Image source: The Motley Fool.
Date
Friday, July 25, 2025 at 3:00 p.m. ET
Call participants
Chairman, President, and CEO — Mark A. Klein
Executive Vice President and CFO — Anthony R. Cosentino
Executive Vice President, Chief Lending Officer — Steven J. Walz
For analyst quotes or media inquiries, email [email protected]
Takeaways
Net income: Net income was $3.9 million, with diluted EPS (GAAP) of $0.60, representing an increase of nearly 28% compared to Q2 2024.
Adjusted EPS: $0.58 adjusted EPS, factoring in servicing rights recapture.
Tangible book value per share: Tangible book value per share was $16.44, up 7.7% year-over-year.
Net interest income: $12.1 million net interest income, an increase of more than 25% from $9.7 million in Q2 2024; accelerated at a 30% annualized pace from the linked quarter.
Total loan growth: Increased by approximately $90 million, or 8.9%, year-over-year and 1% loan growth from the linked quarter (excluding Marblehead: $71 million, or 7.1% year-over-year growth).
Total deposits: Grew by $135 million, or 12%, year-over-year (excluding $51 million Marblehead deposits, growth was $84 million or 7.5% compared to Q2 2024). Deposits declined by $21 million from the linked quarter due to seasonal fund distributions.
Assets under care: Surpassed $3.5 billion in assets under care, comprising $1.5 billion in bank assets, $1.5 billion in residential servicing portfolio, and $537 million in wealth assets.
Mortgage originations: Nearly $98 million in mortgage originations, up from both Q1 2025 and Q2 2024; purchase transactions accounted for 82% of volume.
Noninterest income: Up 15.1% compared to Q2 2024 to $5 million, driven by mortgage gains and service fees.
Operating expenses: Operating expenses decreased approximately 4.5% from the linked quarter following one time conversion costs in Q1; year-over-year increased by $1.2 million, or 11%, to $11.9 million due to higher volume and inflation.
Net interest margin (NIM): Up 36 basis points to nearly 3.5%, the highest since Q4 2022.
Allowance for credit losses: 1.43% of total loans, covering 265% of nonperforming assets; allowance increased to $15.6 million.
Charge-offs: Fell to fewer than two basis points, returning to historic levels.
Nonperforming assets: Nonperforming assets totaled $6.2 million; criticized and classified loans rose slightly to $7.2 million from $7.1 million in the linked quarter.
Provision expense: $597,000 provision expense, driven by higher unfunded commitments and moderate CECL factor weakening.
Share repurchases: 124,000 shares repurchased at an average price just under $19, equating to 113% tangible book and 91% tangible book adjusted for AOCI.
Dividend: Declared $0.15 per share, approximately a 3.16% yield for the dividend announced.
Russell 2000 Index: Company added to the index in the latest rebalancing cycle.
Operating leverage: Positive 2 times, with revenue growth of 22% and expense growth of 11% year-over-year.
Loan-to-deposit ratio: Rose to 88% from 86% in the linked quarter.
Mortgage sale percentage and gain: Sold nearly 83% of originations at a gain-on-sale yield of 2.13% year-to-date.
Peak Title transaction growth: Closed 564 transactions year-to-date, up more than 34% from the first half of 2024.
Wealth management: New strategic partnership announcement expected next quarter.
Commercial real estate loan growth: Increased by approximately $91 million year-over-year.
Consumer loans: Consumer loans increased by more than $12 million compared to Q2 2024. C&I loans and agricultural loans each declined by $3.4 million year-over-year.
Total loan production (on/off balance sheet): $166 million in loan volume, an increase of nearly 41% year-over-year.
Delinquencies: Slightly lower than the linked quarter at 51 basis points, with most improvement in the 90-day-plus category.
Liquidity: More than $75 million on-hand liquidity; stated capacity for higher loan-to-deposit ratio without pressing funding costs higher.
Balance sheet betas: Since Q3 2024, loan beta was 16 basis points and cost of funds beta was 19 basis points.
Summary
SB Financial Group (SBFG 5.96%) achieved record mortgage banking contribution of nearly $2.2 million, the highest since Q1 2022, reflecting the benefits of diversified revenue streams. Management emphasized the successful integration of the Marblehead acquisition, noting almost full deposit retention and operational alignment within the expanded footprint. Strategic priorities remain focused on organic growth, margin expansion, and capturing market share amid regional competitive disruptions. Management stated a $34 million mortgage pipeline was active at quarter end, targeting consistent originations for the following quarter. Capital allocation strategy adjusted to reflect elevated repurchases in the period, with management citing a likely slowdown in buybacks to preserve capital for potential M&A and organic expansion opportunities.
Anthony R. Cosentino projected net interest margin could “speak out at, call it, at three seventy number,” indicating management’s expectation of further margin expansion near 3.7%.
Management anticipates positive resolutions on nonperforming credits in Q3 2025, which “in all likelihood” should reduce provision expense in the second half of 2025.
Pipeline for undrawn construction loans totaled approximately $40 million to be funded through early 2026, providing a baseline of $10 million-$15 million per quarter in additional loan volume.
The company’s dividend payout ratio was characterized as “in line with our long-term average of approximately 30%,” supporting ongoing capital returns to shareholders, as stated during the earnings call.
Management highlighted the addition of high-producing mortgage loan officers in Cincinnati and Indianapolis, contributing to regional momentum and expanded purchase-market activity.
Industry glossary
CECL: Current Expected Credit Loss, a methodology for estimating allowances for credit losses on financial assets.
AOCI: Accumulated Other Comprehensive Income, an equity line item that reflects unrealized gains or losses not included in net income.
NIM: Net Interest Margin, the difference between interest income generated and interest paid out, relative to interest-earning assets.
Beta (Balance sheet beta): Measures the sensitivity of loan yields or cost of funds to interest rate changes over a specified period.
Full Conference Call Transcript
Mark Klein: Thank you, Sarah, and good morning, everyone. Welcome to our Second Quarter 2025 Conference Call and Webcast. We clearly approached this year with a fair bit of optimism that included favorable funding costs associated with our Marblehead acquisition, a much larger balance sheet from an expanded market presence, and a stable team of seasoned lenders all bound by an improving economic environment. Well, six months in, we have met and exceeded our expectations. On a go-forward basis, we have positioned ourselves quite nicely to continue our trends and to outperform our peers in the second half of this year.
For this quarter, net income was $3.9 million with diluted earnings per share of $0.60, up $0.13 or nearly 28% compared to the prior year quarter. When considering the servicing rights recapture, adjusted EPS was $0.58 for the quarter. Tangible book value per share ended the quarter at $16.44, up from $15.26 last year or a 7.7% increase. Net interest income totaled $12.1 million, an increase of over 25% from the $9.7 million in the second quarter of last year. From the linked quarter, net interest income accelerated at a 30% annualized pace. Loan growth for the quarter was approximately $90 million, up 8.9% from the prior year and marking the now fifth consecutive quarter of sequential loan growth.
Deposits grew by over 12%, including Marblehead deposits of $51 million. Excluding Marblehead deposits, deposit growth would have been approximately 7.5%. Importantly, the deposits from Marblehead have remained nearly 100% intact just six months after the acquisition. Collectively, this quarter, assets under our care now exceed $3.5 billion. This includes our bank assets of $1.5 billion, our residential servicing portfolio of approximately $1.5 billion, and wealth assets under our care of $537 million. It is this scale and revenue diversity that have driven our performance to a higher level. Mortgage originations for the quarter were just short of $98 million, up from both the prior year and linked quarters.
Our pipeline remains strong at nearly $34 million, reflecting continued momentum from our recent investments and more high-producing MLOs. Operating expenses decreased approximately 4.5% from the linked quarter as the first quarter was elevated due to one-time conversion costs we discussed in prior quarters. Charge-off levels returned to more historic levels in the quarter at less than two basis points, and our remaining asset quality metrics were consistent with the linked quarter. And finally, we were pleased to be added to the Russell 2000 index once again during the recent rebalancing. This milestone reflects the market's recognition of our strong financial performance, our commitment to organic growth, and overall brand value.
We continue our relentless focus on our strategic five key initiatives as we've discussed in many quarters before: revenue diversity with balance between NIM and fee-based revenue, organic growth, more households, more services in households to gather greater scale and efficiency improvement, deepening client relationships, operational excellence, and top-tier asset quality. Revenue diversity. As I noted earlier, our mortgage group delivered a strong rebound in the second quarter, with mortgage origination volume of approximately $98 million. Despite a slow start to the year, we believe borrowers have become more accustomed to the current rate environment, leading to increased purchases, as well as a bit of refinancing activities.
We've also benefited from our expanded team of mortgage professionals in Cincinnati and Indianapolis. I want to highlight our Indianapolis team, which delivered its most successful quarter of production since inception in the first quarter of 2019. We have an experienced team, and we continue to be not only very high on that staff but that market as well. We remain committed to the residential real estate business line as it continues to provide us with entry points into a variety of growth markets within Central and Southern Ohio, even as we work to strengthen our core markets in Northwest Ohio and Northeast Indiana.
As with prior quarters, we've continued to evaluate our efficiency and capacity utilization and have hit pause, as we've mentioned in prior quarters, on adding any additional support staff until volume levels approach at least that $400 million annual production mark. Overall, we still have ample room to grow within our current infrastructure. As I mentioned, our pipeline currently stands at $34 million, which would point us toward our third quarter production to be well in line with the $98 million we delivered this quarter. Clearly, the quarter continued the pace of being a dominant purchase market. In fact, of the $98 million in volume, just $4 million was a result of internal refinances.
As a result, 82% of our volume this quarter was purchased transactions and right in line with the year-to-date purchase transaction volume. Interestingly, now with over 8,900 mortgage households, we service across our 16-county footprint. And with just approximately two services per mortgage household, our potential to drive organic expansion with more products and services remains clearly front and center. Noninterest income was up 15.1% from the prior year quarter at $5 million and up 22.9% from the linked quarter. The increase from 2024 was driven by increased gain on sale of mortgage loans and mortgage servicing rights, as well as increased title service fees and other related revenue.
Again, this quarter, our peak title affiliate outperformed the mortgage market in general and delivered revenue growth from every region. Year to date, they've now closed 564 transactions, which is up over 34% from the first six months of 2024. They have exceeded our budget expectations by 27% and continue to be a valued part of our product suite. We have now discussed our wealth management division in a few quarters with the level of market volatility and some unexpected annuitizations and amortizations of several relationships, having affected their ability to add net asset growth this year. However, we continue to feel this business line is additive to our brand and a true differentiator to a $1.5 billion community bank.
Overall, clients have remained very loyal, and our pursuit of our holistic client care model allows us to add one more service to our approximately 39,000 households. In addition, we are poised to announce a new strategic partnership in the coming quarter that will deliver more managerial and operational resources to the business line. That will not only benefit our current client base but will also potentially add more depth to our financial adviser skill set.
On the scale front, as we completed our first full quarter of operations following the Marblehead acquisition, we were pleased with the overall integration of their staff with State Bank's team and their ability to retain legacy relationships with their loyal client base and deep community connections. This acquisition underscores our ability to balance relationship-driven organic growth with targeted M&A opportunities. Deposits were up year over year, but down slightly from the linked quarter. Compared to the second quarter of 2024, total deposits were up $135 million or 12%, reflecting our ability to drive deposit relationships in parallel with extensions of credit. Excluding the $51 million in deposits from the acquisition, deposits grew by $84 million or 7.5%.
For the linked quarter, we saw balances decline by $21 million as a portion of the seasonal public fund balances were distributed, as we mentioned in the prior quarter. That said, we continue to have very positive conversations with clients and prospects alike on the treasury side as the current disruptions in our markets are opening up other opportunities to attract new commercial deposit relationships. As I mentioned, overall loan growth continues to be strong. When compared to the second quarter of 2024, our loan book grew $89 million or approximately 9%, $6.4 million nearly 1% from the linked quarter. Adjusting for Marblehead, loan growth would have been $71 million or up 7.1% from the prior year.
Our loan growth, coupled with stable funding costs that Tony will detail in a bit in our webcast, drove our net interest margin this quarter up 36 basis points to nearly 3.5%, which is the highest level we've experienced since the fourth quarter of 2022. Columbus has continued to provide positive momentum and is driving the bulk of our loan growth. That market is still very competitive, but our four commercial lenders have ramped up their calling efforts substantially in order to counter the competitive landscape.
Our work to adjust our sales has led to our Columbus team adding new high-end relationships that will continue to drive growth beyond the $400 million loan book that we currently serve in that robust market. In terms of deepening existing relationships, more scope, more services in each household, we clearly take pride in the strength of our client relationships and remain focused on delivering the products and services our prospects want while deepening relationships through innovative solutions that existing clients need. As a key element of that commitment, we continue to expand our hybrid office model that is geared to providing connectivity with clients through multiple communication channels and yet assist us with improving our operational efficiency.
This is the exact model that will enable us to take market share in our newer expansion markets of Angola, Indiana, and soon to be Napoleon, Ohio. Additionally, we have heightened our pursuit of organic growth within our legacy markets that are experiencing significant disruption, including acquisitions, office closures, and or consolidations. As these local market dynamics shift, we contend that customers will seek stability and care from an established partner like State Bank. In fact, to capitalize on this disruption and ensure regional and business line execution of our growth plans, we have identified specific corporate initiatives and regional growth goals.
These measurable plans are designed to deliver us a greater percentage of the market that just might become available over the next twelve to eighteen months as the crack in the landscape widens. With regard to operational excellence, compared to the prior year, commercial real estate loans grew by approximately $91 million. Consumer loans increased by over $12 million. C&I loans decreased by $3.4 million, and agricultural loans also decreased by $3.4 million. As we review our total production, both on and off balance sheet, we delivered $166 million in loan volume across all business lines, which was up nearly 41% from the second quarter of 2024.
Despite some short-term softness in the ag production arena, we remain quite positive on our ability to bolster long-term growth. Client loyalty remains high, as is our ability to customize solutions for our ag producers. Finally, we remain significant depository relationships with our client base that will undoubtedly open up more lending opportunities as capital needs arise. And finally, asset quality. We continue to reveal high levels of asset quality metrics. Charge-offs fell to less than two basis points from a slightly elevated quarter in the first quarter. Nonperforming assets totaled $6.2 million, and we remain focused on maintaining that strong asset quality.
As demonstrated by our continued management of our criticized and classified loans, which stood at $7.2 million, up just slightly from $7.1 million in the linked quarter. Our allowance for credit losses remained robust at 1.43% of total loans, providing 265% coverage of nonperforming assets. We continue to feel strongly that the credits that deteriorated in the early part of 2024 will be resolved in the short run with minimal financial impact. Resolving these credits will not only improve our asset quality metrics but will also be accretive to our earnings with recaptured interest and fees. Now I'd like to turn the call over to Tony for a few more comments on our quarterly performance. Tony?
Tony Cosentino: Thanks, Mark. And good morning, everyone. Let me just outline some additional highlights and details of our second quarter results. First, an income statement review. Starting with the net interest income. Interest income has been the center post of our revenue expansion, not far in 2025, and our results this quarter reflect that growth. Specifically, our revenue from earning assets was $18.5 million, up $2.8 million or 18% higher than the prior year. From the linked quarter, the growth was $1.1 million, which is a 25% annual growth rate and bodes well for our results in the second half of this year. Interest expense is also higher, but at a much lower level than the top line.
For the quarter, interest expense was $6.3 million, $344,000 from the prior year, or less than 6%. The yield on our interest-bearing liabilities is actually down from the year at 2.33% compared to 2.48% a year prior. As we look at noninterest income, noninterest income rose from both the prior year and the linked quarters with the percentage of noninterest income to total revenue moving more in line with our historical averages, at 29.4%. We did see the gain on sale of mortgage loans, title insurance, and other revenue contributing meaningfully to the year-over-year improvement, illustrating the value of a diversified revenue stream.
Our total mortgage banking contribution this quarter of nearly $2.2 million was the highest since the first quarter of 2022. We continue to utilize a hedging program, which allows us to not only maximize gain potential but also to minimize our rate exposure as the pipeline expands. The gain on sale yield thus far in 2025 is 2.13%, which is up from 2024 and just slightly below the historic average. Our sale percentage of originations of nearly 83% is ideal for the profitability model we need in this business line. Operating expenses decreased compared to the linked quarter, as the $725,000 of merger costs were accrued last quarter.
As we compare operating expenses to the prior year, higher volume and inflation have resulted in the quarterly expense level of $11.9 million to be higher by $1.2 million or 11%. However, in concert with revenue growth from the prior year quarter of $3.1 million or 22%, our operating leverage was strong positive two times. Turning now to the balance sheet, beginning with loans. Loan growth continues on a positive trend line quarter over quarter. In addition to 18% as compared to the prior year, we have seen success with not only HELOCs but also with selective targeted growth in used autos and marine lending.
Our loan-to-deposit ratio moved up slightly in the quarter to 88%, up from 86 in the linked quarter. We are very comfortable with our liquidity position, and we can easily move to the mid-nineties with our on-hand liquidity of over $75 million without driving funding costs higher. On deposits, as we had discussed in our webcast last month, the 3/31 deposit base had approximately $60 million of transitory deposits primarily from the public entities that we service. We expected that a large proportion of these funds would move back into these communities, and our deposit levels would move lower to just slightly above $1.2 billion.
All of our deposit categories have moved higher since a year ago, and as Mark indicated, we are extremely pleased with the retention we have seen from the Marblehead deposits. Finally, a comment on our balance sheet betas. As we are hopefully approaching the beginning of a downward rate cycle, since the third quarter of '24, our loan beta is 16 basis points, nearly equal to our cost of funds beta of 19 basis points. Concerning capital management, during the quarter, we've repurchased 124,000 shares at an average price of just under $19, roughly 113% tangible book, and 91% of tangible book adjusted for AOCI.
As Mark mentioned, our tangible book value per share was up 7.7% year over year, and it was up from the linked quarter by $0.65, driven by a $1.4 million benefit on AOCI, higher earnings, and a slight reduction in share count. And finally, on asset quality. Total delinquencies were slightly lower than the linked quarter at 51 basis points, with the bulk of that reduction in the ninety-day plus category. And total provision expense for the quarter was $597,000, driven by a higher level of unfunded commitments and a slight weakening in the CECL economic factors, which drove our provision level higher.
Optimistically, the second half of the year may move provision lower if the nonperforming credits that Mark referenced are resolved in our favor as we anticipate, and the economic metrics improve. Our allowance increased this quarter to $15.6 million, and we feel it is more than adequate based upon our underwriting strength and the anticipated level of growth in our loan portfolio. I'll now turn the call back over to Mark.
Mark Klein: Thank you, Tony. We certainly remain very encouraged by our potential to deliver a strong performance in the second half of 2025. We anticipate positive resolutions to several nonperforming credits in Q3, and our expense base has stabilized. With continued solid loan growth and the expectation that funding costs will be stable to slightly lower, margin expansion should continue. Also, we believe that the likelihood of rate reductions in the near term has the potential to further expand our residential mortgage volume. We announced a dividend this past week of $0.15 per share, equating to approximately a 3.16% yield and 25% of our earnings, which Tony mentioned is in line with our long-term average of approximately 30%.
We have consistently raised our payouts annually since we restarted the common dividend over twelve years ago. In closing, we remain quite pleased with the potential to grow our expanded region with the addition of Marblehead. We are aggressively pursuing growth in markets where our competition presents us with more opportunities. We intend to focus on driving our organic balance sheet growth while maintaining discipline on operating efficiency, cost management, and potentially opportunistic acquisitions. Now let's open the call up for questions for us. For the second quarter, Sarah?
Operator: Thank you. We are now ready for your questions. Today's first question comes from Brian Martin at Janney Montgomery. Please go ahead.
Brian Martin: Hey. Good morning, guys.
Mark Klein: Morning, Brian.
Brian Martin: Hey, Mark. Maybe you could just start with just a short comment on just on the mortgage outlook. It seems pretty optimistic given you called out Indy. Just kind of getting back to at least, you know, for the full year, kind of getting back to around $100 million or $300 million plus. That seems pretty achievable as you sit today given, you know, the potential for lower rates and kind of the momentum in Indy. Maybe just a little comment on that if you could.
Mark Klein: Yeah. Absolutely. We have approximately, I think, 28 or 29 MLOs. They're high producers. We've got the backroom to support them. Really, two of our higher potential markets of Cincinnati and Indianapolis are just gaining traction. Their potential is, as you might expect, quite high. And we're very bullish not only, as I mentioned, on the teams but also the markets. So I continue to remain very optimistic.
And if we get a little play, Brian, on the tenure, we could see that magical $400 million number and beyond because Tony and I have talked before, bottoming at $216 million a year ago, we think it's just going to be the impetus to getting back to more of that $500 million that we've always contended we're built for. So remain optimistic with the number of producers, and we certainly have the backroom to pull it off. And I think Tony's done a really nice job on the hedging position that we take, which really allows us to forward contract and make commitments with a pretty high pull-through from all of our lenders and all of our markets.
Brian Martin: Gotcha. Okay. That's helpful. And just, Tony, the gain on sale margin, pretty consistent with where it's kind of been. Nothing no big movement one way or the other on how we think about that.
Tony Cosentino: Yeah. I think, you know, we were we were down just slightly, you know, maybe from historical. I think, generally, pricing has been a little tighter this year. I do think it's gonna be in that $2.02 15 to two and a quarter range. You know, on out for the rest of '25 and into '26. That seems to be where the market is kinda settled at this point.
Brian Martin: Got you. Okay. And then maybe just a little bit whomever on just the optimism on the loan growth that was, you know, about what you know, I think $26 million for the quarter I guess, just in thinking about the back half, it sounds like you're pretty optimistic. So just kind of the run rate picking up from here, it sounds like it could be. I don't know if there were, you know, maybe payoffs in the quarter or maybe slowed this quarter down a little bit, but just what's the pipeline look like in, like, in of how you're thinking about, you know, the next twelve to eighteen months on the loan growth side?
Mark Klein: Yeah, Steve can certainly chime in here. But as you know, Brian, as you've heard a number of quarters, Columbus, you know, remains the shining star. We continue to find great traction in CRE in that market. C and I is a little harder to come by. But, again, we've got a number of seasoned commercial lenders. We just announced a plan to take market share from the disruption, as I mentioned in the webcast. And we're clearly optimistic that not just Columbus, but other regions like and Findlay and Fort Wayne will be additive to that number. So we remain quite optimistic.
And I know Steve works directly with all of our lenders, and I think we're seeing Steve some opportunities, but also a bit more competitiveness.
Steve Walz: Yeah. No question, Mark. I think we remain optimistic about the run rate. Certainly, Brian, we've enjoyed here. As Mark pointed out, we do have a strong seasoned lending team that we aggressively call. There isn't necessarily a secret sauce to how we're doing this. We remain confident that we will continue to deliver those results. As Mark points out, competition is definitely stiff, but, it's not something we shy away from. We're confident when we walk in the door. So I think the run rate we're on right now remains sustainable.
Brian Martin: Okay. And the pipeline today, you know, where does that stand, I mean, relative like, if you look at last quarter, this quarter, and there any payoffs in the quarter that, you know, kinda clipped this quarter a little bit slower than maybe I thought it would be, or is it, you know, is that just, like you say, more competition related?
Steve Walz: There were some modest fails, Brian. Nothing I would say is How do endure? Yeah. Nothing too out of the ordinary. We had a couple of things we expected to draw a little more in this quarter that were somewhat delayed. By borrower's cash, but I think we remain very comfortable with our pipeline.
Mark Klein: And Brian, just to comment, we certainly have a number of sizable credits that again, we continue to stumble upon as we've identified disruption in the market. So we're well prepared to take advantage of the opportunities that are out there in the marketplace.
Tony Cosentino: And I'll I'll just add on, you know, Brian. I think as we've said in the past, we probably have 40 ish type million of undrawn construction type projects that, those loans are closed We have no issue with those, that are gonna fully fund here between now and call it first, second quarter of twenty six. So we think that's a baseline of call it, 10 to 15,000,000 a quarter of volume that's gonna fund up That's in addition to, you know, kind of our regular calling and new activity that we've got on the street.
Mark Klein: The nice thing, Brian, last comment. Nice thing is as our rates adjust on credits that are rolling to maturity, they're rolling to a higher rate. And the good part is they're gonna have to pay the same number somewhere else. So Yes. They're staying put, which has allowed us to do what we've said we've done on the NIM expansion.
Brian Martin: Right. That which is what my just one question. You're just on the on the outlook. It sounds like the margin's got a nice tailwind, Tony, or just the cost of deposits and cost of funding is pretty stable here absent some Fed action. So feels like it's stabilized. Maybe there's a little room for incremental improvement, but they continued repricing within the loan book and remix of the bonds still seems like that the margin's got a bit of a tailwind, just kinda thinking over the next couple quarters, kind of where you see the margin kind of more stabilizing once you get continue to get a little bit of benefit here?
Tony Cosentino: Yeah. I think, you know, I think rightly or wrongly, I've I've underestimated how much the margin has improved for us in the last, call it, three, four quarters. It has outpaced us I think our ability to retain deposits and not having to chase yield on the funding cost has been effective. And we've retained, I don't know, Steve, probably 90 of everything that's rolled over because our pricing on three and five year FHLB repricing is not that demonstrably far from what the market is. So those customers are not rolling up the curve We continue to have you know, we're fairly short term on our loan book.
So we continue to have, you know, call it 100 to a 150,000,000 out every twelve months that's gonna reprice. At least for the next year and a half to two years. That's gonna move up, call it, a 150 to 200 basis points. So if we're able to retain those and keep funding costs where they are, you're right. Margin has to have forward momentum.
Brian Martin: Okay. And just the longer term, like, Tony, where do you think the margin can stabilize given kind of the environment we're in today? Obviously, much better than it has been. You know, where do you see it kind of flatlining once you kind of continue to get through some of the potential benefit we get from you know, kind of the rate environment we're in.
Tony Cosentino: Yeah. I think we're, you know, we're probably up another 10 ish basis points here in Q3 and, you know, probably it probably speaks out at, call it, at three seventy number. You know, if we can hold a three seventy margin on our balance sheet, that's gonna be, you know, a great day. I do know, you know, funding pressure is gonna come. There's no question in my mind. The disruption in the market as Mark talked about, I think there's some easy movement our way, but there's going to be movement from competitors to tighten that up.
Brian Martin: Yeah. Okay. And you guys talked about some improvement on the credit side. Those credit that came on, you know, early last year, So I guess the that's the potential to maybe see a little bit of lift in know, or benefit on the on the on the provision side if you get some recoveries? Is that kind of how you're thinking about it at least in the in the short term?
Tony Cosentino: Yeah. I think, you know, by even a fairly conservative estimate, we feel we're gonna drop nonperforming by 1,500,000 so here in Q3, And in addition to kinda recapture, as we talked about interest and fees, we think that dynamic is gonna give our overall asset quality, you know, come significant opportunities that, you know, I don't know that we'll be taking reserve back, but we certainly in all likelihood, know, we put a million dollars aside thus far in provision through the first six months. I just don't see that pace in the second half of the year.
Brian Martin: Yeah. If credit holds and you get some of this benefit, more it's just Thank god. Lift there. So okay. But the reserve kind of reserve We don't have any more.
Tony Cosentino: Any losses really from you know, of any consequence from now to the end of the year.
Brian Martin: Gotcha. And that reserve coverage, Tony, just kinda keep it you're I guess, absent any macroeconomic change, just kinda keep that pace worth at the reserve coverage level?
Tony Cosentino: Well, it's gonna, yeah, it's gonna naturally go up. I mean, probably gonna be in the mid threes by the time we finish just because the denominator is gonna change in our favor. So you know, but I would I would guess the allowance stays in that fifteen six to fifteen nine range you know, through the end of the year and probably the '26 depending on how things look.
Brian Martin: Gotcha. Okay. And then last, maybe just on the capital optionality, I guess, as far as repurchasing shares, looking at m and a, you know, kind of I know the industry has seen more pickup in m and a of late. Just how you're thinking about M and A versus buyback versus just organic deployment into loans.
Mark Klein: Yeah. Just one comment, Tony, can certainly weigh in on that one, Brian. But on the M and A front, we keep our ear to the ground for opportunities. We're looking at potentials as we kinda speak. We love organic growth, but that doesn't mean that you know, there's not gonna be some opportunities out there. We know that's not going to be you know, the panacea, so to speak, to, you know, the scale issue that everyone's having. But that said, we continue to look at all angles, but, clearly, we have some with our capital structure, we have certainly opportunities to do some of that. But Tony, comments?
Tony Cosentino: Yeah. I think you know, I would say we had an oversized amount of the buyback in the second quarter given where the pricing was on the stock and what we felt was the opportunity. Know, I think collectively, Mark and I have looked at it, and we're probably gonna, you know, slow that down here in the third quarter because I do think we have some alternative opportunities. Not that we have any, you know, capital deficiency. I think capital is just fine.
But I think we do have some opportunity not only for organic expansion as we've discussed, but I think there's some conversations that we need to maybe keep capital, you know, at or above where it is today.
Brian Martin: Gotcha. And then last one for me. Just on the expenses. It sounds like, you know, a really nice job on that front. Just any big changes to the kind of the run rates where we're today in terms of I know you talked about not adding some staff to the mortgage, obviously, if you don't get a little bit more scale. But elsewhere, kind of investments, know, this level's reasonably good, maybe a little bit of growth from today's level. Just any thoughts there and
Mark Klein: Well, clearly, Brian, as we've communicated many quarters, you know, we gotta a variable based compensation plan across the board. We do well. Our staff does well. That's including nonmortgage producers. But, clearly, as mortgage production rises, expenses will go up. But moral story is the scale that we've realized of recent is certainly helping us, to deliver, you know, a better ROA. Yep. At that nearly that 1% level and higher, which is certainly, you know, the long term goal always. But that said, we continue to fight that battle because expenses aren't gonna go down, and certainly technology continues to drive, you know, our expense level up.
But that said, we know what the job to be done is, and that's organic growth at most cost. So we're optimistic about we're at today, and we think we can continue to drive performance higher.
Brian Martin: Got you. Okay. I think that's all I had, guys. Thanks for taking the questions, and congrats on a nice quarter.
Mark Klein: Yeah. Thanks, Brian. Talk soon. Brian. See you.
Operator: And that concludes the question and answer session. I'd like to turn the conference back over to Mr. Klein for closing remarks.
Mark Klein: Thank you, sir. Thanks for joining us this morning. Nice to have you with us. We certainly look forward to speaking with you on our third quarter 2025 results soon in October. Take care.
Operator: Thank you, sir. This concludes our conference call today, everybody. We thank you for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Tony Cosentino: Thank you, Hector.