SB Financial Group(US:SBFG)2021-10-30 05:24Financial Data and Key Metrics Changes - For Q3 2021, net income was $4.1 million, yielding a return on assets (ROA) of 1.23% and a pre-tax pre-provision ROA of 1.63% [6] - Net interest income increased by 8.3% year-over-year to $10 million, driven by PPP forgiveness, loan growth, and a 35% reduction in interest expense [6][14] - Total assets and total deposits expanded by nearly double-digit percentages year-to-date, with a decline in delinquencies to an all-time low [5][21] - Tangible book value rose to $17.55, an 11.6% increase year-over-year [7] Business Line Data and Key Metrics Changes - Mortgage origination volume decreased by 24% year-over-year to $153 million, with loan sale gains down by 51% [8] - Non-interest income fell to $6.6 million from $10.4 million in the prior year quarter, but was slightly up compared to the linked quarter [9] - Wealth management revenue increased by nearly 19% year-to-date, with assets under management up by $66 million or nearly 13% from the prior year [9] Market Data and Key Metrics Changes - Loan balances, excluding PPP effects, increased by $21 million or 10% annualized from the linked quarter [6] - Deposit levels continued to grow, with a quarter-over-quarter increase of $21 million and a year-over-year increase of $97 million [6][10] Company Strategy and Development Direction - The company focuses on five key strategic initiatives: diversifying net revenue, expanding scale organically and through M&A, enhancing product offerings, deploying technology for client care, and maintaining asset quality [8] - The company aims to capture market share in rural markets and expand into urban markets like Columbus and Indianapolis [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about loan growth, with a pipeline of $90 million to $100 million and expectations for continued client engagement and expansion [31][34] - The company anticipates a shift in mortgage production towards purchase and construction lending, which represented 61% of total activity in the quarter [12] - Management expects to see a decline in refinance volume from 45% to approximately 30% in 2022, impacting origination levels [29] Other Important Information - The company announced a dividend of $0.115 per share, equating to a payout ratio of roughly 21% and a dividend yield of approximately 2.4% [23] - The company repurchased 107,000 shares at an average price slightly above tangible book value, with 520,000 shares remaining in the buyback program [42] Q&A Session Summary Question: Outlook on mortgage production and gain-on-sale margins - Management expects to maintain mortgage production between $600 million to $650 million, with gain-on-sale margins settling in the mid-2% range [28][29] Question: Thoughts on expenses moving into 2022 - Elevated expenses are anticipated due to increased headcount and technology investments, but the company has shifted to a more variable cost structure [30] Question: Outlook on loan growth - Management is optimistic about loan growth, with a target of $75 million to $100 million and a robust pipeline [31][34] Question: Drivers on margin and future expectations - Funding costs are expected to remain stable, while asset yields may improve by 5 to 10 basis points over the next few quarters [36][37] Question: Update on PPP revenues - The company expects to realize the remaining PPP fees by the end of the year, with minimal loans left [38] Question: Thoughts on balance sheet and deposits - The company is seeing increased client interest in leveraging liquidity, leading to a positive outlook for future loan production [40] Question: Share repurchase program and future strategy - The company plans to continue its buyback program aggressively, viewing it as a strong use of capital given current earnings [41][42] Question: M&A activity and market opportunities - Management is engaged in discussions for potential M&A opportunities but remains disciplined in their approach [45][46]