SB Financial Group Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Hey. Good morning, guys. Thanks for the commentary Just a couple of areas, just to touch on, just to get some clarification on the -- Mark, it sounds like just higher level, or Tony, on the mortgage, the investments in both Indiana and Cincinnati sound like they paid some pretty nice dividends here as you look into '25 with new talents and obviously the new markets. But just -- if we don't see any change in rates, can you just kind of talk about what you think you can add in terms of production just with bringing on new talents in these markets just to kind of get a floor of what we think is potential on the mortgage this year? And then if we do get some benefit elsewhere, even better performance. But just kind of how you're thinking about a floor in terms of originations for '25?

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Got you. And the people you're going to hire, Mark, what you said primarily that is going to be in the Cincinnati market, that's where you're adding staff? Or is there any other markets you're adding folks in?

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Got you. Okay. That's helpful. And then just in terms of loan growth, it sounds as though you're -- the shift maybe a little bit -- that continues in terms of -- if we think about '25, the residential portfolio likely continues to still come down a bit. And the commercial -- traditional organic commercial growth is going to be what drives growth. So just kind of how are we thinking about pipelines today? And then just organic growth throughout '25, does that seem right, still a little bit more reduction in mortgage and then growth elsewhere and kind of where that nets out to as you think about big picture for the year.

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Got you. And I guess, in terms of -- Tony, just on the margin, and kind of layering in Marblehead. I think you talked about, I mean, the combination of this loan growth, some stability or further reduction in funding. Maybe we're kind of in a floor at the margin here and it's upward from here? And then maybe just remind us the benefit from Marblehead here and how to think about that as we go into '25 and deals closed? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 24, 2025 / 4:00PM, SBFG.OQ - Q4 2024 SB Financial Group Inc Earnings Call Anthony Cosentino - SB Financial Group Inc - Chief Financial Officer, Executive Vice President of the Company and State Bank Right. Yes. I think 3.35% was our margin number here in the fourth quarter. And I think I would say that was more positive than I had anticipated. Our ability to reduce funding costs was a little bit better than I anticipated. We really didn't lose clients when we were pretty aggressive on moving down rates when the Fed moved. So I thought that was a positive. I concur with you. I think the 3.35% is probably our baseline, and it's certainly not going to go up kind of double-digit percentage per quarter. I would suspect it's going to go up a few basis points here in Q1, and then kind of move up a little bit more through that. So I would anticipate by the time we finish '25, we're probably at a 3.50% to 3.55% range in Q4 of '25. On Marblehead, they're going to bring $22 million of loans at loan pricing higher than what we have on our books today, probably in the high 6s, low 7s on average of their portfolio, which is a pretty strong portfolio. We've successfully executed on liquidating their bond portfolio. Their average cost of funds, on the deposit side, is, call it, $185 million, $190 million -- and so we're going to immediately move that into overnight at a minimum. And as Steve said, we have a pretty strong loan pipeline that we think is going to drive, call it, 350 to 400 basis points. We're still extremely confident in the model and the metrics that we put forward that we're going to be able to have pretty strong EPS accretion from the transaction, $0.15 to $0.20 a share here in '25, especially since we were able to close it, call it, two months earlier than we had originally anticipated. So I hope that kind of cleans up some data.

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Yes. Got you. Okay. And then in terms of credit quality, I think I heard the comment that the -- I guess there's some potential resolution here of the credit. So I guess, with the commentary on the call, and maybe I missed it, this was a high watermark kind of on that front, and we have to see a little movement down the next couple of quarters. Is that -- was pretty minimal against loss content?

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Got you. I got you. And then in terms of, I guess, the funding of the loan growth, Tony, it sounds like not much we have deposit growth to expect this year, I guess, given the liquidity and some potential cash flow from the bond portfolio. Is that fair how to think about the balance sheet on this point? Anthony Cosentino - SB Financial Group Inc - Chief Financial Officer, Executive Vice President of the Company and State Bank Yes. I mean, I think we have, call it, $55 million of funding kind of locked in between the bond amortization and the Marblehead net liquidity. I think I'd be disappointed if we don't grow loans, call it, $80 million to $85 million to $90 million this year on a year-over-year basis, that includes the $22 million of Marblehead, so call it $70 million or so from where we are. So that means we're still going to have to come up with, call it, a $30 million deposit raise throughout our network, which I think is eminently doable. And we do have a -- we're a little cautious on the home buyer in year two that some of that is going to kind of matriculate its way out of us, not the full pool, but a portion of that $50 million will decline by the time we sit here a year from now.

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Got you. Okay. And then just the last one for me, which is on the expense outlook. Just kind of if we layer in Marblehead, can you just talk about kind of the run rate in expenses kind of starting 1Q? And then just how that the expense discipline you guys have had has been great. So just trying to understand kind of how that run rate may trend as you kind of go through 2025. Anthony Cosentino - SB Financial Group Inc - Chief Financial Officer, Executive Vice President of the Company and State Bank Yes. So we did $43 million for the full year. And if we accelerate fourth quarter, we're kind of on a $44 million run rate. I think we've spent a fair amount on resources, technology and those kinds of things. I think a lot of that is in our rearview mirror. We do have some projects we're still contemplating. Obviously, Marblehead is going to bring on an expense base, but it's relatively inexpensive. For the size of their structure, they don't have a great amount of expenses that's going to cause us outside of our conversions and all those kinds of things, which we'll take care of. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 24, 2025 / 4:00PM, SBFG.OQ - Q4 2024 SB Financial Group Inc Earnings Call But I would think we're kind of on that 2.5% to 3.5% growth rate over kind of where we were here in Q4. But we have made it extremely playing to all of our teams that the growth and revenue part of the equation is the first thing we're going to talk about in 2025. We kind of got behind the eight ball in the first part of '24. Expenses rose faster than revenue, and we have got to get back to positive operating leverage of 1.2% to 1.5% -- 1.5 times. Sorry, because I think that clearly is the structure we should be in given our past reliance on revenue growth.