Earnings Call Transcript - SBFG Q3 2025

Operator, Operator

Good morning, everyone, and welcome to the SB Financial Third Quarter 2025 Conference Call and Webcast. I want to let you know that this call is being recorded. I will now hand the call over to Sarah Mekus with SB Financial. Please proceed, Sarah.

Sarah Mekus, Investor Relations

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.

Mark Klein, Chairman, President and CEO

Thank you, Sarah, and good morning, everyone. And 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, a residential servicing portfolio of $1.5 billion and now, wealth assets of over $563 million. Once again, this diverse book of assets provides 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 are up slightly compared to the prior year. Year-to-date expense growth, excluding the one-time 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 clear sight, 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 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 Certified Financial Planner 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 constitutes just 203% of regulatory capital, which is well below peer and within regulatory benchmarks. Expanding relationships for 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 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 in 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 the 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 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 agricultural production sector, which will undoubtedly allow us to solicit a number of well-established agricultural 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 a 25 basis point level of NPAs in the coming quarters. Now I'll turn it over to Tony for additional comments on our quarterly performance.

Tony Cosentino, Chief Financial Officer

Thanks, Mark. Good morning, everyone. I want to share some key highlights and details about our third quarter results. Starting with the income statement, in the third quarter, total operating revenue rose to $16.6 million, reflecting a 15.9% increase from $14.3 million in the previous year and a decrease of 3% to 3.5% from the prior quarter. The primary factor driving growth was net interest income, which reached $12.3 million in this quarter, marking a 21% increase. Loan income surpassed $16 million for the second straight quarter, supported by a higher level of outstandings and the contractual repricing of the portfolio. Loan yields achieved a new high of 5.95%, an increase of 23 basis points, which directly contributed to our earning asset yield rising by 18 basis points to 5.31%. Year-to-date return on assets was 90 basis points, a rise of 17%, with our pretax preprovision ROA at 1.29%, improving by 28 basis points compared to the same period last year. Despite increases in the balance sheet and the need to fund asset growth, funding costs remained stable. Total interest expense for the quarter was $6.5 million, up by only $113,000 or less than 2% from the previous year. Year-to-date interest expense rose by $430,000, which is favorable compared to interest income, which has increased this year. The rate on interest-bearing liabilities was 2.33% for the quarter, down 19 basis points from the prior year, thanks to Marblehead's lower-cost deposits and organic deposit growth in several markets that have kept funding costs down. We anticipate that this quarter will likely mark the low point for funding costs and the peak for our net interest margin at 3.48%. We still have additional quarters of asset repricing ahead, and we will continue to transition bond balances into higher-yielding assets, although funding costs are likely to rise to counteract margin improvements. Fee income has remained steady over the last two years, averaging between $4 million and $5 million per quarter. With significant growth in our margin revenue, the fee income as a percentage of total revenue has decreased from our historical averages to the mid- to high 20 percentile range. This quarter, we experienced a higher OMSR impairment due to improved rates, which was more than compensated by the increase in our equity from the lower AOCI level. The total contribution from mortgage banking this quarter was nearly $1.5 million, up over 10% compared to the third quarter of the previous year. Our hedging program continues to help us maximize profit potential while minimizing rate exposure despite an expanding pipeline. The gain on sale yield so far in 2025 is 2.08%, slightly lower than in 2024. The sale percentage this quarter is nearly 100%, bringing our year-to-date originated sale percentage to 88%. Operating expenses, as Mark mentioned, remain well managed, decreasing by 3% from the previous quarter and only rising by $500,000 or 4.5% from last year. This growth level, below 5%, includes all operating costs for Marblehead fully integrated into our current environment. Our total headcount has increased by just five from the previous year as we adapted our structure in mortgage and support to accommodate new hires for Marblehead and our lending staff. Now, let’s look at the balance sheet. Mark highlighted our growth metrics for loans and deposits, which have been essential for our earnings growth this year. Looking ahead to 2026, we anticipate delivering another high single-digit increase in loan growth, funded by bond portfolio runoff, 4% to 5% deposit growth, and supplemented by targeted wholesale borrowings that will complement our current balance sheet. We have not been significant players in the wholesale market, as our stable deposit franchise has adequately met our funding needs for asset growth. Currently, we have $35 million in wholesale borrowings with an average coupon around 4%. Our liquidity ratios are well within policy, and we have immediate access to over $190 million in FHLB capacity, along with nearly $500 million in total contingent funding options. Our loan-to-deposit ratio remained consistent with the previous quarter at 88%. We aim for a target level in the low to mid-90s for this ratio to balance profitability with liquidity risk. Given the stable nature of our deposit franchise and an average account balance of approximately $22,000, our deposit betas are quite predictable and enable us to rely on that funding base going forward. Regarding capital management, during the quarter, we repurchased 101,000 shares at an average price of just under $20, about 115% of tangible book value and 95% of tangible book adjusted for AOCI. This year, we have repurchased almost 252,000 shares for $4.5 million, utilizing 45% of our earnings. As Mark noted, tangible book value per share increased by $0.77 from the prior quarter, influenced by a $2.1 million gain on AOCI, higher earnings, and a reduced share count from the buyback. Lastly, on asset quality, total delinquencies were slightly down from the previous quarter at 45 basis points, primarily due to a reduction in the 90-plus day category. Compared to last year, total delinquent loans have decreased by $1.7 million, and total classified loans were down nearly $1.3 million or 21%. Our allowance for credit losses rose by 1 basis point but remained aligned with portfolio trends and recent quarterly loss rates. Given the overall improvement in our CECL metrics and the enhancement in nonperforming loans this quarter, along with potential upgrades soon, it is likely that we have reached the high end of our reserve level going forward. Now, I will turn the call back over to Mark.

Mark Klein, Chairman, President and CEO

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?

Sarah Mekus, Investor Relations

Jamie, we are now ready for questions.

Operator, Operator

And our first question comes from Brian Martin from Janney Montgomery.

Brian Martin, Analyst

Thanks for the update. Mark, can you discuss the loan growth? It seems like your recent comments about new hires suggest that there might be an emphasis on agriculture. Could you elaborate on the pipeline and expected growth over the next 6 to 12 months? Also, it sounds like there’s positive growth across the board, but is there an expectation for stronger growth in agriculture in the near term?

Mark Klein, Chairman, President and CEO

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 continued 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?

Steven Walz, Chief Lending Officer

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 aid our, 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.

Brian Martin, Analyst

Got you. Can you tell me about the status of the unfunded commitments in terms of funding? Is there still a strong balance of what you expect to fund that is already booked and just waiting to be funded?

Steven Walz, Chief Lending Officer

There is still a number of dollars in unfunded commitments. We continue to replace some of those dollars as they transition into the permanent loan structure. We are also experiencing growth in that area. We expect to maintain our current growth rate over the next 6 to 12 months, including the end of this quarter.

Mark Klein, Chairman, President and CEO

Tony, any additional color on the pipeline?

Anthony Cosentino, Chief Financial Officer

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.

Brian Martin, Analyst

Got you. Okay. Yes. Tony, can you discuss the ability to grow deposits and the potential use of borrowings? Can you clarify how you plan to achieve loan growth over the next 6 to 12 months in terms of funding? Will this primarily come from liquidity, or is that not the case? It seems that addressing this could help improve the margin a bit, but considering the competitive landscape, how do you see the margin outlook and the use of that liquidity?

Anthony Cosentino, Chief Financial Officer

In an ideal scenario, we currently have between $50 million and $75 million in available liquidity that we're investing overnight. If I believed there wouldn't be a significant uptick in competition for deposits, I would immediately allocate that liquidity into our loan pipeline, which could provide a 300 basis point improvement over our current earnings. However, based on what I've observed, I expect funding costs and competition to intensify. We have maintained a stable deposit base, but I foresee strong competitive offerings emerging in early 2026. This could lead our customers to seek higher rates, which is a concern for our margins. However, if we can maintain our position and effectively utilize that $75 million, I do believe that margins will improve from their current levels.

Mark Klein, Chairman, President and CEO

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

Brian Martin, Analyst

Okay. So looking at the bigger picture, considering the increased competition, if your margin reaches its peak this quarter, do you anticipate a slight downward trend given the factors you've mentioned? It seems there isn't a significant drop expected, nor does it appear to be going much higher. It seems more like it will be balanced out by your repricing efforts and some competitive influences. Is that a fair way to interpret it?

Anthony Cosentino, Chief Financial Officer

Yes. I believe that 3.5% is a solid margin level for us considering our asset size and current position. I expect we will maintain that margin level throughout 2026, as we anticipate repricing on the asset portfolio and higher bond roll-off. Additionally, we expect an increase in liquidity reuse. There may be some headwinds from funding costs as well. However, if there are significant rate decreases in the near term, our prime-based costs, roughly $350,000 annually for every 25 basis points, suggest we can withstand a decline of about 75 basis points before reaching our floors. We're currently assessing how to manage recovery if there is a rapid decrease in Fed rates.

Brian Martin, Analyst

Got you. Okay. That's helpful. And that's fine. I think that was it on that. How about in terms of credit quality? It seems like there's opportunity and that we might be at the peak of reserve coverage. Can you frame up what potential improvement might look like if credit quality holds and possibly improves? Also, where do you see reserve coverage over time as you continue to decrease the credit numbers a bit more?

Anthony Cosentino, Chief Financial Officer

Yes. I mean, happy to start. I do think we probably have, 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 1.44% 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 reserves 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.

Steven Walz, Chief Lending Officer

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 has frustrated us.

Brian Martin, Analyst

Yes, understood. Tony, will that reserve ratio possibly drop to around 1.25% or 1.30% in the future? Is that an expectation you have, or do you have a specific target for where it might end up?

Mark Klein, Chairman, President and CEO

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. This is not going to happen. I think more is always better in that arena.

Anthony Cosentino, Chief Financial Officer

I focus more on the total dollar amount rather than the percentage. I would estimate that by this time next year, we could be around $16 million in reserves, up from the current $15.3 million. If we grow by $80 million to $100 million, the reserve percentage might be around 1.39% to 1.40%. It's not far off. Additionally, our coverage of non-performing assets at that point is likely to exceed 0.40%. We are quite confident about our position.

Brian Martin, Analyst

Yes, that makes sense. You've done an excellent job with credit, and as Mark mentioned, the reserves are stronger. While having larger reserves is advantageous, it's important to also consider the credit landscape and modeling. Now, regarding the expense outlook, could you clarify our current position? I understand that this can fluctuate significantly with mortgage production and related factors, which can be volatile. However, you've managed expenses well, and I'd like to better understand what to expect over the next 12 months or so in terms of the trajectory from the current expense run rate.

Mark Klein, Chairman, President and CEO

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?

Anthony Cosentino, Chief Financial Officer

In Q4, we anticipate total expenses to be around $11.5 million, similar to Q3. We expect mortgage volume to increase by about 15% compared to the previous quarter, likely reaching around $80 million, which may result in slightly higher expenses. Therefore, we estimate Q4 expenses to also be about $11.5 million, leading to an approximate total of $46 million for all of 2025. While I don't usually express strong confidence about expenses, I do feel positive about our current situation. We've expanded our team and implemented some structural changes in our mortgage support. We are also identifying opportunities for employees to take on multiple roles and integrate tasks. Additionally, our hybrid branch strategy should enable us to make adjustments that could lower headcount. Consequently, I believe a growth rate of 3% or 4% in 2026 is manageable at this stage.

Brian Martin, Analyst

Got you. Okay. Yes, it makes sense. The hybrid approach and some of the initiatives on the mortgage side have really helped. We'll see what happens with the volume, which is what I want to ask about. In relation to Mark's comment about the 30-year rate being below 6 and the fact that there has been no refinancing this year, how do you view the mortgage volume for next year? I think it would be worth discussing the fourth quarter since that's a priority. Considering the current rates and the team you have in place, what is your overall outlook?

Mark Klein, Chairman, President and CEO

Well, as you know, Brian, we are prepared and set up for that $450 million to $500 million target that we've discussed for a long time. We are still organized that way. We've made slight improvements, and we are aiming for a sub-6, similar to what others are seeking, and a number around 5.5 or 5.25 would significantly enhance that volume level. However, this year has certainly been better than the previous one, and we have the capacity along with 23 different producers who are highly motivated to seek additional volume. I remain hopeful that we can get back to the 400 range as rates decrease, especially in the 10-year. While I know it has recently increased again, achieving something in that 5 range would be a welcome boost to our earnings. Comments, Tony?

Anthony Cosentino, Chief Financial Officer

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 trend 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.

Mark Klein, Chairman, President and CEO

Just short of my number, 400. Optimistic CEO.

Anthony Cosentino, Chief Financial Officer

Round up to the 4 handle.

Mark Klein, Chairman, President and CEO

Something north of 4. How about that, Brian?

Brian Martin, Analyst

I would like to discuss the best rates since they will significantly influence our results. Additionally, how is the integration of the Marblehead transaction progressing? Mark, you mentioned some opportunities earlier. Are there any notable initiatives or developments in that market that we should be aware of? I believe there is potential there, but I want to confirm whether the integration has gone smoothly and if the expected cost savings are reflected in our projections for the next quarter.

Mark Klein, Chairman, President and CEO

Yes, they generally had a smaller staff, and we're re-entering that market. They were essentially sidelined for at least a couple of years due to their capital situation. We have some work to do, but there are clearly opportunities there, and we plan to pursue them. The existing staff is still in place, and we're leveraging a brand that's over 117 years old with our own. We have high expectations. Additionally, in the new market we're entering in Henry County, there are $800 million in deposits, with about $700 million of that resting in community banks under $2 billion to $3 billion in size, which has now diminished to around $300 million. A significant amount of deposits have moved to regional players, and we intend to target those aggressively. Our focus will be on everything to the north and a bit to the east, specifically in Henry County, as well as the Columbus market, which is currently very active.

Brian Martin, Analyst

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?

Anthony Cosentino, Chief Financial Officer

Yes, I believe we are approaching a significant point. Our shareholder dividend is projected to exceed $4 million next year based on our current position, which is meaningful. We are in a good place regarding regulatory capital, but I would suggest that we may slow down the buyback slightly to retain some capital for potential transactions that may arise, despite having a substantial amount of excess earnings. Our debt will reprice mid-year next year, so we need to consider whether to refinance, expand, or take other actions. Overall, we have many opportunities and options regarding capital at this time.

Operator, Operator

And since there are no questions at this time, we will conclude today's question-and-answer session. I will now hand it back to management for any final comments.

Mark Klein, Chairman, President and CEO

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.

Operator, Operator

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.