SB Financial Group, Inc.

Good morning and welcome to the SB Financial third quarter 2021 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 Migas with SB Financial. Please go ahead, Sarah.

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 Officer, and Steve Walls, Chief 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 statements 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 third quarter conference call and webcast. Briefly, at a high level, overall, we're quite pleased with our quarterly performance as well as our year-to-date results. For the quarter, we realized positive loan growth that has now expanded for two consecutive quarters, grew our operating revenue, improved earning asset yields, and realized negative net charge-offs. Year-to-date, we've expanded both total assets and total deposits by nearly double-digit percentages, achieved positive operating leverage, witnessed a decline in delinquencies to an all-time low, and drove our allowance to non-performing loans to a record 3.5 times. We are certainly pleased with our progress and momentum, but of course not satisfied. Briefly, at a high level for the quarter, net income $4.1 million, yielding an ROA 1.23, pre-tax, pre-provision ROA 1.63, Net interest income of $10 million was up 8.3% from the prior year due to PPP forgiveness, loan growth, and a 35% reduction in interest expense. Loan balances from the linked quarter, excluding PPP effects, were up $21 million or 10% annualized. This follows a similar $22 million increase in the prior quarter. Deposits quarter over quarter continued to increase, $21 million up by $97 million year over year, Expenses down for the prior quarter, flat to the linked quarter. Mortgage origination volume, 153 million, down 24% year-over-year. Key asset quality metrics, including non-performing assets at 42 basis points and delinquent loans of just 35 basis points, were improved both the prior year and linked quarter. And finally, tangible book value, now up to $17.55. 11.6% increase year-over-year, or $1.83. Our five key strategic initiatives remain. We are impassioned by growing and diversifying that revenue, adding more scale organically now, again, post-COVID, and M&A when prudent. More products and services, which would be scope. And, of course, deploying technology and better technology for customized client care and communications. And finally, the foundation of all high-performing companies, we feel, asset quality. First, revenue diversity. This quarter, mortgage volume and loan sale gains were down from prior year, 24% on volume, 51% on gains. For the last 12 months, we delivered $650 million in originations. Our volume continues to be bolstered by our newer PCG fixed rate product, the 15-1 product that we announced the first of this year. And, of course, we underwrite and book in-house at here State Bank. We expect to close nearly $70 million in this product for the year. Non-interest income decreased to $6.6 million from the prior year quarter of $10.4 million, but it's up slightly compared to the linked quarter. Current quarter includes a mortgage servicing recapture of $248,000 compared to a recapture of $326,000 third quarter of last year. Non-interest income remains strong at that 40% mark that's traditional for us and 2% of average assets. Our affiliate peak title contributed over $500,000 of revenue this quarter, and we anticipate a full year of over $2 million, with net income approximately $400 million. Our president, Abby Waters, and her team have made great strides in doubling the revenue of this business line in three short years. We intend to leverage this true complement deeper into our core business lines and across all 14 county footprints. The stock market expansion has certainly assisted our wealth management team to consistently amass assets under management at or above that 600 million mark. This quarter's levels are up by 66 million, or nearly 13% from the prior year, while providing over 959,000 revenue, which is up 14% over the prior year. Year-to-date wealth revenue is up nearly 19% from the prior year. Second, more scale. Loan growth continued to show improvement in the quarter net of PPP paydowns. PPP activities are winding down for our calling officers, and the feeling on the ground in our markets is one of optimism, as we now have pivoted to servicing our clients and addressing their expansion plans. Our recent expansion into the Edgerton Ohio market continues to exceed our expectations. After just four months of operation, we have opened nearly 200 lower-cost core deposit accounts, with balances of $3.7 million, booked loans of over $13 million, and have a pipeline now of loans antipods of nearly $2 million. We continue to believe that capturing market share in our rural markets with our Main Street model that includes both BRICS and CLICS presents us nicely to grow our presence and build long-term franchise value for our company. Deposit levels continue to show growth and strength across all segments, including small business and consumer. Our clients, as I mentioned, have begun to slowly release their liquidity as they gain confidence in a more normal post-COVID world and leverage record levels of liquidity to undertake expansion activities. Third, deeper relationships, more scope. We ended the quarter with $10 million in PPP loans outstanding and essentially all of phase one loans fully forgiven. We're all looking forward to the full forgiveness of the remaining PPP loans yet this year and freeing up our calling officers to return to more normal lending activities, in particular SBA 7A lending that has all but disappeared with the onslaught of PPP and returned to our more traditional levels of $10 to $15 million annually. We have begun internal discussions regarding 2022 budget and business plan and are certainly focused on expanding our presence into growing urban markets of Columbus and Indianapolis. We are confident that our disciplined client calling model and loan prospecting initiatives will yield additional growth opportunities in the coming year. Operational excellence and client care and better communications is our fourth theme. The shift to purchase and construction lending in the mortgage arena accelerated substantially in a quarter, as that volume represented 61% of our total activity. We expect origination volume to remain healthy in the coming quarter and anticipate nearly $600 million in origination for the full year. Our mortgage ecosystem is built for higher production, and the variable here is the number of producers and not necessarily the volume. Expense levels will tend to mirror our mortgage origination volume as we continue to strive to make this business line more variable in operating costs on both the front and the back end. We are in the final stages of implementing a new loan origination and CRM system, and we anticipate operating costs will be elevated a bit in the short term until all operational efficiencies are realized mid-2022. As such, operating leverage for the quarter compared to the prior year is negative. due to the decline in mortgage revenue. However, year-to-date revenue growth of 10.5% is 4.1 times the 2.6 annual expense growth. And finally, before I turn it over to Tony Costantino, our CFO, for more detailed comments, asset quality. We continue to have zero loans in COVID's forbearance, and we feel very positive about the direction of our asset quality. We believe our disciplined approach to Lending during good times, as reflected in our palette of asset quality metrics, has helped us and our client base to withstand the effects of the recent downturn. Our profitability the past seven quarters has also enabled us to continue to build a healthy reserve level to 1.65% of total loans now for a year-over-year increase of 17%. Tony? Thanks, Mark.