SB Financial (SBFG) Q4 2025: Loan Growth Accelerates 12.8% as Deposit Base Expands

2026-01-30 | By EarningsIQ Research

SB Financial capped 2025 with seven straight quarters of loan growth, surging 12.8% year over year, as disciplined lending and deposit expansion offset mortgage headwinds. Despite margin pressures and lower non-interest income, management’s focus on core funding and operational leverage signals a strategic push for scalable growth in 2026.

Summary

• Loan and Deposit Momentum: Commercial lending and core deposit growth outpaced peers, driving balance sheet expansion.
• Margin Management Focus: Leadership signals proactive repricing and deposit mix strategies to defend net interest margin.
• 2026 Growth Priorities: Management targets increased operating leverage and scalable lending across new and established markets.

Performance Analysis

SB Financial’s fourth quarter and full-year 2025 results reflect a robust expansion in both loans and deposits, with the company reporting its second-highest EPS performance in two decades. Net interest income, the core driver of revenue, rose sharply, fueled equally by a larger balance sheet and improved net interest margin (NIM), with recurring NIM revenue now accounting for nearly 75% of total revenue. Loan growth was particularly strong, up 12.8% year over year, marking the seventh consecutive quarter of sequential loan expansion, and was supported by outsized commercial activity in the Columbus market and successful de novo efforts in adjacent regions.

Deposit growth, both organic and from the Marblehead acquisition, was a critical enabler, with total deposits up 13% and organic deposits rising 9.3%. Non-interest income, however, contracted due to lower mortgage servicing rights and fee-based revenue, reducing its share of total revenue to 26%. Operating expenses were well controlled, declining sequentially and growing slower than revenue for the year, resulting in positive operating leverage. Asset quality remained a clear strength, with non-performing loans and assets declining and the allowance for credit losses providing strong coverage even as loan growth outpaced reserve build.

• Commercial Lending Surge: Over $73 million in new commercial loans in the Columbus market set the pace for segment growth.
• Deposit Franchise Strength: Stable core deposits and favorable mix shifts supported funding costs and liquidity.
• Non-Interest Income Drag: Mortgage servicing and fee revenue fell, compressing revenue diversification and requiring greater reliance on NIM expansion.

SBFG’s performance was underpinned by disciplined balance sheet management, cost control, and a focus on scalable growth, but margin compression and non-interest income softness remain headwinds to monitor in 2026.

Executive Commentary

Strategic Positioning

1. Diversified Revenue Model Under Pressure

SBFG’s business model blends traditional banking with mortgage, wealth management, and fee-based services. However, fee-based revenue share dropped to 26% amid mortgage headwinds, raising the importance of net interest income and asset repricing to sustain earnings. The company’s ability to rebalance toward higher-margin lending and cross-sell remains a strategic imperative.

2. Core Deposit Base and Liquidity as Growth Levers

Deposit growth—both organic and through acquisition—remains central to funding loan expansion and maintaining liquidity. The Marblehead integration added nearly 2,500 low-cost deposit accounts, and management highlighted $50 million in excess liquidity and $160 million in debt capacity, providing flexibility for further growth and potential M&A.

3. Operational Scale and Expansion Markets

The Columbus market continues to anchor loan growth, while new market entries in Napoleon, Angola, and Fort Wayne signal a push for geographic diversification. The company’s scalable back-office infrastructure, particularly in mortgage, positions it to absorb higher volumes if rates fall and demand rebounds. Management is targeting increased participation from underpenetrated regions to broaden the growth base in 2026.

4. Credit Discipline and Asset Quality

Asset quality remains a competitive advantage, with non-performing assets and classified loans declining despite rapid loan growth. The allowance for credit losses, at 1.36% of loans and 352% of non-performing assets, provides a robust buffer. Management expects further improvement in credit metrics as legacy issues are resolved.

5. Operating Leverage and Cost Control

Expense discipline produced core operating leverage of two times revenue growth in 2025. Management aims to sustain positive leverage in 2026, with expense growth targeted at 3.5% to 4% and ongoing efficiency initiatives. The challenge will be to maintain this discipline as the company invests in additional lenders and market expansion.

Key Considerations

SBFG’s 2025 results highlight the importance of balance sheet scale, deposit franchise strength, and disciplined expense management in a competitive and rate-sensitive environment. The company’s strategic focus is on expanding lending capacity, optimizing funding costs, and leveraging operational scale to drive sustainable growth.

Key Considerations:

• Deposit Funding Cost Dynamics: Management expects upward pressure on funding costs as competitive deposit pricing intensifies in 2026, requiring ongoing repricing discipline and targeted relationship acquisition.
• Margin Compression Risk: Net interest margin is forecast to decline by 5 to 7 basis points in 2026, with asset repricing and lower-cost funding critical to defending profitability.
• Mortgage Volume Sensitivity: Mortgage banking is poised for low to mid-single-digit growth, but remains highly sensitive to interest rate movements and inventory constraints.
• Expense Leverage Challenge: Sustaining positive operating leverage will require tight cost control as the company adds lending capacity and invests in expansion markets.

Risks

SBFG faces several headwinds, including potential margin compression from rising deposit costs, softer non-interest income due to mortgage and fee revenue volatility, and execution risk in scaling new markets. Competitive loan pricing and the need to maintain credit discipline as growth accelerates could also pressure future returns. Management’s outlook assumes stable economic conditions and continued access to core funding, but adverse rate moves or a downturn in credit quality remain material risks for 2026.

Forward Outlook

For Q1 2026, SBFG guided to:

• Modest decline in net interest margin due to funding cost pressures
• Continued sequential loan and deposit growth, with a focus on commercial and ag lending

For full-year 2026, management maintained guidance:

• Low to mid-single-digit growth in mortgage production
• Expense growth of 3.5% to 4%, with operating leverage targeted at 1.5 to 2 times revenue growth

Management highlighted several factors that will shape 2026:

• Deposit acquisition and relationship depth will be central to loan growth and margin defense
• Further improvement in asset quality is expected as legacy credits are resolved

Takeaways

SBFG’s disciplined approach to balance sheet growth, funding, and expense management positions it for continued expansion, but headwinds in margin and non-interest income require careful execution.

• Balance Sheet Scale: Loan and deposit growth outpaced peers, but future performance hinges on the ability to sustain core funding and prudent lending as competition intensifies.
• Margin and Fee Revenue Watch: Margin compression and fee income volatility are key variables for 2026, with asset repricing and operational leverage as the primary offsets.
• Market Expansion Execution: Success in new and underpenetrated markets, coupled with disciplined credit and cost management, will determine whether SBFG can achieve its $2 billion balance sheet target.

Conclusion

SB Financial delivered a standout year on loan and deposit growth, leveraging its diversified model and disciplined execution to offset industry headwinds. The strategic focus for 2026 is clear: defend margin, deepen funding relationships, and scale efficiently to capture further market share.

Industry Read-Through

SBFG’s results highlight a broader trend among regional banks: success hinges on core deposit growth, disciplined lending, and operational efficiency as fee-based revenue softens and margin pressure mounts. The competitive push for low-cost funding and scalable lending is likely to intensify across the sector, especially in markets where consolidation creates openings for nimble players. Mortgage sensitivity and expense leverage will remain key differentiators for banks navigating a volatile rate environment in 2026. Peers should watch for further M&A and market expansion as banks seek scale and diversification to offset structural headwinds.

SBFG Financials Regional Banks Commercial Lending Deposits Mortgage Operating Leverage Expansion