SB Financial Group, Inc.

Good morning, everyone, and welcome to the SB Financial fourth quarter 2021 conference call and webcast. I'd 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 from management and then open the conference up to the investment community for questions and answers. Should you need assistance during today's conference call, you can signal a conference specialist by pressing the star key followed by zero. To join the question queue, you may press star and then one. To withdraw your questions, you may press star and two. At this time, I'd like to turn the floor over to Sarah Mekas with SB Financial. Ma'am, please go ahead.

Thank you, and good morning, everyone. I'd 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 Cavanzino, Chief Financial 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 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, sir, and good morning, everyone. Welcome to our fourth quarter 2021 conference call and webcast. Nice to have you with us. Discussing our record performance with you, including $18.3 million in net income, is certainly a a great way for us to wrap up another fantastic year for our company. We acknowledged the environment that kept our clients flush with liquidity and the rate declines that drove mortgage volume and PPP forgiveness that helped our economy, our clients, our industry, and of course, state bank. Our entire team stepped up to assist our clients in navigating this challenging environment. As an organization, we remain fully operational with 95% of our staff on site. We continue to embrace a hybrid operational model, predominantly for those in our residential real estate business line. The flexibility here has been made possible by our highly integrated technology platform in Compass. Simply put, we refuse to be distracted by operational challenges, and we are more eager than ever to get back to the business of doing business. Highlights for the quarter? Net income, 3.3 million, yielding a return on average assets of 0.99% with a pre-tax, pre-provision ROA of 1.22%. Net interest income of 9.1 million was down 1.9% from the prior year as organic year-over-year loan growth and a 31% reduction in interest expense were offset by declining PPP forgiveness. Loan balances from the prior year quarter Excluding the effects of PPP, we're up 18.5 million, or 2.3%. Deposits, up 64 million year-over-year, or 6.1%. We limited expense growth from prior and current quarter to just single digits. Mortgage origination volume was 127 million, down 25% year-over-year. Key asset quality metrics, including non-performing assets at 49 base points, and the limit loans of just And finally, tangible book value is now $17.60 per share, an increase of $1.30 or 8% year-over-year. As with prior quarters, our five key strategic initiatives remain growing and diversifying revenue, more scale through organic growth or when prudent M&A, expanding products and services, in other words, more scope, deploying technology for customized client care and communications, and finally, maintaining that strong asset quality we worked hard to maintain. Revenue diversity. This quarter, mortgage value and loan sale gains were down from the prior year, 25% on volume and 56% on gains. For 2021, we have delivered nearly $600 million in total mortgage origination, down $94 million year over year. Our volume contended to be supported by our newer PCG fixed rate 15-1 product, that we announced in the first quarter of 2021. We closed nearly 76 million of this product for the year. Our team of private bankers has planned to develop deeper relationships with each of these new households with more touches. Managed income decreased to 6.6 million from 8.9 million in the prior year quarter and was flat to the length quarter. The current quarter also includes a mortgage servicing recapture of 581,000 prepared to an impairment of $611,000 in the fourth quarter of 2020. Non-interest income remains strong at 42% of total revenue and 2% of average assets. Even with these headwinds, we managed to deliver operating leverage of approximately one to one. Peak title contributed over $500,000 in revenue for the seventh consecutive quarter for the year The title insurance business contributed $2.1 million to our non-interest income and nearly $500,000 to our net income. As I mentioned last quarter, we intend to leverage this complement deeper into our core operation. This quarter, we established a title office in the Indianapolis market, where we also expanded our presence in the Northwest Ohio and Northeast Indiana market with the purchase of a small title agency in Bryan, Ohio. We expect these expansions to enhance and grow our fee-based business line in our entire footprint, particularly as our title company extends more title services to our state bank clients. Our wealth management team's market expansion and solid retention of client base have enabled us to amass a record level of assets under management at year-end of $618 million. This quarter's assets under management are up 60 million, or 11%, from the prior year, while providing an early A million in revenue for the quarter. For the full year, this business line had revenues of $3.8 million, which is up nearly $600,000, or 18%. Second, more scale. Loan growth slowed a bit this quarter after having grown in excess of $20 million in the prior two quarters. We continued to process PPP forgiveness and ended the year with less than 50 PPP loans outstanding, with a balance of just $2 million. Net of PPP our year-over-year was 18.5 million, or 2.3%. In less than a year of operation, our newest office in Edgerton, Ohio, our loan and deposit balances each exceed 15 million. This organic growth has complemented our Williams County presence that now boasts total loans and deposits of nearly 300 million. Local leadership and an engaged staff are driving that success. Deposit levels, while still up in the quarter, slowed the pace of growth we had seen throughout the past two years. Customer liquidity is still very strong, and we are beginning to see them use some of that liquidity to initiate expansion projects. We expect this to be a key component in a return to normalcy as our clients seek us out for financing their growth plans, allowing us also to deploy bank excess liquidity into higher yielding loans. Third is more scope. As we have discussed for a number of quarters this year, helping customers access government's PPP initiative required us to temporarily decelerate execution of our longer-term vision of becoming a top SBA lender. Now, with both phases of PPP essentially complete, we have reaffirmed our commitment to traditional SBA 7a lending across the entire footprint. We believe our model Calling efforts and lender production rewards will uncover projects that will fit nicely into our risk profile. We intend to retain a number of these smaller government guaranteed loans to bolster our balance sheet and net interest income, yet boost loan sale gains for our larger originated SBA loans. This year represented the fourth consecutive year of internal referrals closed, exceeding 70 million. Without these interdependencies and great inter-business line partnerships, we would not have been able to grow both sides of the balance sheet by over $600 million or 47% in the past five years. Operational excellence and client care remain our fourth key theme. We continue to see a shift in our residential real estate production mix. This quarter, our purchase and construction lending accelerated. Our volume represented 55% of our total activity. For the full year, we originated 51% of our volume from construction and purchase activity and had another 25% from external refinances, a great testament to the strong brand that we built across our footprint that represented 75% of our annual volume from new customers. Expenses grew at single-digit rates compared to both the length and year-ago quarters, which did drive operating leverage lower. These higher expenses are due to increased spending on technology and higher costs to both retain and recruit top talent in each of our markets. Total revenue growth of 3.9% is just slightly below the 4% total expense growth for the year. Establishment of a true contact center in the first quarter of this year will ensure we remain intimate with our client base. And finally, asset quality. Client liquidity and numerous government programs have kept our non-performing levels low throughout the past two years. We did take back a large credit into Oreo in 2020, and we currently have an agreement in place to sell this $1.6 million property. Our strong performance the past two years has also enabled us to continue to build a healthy reserve level, now up to 1.68% of total loan for year-over-year increase of 10%. Non-performing assets to total assets have now declined to 0.49%. And finally, we have certainly worked hard to build our reserve the past several years, and we've neither released nor expect to release reserves anytime soon. And now I'd like to ask Tony to provide a few more details, Tony, on our quarterly and annual performance. Thanks, Mark. Good morning again, everyone.