SB Financial Group Stock

Good morning and welcome to the SB Financial Second Quarter 2026 Conference Call and Webcast. I would like to inform you that this conference call is being recorded. [Operator Instructions] I will now turn the conference over to Sarah Mekus with SB Financial. Please go ahead, Sarah.

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 Cosentino, Chief Financial Officer; and Steve Walz, 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.

Thank you, Sarah and good morning, everyone. Welcome to our second quarter 2026 conference call and webcast. The second quarter of 2026 represented a period of strong execution across our franchise, reflecting the consistency and resilience of our diversified revenue operating model. Our results reflected balanced performance across all business lines, supported by high-quality organic loan growth, stable reoccurring net interest income, expanded non-interest fee revenue and disciplined expense management. This quarter also marked the 18-month milestone of the Marblehead acquisition and we now view that transaction as a significant contributor to our funding base, expanding our presence in Northern Ohio and driving overall franchise stability.

Highlights for this quarter include net income at $4.5 million with diluted earnings per share of $0.72 compared to $0.60 diluted EPS reported in the prior year quarter. This now marks our 62nd consecutive quarter of operational profitability. Tangible book value per share ended at $19.04, an increase of approximately 16% from the $16.44 in the prior year quarter. When we exclude AOCI and adjusted tangible book, we're at $22.57. Net interest income expanded to $13 million, up 6.8% from the $12.1 million in the prior year quarter, driven by stable funding dynamics and expanding asset yields. Loan balances reached $1.19 billion, reflecting an increase of approximately $95 million or 8.7% from the prior year quarter, a slight increase of $8.4 million from the linked quarter. This extends our trend of sequential loan growth to 9 consecutive quarters.

Total deposits climbed to $1.39 billion, an increase of $141 million, or just over 11% from the prior year quarter and up $19.3 million, or 1.4% sequentially from the linked quarter. Noninterest income finished at $5 million, accounting for approximately 28% of our total operating revenue as we continue to maintain stable fee-based revenue streams. Noninterest expense run rate remained well controlled, finishing the quarter at $12.1 million compared to $11.9 million for the prior year quarter. And asset quality remains a key characteristic of our company and a clear competitive advantage. Total nonperforming assets declined to $4.4 million, representing just 0.27% of our total assets, a reduction of over 28% compared to the prior year. Our proactive approach to managing problem assets, combined with our robust internal loan reviews has successfully driven down our overall nonaccruing balances.

We continue to remain focused on our 5 key strategic initiatives as we have indicated in many prior quarters, that's growing and diversifying revenue, adding more scale to the organization to improve efficiency, expanding the number of households and services in those households, operational excellence and of course, asset quality. Let's look a little closer at the revenue diversity. Mortgage originations for the quarter rebounded strongly from the first quarter to $79.3 million, representing an increase of approximately 21% from the linked quarter, although production was down compared to the $97.9 million in the prior year period. The current residential pipeline has continued to stabilize at the $25 million to $30 million level. Our teams continue to struggle with mortgage rates remaining well above the 6% mark, which we feel is critical in moving into a more balanced split between purchase and refinance.

Although our mortgage volume has been below expectations, we have had a number of success stories from individual MLOs and from our regions. Specifically, our newest region, Cincinnati, has delivered nearly $20 million in volume during our first half of this year, higher by more than 50% from the same period in 2025. Individually, we have 4 MLOs that have eclipsed $10 million in volume and additionally, 6 more originators are at the 50% level of their 2026 goal commitment. This quarter's volume growth represents a positive pivot from the volume constraints we witnessed throughout 2025 and the slow seasonal start we experienced from the first quarter of the year. Throughout that lower volume cycle, we made the deliberate strategic decision to keep our core processing infrastructure and originator teams fully intact. That operational discipline continues to yield results today, providing us with the capacity to eventually capture expanded market volume with adding -- without adding incremental overhead.

Our execution in the secondary market remains highly effective and allows us to manage a larger pipeline of fixed rate commitments. We successfully sold 88.5% of our production in this period to maximize immediate fee income while keeping the balance sheet liquid. Furthermore, our total mortgage servicing portfolio crossed a major milestone this quarter, ending at $1.5 billion. Because we have maintained this operational readiness, we have ample capacity to continue scaling up toward more historical production levels. Peak Title recorded a strong quarter, generating revenue of $577 million (sic) [ $577,000 ] up nearly 20% from the linked quarter and flat compared to the prior year, supported by strong collaboration and steady internal referrals across our lending teams. This business remains an important part of our product suite and a valuable contributor to our fee income diversification.

Now pivoting to scale. Our deposit growth has vastly exceeded expectations in the second quarter -- since the second quarter of 2025. We have grown deposits in every quarter over the past year while keeping the increase in our deposit cost of funds at less than 2.5% level to just 181 basis points. Our core relationship model delivered an annual increase of $17.3 million in noninterest-bearing checking accounts, which ended the quarter at nearly $260 million. We continue to see excellent traction growing these core balances organically by leveraging our treasury management capabilities and capturing new commercial relationships stemming from ongoing disruption in regional players and regional markets. Similar to our Q1 momentum, this disruption strategy has now captured and delivered $130 million in cumulative balances as we track toward our long-term goal of $500 million from the ongoing market disruption.

As we have highlighted in previous discussions, our targeted commitment to our two nearby de novo markets this year, Angola, Indiana and Napoleon, Ohio, continues to yield results that exceed our original targets and expectations. Capitalizing on branch consolidation and disruption by larger regional players has allowed us to successfully transition these low-cost core accounts back to a local relationship-driven banking model at State Bank. While our strong 1Q performance, these offices recorded $19.3 million in loans and $22.5 million in deposits and continues to expand their structural footprint well ahead of schedule.

Now for more scope. We continue to prioritize referrals as an effective way to deepen long-term client relationships across the entire franchise. Concurrently, our Wealth Management division finished the period with fees improving to $955,000 and assets to nearly $557 million. Our alliance and alignment with Advisory Alpha is now operational and we've begun to methodically transition our client relationships, which will not only allow our current client base but also any future clients, an extended array of products, advice, and investment vehicles.

Moving to operational excellence. We remain focused on matching growth with disciplined execution. The second quarter reflected that mindset with expense levels remaining controlled relative to revenue. Pretax pre-provision income increased 9% year-over-year to $5.8 million, reflecting our expanded balance sheet and ongoing focus on positive operating leverage. To effectively support this expanded balance sheet scale, we have successfully added talented lenders to fill open positions across our footprint, ensuring our teams have the necessary production capacity to sustain our current growth trajectory. As highlighted earlier, linked quarter loan growth, while positive, was below our expectations for the second quarter. The details reveal that unlike in prior quarters where Columbus was providing the bulk of that lift, this quarter we had growth in 3 of our traditional markets that offset that generally flattish production elsewhere. Specifically, Lima region was higher by $4.2 million, Fort Wayne, Indiana by $3 million and Bowling Green had a growth of $1.4 million.

Our capital position remains strong with total shareholder equity climbing to nearly $147 million, up 9.8% from $133 million a year ago. Our capital levels remain robust, providing top-tier tangible common equity and regulatory capital support that ensure balance sheet flexibility moving forward. And finally, asset quality. Credit quality remained a key component in our ongoing high performance this quarter. Our allowance for credit losses rose to $16.4 million, represent -- representing 1.38% of our total loans and generating nearly 5x coverage ratio of our nonperforming loans. Our ongoing commitment to rigorous credit administration is evident across our portfolios. Notably, our core criticized assets dropped sharply this quarter to just $344,000, while our classified loans stood well contained at $4.08 million.

Through the positive and proactive efforts of our lending and collections team, we successfully managed our growth, total delinquency rate down to just 32 basis points from 51 basis points at this time last year. We continue to emphasize disciplined underwriting, proactive management of problem assets and prudent growth across all markets. This commitment to disciplined execution is also evident in our agricultural sector where our targeted efforts have successfully expanded total agricultural balances past the $81 million mark, reflecting an increase of over $20 million from last year as we continue to track toward our long-term goal of a $100 million portfolio.

With that, I'll turn it over to Tony Cosentino, our CFO, for some expanded comments on our quarter financial performance. Tony?

Thanks, Mark and good morning again, everyone. Let me just outline some highlights and important details of our second quarter results. This quarter, total operating revenue expanded to $17.9 million, an increase of 4.5% from $17.2 million in the second quarter of '25 and expanding 3% from the $17.4 million recorded in the linked quarter. As Mark noted, the quarter reflected a balanced revenue performance with stable net interest income and a stronger contribution from our fee-based businesses. Mark detailed our GAAP net income earlier. And when we adjust both years for OMSR valuation adjustments, adjusted diluted earnings per share advanced to $0.73 for the current period compared to $0.58 in the second quarter of '25, an increase of nearly 26% on an adjusted basis.

Net interest income was driven higher by our reliance on the growth of the top line, with interest income up $1.35 million from the prior year, easily outpacing the interest expense growth of $527,000. Despite the slight slowdown in loan growth, our low-cost deposit growth, coupled with higher overnight funding rates have boosted margins. As we indicated, last quarter reflected the peak of our margin percentage level, with this quarter's margin down slightly at 3.43% compared to 3.48% in the prior year and linked quarter. We continue to benefit from a larger balance sheet and the ongoing repricing of interest-earning assets, although at a slower pace than prior quarters. Noninterest income finished the quarter at $5 million. And our core mortgage banking contribution reached $1.9 million, down slightly from the $2.2 million reported in the second quarter of '25 but expanding from $1.8 million in the linked quarter.

Mortgage banking was supported by core loan servicing fees contributing $934,000, while gain on sale of mortgages finished at $1.5 million. Our hedging program successfully offset some of the rate market volatility, leaving the net OMSR valuation at a minor negative $54,000 for the period. Volume this quarter moved decidedly in favor of purchase activity, as 81% of our volume was purchase or construction. Notably, our total mortgage gain on sale percentage improved to 2.19%, which was the highest level we have achieved since the second quarter of 2024. Operating expenses totaled $12.1 million for the quarter, up 2.4% from $11.9 million in the prior year.

This change reflects the impact of adding talented lenders to fill open positions across our footprint with salaries and benefits totaled $7 million. Our year-over-year expense comparison was heavily mitigated by lower data processing fees dropping to $693,000 from $888,000, reflecting the system efficiencies as our onetime merger integration costs cleared our run rate. Efficiency ratio for the quarter improved to 67.3% and notably, operating leverage for the quarter was a positive 1.9x, with revenue expanding by 4.5% compared to expense growth of 2.4%.

Turning back to the balance sheet. Loan balances ended the quarter at approximately $1.19 billion, as Mark indicated, reflecting the continued year-over-year growth and a modest increase from year-end. Loans to assets were a healthy 73.6%. Commercial real estate outstandings continue to drive our loan portfolio balances at $611 million. But specifically, exposure to office space is under 5.5% of our total loan portfolio. And excluding mortgage portfolio balances, no other segment is higher than 10% of our current loan outstandings. Loan-to-deposit ratio at quarter-end was 85.5%. We have significant liquidity currently but are aware of several large institutional deposit relationships that are moving to the wholesale market sector later this year. We expect these losses to not be material to earnings given their marginal rates compared to what we can acquire from retail and TM calling efforts.

On capital management, during the second quarter, we continue to adjust our share buyback posture to preserve absolute capital flexibility, repurchasing a little over 28,000 shares at an average price of $22.06. As we discussed during our first quarter call, we have guided lower on buybacks for 2026 as our market price is now trading at 1.4x tangible book. This disciplined stance ensures we preserve balance sheet flexibility and remains fully aligned with our broader capital priorities and most importantly, does provide a floor for our market price.

Turning lastly to asset quality. Non-performing assets totaled $4.4 million, representing 0.27% of total assets, compared to $4.7 million in the linked quarter and $6.2 million in the prior year quarter. While NPAs declined sequentially and remain well controlled, overall credit performance again remains sound. Allowance for credit losses as a percentage of total loans was 1.38% compared to 1.39% in the linked quarter and 1.43% the prior year. Coverage of nonperforming loans rose to 470% compared to 443% in the linked and 266% in the prior year period. Net charge-offs, while slightly higher compared to historical averages, remain modest at 6 basis points compared to just 1 basis point in the linked quarter and 2 basis points in the prior year quarter. We dealt with a long-standing credit problem in the quarter, which was fully allocated in our model and that is working slowly towards resolution. Total gross delinquency rate ended the period under 35 basis points and when we exclude those loans on nonaccrual, that delinquency rate is effectively 0.

I'll now turn the call back over to Mark for some closing remarks.

Thank you, Tony. We enter the second quarter -- second half of 2026 with strong and steady momentum across our entire franchise. This quarter's performance demonstrates that our diversified business model can deliver solid profitability even when broader market conditions compress our historical fee income volume. With total loans under our care now and total assets under our care at $3.7 billion mark, our growing scale is providing the positive operating leverage we need to drive consistent long-term value. Our focus for the remainder of the year remains straightforward, executing on our strategies in our expansion markets of Angola and Napoleon, supporting our lending teams to build on sequential loan growth and continuing to leverage our core relationship model to capture low-cost deposits amid regional market disruptions.

At the same time, we remain deeply committed to our disciplined credit underwriting standards and this proactive approach to risk management has successfully kept our nonperforming assets, as we mentioned, at a solid 0.27%. Reflecting our consistent earning power and our ongoing commitment to shareholder returns, we're pleased to announce and pay a quarterly dividend payable in August of $0.16 per share. This represents an annualized yield of approximately 2.4% and a conservative 22% payout ratio, keeping us firmly on track for our 14th consecutive year of increasing annual dividend payouts to our shareholders.

Now we'll open the call up to any questions. Sarah?

Thank you. Operator, we're now ready for questions.

[Operator Instructions] Our first question comes from Brian Martin with Brean.

Maybe I just -- Tony, we could just start for a minute on your comments about the margin and just kind of more broadly kind of how you're thinking about it. There's been a lot of comments this quarter from other banks just about competition and both -- on both sides of the balance sheet. And just -- I know you commented last quarter, you said your margin peaked and kind of just how you think the margin plays out from where we are here today and just kind of the puts and takes on kind of where that's trending. I know there was some excess liquidity this quarter, so it kind of impacted the margin as well with the deposit growth. But just trying to understand, where -- dynamically where we're going to be trending here in the next couple quarters and both on the margin and just kind of maybe if funding costs are bottoming you're still seeing some repricing on the asset side?

Yes, sure. As we talked about last quarter, we thought margin percentage was peak in Q1 and was going to trend to kind of stabilize to down. It certainly came down but I think it was more structural than it was anything else. I mean, we had a lot of liquidity in the quarter as we talked about, deposit growth at pretty good pricing. I'm much more positive now that we might move that percentage up slightly because we do have a fair amount of loan growth that I think we're going to have here in the second half of the year, more than I thought going into the quarter. We looked at -- we've looked at a number of very good credits with some good pricing. So I think we're going to use up quite a bit of that liquidity and that's going to drive margins, certainly no less than where they are and slightly higher moving forward because I do think that's going to be a bit of a positive for us moving forward.

Brian, one of the key metrics, we continue to take a larger bite out of the ag sector as we've talked for a number of quarters. And with those loans have come low-cost deposits. So we've been doing very well on finding low-cost deposits that keep that average -- when you add to the margin, the average has been pretty good. And what would you say, Tony, 181 basis points?

Yes. Yes. Very good. Very good pricing year over year.

So I view that as a large positive when it comes to adding loans at the 6.5%, 6.75% level, by bringing in those low-cost deposits, really non -- really no cost transactional accounts. So I see that, Brian, as a boost to that margin but I know Tony has got his handle on the number.

Yes. And it sounds, Tony, like it maybe gets back to where it was last quarter. I mean, if you get some of this loan growth, you -- maybe you get back to that, I guess last quarter's level, which is almost 3.50%, so call it around 3.50%, or can you maybe not get back that high? And then it's just more stability after that, after you kind of bring on the loans and kind of stabilize it? Is that what you're thinking?

Yes, I think that 3.45% to 3.55% range is I think where we're going to be probably in Q3 and probably on for some time. I think we've got -- I feel like we've got enough momentum on the loan side and we've had enough kind of deposit growth that we haven't really had to be crazy on pricing to get there. I think the disruption in the markets that we're in has been much better than we really anticipated in terms of -- especially on the deposit side. And so I think that's going to sustain us for a while. I mean, I'll be surprised if we don't move higher from where we were in this quarter.

Certainly, Tony, the mix of loans has helped from a C&I perspective, as well as the market disruption of a $28 billion player.

Yes, yes.

Yes. Okay. That's super helpful Tony and Mark. And then maybe just on -- I guess, if you think about where the deposit growth has been, like you said, really strong. That maybe more normalizes. I guess it sounds like you still continue to capitalize on that but maybe the growth in deposits is a little bit slower going forward. And then just in terms of the loan pipeline, Tony, it sounds like that's a bit stronger than expected.

Well, first on deposits, Brian, we're pretty excited about the opportunities in the 2 new markets that we descended upon de novo. Angola is doing well and Napoleon is doing well. And as I mentioned before, there's $1 billion in deposits in the new market that has had major disruptions and we're taking our share plus some. So I would be a little more bullish on the opportunity to expand our deposit base well below the margin. As far as the pipeline, I know there's some strong potential for significant growth in all markets coming up here for the second half of the year.

Yes, I would just -- I just would supplement Mark's comments. I mean, as we've indicated, we're going to lose about $40 million that I just kind of call it wholesale deposits of a client we've had for a number of times here in probably Q3. So again, we're $140 million up year-over-year, to me, which is way outside what you would think would be kind of a normalized deposit growth area. So if you normalize that to, call it, $100 million net of this deposit we think we're going to lose, I do think we're still going to be growing going 3% to 5% per quarter over the linked period based on everything we see. And I do think flipping your question about the loan pipeline, it is much stronger and I'll have kind of Steve fill-in, than what it was when we kind of got into the middle of this. We've had a few paydowns but it hasn't been, kind of in prior years, kind of the dominant story we talk about. It's been more about the production side, which was a little soft in Q2 and I think that's ramping back up here in Q3.

And the paydowns, Tony, were more strategic than anything.

Yes, yes. Well put.

So it wasn't like we got pruned. We decided to walk away on a couple of credits. But I know, Steve, the pipeline looks strong and we're pretty bullish on the second half of the year, I would hope.

No, certainly. I would just add, Brian, Columbus is -- remains a core driver of our growth. But what's been encouraging and Mark touched on a little earlier, was the breadth has expanded, which is something going into the year we had talked about as a goal but we're seeing that come to fruition here, certainly welcome. And that is a function to a not insignificant degree of that market disruption that Mark had referenced earlier. Our legacy markets are participating in a way -- in our growth story in a way that they had not over the last, really call it several years. So I think we are encouraged, certainly Columbus and our growth markets like Fort Wayne, for example, will play along. But the breadth of that expansion is welcome as we look to the second half of the year.

Yes, Brian, as you know, we've talked, our model has been gather low-cost, really low-cost deposit from our traditional markets and expand where there's capital need, which is our growth markets. But as Steve said, that's starting to flip around a little bit. We're getting the low-cost transaction deposits in our legacy markets and now we're identifying some loans from those markets as well. So we're kind of getting a double bump.

Got you. And just in terms of the pickup in loans, kind of where it's coming from. I mean, I know a lot of it's been from Columbus but this other markets, if you think about the second half of the year, does the growth stay? Is it more balanced across the footprint? Is Columbus still leading it and then there's these other markets are just contributing and that's building?

Well, I would say, at a high level, I'm thinking we're probably going to do between $50 million to $70 million in kind of balance sheet increase on the loan side between now and the end of the year. You know, without talking about any paydown. So kind of a normalized group of paydowns that might be a $50 million or $60 million number. I would guess it's probably 50% Columbus and 50% everywhere else as I look at the pipeline as it lays out today. So to me that's a victory because last year, we were 90% Columbus and 10% everywhere else. I'd like that much better in terms of a geographic spread.

And, Tony, without Columbus exiting the game. Columbus is still in the game. So where we're balancing it out at, as we indicated, is Northwest Ohio and Northeast Indiana.

Yes. Okay. No, that's helpful. It sounds like you're optimistic on the -- on both the loan and deposit front. And like you said, the broadening out is a -- is definitely a positive here compared to just continuing the momentum. It gives you another angle in diversification. So okay. And then maybe just last couple of ones. On the mortgage side, pretty easy, I guess, just in terms of your outlook, given where the rate environment's at, I know you talked about being more purchase money, which makes sense, given rates. But just I guess, thinking about full-year outlook for mortgage in terms of originations activity and just kind of that pace. And I know you're built for a much bigger balance sheet opportunity, we've talked, Mark. But in terms of what you think the market is giving you today, what's the outlook look like on mortgage?

Well, as you know, the rate environment has certainly made it difficult for the MLOs because at the margin, we don't have many people that are above that, or willing to refinance at 6.75%. So that's presenting challenges. But that said, we've hired several high-producing MLOs that are going to move the needle. We got a nice team in Columbus and certainly a good one that's continuing to expand in Cincinnati. Indy is doing well. We continue to do some private client variable rate mortgages to put on our books, which has been great. It doesn't deliver any noninterest income but certainly delivers some margin revenue. But I continue to remain optimistic on getting somewhere near that $300 million mark but I think it's going to be a tough place to land, Tony, this year. But...

Yes, I think we're probably looking at an $80 million quarter, kind of very similar to Q2 and we're probably anywhere from $50 million to $60 million to Q4. And again, as we've talked about on rates, we're not that far away. We're 50 basis points from, I think, unpacking another $30 million to $50 million in volume, depending on where you get there. But if we stay stuck at this 6.625% kind of range for the remainder of the year, then I think that $130 million is what we're probably going to do, which is just your normal level of volume of people moving and life changes and all of that kind of stuff. And that additional $50 million is all dependent on us seeing something at 6% or below, which I certainly don't see until maybe Q4.

We've got high producers that are highly incented and we're bringing on more producers in newer markets. So we're going to continue to optimize the back end of our process, which can do -- I'm going to go on record and say we can do $400 million to $500 million without adding anybody. So those fixed costs are pretty much fixed. So it's going to be accretive to our whole process. And with a little bit of play in the mortgage rate, I think we can ramp our results up dramatically.

Got you. And just remind me, Mark, it sounds like you brought some people on this quarter. Roughly how many MLOs have you added maybe that aren't in the numbers today?

Well, it's a great question. We've added one in Columbus. We've added one in Cincinnati. And I think we might have replaced one, not a net addition but replacing one in Indy. But 2 or 3 without confirming who those are right off the cuff. But I'd say 2 or 3 but we're -- we've got -- I think we're generally right at that 27, I think, where we've been before. And the good part about that is they're all very hungry and they're all doing great things. And here recently, what's really ramped up is the FHLB 4.5% fixed rate product that is out there for households that are below 80% of median income. So that's gaining traction in all of our markets and to my knowledge there's no lid on that amount. So our people are trying to peddle that out across our footprint.

Got you. Okay. And the -- okay, that's and just the gain on sale margin, Tony, that's similar range where it's been. I mean, nothing really changing there in pricing. That is good. And then maybe just last one is, on the expense front, given some pickup in volume here, obviously there's incentives that come along with that. How do we think about expenses in the back half of the year as revenue -- given the revenue outlook in terms of -- I know you guys have done a great job managing expenses but kind of balancing that with the growth you're expecting, what do expenses look like in the back half of the year?

Yes. I mean I think I think they certainly trend higher than what we've had in Q2. I would say Q2 is kind of the low end of the scale because we've filled a couple of slots, as Mark indicated in our -- during his comments. I think our compensation level is going to continue to kind of move slightly higher given the performance of the company this year through the first half and what that means for kind of -- we pay out incentives to a broad range of our team, which we accrue for all year long. And given not only the bottom line performance but the metrics on the deposit side and a number of areas that are highly incented, we're going to have some higher expense levels. But it's not going to be -- I would say we're probably in that $12.4 million to $12.3 million range in Q3 and probably at $12 million in Q4 as kind of mortgage volume ramps down. So it's not going to be -- it's going to be higher by $300,000 probably from where we were in Q2 and Q3. But other than that, it's going to be pretty well maintained.

Given that mortgage lending is highly variable in compensation, we'd love to see it go up. But clearly we've attempted to even make -- Brian, as you all know, we've attempted to make commercial lending variable rate because we pay great base pays but we also highly incent individuals to find commercial loans across all of our footprint. And -- but that goes up marginally, that's more fixed-cost basis than it is variable-based. But we like everything to be variable based pay. We want to pay high producers.

Yes. No, it makes sense. And Tony, I guess just -- I don't know, maybe more for you but Mark can chime in. The growth that you expect, I mean, there's a lot of dynamics here going on with that one payoff on the deposit side you're going to -- you expect to get or potentially could get, then you're still growing it. Just in terms of funding the loan growth, I mean, I don't know if the math works out, where if you do lose a $40 million deposit but the new growth is a similar level, your deposits are the same type of level, net with some movement there. But funding the loan growth in the second half, kind of what's the outlook there in terms of how you manage that given some of the nuances on the deposit side that may come in this quarter?

Yes, I mean, I think we've got an excess level of liquidity. And as we sit today, assuming worst-case scenario that $40 million walks out without any replacement, I think we can fund all of our what I think is the kind of medium to high-end range of our loan pipeline from now to the end of the year. So anything we're building on the deposit side is for us to be funding 2027 loan growth. So that's the continued push that we're going to have. I don't think we're going to slow down on our interest in deposit gathering. And I think given disruptions, I think it's going to continue to be outsized of our expectation. And maybe I just got to expand my expectation but I think that's where we are.

And Tony, we certainly remain excited about the $20 million we get back in the securities portfolio. That's all woven in there, plus payoffs, paydowns. Good cash flow.

Okay. Yes. In the -- in terms of the liquidity today, Tony, what's -- just remind me what's the access today that you have? Like, what's on balance sheet versus kind of what's the access to fund the loan growth in the second half of the year? What is the additional right now outside of the normal level of capital in terms of liquidity?

Yes, probably -- it's probably $70 million, which is really high relative to where we are. But we purposely stay there because I've been hoping for the loan pipeline to turn around, which I feel like it's going to in the second half. So very liquid and very flexible.

Okay. No, that's what I figured was the case. I just wanted to make sure to be clear on the dynamics on the deposits. If that one walked away, there's -- it sounds like there's still good growth there. So okay, I think I'm good. I mean, I think unless -- there's no additional comments on credit. It feels like the credit quality is really good. I know you've been working on some resolution of some legacy ones but nothing -- the pipeline of new credits potentially weakening, doesn't look -- doesn't sound like it's all that big and you still expect some improvement on the legacy as you work through things?

Yes, we continue to see some optimistic movements on some of the ones that have been around a long time. But, boy, it's like watching paint dry sometimes in terms of getting rid of some of your asset quality problems. Fortunately, Brian, they're not -- they're not seven-figure things. They're smaller six-figure things. So they're more of an annoyance than they are a needle mover.

Yes, okay. That's how I figured it. It was a -- it's a good story there and not a lot to elaborate on. So well, thank you guys for the questions and I appreciate it.

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

Thank you. Once again, thanks for joining us this morning. We certainly look forward to speaking with you in October and give you an update on our third quarter 2026 results. Thanks for joining us. Have a great day. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the SB Financial First Quarter 2026 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 the conference up to the investment community for questions and answers. I will now turn the conference over to Sarah Mekus with SB Financial. Please go ahead.

Thank you, and good morning, everybody. 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. .

Joining me today are Mark Klein, Chairman, President and CEO; Tony Cosentino, Chief Financial Officer; and Steve Walz, 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 April 24, 2026, and SB Financial undertakes no obligation to update them.

I will now turn the call over to Mr. Klein.

Thank you, Sarah, and good morning, everyone. Welcome to our first quarter 2026 conference call and webcast.

First quarter represented a solid start to the year for SB Financial and really reinforces the consistency and resilience of our operating model. Our results reflected balance sheet performance across the franchise, supported by loan growth stable net interest income, improved fee-based revenue, disciplined expense management and sound credit quality.

This quarter also marked the first full anniversary of the Marvelhead acquisition, and we now view that transaction. as a solid contributor to our funding base, expanded the presence in Northern Ohio and overall franchise stability.

While the operating environment remains competitive, we continue to feel good about our position. Balance sheet remains sound. Our credit metrics continue to compare favorably, and our business line provides a healthy mix of margin and fee-based revenue. We believe that combination, along with our disciplined approach to growth and capital deployment supports our ability to build long-term shareholder value.

Briefly, some highlights for the quarter. Net income of $4.3 million with diluted EPS $0.69 compared to GAAP diluted EPS of $0.33 for the first quarter of 2025. This now marks our 61st consecutive quarter of profitability. Tangible book value per share ended the quarter at $18.45 compared to $15.79 for the first quarter of 2025 and $18 at year-end.

Adjusted tangible book value per share, excluding AOCI, now comes in at nearly $22. Our net interest income totaled $12.7 million compared to $11.3 million in the first quarter of 2025 and $12.7 million in the linked quarter. The year-over-year improvement was driven by higher interest income on loans and a stable funding profile while the linked quarter comparison remained relatively consistent.

Loan balances increased by approximately $92 million from the prior year quarter and approximately $500,000 from the linked quarter, reflecting continued production across franchise and extended our trend of sequential quarterly growth.

Total deposits in the quarter of $1.37 billion compared to $1.27 billion for the first quarter of 2025 and $1.3 billion at year-end. On a year-to-year basis, deposits increased over $100 million or nearly 8%, reflecting continued organic deposit growth and stable client relationships across the franchise. Noninterest income improved to $4.7 million from $4.1 million first quarter of the year and $3.7 million from the linked quarter.

Our percentage of fee income to total revenue of 27% was slightly higher than the prior year and were ahead of the linked quarter. Noninterest expense totaled $11.9 million and improved from the prior year quarter, while increasing modestly from the linked quarter. Prior year quarter include acquisition related expenses and incremental operating costs associated with Marblehead, which elevated the comparison period.

Asset quality continues to remain a strength of SB Financial. Nonperforming assets totaled $4.8 million or 0.3% of total assets compared to $6.1 million or $0.41 in the first quarter. While nonperforming assets increased modestly from year-end overall credit performance remains sound and reserve coverage remains strong. We're especially pleased with the efforts of not only our lenders, but more importantly, our collection team drove our total delinquency level down to just 28 basis points at quarter end.

As we've revealed in prior quarters, we continue to key on our 5 key strategic initiatives growing and diversifying revenue, more scale for efficiency, a greater share of the clients' wallet for more scope, operational excellence and, of course, asset quality. Looking a little closer at revenue diversity and mortgage originations totaled approximately $66 million compared to approximately $40 million for the first quarter of 2025 and approximately $72 million in the linked quarter. Mortgage business remains an important part of our franchise helping us expand household relationships while also contributing meaningful fee income across the company.

While weaker volume than we anticipated in the quarter, the pipeline has stabilized at approximately $35 million and we anticipate approximately 25% increase in volume for the second quarter sequentially from the linked quarter.

Title continued to perform well during the quarter, benefiting both internal referrals and continued traction of clients outside of the bank. This business remains a valuable part of our product set and an important contributor to fee income diversification.

On the scale front, the Marblehead acquisition continued to support our funding profile, and we remain pleased with the stability of those client relationships just 1 year after closing. Deposit growth continued to provide meaningful support to our balance sheet. We remain pleased with the stability of the Marblehead relationships and more broadly. We continue to see opportunities to grow deposits organically through client calling efforts, treasure management activities and the broader relationship model that has served us well across our markets, particularly with the current market disruption and consolidation.

As we discussed previously, we committed to 2 nearby markets recently, [indiscernible] Indiana, and [indiscernible] Ohio, and these results have exceeded our admittedly aggressive goals. We have closed nearly now $19 million in loans and approximately $17 million in deposits in just 5 months of operation. These two markets have clearly been at the forefront of market disruption I just mentioned, and we certainly have seized on that opportunity.

Client relationships more scope. We remain focused on serving clients through our relationship-based model and emphasizes responsiveness, local market knowledge and a full suite of products and services. We continue to believe that, that approach, combined with our hybrid office model, and expanding digital capabilities positions us well to serve our clients across both legacy and newer urban expansion markets.

Referral activity continues to be an important tool in strengthening household relationships across our business line, and we continue to view the cross-functional approach as an important part of deepening client relationships across the franchise and delivering more scope and a greater share of the client wallet.

On operational excellence, we remain focused on matching growth with disciplined execution. The first quarter reflected that mindset with expense levels improving from the prior year period and remaining controlled relative to revenue.

Whilst we continue to evaluate staffing, technology and physical presence across the franchise to ensure resources are always aligned with current client activity and long-term market opportunities. Capital levels remain strong with improvement in total capital and higher ratios for both TCE and CTE1 regulatory capital.

And finally, before I turn it over to our CFO, Tony Cosentino, asset quality. Credit performance remained solid for the quarter, while nonperforming assets increased modestly from year end. They remained well below the prior year quarter level and reserve coverage exceeded 400% and continue to reflect our conservative approach to risk management. Allowance for credit losses at 1.39% remains strong relative to total loans with criticized and classified loans at just $4.6 million, down $2.5 million or 35% from the prior year. We continue to emphasize disciplined underwriting, proactive management of problem assets and prudent growth across all markets. We believe that combination remains one of the key differentiators for SB Financial and an important metric for our long-term performance.

Now I'd like to ask Tony to give us some more details on our quarterly performance. Tony?

Thanks, Mark, and good morning, everyone. Let me outline some highlights and important details of our first quarter results. On the income statement, in the first quarter, total operating revenue increased to $17.4 million, representing a 13.2% increase from the $15.4 million in the prior year period and a 6.1% increase from the linked quarter.

As Mark noted, this quarter reflected a balanced revenue performance with stable net interest income and a stronger contribution from our fee-based businesses. Mark also detailed our GAAP EPS earlier in the call. And when we adjust both years for -- recapture and the Marblehead merger costs, EPS would be $0.63 for the current period compared to $0.42 in Q1 of '25, up over 50% on an adjusted basis.

Net interest income was up $1.4 million or 12.7% from the first quarter of 25% and consistent to the linked quarter. The year-over-year increase was driven primarily by continued balance sheet growth, better mix and the repricing benefits within the portfolio. Total interest expense increased modestly from the prior year quarter as higher volume-driven deposit costs were partially offset by lower costs across other funding sources.

While funding costs remain an important point of focus, the overall funding profile of the company remains well aligned with the asset growth we have achieved over the last year. Net interest margin for the quarter was 3.49% compared to 3.41% in the prior year quarter and 3.52% in the linked quarter. Even with net interest income remaining flat sequentially, the company continued to benefit from the larger balance sheet and the repricing of interest-earning assets.

Noninterest income increased to $4.7 million. On a percentage basis, that represents an increase of approximately 14.7% from the prior year period and 27% from the linked quarter. The quarter-over-quarter and year-over-year improvement was driven by higher mortgage loan servicing fees, stronger gains on sale of mortgage loans and improved gains on the sale of SBA loans.

The total mortgage banking contribution for the quarter was $1.8 million compared to $1.5 million in the prior year quarter and $1.5 million in the linked quarter. We continue to utilize our hedging program, which was in the money for the quarter as it successfully offset the disruption in the rate markets. Operating expenses totaled $11.9 million in the quarter, down $500,000 from the prior year and up just $700,000 from the linked quarter. The year-over-year comparison benefited from the onetime merger-related costs that were present in the first quarter of 2025.

The linked quarter increase was modest and reflects normal quarterly expense variability. Our efficiency ratio for the first quarter was 68.1%, and representing a meaningful improvement from the prior year period and continued stability on a sequential basis. Our adjusted efficiency ratio was down by over 500 basis points in the prior period and the adjusted operating leverage was a positive 5x.

Turning to the balance sheet. Loan balances ended the quarter at approximately $1.18 billion reflecting continued year over growth and a modest increase from year-end, with loans to assets at a healthy 74%. We remain encouraged by the continued stability in production across the franchise and we believe the current balance sheet remains well positioned to support additional disciplined loan growth during the year.

Our loan-to-deposit ratio at quarter end was 86%, although we continue to view the low to mid-90s. As a reasonable long-term operating range, the current funding profile gives us flexibility to support loan growth while maintaining strong liquidity and a balanced risk posture. On capital management, during the quarter, the company repurchased approximately 29,000 shares at an average price of $21.12. We have guided lower on the payback on the buyback for 2026 as prices are at or near our adjusted tangible book value. We are also cognizant of the impending potential call of our sub debt that would require a capital outlay, potentially impacting an aggressive buyback posture moving forward.

Turning lastly to asset quality. While nonperforming assets totaled $4.8 million and relatively unchanged compared to the linked quarter, we did foreclose on a large property that elevated OREO with a like-sized reduction in NPLs. We feel confident in our collateral position and do not anticipate further write-downs from the relationship. The allowance for credit losses as a percentage of total loans was 1.39% compared to 1.36% in the linked quarter and 0.41% in the prior year.

Coverage of nonperforming loans was higher than both the linked and prior year quarters, underscoring the continued strength of the company's reserve position and disciplined approach to credit risk management. Total delinquencies were also down substantially for both the linked and prior year. And when we exclude loans on nonaccrual, the delinquency rate is effectively 0.

I will now turn the call back over to Mark.

Thank you, Tony. We certainly remain encouraged by our positioning as we move through 2026, supported by strong credit fundamentals, as we mentioned, a growing balance sheet and continued discipline in the control and capital management. We're focused on executing across all of our footprint, optimizing our lenders and lending capacity and driving cross-sell activity to support core deposit growth, while maintaining a balanced approach to risk. .

We will be announcing a quarterly dividend of $0.16 per share, equating to an annualized yield of approximately 2.8%, representing 25% of our earnings. We continue to believe the current environment presents attractive opportunities to build on our growth trends. Our capital levels provide flexibility. Our collective experience provide a clear path to a broader footprint and our continued focus on improvement supports our long-term objective of scaling our franchise towards the $2 billion strategic goal of a balance sheet.

Now I'll open it up for calls and questions. Sarah?

Nick, you can open up for questions, please.

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Brian Martin with Brean Capital.

Maybe just a couple of things here, if you guys cover it. You talked a little bit there on the call about it. But just the particularly the success you've had in the newer markets, Mark, you mentioned that. Just kind of trying to get a handle on when you look at loan growth and going forward here, just even the deposit growth, the benefits you've gotten from these new markets, just -- can you frame up just kind of your outlook on loan growth here. Is there more to come from those new markets? I mean it seems like maybe you've kind of got the low-hanging fruit but there's still more upside. But just frame up kind of your outlook on loan growth in the pipeline here.

Sure. As I'm sure you know, Brian, Angola was a mortgage production office originally and coveted, and we left at a mortgage production office and some wealth management business. And then recently here, we knew that there were some opportunities in Angola to develop as in the full-service office, and it's been really good. We've got a great staff. And there's certainly a lot of opportunity. I wish to spend some time up in that market. But when COVID hit, we kind of pulled back. But -- Angola is doing well. And we right on the verge of having black numbers coming out of that with a positive P&L.

And then Napoleon was specifically a result of the disruption in the market that we all know about, which is a result of consolidation and mergers -- and that's got great potential. As I mentioned before, in webcast, there's probably $1 billion in that market that has now become deposits of larger regional banks where as before, they were deposits of smaller community banks. And so we feel there's a great opportunity in continuing to deliver that. We've got a great staff and that's going to not only provide lending growth, but also nice deposit opportunities in a market that is longing for a community bank that lost a couple of them prior as well as some merger consolidation and disruption. So we're pretty bullish on those.

And then lastly, we've been in Ghana for a period of time, and it's been generally a mortgage loan production office and most likely by the end of the year, we'll be having more conversations about opening that as a full-service office in Columbus because we know there's certainly some opportunities down there with just the one-offs that we have in Dublin. So that's a little update on those offices in terms of opportunities for de novo expansion.

Okay. And as far as just kind of the pipeline, kind of what you're expecting here and kind of the coming quarters?

Yes. Steve can speak to the pipeline thing. We've had a few payoffs here recently, not because they want to leave us because they sold one of their projects. But I think it's generally pretty decent. We know and we've discussed many times about an outweighted segment of our growth has come from Columbus and continues to do so. But we also indicated this year, we were hoping that our other markets like Fort Wayne and Indianapolis and Toledo and Findlay all kick in and provide their portion of our $75 million to $100 million growth. But Steve, any comments on what that [indiscernible]? .

Yes. No, Mark, I think consistent with that, that high single digits we talked about previously. As we discussed in previous calls, I remember, Brian, we are focusing on expanding the breadth. Certainly, Columbus delivers a lot of growth for us, and we'll continue to do so. But we are committed to expanding that growth story to those other urban markets. And that even does include, as Mark referenced earlier, entering the angle and deploying offices. Those are those -- that story remains further to be told there's more growth there, and we think our model serves those markets well.

A lot of disruption, Brian's markets, which has really played well into our hand. We could have gone there even before the disruption, but it wouldn't be quite as robust as we're finding it today. .

Okay. So now with the geopolitical risks out there, we've heard more people just kind of the sentiment is a little bit near term isn't quite positive on the loan growth side, but it sounds like at least your pipeline is still good and you're still optimistic about achieving kind of your targeted goals for the year?

Yes. I think that's true, Brian. And certainly, we have not seen yet anyway, a whole lot of blowback from what's going on in the Middle East, our ag portfolio, which is not insignificant, as you know. Our farmers by and large, have repurchased all those supplies that are impacted by that. So we wouldn't expect any hit to our ag portfolio, certainly this year and hopefully, obviously, things don't persist beyond this year.

And Brian, I have to go on record and reiterate our credit culture, which is we're never going to get enough of yield to compensate for an undue amount of risk. We walk away from some deals. We could grow -- I think we could grow, Steve in the low double digit easily if we wanted to, but we stay pretty disciplined. We like our credit quality, and we know the effective potential is going to have on profitability should we lose what we've worked hard to get. .

Yes, certainly, the markets we're in would afford that kind of opportunity on our presence there, but we are -- we walk away from deals that don't make sense for our credit culture.

Okay. We'll stay tuned for the other -- some progress in the other markets. Maybe just, Tony, on the margin, just the liquidity that you have today, I know you've talked about competition at least the liquidity you have today seems to give you a little cover on the potential deposit competition. But just can you talk about how you feel about the margin here in kind of the next couple of quarters just in the backdrop of maybe a stable rate environment.

Yes. I mean, we're down, call it, 5 points 5 basis points from the linked quarter, which is really a function of being very liquid. We did a lot of deposit growth, $65 million in the quarter. We didn't really go out and we're terribly aggressive on the rate side, even in the new markets that we're maybe 25 basis points above market, nothing crazy.

I do think there's been a little bit of, call it, parking of money a little bit in the markets, and we were the benefactor of that. and a number of the new clients that we've gotten via disruption have been some deposit dollars that we've gotten. I do think liquidity will wane a little bit here in the coming quarters. And we've already started to get a little bit stickier on deposit pricing, not really matching on some aggressive rates. So I do think we're in a pretty good spot. I do think 347 is probably going to move up a few basis points here in the second quarter just because I think we'll get back to having, call it, $15 million to $20 million of loan growth in the quarter versus the kind of the $1 million we had in the quarter that we just finished.

Okay. And in terms of the cost of deposits, I guess, you still think that we're trending higher from here than lower in terms of thinking about that as you go into next year with the competition?

Yes. I mean, I've been pretty confident that deposit costs would trend higher and they continue to trend a bit lower. So I've missed that so far, but I still believe the market disruption we've had, I don't think that's going to continue. I do think those competitors are going to become aggressive and they're certainly in read their earnings release, they're certainly focused on growing loans. They're going to have to fund it.

And I think, Tony, you would agree that deviating from CRE a bit to more ag-based C&I brings that deposit base that we're very, very happy about that we didn't have prior to 6 months ago. So not only are acquiring similar balances, the full relationship comes with deposits, which has been a real needle mover.

Absolutely.

Yes. Okay. And in terms of the mortgage outlook or just kind of big picture, I think you talked about it being 20% or 25%, I think that was a production maybe next quarter, but just bigger picture, kind of where rates are today and kind of what you're seeing in terms of the outlook for mortgage maybe full year just kind of zooming out a bit, just bigger picture, kind of how you're thinking about it.

Do you want my number? Do you want Tony's number or a number -- I'm still landing on the $350 million number just because I thought we were going to get a little bit of a play in the 10-year, which is as we all know, has been temporarily disrupted. So that's going to be a bit of flat here going forward. But we just hired a couple of new high-producing MLOs in some of our urban markets gaining some traction and a little more representation in some of our legacy markets.

So we know that the average production has gone down, which is why we brought on more MLOs. So when we get closer to 30 and they do $12 million to $13 million, $14 million on average because we have some high producers just the 80-20 rule, 80% comes from 20% of the producers. But I'm still pretty optimistic that we can deliver something closer to that $350 million to $400 million number, but I'm sure Tony has got a different number.

Yes. I think March, we did 45% of our total first quarter volume. So I was very pleased with how the quarter ended. We did just shy of $30 million in the month of March. Our pipeline is kind of at that $35 million number. I think we're going to do 90-ish type million in the second quarter, and I would suspect we're going to repeat that probably in the third quarter if things are where they are. .

As Mark said, I'm encouraged that we're able to hire some high-performing folks in various markets. That tells you that our model is still working and the volumes out there. So that would kind of put you on pace to get to $3.10 to $3.25 on kind of the high end. So for the full year. And I think rates are going to be relatively stable where they are. I mean, the mortgage rates have fought back against, I would call it, the increase in long end of the curve. And as long as we're at 6 or 5 and 7 or 8, I think we can hang in there. You're starting to see a lot of the of the secondary people really get aggressive to try to get volume on the FHLB is getting aggressive on doing very low rate type opportunities to sell. And so we're going to be participating in all of those, which I think in to our benefit.

So Tony, said differently, you don't think Warsh is going to be to every win of President Trump and drop rates to get us something below 4 in a 10-year.

I wouldn't. I do think it will get there by the end of the year, but I don't know that it will be that...

I'm hopeful, Brian, we'll get a play on. I'm still committed with that. But again, with a larger balance sheet, it's the gift that keeps on giving every month. You just don't have to -- you have to do $100 million mortgages every month. We got the balance sheet size and we got the operating revenue now. .

Yes. In the mortgage folks you hired you're still planning to hire more, but those were in metro markets? Or what markets did you add people in?

Yes. We've added one in Cincinnati and Indianapolis and we've got a couple of other individuals that are considering, which has been kind of a gap for us in some of our legacy markets. Finley has been a gap for us, but we've had enough of people, Brian to cover all those markets. So it's not like we haven't had anybody there. We just haven't had anybody that lives, works, plays and does their thing in the market, which is more accretive to all the business lines if you have people that work play and live right there, like Angola.

We're currently hunting down somebody in Angola market. So we're committed to the business line. We love the gain on sale, but getting another household with more products and services is a big deal.

Yes.

Okay. And then how about just last 2 for me, just on expenses. Big picture, how you're thinking about the full year, just ebbs and flows here any initiatives or things that take it off kind of the current run rate or is your current run rate kind of a decent level to think about here in the coming quarters?

I do think the run rate is in pretty good shape. I mean we've had some opportunities here. I think as we've seen some opportunities in the market that we've consolidated some areas in our operational sections, and we've made some efficiencies, which I think will continue to help us. I think the bulk of our technology spend on new things is kind of in the rearview mirror a little bit. We do have the conversion to Pfizer that's going to happen here at the end of the year that I think will be a net 0 in '26 and will be a bit of a headwind as we go into '27 as we try to find some opportunities.

So I'm very hopeful on the expense side. as we've gotten bigger, we founded more opportunities to do things and to do more with less, which I think is what we need to get to continually every month.

Okay. And capital, you said, Tony, the buyback is a little bit lower, but I mean I guess it's the near term, I think you talked about the sub debt and then maybe potentially M&A. Is that kind of where how to think about capital deployment today? Or just what you're doing there?

Yes, I think so. I think we were -- we've obviously been very aggressive on the buyback, and I still think it's a great use of our internal generated capital -- and -- but it's kind of at the price where it is today that I think we can afford to slow down a bit. We do have the sub debt here in June and we've got to think about some things and then we have a lot of opportunities to deploy. And if we do another $160 million, which I don't anticipate of asset growth in '26, like we did in '25, we're going to be stressed a little bit on regulatory capital. So we've got to be cognizant of that in our rearview mirror.

And on M&A brand, we continue to keep our ear to the ground. That's downstream as well as middle stream and everything in the middle and everything above but nothing transformative at this point other than we know that organic is great, but clearly, M&A is defined. So we continue to look at opportunities that are in the region. .

Got you. And credit all sounds good. A little bit of, I guess, improvement, I guess, or just continued success on the credit front, nothing really causing any problems in terms of things you're seeing out there in terms of risk?

Yes. No, again, from a high level, we like to think we've -- when you have a downturn, as we all know, that's when you get a good of your underwriting administration. And as we all know, we haven't had really much of a downturn. Our clients' balance sheets are pretty liquid. We get personal guarantees. We rely on makers. We have good projects in urban markets. Generally, all is good. But as we all know, you have it until you don't. So we're pretty precautious on the risk we take and the deals we do. And as I mentioned, if we wanted to really light it up, we've got great opportunities because we have 17 different lenders running around out there trying to find deals. So what our job is, even Steve, myself and Tony is look pull back on the reins to make sure we keep this thing measured and we keep it on the track.

And Steve, any more perspective on credit quality?

Yes. No, certainly, I echo everything you said, Mark, have talked about previously, Brian. The stability of our asset quality, those credits are working, not a function of turnover and new credits coming into our nonaccrual loans. It's kind of the same ones we've talked about in the past. Unfortunately, the wheels of justice grind a little more slowly than we might like. As Tony referenced, we did get control of one of those pieces of collateral that we are very confident in our position on all those credits where we think we are and we're going to get out where ultimately we blowin.

Okay. So a bit more progress. And lastly, Tony, I meant to ask you -- you have commented earlier, but just the deposit growth and the liquidity. I guess, do deposits maybe tail off a bit here given kind of what you've gotten some good growth. But I mean, I guess, is that a -- it sounds like some money may be going out the door, but just how are you thinking about deposit growth from here?

Yes. I think -- I do think we're going to have a down quarter in the second quarter. On the deposit side, we already know of some kind of larger relationships that are moving out through normal business cases. So I don't think we'll have enough to overcome that on the retail side. So I do think we're probably going to be at the 90% loan-to-deposit ratio here in the rest of the year, and I think that's a comfort level for us.

I don't think we need to be overly priced on the deposit side to get there and I think we're only nervous about liquidity if the loan pipeline gets to be on the upper end of our range. I think we're comfortable with at mid- to high single digits and funding that based upon all the things that we've got going on. And if we get above that level when we might have some stress.

My other comment, Brian, is I don't think we want to downplay or trivialize the market disruption, which has been absolutely wonderful for us because we've burned the relationships that we never would have probably been able to bring over to our company as a result of that. And that is just -- that's really just begun. It's not like it's ending. We're 9 months in to our plan to find more of disrupted companies assets, and we're at that $110 million number. So we're cruising along to our strategic goal of a few hundred million. So a lot of opportunities and a bigger job to be done. .

Got you. I appreciate it.

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

Thank you. And again, thanks for joining us this morning. We certainly look forward to having you join us in July for our second quarter 2026 results. Thanks for joining us. Goodbye. Have a great day. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the SB Financial Fourth Quarter and Full Year 2025 Conference Call and Webcast. I would like to inform you that this conference call is being recorded. [Operator Instructions].

I will now turn the conference over to Sarah Mekus with SB Financial. Go ahead, Sarah.

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; and Tony Cosentino, Chief Financial Officer; and Steve Walz, 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.

Thank you, Sarah, and good morning, everyone. Welcome to our fourth quarter 2025 conference call and webcast. The fourth quarter and full year 2025 results reflect the continued strong execution across our franchise, delivering one of the strongest earnings quarters and year in our history. This includes a stronger presence in our core markets and steady progress in select expansion wins.

Notably, we achieved this performance in a year where industry-wide mortgage activity include volume at State Bank remained clearly under pressure. Throughout the quarter and year, we focused on disciplined lending, balance loan and core deposit growth, prudent expense management and maintaining strong credit fundamentals while navigating a fairly competitive environment.

As we pivot from 2025, we believe our well-capitalized balance sheet, diversified business lines and revenue model, sound asset quality and disciplined approach to capital management positions us well to support prudent growth and long-term value creation for our shareholders.

The highlights for the quarter and full year include net income of $3.9 million diluted EPS of $0.63, up $0.08 or approximately 15% compared to the prior year quarter. When considering these service rights recapture adjusted EPS of $0.65, marking our 60th consecutive quarter of profitability.

For the full year, our GAAP EPS of $2.19 represents the second highest per share earning performance in the last 20 years and a 27% lift over our 2024 EPS of $1.72 and 18% over our 2025 budget. Clearly, a very successful year for SB Financial. Tangible book value per share ended the quarter at $18, up from $16 last year or a 12.5% increase.

Adjusted tangible book value not rest at $21.44 per share and drives our current market price to reflect an approximate 100% threshold. Net interest income for the quarter totaled $12.7 million, an increase of nearly 17% from the $10.9 million in the fourth quarter of last -- of 2024. From the linked quarter, net interest income increased 3.1% and for the year, rose to $48.4 million, representing an increase of $8.5 million or 21%.

Interestingly, 50% came from a larger balance sheet and 50% from [ water ] margins. Recurring net interest margin revenue now represents nearly 75% of our total revenue, reflecting a larger balance sheet and expanded margins as fee-based business line revenue pulled back from our historical average of 35% and to just 26%.

Loan growth for the quarter was $70 million or an increase of 25% on an annualized basis. On a year-over-year basis, we delivered growth of $133.9 million or 12.8% and now marks 7 consecutive quarters of sequential loan growth. Our trajectory has enabled us to also outpace our peer performance and those at the 75th percentile.

Driving our acceleration was our meaningful commercial lending activity and around the greater Columbus market of over $73 million this year with a solid contribution also from our new ag lender located here in Northern Ohio. Total deposits increased this quarter by $45 million or 14% on an annualized basis.

On a year-over-year basis, our deposit growth escalated by nearly $155 million or 13%. This expansion includes $47 million related to the Marblehead acquisition. Stronger organic deposit growth continued to support balance sheet expansion and liquidity. Deposit balances and client relationships at Marblehead have remained stable and retention trends have been well in line with our expectations. Excluding acquired balances, deposits grew 9.3% compared to the prior year reflecting continued engagement with our client base across all 7 of our regional markets.

Importantly, our balance sheet remains liquid and well positioned for continued growth. At quarter end, we held approximately $50 million in excess liquidity and had ready access to $160 million in outstanding debt capacity, each providing meaningful flexibility to support organic growth, capital deployment and potential strategic acquisitions.

Total assets under our care expanded this quarter by $62 million, representing annualized growth of 7%, this quarterly growth was a derivative of our annual trend that enabled us to reach now the $3.6 billion mark. This number includes bank assets of $1.5 billion, a nearly 9,000 household residential servicing portfolio of $1.5 billion and wealth assets of $566 million.

Together, this diversified asset base provides meaningful revenue diversification and certainly supports performance across a number of varying market conditions. Mortgage originations for the quarter were $72.4 million, down from the prior year, but up compared to the linked quarter. We do still see a solid pipeline in the $25 million to $30 million range. Obviously, the pipeline can be extremely fluid as even a 0.25 point drop in rates would potentially move reluctant buyers off the sidelines into the market, albeit with limited housing inventory that we've discussed for a number of quarters.

Operating expenses declined approximately 2.3% for the linked quarter and were up slightly compared to the prior year. Full year expense growth, excluding the onetime merger costs, was 7.7%, well below the 15.1% full year 2025 revenue growth, resulting in core operating leverage of 2x. Asset quality metrics remain -- continue to reflect the overall strength of the portfolio during the quarter with nonperforming loans to total loans declined to 0.39%, down from both the linked quarter and prior year period.

Nonperforming assets also decreased on both a sequential and year-over-year basis, reflecting continued progress in resolving problem credits and maintaining disciplined credit oversight. While we did see some isolated pressure in certain credit relationships, we are actively addressing and resolving those exposures to continue to make progress is the same our overall credit quality.

Our strategy remains anchored in our key 5 strategic initiatives: growing and diversifying revenue, greater footprint and scale for efficiency, a larger share of the client's wallet, which is all about scope, operational excellence and, of course, always asset quality.

Looking a little closer at revenue diversity. As I mentioned, mortgage originations totaled approximately $72.4 million during the quarter. While activity remained slightly below the prior year period, production continues to improve compared to earlier quarters in the year, reflecting gradual softening in Freddie Fannie fixed-rate salable products.

Clearly, we had higher expectations for the residential market this past year with a support team that has remained in place to deliver a far higher volume number. Overall, the $278 million in annual volume missed our budget level by approximately 28%, but we were pleased that compared to the prior year, volume was higher by over 8%.

And most importantly, our loan sales volume eclipsed the date 2024 level by nearly $34 million or 16%. Also, 2025 did not provide the historical boost to volume that we typically experience from refinance activity. For the year, 73% of our volume was purchase activity with another 6% from construction. -- supplemented by 20% from refinance from both internal and external clients new to State Bank. On a positive note, the fourth quarter's originations contained over 42% in refinance volume, as clients took advantage of a window of several rate reductions during the quarter.

Noninterest income was down by 18.6% from the prior year quarter at $3.7 million and down $12.6 million in the linked quarter. For the entire year, our noninterest income was approximately $17.1 million and right at recent year's levels. The decrease from the fourth quarter of 2024 was primarily driven by decreased mortgage servicing rights as well as other fee-based business line revenue. Peak Title made great strides throughout the year to not only expand contacts outside of State Bank, but to also leverage internal referral resources. -- each contributing to a full year improvement in revenue of $413,000 up to $2 million or an increase of 25%. And and expansion in net income of $219,000, up 60% to $583,000.

We have hinted at new initiatives within our wealth management group over several quarters that reflect the expanded resources and capabilities from our partnership with advisory alfa. We are excited to bring a number of their professionals bin-strength and talents, to our markets to help build our client base as well as inform the public on market dynamics and investment strategies. The latter being just 1 example of the expanded advice and product knowledge that will be brought to bear throughout our footprint, beginning in 2026.

On the scale front, Marblehead team that we acquired is now fully embedded with State Bank platform and operating under 1 unified operating model, allowing us to deepen the relationships and pursue new business opportunities in that market. The successful conversion of Marblehead's customers into our core system on October marked the final step in aligning operations and technology and positions us to scale efficiently going forward.

As a result, the acquisition has transitioned from now integration to execution for adding us with an established presence in a new market with nearly 2,500 deposit accounts that bear a weighted average rate of just 1.35% and provides a solid foundation for organic growth beyond the initial transaction.

As noted earlier, deposit growth, both inclusive and exclusive of acquired balances was an important contributor to earnings performance in 2025 with total deposits improving to $1.3 billion. The strength of our deposit base continues to support balance sheet liquidity and provides flexibility to fund our ongoing loan growth.

This funding profile remains a key element and our ability to support clients while maintaining disciplined balance sheet management. Again, we have grown loans now for 7 consecutive quarters with the 2025 annual growth rate of 12.8%, finishing well above our historical average of high single digits.

Our continued success in the Columbus market is a model that we expect to translate more into our other 6 regions in 2026. Additionally, we have witnessed early success in the de novo expansions of Napoli, Ohio and Angola Indiana markets with nearly $15 million in loan growth during the quarter. Also, we are leveraging our strategic focus on the Fort Wayne, Indiana market with a new additional commercial lender.

Fort Wayne continues to be a growth market that has significant upside for organic balance sheet expansion in 2026 and well beyond. -- more scope and our relationships with our clients. During the quarter, we continued to build on our client-centric approach to growth, focusing on building durable relationships and expanding client engagement across all markets.

As we continue to invest in both newer and established markets, we continue to evaluate how our physical presence, staffing and resources are best positioned to support sustainable growth and solidify long-term client relationships. As we've noted in prior quarters, ongoing consolidation across our markets, has continued to create opportunities to engage clients. In fact, this quarter, we saw continued success converting that activity into meaningful relationships and growth that after just 8 months is boarding around $80 million in new loans and deposits to our company.

Our focused calling efforts remain an important contributor to this growth initiative and continue to support both new and existing clients across our 20 community base. Center post of our operating model continues to rest in our ability to optimize interdependence and to ensure that no client in native of older relationship is left behind. This past year, that optimization led to our 7 business lines, identifying nearly 1,400 referrals with 53% or 734 referrals successfully closing that delivered $92 million in new business for our company.

Operational excellence. As we indicated in previous quarters, we believe that agricultural lending opportunities have begun to surface in many of our markets. The new agricultural lender that we recently added is a highly seasoned professional with a sizable book and strong track record of production. When we combine this level of experience with our 25-year ag production leader, we further strengthened our potential and positions us well for continued growth in this sector.

Interestingly, this initiative has already delivered funded loan growth of $19 million or 20% in that portfolio with another $3 million of core deposits.

Finally, asset quality. Our asset quality remains one of our competitive advantages. It allows us to embrace measured credit risk opportunities, by driving balance sheet growth while expanding margin revenue. As I mentioned, charge-offs rose to 4 basis points from 0 basis points in the third quarter, but were only 2 basis points for all of 2025.

Nonperforming assets totaled $4.7 million. We remain focused on maintaining our strong asset quality as demonstrated by our continued management of our criticized and classified loans, which stood at $5.7 million down from $5.8 million in the linked quarter and $6.4 million in the prior year.

Our allowance for credit losses remained a robust 1.36% of total loans, now providing 352% coverage of nonperforming assets. We expect to make more progress in the first half of 2026 to further reduce our NPL portfolio. We have workout plans in place that should deliver improved metrics with certainly minimal losses.

Now I'd like to turn the call over to our CFO, Tony Cosentino for some additional comments on our quarterly performance. Tony?

Thanks, Mark, and good morning, everyone. Let me outline some additional highlights and details of our fourth quarter and full year results.

On the income statement, in the fourth quarter, total operating revenue increased to $16.4 million, representing a 6.3% increase from the prior year period and 1% decrease from the linked quarter. As Mark mentioned, net interest income was the primary driver of revenue growth, up 17% year-over-year. The increase was supported by higher loan balances and continued portfolio repricing. While interest expense increased during the quarter at a more measured pace.

Loan related interest income totaled $17.3 million for the quarter, supported by continued growth in average loan balances and the ongoing repricing of the portfolio. Loan yields were consistent from the linked quarter at 5.94% and increased 19 basis points year-over-year. As a result, the yield on earning assets improved by 17 basis points to 5.32%.

Our full year ROA was 93 basis points, up 11% from the prior year with our pretax pre-provision ROA for the year increasing to 1.33%, a 21 basis point improvement over the 24% full year performance. Total interest expense for the quarter of $6.6 million was up $610,000 or more than 10% for the prior year. And for the full year, interest expense increased by $1 million compared with a $9.5 million increase in interest income reflecting favorable balance sheet growth and pricing dynamics within our markets.

Our average rate on interest-bearing liabilities was 2.34% for the quarter, declining by 1 basis point from the prior year, but up 1 basis point from the linked quarter. Funding costs benefited from continued core deposit growth and a favorable deposit mix shift across our markets. While funding costs may trend higher over time as rate dynamics evolve, we continue to see opportunities through ongoing asset repricing and the reinvestment of lower-yielding securities into higher-yielding assets to support net interest income.

Our decline in noninterest income from the linked and prior year quarters was a reflection of a negative contribution from other noninterest income, driven by an [indiscernible] impairment during the quarter. Core fee-based revenues remained relatively stable, though the stronger contribution from net interest income reduced our reliance on fee-based revenue that historically was required to drive our top quartile financial performance.

Our total mortgage banking contribution this quarter of nearly $1.5 million was down compared to the prior year, but in line with the linked quarter. Aggressive sales and continued opportunistic hedging resulted in the highest level of gain on sale revenue since the peak pandemic year of 2021. We fully expect that volumes will climb in 2026 by low to mid-double digits, while maintaining our traditional sales level of 85%.

Operating expenses for the fourth quarter remained in line with recent trends reflected continued discipline around cost management. Overall, noninterest expense declined 2.3% from the linked quarter but increased 2.1% compared to the prior year. Headcount remained largely unchanged from the prior year as staffing additions in Marvel head and other select areas were offset by efficiencies elsewhere in the company.

Reviewing the balance sheet. As Mark noted, loan and deposit growth continue to support earnings performance during the year. Entering 2026, we believe our balance sheet is well positioned to support ongoing organic loan growth that is expected to be funded primarily through continued deposit growth and reallocation of bond proceeds consistent with our long-standing balance sheet strategy.

We continue to benefit from a stable core deposit franchise as it's historically funded the majority of our asset growth. Wholesale borrowings remain a complementary funding source our overall contingent liquidity position remains strong at over $550 million. All of our liquidity ratios are well within internal policy between 5% to 10%. And we continue to have access to the wholesale market should retail deposit growth lag expectations.

Our loan-to-deposit ratio moved slightly higher compared to the linked quarter at 90.3%, but continues to fall within our targeted operating range of 90% to 95%. Given the stability of our deposit base and predictable deposit behavior, we believe our funding profile appropriately balances profitability, liquidity and risk as we move into the coming year.

On capital management, during the fourth quarter, we purchased nearly 32,000 shares of our stock at an average price of just under $21, which was roughly 114% of tangible book and 96% of tangible book when adjusted for AOCI. For the full year, we repurchased a little over $283,000 for $5.5 million, using 40% of our earnings with an average price year-to-date of just over $19 per share.

Tangible book value per share was up 12.5% year-over-year and was up from the linked quarter by 79% -- $0.79, driven by a $1.9 million benefit on AOCI higher earnings and a reduction in share count from the buyback.

Lastly, on asset quality. Total delinquencies increased 4 basis points for the linked quarter to 49 basis points compared to the prior year total delinquent loans decreased by $1.6 million. Total classified loans also declined from the prior year by approximately $816,000 or 15%.

Our allowance for credit losses increased approximately $171,000 during the quarter, reflecting continued loan growth and changes in portfolio mix, while the allowance as a percentage of total loans declined 8 basis points, as loan growth outpaced our reserve build. Overall, reserve levels remain aligned with portfolio risk characteristics, recent loss experience and current credit quality trends.

I'll now turn the call back over to Mark.

Thank you, Tony. We remain encouraged by our positioning as we enter 2026, supported by strong credit fundamentals, a growing balance sheet, larger footprint, disciplined expense control and capital management. We continue to see a healthy loan pipeline and benefits from a stable core deposit base that together provides a solid foundation to support performance improvement.

As we look around the corner, we intend to focus on disciplined execution across all markets to optimize the production capacity of our entire lending team. Likewise, we intend to drive cross sales in our '27 office retail footprint to grow core deposits as we balance projected growth metrics and identify the most prudent path to deliver long-term value for our shareholders.

We recently announced a dividend of $0.155 per share, equating to approximately 2.8% yield and just 25% of our earnings. This will complete our 13th consecutive year of increasing our annual dividend payout to our shareholders.

In summary, we continue to believe the current environment presents attractive opportunities to accelerate our growth. Our capital levels provide the flexibility our collective knowledge of the path to a broader footprint and our attitude of persistent dissatisfaction with our performance, we'll deliver our short-term goal to build a high-performing $2 billion balance sheet.

Now I'll open it -- open the call for any questions. Sarah?

Operator, we're now ready for some questions.

[Operator Instructions]. Our first question comes from Brian Martin with Janney Montgomery.

Maybe just a couple of things for me. Maybe, Tony, can you comment a little bit on just or just to elaborate on your comments on margin and just kind of your outlook here. I think last quarter we talked, it seemed as though deposit pricing was a bit more of a concern given the environment, both for growth and the rates? And I guess in that context and then also just remind us what repricing on the asset side you have that is maybe a bit of a tailwind to some of that deposit offset.

Sure. I'll address the deposit side first, and Steve and Mark can comment on repricing, although a little bit of fact. I think we did see in the quarter deposit pricing show some stress in terms of higher competitive pricing and more requests from our current client base for something in the mail that causes us to rethink where we are.

So we ended the quarter with NIM at, call it, 351. We're forecasting that that's going to kind of gradually move down in 2026, probably 5 to 7 basis points, I would guess, by the time we sit here next year based exclusively on, I think, a higher funding cost mix -- and we're going to start to see a little bit of pressure of deposits that we have on our books today that will be under pressure to move out, I think that will be relevant in 2026.

We still do have a portion of our assets that are going to reprice. As we sat here last year at this time, it was probably $250 million of contractual repricing, probably half of that has finished during 2025. I think we have about $125 million to $140 million of remaining loans that are contractually slated to reprice in the first 9 months of 2026.

Yes. From the loan side, Brian and Steve can weigh in here. But certainly, the loans we're finding are of high quality, and we continue to price at or above the margin. So I would think those would be accretive to a NIM, Tony and our total operating revenue. Certainly, continued pricing pressure out there because competition is stiff, but we found the deals that we've wanted, albeit with a certain level of concentration in and around that Columbus market. But in 2026, we're looking for more inertia from our other 6 or 7 markets that last year found it difficult to expand beyond their current level.

But we're certainly optimistic this year that we'll continue to book more loans, again, at or above the margin, and Steve, you might have some comments on what we're seeing what the pipeline looks like and what those rates are on a variable basis?

Yes. Certainly, pipeline remains stable and expect continued performance that we've enjoyed here much of '25. And last comment on the repricing expectations, Brian, we kind of anticipated that we would retain those loans as they repriced when we were talking about this last year, that has proven to be the case as our spreads were appropriate to the market. We do examine upcoming loan reprices on a regular basis and get out in front of any that we think may be a challenge, in effort to retain those. Our experience has been very good. We expect that to continue, as Tony said, in '26.

And Brian, that last comment, Obviously, the word of the year for 26 for us and maybe the other banks is deposits and making sure that we reap some of those relationships that have deposits at other banks that the only where we're going to be making loans at the margin and greater is to fund it with a progressively lower deposit yield.

So we look to be making sure that, that's a focus on '26 is delivering that lower cost funding that's going to keep and be accretive to that 351 margin, Tony.

Yes. And just the current pricing, I don't know, Steve, just in terms of the -- what you're seeing new production come on at, where is that at?

I think, Brian, typically, we're seeing that stay stable in the I'll call it, 300 basis points over a corresponding treasury, for example. We've enjoyed the ability to price up and down as those rates move.

And we traditionally priced at call it, either the 3 or the 5-year treasury, that's probably where 90% of our loan volume is priced at relative to that index.

With the caveat that deposits need to come along with relationships. It's the same narrative, Brian, that's going on in all banks, but again, it's all about execution.

Right. No, understood. And maybe just on on the mortgage side, Tony, just you made some comments in the call, but was it about 10% growth on mortgage production, I guess? Is that how you're thinking about 2026 at this point? I know you said there's still a high sales volume or high sales percentage, but just in terms of excellent volume or production. How do you feel about that?

Yes. So kind of our $280 million, if you're 15% on my calculation gets us to about 3.25%, 10% is, call it, 310. So I think we're I think we're safely in a low to mid-single-digit growth rate for 2026. I think Mark would say that given our desire and our model to get additional lenders, we might push that on the upper end of that number to the $3.50 to $3.75 range. But I think with our current staff and process and what we're seeing on pricing, I think that $3.10 to $3.25, $3.30 range is well in hand for 2026.

The other thing, Brian, I'd add to that is that we're committed to finding about Well, 4 or 5 additional mortgage lenders. We have '23 now. We're looking for a couple more in not only the Cincinnati, but the India market plus up in the Northwest Ohio footprint. And as we've indicated a number of times before, our backroom remains built for that something in that $400 million plus number. So we've got the capacity. We've retained the capacity to make sure that we can feel that additional volume when rates drop. Of course, we all know that if Trump had his way, we'd have a 5 handle on a 30-year mortgage. And we think that's going to be bullish for 2026, and we're going to prepare to take the market as it unfolds.

Yes. Okay. And the -- and maybe just last 2, just on the expense side, Tony. I mean, you guys have done a great job there. I guess just in terms of keeping a lid on cost this year, I guess, or just, I guess, what are you thinking about in terms of type of expense growth, maybe annual expense growth or just big picture commentary on how you're thinking about expenses looking into '26.

Yes. I think that's a great question. I mean I think we had really double luxury in '25 that revenue growth was really spectacular, but we were able to really get some efficiencies done on the expense side, we had some positions that left, and we were able to do more with less people and reallocate and do those kinds of things.

I don't know that we've got some of those on the handle for '26 for more reallocation. I do think expense growth will be still pretty well maintained kind of in that 3.5% to 4% range on the back end. But I do think positive operating leverage will still be 1.5 to 2x in 2026. So that, to me, is the driver for us on everything that we look at.

And Mark has tasked me with taking care of the expense side and we're going to look at every opportunities. We've got a number of things in '26 with our sub debt coming together and some other things that have the potential to help or hurt our, call it, bottom line. So we've got a lot of things that are in place that we need to work on.

We certainly, Brian, have been optimistic about improving that operating leverage on the revenue side, but I've challenged Tony in 2026 here to move the lever on the other side, which is the expense side and do some things that we think are going to widen that operating leverage and drive net income on up to the $15 million mark for 2026.

Got you. And you talked about the loan pipelines. They're still pretty healthy today. I think I heard that, that's just the that's a key driver here, just given maybe the margin stability or a little bit lower that you're talking about. That's really the driver of NII growth as we look into '26.

Well, as I mentioned in our level of presentation here, Brian, half of our $8 million expansion in operating revenue, half came from a bigger balance sheet and half came from wider margins. So we're looking for more scale, try to constrain expenses to drive revenue and net income higher. But our pipeline, Steve, stands pretty good. We've certainly had options with the number of commercial lenders across our entire I don't know, 15 county footprint. We certainly had a plethora of opportunities, but I'm not sure where the pipeline stands like today.

Yes. As Mark referenced, Brian, certainly, Columbus is a great story for us and drove the bulk of growth for us, and we expect that demand to continue into '26. That said, as Mark noted, we added a strong ag lending presence in the latter half of '25 that we've seen benefits from and expect continued benefit as well as the addition very recently of more capacity in Fort Wayne, which is a great market.

We expect increased participation from those other urban markets going forward as well as really the Marblehead story, we think there remains opportunity there for a little more commercial participation given our girth in that environment.

And Brian, last comment. Everyone is aware of the consolidating landscape. And we've launched a strategy to seize upon that disruption and the crack in the landscape. And as I mentioned, we're about $80 million of incremental additional business on a goal of $500 million. So we set the bar really high. We may not get there because we'd have to drop maybe our credit standards to pull that off. But nonetheless, that's what we talk about, and that's what we're impatient with and that's going to be the correct a lot of our growth in 2026.

Got you. In the -- and last one was just on credit quality. It sounds like there's a bit of improvement coming. But just in general, is that kind of how to think about it. And just the reserve levels where they're at today, given the quality, how do you feel about that as you go into '26?

Yes. I think, Brian, on a credit quality standpoint, I've become a broken record on this admittedly. It has taken us longer than we would like to resolve some of these credits. So while we've seen improvement, it's been slower than we desire. The good news is that pace is not a function of resolving credits and then having new ones crop up is time it has taken us to resolve existing.

We do, as I've mentioned before, have a very robust internal loan review process. We think we have a good handle on our portfolio well. So we do expect that continued improvement in '26 as we resolve [indiscernible] that again, frankly, have taken longer than anticipated.

Yes. And I would just add a little bit there, Brian. I think as we've talked about on a number of these calls, we feel positive about our review process and where we are from a credit quality standpoint. Obviously, we have a pretty robust loan growth level. We still expect to fund provision relatively flat to what we did in 2025. That probably trends down our reserve ratio 3 or 4 basis points by the time we get to this time next year, but we still feel a 130 reserve ratio puts us well at the top end of our peer group and in really good shape relative to our nonperforming profile that we're going to have at that time.

Got you. Okay. Well, that's all I had, guys. I appreciate the question. Congrats on a great finish to the year and look forward to '26.

Brian, thanks. Looking forward to catching up with you in a few days.

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

Yes. Thanks, everyone. Thanks for joining us this morning. Certainly, we look forward to speaking with you in April and giving you the details on our first quarter 2026 operating results. Have a good day, and talk soon.

The call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone, and welcome to the SB Financial Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] We will begin with remarks by management, and then open the conference up to the investment community for questions and answers.

I would now like to turn the conference call over to Sarah Mekus with SB Financial. Please go ahead, Sarah.

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 Cosentino, Chief Financial Officer; and Steve Walz, 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 review -- 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.

Thank you, Sarah, and good morning, everyone. Welcome to our third quarter 2025 conference call and webcast. The third quarter reflected steady execution across our business lines and continued stability in our core markets and concentrated growth and expansion wins. I'm pleased to report that the integration of the Marblehead clients was successfully completed this past weekend. We welcome and value them, as they are a key ingredient in our strategy to further leverage our [ Community Bank ] brand.

We're also preparing to descend upon a new adjacent market just to our west into Napoleon, Ohio in Henry County. We are clearly excited about the potential of this market and especially the $800 million in deposits in the market we intend to aggressively pursue as a result of our new presence.

Throughout the quarter, we maintained our focus on disciplined lending, core deposit growth, and careful expense management. While the operating environment remains competitive, we believe our balance sheet, lines of business, credit quality and a growth mindset position us well for the final quarter of the year. Some highlights for the quarter include net income of $4 million with diluted earnings per share of $0.64, up $0.29 or approximately 83% compared to the prior year quarter. When considering the servicing rights impairment, adjusted EPS was $0.68 for the quarter. This was our 59th consecutive quarter of profitability.

Tangible book value per share ended the quarter at $17.21, up from $16.49 last year, or a 4.4% increase. Excluding the acquisition payment for Marblehead, tangible book value per share is up 8.9%. Net interest income totaled $12.3 million, an increase of over 21% from the $10.2 million in the third quarter of 2024. From the linked quarter, net interest income accelerated at a 30% annualized pace. Loan growth over the prior year quarter was approximately $80.6 million, or 7.8%, and now marks the sixth consecutive quarter of sequential loan growth.

Deposits grew by nearly $103 million, or 9% inclusive of the $51 million in deposits related to Marblehead. The deposit base and relationships from Marblehead have remained largely intact since the financial merger in January. When we exclude the Marblehead deposits, overall deposit growth was still healthy at 4.5%. Assets under our care continued to grow and now exceed $3.5 billion, consisting of bank assets of $1.5 billion, residential servicing portfolio of $1.5 billion and now, wealth assets of over $563 million. Once again, this diverse book of assets provide stability across market cycles and continues to position us well for performance enhancements heading into 2026 and beyond.

Mortgage originations for the quarter were $67.6 million, down from both the prior year and linked quarters. However, our pipeline has strengthened a bit, with the per year rate at or below the 6% level for most of this past month. We are well positioned to recapture market growth with our 23 lenders positioned all across the Midwest in Cincinnati, Indianapolis, Columbus and Northwest Ohio as rates decline.

Operating expenses decreased approximately 3% from the linked quarter and up slightly compared to the prior year. Year-to-date expense growth, excluding the onetime merger cost, was 9.5%, well below the 18.5% year-to-date revenue growth. This acceleration of revenue over line item expenses represents an operating leverage of now 3.5x this quarter and 1.8x for the year through 3 quarters.

Asset quality continues to be one of our competitive advantages. Charge-offs returned to more historic levels, and we successfully eliminated nearly $1.3 million in nonperforming loans from the linked quarter by way of payoffs and upgrades. In [ ClearSight ], we continue the relentless pursuit of our 5 key initiatives. And I'll remind you, growth and diversity of revenue, organic growth for greater scale to improve efficiency, deepening client relationships for a greater scope and more services per household, excellence in operational activity and, of course, top-tier asset quality.

A little closer look at revenue diversity and growth. Mortgage originations remained fairly consistent during the third quarter and continued to show solid improvement from earlier in the year. [ Total ] production was approximately $68 million, as I mentioned, just slightly below the level recorded in the same quarter last year. While we have been disappointed overall in the residential market this year, Our ability to generate residential real estate loans across our footprint still improved by 9% over year-to-date 2024. As a result, we have improved our residential loan sale gains now by 13% over the prior year-to-date. [ That said ], we are absent from any meaningful refinance volume thus far in 2025.

This quarter continued our trend of purchase and construction loans. Year-to-date, we have completed over 80% of our volume in purchase and approximately 7% from construction. Throughout 9 months, we have done just $7 million in refinancing our own book. As a result, our servicing rights have increased by nearly $1 million or 7% and are providing an additional $175,000 in annual revenue for 2025.

Noninterest income was up 2.9% from the prior year quarter at $4.2 million and down 15.9% from the linked quarter. The increase from the third quarter of 2024 was driven by increased mortgage servicing rights as well as increased title service fees and other fee-based business line revenue. From the linked quarter, we saw a reduction due to the $460,000 servicing rights impairment that accounted for approximately 60% of the decline.

Peak Title has continued to be a bright spot in our fee income suite thus far in 2025. Their revenue contribution is up nearly $400,000 or 32% on a year-to-date basis. These results are especially meaningful given that our mortgage value is up just 9% year-to-date. Peak has expanded their customer base well beyond State Bank, and our commercial lenders have consistently increased their referrals. In fact, year-to-date, our internal referrals have provided our title company with 28% of their total revenue.

Our wealth group is transitioning to a new strategic partnership with [ Advisory Alpha ] that we mentioned in prior quarters. This will enable us to bring an expanded suite of marketing materials to the table, and most importantly, a number of CFP professionals that will be an added benefit to our current and future clients while strengthening our high-touch brand. Over the coming quarters, we intend to expand on the impact this strategic partnership will have on our client base.

On the scale front, during the third quarter, we continued to make solid progress integrating the Marblehead team into our organization. Their staff has blended well with our State Bank team, and we've been very encouraged by their continued success in retaining long-standing client relationships and maintaining strong community ties. We also recently completed the integration of Marblehead's customers into our core system on October 24, marking the final step in aligning operations and technology across our combined organization. This acquisition, while small, has enabled us to enter a new market and add nearly 2,500 deposit accounts with a weighted average cost of approximately 1.2%. As I mentioned earlier, deposit growth, both with and without Marblehead, has been a strong contributor to our earnings in 2025. We have been able to keep most of our excess deposit liquidity, which has averaged approximately $75 million invested overnight, expanding margin revenue. As rates are expected to further decline in the coming quarter, we will be utilizing this liquidity to fund our solid loan pipelines across our footprint.

Again, we have grown loans now for 6 consecutive quarters, with the annual growth rate of 7.8% well in line with our historical averages of high single digits. We understand that the majority of the growth has occurred in the Columbus market and in the commercial real estate product line. However, even with the impact of that somewhat lopsided growth over the past 4 to 5 quarters, Columbus represents just [ 40% ] of our loan balances, and CRE is now less than half of our total outstandings. Additionally, CRE is in our loan portfolio and contributes and constitutes just 203% of regulatory capital, which is well below peer and well within regulatory benchmarks.

Expanding relationships or more scope. Our focus on relationship banking continues to guide how we serve and grow our franchise. We remain committed to understanding the needs of our customers and delivering the right mix of products and services to support them through varied economic conditions. As part of that commitment, we've continued to refine and expand our hybrid office model that combines personalized end market service with flexible digital and remote engagement. This approach has strengthened the connectivity with clients while helping to enhance efficiency across our footprint. We remain dedicated to this model in our new markets of Angola, Indiana and soon to be Napoleon, Ohio and have begun retrofitting several of our existing offices to better align resources with current levels of activity.

As we disclosed in prior quarters, our markets have experienced disruption from mergers and acquisitions. We have been opportunistic in pursuing clients of the disrupted competitors. But most importantly, we've been able to add depth to our business development teams and in our urban markets and in our agricultural lending business line. All of these changes have been part of a concerted effort to be present and available in each of our communities.

There is still a significant level of business activity in our legacy markets and as client [ rub ] heightens, we feel we are well positioned to leverage our Main Street banking model with newly acquired talent to drive our acquisition of both loans and deposits higher. Referrals remain a key element on our quest to deepen existing client relationships. Year-to-date, we have now initiated over 1,100 referrals to business partners, with 557 closing for approximately $62 million, an additional business for our company.

Operational excellence. A major focus for us throughout this year has been the acquisition and integration of Marblehead clients, employees and community. We achieved the financial close of the transaction 5 months after announcement and customer conversion 9 months after the financial close. Despite the speed of those transitions, we have had little to no customer attrition, and the client-facing staff are here today, taking care of their long-term clients. Our integration team has built a process and structure that will allow us to compete and complete future transactions quickly and efficiently.

As we indicated last quarter, we believe that agricultural lending opportunities have begun to expand in our markets. In fact, we recently added another experienced lender in the ag production sector and will undoubtedly allow us to solicit a number of well-established ag production relationships across the Tri-State region. Our balances have been steady at $65 million for some time, but our commitment and renewed emphasis are intended to deliver us a $100 million portfolio a year from now.

Finally, asset quality. We continue to review a high level of asset quality metrics, as with prior quarters. As I mentioned, charge-offs fell to 0 basis points from just 2 basis points in the second quarter. Nonperforming assets totaled $4.9 million. We remain focused on maintaining our strong asset quality, as demonstrated by the continued management of our criticized and classified loans, which stood at $5.8 million, down from $7.2 million in the linked quarter. Our allowance for credit losses remained robust at 1.44% of total loans, [ now ] providing 345% coverage of nonperforming assets.

We did make real tangible progress to reduce nonperforming loans this quarter, but we still have room for improvement. In fact, our top quartile performing peer group has been consistently 10 to 15 basis points lower than us on this ratio. We do feel that we have additional opportunities to reduce it further and are targeting 25 basis point level of NPAs in the coming quarters.

Now I'll turn it over -- the call to Tony for additional comments on our quarterly performance. Tony?

Thanks, Mark. Good morning, everyone. Let me outline some additional highlights and details of our third quarter results. Starting with the income statement. In the third quarter, total operating revenue increased to $16.6 million, a 15.9% rise from the $14.3 million in the prior year and a 3% -- 3.5% decrease from the linked quarter. Net interest income growth was and has been the main driver, with it reaching $12.3 million in the quarter, up 21%.

Loan income topped $16 million for the second consecutive quarter, reflecting our higher level of outstandings and the contractual repricing of the portfolio. Loan yields in the quarter reached a new high of 5.95%, up 23 basis points, and as a direct result, pushed our earning asset yield up 18 basis points to 5.31%. Year-to-date ROA was 90 basis points, up 17%, with our pretax preprovision ROA at 1.29%, a 28 basis point improvement over the 2024 third quarter year-to-date performance.

Despite the growth in the balance sheet and the need to fund our earning asset growth, funding costs have been very stable. Total interest expense for the quarter of $6.5 million was up just $113,000 or less than 2% from the prior year. Our year-to-date interest expense is up $430,000 on a dollar basis, comparing very favorably to the $7.1 million as interest income has risen year-to-date. Our rate on interest-bearing liabilities was 2.33% for the quarter, down 19 basis points from the prior year as the impact of Marblehead's lower-cost deposits and organic deposit growth in a number of our markets has held down funding costs. We believe that this quarter will likely represent the low point on funding costs, as well as the peak in our net interest margin of 3.48%. We do have several more quarters of asset repricing, and we will continue to roll off bond balances into higher-yielding assets, but funding costs will likely rise to offset that margin appreciation.

As has been the case for most of the last 2 years, fee income has been fairly consistent at between $4 million and $5 million per quarter. With the level of our margin revenue increasing substantially, the fee income to total revenue percentage has trended down from our historical averages to the now mid- to high 20 percentile range. This quarter, we had a higher OMSR impairment, given the improvement in rates, which was more than offset by the increase in our equity from the lower AOCI [ at ] level.

Total mortgage banking contribution this quarter of nearly $1.5 million was higher compared to the third quarter of 2024 by over 10%. We continue to utilize the hedging program, which allows us to not only maximize gain potential, but also minimize our rate exposure with an expanding pipeline. The gain on sale yield thus far in 2025 is 2.08%, slightly down from 2024. The sale percentage this quarter of nearly 100% has increased our year-to-date originated sale percentage now to 88%.

Operating expenses, as Mark commented, continue to be well controlled as they were down from the linked quarter by 3% and are up from the prior year by just $500,000 or 4.5%. This sub-point -- sub-5% growth level includes all of the operating costs for Marblehead fully integrated into our current environment. We've increased total headcount by just 5 from the prior year as we have made structural changes in mortgage and support to offset the new additions for Marblehead and for our lending staff.

Now let's review the balance sheet. Mark touched on our growth metrics for both loans and deposits, which have been critical to our earnings expansion this year. Looking into 2026, we expect that we will deliver another high single-digit level of loan growth, which we intend to fund with bond portfolio runoff, 4% to 5% deposit growth and supplemented by targeted wholesale borrowings that complement our current balance sheet structure.

We have not been a large player in the wholesale market, as our stable deposit franchise has been able to deliver the funding needs for us to self-fund our asset growth. We currently have just $35 million of wholesale borrowings with an average coupon in the low 4s. All of our liquidity ratios are currently well within policy, and we have immediate access to over $190 million in FHLB capacity, with nearly $500 million in total contingent funding options. Our loan-to-deposit ratio remained consistent to the linked quarter at 88%. We believe that the low to mid-90s is a target level for this ratio that will balance profitability with liquidity risk. Given the stable nature of our deposit franchise with an average account balance of roughly $22,000, our deposit betas are very predictable and allow us to rely upon that funding base moving forward.

On capital management, during the quarter, we repurchased 101,000 shares at an average price of just under $20, roughly 115% of tangible book and 95% of tangible book adjusted for AOCI. We have now bought back nearly 252,000 shares this year for $4.5 million using 45% of our earnings. As Mark mentioned, tangible book value per share was up from the linked quarter by $0.77, driven by a $2.1 million benefit on AOCI, higher earnings and a reduction in share count from the buyback.

And lastly, asset quality. Total delinquencies were slightly lower than the linked quarter at 45 basis points, with the bulk of the reduction in the 90-plus day category. Since the prior year, total delinquent loans are down $1.7 million. And total classified loans were also well down from the prior year by nearly $1.3 million or 21%. Our allowance for credit losses increased 1 basis point, but remained consistent with portfolio trends and in line with recent quarterly loss rates. Given the general improvement in our CECL metrics and the improvement in NPLs this quarter and what potentially will be upgraded in the near term, it is more than likely that this is the high end of our reserve level going forward.

I will now turn the call back over to Mark.

Thank you, Tony. We remain very encouraged by our potential to deliver a strong performance in the last quarter and full year for 2025. Anticipated further reductions by the Federal Reserve, potentially expanding mortgage volume, coupled with a larger balance sheet and higher margin, should provide the tailwind we expect as we close out the final quarter. We continue to see strong loan pipelines, and the new lenders we have added to our team are anxious to deliver new loan and deposit relationships.

We announced a dividend last week of $0.155 per share, equating to a 3.1% yield and just 24% of our earnings. This will complete our 13th consecutive year of increasing our annual dividend payout to our shareholders.

Now we'll open the call up for any questions. Sarah?

Jamie, we are now ready for questions.

[Operator Instructions] And our first question comes from Brian Martin from Janney Montgomery.

Thanks for the update there. Just -- Mark, maybe just can you -- whomever, I guess, just on the loan growth, can you just talk about -- it sounds like, Mark, your last comments about maybe some recent hires, I don't know if they're recent or just someone you're talking about over the last 6 to 12 months you've hired. But just the pipeline and the hires, it sounds like the ag will be a little bit of a focus here given the new addition there, but just how we think about the growth -- the pipelines and the growth in the next 6 to 12 months? And particularly, I guess, maybe just geographically, it sounds like there's good growth everywhere, but maybe a little bit more in ag here in the short term?

Yes. As you know, and as I indicated, we hired a new seasoned ag lender from a competitor that has gone through some M&A. And that individual managed over a $100 million portfolio. So we're clearly expecting some opportunities there given the disruption in the landscape and the opportunities there. We've also replaced an individual in the northern market with a seasoned individual that has been with some larger banks that clearly managed a larger portfolio as well. So those are a couple of areas that we are pretty optimistic about.

And then we've also certainly continue to have good traction from the Columbus, Ohio market under the leadership of [ Adam Gressel ] and the 2 lenders that we have in that market. And as I mentioned, CRE continues to be the focus, but C&I still is on our radar in all of our markets. Steve Walz can give a little bit of color on growth in the other markets we have. Steve, which has been a little more limited?

Sure. Yes. Thanks, Mark. Yes, Brian, I think you heard discussion in the comments about our expectations about ag and what can be delivered there. We do certainly expect that addition to [ 8 hour ], call them legacy markets that have been certainly flatter growth. That being said, it doesn't change our expectation that Columbus will continue to deliver high levels of growth, but also, those other growing more urban markets, we do expect to play along as well. So while we certainly expect a little pickup in ag, we do have expectations broadly that the additions we made will enter to our benefit broadly.

Got you. And can you -- I guess, how is the pipeline of kind of unfunded commitments as far as those funding up here? I guess is there still a pretty healthy balance of what you guys expect to fund up there that's kind of already booked and just kind of waiting to be funded?

There is -- there remains a number of dollars in unfunded commitments. We continue to replace some of those dollars as they roll, obviously, into the permanent loan structure. We continue to grow in that area as well. And we expect certainly over the next 6 to 12 months and end of this quarter as well to continue to kind of hold serve with where we've been on a growth rate, Brian.

Tony, any additional color on the pipeline?

Yes. I think as Steve and Mark mentioned, we probably have $40 million of unused line commitments that we think we'll fund in, call it, the next 6 to 12 months. I think most of our lending that's been commercial real estate, especially in the Columbus market has probably been shorter term, kind of 3-year type transaction. So we're probably 1 year into that process. So we feel like there's still significant potential there to expand that.

I would think Q4, we're probably going to do similar growth level that we did in Q3, call it, $15 million to $20 million of growth. And our initial expectations is kind of the $80 million to $100 million 2026 number. And call that 40% funded by things that we've already booked. And 60% from new activity, I guess, if I'd lay it out at a high level.

Got you. Okay. Yes. And Tony, I guess maybe can you talk about the ability -- I heard your comments on the margin, but just -- I know you still have a fair amount of liquidity, but you also talked about growing deposits and potentially using some borrowings. Just frame up, I mean, I guess, the loan growth here in the next 6 to 12 months in terms of how you fund that? I guess, is it primarily going to come from the liquidity? Or I guess, is that not the case? Just trying to get if you work that down because it feels like if you work that down a little bit, it probably helps the margin a little bit. But again, you also talked about the competitiveness. So I don't know, just how you can frame up the margin outlook and just the utilization of that liquidity?

Yes. I mean in a perfect world, let's say we've got $50 million to $75 million of available liquidity today that we're investing overnight. If I didn't think there was going to be a significant increase in the competitive nature of deposits, I think we turn that $50 million to $75 million immediately into our loan pipeline, which we'll probably call that a 300 basis point improvement of what we're earning today. And I'm just kind of -- believe on the ground, from what I've seen, that funding costs and competition is going to get tougher.

So I really think we've had a very stable deposit base that -- there's no but there -- but I do think that there's going to be some pretty good competitive offerings from competition in the early part of 2026. And I think our customers will be subject to some of that desire and emphasis about potentially wanting higher rates, which concerns me a little bit that will squeeze our margin. But if I think we can hold where we are and just use that $75 million, then I do think margins will increase from where they are today.

Well, unfortunately, Tony, the runoff and the amortization in the securities portfolio certainly add some inertia and some backwind as well.

Yes.

Okay. And so just big picture. And broadly, Tony, given the competitive pickup here, I guess if your margin peaks this quarter, I guess, do you just see it kind of being a little downward drift given the factors you've kind of outlined there? It doesn't seem like there's a big shift lower, it doesn't seem like it's going a lot higher. It's like more of the offset with some of the -- your repricing that you're going to have. And then just being offset by maybe the competitive factors a bit. Is that kind of how to think about it?

Yes. Because I do think -- yes. I do think 3.5% is a good solid margin level for us given our asset size and given where we are. I think we're probably going to hold that margin level throughout 2026 because we're going to have repricing on the asset portfolio, bond roll off that will be higher. Reuse of liquidity, that will be a higher number. And a little bit of headwind from funding costs potentially. But if we have fairly dramatic rate decreases in the short term, our prime base, call it, every 25 basis points cost us, call it, $350,000 on an annualized basis from kind of our prime-based HELOCs, et cetera. We probably got 75 basis points of move before we hit our floors. So we're kind of in that window of how you recover from that if it's a fairly rapid decline in Fed rates.

Got you. Okay. That's helpful. And just -- that's fine. I think that was it on that. And then how about just in terms of the credit quality, it sounds as though there's opportunity, this is kind of the peak on the reserve coverage. I guess, can you just kind of frame up, I mean, I guess, if credit quality holds and there's no big -- and you do see a little improvement here, it sounds like there's some potential improvement. Maybe just frame up what that improvement could look like and just where you're thinking on reserve coverage over time as you kind of continue to bring that -- the credit numbers that will [ leave ] a little bit more?

Yes. I mean, happy to start. I do think we probably have got, call it, $500,000 to $1 million of current nonperforming that we think we have a better than average chance that we're going to be able to either upgrade or get those paid off in the next, call it, 6 months. And then I think that will be as we talked about kind of that 25 basis point level of NPAs, which I think is probably the low point that we'll see.

So I think that adds some downward pressure in the current world of CECL about where our reserve is. If you look at any comparison we have relative to peer or relative to where we are, our reserve level at [ 144 ] is at the high end, which is fantastic. But I do think we're going to have some pressure that potentially, we're not going to take reserve back, but we may not be putting as much in as we have this year. I mean, we put in almost $1 million this year through 9 months. So a pretty strong level of provision we've set aside in what has been a great credit quality year.

Yes, Brian, I'd just add. We've talked about it in prior quarters here. We've got a very robust loan review process and have been confident that we understand where the weaknesses are. So the pace of improving that ratio has been a function of the time it takes to get controlled collateral, in some instances, just being a little longer than we expected. It's not really a result of, well, 1 troubled credit fell off and was replaced by another. Again, we remain confident we know our portfolio well. It's really just been the pace at which we thought we could clean some of those up that's frustrated us.

Yes. No, understood. And that reserve ratio, Tony, I mean maybe it gets down to the [ 125, 130 ] type of level. Is that where we -- over time, you could see it go as things progress? Or is that do you have kind of a target as far as where you're thinking that ends up down the road?

Well, before Tony answers, I got to tell you, Brian, that he and I are kind of bookends on that strategy. If we grow $150 million or $200 million, I can see it going down to that, but I don't see it going down to that just because we have charge-offs or [ less ] in reserve. It's not going to happen. I think more is always better in that arena.

Yes, totally agree.

Yes -- I would say -- I worry less about the percentage than kind of the full dollar amount. I would guess if we're here next time -- this time next year, we're probably in the range of, call it, $16 million on a reserve level from our [ $15.3 million ] that we're at today. And then where that reserve percentage is, if we grow $80 million to $100 million, it's probably at $139 million, $140 million, something like that. So it's not terribly out. But our coverage of NPAs at that point, if we get to where we think we are, is probably over [ 40% ]. So we feel pretty good about where it is.

Yes. Okay. That makes sense. I mean you guys have done a great job on credit. And like you said, the reserves are, as Mark said, bigger or stronger. Or better is -- bigger is always better, but certainly, you have to understand modeling as well and what the credit picture looks like. But okay.

And then maybe just one of the last two here, just on the expense outlook. Can you talk about kind of where we're at today? I guess, I know that could change a lot with mortgage production and whatnot. There's some volatility with that. But you guys have done a great job on the expense side and just kind of trying to get my arms around what that looks like in the coming quarters, just next 12 months. How you want to frame it up, just kind of the trajectory from kind of the current expense run rate, how should we think about it?

Brian, just a couple of comments, and Tony can certainly clean this up. But as you well know, technology has become a big factor in the expense side. And we continue to work hard to remain relevant in that space, but that certainly is going to continue to accelerate on into the next foreseeable future.

And then obviously, from a people perspective, we're seeing a lot of pressure, if you will, in various markets to identify and attract the talent that we need. So pressure is clearly on the expense side, which certainly adds fuel to the fire when we talk about a balance sheet expansion and stabilized or widening margins. But it's going to get a little more difficult as we move forward, which, again, is so critical to expand the balance sheet. And Tony, I know you probably have some additional ideas on that?

Yes. I mean, I think Q4, we did [ 11.5 ] in total expense in Q3. I think Q4 will be in a similar number. I do think mortgage volume will be up, call it, 15% versus where it was in the linked quarter, probably somewhere around $80 million. So that will drive a little bit higher expense. But call it, [ 11.5 ] in Q4, which would give us, call it, [ 46 ] and some change for all of 2025.

I mean, I hate to say I feel good about it where expenses are, but I do. I mean, we've added some staff and some things, but we made some structural changes on support in mortgage. And we continue to find those kind of opportunities of people doing more jobs, kind of linking things together and doing some of those kind of things. I do think our hybrid strategy on branches will allow us to retrofit some that will reduce some headcount. So I feel pretty good that a 3% or 4% pace in 2026 is -- would be okay at this point.

Got you. Okay. Yes, it makes sense. The -- like you say, the hybrid and some of the other -- like what you've done on the mortgage side has really helped. And we'll see what happens with the volume, which is kind of maybe the last thing I want to ask, Tony, just -- or Mark, just in terms of Mark's comment about the [ 30 year ] being below [ 6 ] and really no refinancing done this year. I guess, how do you think about just the mortgage volume for next year? I mean, I think if you -- I don't know what -- I guess you could talk a little bit about fourth quarter, that's front and center. But just in terms of what you're thinking in terms of where rates are today and the people you have on the ground, what should be kind of big picture outlook?

Well, as you know, Brian, we're geared up for and structured for that $450 million to $500 million number that we've talked about forever. We're still structured like that. We've improved marginally, but we're looking for a sub-6, much like everyone is looking for a sub-6 and something with that 5.5 kind of a number or 5.25 would be a great boost to that level of volume.

But this year certainly has been better than the one before, but we have the capacity and different producers that are highly incented to find additional volume. I would certainly like to think that we would get -- Tony's got his number, I'm sure, but I certainly like to think we get back into the 400 range as rates decline, particularly in the 10-year. Now I know it bumped back up here recently, but that would be a welcome boost to our earnings, if you will, if we could get something in that 5 range. Comments, Tony?

Yes, I think, like I said, we'll likely do $80 million in the fourth quarter, which will be a nice solid improvement from the $68 million we did this quarter. I do think mortgage volume will tend higher. We're now in, call it, the fourth year of this kind of tough rate environment, and there becomes a point where you do have a kind of a backlog of things. I looked at a pipeline this morning of $37 million. And there were an awful lot of refinances on there, probably, call it, $12 million of that, so about 30%, which would be a big number.

So you get this initial move when you get the rate below 6. And then I think if you see that for an extended period, you might get back to a 20% refinance level. And if that's the case, then I think the $320 million to $350 million range is probably pretty solid. And you have an outside chance to get to the kind of a 4 handle in 2026. We'll see how this quarter goes.

Just short of my number, 400. Optimistic CEO.

Round up to the 4 handle.

Something north of 4. How about that, Brian?

There you go. I won't to ask for best on rates because it will drive a lot of it, too. So and I guess everything good with the Marblehead transaction in terms of the integration. I guess, no -- I guess, Mark, you talked a little bit about the opportunity. Anything you're seeing in that market that is something we should hear about in terms of any initiatives you've got there? I know if there's opportunity there, but just trying to frame up if the integration went well. And those cost savings are all, I guess, effectively in the numbers now in terms of when we look at next quarter?

Yes, they generally had a smaller staff, and we're getting back in the game up there. They were basically on the sidelines for at least a couple of years, given their capital position. So we got some work to do. But clearly, there's opportunities up there, and we intend to pursue those. The staff that was there is still there. And we're leveraging that brand that's 117-plus years old into ours. So we have high expectations.

And that, coupled with -- wasn't your question, but you couple that with the new market we're going into in Henry County that collectively has, as I mentioned, $800 million in deposits there that, strangely enough, $700 million of that $800 million rested in community banks, that I would say below $2 billion, $3 billion, now it's like $300 million. So there's a lot of deposits that have gone to regional players, and our intent is to pursue those aggressively. So everything to the north and a little to the east, I guess, of us, which would be the Henry County thing is where our focus is going to be, in addition to that Columbus market that we all know is on fire.

Yes. Okay. And I guess in terms of capital, balancing potential, M&A versus the continued repurchase of shares, what's the mindset today in terms of how you're thinking about that, how we should think about it in the coming quarters?

Yes. I think we're getting to the point, obviously, our dividend -- shareholder dividend is going to be above $4 million next year based upon where we are. So that's getting to be meaningful. We obviously are fine on a regulatory capital basis, but I would say we're probably going to probably slow down the buyback a little bit just so we can retain a little bit of capital for potential transactions if they come together, although we still have a tremendous amount of excess earnings. Obviously, our debt reprices next year, midyear. So we've got some things we got to think about there, whether we refinance or expand or do some things there. So I think on the capital front, we have a lot of opportunities and options as we sit today.

[Operator Instructions] And it's showing no questions at this time. We will end today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Once again, thank you for joining us this morning, and we certainly look forward to bringing you up to date on our full year results in January. Thanks for joining. Goodbye.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.