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Item 7. Management’s Discussion and Analysis

2025-03-07 compared with 2024-03-08 · 385 added, 440 removed, 198 unchanged (81% of the section changed)

Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

SB Financial Group, Inc.

(“SB Financial”),

is a financial holding company registered with the Federal Reserve Board and subject to regulation under the Bank Holding Company Act

of 1956, as amended.

Through its direct and indirect subsidiaries, including The State Bank and Trust Company (“State Bank”),

SB Financial is engaged in commercial and retail banking, wealth management and private client financial services.

The following discussion provides a review of

the consolidated financial condition and results of operations of SB Financial and its subsidiaries (collectively, the “Company”).

This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and related Notes as of and

for the years ended December 31, 2023 and 2022 included in this Annual Report on Form 10-K.

Strategic Discussion

The focus and strategic goal of the Company is

to grow into and remain a top decile (>90 th percentile) independent financial services company.

The Company intends to

achieve and maintain that goal by executing our five key initiatives.

Increase profitability through ongoing diversification

of revenue streams:

For the twelve months ended December 31, 2023, the Company generated $17.7 million in noninterest income, or

31.1 percent of total operating revenue, from fee-based products.

These revenue sources include fees generated from saleable residential

mortgage loans, retail deposit products, wealth management services, saleable business-based loans (small business and farm service)

and title agency revenue.

For the twelve months ended December 31, 2022, the Company generated $18.2 million in noninterest income, or

31.6 percent of total operating revenue from fee-based products.

Strengthen our penetration in all markets

Over our 119-year history of continuous operation in Northwest Ohio, we have established a significant presence in our traditional

markets in Defiance, Fulton, Paulding and Williams counties in Ohio.

In our newer markets of Bowling Green, Columbus, Findlay, Toledo

(Ohio) and Ft.

Wayne (Indiana), our current market penetration is minimal but we believe our potential for growth is significant.

the past few years, we have expanded and committed additional resources to our presence in the Findlay and Edgerton markets in particular;

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Financial Group, Inc.

(“SB Financial”), is a financial holding company registered with the Federal Reserve Board and subject

to regulation under the Bank Holding Company Act of 1956, as amended.

Through its direct and indirect subsidiaries, including The State

Bank and Trust Company (“State Bank”), SB Financial is engaged in commercial and retail banking, wealth management and private

client financial services.

following discussion provides a review of the consolidated financial condition and results of operations of SB Financial and its subsidiaries

(collectively, the “Company”).

This discussion should be read in conjunction with the Company’s Consolidated Financial

Statements and related Notes as of and for the years ended December 31, 2024, and 2023 included in this Annual Report on Form 10-K.

focus and strategic goal of the Company is to grow into and remain a top decile (>90 th percentile) independent financial

services company.

The Company intends to achieve and maintain that goal by executing our five key initiatives.

profitability through ongoing diversification of revenue streams:

For the twelve months ended December 31, 2024, the Company generated

$17.0 million in noninterest income, or 29.9 percent of total operating revenue, from fee-based products.

These revenue sources include

fees generated from saleable residential mortgage loans, retail deposit products, wealth management services, saleable business-based

loans (small business and farm service) and title agency revenue.

For the twelve months ended December 31, 2023, the Company generated

$17.7 million in noninterest income, or 31.1 percent of total operating revenue from fee-based products.

our penetration in all markets served:

Over our 122-year history of continuous operation in Northwest Ohio, we have established a

significant presence in our traditional markets in Defiance, Fulton, Paulding and Williams counties in Ohio.

In our newer markets of

Bowling Green, Columbus, Findlay, Toledo (Ohio) and Ft.

Wayne (Indiana), our current market penetration is minimal, but we believe our

potential for growth is significant.

Over the past few years, we have expanded and committed additional resources to our presence in

the Findlay and Edgerton markets in particular;

however, we continue to seek to expand the presence and penetration in all of our markets.

Expand product utilization by new and existing

As of December 31, 2023, we operated in 14 counties in Northwest Ohio, Central Ohio and Northeast Indiana with 23 full

service offices, 23 ATM’s and six loan production offices.

Combined in the 14 counties of operation, we command 4.4 percent of

the deposit market share, which has steadily grown.

Deliver gains in operational excellence:

Our management team believes that becoming and remaining a high-performance financial services company will depend upon seamlessly and

consistently delivering operational excellence, as demonstrated by the Company’s leadership in the origination and servicing of

residential mortgage loans.

As of December 31, 2023, the Company serviced 8,549 residential mortgage loans with an aggregate principal

balance of $1.37 billion.

As of December 31, 2022, the Company serviced 8,514 loans with an aggregate principal balance of $1.35 billion.

Sustain asset quality:

As of December

31, 2023, the Company’s asset quality metrics remained strong.

Specifically, total nonperforming assets were $3.3 million, or 0.25

percent of total assets.

On January 17, 2025, we established our presence in Ottawa County with the acquisition of The Marblehead Bank located in Marblehead,

product utilization by new and existing customers:

As of December 31, 2024, we operated in 14 counties in Northwest Ohio, Central

Ohio and Northeast Indiana with 23 full-service offices, 23 ATM’s and seven loan production offices.

Combined in the 14 counties

of operation, we command 0.94 percent of the deposit market share, which has steadily grown.

In our traditional markets of Northwest

Ohio, the deposit market share is 4.40 percent.

gains in operational excellence:

Our management team believes that becoming and remaining a high-performance financial services company

will depend upon seamlessly and consistently delivering operational excellence, as demonstrated by the Company’s leadership in

the origination and servicing of residential mortgage loans.

As of December 31, 2024, the Company serviced 8,750 residential mortgage

loans with an aggregate principal balance of $1.43 billion.

As of December 31, 2023, the Company serviced 8,549 loans with an aggregate

principal balance of $1.37 billion.

asset quality:

As of December 31, 2024, the Company’s asset quality metrics remained strong.

Specifically, total nonperforming

assets were $5.5 million, or 0.40 percent of total assets.

Total delinquent loans at December 31, 2024 were 0.63 percent of total loans.

As of December 31, 2022, the Company

had total nonperforming assets of $5.1 million, or 0.38 percent of total assets.

Total delinquent loans at December 31, 2022 were 0.27

percent of total loans.

The successful execution of these five strategies

have enabled the Company to improve financial performance across a broad series of metrics.

These metrics over the last five years are

outlined in the following table.

Specifically, the Company has increased total assets by $303.8 million, or 29.3 percent.

has been on both sides of the balance sheet over the five year period, with loans growing $174.7 million or 21.2 percent and deposits

growing $230.0 million or 27.4 percent.

During the prior five-year period, the Company

has raised capital through the issuance of debt securities to the market, which has improved capital significantly and expanded liquidity

for potential strategic expansion.

Strategic expansion has also occurred during the period with the acquisition of a small community

bank (The Edon State Bank of Edon, Ohio) in 2020, the opening of three branch offices and the acquisition of two full service title agencies.

Financial Highlights

Year Ended December 31,

As of December 31, 2023, the Company had total nonperforming assets of $3.3 million, or 0.25 percent of total assets.

Total delinquent

loans at December 31, 2023 were 0.15 percent of total loans.

successful execution of these five strategies has enabled the Company to improve financial performance across a broad series of metrics.

These metrics over the last five years are outlined in the following table.

Specifically, the Company has increased total assets by $121.7

million, or 9.7 percent.

The growth has been on both sides of the balance sheet over the five-year period, with loans growing $174.0

million or 19.9 percent and deposits growing $103.6 million or 9.9 percent.

the prior five-year period, the Company has raised capital through the issuance of debt securities to the market, which has improved

capital significantly and expanded liquidity for potential strategic expansion.

Strategic expansion has also occurred during the period

with the acquisition of a small community bank (The Edon State Bank of Edon, Ohio) in 2020, the opening of three branch offices and the

acquisition of two full-service title agencies.

As detailed in Note 23, we closed on an acquisition of another small community bank in

Marblehead, Ohio on January 17, 2025.

($ in thousands, except per share data)

6 unchanged sentences

Provision for income taxes

Preferred stock dividends

Net income available to common shareholders

20 unchanged sentences

Subordinated debt, net

1 Cash dividends on common shares divided by net income available

Critical Accounting Policies and Estimates

The accounting and reporting policies of the

Company are in accordance with generally accepted accounting principles in the United States and conform to general practices within

the banking industry.

The Company’s significant accounting policies are described in detail in the Notes to the Company’s

Consolidated Financial Statements for the years ended December 31, 2023 and 2022.

The preparation of financial statements in conformity

with generally accepted accounting principles requires management to make estimates and assumptions.

The Company’s financial position

and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results.

Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s

financial condition and results, and they require management to make estimates that are difficult, subjective or complex.

Allowance for Credit

The Company believes the determination of the ACL involves a higher degree of judgment and complexity

than its other significant accounting policies.

The ACL is calculated with the objective of maintaining a reserve

level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit

Management’s determination of the adequacy of the ACL is based on periodic evaluations of past

events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable

and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected

loss given default, the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based

on historical loss experience and forecasted economic conditions.

dividends on common shares divided by net income available to common.

Accounting Policies and Estimates

accounting and reporting policies of the Company are in accordance with generally accepted accounting principles in the United States

and conform to general practices within the banking industry.

The Company’s significant accounting policies are described in detail

in the Notes to the Company’s Consolidated Financial Statements for the years ended December 31, 2024 and 2023.

The preparation

of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions.

The Company’s financial position and results of operations can be affected by these estimates and assumptions and are integral

to the understanding of reported results.

Critical accounting policies are those policies that management believes are the most important

to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult,

subjective or complex.

for Credit Losses:

The Company believes the determination of the ACL involves a higher degree of judgment and complexity than its

other significant accounting policies.

The ACL is calculated with the objective of maintaining a reserve level believed by management

to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure.

determination of the adequacy of the ACL is based on periodic evaluations of past events, including historical credit loss experience

on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability

of the remaining cash flows over the contractual term of the financial assets.

However, this evaluation has subjective components requiring

material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future

cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions.

All of these factors may be susceptible to significant change.

extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely

impact earnings in future periods.

Goodwill and Other Intangibles:

records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required.

To the extent that actual results differ from management estimates, additional

provisions for credit losses may be required that would adversely impact earnings in future periods.

and Other Intangibles:

The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other

intangibles, at fair value as required.

Goodwill is subject, at a minimum, to annual tests for impairment.

Other intangible assets are amortized over their estimated useful

lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability

to realize the carrying amount.

The initial goodwill and other intangibles recorded and subsequent impairment analysis requires management

to make subjective judgments concerning estimates of how the acquired asset will perform in the future.

Events and factors that may significantly

affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes

in competition.

Income Taxes:

Income tax expense is the

total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

Deferred tax assets and

liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities,

computed using enacted tax rates.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes

paid in prior years.

Although realization is not assured, management believes it is more likely than not that all of the deferred tax

assets will be realized.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

An effective tax rate of 21% is used to determine

after-tax components of other comprehensive income (loss) included in the statements of shareholders’ equity.

A tax position is recognized as a benefit only

if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being

presumed to occur.

The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.

For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

Changes in Financial Condition

Total assets at December 31, 2023, were

$1.343 billion, compared to $1.335 billion at December 31, 2022.

Loans (excluding loans held for sale) were $1.000 billion at

December 31, 2023, compared to $962.1 million at December 31, 2022.

Other intangible assets are

amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances

indicate a possible inability to realize the carrying amount.

The initial goodwill and other intangibles recorded and subsequent impairment

analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future.

Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends,

specific industry conditions and changes in competition.

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts

and tax bases of assets and liabilities, computed using enacted tax rates.

A valuation allowance, if needed, reduces deferred tax assets

to the amount expected to be realized.

Realization of deferred tax assets is dependent upon the generation of a sufficient level of future

taxable income and recoverable taxes paid in prior years.

Although realization is not assured, management believes it is more likely

than not that all of the deferred tax assets will be realized.

The Company recognizes interest and/or penalties related to income tax

matters in income tax expense.

effective tax rate of 21% is used to determine after-tax components of other comprehensive income (loss) included in the statements of

shareholders’ equity.

tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in

a tax examination, with a tax examination being presumed to occur.

The amount recognized is the largest amount of tax benefit that is

greater than 50% likely of being realized on examination.

For tax positions not meeting the “more likely than not” test,

no tax benefit is recorded.

in Financial Condition

assets at December 31, 2024, were $1.38 billion, compared to $1.34 billion at December 31, 2023.

Loans (excluding loans held for sale)

were $1.05 billion at December 31, 2024, compared to $1.00 billion at December 31, 2023.

Total deposits were $1.15 billion at December

31, 2024, compared to $1.07 billion at December 31, 2023.

As client balance sheets and liquidity was utilized in the economy, deposit levels

moderated and assets were reallocated from cash and securities into loans.

The following are the condensed average balance

sheets of the Company for the years ending December 31 and includes the interest earned or paid, and the average interest rate, on each

asset and liability:

The Company continued to allocate the reductions in our bond portfolio, from

scheduled amortization, into higher yielding loan balances.

following are the condensed average balance sheets of the Company for the years ending December 31 and includes the interest earned or

paid, and the average interest rate, on each asset and liability:

in thousands)

Taxable securities/cash

Non-taxable securities

Total earning assets

Cash and due from banks

Allowance for credit losses

Premises and equipment

Savings and interest-bearing demand deposits

Time deposits

Repurchase agreements & other

Advances from FHLB

Trust preferred securities

Subordianted debt

Total interest-bearing liabilities

Demand deposits

Other liabilities

Total liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Net interest income (tax equivalent basis)

Net interest income as a percent of average interest-earning assets - GAAP measure

Net interest income as a percent of average interest-earning assets - Non-GAAP measure 2

securities/cash

earning assets

and due from banks

for credit losses

and equipment

and interest-bearing demand deposits

agreements & other

preferred securities

interest-bearing liabilities

Shareholders’

liabilities and shareholders’ equity

interest income (tax equivalent basis)

interest income as a percent

average interest-earning assets - GAAP measure

interest income as a percent of average

interest-earning

assets - Non-GAAP measure 2

Computed on a fully tax equivalent basis (FTE)

1 Nonaccruing loans and loans held for sale are included in

the average balances.

2 Interest on tax exempt securities and loans is computed on

a tax equivalent basis using a 21 percent statutory tax rate, and added to the net interest income.

The tax equivalent adjustment was

$0.14, $0.11 and $0.15 million in 2023, 2022 and 2021, respectively.

The following tables set forth the effect of

volume and rate changes on interest income and expense for the periods indicated.

For purposes of these tables, changes in interest due

to volume and rate were determined as follows:

1 Nonaccruing

loans and loans held for sale are included in the average balances.

on tax exempt securities and loans is computed on a tax equivalent basis using a 21 percent

statutory tax rate, and added to the net interest income.

The tax equivalent adjustment

was $0.14, $0.14 and $0.11 million in 2024, 2023 and 2022, respectively.

following tables set forth the effect of volume and rate changes on interest income and expense for the periods indicated.

of these tables, changes in interest due to volume and rate were determined as follows:

variance - change in volume multiplied by the previous year’s rate.

2 unchanged sentences

variance - change in volume multiplied by the change in rate.

This variance allocates the volume variance and rate variance in proportion

to the relationship of the absolute dollar amount of the change in each.

This variance allocates the

volume variance and rate variance in proportion to the relationship of the absolute dollar

amount of the change in each.

Variance Attributable To

14 unchanged sentences

Net interest income

1 Interest on non-taxable securities and loans has been adjusted

to fully tax equivalent

The maturity distribution and weighted-average

interest rates of debt securities available-for-sale at December 31, 2023, are set forth in the table below.

The weighted-average interest

rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion

if the securities were purchased at a premium or discount:

on non-taxable securities and loans has been adjusted to fully tax equivalent

maturity distribution and weighted-average interest rates of debt securities available-for-sale at December 31, 2024, are set forth in

the table below.

The weighted-average interest rates are based on coupon rates for securities purchased at par value and on effective

interest rates considering amortization or accretion if the securities were purchased at a premium or discount:

in thousands)

6 unchanged sentences

($ in thousands)

Years Ended December 31,

Ended December 31,

Commercial business & agriculture

12 unchanged sentences

Total shareholders’ equity

Loans held for investment

(“HFI”) increased $38.1 million, or 4.0 percent, to $1.0 billion at December 31, 2023, which was due to an increase in

residential and commercial real estate lending during 2023.

The Company booked a much higher portion of residential real estate

production on the balance sheet as increases in rates moved customers to variable rate mortgage products.

Concentrations of Credit Risk :

makes commercial, real estate and installment loans to customers located mainly in the Tri-State region of Ohio, Indiana and Michigan.

Commercial loans include loans collateralized by commercial real estate, business assets and, in the case of agricultural loans, crops

and farm equipment and the loans are expected to be repaid from cash flow from operations of businesses.

As of December 31, 2023, commercial

business and agricultural loans made up approximately 19.2 percent of the HFI loan portfolio

while commercial real estate loans accounted for approximately 42.4 percent of the HFI loan portfolio.

held for investment (“HFI”) increased $46.5 million, or 4.7 percent, to $1.05 billion at December 31, 2024, which was due

to an increase in commercial real estate lending during 2024.

The Company allowed the residential real estate to amortize and minimal

new production on the balance sheet was generated.

Concentrations

of Credit Risk :

The Company makes commercial, real estate and installment loans to customers located mainly in the Tri-State region

of Ohio, Indiana and Michigan.

Commercial loans include loans collateralized by commercial real estate, business assets and, in the case

of agricultural loans, crops and farm equipment and the loans are expected to be repaid from cash flow from operations of businesses.

As of December 31, 2024, commercial business and agricultural loans made up approximately 18.0 percent of the HFI loan portfolio while

commercial real estate loans accounted for approximately 43.9 percent of the HFI loan portfolio.

As of December 31, 2024, residential

2 unchanged sentences

the HFI loan portfolio.

Maturities and Sensitivities of Loans to Changes

in Interest Rates:

The following table shows the maturity distribution of loans outstanding as of December 31, 2023.

have been categorized between loans with a fixed or floating interest rate (floating rate loans have an adjustable interest rate that

changes in accordance to a rate index).

Maturities and Sensitivities of Loans to Changes

in Interest Rates

and Sensitivities of Loans to Changes in Interest Rates:

The following table shows the maturity distribution of loans outstanding

as of December 31, 2024.

The amounts have been categorized between loans with a fixed or floating interest rate (floating rate loans

have an adjustable interest rate that changes based on a rate index).

and Sensitivities of Loans to Changes in Interest Rates

of December 31, 2024

($ in thousands)

After one, but

fifteen years

14 unchanged sentences

Residential real estate

Deposits decreased $16.5 million, or 1.5 percent,

to $1.07 billion at December 31, 2023.

Increased inflation and interest rates resulted in clients seeking higher returns on their deposit

As a result, during 2023, we experienced a shift in the mix of our deposit balances as more of our clients moved balances to

long-term time deposit accounts.

Specifically, during 2023, time deposits increased $64.6 million, or 34 percent, while other deposits

decreased $81.1 million, or 6 percent.

The average amount of deposits and weighted-average

rates paid are summarized as follows for the years ended December 31:

deposits increased $82.4 million, or 7.7 percent, to $1.15 billion at December 31, 2024.

The State of Ohio Homebuyer Plus program impacted

transactional deposit growth during 2024, as the Company added approximately $50 million in lower cost deposits from this program.

average amount of deposits and weighted-average rates paid are summarized as follows for the years ended December 31:

in thousands)

Savings and interest bearing demand deposits

Time deposits

Non interest bearing demand deposits

Time deposits that exceeded

the FDIC insurance limit of $250,000 are summarized as follows:

and interest bearing demand deposits

interest bearing demand deposits

deposits that exceeded the FDIC insurance limit of $250,000 are summarized as follows:

($ in thousands)

3 unchanged sentences

Over twelve months

Shareholders’ equity at December 31, 2023,

was $124.3 million, or 9.3 percent of total assets compared to $118.4 million or 8.9 percent of total assets at December 31, 2022.

earnings increased during the year due to earnings of $12.1 million less dividends paid to common shareholders of $3.6 million and repurchases

of Company common shares of $3.5 million.

The fair market value of the bond portfolio improved slightly during 2023 due to the valuation

adjustment on the portfolio, which resulted in accumulated other comprehensive income (“AOCI”) falling to $29.8 million from

$32.1 million.

The Company continued to repurchase its own common

shares during the year under the Company’s repurchase program authorized by the Board of Directors on December 21, 2022.

Specifically,

the Company repurchased 244,325 shares during 2023 at an average price of $13.98 per share.

As of December 31, 2023, the Company had

255,675 shares remaining of the 500,000 shares authorized for repurchase under the Company’s existing share repurchase program,

which expires December 31, 2024.

Shareholders’

equity at December 31, 2024, was $127.5 million, or 9.2 percent of total assets compared to $124.3 million or 9.3 percent of total assets

at December 31, 2023.

Retained earnings increased during the year due to earnings of $11.5 million less dividends paid to common shareholders

of $3.8 million and repurchases of Company common shares of $4.7 million.

The fair market value of the bond portfolio declined slightly

during 2024 due to the valuation adjustment on the portfolio, which resulted in accumulated other comprehensive loss (“AOCI”)

rising to $30.2 million from $29.8 million.

Company continued to repurchase its own common shares during the year under the Company’s publicly announced share repurchase programs.

Specifically, the Company repurchased 253,817 shares during 2024 at an average price of $18.43 per share.

On December 18, 2024, the Company’s

Board of Directors approved a share repurchase program authorizing the repurchase of 500,000 shares through December 31, 2026.

December 31, 2024, the Company had repurchased a total of 17,460 shares, and 482,540 shares remained available for purchase, under this

The December 18, 2024, share repurchase program replaced the Company’s prior repurchase program announced on December

21, 2022, under which an aggregate of 500,000 common shares of the Company were repurchased through December 2024.

Asset Quality

Years Ended December 31,

Ended December 31,

($ in thousands)

Nonaccruing loans

Foreclosed assets and other assets held for sale, net

Foreclosed assets and other assets held for

Nonperforming assets

8 unchanged sentences

Allowance/nonperforming loans

Nonperforming assets totaled $3.3 million, or 0.25 percent of total assets at December 31, 2023, a decrease of

$1.1 million, or 25.3 percent from 2022.

The Company had total net charge-offs on loans of $92,000 in 2023, as compared to net recoveries

of $13,000 in 2022.

The Company’s ACL at December 31, 2023, now covers nonperforming loans at 560 percent,

up from 319 percent at December 31, 2022.

The following schedule presents an analysis of the ACL, average loan data and related ratios at December 31 for the years indicated:

Nonperforming

assets totaled $5.5 million, or 0.40 percent of total assets at December 31, 2024, an increase of $2.2 million, or 65.7 percent from

The Company had total net charge-offs on loans of $250,000 in 2024, as compared to net charge-offs of $92,000 in 2023.

The Company’s

ACL at December 31, 2024, now covers nonperforming loans at 274 percent, down from 560 percent at December 31, 2023.

The following

schedule presents an analysis of the ACL, average loan data and related ratios at December 31 for the years indicated:

($ in thousands)

Provision for Credit Losses

Net (Chargeoffs) Recoveries

Credit Losses

annualized net

(chargeoffs) recoveries to

average loans

Ratio of annualized net (chargeoffs) recoveries to average loans

December 31, 2024

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Commercial real estate

- owner occupied

Commercial real estate

- nonowner occupied

Residential real estate

1 unchanged sentence

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Commercial real estate

- owner occupied

Commercial real estate

- nonowner occupied

Residential real estate

1 unchanged sentence

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Commercial real estate

- owner occupied

Commercial real estate

- nonowner occupied

Residential real estate

The ACL balance and the

provision for credit losses are determined by management based upon periodic reviews of the loan portfolio.

In addition, management considers

the level of charge offs on loans, as well as the fluctuations of charge offs and recoveries on loans, in the factors which caused these

ACL balance and the provision for credit losses are determined by management based upon periodic reviews of the loan portfolio.

management considers the level of charge offs on loans, as well as the fluctuations of charge offs and recoveries on loans, in the factors

which caused these changes.

Estimating the risk of loss and the amount of loss is necessarily subjective.

Accordingly, the allowance is maintained by management

at a level considered adequate to cover losses that are currently anticipated based on past loss experience, economic conditions, information

about specific borrower situations, including their financial position and collateral values, and other factors and estimates which are

subject to change over time.

The Company has substantially increased its reserve

level over the last several years.

Specifically, the Company’s ACL balance has increased from $8.8 million

at December 31, 2019 to $15.8 million at December 31, 2023, which reflects an increase of $7.0 million, or 80 percent.

This increase was

the result of $6.7 million in provision expense during the period and minimal charge-offs, which were just $0.8 million over the four-year

The reserve increased during 2023 due to the one-time CECL adjustment of $1.4 million taken in January of 2023 upon the Company’s

adoption of the CECL methodology.

The following schedule provides a breakdown of the

ACL allocated by type of loan and related ratios at December 31 for the years indicated:

Allowance Amount

Percentage of Loans In Each Category to Total Loans

Allowance Amount

Percentage of Loans In Each Category to Total Loans

Allowance Amount

Percentage of Loans In Each Category to Total Loans

Accordingly, the allowance

is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience,

economic conditions, information about specific borrower situations, including their financial position and collateral values, and other

factors and estimates which are subject to change over time.

Company has substantially increased its reserve level over the last several years.

Specifically, the Company’s ACL balance has

increased from $8.8 million at December 31, 2019 to $15.1 million at December 31, 2024, which reflects an increase of $6.3 million, or

This increase was the result of $6.8 million in provision expense during the period and $1.0 million in net charge-offs over

the five-year period.

The reserve increased during 2023 due to the one-time CECL adjustment of $1.4 million taken in January of 2023

upon the Company’s adoption of the CECL methodology.

following schedule provides a breakdown of the ACL allocated by type of loan and related ratios at December 31 for the years indicated:

($ in thousands)

3 unchanged sentences

Residential real estate

As further detailed in ITEM 1A.

RISK FACTORS,

the CARES Act provided for significant consumer and small business relief due to the impact of the COVID-19 pandemic.

The Company provided

payment relief to a number of consumer and small business customers throughout 2020 and 2021, which we believe was successful and enabled

our clients to weather the pandemic effectively.

All such COVID-related payment deferrals had expired or been removed by December 31,

2021 and all clients were back to contractual terms at such date.

Regulatory capital reporting is required for State

Bank only, as the Company is currently exempt from quarterly regulatory capital level measurement pursuant to the Small Bank Holding Company

Policy Statement.

As of December 31, 2023, State Bank met all regulatory capital levels required to be considered well-capitalized (see

Note 16 to the Consolidated Financial Statements).

On May 27, 2021, the Company issued and sold $20.0

million in aggregate principal amount of its 3.65% Fixed to Floating Rate Subordinated Notes due 2031 in a private placement exempt from

the registration requirements under the Securities Act.

The Subordinated Notes bear interest at a fixed rate of 3.65% through May 31,

From June 1, 2026 to the maturity date or earlier redemption of the Subordinated Notes, the interest rate will reset quarterly to

an interest rate per annum, equal to the then-current-three-month Secured Overnight Financing Rate (“SOFR”) provided by the

Federal Reserve Bank of New York plus 296 basis points.

The Subordinated Notes have a maturity of 10 years.

Earnings Summary – 2023 vs.

Net income for 2023 was $12.1 million, or $1.75

per diluted share, compared with net income of $12.5 million, or $1.77 per diluted share, for 2022.

State Bank reported net income for

2023 of $13.3 million, which was down slightly from the $13.4 million of net income in 2022.

SBFG Title reported net income for 2023 of

$0.24 million, which was down from net income of $0.39 million for 2022.

Positive results for 2023 included loan growth

of $38.1 million, while deposits were slightly lower by $16.5 million.

The Company completed the final forgiveness in January of 2023

from the nearly 1,200 PPP loans processed during 2020 and 2021.

The mortgage banking business line was impacted by the rapidly rising

rates, which contributed to the reduction in both balance growth and gains on sale.

For the full year of 2023, residential real estate

loan production was $215.5 million, with $3.6 million of revenue from gains on sale.

The level of mortgage origination was down from the

$313.0 million in 2022.

The Company’s loans serviced for others ended the year at $1.367 billion, up slightly from $1.352 billion

at December 31, 2022.

Operating revenue decreased just slightly by $0.6

million, or 1.1 percent, from $57.6 million in 2022 to $57.0 million in 2023 due to decreased originated mortgage servicing rights (“OMSR”)

recapture, significantly lower mortgage gain revenue offset by a $1.4 million gain on the sale of equity securities.

SBFG Title revenue

decreased by $0.6 million to $1.6 million for 2023.

Operating expense decreased by $0.35 million,

or 0.8 percent, from $42.3 million in 2022 to $42.0 million in 2023, due to lower incentive and commission levels, which were partially

offset by higher medical costs and increased spending on technology.

Results of Operations

Years Ended December 31,

capital reporting is required for State Bank only, as the Company is currently exempt from quarterly regulatory capital level measurement

pursuant to the Small Bank Holding Company Policy Statement.

As of December 31, 2024, State Bank met all regulatory capital levels required

to be considered well-capitalized (see Note 16 to the Consolidated Financial Statements).

May 27, 2021, the Company issued and sold $20.0 million in aggregate principal amount of its 3.65% Fixed to Floating Rate Subordinated

Notes due 2031 in a private placement exempt from the registration requirements under the Securities Act.

The Subordinated Notes bear

interest at a fixed rate of 3.65% through May 31, 2026.

From June 1, 2026 to the maturity date or earlier redemption of the Subordinated

Notes, the interest rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month Secured Overnight

Financing Rate (“SOFR”) provided by the Federal Reserve Bank of New York plus 296 basis points.

The Subordinated Notes have

a maturity of 10 years.

Summary – 2024 vs.

income for 2024 was $11.5 million, or $1.72 per diluted share, compared with net income of $12.1 million, or $1.75 per diluted share,

State Bank reported net income for 2024 of $13.0 million, which was down slightly from the $13.3 million of net income in 2023.

SBFG Title reported net income for 2024 of $0.36 million, which was up from net income of $0.24 million for 2023.

results for 2024 included loan growth of $46.5 million, with deposits higher by $82.4 million.

Deposit growth was boosted by the Company’s

participation in the State of Ohio’s Homebuyer Plus program.

For the full year of 2024, residential real estate loan production

was $261.3 million, with $4.6 million of revenue from gains on sale.

The level of mortgage origination was up from the $215.5 million

The Company’s loans serviced for others ended the year at $1.427 billion, up slightly from $1.367 billion at December

revenue was steady at $57.0 million as increased mortgage volume offset the sale of Visa B shares that occurred in 2023 of $1.4 million.

SBFG Title revenue also remained level at $1.64 million.

expense increased by $1.0 million, or 2.4 percent, from $42.0 million in 2023 to $43.0 million in 2024, due to higher incentive and commission

levels, which were partially offset by moving higher medical costs to the Captive.

of Operations

Ended December 31,

($ in thousands, except per share data)

10 unchanged sentences

Diluted earnings per share

1 Operating revenue equals net interest income plus noninterest

Net interest income was $39.3 million for 2023

and decreased slightly from net income of $39.4 million for 2022.

Average earning assets increased slightly to $1.25 billion in 2023,

compared to $1.23 billion in 2022, primarily due to the increase in our loan portfolio, partially offset by lower cash and securities.

The consolidated 2023 full year net interest margin on an fully-taxable equivalent (“FTE”) basis decreased 6 basis points

to 3.16 percent compared to 3.22 percent for the full year of 2022.

Provision for credit losses was taken in 2023

in the amount of $0.32 million compared to zero provision taken during 2022.

For 2023, net charge-offs totaled $0.1 million or 0.01 percent

of average loans, compared to net recoveries of $0.01 million or (0.00) percent of average loans, for 2022.

revenue equals net interest income plus noninterest income.

interest income was $39.9 million for 2024 and increased slightly from net interest income of $39.3 million for 2023.

Average earning

assets increased slightly to $1.27 billion in 2024, compared to $1.25 billion in 2023, primarily due to the increase in our loan portfolio,

partially offset by lower cash and securities.

The consolidated 2024 full year net interest margin on a fully-taxable equivalent (“FTE”)

basis was 3.16 percent compared to 3.16 percent for the full year of 2023.

for credit losses was taken in 2024 in the amount of $0.12 million compared to $0.32 million taken during 2023.

For 2024, net charge-offs

totaled $0.25 million or 0.02 percent of average loans, compared to net charge-offs of $0.01 million or 0.01 percent of average loans,

Noninterest Income

Years Ended December 31,

Ended December 31,

($ in thousands)

6 unchanged sentences

Total noninterest income

Total noninterest income was $17.7 million for

2023 compared to $18.2 million for 2022, representing a decrease of $0.5 million, or 2.8 percent, year-over-year.

Gains on sale of residential

mortgage loans was down from 2022 by $0.7 million, or 16.0 percent.

The Company sold $161.2 million of originated mortgages into the secondary

market in 2023, which due to being slightly more than the amortization on the serviced portfolio, increased the size of our serviced loan

portfolio to $1.367 billion at December 31, 2023 from $1.352 billion at December 31, 2022.

Sales of non-mortgage loans (small business

and farm credits) in 2023 was the same as in 2022 at $4.2 million.

The Company saw its wealth management assets under management decline

by $5.3 million to $501.8 million at December 31, 2023, with total wealth management fees declining $0.2 million to $3.5 million.

noninterest income was $17.0 million for 2024 compared to $17.7 million for 2023, representing a decrease of $0.7 million, or 4.0 percent,

year-over-year.

Gains on sale of residential mortgage loans was up from 2023 by $0.96 million, or 26.5 percent.

The Company sold $216.0

million of originated mortgages into the secondary market in 2024, which due to being higher than the amortization on the serviced portfolio,

increased the size of our serviced loan portfolio to $1.428 billion at December 31, 2024 from $1.367 billion at December 31, 2023.

of non-mortgage loans (small business and farm credits) in 2024 was just $0.7 million.

The Company saw its wealth management assets under

management increase by $45.9 million to $547.7 million at December 31, 2024, with total wealth management fees of $3.5 million.

Noninterest Expense

Years Ended December 31,

Ended December 31,

($ in thousands)

11 unchanged sentences

Total noninterest expense

Total noninterest expense was $42.0 million for

2023 compared to $42.3 million for 2022, representing a $0.3 million, or 0.8 percent, decrease year-over-year.

Total full-time equivalent

employees ended 2023 at 251, which was down 17 from year end 2022.

Earnings Summary – 2022 vs.

Net income for 2022 was $12.5 million, or $1.77

per diluted share, compared with net income of $18.3 million, or $2.56 per diluted share, for 2021.

State Bank reported net income for

2022 of $13.4 million, which was down from the $18.6 million in net income in 2021.

SBFG Title reported net income for 2022 of $0.4 million,

which was down from net income of $0.5 million in 2021.

Positive results for 2022 included loan growth

of $135.9 million when excluding the impact of the PPP initiative, while total deposits declined in 2022 by $23.5 million.

banking business line contributed gain on sale revenues of $4.3 million, with residential real estate loan production of $312.6 million

and sales of loans of $184.8 million for the year.

The level of mortgage origination declined in 2022 to $313.0 million from the $600.0

million in 2021.

Operating revenue decreased by $11.0 million,

or 16.0 percent, from $68.6 million in 2021 to $57.6 million in 2022 due to decreased PPP fees, OMSR recapture and lower mortgage gain

SBFG Title increased revenue by $0.2 million to $2.3 million for 2022.

Operating expense decreased by $2.5 million, or

5.6 percent, from $44.8 million in 2021 to $42.3 million in 2022, due to compensation and fringe benefit cost decreases partially offset

by higher spend on technology/digital initiatives.

Goodwill, Intangibles and Capital Purchases

The Company completed its most recent annual goodwill

impairment review as of December 31, 2023.

Due to declines in the Company’s share price, a quantitative evaluation of goodwill was

completed as of September 30, 2023, which revealed that impairment was not warranted.

No events have occurred since that assessment, which

would warrant impairment.

At December 31, 2023, the Company concluded that it was more likely than not that the fair value of the reporting

unit exceeded its carrying value, resulting in no impairment.

The Company’s goodwill is further discussed in Note 6 to the Consolidated

Financial Statements.

Management plans to continue from time to time

to purchase additional premises and equipment and improve current facilities to meet the current and future needs of the Company’s

noninterest expense was $43.0 million for 2024 compared to $42.0 million for 2023, representing a $1.0 million, or 2.4 percent, increase

year-over-year.

Total full-time equivalent employees ended 2024 at 252, which was up 1 from year end 2023.

Summary – 2023 vs.

income for 2023 was $12.1 million, or $1.75 per diluted share, compared with net income of $12.5 million, or $1.77 per diluted share,

State Bank reported net income for 2023 of $13.3 million, which was down slightly from the $13.4 million of net income in 2022.

SBFG Title reported net income for 2023 of $0.24 million, which was down from net income of $0.39 million for 2022.

results for 2023 included loan growth of $38.1 million, while deposits were slightly lower by $16.5 million.

The Company completed the

final forgiveness in January of 2023 from the nearly 1,200 PPP loans processed during 2020 and 2021.

The mortgage banking business line

was impacted by the rapidly rising rates, which contributed to the reduction in both balance growth and gains on sale.

For the full year

of 2023, residential real estate loan production was $215.5 million, with $3.6 million of revenue from gains on sale.

The level of mortgage

origination was down from the $313.0 million in 2022.

The Company’s loans serviced for others ended the year at $1.367 billion,

up slightly from $1.352 billion at December 31, 2022.

revenue decreased just slightly by $0.6 million, or 1.1 percent, from $57.6 million in 2022 to $57.0 million in 2023 due to decreased

originated mortgage servicing rights (“OMSR”) recapture, significantly lower mortgage gain revenue offset by a $1.4 million

gain on the sale of equity securities.

SBFG Title revenue decreased by $0.6 million to $1.6 million for 2023.

expense decreased by $0.35 million, or 0.8 percent, from $42.3 million in 2022 to $42.0 million in 2023, due to lower incentive and commission

levels, which were partially offset by higher medical costs and increased spending on technology.

Intangibles and Capital Purchases

Company completed its most recent annual goodwill impairment review as of December 31, 2024.

Due to declines in the Company’s share

price, a quantitative evaluation of goodwill was completed as of September 30, 2024, which revealed that impairment was not warranted.

No events have occurred since that assessment, which would warrant impairment.

At December 31, 2024, the Company concluded that it was

more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

The Company’s

goodwill is further discussed in Note 6 to the Consolidated Financial Statements.

plans to continue from time to time to purchase additional premises and equipment and improve current facilities to meet the current

and future needs of the Company’s customers.

These purchases will include buildings, leasehold improvements, furniture and equipment.

Management expects that cash on hand

and cash generated from current operations will fund these capital expenditures and purchases.

Liquidity relates primarily to the Company’s

ability to fund loan demand, meet deposit customers’ withdrawal requirements and provide for operating expenses.

Sources used to

satisfy these needs consist of cash and due from banks, interest-bearing deposits in other financial institutions, securities available-for-sale,

loans held for sale and borrowings from various sources.

These assets, excluding the borrowings, are commonly referred to as liquid assets.

Liquid assets were $246.7 million at December 31, 2023, which included pledged available-for-sale securities of $102.3 million, compared

to liquid assets of $270.8 million at December 31, 2022.

The Company does not have material cash requirements

for capital expenditures over the next year.

Any cash needs for capital requirements would be funded by cash existing at the Company.

It is not anticipated that the Company will be required to initiate external borrowings in order to fund ongoing operations.

The Company’s commercial real estate, first

mortgage residential, agricultural and multi-family mortgage portfolio of $807.8 million at December 31, 2023, can and is readily used

to collateralize borrowings, which is an additional source of liquidity.

Management believes the Company’s current liquidity level,

without these borrowings, is sufficient to meet its current and anticipated liquidity needs.

At December 31, 2023, all eligible commercial

real estate, residential first, multi-family mortgage and agricultural loans were pledged under a FHLB blanket lien.

Significant additional off balance-sheet liquidity

is available in the form of FHLB advances, unused federal funds lines from correspondent banks and the national certificate of deposit

Management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings.

Based on the current collateralization

requirements of the FHLB, approximately $81.9 million of additional borrowing capacity existed at December 31, 2023.

At December 31, 2023 and 2022, the Company had

$41.0 million and $56.0 million in federal funds lines available.

The Company also had $105.5 million in unpledged securities at December

31, 2023 available for additional borrowings.

The cash flow statements for the periods presented

provide an indication of the Company’s sources and uses of cash as well as an indication of the ability of the Company to maintain

an adequate level of liquidity.

A discussion of the cash flow statements for 2023 and 2022 follows:

The Company experienced positive cash flows from

operating activities in 2023 and 2022.

Net cash from operating activities was $14.0 million and $25.6 million for the years ended December

31, 2023 and 2022, respectively.

Significant operating items for 2023 included gain on sale of loans of $4.0 million and net income of

$12.1 million.

Management expects that cash on hand and cash generated from current operations will fund these capital expenditures and purchases.

relates primarily to the Company’s ability to fund loan demand, meet deposit customers’ withdrawal requirements and provide

for operating expenses.

Sources used to satisfy these needs consist of cash and due from banks, interest-bearing deposits in other financial

institutions, securities available-for-sale, loans held for sale and borrowings from various sources.

These assets, excluding the borrowings,

are commonly referred to as liquid assets.

Liquid assets were $235.9 million at December 31, 2024, which included pledged available-for-sale

securities of $132.8 million, compared to liquid assets of $246.7 million at December 31, 2023.

Company does not have material cash requirements for capital expenditures over the next year.

Any cash needs for capital requirements

would be funded by cash existing at the Company.

Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolio of $852.6 million

at December 31, 2024, can and is readily used to collateralize borrowings, which is an additional source of liquidity.

Management believes

the Company’s current liquidity level, without these borrowings, is sufficient to meet its current and anticipated liquidity needs.

At December 31, 2024, all eligible commercial real estate, residential first, multi-family mortgage and agricultural loans were pledged

under a FHLB blanket lien.

additional off balance-sheet liquidity is available in the form of FHLB advances, unused federal funds lines from correspondent banks

and the national certificate of deposit market.

Management expects the risk of changes in off-balance-sheet arrangements to be immaterial

Based on the current collateralization requirements of the FHLB, approximately $142.5 million of additional borrowing capacity

existed at December 31, 2024.

December 31, 2024 and 2023, the Company had $41.0 million in federal funds lines available.

The Company also had $66.8 million in unpledged

securities at December 31, 2024 available for additional borrowings.

cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash as well as an indication

of the ability of the Company to maintain an adequate level of liquidity.

A discussion of the cash flow statements for 2024 and 2023

Company experienced positive cash flows from operating activities in 2024 and 2023.

Net cash from operating activities was $9.5 million

and $14.0 million for the years ended December 31, 2024 and 2023, respectively.

Significant operating items for 2024 included gain on

sale of loans of $4.7 million and net income of $11.5 million.

Cash provided by the sale of loans held for sale were $216.0 million.

Cash used in the origination of loans held for sale

were $159.3 million.

The Company experienced negative cash flows from

investing activities in 2023 and 2022.

Net cash used in investing activities was $17.4 million and $165.7 million for the years ended

December 31, 2023 and 2022, respectively.

A net increase in loans of $38.7 million was the primary change in 2023.

The changes for 2022

include the purchase of available-for-sale securities of $50.6 million and net increase in loans of $139.7 million.

The Company had proceeds

from repayments, maturities, sales and calls of securities of $22.2 million and $35.9 million in 2023 and 2022, respectively.

The Company experienced negative cash flows from

financing activities in 2023 and positive cash flows in 2022.

Net cash used in financing activities was $1.5 million and net cash provided

by financing activities was $18.4 million for the years ended December 31, 2023 and 2022, respectively.

Negative cash flows of $16.5 million

and $26.4 million are attributable to the change in deposits for 2023 and 2022, respectively.

The Company uses an Economic Value of

Equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life

of all balance sheet positions.

The EVE analysis calculates the net present value of the Company’s assets and liabilities in rate

shock environments that range from -400 basis points to +400 basis points.

The results of this analysis are reflected in the following

table, which reflects the Company’s neutral balance sheet that directionally is trending to a liability sensitive position:

Cash used in the origination of loans held for sale were $217.8 million.

Company experienced negative cash flows from investing activities in 2024 and 2023.

Net cash used in investing activities was $28.9 million

and $17.4 million for the years ended December 31, 2024 and 2023, respectively.

A net increase in loans of $46.8 million was the primary

change in 2024.

The primary change for 2023 was a net increase in loans of $38.7 million.

The Company had proceeds from repayments, maturities,

sales and calls of securities of $18.8 million and $22.2 million in 2024 and 2023, respectively.

Company experienced positive cash flows from financing activities in 2024 and negative cash flows in 2023.

Net cash provided by financing

activities was $22.5 million and net cash used in financing activities was $1.5 million for the years ended December 31, 2024 and 2023,

respectively.

The increase in deposits of $82.4 million attributed to the positive cash flows in 2024 and the decrease in deposits of

$16.5 million attributed to the negative cash flows in 2023.

Company uses an Economic Value of Equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows

over the estimated remaining life of all balance sheet positions.

The EVE analysis calculates the net present value of the Company’s

assets and liabilities in rate shock environments that range from -400 basis points to +400 basis points.

The results of this analysis

are reflected in the following table, which reflects the Company’s neutral balance sheet that directionally is trending to a liability

sensitive position:

Economic Value of Equity

23 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis