What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-06 compared with 2025-03-07 · 165 added, 159 removed, 424 unchanged (43% of the section changed)

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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.

services company, as measured by annual return on average assets compared to our defined peer group.

The Company intends to achieve and

maintain that goal by executing our five key initiatives.

profitability through ongoing diversification of revenue streams:

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

In late 2025, we expanded our Loan Production office in Angola, Indiana into a full service retail location and we expanded into

the neighboring community of Napoleon, Ohio with a hybrid retail location.

product utilization by new and existing customers:

As of December 31, 2025, we operated in 15 counties in Northwest Ohio, Central

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

Ohio and Northeast Indiana with 27 full-service offices, 27 ATM’s and four loan production offices.

Combined in the 15 counties

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In our traditional markets of Northwest

Ohio, the deposit market share is 4.40 percent.

Ohio, the deposit market share is 4.63 percent, which is up from 4.40 percent in 2024.

gains in operational excellence:

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Total delinquent loans at December 31, 2025, were 0.49 percent of total loans.

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.

As of December 31, 2024, the Company

had total nonperforming assets of $5.5 million, or 0.40 percent of total assets.

Total delinquent loans at December 31, 2024, were 0.63

percent of total loans.

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

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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.

with the acquisition of two small community banks (The Edon State Bank of Edon, Ohio in 2020 and The Marblehead Bank in January 2025),

the opening of five branch offices and the acquisition of two full-service title agencies.

Financial Highlights

Year Ended December 31,

($ in thousands, except per share data)

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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.

accounting and reporting policies of the Company are in accordance with U.S.

GAAP and conform to general practices within the banking

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, 2025, and 2024.

The preparation of financial statements in conformity with U.S.

GAAP 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:

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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.

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

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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:

following are the condensed average balance sheets of the Company for the years ending December 31, which include the interest earned

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

($ in thousands)

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

Taxable securities/cash

Non-taxable securities

Overnight Cash

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

Subordinated 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

-- Computed on a fully tax equivalent basis (FTE)

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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.

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 $0.13, $0.14 and $0.14 million in 2025, 2024 and 2023, respectively.

following table sets 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.

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

● Rate/volume

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.

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

Rate/volume 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.

Variance Attributable To

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Taxable securities

Overnight Cash

Non-taxable securities 1

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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:

interest rates considering amortization or accretion for securities purchased at a premium or discount:

in thousands)

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($ in thousands)

Ended December 31,

Years Ended December 31,

Commercial business & agriculture

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held for investment (“HFI”) increased $133.9 million, or 12.8 percent, to $1.18 billion at December 31, 2025, 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.

to an increase in commercial real estate and agricultural lending during 2025.

The Company allowed its residential real estate portfolio

to amortize with minimal new production generated on the balance sheet during 2025.

Concentrations

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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

first mortgage loans, which are secured by first mortgages on residential real estate, made up approximately 30.0 percent of the HFI

portfolio, while consumer loans to individuals, which are primarily secured by consumer assets, made up approximately 6.5 percent of

the HFI loan portfolio.

Commercial loans are expected to be repaid from cash flow from operations of businesses and include loans

collateralized by commercial real estate, business assets and, in the case of agricultural loans, crops and farm equipment.

As of December

31, 2025, commercial business and agricultural loans made up approximately 16.1 percent of the HFI loan portfolio while commercial real

estate loans accounted for approximately 50.6 percent of the HFI loan portfolio.

As of December 31, 2025, residential first mortgage

loans, which are secured by first mortgages on residential real estate, made up approximately 25.8 percent of the HFI portfolio, while

consumer loans to individuals, which are primarily secured by consumer assets, made up approximately 7.5 percent of the HFI loan portfolio.

and Sensitivities of Loans to Changes in Interest Rates:

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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

Maturities and Sensitivities of Loans

to Changes in Interest Rates

As of December 31, 2025

($ in thousands)

fifteen years

Within one year

After one, but within five years

After five, but within fifteen years

After fifteen years

Loans with fixed interest rates:

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deposits increased $154.6 million, or 13.4 percent, to $1.31 billion at December 31, 2025.

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.

Inclusive of that growth was approximately

$47 million in acquired deposits.

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

($ in thousands)

and interest bearing demand deposits

interest bearing demand deposits

Savings and interest bearing demand deposits

Time deposits

Non interest bearing demand deposits

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

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of $3.8 million and repurchases of Company common shares of $5.4 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.

The fair market value of the bond portfolio increased during

2025 due to the valuation adjustment on the portfolio, which resulted in accumulated other comprehensive loss (“AOCI”) declining

to $21.5 million at December 31, 2025, from $30.2 million at December 31, 2024.

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

Specifically, the Company repurchased 283,490 shares during 2025 at an average price of $19.47 per share.

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December 31, 2025, the Company had repurchased a total of 300,950 shares, and 199,050 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

Ended December 31,

Years Ended December 31,

($ in thousands)

Nonaccruing loans

Foreclosed assets and other assets held for

Foreclosed assets and other assets held for sale, net

Nonperforming assets

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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

assets totaled $4.7 million, or 0.30 percent of total assets, at December 31, 2025, a decrease of $0.8 million, or 15.1 percent, from

December 31, 2024.

The Company had total net charge-offs on loans of $261,000 in 2025, as compared to net charge-offs of $250,000 in

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:

The Company’s ACL at December 31, 2025, now covers nonperforming loans at 351.9 percent, up from 273.7 percent at December

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)

Average Loans

annualized net

(chargeoffs) recoveries to

recoveries to

average loans

December 31, 2025

Commercial real estate

- owner occupied

Commercial real estate

- nonowner occupied

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

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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

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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

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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.

increased from $12.6 million at December 31, 2020, to $16.1 million at December 31, 2025, which reflects an increase of $3.5 million,

or 28 percent.

This increase was the result of $2.8 million in provision expense during the period and $0.4 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

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Summary – 2025 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.

income for 2025 was $14.0 million, or $2.19 per diluted common share, compared with net income of $11.5 million, or $1.72 per diluted

common share, for 2024.

State Bank reported net income for 2025 of $15.9 million, which was up from the $13.0 million of net income in

SBFG Title reported net income for 2025 of $0.58 million, which was up from net income of $0.36 million for 2024.

results for 2025 included loan growth of $133.9 million, with deposits higher by $154.6 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.

Loan and deposit growth were supplemented

by our acquisition of The Marblehead Bank in the first quarter of 2025, adding $18 million and $47 million of loans and deposits, respectively.

Residential real estate loan production was $277.7 million, with $5.0 million of revenue from gains on sale.

The level of mortgage origination

was up from the $261.3 million in 2024.

The Company’s loans serviced for others ended the year at $1.48 billion, up from $1.43

billion at December 31, 2024.

revenue was higher at $65.6 million in 2025, compared to $56.9 million in 2024 as balance sheet growth and margin improvement drove net

interest income higher, supplemented by higher mortgage revenues.

SBFG Title revenue expanded by $0.4 million compared to the prior year.

expense increased by $4.0 million, or 9.4 percent, from $43.0 million in 2024 to $47.0 million in 2025, due to higher incentive and commission

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

Operating expense included conversion expenses of $0.8 million and almost a full year of Marblehead operations.

of Operations

Ended December 31,

Years Ended December 31,

($ in thousands, except per share data)

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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.

interest income was $48.4 million for 2025 and increased by 21 percent from net interest income of $40.0 million for 2024.

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.

assets increased to $1.40 billion in 2025, compared to $1.31 billion in 2024, primarily due to the increase in our loan portfolio, with

higher overnight cash offset by lower securities.

The consolidated 2025 full year net interest margin on a fully-taxable equivalent (“FTE”)

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Noninterest Income

Ended December 31,

Years Ended December 31,

($ in thousands)

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Total noninterest income

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,

noninterest income was $17.1 million for 2025 compared to $17.0 million for 2024, representing an increase of $0.17 million, or 0.5 percent,

year-over-year.

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increased the size of our serviced loan portfolio to $1.48 billion at December 31, 2025 from $1.43 billion at December 31, 2024.

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.

of non-mortgage loans (small business and farm credits) in 2025 was just $1.0 million, resulting in gain on sale of $0.14 million.

Company saw its wealth management assets under management increase by $18.3 million to $566.0 million at December 31, 2025, with total

wealth management fees of $3.5 million.

Noninterest Expense

Ended December 31,

Years Ended December 31,

($ in thousands)

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year-over-year.

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

Included in the 2025 expense levels are $0.8 million in one-time conversion expenses and almost a full year of Marblehead

Total full-time equivalent employees ended 2025 at 252, which was flat from year end 2024.

Summary – 2024 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.

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

common share, for 2023.

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 31, 2023.

revenue for 2024 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 SB Captive.

Intangibles and Capital Purchases

2 unchanged sentences

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.

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

At December 31, 2025, 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.

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

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sale of loans of $5.2 million and net income of $14.0 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 $217.8 million.

Cash provided by the sale of loans held for sale was $251.7 million.

used in the origination of loans held for sale were $244.0 million.

Company experienced negative cash flows from investing activities in 2025 and 2024.

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sales and calls of securities of $53.8 million and $18.8 million in 2025 and 2024, 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 experienced positive cash flows from financing activities in 2025 and 2024.

Net cash provided by financing activities was $89.7

million and $22.5 million for the years ended December 31, 2025, and 2024, respectively.

The increase in deposits of $101.6 million and

$82.4 million attributed to the positive cash flows in 2025 and 2024, respectively.

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

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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