SB Financial Group Earnings Call Highlights Profitable Growth

SB Financial Group Inc ((SBFG)) has held its Q4 earnings call. Read on for the main highlights of the call.

SB Financial Group’s latest earnings call struck an upbeat tone, with management emphasizing strong earnings growth, expanding margins, robust loan and deposit trends, and disciplined cost control. While headwinds in mortgage banking, fee income, and funding costs were acknowledged, the overall message was that core banking performance and capital strength are more than offsetting these pressures, positioning the company for continued profitable growth.

Strong Earnings Momentum and Consistent Profitability

SB Financial Group reported net income of $3.9 million for the quarter, translating into diluted EPS of $0.63, up roughly 15% year over year. For the full year, GAAP EPS reached $2.19, a 27% increase versus 2024 and about 18% above management’s own 2025 budget. The bank also notched its 60th consecutive quarter of profitability, underscoring a long-running record of consistent earnings through varying rate and credit cycles.

Net Interest Income Growth and Margin Expansion

Core banking income was a standout. Quarterly net interest income rose to $12.7 million, up about 17% year over year, while full‑year NII climbed 21% to $48.4 million. The reported net interest margin was a healthy 3.51%, supported by a 17‑basis‑point improvement in earning asset yields to 5.32% and a loan yield of 5.94%, up 19 basis points year over year. Management attributed roughly half of revenue growth to a larger balance sheet and half to wider margins, highlighting both volume and pricing as key contributors.

Broad-Based Loan and Deposit Growth

The company continued its streak of loan expansion, with quarter‑end loan balances up $70 million, or a 25% annualized rate, and full‑year loan growth of $133.9 million, or 12.8%, marking seven consecutive quarters of sequential loan growth. Deposits also kept pace, rising $45 million in the quarter (14% annualized) and approximately $155 million, or 13% year over year; excluding the Marblehead acquisition, deposits were still up a solid 9.3%. This balanced growth in loans and core deposits underpins the bank’s ability to sustain earnings without overreliance on higher‑cost wholesale funding.

Reinforced Liquidity and a Balanced Balance Sheet

Management highlighted a strong liquidity profile and diversified balance sheet. Total assets reached $3.6 billion, including $1.5 billion in bank assets, roughly $1.5 billion in residential servicing, and $566 million in wealth assets. The bank held around $50 million in excess liquidity, maintained $160 million in available debt capacity, and cited more than $550 million in contingent liquidity and access to wholesale markets. The loan‑to‑deposit ratio stood at 90.3%, comfortably within the stated 90–95% target range, suggesting a balanced approach to growth and funding.

Capital Strength, Buybacks, and Dividends Support Shareholders

Capital management remains a key part of the story. Tangible book value per share rose to $18, up 12.5% year over year, while adjusted tangible book value reached $21.44. SB Financial repurchased about 32,000 shares in the fourth quarter and approximately $5.5 million of stock year‑to‑date, signaling confidence in intrinsic value. The board declared a dividend of $0.155 per share, implying a yield of roughly 2.8% and a payout ratio near 25% of earnings, marking the 13th consecutive year of dividend increases.

Revenue Diversification and Business-Line Wins

The earnings mix continues to tilt toward recurring banking income, with net interest margin‑related revenue now representing roughly 75% of total revenue. Still, nonbank businesses contributed notable gains. Peak Title posted a 25% increase in revenue to $2.0 million, with net income up 60% to $583,000. The bank also reported growth in assets under care across its wealth platform and delivered its strongest gain‑on‑sale mortgage revenue since 2021, indicating that fee‑based businesses can still deliver upside despite cyclical headwinds.

Expense Discipline and Positive Operating Leverage

Cost control was another highlight. Operating expenses declined about 2.3% sequentially in the quarter. For the full year, expenses excluding one‑time merger costs grew 7.7%, compared with 15.1% revenue growth, producing roughly 2x core operating leverage. Management signaled that this discipline is structural rather than temporary, laying the groundwork for continued margin stability even as topline growth moderates.

Healthy Asset Quality with Strong Coverage

Credit metrics remain solid. Nonperforming loans fell to 0.39% of total loans, while nonperforming assets were $4.7 million. Net charge‑offs were just 2 basis points for 2025 (4 basis points in the fourth quarter), well below typical industry levels. The allowance for credit losses stood at 1.36% of loans, providing 352% coverage of nonperforming assets. These figures suggest the loan book is performing well, with ample reserves in place against current problem assets.

Noninterest Income Pressure and OMSR Impairment

The main blemish in the quarter was noninterest income. At $3.7 million, it was down 18.6% year over year and 12.6% sequentially, largely due to a decline in mortgage servicing rights valuations and an impairment on originated mortgage servicing rights (OMSR). As a result, fee‑based revenue’s share of total revenue slipped from a historical level of about 35% to around 26%, reducing diversification in the quarter and heightening reliance on spread income.

Mortgage Volume Shortfall and Persistent Headwinds

Mortgage banking remained under pressure despite some improvement. Full‑year mortgage volume of $278 million was up 8% from the prior year but fell roughly 28% short of internal budget targets. Fourth‑quarter originations of $72.4 million declined year over year, reflecting a sluggish housing market with limited inventory and a choppy rate environment. Management described the pipeline as “fluid,” indicating that while activity has picked up, visibility remains constrained and upside will depend on both macro conditions and execution.

Rising Funding Costs and Margin Outlook

The bank is not immune to industry‑wide deposit competition. Total interest expense for the quarter climbed to $6.6 million, more than 10% higher than a year ago, as customers demanded better pricing and the funding mix shifted. Management cautioned that the current 3.51% net interest margin is likely to face modest pressure, with an expected 5–7 basis‑point decline in 2026, driven by higher funding costs and deposit repricing. Nonetheless, they believe margin compression will be manageable in light of ongoing loan growth and disciplined asset pricing.

Credit Resolution Timing and Reserve Dilution from Growth

While credit quality is generally strong, management acknowledged some isolated credits where resolution is taking longer than hoped. Total delinquencies ticked up 4 basis points sequentially to 49 basis points, and classified loans, though modestly lower year over year, remain an area of focus. The allowance for credit losses increased by about $171,000 in the quarter, but the reserve ratio slipped roughly 8 basis points as rapid loan growth outpaced reserve builds. Management characterized this as a modest dilution, emphasizing that coverage versus nonperforming assets remains robust despite the shift.

Market Concentration and Growth Diversification Needs

A notable share of recent commercial loan growth has come from the Greater Columbus market, which contributed about $73 million of growth for the year. While this reflects strong production in a key growth region, management acknowledged the concentration risk and the need to replicate this success across additional markets. Investors will be watching whether the bank can broaden its geographic growth engine without sacrificing credit standards.

Mortgage Banking Volatility and Fee Income Variability

Management underscored that mortgage banking and broader noninterest income remain volatile. Mortgage banking contributed about $1.5 million this quarter, below the prior‑year level, and results continue to be influenced by opportunistic hedging strategies and gains‑on‑sale. Combined with the MSR and OMSR swings, this volatility has kept fee income below last year’s levels and highlights the importance of the bank’s growing reliance on stable spread income.

Mortgage Pipeline Expansion and Staffing Uncertainty

To support more ambitious mortgage growth, SB Financial plans to add mortgage lenders and expand capacity. However, current 2026 mortgage guidance is intentionally modest, targeting low‑to‑mid single‑digit growth and a base‑case production range of roughly $310–$330 million. Management indicated that achieving higher levels of $350–$375 million will require successful hiring and execution. The shortfall versus the 2025 mortgage budget underscores that translating strategic plans into volume will depend on both talent and market conditions.

Guidance Points to Controlled Growth and Earnings Upside

Looking ahead, management expects only modest net interest margin pressure of 5–7 basis points in 2026 from the current 3.51% level, even as $125–$140 million of loans reprice over the next nine months and funding costs remain elevated. They anticipate continued organic loan growth, funded primarily by core deposits and supported by around $50 million in excess liquidity, $160 million in debt capacity, and more than $550 million in contingent liquidity. Mortgage production is guided to approximately $310–$330 million, with potential upside to $350–$375 million if new lenders are added and market conditions cooperate; sale ratios are expected to remain around 85%. Recurring net interest income is projected to stay near 75% of total revenue, with loan yields around 5.94% and earning asset yields near 5.32%, against funding costs of about 2.34%. The bank plans to maintain its loan‑to‑deposit ratio in the 90–95% range, keep the allowance near 1.36% with coverage of about 352% of nonperforming assets, and expects reserves and provisions to be roughly flat, even if the reserve ratio edges down by 3–4 basis points. Expense growth is forecast at 3.5–4% in 2026, still delivering positive operating leverage of roughly 1.5–2x, supporting a net income target approaching $15 million while continuing its $0.155 per‑share dividend policy.

In sum, SB Financial Group’s earnings call painted a picture of a bank leaning into core balance sheet strength, capital discipline, and controlled growth, even as it navigates mortgage volatility and competitive funding pressures. For investors, the key takeaways are accelerating EPS growth, resilient asset quality, solid capital returns, and a credible plan for maintaining positive operating leverage—all against a backdrop of manageable, clearly articulated risks.