SBFG

• Overall Financial Results

  • GAAP net income was $4.5 million, with diluted EPS of $0.07; adjusted diluted EPS (adjusted for MSR valuation adjustments) was $0.73, a 26% increase year-over-year.
  • This is the 62nd consecutive quarter of operational profitability; tangible book value per share increased 16% year-over-year to $19.04.
  • Total operating revenue grew 4.5% year-over-year to $17.9 million, and noninterest income totaled $5 million, representing 28% of total operating revenue.
  • Noninterest expense was $12.1 million, up 2.4% year-over-year, with an improved efficiency ratio of 67.3% and positive operating leverage of 1.9x.

• Balance Sheet Growth

  • Total loan balances grew 8.7% year-over-year to $1.19 billion, marking 9 consecutive quarters of sequential loan growth; sequential linked quarter growth was $8.4 million.
  • Total deposits grew 11% year-over-year to $1.39 billion, with non-interest-bearing checking accounts reaching nearly $260 million, up $17.3 million year-over-year.
  • Cumulative low-cost deposits captured from regional market disruption now total $130 million, toward a long-term target of $500 million.
  • De novo markets (Angola, Indiana and Napoleon, Ohio) have exceeded original targets, with $19.3 million in loans and $22.5 million in deposits, well ahead of schedule.

• Asset Quality

  • Total nonperforming assets declined 28% year-over-year to $4.4 million, representing just 0.27% of total assets.
  • Allowance for credit losses was $16.4 million (1.38% of total loans), providing 470% coverage of nonperforming loans.
  • Gross total delinquency rate fell to 32 basis points from 51 basis points year-over-year; excluding nonaccrual loans, the delinquency rate is effectively zero.
  • Net charge-offs were 6 basis points, a modest increase from historical levels, driven by a single long-standing credit that was already reserved for.

• Capital and Shareholder Returns

  • Total equity grew 9.8% year-over-year to nearly $147 million, maintaining robust top-tier regulatory and tangible common capital levels.
  • The company repurchased 28 thousand shares at an average price of $22.06, maintaining a disciplined buyback posture aligned with capital priorities.
  • A quarterly dividend of $0.16 per share was declared, marking the 14th consecutive year of annual dividend increases, with a 2.4% annualized yield and 22% payout ratio.

• Net interest margin: Management expects margin to stabilize in the 3.45% to 3.55% range in the second half of 26, with potential for a slight increase from Q2 26's 3.43% as excess liquidity is deployed into new higher-yielding loans.
• Loan growth: Management expects $50 million to $60 million in net loan growth from Q2 26 through the end of 26, with a more balanced geographic mix: 50% from Columbus and 50% from other markets, an improvement from 90%/10% split in 2025.
• Deposit growth: Even after accounting for an expected $40 million outflow of institutional wholesale deposits in Q3 26, management still expects 3% to 5% sequential quarterly deposit growth for the remainder of the year, supported by ongoing regional market disruption and de novo market expansion.
• Mortgage originations: Management expects Q3 26 originations to remain similar to Q2 26 at ~$80 million, with Q4 26 originations falling to $50 million to $60 million if mortgage rates remain above 6%; full year originations are expected to total ~$230 million, with an additional $30 million to $50 million in volume if rates fall below 6%. The firm has existing capacity to support $400 million to $500 million in annual originations without adding incremental headcount.
• Expenses: Q3 26 noninterest expenses are expected to be in the $12.3 million to $12.4 million range (~$300,000 higher than Q2), with Q4 26 expenses falling back to ~$12 million as mortgage volume declines.

1. Mortgage Banking: Core mortgage banking contribution was $1.9 million, down from $2.2 million in the prior year quarter but up from $1.8 million in the linked quarter. Loan origination volume reached $79.3 million, up 21% from the linked quarter but down from $97.9 million in the prior year. It contributed 27.7% of total noninterest income, and mortgage banking revenue accounts for ~10.6% of total operating revenue. The mortgage servicing portfolio ended at $1.5 billion, with core loan servicing fees of $934 thousand and gain on sale mortgages of $1.5 million.
2. Peak Title (Title Services): Generated revenue of $577 thousand, up nearly 20% from the linked quarter and flat year-over-year. This accounts for ~11.5% of total noninterest income and ~3.2% of total operating revenue.
3. Wealth Management: Recorded fees of $955 thousand, with total assets under management of nearly $557 million. This accounts for ~19.1% of total noninterest income and ~5.3% of total operating revenue.
4. Net Interest Income (core lending): Net interest income was $13 million, up 6.8% year-over-year, accounting for ~72.6% of total operating revenue. Total loan balances reached $1.19 billion, with commercial real estate representing the largest segment at $611 million (51.3% of total loans). Agricultural loan balances exceeded $81 million, up over $20 million year-over-year.

• Elevated mortgage rates above 6% have suppressed refinance volume, keeping full year mortgage originations below historical levels.
• The firm expects to lose ~$40 million in institutional wholesale deposits in Q3 26, though management notes this outflow will not be material to earnings and existing excess liquidity is sufficient to fund planned loan growth.
• Resolution of legacy nonperforming assets is slow, though these are small (mostly six-figure) balances that do not materially impact earnings.
• Commercial real estate office exposure is under 5.5% of total loans, with no other loan segment exceeding 10% of total outstandings, limiting concentration risk.

Q: How will net interest margin trend over the next few quarters, given industry competition for deposits and loans? / A: Management noted Q1 26 was the peak for net interest margin, and Q2 26's slight decline was driven by excess liquidity from strong deposit growth. They expect the margin to land in the 3.45% to 3.55% range for the second half, with potential to rise slightly from Q2 26's 3.43% as excess liquidity is deployed into new, higher-yielding loans, supported by low-cost deposit growth from market disruption.

Q: What is the outlook for balance sheet growth, and how will the geographic mix of loan growth change? / A: Management expects $50 million to $60 million in net loan growth by the end of 2026, with a more balanced 50/50 split between Columbus and other markets, compared to 90/10 last year. Even after accounting for a $40 million institutional deposit outflow, they still project 3% to 5% sequential quarterly deposit growth, driven by regional market disruption and strong performance in new de novo markets. Existing excess liquidity of ~$70 million is sufficient to fund all planned second half loan growth.

Q: What is the mortgage originations outlook for the rest of 26, given the current high rate environment? / A: If rates remain above 6% for the rest of the year, full year originations will total ~$230 million, with Q3 at ~$80 million and Q4 at $50 million to $60 million. A 50 basis point rate cut to below 6% would add $30 million to $50 million in additional volume. The firm already has capacity to handle $400 million to $500 million in annual originations without adding headcount, so any volume increase will be immediately accretive.

Q: How will expenses trend in the second half of 26 as volume picks up? / A: Expenses will rise modestly to $12.3 million to $12.4 million in Q3 (a $300,000 increase from Q2), driven by incentive compensation for performance on loans and deposits, then fall back to ~$12 million in Q4 as mortgage volume declines. Most compensation is structured to be variable, aligned with production, so expense growth remains controlled.