SBFG - Earnings call transcript Q2 2021 | SB Financial Group, Inc.

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Operator

Good morning and welcome to the SB Financial Second Quarter 2021 Conference Call and Webcast. I would like to inform you that this conference call is being recorded. [Operator Instructions] We will begin with remarks by management and then open up the conference to the investment community for questions and answers. I will now turn the conference over to Sarah Mekus with SB Financial. Please go ahead, Sarah.

Sarah Mekus

you. Thank everyone. morning, Good to live that will over on ir.yourstatebank.com. and like is be conference being available at website broadcast the our remind would this you call archived I Internet and

Mark me Officer; operational may results anticipated Financial Gathman, contain Klein, Joining statements Jon are Chairman, and SB Cosentino, and This CEO; Officer. Lending plans, regarding and President Senior forward-looking objectives. Chief Tony call performance, today Financial’s

uncertainties our number that on based expectations are of management’s to risks a materially or and cause Forward-looking those statements are differ could subject and results call actual expressed to from implied today. on

have to of factors within our update except as any We Financial law encouraged the end which of release, SB the are forward-looking the call. you statement at a this identified by date of earnings to required number obligation forward-looking after no different review. statements undertakes

presented the included Mr. will A will the non-GAAP to Klein. contain to certain financial addition call now to In measures accordance GAAP results call this release. over with I also our earnings of non-GAAP measures. GAAP, financial turn in reconciliation in is

Mark Klein

adjust X.X% in for you, quarter, net small slight and prior impairment Thank average for and X.XX%; prior million, income to impact nearly $XXX,XXX prior Expenses over X.XX%; of $X.X the or were roughly Welcome or income prior over year for quarter ‘XX an from conference nearly $XXX rose $XX.X and lower quarter. non-GAAP highlights for $XXX,XXX call the The ‘XX, included X% income X% up morning for to on million which were PPP when basis, and the mortgage interest balances of $XXX,XXX we year. decrease $XXX was volume the million, $X.X by the $XXX,XXX, the basis. declined the net prior XX% PPP, million interest down Sarah balances interest quarter ROA net year webcast. in the pre-tax everyone. million, XX% over Deposits million were include $XX XX% assets, $XX mortgage but supplemented some the in merger reviewing or up million up the a $X.X costs year. Compared servicing of was was quarter net was and net income adjusted second or year, from due the XX%. a origination year-over-year. Briefly prior our linked – Return from pre-provision quarter good year. rights by from loans to quarter would $X.X a over up were linked quarter million, down XXXX when income of commissions the year-to-date flat. million, or reduction on expense. Loan Mortgage in essentially annualized up On

in we Asset strong. year were Tangible basis quarter growth the million quite status. significant linked all debt a certainly and COVID-related capital successful quality And milestone up in our The that book paying full value achieved us to $XX.XX remains now metrics assets We for have share. $XX as XX strong both remain on of per had closed. returned now finally, is well prepares debt potential raise to subordinated a opportunities. of and non-performing in points the that the forbearances clients level quarter prior

five focus strategic discussed key We have that to believe we of a number that on our those initiatives continue laser for quarters.

more clients and of is with the and all banks quality. excellence in growth, our and to households of performance. Revenue will lead course, with diversity to more and larger peer technology our communications operations We quartile footprint, Delivering foundation asset scope. certainly high-performing of more to leads key, which a a those in top services scale group continue in base, client our course,

revenue a First, bit. diversity

mortgage volume XX% were on loan gains and gains. volume on year, quarter, and from the prior This down XX% sale

total from Columbus million the Indiana. delivered $XXX nearly and origination mortgage third; we volume. X% Northeast and months, region last Central Ohio, delivered XX For in approximately XX%; a Northwest

by variable to fixed million. newer pipeline to-date then fixed bolstered another in rate volume million we the Our PCG XXXX first Closed to and that quarter a product our this is in-house. new XX-year product continues and be of book underwrite $XX $XX X-year

income business million would market Columbus from prior last to an $X.X to at million activity, million assets. PCG volume, remained $X.X year. XX% the of with impairment which strong compared Title, Our pipeline. average for income of the of impetus revenue total This our million, of quarter. they $X.X of fully include quarter XX% of lending the this a year our Non-interest metropolitan deliver decreased technology course, The continue and accounted but line to is is to closing impairment, $X be year-to-date Non-interest of take up year quarter variance share will and clearly to soon. strong integrated Peak I impairment. leverage X% in market as another to $X.X a complement over affiliate, million of rights our a as servicing mentioned, $XXX,XXX strategy electronic includes a for current primarily over to to great servicing residential due the mortgage

this for to out continue We division seek footprint. growth across fee-based entire opportunities our

million. ours banks the loan over year. the the last prior encountered, the quarter, headwinds under linked a significant winding $XX quarter, of growth will to by the as grow million. that management opportunity pandemic as liquidity million quarter in supply compared expansion expands, and prior up XX% represents for quarter remain have in revenue declining showed the milestone loan achieved they a now $XXX accommodated. Wealth from rapidly increase providing scale, demand and With conversations certainly XX.X% rates shift a witnessed interest balances for including and months. nearly linked the nearly officers or We Total to balances, $X.X the activities this under when for the in we improvement Management were From chains at $XXX,XXX assets optimism And over to feel growth clients’ their improvement calling are down quarter. management, the assets our clients year, safety. continue in million regard with over PPP a increase economy $XXX improve while join was adjust XX to PPP that and Our team include all

Our pipelines reflect loan we over have currently XXX requests this optimism over as million. $XXX for

with been $X.X and past into loan X After fifth in expansion have XXX recent pipeline. our months, received. balances County, Our the over accounts just million, $X we now in million of well somewhat transactional we have Edgerton, million market in discussed Ohio that office has for Williams over the another deposit $X.X

with expansion. pleased novo de are We our

to the the base and linked still deposit change in debt raise We business overall from closed by pandemic have status. began up lives liquidity, both in reflect Our the to we as declined quarter I significant which supplemented that earlier. the mentioned our their quarter, clients will and businesses was as retail open

pricing opportunity stronger not sheet we build Although have for balance was did long-term a that our growth critical an and imminent felt the we to the need, initiatives.

million have have that following not Phase now our We forgiven. ended and from X XX million Third, We remaining more for forgiveness applied $X $XX in have original million yet been X $XX just loans first of scope. originated $XX X. quarter the million with phase PPP loans XXX Phase outstanding, of recently the X from in the loans, we the initiated our XXX with Round

our we and our number quarter, have balance This we households potential sheet great expanded to to of continue further. expand

touches. mortgage per single-service to household remain we households, As our in to these current well our intend of due in services and rapid in new onboard rise with part this multiple footprint below households X fully

total highest in significant since as the volume we volume remains percentage although before operational quarter detail reduced fourth touch $XX inventory down and quarter headwinds most the the constrain purchase the of during were our to available a greater our more business year, XX% quarter merger the result this and at Refinance one-time this mortgage year for of from we our Tony or prior production. in Expense was for that have down sale the quarter. mainly the of second market level of was a prior of pandemic. will We Additional excellence levels cost year. The that line encountered theme. XX% activity from continued last realized million achieved construction well

on reinvestment prior in in of to mentioned that interaction. We and path quarters are we technology experience the improve continuing our client

need of digital improve to allow platform to reach our We the clients aware multiple through are and our well channels. us

of believe an in obviously a reserve now eclipsed could moved zero delinquency as from their X.XX%. in our market client-centric even aggressively clearly, in banks to market to the where for environment, overall our role number also of brand. healthy end-market as XXX% continue key banking the low substitute, continue complement have a as end, a digital quarter, remarks, we I to using at non-performing COVID Coverage home that traditional we opening loans, loans all-time to digital had forbearance, We end of a platform share now. away which quality, in markets the of Fifth to dimension levels the at to a my as their is measurement use is our our at approach which portend the and rural indicated begin from capture metric an see different mark end with final stepping I asset portfolio we an a quarter regional growth of

the lending base good We imminent during continue client our our the to approach, times downturn. the effects withstand believe disciplined helped unknown of the that has

X.XX% has increase, the we a year-over-year in now slowing to economy. healthy also for enabled a to of reserve XX%, just four continue to quarters total loans in level profitability case build a Our witnessed up past us

our over our I performance. it on would to detailed turn Tony? like to for CFO, remarks Cosentino, some Tony Now

Tony Cosentino

for $X.XX Again, as indicated, Mark. Good diluted the again, million of per had morning we income, $X.X Mark or Thanks net quarter, share. everyone. GAAP

XX%. a however, – and X.X% agriculture. gains core $X.X lower forgiveness were over continued higher interest decline Some small of $X.X the the activity was as with by in gains portion or XX%. Loan The the were, offset acceleration large down million, business decline XX.X% of deposit was which that nearly offset million fees, income. off on revenue the up sales revenue both was lower mortgage up the or which to quarter, mortgage, able delivered were decline highlights million to wealth variance due funding We and in of in $X.X mortgage from costs, operating Margin PPP $XXX,XXX.

break by basis down basis further Average points quarter due with X.XX%, both from the balance of from mix Overall, to to from the portfolio, the fees points want have the from linked the in quarter. $X.X change income point the was to from yields $X.X statement, the just Now X the down points basis for million by the loan impacted X were PPP basis yields fees compared of quarter $X.X decreased phases year $XXX,XXX It we yield XX in XX million million the initiative. still prior quarter. asset down second from sheet PPP earning were were original starting the unamortized linked We linked of margin. year. the Loan to down which the prior of quarter. and

We this expect of fiscal to will year. these within majority large realized the continue be fees

the On side, liabilities prior interest-bearing year. our we funding from of again cost reduced the the

For to the which excess due ability down points. rate year the interest increase growth. on from the X.XX%. quarter basis a rights. prior were again of Total XX% XX% but years, mortgage the interest XX our Total and XX down X flat from X.XX% impact at was from prior by points, be volume on to million margin lower XX When exclude origination interest-bearing quarter, from expense negative XX points points to the from year, year-to-date servicing from by negative down our down to to of by for the linked cash reduced basis the liabilities basis is loan non-interest million prior the X% the costs remained restraints impact linked the year, by the in was $X.X and second or on was quarter prior margin points Net from margin would the down swing basis year fees and PPP income would additional GAAP basis, linked $X.X basis and the impact both of the reflecting X.XX% quarter XX% we quarter. PPP X.X%. decline And down our

the realized on gain quarter, had quarter, in levels the operation private X% we a the not again. level, will last made level Gain those client end discussed, annual for is the sales X.X%, challenging. in lower in the XXXX. strong took off first of yield bottom line comparisons sale discussed yields that nor we well Coupled I to we mortgage the to our with see the mortgage we and historical levels XXXX sale of has but have strategy As this was quarter high high due reached range which on sales

does points. from now the Our points down the have remaining to quarter from $X.XX the our provided basis rights servicing of This mortgage points quarter. is fair quarter X with now continue Market temporary declined was XX $XXX,XXX. year, basis servicing billion We of calculated basis and at rights impairment value and up million a of a balance of revenue $XX.X and but linked portfolio $X.X million. fair of servicing value prior this slightly grow value XX for

balance a slowdown yet speeds rise a in that allow prepayment to remaining hopeful year. this recapture us are We continued slight this the will curve rate in and

year down quarter linked The $XXX,XXX were year X% prior we expenses, million prior in compared $X.X prior up included costs total would indicated, the the X.X%. were or Edon to merger. operating to flat be or Mark adjust quarter $XXX,XXX the to for year operating costs the related expenses And merger and these this As when quarter.

the which was company. stood look $XXX.X assets XX, at of XX% sheet, the outstandings June at XXXX, total Now turn loan balance the as we million, of to at

from now or As million what continue our growth, that million year. and our has we prior to have XXX% have Absent certainly $XXX nearly be discussed, cash supplement growth. $XXX loan we portfolio. balances of total impacted the some reallocated to deposit have investment asset been above And portfolio is levels up expectations

On Looking in capital are $XXX an at XX% at And slightly the XX above we ratio the equity X.X% million repurchased book tangible tangible shares from XXX% an in loans at million, exclude June continued in XX.X% that basis, into shares improved XXX,XXX these well effective in at non-performing value. of undervalued and still market aggressively of $X.X with pace we reduction The strategy. or a announced quarter XX, our the tangible asset when With our per quality our average our not points large finished only also at portfolio, quarter buyback is the opinion, brisk up the OREO. XX%. from repurchasing reflects at book basis had balances. prices XXXX. our year $X.XX position, or PPP to the price price credit stands a share remaining our movement at was or value prior share up And we a loan to but book, per

reopens, of appraised We this the are marketing will we full property in economy and the process the as value. realize hopeful

in quarter decided As and quarter first reserve are feel puts as and at for level. additional we significant the for we the achieved us Classified the $XX,XXX. provision at said, in the we we our XX%, XXXX, quarter to forego over XXXX the of that were increase appropriate now minimal in down charge-offs net any loans

to the am Mark. turn over call I going back Now to

Mark Klein

want share, to of dividend is my last ratio made which and dividend our week approximately per we announcement XX% of I Tony. a recent conclude payout acknowledging $X.XX X.X%. you, yield Thank a remarks by

our includes audience. to Sarah one opportunities and continue it now form We the of in to our us will And from for of call to value I identify to as certainly questions stock mentioned. dividends. deliberate buybacks, back shareholder Tony enhance turn return shareholders costs capital that the

Sarah Mekus

you, Thank Mark.

additional Now our And to first at I be you we today’s question. are like remind on waiting ready accessible call while ir.yourstatebank.com. website questions, are for for we our will that would

Operator

Please Xia with comes today [Operator first Montgomery question Instructions] Scott. go ahead. from Janney And our Selena

Selena Xia

good Hi, morning.

Mark Klein

Good morning.

Selena Xia

for Brian I questions am Martin. asking

of first sale margin? production mortgage your gain the outlook its and So, on what’s is one

Mark Klein

going would yield. we certainly months borrowers. the trailing we aberrations below $XXX million XX-year the production for are this given this to think $XXX the XX that Again, at Tony be number treasury to year. I still in that accommodative discussed our prior the color. million is come pace pace. into any additional But hopefully very we $XXX are some here million that to can year absent on, Mortgage us Yields would year give that

inventory years. to X year X on course, has we’ve certainly a – for last volume. slow client finally, had going further clientele. bit. we that and in very or robust a an as the And underwrite mentioned quarter, and quite which have prior we to As quarters on XX.X have higher-end opportunity have effect we that refinancing remained is begun this to And a private mentioned, have our to our constrained, of the levels And begun basis

not And will gains, in some of loan have up sale growth. form but the of balance, certainly the our us again, loan balance which, to urban come in markets rather shored

that that additional from ultimately, would say the play to that, literally equation. optimistic maybe we, we prior which Tony, comment? off XX% year But this will year. begun of we’re sides be we’ve on So realized both any probably I

Tony Cosentino

Yes.

I there. think, color Mark, that’s good

our million half units. at look about done we’ve mortgage done about you $XXX first X.X% of If Interestingly, the thus year less this XXXX. for business, versus million far mortgage $XXX we’ve actual

here dollar So size. from to XX% third our volume second item average ticket up down, to quarter would loan has suspect about the our of gone it, $XXX,XXX I quarter think XX% will per that call be mortgage look we type pretty a the at year would our XXXX XXXX. as pipeline. to for full is And X.XX today number accurate as looking range we X.XX sit at I that,

asked think through the then XX the will guess, about, on to the yield I I sale start it we’re side, over probably would quarter points On gain first basis And yields continue decline see to about going also stabilize. XXXX. Selina, you of to quarter, prior

in range going XXXX of that stabilized and probably range in first end we So probably X.XX a X.XX somewhere of stay forward will quarter at the up to

Selena Xia

for the color. Thanks

nice, outlook loan has your so pipeline what’s growth, the So property forward? next going really question is for your been about so growth in quarter this loan the

Jon Gathman

This is Jon.

I think you’re right.

a think quarter trend nice second the for I began us.

build hopefully, third looking very a with a need rates to economy, little looking get materials still is low interest of combination quarter, and a As a bit we the lot There machine lot they of can’t government clients a supplied improving supply has an of whatever do the just optimistic. are at our headwinds are to do. an borrow. they They improving that cash But look to the chain, borrowers. and or we’re of there providing or out

get can the our really in quarter. we of if prospects good So third feel a I of some those, about combination

at C&I all If growth, pandemic, and look had commercial second very you continue or loan to the supply buying we We expect to better maybe investment. else, continue. get our some an a back cash that grow and chain down the real using quarter. and would paying estate up in something through to continue through trend nice grow improvement the or And people yet,

web think now pipeline And call, Tony I shape. as in years. mentioned as good we’re in it’s the probably X.X years, is in been as X strong

Selena Xia

Okay, sounds great.

interest So low. rate would you interest been pretty expect you the as the has to margin increase, mentioned, net

Tony Cosentino

Yes.

we acceleration as think look start I going our of think to see forward, larger QX, PPP a will much at I we fees. NIM Phase X

think here QX. up. going first get a of quarter to fairly a in significantly provide QX, it I down fees boost. will big We had that’s PPP back

PPP million remaining Jon $X.X I the Phase and have will take We a big those fees, there. suspect of portion on would X

days, we’re would large a a growth fairly going we said, think pretty level in the next I period. fund that funding which $XX-plus us pipeline, a of total and XX-day Jon for is strong XX got of in million to As

be see okay, moved we’ve not aggressively. very side. of additive going to amounts rates not clients continue may we that And I been turn large to that even But aggressive moving we’ve that’s will but deposits going And as fairly we potentially out to how think down funding seen So the on margin. be have forward.

Mark Klein

CRE well that Mark. this, changed conversations this maybe think the C&I it’s be I Because some potentially opportunities. as think, times, say, is think And X, speak Selina, have today. more leverage. X, And our clients to pipeline once I going safe clients to literally, Jon again, levered from we liquidity in safety X is and optimism can confirm with that as and there to I as gets our and restraint but seeing we’re plus

Selena Xia

Okay, thanks.

in you mentioned you deposit so inflow do many liquidity, remained have So slow so expect the as as balance? the products down to

Mark Klein

Just another out a clean bite again, of market. of can up. high-level another taken kind comment, this Tony rural But we’ve

lot there regionals. to household larger not we a And think just a scope of so only is of continue little lot growth, more opportunities, household. every from but in we a a But see

Assume real to or But that the and with, household And to rural that clients wild whether a emerge they we’re lever and And the card continue digital here the want liquidity think the as loss as leverage constrain as get of end to the complement. to as optimism into markets platform a will go is mentioned, substitute. attract they spectrum from again, can that to Jon they using might in the continue. a that to whether of other want market anyone liquidity. going we that

speaking, we’ve of a maybe just a that’s the big key. side, case the But do go impending generally think been rates just maturities extending other bit mildly inflationary aggressive in way on midst the in fears. the CD mildly I

But a a our side, change that So world changing the just we’ve to mix might sensitive. hedge sheet. on the we remain clearly, little asset But that balance as asset we be tried bit. in bit

Tony Cosentino

Yes.

our of sheet we a $XX a little to saw our of probably will liquidity, really the be suspect their we a spend start going well. accounts. deposits six then stabilize that’s just bit. million as start had here quarters. we’ve think see to five, of think first that a little the will DDA decline we’ve consumer their in bit seen and I this of similar And QX, I bit spend the quarter, would a in to and think businesses they decline balance to decline is reflective I in money gosh, I some have going total in, it

Selena Xia

see. I Okay.

liquidity in what’s Or the all you outlook excess these for are your loan use going So to this? production? up

Mark Klein

I get the sorry there. repeat didn’t the question Could am question? you I

Selena Xia

Sure.

of or plan using you up liquidity your on excess So that? loan are most the for what’s production

Mark Klein

would now, date. a mentioned, not have loan quality to up total the of like losses Tony as mentioned, that’s the asset and disciplined, losses But pretty we dramatically we it. we’re right Well, reasons where as the I signs and of investment $XX,XXX one in

really we’re So quality our like we asset with positioning, and stingy money pretty our we who loan to.

So And be in that liquidity deployed you of eventually that XX% going million prudently. just a by balance growth which in estimation that sheet. minus is plus again, and Xx lever growth our $XXX clients, if you to or take a leverage yield our is could our mild

clients begin an in and that – opportunities, move with, our asset-sensitive increasing deploy we to loans loans, with the side order benefit. as balance rates someday. with to So liquidity optimistic to remain that’s And to the will – liquidity think our of sheet going higher-yielding asset that in balance increases we potential think, sheet, over albeit market other we

Selena Xia

color. the it. for Thanks got Okay,

last the the question about is reserves. So

there provision quarter, this for despite So no growth. is loan the

forward? ratio reserve So what’s of your outlook going

Tony Cosentino

Yes. This is Tony.

XX%. look at at quarter, up this we As year PPP, allowance XXX versus the a ago, our net XXX of

as I Given downside. and in our said lack call, of actual losses, well any we’re prepared the COVID deferrals think for – Mark

a percentage standpoint, wouldn’t as growth. type range. that to I we dramatically manage will growth loan to forward somewhere loan how are in from X.X different we’d stance our where we levels I But go current our allowance we X.X we be relative from prudent think and be with think about our

Selena Xia

appreciate Thanks. I that. Okay. really

Tony Cosentino

you. Thank

Mark Klein

Thank you.

Operator

to I would to conference any our Mark turn like session. concludes This closing question-and-answer Instructions] back Klein remarks. [Operator for the over

Mark Klein

what again, Yes. Once everyone, going thanks, I’m excited quarter the next to joining. about for bring. is

reporting Take care. We have and quarter. to week. again, and third October in those forward have for great a looking we’re optimism, lot results of on a Thanks

Operator

conference has now presentation. concluded. Thank for attending today’s The you

You now disconnect. may

SB Financial (SBFG) 27 Jul 212021 Q2 Earnings call transcript