic, and we have maintained remarkably stable asset quality. Despite that, and due to the continued market uncertainties, We boosted reserves significantly over the past year, adding $4.4 million, or an increase of 49%. Our 1.57% reserve level, or 1.68% when you exclude PP balances, is in the range that we certainly expect to maintain for the remainder of this year. Now I'd like to turn it over to our CFO, Tony Costantino, for some more details on our performance.