Earnings call transcript: SB Financial Group beats Q2 2025 expectations

SB Financial Group Inc. (SBFG) reported stronger-than-expected earnings for the second quarter of 2025, driven by robust loan and deposit growth. The company’s diluted earnings per share (EPS) came in at $0.60, surpassing the forecasted $0.54, marking a 28% increase year-over-year. Despite the positive earnings surprise, the stock saw a slight decline of 0.35% in after-hours trading, closing at $19.80.

Key Takeaways

• SB Financial’s Q2 EPS of $0.60 exceeded expectations by 7.41%.
• Revenue reached $17 million, bolstered by strong net interest and noninterest income.
• The stock price fell 0.35% in after-hours trading, despite the earnings beat.
• Loan and deposit growth were significant, with increases of 8.9% and 12% year-over-year, respectively.
• The company anticipates continued growth in the mortgage market and potential margin expansion.

Company Performance

SB Financial demonstrated solid performance in Q2 2025, with net income reaching $3.9 million. The company’s strategic focus on expanding its market presence in key regions such as Columbus, Cincinnati, and Indianapolis has contributed to its growth. Moreover, the addition to the Russell 2000 Index reflects its strengthened market position. The company’s diversified revenue streams, particularly in mortgage and title services, have outperformed the market, indicating robust asset quality metrics.

Financial Highlights

• Revenue: $17 million, driven by a 25% increase in net interest income and a 15.1% rise in noninterest income.
• Earnings per share: $0.60, up 28% year-over-year.
• Tangible book value per share: $16.44, a 7.7% increase year-over-year.
• Loan growth: $90 million, an increase of 8.9% year-over-year.
• Deposits: $135 million, up 12% year-over-year.

Earnings vs. Forecast

SB Financial’s actual EPS of $0.60 exceeded the forecast of $0.54, resulting in a 7.41% surprise. This marks a consistent trend of exceeding market expectations, as the company continues to leverage its strong financial performance and strategic initiatives.

Market Reaction

Despite the positive earnings report, SB Financial’s stock experienced a slight decline of 0.35% in after-hours trading, closing at $19.80. This movement is within the context of the stock’s 52-week range of $14.24 to $24.48. The broader market trends and investor sentiment may have influenced this modest decline, as investors digested the company’s future prospects and market conditions.

Outlook & Guidance

Looking forward, SB Financial anticipates positive resolutions in nonperforming credits in Q3 and potential for continued margin expansion. The company projects mortgage volume to reach between $300 million and $400 million, supported by a strong pipeline. Additionally, the dividend remains at $0.15 per share, yielding 3.16%. InvestingPro’s comprehensive analysis indicates an overall Financial Health score of "FAIR," with particularly strong marks in relative value and price momentum. Discover detailed insights and access the full Pro Research Report, part of InvestingPro’s coverage of over 1,400 US stocks.

Executive Commentary

CEO Mark Klein expressed optimism about the company’s future, stating, "We remain very encouraged by our potential to deliver a strong performance in the second half of twenty twenty five." CFO Tony Cazantino highlighted the company’s effective deposit retention strategy, noting, "Our ability to retain deposits and not having to chase yield on the funding cost has been effective."

Risks and Challenges

• Competitive pressures in commercial lending could impact growth.
• Potential market disruptions may pose challenges to expansion efforts.
• Macroeconomic conditions, including interest rate fluctuations, could affect mortgage market performance.
• Regulatory changes could impact operational costs and strategic initiatives.
• Dependence on regional market expansion may expose the company to localized economic downturns.

Q&A

During the earnings call, analysts inquired about the company’s outlook on the mortgage market and potential interest rate reductions. Executives expressed optimism, citing a strong pipeline and anticipated loan growth. The discussion also touched on the potential for net interest margin expansion to reach 3.70% and minimal provision expenses expected in the second half of 2025.

Full transcript - SB Financial Group Inc (SBFG) Q2 2025:

Conference Operator: Good morning and welcome to the SP Financial Second Quarter twenty twenty five 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 Meakis with SB Financial. Please go ahead, Sarah.

Sarah Meakis, Investor Relations, SB Financial: 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 Cazantino, Chief Financial Officer and Steve Walls, Chief Lending Officer. Today’s presentation may contain forward looking information, Cautionary statements about this information as well as reconciliations of non GAAP financial measures are included in today’s earnings release materials as well as our SEC filings. These materials are available on our website and we encourage participants to refer to them for a complete discussion of risk factors and forward looking statements.

These statements speak only as of the date made and SB Financial undertakes no obligation to update them. I will now turn the call over to Mr. Klein.

Mark Klein, Chairman, President and CEO, SB Financial: Thank you, Sarah, and good morning, everyone. Welcome to our second quarter twenty twenty five conference call and webcast. We clearly approached this year with a fair bit of optimism that included favorable funding costs associated with our Marblehead acquisition, a much larger balance sheet from an expanded market presence and a stable team of seasoned lenders, all bound by an improving economic environment. Well, six months in, we have met and exceeded our expectations. On a go forward basis, we have positioned ourselves quite nicely to continue our trends and to outperform our peers in the second half of this year.

For this quarter, net income was $3,900,000 with diluted earnings per share of $0.60 up zero one three dollars or nearly 28% compared to the prior year quarter. When considering the servicing rights recapture, adjusted EPS was $0.58

Brian Martin, Analyst, Janney Montgomery: for the

Mark Klein, Chairman, President and CEO, SB Financial: quarter. Tangible book value per share ended the quarter at $16.44 up from $15.26 last year or a 7.7% increase. Net interest income totaled $12,100,000 an increase of over 25% from the $9,700,000 in the second quarter of last year. From the linked quarter, net interest income accelerated at a 30% annualized pace. Loan growth for the quarter was approximately $90,000,000 up 8.9% from the prior year and marking the now fifth consecutive quarter of sequential loan growth.

Deposits grew by over 12%, including Marblehead deposits of £51,000,000 Excluding Marblehead deposits, deposit growth would have been approximately 7.5%. Importantly, the deposits from Marblehead have remained nearly 100% intact just six months after the acquisition. Collectively, this quarter assets under our care now exceed $3,500,000,000 This includes our bank assets of $1,500,000,000 our residential servicing portfolio of approximately $1,500,000,000 and wealth assets under our care of $537,000,000 It is this scale and revenue diversity that have driven our performance to a higher level. Mortgage originations for the quarter were just short of $98,000,000 up from both the prior year and linked quarters. Our pipeline remains strong at nearly $34,000,000 reflecting continued momentum from our recent investments in more high producing MLOs.

Operating expenses decreased approximately 4.5% from the linked quarter as the first quarter was elevated due to onetime conversion costs we discussed in prior quarters. Charge off levels returned to more historic levels in the quarter at less than two basis points, and our remaining asset quality metrics were consistent with the linked quarter. And finally, we were pleased to be added to the Russell two thousand Index once again during the recent rebalancing. This milestone reflects the market’s recognition of our strong financial performance, our commitment to organic growth and overall brand value. We continue our relentless focus on our strategic five key initiatives as we’ve discussed in many quarters before: revenue diversity with balance between NIM and fee based revenue organic growth, more households more services in households to gather greater scale and efficiency improvement deepening client relationships, operational excellence and top tier asset quality.

Revenue diversity. As I noted earlier, our mortgage group delivered a strong rebound in the second quarter with mortgage origination volume of approximately $98,000,000 Despite a slow start to the year, we believe borrowers have become more accustomed to the current rate environment, leading to increased purchases as well as a bit of refinancing activities. We’ve also benefited from our expanded team of mortgage professionals in Cincinnati and Indianapolis. I want to highlight our Indianapolis Team, which delivered its most successful quarter of production since inception in the first quarter of twenty nineteen. They have an experienced team, and we continue to be not only very high on that staff, but that market as well.

We remain committed to the residential real estate business line as it continues to provide us with entry points into a variety of growth markets within Central And Southern Ohio, even as we work to strengthen our core markets in Northwest Ohio and Northeast Indiana. As with prior quarters, we’ve continued to evaluate our efficiency and capacity utilization and have hit pause, as we’ve mentioned in prior quarter, on adding any additional support staff until volume levels approach at least that $400,000,000 annual production mark. Overall, we still have ample room to grow within our current infrastructure. As I mentioned, our pipeline currently stands at $34,000,000 which would point us toward our third quarter production to be well in line with the $98,000,000 we delivered this quarter. Clearly, the quarter continued the pace of being a dominant purchase market.

In fact, $98,000,000 in volume, just 4,000,000 As a result, 82% of our volume this quarter was purchased transactions and right in line with the year to date purchased transaction volume. Interestingly, now with over 8,900 mortgage households we service across our 16 county footprint and with just approximately two services per mortgage household, our potential to drive organic expansion with more products and services remains clearly front and center. Noninterest income was up 15.1% from the prior year quarter at $5,000,000 and up 22.9 from the linked quarter. The increase from the 2024 was driven by increased gain on sale of mortgage loans and mortgage servicing rights as well as increased title service fees and other related revenue. Again, this quarter, our peak title affiliate outperformed the mortgage market in general and delivered revenue growth from every region.

Year to date, they have now closed five sixty four transactions, which is up over 34% from the first six months of twenty twenty four. They have exceeded our budget expectations by 27% and continue to be a valued part of our product suite. We have now discussed our wealth management division in a few quarters with the level of market volatility and some unexpected annuitizations and amortizations of several relationships having affected their ability to add net asset growth this year. However, we continue to feel this business line is additive to our brand and a true differentiator to a $1,500,000,000 community bank. Overall, clients have remained very loyal, and our pursuit of our holistic client care model allows us to add one more service to our approximately 39,000 households.

In addition, we are poised to announce a new strategic partnership in the coming quarter that will deliver more managerial and operational resources to the business line that will not only benefit our current client base but will also potentially add more depth to our financial adviser skill set. On the scale front, as we completed our first full quarter of operations following the Marblehead acquisition, we were pleased with the overall integration of their staff with State Bank’s team and their ability to retain legacy relationships with their loyal client base and deep community connections. This acquisition underscores our ability to balance relationship driven organic growth with targeted M and A opportunities. Deposits were up year over year, but down slightly from the linked quarter. Compared to the second quarter of twenty twenty four, total deposits were up $135,000,000 or 12%, reflecting our ability to drive deposit relationships in parallel with extensions of credit.

Excluding the $51,000,000 in deposits from the acquisition, deposits grew by $84,000,000 or 7.5%. For the linked quarter, we saw balances decline by 21,000,000 as a portion of the seasonal public fund balances were distributed, as we mentioned in the prior quarter. That said, we continue to have very positive conversations with clients and prospects alike on the treasury side as the current disruptions in our markets are opening up other opportunities to attract new commercial deposit relationships. As I mentioned, overall loan growth continues to be strong. When compared to the second quarter of twenty twenty four, our loan book grew $89,000,000 or approximately nine percent and $6,400,000 nearly 1% from the linked quarter.

Adjusting for Marblehead, loan growth would have been $71,000,000 or up 7.1% from the prior year. Our loan growth, coupled with stable funding costs that Tony will detail in a bit in our webcast, drove our net interest margin this quarter up 36 basis points to nearly 3.5%, which is the highest level we’ve experienced since the fourth quarter of twenty twenty two. Columbus has continued to provide positive momentum and is driving the bulk of our loan growth. That market is still very competitive, but our four commercial lenders have ramped up their calling efforts substantially in order to counter the competitive landscape. Our work to adjust our sales has led to our Columbus team adding new high end relationships that will continue to drive growth beyond the $400,000,000 loan book that we currently serve in that robust market.

In terms of deepening existing relationships, more scope, more services in each household, We clearly take pride in the strength of our client relationships and remain focused on delivering the products and services our prospects want while deepening relationships through innovative solutions that existing clients need. As a key element of that commitment, we continue to expand our hybrid office model that is geared to providing connectivity with clients through multiple communication channels and yet assist us with improving our operational efficiency. This is the exact model that will enable us to take market share in our newer expansion markets of Angola, Indiana and soon to be Napoleon, Ohio. Additionally, we have heightened our pursuit of organic growth within our legacy markets that are experiencing significant disruption, including acquisitions, office closures and or consolidations. As these local market dynamics shift, we contend that customers will seek stability and care from an established partner like State Bank.

In fact, to capitalize on this disruption and ensure regional and business line execution of our growth plans, we have identified specific corporate initiatives and regional growth goals. These measurable plans are designed to deliver us a greater percentage of the market that just might become available over the next twelve to eighteen months as the crack in the landscape widens. With regard to operational excellence, compared to the prior year, commercial real estate loans grew by approximately $91,000,000 consumer loans increased by over $12,000,000 C and I loans decreased by $3,400,000 and agricultural loans also decreased by $3,400,000 As we review our total production, both on and off balance sheet, we delivered $166,000,000 in loan volume across all business lines, which was up nearly 41% from the second quarter of twenty twenty four. Despite some short term softness in the ag production arena, we remain quite positive on our ability to bolster long term growth. Client loyalty remains high as is our ability to customize solutions for our ag producers.

Finally, we remain significant depository relationships with our client base that will undoubtedly open up more lending opportunities as capital needs arise. And finally, asset quality. We continue to reveal high levels of asset quality metrics. Charge offs fell to less than two basis points from a slightly elevated quarter elevated in the first quarter. Nonperforming assets totaled $6,200,000 and we remain focused on maintaining that strong asset quality as demonstrated by our continued management of our criticized and classified loans, which stood at $7,200,000 up just slightly from 7,100,000.0 in the linked quarter.

Our allowance for credit losses remained robust at 1.43% of total loans and provided 265% coverage of nonperforming assets. We continue to feel strongly that the credits that deteriorated in the 2024 will be resolved in the short run with minimal financial impact. Resolving these credits will not only improve our asset quality metrics, but will also be accretive to our earnings with recaptured interest and fees. Now I’d like to turn the call over to Tony for a few more comments on our quarterly performance. Tony?

Tony Cazantino, Chief Financial Officer, SB Financial: Thanks, Mark, and good morning, everyone. Let me just outline some additional highlights and details of our second quarter results. First, an income statement review, starting with the net interest income. Interest income has been the center post of our revenue expansion thus far in 2025 and our results this quarter reflect that growth. Specifically, our revenue from earning assets was $18,500,000 up $2,800,000 or 18% higher than the prior year.

From the linked quarter, the growth was $1,100,000 which is a 25% annual growth rate and bodes well for our results in the second half of this year. Interest expense is also higher, but at a much lower level than the top line. For the quarter, interest expense was $6,300,000 up 344,000 from the prior year or less than 6%. The yield on our interest bearing liabilities is actually down from the prior year at 2.33% compared to 2.48% a year prior. As we look at non interest income, non interest income rose from both the prior year and the linked quarters with a percentage of non interest income to total revenue moving more in line with our historical averages at 29.4%.

We did see the gain on sale of mortgage loans, title insurance and other revenue contributing meaningfully to the year over year improvement illustrating the value of a diversified revenue stream. Our total mortgage banking contribution this quarter of nearly $2,200,000 was the highest since the first quarter of twenty twenty two. We continue to utilize the hedging program, which allows us to not only maximize gain potential, but also to minimize our rate exposure as the pipeline expands. The gain on sale yield thus far in 2025 is 2.13%, which is up from 2024 and just slightly below the historic average. Our sale percentage of originations of nearly 83% is ideal for the profitability model we need in this business line.

Operating expenses decreased compared to the linked quarter as the $725,000 of merger costs were accrued last quarter. As we compare operating expenses to the prior year, higher volume and inflation have resulted in the quarterly expense level of $11,900,000 to be higher by $1,200,000 or 11%. However, in concert with revenue growth from the prior year quarter of March or 22%, our operating leverage was a strong positive two times. Turning now to the balance sheet, beginning with loans. Loan growth continues on a positive trend line quarter over quarter.

In addition to CRE, which has provided the bulk of our growth, we have been pleased traditional consumer loan balances have grown over 18% as compared to the prior year. We have seen success with not only HELOCs, but also with selective targeted growth in used autos and marine lending. Our loan to deposit ratio moved up slightly in the quarter to 88%, up from 86% in the linked quarter. We are very comfortable with our liquidity position and we can easily move to the mid-90s with our on hand liquidity of over $75,000,000 without driving funding costs higher. On deposits, as we had discussed in our webcast last month, our threethirty one deposit base had approximately $60,000,000 of transitory deposits primarily from the public entities that we service.

We expected that a large proportion of these funds would move back into these communities and our deposit levels would move lower to just slightly above 1,200,000,000.0 All of our deposit categories have moved higher since a year ago. And as Mark indicated, we are extremely pleased with the retention we have seen from the Marlborough Head deposits. Finally, a comment on our balance sheet betas as we are hopefully approaching the beginning of a downward rate cycle. Since the third quarter of twenty twenty four, our loan beta is 16 basis points, nearly equal to our cost of funds beta of 19 basis points. Concerning capital management, during the quarter we repurchased 124,000 shares at an average price of just under 19, roughly 113% tangible book and 91% of tangible book adjusted for AOCI.

As Mark mentioned, tangible book value per share was up 7.7% year over year and was up from the linked quarter by $0.65 driven by $1,400,000 benefit on AOCI, higher earnings and a slight reduction in share count. And finally, on asset quality. Total delinquencies were slightly lower than the linked quarter at 51 basis points with the bulk of that reduction in the ninety day plus category. And total provision expense for the quarter, 597,000 driven by a higher level of unfunded commitments and a slight weakening in the CECL economic factors, which drove our provision level higher. Optimistically, the second half of the year may move provision lower if the non performing credits that Mark referenced are resolved in our favor as we anticipate and the economic metrics improve.

Our allowance increased this quarter to $15,600,000 and we feel it is more than adequate based upon our underwriting strength and the anticipated level of growth in our loan portfolio. I’ll now turn the call back over to Mark.

Mark Klein, Chairman, President and CEO, SB Financial: Thank you, Tony. We certainly remain very encouraged by our potential to deliver a strong performance in the second half of twenty twenty five. We anticipate positive resolutions to several nonperforming credits in Q3, and our expense base has stabilized. With continued solid loan growth and the expectation that funding costs will be stable to slightly lower, margin expansion should continue. Also, we believe that the likelihood of rate reductions in the near term has the potential to further expand our residential mortgage volume.

We announced a dividend this past week of $0.15 per share, equating to approximately 3.16% yield and 25% of our earnings, which as Tony mentioned, is in line with our long term average of approximately 30%. We have consistently raised our payouts annually since we restarted the common dividend over twelve years ago. In closing, we remain quite pleased with the potential to grow our expanded region with the addition of Marblehead, and we are aggressively pursuing growth in markets where our competition presents us with more opportunities. We intend to focus on driving our organic balance sheet growth while maintaining discipline on operating efficiency, cost management and potentially opportunistic acquisitions. Now let’s open the call up for questions for us for the second quarter.

Sarah?

Sarah Meakis, Investor Relations, SB Financial: Thank you. We are now ready for your questions.

Conference Operator: Thank Today’s first question comes from Brian Martin at Janney Montgomery. Please go ahead.

Brian Martin, Analyst, Janney Montgomery: Hey, Good morning, guys.

Mark Klein, Chairman, President and CEO, SB Financial: Good morning, Brian.

Brian Martin, Analyst, Janney Montgomery: Hey, Mark. Maybe you could just start with just two short comment on just on the mortgage outlook. It seems pretty optimistic given, you know, you called out Indy. But just kind of getting back to at least for the full year, kind of getting back to around $300,000,000 or $300,000,000 plus, that seems pretty achievable as you sit today given the potential for lower rates and kind of the momentum in Indy. So maybe just a little comment on that, if you could.

Mark Klein, Chairman, President and CEO, SB Financial: Yes, absolutely. We have approximately, I think, eight or 29 MLOs. They’re high producers. We’ve got the backroom to support them. Really, two of our higher potential markets of Cincinnati and Indianapolis are just gaining traction.

Their potential is, as you might expect, is quite high. And we’re very bullish, not only, as I mentioned, on the teams but also the markets. So I continue to remain very optimistic. And if we get a little play, Brian, on the ten year, we could see that magical 400,000,000 number and beyond because as Tony and I have talked before, bottoming at $216,000,000 a year ago, we think it’s just going to be the impetus to getting back to more of that $500,000,000 that we’ve always contended we’re built for. So remain optimistic with the number of producers, and we certainly have the backroom to pull it off.

And I think Tony has done a really nice job on the hedging position that we take, which really allows us to forward contract and make commitments with a pretty high pull through from all of our lenders and all of our markets.

Brian Martin, Analyst, Janney Montgomery: Got you. Okay. That’s helpful. Just, Tony, the gain on sale margin pretty consistent with where it’s kind of been nothing no big movement one way or the other on how we think about that?

Tony Cazantino, Chief Financial Officer, SB Financial: Yes. I think it we were down just slightly maybe from historical. I think generally pricing has been a little tighter this year. I do think it’s going to be in that $2.15 to 2.25 range on out for the rest of 2025 and into 2026. That seems to be where the market is kind of settled at this point.

Brian Martin, Analyst, Janney Montgomery: Got you. Okay. And then maybe just a little bit, whomever on just the optimism on the loan growth that was about what, I think $8,000,000 for the quarter. I guess just in thinking about the back half, it sounds like you’re pretty optimistic. So just kind of the run rate picking up from here sounds like it could be, I don’t know, there were maybe payoffs in the quarter or just maybe slowed this quarter down a little bit.

But just what’s the pipeline look like and kind how you’re thinking about the next twelve to eighteen months on the loan growth side?

Mark Klein, Chairman, President and CEO, SB Financial: Yes. Steve can certainly chime in here. But as you know, Brian, as you’ve heard a number of quarters, Columbus remains the shining star. We continue to find great traction in CRE in that market. C and I is a little harder to come by.

But again, we’ve got a number of seasoned commercial lenders. We just announced a plan to take market share from the disruption, as I mentioned in the webcast. And we’re clearly optimistic that not just Columbus, but other regions like Toledo and Findlay and Fort Wayne will be additive to that number. So we remain quite optimistic. And I know Steve works directly with all of our lenders, and I think we’re seeing, Steve, some opportunities, but also a bit more competitiveness.

Steve Walls, Chief Lending Officer, SB Financial: Yes. No question, Mark. I think we remain optimistic about the run rate. Certainly, Brian, that we’ve enjoyed here. As Mark pointed out, we do have a strong season lending team that that, we we aggressively call.

There isn’t necessarily a secret sauce to to how we’re doing this. We remain confident that we will continue to deliver those results. As Mark points out, competition is definitely stiff, but, it’s not something we shy away from. We’re confident when we walk in the door. So I I think the run rate we’re on right now remains sustainable.

Brian Martin, Analyst, Janney Montgomery: Okay. And the pipeline today, where does that stand relative? Like if you look at last quarter, this quarter? And were there any payoffs in the quarter that kind of clipped this quarter a little bit slower than maybe I thought it would be? Or is it that just, like you said, more competition related?

Steve Walls, Chief Lending Officer, SB Financial: There were some modest payoffs, Brian. Nothing I would say is Out of ordinary? Yeah. Nothing too out of the ordinary. We had a couple of things we expected to draw a little more in this quarter that were somewhat delayed by borrowers’ cash, but I think we remain very comfortable with our pipeline.

Mark Klein, Chairman, President and CEO, SB Financial: And Brian, just to comment, we certainly have a number of sizable credits that, again, we continue to stumble upon as we’ve identified disruption in the market. So we’re well prepared to take advantage of the opportunities that are out there in the marketplace.

Tony Cazantino, Chief Financial Officer, SB Financial: And I’ll just add on, Brian. I think as we’ve said in the past, we probably have 40 ish type million of undrawn construction type projects that, those loans are closed. We have no issue with those, that are going to fully fund here between now and call it for second quarter of twenty six. So we think that’s a baseline of call it 10,000,000 to $15,000,000 a quarter of volume that’s going to fund up. That’s in addition to kind of our regular calling and new activity that we’ve got on the street.

Mark Klein, Chairman, President and CEO, SB Financial: The the nice thing, Brian, last comment. Nice thing is as our rates adjust on credits that are rolling to to maturity, they’re rolling to a higher rate. And the good part is they’re gonna have to pay the same number somewhere else. So they’re staying put, which has allowed us to do what we’ve said we’ve done on the NIM expansion.

Brian Martin, Analyst, Janney Montgomery: Right. That which is what my just one question here. Just on the on the outlook, it sounds like the margins got a nice tailwind, Tony, or just the cost of deposits and cost of funding is pretty stable here absent some Fed action. That feels like it’s stabilized. Maybe there’s a little room for incremental improvement, but the continued repricing within the loan book and remix of the bonds still seems like that the margins got a bit of a tailwind.

And just kind of thinking over the next couple of quarters kind of where you see the margin kind of more stabilizing once you get continue to get a little bit of benefit here.

Tony Cazantino, Chief Financial Officer, SB Financial: Yeah. I think rightly or wrongly, I’ve underestimated how much the margin has improved for us, in the last, call it, three, four quarters. It has outpaced us. I think our ability to retain deposits and not having to chase yield on the funding cost has been effective. And we’ve retained, don’t know Steve, probably 90% of everything that’s rolled over because our pricing on three and five year FHLB repricing is not that demonstrably far from what the market is.

So those customers are naturally rolling up the curve. We continue to have we’re fairly short term on our loan book. So we continue to have, call it, 100,000,000 to $150,000,000 out every twelve months that’s going to reprice at least for the next year and a half to two years. That’s going to move up, call it, 150 to 200 basis points. So if we’re able to retain those and keep funding costs where they are, you’re right, margin has to have forward momentum.

Brian Martin, Analyst, Janney Montgomery: Okay. And just a longer term, like, Tony, where do you think the margin can stabilize given kind of the the the environment we’re in today is obviously much better than it has been. You know, where do you see it kind of, you know, flat lining once you kind of continue to get through some of the potential benefit we get from kind of the rate environment we’re in.

Tony Cazantino, Chief Financial Officer, SB Financial: Yeah. I think we’re probably up another 10 ish basis points here in Q3 and probably it probably peaks out at, call it, at $370,000,000 number. And if we can hold a $370,000,000 margin on our balance sheet, that’s going to be a great day. I do know funding pressure is going to come. There’s no question in my mind, The disruption in the market, as Mark talked about, I think there’s some easy, movement our way, but there’s going to be movement from competitors to tighten that up.

Brian Martin, Analyst, Janney Montgomery: Yeah. Okay. And you guys talked about some improvement on the credit side, those credits that came on early last year. So I guess the that’s the potential to maybe see a little bit of lift in, you know, or benefit on the on the on the provision side if you get some recoveries. Is that kind of how you’re thinking about it, at least in the in the short term?

Tony Cazantino, Chief Financial Officer, SB Financial: Yeah. I think, you know, by even a a fairly conservative estimate, we feel we’re gonna drop nonperforming by 1,500,000 or so here in q And in addition to kind of recapture, as we talked about interest and fees, we think that dynamic is going to give our overall asset quality significant opportunities that, you know, I don’t know that we’ll be taking reserve back, but we certainly, in all likelihood, you know, we put a million dollars aside thus far in provision through the first six months. I just don’t see that pace in the second half of the year.

Brian Martin, Analyst, Janney Montgomery: Yeah. If credit holds and you get some of this benefit, more just lift there. So okay. But the reserve kind

Tony Cazantino, Chief Financial Officer, SB Financial: of reserve We don’t anticipate any losses really from you know, of any consequence from now to the end of the year.

Brian Martin, Analyst, Janney Montgomery: Gotcha. And that reserve coverage, Tony, just kinda keep it I guess, absent any macroeconomic change, just kinda keep that pace worth at the reserve coverage level?

Tony Cazantino, Chief Financial Officer, SB Financial: Well, it’s gonna yeah. It’s gonna naturally go up. I mean, it’s probably gonna be in the mid threes by the time we finish just because the denominator is gonna change in our favor. So you know? But I would I would guess the allowance stays in that fifteen six to fifteen nine range, you know, through the end of the year and probably the first half of twenty twenty six, depending on how things look.

Brian Martin, Analyst, Janney Montgomery: Got you. Okay. And then last, maybe just on the capital optionality, I guess, as far as repurchasing shares, looking at M and A, kind of I know the industry has seen more pickup in M and A of late. Just wondering how you’re thinking about M and A versus buyback versus just organic deployment into loans.

Mark Klein, Chairman, President and CEO, SB Financial: Yes. Just one comment, and Tony can certainly weigh in on that one, Brian. But on the M and A front, we keep our ear to the ground for opportunities. We’re looking at potentials as we kind of speak. We love organic growth, but that doesn’t mean that there’s not going to be some opportunities out there.

We know that’s not going to be the panacea, so to speak, to the scale issue that everyone’s having. But that said, we continue to look at all angles. But clearly, we have some with our capital structure, we have certainly opportunities to do some of that. But Tony, comments?

Tony Cazantino, Chief Financial Officer, SB Financial: Yes. I think I would say we had an oversized amount of the buyback in the second quarter given where the pricing was on the stock and what we felt was the opportunity. I think collectively, Mark and I have looked at it, we’re probably going to slow that down here in the third quarter because I do think we have some alternative opportunities. Not that we have any, you know, capital deficiency. Think capital is just fine.

But I think we do have some opportunity not only for organic expansion as we’ve discussed, but I think there’s some conversations that we need to maybe keep capital, you know, at or above where it is today.

Brian Martin, Analyst, Janney Montgomery: Got you. And then last one for me, on the expenses. It sounds like a really nice job on that front. Just any big changes to the kind of the run rates where we’re at today in terms of I know you talked about not adding some staff to the mortgage, obviously, if you don’t get a little bit more scale. But elsewhere, kind of investments, you know, this level is reasonably good, maybe a little bit of growth from today’s level.

Just, any thoughts there and

Mark Klein, Chairman, President and CEO, SB Financial: Well, clearly, Brian, as we’ve communicated many quarters, we got a variable based compensation plan across the board. We do well. Our staff does well. That’s including nonmortgage producers. But clearly, as mortgage production rises, expenses will go up.

But moral story is the scale that we’ve realized of recent is certainly helping us to deliver a better ROA at that nearly that 1% level and higher, which is certainly the long term goal always. But that said, we continue to fight that battle because expenses aren’t going to go down and certainly technology continues to drive our expense level up. But that said, we know what the job to be done is, and that’s organic growth at most cost. So we’re optimistic about where we’re at today, and and we think we can continue to drive performance higher.

Brian Martin, Analyst, Janney Montgomery: Got you. Okay. I think that’s all I had guys. Thanks for taking the questions and congrats on a nice quarter.

Mark Klein, Chairman, President and CEO, SB Financial: Yes. Thanks, Brian. Talk soon. Thanks, Brian.

Brian Martin, Analyst, Janney Montgomery: See you.

Conference Operator: And that concludes the question and answer session. I’d like to turn the conference back over to Mr. Klein for closing remarks.

Mark Klein, Chairman, President and CEO, SB Financial: Thank you, sir. Thanks for joining us this morning. Nice to have you with us. We certainly look forward to speaking with you on our third quarter twenty twenty five results soon in October. Take care.

Conference Operator: Thank you, sir. This concludes our conference call today, everybody. We thank you for attending today’s presentation. You may now disconnect your lines, have a wonderful day.

Mark Klein, Chairman, President and CEO, SB Financial: Thank you. Thank you.

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