What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-10 compared with 2020-05-07 · 706 added, 477 removed, 1243 unchanged (49% of the section changed)

Financial Statements

SB Financial Group, Inc.

Condensed Consolidated Balance Sheets

Financial Group, Inc.

Consolidated Balance Sheets

($ in thousands)

Cash and due from banks

Interest bearing time deposits

Available-for-sale securities

6 unchanged sentences

Interest receivable

Goodwill and other intangibles

Cash value of life insurance

23 unchanged sentences

Total liabilities and shareholders’

See notes to condensed consolidated financial statements

The balance sheet at December 31, 2019 has been

derived from the audited consolidated financial statements at that date.

SB Financial Group, Inc.

notes to condensed consolidated financial statements (unaudited)

The balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date.

Financial Group, Inc.

Consolidated Income Statement (unaudited)

Three Months Ended

($ in thousands, except per share data)

4 unchanged sentences

Federal Home Loan Bank advance expense

Trust preferred securities expense

Trust preferred securities

Total interest expense

Net Interest Income

Provision for loan losses

Net interest income after provision for loan losses

Provision for loan

Net interest income after provision for

Noninterest Income

5 unchanged sentences

Title insurance income

Net gain on sale of securities

Loss on sale/disposal of assets

12 unchanged sentences

Other expenses

Total noninterest expense

Total noninterest

Income before income tax

5 unchanged sentences

Average common shares outstanding (in thousands):

See notes to condensed

consolidated financial statements (unaudited)

notes to condensed consolidated financial statements (unaudited)

Financial Group, Inc.

1 unchanged sentence

Three Months Ended

Six Months Ended

($ in thousands)

3 unchanged sentences

Related tax expense

Reclassification for gain realized in income

Related tax expense

Net effect on other comprehensive income

Total comprehensive income

See notes to condensed consolidated financial statements

notes to condensed consolidated financial statements (unaudited)

Financial Group, Inc.

1 unchanged sentence

Equity (unaudited)

Additional Paid-in

Accumulated Other Comprehensive Income

Comprehensive

in thousands, except per share data)

Balance, January 1, 2020

Other comprehensive income

Dividends on common, $0.095 per share

comprehensive income

on common, $0.095 per share

Restricted stock vesting

1 unchanged sentence

Repurchased stock

Stock based compensation expense

based compensation expense

Balance, March 31,

comprehensive income

on common, $0.10 per share

Repurchased stock

based compensation expense

Balance, June 30,

Balance, January 1, 2019

Other comprehensive income

Conversion of preferred to common

Stock reissue for purchase of Peak Title

Dividends on common, $0.085 per share

Dividends on preferred, $0.1625 per share

comprehensive income

of preferred to common

reissue for purchase of Peak Title

on common, $0.085 per share

on preferred, $0.1625 per share

Restricted stock vesting

1 unchanged sentence

Repurchased stock

Stock based compensation expense

based compensation expense

Balance, March 31,

See notes to condensed consolidated financial statements

SB Financial Group, Inc.

Condensed Consolidated Statements of

Cash Flows (unaudited)

Three Months Ended

comprehensive income

on common, $0.900 per share

on preferred, $0.1625 per share

Stock options exercised

Repurchased stock

based compensation expense

Balance, June 30,

notes to condensed consolidated financial statements (unaudited)

Financial Group, Inc.

Consolidated Statements of Cash Flows (unaudited)

($ in thousands)

Six Months Ended June 30,

Operating Activities

7 unchanged sentences

Impairment of mortgage servicing rights

Deferred income taxes

Proceeds from sale of loans held for sale

2 unchanged sentences

Loss (gain) on sales of assets

Net gains on sales of securities

Interest receivable

3 unchanged sentences

Purchases of available-for-sale securities

Proceeds from maturities of interest bearing time deposits

Proceeds from maturities of available-for-sale securities

Proceeds from sales of available-for-sale securities

Net change in loans

2 unchanged sentences

Purchase of bank owned life insurance

Purchase of Federal Reserve and Federal Home Loan Bank Stock

Proceeds from sale of foreclosed assets

Acquisition, net of cash acquired

Net cash and cash equivalents (paid) received in acquisition

Net cash used in investing activities

Financing Activities

Net increase in demand deposits, money market,

interest checking & savings accounts

Net increase in demand deposits, money market, interest checking & savings accounts

Net increase in certificates of deposit

1 unchanged sentence

Proceeds from Federal Home Loan Bank advances

Repayment of Federal Home Loan Bank advances

Net proceeds from share-based compensation plans

10 unchanged sentences

Income taxes paid

Fair value of assets acquired - premises and equipment

Fair value of assets acquired - premises and equipment (Peak Title)

Supplemental non-cash disclosure

1 unchanged sentence

Transfer of loans to foreclosed assets

See notes to condensed consolidated financial statements

In conjunction with the Edon acquisition, liabilities assumed were:

Fair value of assets acquired

Cash paid in acquisition

Liabilities assumed

notes to condensed consolidated financial statements (unaudited)

SB FINANCIAL GROUP, INC.

9 unchanged sentences

LLC (“SBI”).

In June 2020, the Company acquired Edon

Bancorp (“Edon”) and its subsidiary, The Edon State Bank Company of Edon, Ohio.

This acquisition was completed effective

June 5, 2020, and the acquisition resulted in an increase in goodwill, which is detailed in Note 8 and the business combination

summary is detailed in Note 3.

In March 2019, the Company formed SBFG

18 unchanged sentences

Those adjustments consist only of normal recurring adjustments.

Results of operations for the three ended March 31, 2020, are not

necessarily indicative of results for the complete year.

Results of operations for the three and six months ended June 30,

2020, are not necessarily indicative of results for the complete year.

The condensed consolidated balance sheet

3 unchanged sentences

New and applicable accounting pronouncements:

Fair Value Measurement

- Disclosure Framework –

Measurement - Disclosure Framework –

Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820)

The updated guidance improves the disclosure

requirements for fair value measurements.

The ASU removes certain disclosures required by Topic 820 related to transfers between

Level 1 and Level 2 of the fair value hierarchy;

The updated guidance improves

the disclosure requirements for fair value measurements.

The ASU removes certain disclosures required by Topic 820 related to transfers

between Level 1 and Level 2 of the fair value hierarchy;

the policy for timing of transfers between levels;

43 unchanged sentences

The Company is assessing the impact on its accounting and

Intangibles –

Goodwill and Other (Topic 350)

This ASU simplifies the test for goodwill

Specifically, these amendments eliminate Step 2 from the goodwill impairment test, and also eliminate the requirements

for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative

test, to perform Step 2 of the goodwill impairment test.

The amendments in this ASU are effective for annual goodwill impairment

tests in fiscal years beginning after December 15, 2022, and management does not believe the changes will have a material effect

on the Company’s accounting and disclosures.

Financial Instruments

This ASU simplifies the test

for goodwill impairment.

Specifically, these amendments eliminate Step 2 from the goodwill impairment test, and also eliminate

the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it

fails that qualitative test, to perform Step 2 of the goodwill impairment test.

The amendments in this ASU are effective for annual

goodwill impairment tests in fiscal years beginning after December 15, 2022, and management does not believe the changes will have

a material effect on the Company’s accounting and disclosures.

Instruments –

Credit Losses (Topic 326)

10 unchanged sentences

that we establish an allowance for expected credit losses on debt securities.

In December 2018, the OCC, the

Federal Reserve Board, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking

organizations’

In December 2018, the OCC,

the Federal Reserve Board, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including

banking organizations’

implementation of CECL.

The final rule provides banking organizations the option to phase in over a three-year

period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

On November 15, 2019, the FASB delayed

the effective date for certain small public companies and other private companies.

As the Company is currently a smaller reporting

company, the amendment will delay the effective date of ASU No.

The final rule provides banking organizations the option to phase in over

a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

On November 15, 2019, the FASB

delayed the effective date for certain small public companies and other private companies.

As the Company is currently a smaller

reporting company, the amendment will delay the effective date of ASU No.

2016-13 to the fiscal year beginning after December 15,

While we are currently unable to reasonably

estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition,

characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as

of the adoption date.

The Company implemented a process to track required data by utilizing accounting software in preparation

for compliance.

While we are currently unable

to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced

by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions

and forecasts as of the adoption date.

The Company implemented a process to track required data by utilizing accounting software

in preparation for compliance.

We anticipate being fully prepared for implementation by December 15, 2022.

25 unchanged sentences

Diluted earnings per common share

Six Months Ended

($ and outstanding shares in thousands - except per share data)

Distributed earnings allocated to common shares

Undistributed earnings allocated to common shares

Net earnings allocated to common shares

Net earnings allocated to participating securities

Dividends on convertible preferred shares

Net Income allocated to common shares and participating securities

Weighted average shares outstanding for basic earnings per share

Dilutive effect of stock compensation

Dilutive effect of preferred convertible shares

Weighted average shares outstanding for diluted earnings per share

Basic earnings per common share

Diluted earnings per common share

NOTE 3 –

BUSINESS COMBINATION

Effective June 5, 2020, the Company acquired

Edon Bancorp and its subsidiary The Edon State Bank Company of Edon, Ohio.

Edon Bancorp was headquartered in Edon, Ohio and had

one retail office.

The Edon State Bank was merged with and into State Bank, with State Bank surviving.

Under the terms of the merger

agreement, shareholders of Edon received fixed consideration of $103.50 in cash for each share of Edon common stock for total consideration

of $15.5 million.

The Company accounted for the transaction under the acquisition method of accounting, which means that the acquired

assets and liabilities were recorded at fair value at the date of acquisition.

In accordance with ASC 805, the Company

expensed approximately $1.2 million of direct acquisition costs during the three months ended June 30, 2020.

The $1.2 million in

merger expense is split between data processing and professional fees expense.

As a result of the acquisition, the Company recorded

$4.3 million of goodwill and $0.7 million of intangible assets in the second quarter of 2020.

The Company was able to increase

both its deposit and loan base and acquire new households in a new market.

It is expected that this transaction will result in

business synergies and economies of scale.

The acquisition was consistent with the Company’s strategy to expand its presence

in Northwest Ohio and to increase profitability by introducing existing products and services to the acquired customer base.

intangible assets are related to core deposits, which are being amortized over 10 years on a straight-line basis.

For tax purposes,

goodwill is non-deductible but will be evaluated annually for impairment.

The following table summarizes the fair

value of the total consideration transferred as part of the acquisition as well as the fair value of identifiable assets and liabilities

assumed as of the effective date of the transaction based on assumptions that are subject to change as management continues to

evaluate as relevant information becomes available.

If, prior to the end of the one-year measurement period for finalizing the

purchase price allocation, relevant information becomes available which would indicate adjustments are required to the purchase

price allocation, such adjustments will be recorded in the reporting period in which the adjustment amounts are determined.

adjustments, if any, will be related to assets that have may have changes to valuation amounts that were not readily determinable

at acquisition date.

The contractual principal of loans at the

acquisition date was $16.3 million and the estimate of the contractual cash flows not expected to be collected is $0.4 million.

($ in thousands)

Fair value of assets acquired

Cash and cash equivalents

Interest bearing time deposits

Investment securities

Federal Home Loan Bank stock

Loans held for investment

Premises and equipment

Core deposit intangible

Total assets acquired

Fair value of liabilities assumed

Other liabilities

Total liabilities assumed

Total purchase price (cash)

Pro Forma Financial Information

The results of operations of Edon Bancorp have been included

in the Company’s consolidated financial statements since the acquisition date of June 5, 2020.

The following schedule includes

the pro forma results for the three and six months ended June 30, 2020 and 2019, as if the Edon acquisition had occurred as of

the beginning of the reporting periods presented.

The acquisition added less than $0.1 million in revenue and earnings to the Company

for the three months ended June 30, 2020.

Three Months Ended

Summary of Operations ($ in thousands)

Net interest income

Provision for loan losses

Net interest income after provision

Non interest income

Non interest expense

Income before income taxes

Income tax expense*

Preferred share dividends

Net income to common shareholders

Basic earnings per share

Diluted earnngs per share

Income tax expense for Edon calculated using a 21% statutory rate

Six Months Ended

Summary of Operations ($ in thousands)

Net interest income

Provision for loan losses

Net interest income after provision

Non interest income

Non interest expense

Income before income taxes

Income tax expense*

Preferred share dividends

Net income to common shareholders

Basic earnings per share

Diluted earnngs per share

Income tax expense for Edon calculated using a 21% statutory rate

Note 4 –

FOR SALE Securities

The amortized cost and appropriate fair values, together with

gross unrealized gains and losses, of securities at March 31, 2020 and December 31, 2019 were as follows:

gross unrealized gains and losses, of securities at June 30, 2020 and December 31, 2019 were as follows:

($ in thousands)

March 31, 2020

June 30, 2020

Treasury and Government agencies

6 unchanged sentences

The amortized cost and fair value of securities

available for sale at March 31, 2020, by contractual maturity, are shown below.

available for sale at June 30, 2020, by contractual maturity, are shown below.

Expected maturities will differ from contractual

7 unchanged sentences

The fair value of securities pledged as

collateral, to secure public deposits and for other purposes, was $37.9 million at March 31, 2020 and $34.8 million at December

The fair value of securities delivered for repurchase agreements was $24.8 million at March 31, 2019 and $19.5 million

collateral, to secure public deposits and for other purposes, was $36.5 million at June 30, 2020 and $34.8 million at December

The fair value of securities delivered for repurchase agreements was $24.3 million at June 30, 2020 and $19.5 million

at December 31, 2019.

There were no realized gains and losses

from sales of available-for-sale securities for the three months ended March 31, 2020 or March 31, 2019.

from sales of available-for-sale securities for the six months ended June 30, 2020, and $.2 million in realized gains for the

six months ended June 30, 2019.

Certain investments in debt securities

1 unchanged sentence

Total fair value of these investments was

$3.1 million at March 31, 2020, and $38.8 million at December 31, 2019, which was approximately 3 and 38 percent, respectively,

$1.6 million at June 30, 2020, and $38.8 million at December 31, 2019, which was approximately 2 and 38 percent, respectively,

of the Company’s available-for-sale investment portfolio at such dates.

6 unchanged sentences

Securities with unrealized losses, aggregated by investment

class and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2020 and December

class and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2020 and December

31, 2019 are as follows:

2 unchanged sentences

12 Months or Longer

March 31, 2020

June 30, 2020

Unrealized Losses

14 unchanged sentences

The total unrealized loss in the securities

portfolio was $0.01 million as of March 31, 2020 compared to a $0.2 million unrealized loss at December 31, 2019.

portfolio was $0.01 million as of June 30, 2020 compared to a $0.2 million unrealized loss at December 31, 2019.

Management evaluates

5 unchanged sentences

amortized cost.

Management has determined there is no other-than-temporary-impairment on its securities as of March 31, 2020.

Management has determined there is no other-than-temporary-impairment on its securities as of June 30, 2020.

NOTE 5 –

64 unchanged sentences

of the borrower.

Categories of loans at March 31, 2020 and December 31, 2019

Categories of loans at June 30, 2020 and December 31, 2019 include:

Nonaccrual Loans

5 unchanged sentences

Home equity line of credit (HELOC)

Net deferred costs

Total Loans, net deferred costs

Net deferred costs (fees)

Total loans, net deferred costs (fees)

Allowance for loan losses

53 unchanged sentences

The following tables present the activity in the allowance for

loan losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2020, December

31, 2019 and March 31, 2019.

Allowance for loan losses

loan losses and the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2020, December

31, 2019 and June 30, 2019.

($ in thousands)

For the Three Months Ended March 31, 2020

Commercial & industrial

For the Three Months Ended

June 30, 2020

Commercial real estate

1 unchanged sentence

Beginning balance

Provision (credit)

Ending balance

For the Three Months Ended March 31, 2019

Commercial & industrial

For the Six Months Ended

June 30, 2020

Commercial real estate

1 unchanged sentence

Beginning balance

Provision (credit)

Ending balance

Loans Receivable at March 31, 2020

Commercial & industrial

For the Three Months Ended

June 30, 2019

Commercial real estate

Residential real estate

Beginning balance

Provision (credit)

Ending balance

individually evaluated for impairment

For the Six Months Ended

June 30, 2019

Commercial real estate

Residential real estate

Beginning balance

Provision (credit)

Ending balance

collectively evaluated for impairment

Loans Receivable at

June 30, 2020

Commercial real estate

Residential real estate

Ending balance:

2 unchanged sentences

Ending balance:

collectively evaluated for impairment

collectively evaluated for

Ending balance:

individually evaluated for

Ending balance:

collectively evaluated

for impairment

Loans Receivable at

December 31, 2019

Commercial & industrial

Commercial real estate

1 unchanged sentence

Ending balance:

individually evaluated for impairment

individually evaluated for

Ending balance:

collectively evaluated for impairment

collectively evaluated

for impairment

Ending balance:

individually evaluated for impairment

individually evaluated for

Ending balance:

collectively evaluated for impairment

collectively evaluated for

Credit Risk Profile

31 unchanged sentences

The following tables present the credit risk profile of the

Company’s loan portfolio based on rating category as of March 31, 2020 and December 31, 2019.

Company’s loan portfolio based on rating category as of June 30, 2020 and December 31, 2019.

($ in thousands)

March 31, 2020

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Commercial real

estate - owner occupied

Commercial real

estate - nonowner occupied

Residential real

Special Mention (5)

Substandard (6)

December 31, 2019

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner

Commercial real estate - nonowner occupied

Residential real estate

4 unchanged sentences

The following tables present the Company’s loan portfolio

aging analysis as of March 31, 2020 and December 31, 2019.

aging analysis as of June 30, 2020 and December 31, 2019.

($ in thousands)

March 31, 2020

June 30, 2020

90 Days Past Due

5 unchanged sentences

90 Days Past Due

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

8 unchanged sentences

The following tables present impaired loan information as of

and for the three months ended March 31, 2020 and 2019, and for the twelve months ended December 31, 2019:

and for the six months ended June 30, 2020 and 2019, and for the twelve months ended December 31, 2019:

($ in thousands)

Three Months Ended

Six Months Ended

Unpaid Principal

1 unchanged sentence

Interest Income

March 31, 2020

June 30, 2020

With no related allowance recorded:

12 unchanged sentences

Residential real estate

($ in thousands)

Twelve Months Ended

Unpaid Principal

Three Months Ended

Average Recorded

Interest Income

June 30, 2020

($ in thousands)

With no related allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

With a specific allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

($ in thousands) Twelve Months Ended

December 31, 2019

13 unchanged sentences

Residential real estate

Six Months Ended

Three Months Ended

March 31, 2019

June 30, 2019

Average Recorded

Interest Income

Average Recorded

($ in thousands)

58 unchanged sentences

of any concession type.

During the three months ended March 31,

During the six months ended June 30, 2020,

the Company had no new TDR activity.

The following table represents new TDR

activity for the three months ended March 31, 2019:

activity for the six months ended June 30, 2019:

($ in thousands)

Pre-Modification

Recorded Balance

Post Modification

Recorded Balance

Commercial & industrial

2 unchanged sentences

Total modifications

There were no TDR’s modified during the three months ended March

31, 2020 that have subsequently defaulted.

The following table represents TDR’s modified during the

three months ended March 31, 2019:

There were no TDR’s modified during the past twelve months that

have subsequently defaulted.

On March 27, 2020, President Trump signed

the CARES Act, which extends the duration of loan forbearance (deferral) agreements beyond the current three-month period before

a loan is considered to be a troubled debt restructure.

As of June 30, 2020 the Company had approved 262 loan deferral requests

for clients with a total dollar amount of $153.3 million.

NOTE 6 –

ACCOUNTING FOR CERTAIN

LOANS ACQUIRED IN A TRANSFER

The Company acquired loans in the acquisition

of The Edon State Bank Company of Edon, Ohio, effective June 5, 2020.

None of the transferred loans had evidence of deterioration

of credit quality since origination, and it was probable, at acquisition, that all contractually required payments would be collected.

The following table presents the carrying

amount of the acquired loans included in the balance sheet as of June 30, 2020:

($ in thousands)

Number of Contracts

Recorded Balance

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Total Modifications

Home equity line of credit (HELOC)

Accretable yield, or income expected to be collected as of June

30, 2020 is $.4 million.

NOTE 7 –

3 unchanged sentences

The unpaid principal balance of mortgage loans serviced for others approximated

$1.2 billion at March 31, 2020 and $1.2 billion at December 31, 2019.

$1.3 billion at June 30, 2020 and $1.2 billion at December 31, 2019.

Contractually specified servicing fees of approximately $1.5

million and $0.7 million were included in mortgage loan servicing fees in the income statement for the three months ended March

31, 2020 and 2019, respectively.

million and $1.4 million were included in mortgage loan servicing fees in the consolidated income statement for the six months

ended June 30, 2020 and 2019, respectively.

The following table summarizes mortgage

5 unchanged sentences

Net change in valuation allowance

Carrying amount, March 31

Carrying amount, June 30

Valuation allowance:

Increase (reduction)

NOTE 8 –

On March 15, 2019, the Company purchased

all of the assets of an Ohio-based title agency through a newly-formed, wholly-owned subsidiary, SBFG Title, LLC.

This acquisition

resulted in approximately $1.4 million in goodwill.

Goodwill is recorded on the acquisition

date of an entity.

During the measurement period, the Company may record subsequent adjustments to goodwill for provisional amounts

recorded at the acquisition date.

The acquisition of The Edon State Bank Company of Edon, Ohio, on June 5, 2020 and the purchase

of an Ohio- based Title agency through a newly-formed, wholly-owned subsidiary, SBFG Title, LLC, on March 15, 2019 resulted in

approximately $4.3 million and $1.4 million respectively, in goodwill.

Due to the impact of COVID-19 on the economy

and the banking industry, the Company evaluated goodwill as of June 30,2020.

This evaluation determined that no triggering event

had occurred since the last goodwill impairment test was conducted.

A summary of the activity in goodwill is

presented below:

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Six Months Ended

($ in thousands)

4 unchanged sentences

Ending balance

Goodwill is not amortized but is evaluated

for impairment annually, and on an interim basis if events or changes in circumstances indicate that goodwill might be impaired.

Impairment exists when the carrying value of goodwill exceeds its fair value.

NOTE 9 –

27 unchanged sentences

Additionally, the Company enters into forward

contracts for the future delivery of mortgage loans to third-party investors and enters into IRLCs with potential borrowers to

fund specific mortgage loans that will be sold into the secondary market.

The forward contracts that are entered into, economically

hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.

The IRLCs and forward

contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest

income on the consolidated statements of income.

The fair value of derivative instruments with a positive fair value are reported

in accrued income and other assets in the consolidated balance sheets, while derivative instruments with a negative fair value

are reported in accrued expenses and other liabilities in the consolidated balance sheets.

contracts for the future delivery of mortgage loans to third-party investors and enters into Interest Rate Lock Commitments (“IRLCs”)

with potential borrowers to fund specific mortgage loans that will be sold into the secondary market.

The forward contracts that

are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund

The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes

in fair value reflected in noninterest income on the consolidated statements of income.

The fair value of derivative instruments

with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while derivative

instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.

The table below presents the notional amount

and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of March 31, 2020 and December

March 31, 2020

and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of June 30, 2020 and December

June 30, 2020

December 31, 2019

15 unchanged sentences

The following table presents the amounts included in the consolidated

statements of income for non-hedging derivative financial instruments for the three months ended March 31, 2020 and 2019.

statements of income for non-hedging derivative financial instruments for the six months ended June 30, 2020 and 2019.

Amount of gain (loss)

8 unchanged sentences

The following table shows the offsetting of financial assets

and derivative assets at March 31, 2020 and December 31, 2019.

and derivative assets at June 30, 2020 and December 31, 2019.

Gross amounts

Net amounts of assets

Gross amounts not

offset in the consolidated balance sheet

($ in thousands)

Gross amounts

offset in the

balance sheet

Cash collateral

March 31, 2020

presented in the

Gross amounts not offset in the consolidated balance sheet

($ in thousands)

recognized assets

Cash collateral received

June 30, 2020

Interest rate swaps

2 unchanged sentences

The following table shows the offsetting of financial liabilities

and derivative liabilities at March 31, 2020 and December 31, 2019.

and derivative liabilities at June 30, 2020 and December 31, 2019.

Gross amounts

Net amounts of liabilities

Gross amounts not offset in the consolidated balance sheet

($ in thousands)

Gross amounts

of recognized

offset in the

balance sheet

the consolidated

balance sheet

Cash collateral

March 31, 2020

of liabilities

presented in the

Gross amounts not offset in the consolidated balance sheet

($ in thousands)

recognized liabilities

consolidated balance

Financial instruments

Cash collateral pledged

June 30, 2020

Interest rate swaps

5 unchanged sentences

Securities Sold Under Repurchase Agreements

Federal Reserve Disount Window

The Company has retail repurchase agreements

3 unchanged sentences

These securities have various maturity dates from 2022 through

As of March 31, 2020, these repurchase agreements were secured by agency securities and mortgage-backed securities with corresponding

As of June 30, 2020, these repurchase agreements were secured by agency securities and mortgage-backed securities with corresponding

liabilities of $8.9 million and $15.4 million, respectively.

1 unchanged sentence

The Company has borrowing capabilities

at the Federal Reserve Discount Window by pledging either securities or loans as collateral.

As of March 31, 2020, The Company

borrowed $20.0 million for a maturity date of less than 30 days by pledging securities as collateral.

At March 31, 2020 and December 31, 2019,

at the Federal Reserve Discount Window by pledging either securities or loans as collateral, which as of June 30, 2020 had none

At June 30, 2020, the Company had $82.7 million in available collateral, of which none was pledged.

The Company participated in the Paycheck

Protection Program (“PPP”) and has the ability to borrow from the Federal Reserve’s special purpose Paycheck

Protection Program Liquidity Facility (“PPPLF”) for additional funding.

At June 30, 2020 there were no borrowings from

At June 30, 2020 and December 31, 2019,

the Company had $41.0 million in federal funds lines, of which none were drawn.

2 unchanged sentences

The FHLB advances were secured by $154.5

million in mortgage loans at March 31, 2020.

million in mortgage loans at June 30, 2020.

Advances, at interest rates from 1.84 to 2.93 percent, are subject to restrictions

or penalties in the event of prepayment.

Aggregate annual maturities of FHLB advances at March 31, 2020 were:

Aggregate annual maturities of FHLB advances at June 30, 2020 were:

($ in thousands)

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These securities

may be included in Tier 1 capital and may be prepaid at anytime without penalty (with certain limitations applicable) under current

may be included in Tier 1 capital and may be prepaid at any time without penalty (with certain limitations applicable) under current

regulatory guidelines and interpretations.

The balance of the Capital Securities as of March 31, 2020 and December 31, 2019 was

The balance of the Capital Securities as of June 30, 2020 and December 31, 2019 was

$10.3 million, with a maturity date of September 15, 2035.

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of three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets

for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as

quoted prices for similar assets or liabilities;

Quoted prices in active markets for identical assets or liabilities

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable

or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no

market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation

methodologies and inputs used for assets measured at fair value on a recurring basis, recognized in the accompanying balance sheets,

as well as the general classifications of such assets pursuant to the valuation hierarchy.

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis, recognized

in the accompanying balance sheets, as well as the general classifications of such assets pursuant to the valuation hierarchy.

Available-for-Sale Securities

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measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair

value measurements fall at March 31, 2020 and December 31, 2019.

value measurements fall at June 30, 2020 and December 31, 2019.

($ in thousands)

Available-for-sale securities:

Fair Values at

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($ in thousands)

Available-for-sale securities:

Fair Values at

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The following is a description of the valuation

methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying condensed

consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance

sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Collateral-dependent Impaired Loans,

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value based on the Company’s loan review policy.

All impaired loans held by the Company were collateral dependent at March

All impaired loans held by the Company were collateral dependent at June

30, 2020 and December 31, 2019.

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information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

Fair value at

Range (weighted-

($ in thousands)

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impaired loans

Market comparable

Market comparable properties

Comparability

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Discount Rate

Constant prepayment

Constant prepayment rate

Discounted cash flow

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T&I earnings credit

Inflation for cost

Inflation for cost of servicing

Fair Value at

Range (weighted-

($ in thousands)

Collateral-dependent

impaired loans

Market comparable

Comparability

adjustments (%)

Unobservable inputs

Collateral-dependent impaired loans

Market comparable properties

Comparability adjustments (%)

Mortgage servicing rights

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Discount Rate

Constant prepayment

Constant prepayment rate

Discounted cash flow

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T&I earnings credit

Inflation for cost

Inflation for cost of servicing

There were no changes in the inputs or

methodologies used to determine fair value at March 31, 2020 as compared to December 31, 2019.

methodologies used to determine fair value at June 30, 2020 as compared to December 31, 2019.

The following methods were used to estimate

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time deposits, as well as borrowings, is based on estimates of the rate State Bank could pay on similar instruments with similar

terms and maturities at March 31, 2020 and December 31, 2019.

terms and maturities at June 30, 2020 and December 31, 2019.

Loan Commitments

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The estimated fair values for other financial instruments and off-balance-sheet

loan commitments approximate cost at March 31, 2020 and December 31, 2019 and are not considered significant to this presentation.

loan commitments approximate cost at June 30, 2020 and December 31, 2019 and are not considered significant to this presentation.

Trust Preferred Securities

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Fair value measurements using

March 31, 2020

June 30, 2020

Financial assets

Cash and due from banks

Interest bearing time deposits

Loans held for sale

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Interest payable

NOTE 12 – SHARE BASED COMPENSATION

NOTE 14 –

SHARE BASED COMPENSATION

In April 2017, the Company’s shareholders

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A total of 500,000 common shares of the Company are available for grants or awards under the 2017 Plan, of which

57,609 shares had been granted under the plan as of March 31, 2020.

57,219 shares had been granted under the plan as of June 30, 2020.

The 2008 Plan, which was approved by the

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of grant using the Black-Scholes valuation model.

No options were granted in the first three months of 2020.

No options were granted in the first six months of 2020.

A summary of stock option activity under

the Company’s plans as of March 31, 2020 and changes during the quarter then ended, is presented below:

the Company’s plans as of June 30, 2020 and changes during the quarter then ended, is presented below:

($ in thousands - except per share data)

Intrinsic Value

Weighted- Average Exercise Price

Weighted- Average Remaining Term

Aggregate Intrinsic Value

Outstanding, December 31, 2019

Outstanding, March 31, 2020

Exercisable, March 31, 2020

Outstanding, June 30, 2020

Exercisable, June 30, 2020

All stock options included in the table

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These shares had an expiration date of February 17, 2020.

During the first quarter, the

26,950 option shares exercised had a total intrinsic value of $0.3 million and the cash received from these exercised options was

$0.2 million.

During the first six months,

the 26,950 option shares exercised had a total intrinsic value of $0.3 million and the cash received from these exercised options

was $0.2 million.

The tax benefit from these transactions was immaterial.

On February 17, 2020, the remaining 1,300 unexercised option

shares expired.

As of March 31, 2020, there were no outstanding or exercisable options remaining, and no unrecognized compensation

On February 17, 2020, the remaining 1,300 unexercised

option shares expired.

As of June 30, 2020, there were no outstanding or exercisable options remaining, and no unrecognized compensation

cost related to stock option awards granted under the 2008 Plan.

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statement of $0.02 million.

As of March 31, 2020, there was $0.71 million

As of June 30, 2020, there was $0.57 million

of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to the restricted stock

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A summary of restricted stock activity

under the Company’s plans as of March 31, 2020 and changes during the quarter then ended, is presented below:

under the Company’s plans as of June 30, 2020 and changes during the quarter then ended, is presented below:

Average Value

Nonvested, December 31, 2019

Nonvested, March 31, 2020

NOTE 13 – GENERAL LITIGATION

Nonvested, June 30, 2020

NOTE 15 –

GENERAL LITIGATION

The Company is subject to claims and lawsuits

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It is the opinion of management that the disposition or ultimate resolution of any such claims, lawsuits and

examinations pending at March 31, 2020, will not have a material adverse effect on the consolidated financial position, results

examinations pending at June 30, 2020, will not have a material adverse effect on the consolidated financial position, results

of operations and cash flow of the Company.

NOTE 14 – SUBSEQUENT EVENT

On February 6, 2020, the Company entered

into an Agreement and Plan of Merger (the “Merger Agreement”) with Edon Bancorp, Inc.

(“Edon”).

terms of the Merger Agreement, each outstanding share of Edon common stock will be converted into the right to receive $103.50

in cash, for a transaction value in aggregate of approximately $15.5 million.

The Company is anticipating the receipt of all regulatory

and shareholder approvals in the near term and expects to close the merger in the second quarter of 2020.

The COVID-19 pandemic is creating extensive

disruptions to the global economy and to the lives of individuals throughout the world.

Business and consumer customers of the

Bank are experiencing varying degrees of financial distress, which is expected to increase over coming months and will likely adversely

affect their ability to timely pay interest and principal on their loans and the value of the collateral securing their obligations.

This uncertainty may negatively impact the balance sheet, income statement, and cash flows of the Company.

The Company has responded to the pandemic

by actively participating in the Paycheck Protection Program (“PPP”) and has disbursed nearly $82 million to small

businesses in our markets.

In addition, we have approved over $136 million in loan forbearances to clients.

These actions may impact

our financial statements during the remainder of 2020 although the specific details cannot be determined at this time.

Management’s Discussion

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and regional banking industry including impacts from the COVID-19 pandemic on local, national and global economic conditions as

well as the various governmental responses to the COVID-19 pandemic, including the stimulus packages and programs, changes in economic

conditions in the market areas in which the Company and its subsidiaries operate, changes in policies by regulatory agencies, changes

in accounting standards and policies, changes in tax laws, fluctuations in interest rates, demand for loans in the market areas

in which the Company and its subsidiaries operate, increases in FDIC insurance premiums, changes in the competitive environment,

losses of significant customers, geopolitical events and the loss of key personnel.

Additional detailed information concerning

a number of important factors which could cause actual results to differ materially from the forward-looking statements contained

in Management’s Discussion and Analysis of Financial Condition and Results of Operations is available in the Company’s

filings with the Securities and Exchange Commission, including the risks identified under the heading “Item 1A.

well as the various governmental responses to the COVID-19 pandemic, including stimulus packages and programs;

potential litigation

or other risks related to participation in the U.S.

Small Business Administration’s (“SBA”) Paycheck Protection

Program (“PPP”);

changes in economic conditions in the market areas in which the Company and its subsidiaries operate,

changes in policies by regulatory agencies, changes in accounting standards and policies, changes in tax laws, fluctuations in

interest rates, demand for loans in the market areas in which the Company and its subsidiaries operate, increases in FDIC insurance

premiums, changes in the competitive environment, losses of significant customers, geopolitical events and the loss of key personnel.

Additional detailed information concerning a number of important factors which could cause actual results to differ materially

from the forward-looking statements contained in Management’s Discussion and Analysis of Financial Condition and Results

of Operations is available in the Company’s filings with the Securities and Exchange Commission, including the risks identified

under the heading “Item 1A.

Risk Factors”

of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as supplemented by “Item

of Part I of the Company’s Annual Report on Form 10-K for the fiscal

year ended December 31, 2019 and under the heading “Item 1A.

Risk Factors”

of Part II of this Quarterly Report on Form 10-Q.

Undue reliance should not be placed on the forward-looking

statements, which speak only as of the date hereof.

Except as may be required by law, the Company undertakes no obligation to update

any forward-looking statement to reflect unanticipated events or circumstances after the date on which the statement is made.

of Part II of the Company’s Quarterly

Report on Form 10-Q for the quarter ended March 31, 2020, as supplemented by “Item 1A.

Risk Factors”

of Part II of

this Quarterly Report on Form 10-Q.

Undue reliance should not be placed on the forward-looking statements, which speak only as

of the date hereof.

Except as may be required by law, the Company undertakes no obligation to update any forward-looking statement

to reflect unanticipated events or circumstances after the date on which the statement is made.

Overview of SB Financial

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(“SB Financial”

is an Ohio corporation and a financial holding company registered with the Federal Reserve Board.

SB Financial’s wholly-owned

subsidiary, The State Bank and Trust Company (“State Bank”), is an Ohio-chartered bank engaged in commercial banking.

Rurban Statutory Trust II (“RST

II”) was established in August 2005.

In September 2005, RST II completed a pooled private offering of 10,000 Trust Preferred

Securities with a liquidation amount of $1,000 per security.

The proceeds of the offering were loaned to SB Financial in exchange

for junior subordinated debentures of SB Financial with terms substantially similar to the Trust Preferred Securities.

assets of RST II are the junior subordinated debentures, and the back-up obligations, in the aggregate, constitute a full and

unconditional guarantee by SB Financial of the obligations of RST II.

or the “Company”) is an Ohio corporation and a financial holding company registered with the Federal Reserve Board.

SB Financial’s wholly-owned subsidiary, The State Bank and Trust Company (“State Bank”), is an Ohio-chartered

bank engaged in commercial banking.

Rurban Statutory Trust II (“RST II”)

was established in August 2005.

In September 2005, RST II completed a pooled private offering of 10,000 Trust Preferred Securities

with a liquidation amount of $1,000 per security.

The proceeds of the offering were loaned to the Company in exchange for junior

subordinated debentures of the Company with terms substantially similar to the Trust Preferred Securities.

The sole assets of RST

II are the junior subordinated debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee

by the Company of the obligations of RST II.

(“RFCBC”) is an

Ohio corporation and wholly-owned subsidiary of SB Financial that was incorporated in August 2004.

Ohio corporation and wholly-owned subsidiary of the Company that was incorporated in August 2004.

RFCBC operates as a loan subsidiary

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engages in the sale of insurance products to retail and commercial customers of State Bank.

SBFG Title, LLC (“Title”) is

an Ohio corporation that was formed in March 2019.

SBFG Title, LLC (“SBFG Title”)

is an Ohio corporation that was formed in March 2019.

SBFG Title engages in the sale of title insurance services.

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operating earnings and reduced by net charge-offs.

The Company determines the amount of

the allowance based on relative risk characteristics of the loan portfolio.

The allowance recorded for commercial loans is

based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss

The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics

of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each

homogeneous category or group of loans.

The allowance for credit losses relating to impaired loans is based on the

loan’s observable market price, the collateral for certain collateral-dependent loans, or the discounted cash flows

using the loan’s effective interest rate.

The Company determines the amount of the

allowance based on relative risk characteristics of the loan portfolio.

The allowance recorded for commercial loans is based on

reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience.

allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud

loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogeneous category or group of

The allowance for credit losses relating to impaired loans is based on the loan’s observable market price, the collateral

for certain collateral-dependent loans, or the discounted cash flows using the loan’s effective interest rate.

Regardless of the extent of the Company’s

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for homogenous groups of loans are also factors.

The Company estimates a range of inherent losses related to the existence of

these exposures.

The estimates are based upon the Company’s evaluation of imprecise risk associated with the commercial

and consumer allowance levels and the estimated impact of the current economic environment.

To the extent that actual results

differ from management’s estimates, additional loan loss provisions may be required that could adversely impact earnings

for future periods.

The Company estimates a range of inherent losses related to the existence of these

The estimates are based upon the Company’s evaluation of imprecise risk associated with the commercial and consumer

allowance levels and the estimated impact of the current economic environment.

To the extent that actual results differ from management’s

estimates, additional loan loss provisions may be required that could adversely impact earnings for future periods.

Goodwill and Other Intangibles -

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or other factors could lead to an impairment of goodwill that could adversely impact earnings for future periods.

Three Months Ended March 31, 2020

compared to Three Months Ended March 31, 2019

Net income for

the first quarter of 2020 was $0.7 million compared to net income of $2.2 million for the first quarter of 2019, a decrease of

69.4 percent.

Earnings per diluted share (EPS) of $0.09 were down 67.9 percent from EPS of $0.28 for the first quarter of 2019.

Three Months Ended June

30, 2020 compared to Three Months Ended June 30, 2019

income for the second quarter of 2020 was $3.7 million compared to net income of $2.6 million for the second quarter of 2019, an

increase of 39 percent.

Earnings per diluted share (EPS) of $0.47 were up 42 percent from EPS of $0.33 for the second quarter of

During the quarter, the Company incurred a temporary impairment of $1.1 million to its mortgage servicing rights and expensed

$1.2 million for costs related to the Edon acquisition.

The quarterly results include 26 days of earnings from the Edon acquisition.

The impact of the COVID-19 pandemic

has continued to constrain our ability to grow our revenue as we have reduced our outside calling efforts.

In response, we have

actively participated in the Paycheck Protection Program (“PPP”) and have disbursed nearly $83 million to small business

In addition, the Company has approved over $195 million in loan deferrals to clients.

Anticipated further government action

will impact our consolidated financial results during the remainder of 2020 although specific details cannot be determined at this

Provision for Loan Losses:

The first quarter provision for loan losses was $0.6 million compared to $0.0 million for the year-ago quarter.

The second quarter provision for loan losses was $1.3 million compared to $0.2 million for the year-ago quarter.

Net charge-offs

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Total delinquent loans ended the quarter

at $5.4 million, or 0.65 percent of total loans, which is up $3.7 million from the prior year.

Asset Quality Review – For the Period Ended

at $5.4 million, or 0.60 percent of total loans, which is down $0.1 million from the prior year.

The Company set aside additional

loan loss reserves due to the unknown future impact of COVID-19 on our client base.

Asset Quality Review –

For the Period Ended

($ in thousands)

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Nonaccruing loans

Accruing Troubled Debt Restructures

Accruing Trouble Debt Restructures

Nonaccruing and restructured loans

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Consolidated Revenue:

revenue, consisting of net interest income and noninterest income, was $10.7 million for the first quarter of 2020, a decrease

of $0.6 million, or 5.6 percent, from the $11.3 million generated during the first quarter of 2019.

revenue, consisting of net interest income and noninterest income, was $17.5 million for the second quarter of 2020, an increase

of $5.0 million, or 40 percent, from the $12.5 million generated during the second quarter of 2019.

The Edon acquisition, which

closed June 5, 2020, added $0.1 million in revenue for the second quarter of 2020.

Net interest income was $8.9 million, which

was up $0.2 million from the prior year first quarter’s $8.3 million.

is up $0.04 million from the prior year second quarter’s $8.8 million.

The Company’s earning assets increased $158.8

million, coupled with a 93 basis point decrease in the yield on earning assets.

The net interest margin (FTE) for the first quarter

of 2020 was 3.48 percent compared to 3.81 percent for the first quarter of 2019.

Funding costs for interest bearing liabilities

for the first quarter of 2020 were 1.12 percent compared to 1.20 percent for the prior year first quarter.

The net interest margin (FTE) for the second quarter

of 2020 was 3.32 percent compared to 3.88 percent for the second quarter of 2019.

The margin was impacted by the $82.7 million

in PPP loans outstanding at June 30, 2020, with a coupon rate of 1.0 percent.

The Company booked $0.3 million in deferred fees

and $0.2 million in interest income in the quarter related to these PPP loans.

Funding costs for interest bearing liabilities for

the second quarter of 2020 were 0.89 percent compared to 1.28 percent for the prior year second quarter.

Noninterest income was $8.6 million for

the first quarter of 2020, which was down $0.8 million from the prior year first quarter’s $3.0 million.

the second quarter of 2020, which was up $4.9 million from the prior year second quarter’s $3.7 million.

In addition to the

mortgage revenue detailed below, gains from the sale of non-mortgage loans was $0.1 million, wealth management revenue was $0.8

million and revenue from our title agency was $0.3 million.

Noninterest income as a percentage of average assets for the first

quarter of 2020 was 0.81 percent compared to 1.20 percent for the prior year first quarter.

The Company originated $101.5 million of

mortgage loans for the first quarter of 2020, of which $84.5 million was sold with the remainder in loans held for investment.

This compares to $51.4 million for the first quarter of 2019, of which $43.5 million was sold with the remainder in loans held

mortgage revenue detailed below, gains from the sale of non-mortgage loans was $0.1 million and wealth management revenue was $0.8

Impairment of our mortgage servicing rights reduced noninterest income by $1.1 million in the quarter.

Our title agency

contributed revenue of $0.6 million in the second quarter of 2020, up $0.3 million from the prior year.

Noninterest income as a

percentage of average assets for the second quarter of 2020 was 2.95 percent compared to 1.45 percent for the prior year second

State Bank originated $223.7 million of

mortgage loans for the second quarter of 2020, of which $204.6 million was sold with the remainder in loans held for investment.

This compares to $98.5 million for the second quarter of 2019, of which $71.0 million was sold with the remainder in loans held

for investment.

These first quarter 2020 originations and subsequent sales resulted in $1.9 million of gains, up $0.8 million from

the gains for the first quarter of 2019.

Net mortgage banking revenue was negative $0.1 million for the first quarter of 2020 compared

to positive $0.9 million for the first quarter of 2019.

Impairment to mortgage servicing rights increased from $0.7 million in

the first quarter of 2019 to $2.2 million in the first quarter of 2020.

The significant increase in volume from the prior year was the result of lower interest rates that drove higher

re-finance volume.

These second quarter 2020 originations and subsequent sales resulted in $8.1 million of gains, up $6.4 million

from the gains for the second quarter of 2019.

Net mortgage banking revenue was $6.2 million for the second quarter of 2020 compared

to $1.2 million for the second quarter of 2019.

The 2020 second quarter included a $1.1 million negative valuation impairment on

our mortgage servicing rights compared to a negative impairment of $0.7 million for the second quarter of 2019, due to increased

prepayment speeds and expected higher default rates due to COVID-19 concerns.

Consolidated Noninterest Expense:

Noninterest expense for the first quarter of 2020 was $9.4 million, which was up $0.8 million compared to $8.6 million in the prior-year

first quarter.

The first quarter of 2020 included higher commission on mortgage sales of $0.4 million and title agency expense

of $0.3 million.

Noninterest expense for the second quarter of 2020 was $11.7 million, which was up $2.6 million compared to $9.1 million in the

prior-year second quarter.

The second quarter of 2020 included higher commission and incentives on mortgage sales of $0.8 million

and the expenses from our title agency of $0.4 million, which was up $0.11 million from the prior year.

Included in the second

quarter 2020 expense total was $1.4 million in costs related to the acquisition of Edon.

Income Taxes:

for the first quarter of 2020 were $0.02 million (effective rate 3.1 percent) compared to $0.5 million (effective rate 18.0 percent)

for the first quarter of 2019.

The reduction in taxes was due to the reduction in pretax income from the prior year and the full

year impact of our Captive insurance agency and higher stock compensation in the first quarter of 2020.

taxes for the second quarter of 2020 were $0.9 million (effective rate 19.2 percent) compared to $0.6 million (effective rate 18.3

percent) for the second quarter of 2019.

The higher tax expense was driven by higher earnings.

Six Months Ended June

30, 2020 compared to Six Months Ended June 30, 2019

Net income for the first six months of 2020 was $4.3 million compared to net income of $4.9 million for the first six months of

2019, a decrease of 10.7 percent.

Earnings per diluted share (EPS) for the period of $0.56 were down 8.2 percent from EPS of $0.61

for the prior year six-month period.

Provision for Loan Losses :

The provision for loan losses for the first six months of 2020 was $1.9 million compared to $0.2 million for the prior year first

Net charge offs for the period were $0.6 million compared to net charge offs of $0.06 million for the prior year six

month period.

Consolidated Revenue :

revenue, consisting of net interest income and noninterest income, was $28.2 million for the first six months of 2020, an increase

of $4.3 million, or 18.2 percent, from the $23.9 million generated during the 2019 first six months.

Net interest income was $17.4 million,

which is up $0.2 million from net interest income of $17.2 million for the prior year first six months.

The Company’s earning

assets increased $158.8 million, and had a 93 basis point decrease in the yield on earning assets for the first six months of 2020.

The net interest margin (FTE) for the first six months of 2020 was 3.40 percent compared to 3.84 percent for the first six months

Funding cost for interest bearing liabilities for the first six months of 2020 were 1.00 percent compared to 1.24 percent

for the prior year first six months.

Noninterest income was $10.8 million for

the 2020 first six months, which is up $4.1 million from noninterest income of $6.7 million for the prior year first six months.

In addition to the mortgage revenue detailed below, gains from the sale of non-mortgage loans was $0.2 million, compared to $0.5

million for the same period in 2019.

For the first six months, the Company had a mortgage servicing rights impairment of $3.3 million.

State Bank originated $325.0 million of

mortgage loans during the first six months of 2020, of which $289.1 million of loans were sold with the remainder of loans held

for investment.

These levels were up 117 percent and 153 percent, respectively, as compared to the prior year first six months.

Consolidated Noninterest Expense:

Noninterest expense for the first six months of 2020 was $21.1 million, which is up $3.3 million compared to $17.7 million in the

prior year first six months.

The increase in noninterest expenses compared to the prior year was due to increased mortgage commission,

expenses for SBFG Title and $1.2 million in Edon merger expenses.

Income Taxes:

taxes for the first six months of 2020 were $0.9 million (effective rate 17.1 percent) compared to $1.1 million (effective rate

18.1 percent) for the first six months of 2019.

Changes in Financial Condition

Total assets at March 31, 2020 were $1,088.3

million, an increase of $49.7 million or 4.8 percent since 2019 year end.

Total loans, net of unearned income, were $830.8 million

as of March 31, 2020, up $5.3 million from year-end, an increase of 0.6 percent.

Total deposits at March 31, 2020 were $863.9

Total assets at June 30, 2020 were $1,202.9

million, an increase of $164.4 million or 15.8 percent since December 2019 year end.

Total loans, net of unearned income, were

$901.5 million as of June 30, 2020, up $76.0 million from year-end, an increase of 9.2 percent.

Total PPP balances added $82.9

million to our total loans at June 30, 2020.

Total deposits at June 30, 2020 were $990.6

million, an increase of $150.4 million or 17.9 percent since 2019 year end.

Borrowed funds (consisting of FHLB advances, Federal

Reserve Discount Window, TRUP and REPOs) totaled $63.2 million at March 31, 2020.

This is up from year-end when borrowed funds

totaled $39.3 million due to an increase in Fed discount window borrowing.

Total equity for the Company of $135.9 million now stands

at 12.5 percent of total assets compared to the December 31, 2019 level of $136.1 million and 13.1 percent of total assets.

The allowance for loan losses of $9.0 million

was up $0.2 million from the 2019 year end level.

The allowance for loan losses is 1.08 percent of total loans, which is considered

appropriate by management given the risk profile of the portfolio.

Borrowed funds (consisting of FHLB advances, and REPOs)

totaled $36.8 million at June 30, 2020.

This is up from year-end when borrowed funds totaled $28.9 million due to an increase in

Total equity for the Company of $137.9 million now stands at 11.5 percent of total assets compared to the December 31, 2019

level of $136.1 million and 13.1 percent of total assets.

The reduction in equity is due to the acquisition of Edon partially offset

by net income.

The allowance for loan loss of $10.0 million

is up $1.3 million from the December 2019 year end level.

The allowance to loan level is 1.11 percent, which is considered appropriate

by management given the risk profile of the portfolio.

Capital Resources

As of March 31, 2020, based on the computations

for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve, State Bank was classified

as well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well capitalized, State Bank

must maintain capital ratios as set forth in the table below.

There are no conditions or events since March 31, 2020 that management

believes have changed State Bank’s capital classification.

State Bank’s actual capital levels

and ratios as of March 31, 2020 and December 31, 2019 are presented in the following table.

Capital levels are presented for State

Bank only as the Company is exempt from quarterly reporting on capital levels at the holding company level:

As of June 30, 2020, based on

the computations for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve, State

Bank was classified as well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well

capitalized, State Bank must maintain capital ratios as set forth in the table below.

There are no conditions or events since June

30, 2020 that management believes have changed State Bank’s capital classification.

State Bank’s actual capital

levels and ratios as of June 30, 2020 and December 31, 2019 are presented in the following table.

Capital levels are presented

for State Bank only as the Company is exempt from quarterly reporting on capital levels at the holding company level:

Capitalized Under

Prompt Corrective

($ in thousands)

As of March 31, 2020

Action Procedures

As of June 30, 2020

Tier I Capital to average assets

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Total Risk-based capital to risk-weighted assets

Effective January 1, 2015, new regulatory

capital requirements commonly referred to as “Basel III”

were implemented and are reflected in the March 31, 2020 capital

Management opted out of the accumulated other comprehensive income treatment under the new requirements and as such

unrealized gains and losses from available-for-sale securities will continue to be excluded from State Bank’s regulatory

Liquidity relates primarily to the Company’s

ability to fund loan demand, meet deposit customers’

withdrawal requirements and provide for operating expenses.

to satisfy these needs consist of cash and due from banks, federal funds sold, interest-earning deposits in other financial institutions,

securities available-for-sale and loans held for sale.

These assets are commonly referred to as liquid assets.

Liquid assets were

$175.4 million at March 31, 2020, compared to $135.3 million at December 31, 2019.

Effective January 1, 2015, new

regulatory capital requirements commonly referred to as “Basel III”

were implemented and are reflected in the June

30, 2020 capital table above.

Management opted out of the accumulated other comprehensive income treatment under the new requirements

and as such unrealized gains and losses from available-for-sale securities will continue to be excluded from State Bank’s

regulatory capital.

Liquidity relates primarily to

the Company’s ability to fund loan demand, meet deposit customers’

withdrawal requirements and provide for operating

Assets used to satisfy these needs consist of cash and due from banks, federal funds sold, interest-earning deposits

in other financial institutions, securities available-for-sale and loans held for sale.

These assets are commonly referred to as

liquid assets.

Liquid assets were $214.2 million at June 30, 2020, compared to $135.3 million at December 31, 2019.

Liquidity risk arises from the

possibility that the Company may not be able to meet the Company’s financial obligations and operating cash needs or

may become overly reliant upon external funding sources.

In order to manage this risk, the Board of Directors of the Company

has established a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for monitoring and

measuring liquidity and quantifies minimum liquidity requirements.

This policy designates the Asset/Liability Committee

(“ALCO”) as the body responsible for meeting these objectives.

The ALCO reviews liquidity regularly and evaluates

significant changes in strategies that affect balance sheet or cash flow positions.

Liquidity is centrally managed on a daily

basis by the Company’s Chief Financial Officer and Asset Liability Manager.

The Company’s commercial real estate,

first mortgage residential, agricultural and multi-family mortgage portfolio of $615.6 million at March 31, 2020 and $610.9 million

at December 31, 2019, which can and has been used to collateralize borrowings, is an additional source of liquidity.

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

31, 2020, all eligible commercial real estate, first mortgage residential and multi-family mortgage loans were pledged under an

FHLB blanket lien.

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 the three months ended March 31,

possibility that the Company may not be able to meet the Company’s financial obligations and operating cash needs or may

become overly reliant upon external funding sources.

In order to manage this risk, the Board of Directors of the Company has established

a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity

and quantifies minimum liquidity requirements.

This policy designates the Asset/Liability Committee (“ALCO”) as the

body responsible for meeting these objectives.

The ALCO reviews liquidity regularly and evaluates significant changes in strategies

that affect balance sheet or cash flow positions.

Liquidity is centrally managed on a daily basis by the Company’s Chief

Financial Officer and Asset Liability Manager.

The Company’s commercial

real estate, first mortgage residential, agricultural and multi-family mortgage portfolio of $619.0 million at June 30, 2020 and

$610.9 million at December 31, 2019, which can and has been used to collateralize borrowings, is an additional source of liquidity.

Management believes the Company’s current liquidity level, without these borrowings, is sufficient to meet its liquidity

At June 30, 2020, all eligible commercial real estate, first mortgage residential and multi-family mortgage loans were pledged

under an FHLB blanket lien.

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 the six months ended June

30, 2020 and 2019 follows.

The Company experienced negative cash flows

from operating activities for the three months ended March 31, 2020 and positive cash flows from operating activities for the three

months ended March 31, 2019.

Net cash used by operating activities was $4.6 million for the three months ended March 31, 2020 and

net cash provided by operating activities was $4.1 million for the three months ended March 31, 2019.

The Company experienced negative

cash flows from operating activities for the six months ended June 30, 2020 and positive cash flows from operating activities for

the six months ended June 30, 2019.

Net cash used by operating activities was $.3 million for the six months ended June 30, 2020

and net cash provided by operating activities was $.8 million for the six months ended June 30, 2019.

Highlights for the current

year include $289.1 million in proceeds from the sale of loans, which is up $172.1 million from the prior year.

Originations of loans

held for sale was a use of cash of $87.3 million, which is up from the prior year, by $43.9 million.

For the three months ended

March 31, 2020, there was a gain on sale of loans of $2.1 million, and depreciation and amortization of $.5 million.

The Company experienced negative cash flows

from investing activities for the three months ended March 31, 2020 and March 31, 2019.

Net cash flows used in investing activities

was $11.3 million for the three months ended March 31, 2020 and $17.7 million for the three months ended March 31, 2019.

for the three months ended March 31, 2020 include $45.1 million in purchases of available-for-sale securities, which is up $36.5

million from the prior year.

These cash payments were offset by $40.0 million in proceeds from maturities and sales of securities,

which is up $35.4 million from the prior year three-month period.

The Company experienced a $5.7 million increase in loans, which

is down $4.9 million from the prior year three-month period.

The Company experienced positive cash flows

from financing activities for the three months ended March 31, 2020 and March 31, 2019.

Net cash flow provided by financing activities

was $45.2 million for the three months ended March 31, 2020 and $28.2 million for the three months ended March 31, 2019.

for the current period include a $17.1 million increase in transaction deposits for the three months ended March 31, 2020, which

is up from the $7.9 million increase in transaction deposits for the three months ended March 31, 2019.

Certificates of deposit

increased by $6.6 million in the current year compared to an increase of $17.2 million for the prior year.

Short term borrowings

increased by $23.9 million for the three months ended March 31, 2020, which is up from the $2.9 million decrease in short term

borrowings for the three months ended March 31, 2019.

ALCO 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

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 likelihood of a significant decrease in rates as of March 31, 2020

and December 31, 2019 was considered unlikely given the current interest rate environment and therefore, only the minus 100 basis

point rate change was included in this analysis as of March 31, 2020 and only the minus 100 and minus 200 basis point changes were

included in this analysis as of December 31, 2019.

The results of this analysis are reflected in the following tables for March

31, 2020 and December 31, 2019.

Originations of

loans held for sale was a use of cash of $287.9 million, which is up from the prior year by $168.3 million.

For the six months

ended June 30, 2020, there was a gain on sale of loans of $10.3 million, and depreciation and amortization of $0.9 million.

The Company experienced negative cash flows from investing activities

for the six months ended June 30, 2020 and June 30, 2019.

Net cash flows used in investing activities was $43.8 million for the

six months ended June 30, 2020 and $39.0 million for the six months ended June 30, 2019.

Highlights for the six months ended June

30, 2020 include net cash provided from the acquisition of Edon of $16.2 million.

Purchases of available-for-sale securities was

$61.9 million, which is up $53.1 million from the prior year.

These cash payments were offset by $61.8 million in proceeds from

maturities and sales of securities, which is up $52.8 million from the prior six-month period.

The Company experienced a $60.5

million increase in loans, which is up $17.9 million from the prior year six-month period.

The Company experienced positive

cash flows from financing activities for the six months ended June 30, 2020 and June 30, 2019.

Net cash flow provided by financing

activities was $102.8 million for the six months ended June 30, 2020 and $32.6 million for the six months ended June 30, 2019.

Highlights for the current period include a $109.8 million increase in transaction deposits for the six months ended June 30, 2020,

which is up $105.6 from the prior year.

Certificates of deposit decreased by $10.5 million in the current year compared to an increase

of $32.6 million for the prior year.

ALCO 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 likelihood of a significant decrease in

rates as of June 30, 2020 and December 31, 2019 was considered unlikely given the current interest rate environment and therefore,

only the minus 100 basis point rate change was included in this analysis as of June 30, 2020 and only the minus 100 and minus 200

basis point rate change was included in this analysis as of December 31, 2019.

The results of this analysis are reflected in the

following tables for June 30, 2020 and December 31, 2019.

Economic Value of Equity

March 31, 2020

June 30, 2020

($ in thousands)

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

The Company’s commercial

real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of $615.6 million

were pledged to meet FHLB collateralization requirements as of March 31, 2020.

The Company’s

commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of $619.0

million were pledged to meet FHLB collateralization requirements as of June 30, 2020.

Based on the current collateralization requirements

of the FHLB, the Company had approximately $113.8 million of additional borrowing capacity at March 31, 2020.

The Company also

had $22.0 million in unpledged securities to pledge for additional borrowings.

of the FHLB, the Company had approximately $116.5 million of additional borrowing capacity at June 30, 2020.

The Company also had

$39.7 million in unpledged securities available to pledge for additional borrowings.

The Company’s contractual obligations

as of March 31, 2020 were comprised of long-term debt obligations, other debt obligations, operating lease obligations and other

as of June 30, 2020 were comprised of long-term debt obligations, other debt obligations, operating lease obligations and other

long-term liabilities.

1 unchanged sentence

of $10.3 million.

Total time deposits at March 31, 2020 were $251.2 million, of which $82.2 million mature beyond one year.

In addition, as of March 31, 2020, the

Company had commitments to sell mortgage loans totaling $106.9 million.

The Company believes that it has adequate resources to

fund commitments as they arise and that it can adjust the rate on savings certificates to retain deposits in changing interest

rate environments.

If the Company requires funds beyond its internal funding capabilities, advances from the FHLB of Cincinnati

and other financial institutions are available.

ASSET LIABILITY MANAGEMENT

Total time deposits at June 30, 2020 were $256.8 million, of which $70.2 million mature beyond one year.

In addition, as of June 30, 2020, the Company

had commitments to sell mortgage loans totaling $78.2 million.

The Company believes that it has adequate resources to fund commitments

as they arise and that it can adjust the rate on savings certificates to retain deposits in changing interest rate environments.

If the Company requires funds beyond its internal funding capabilities, advances from the FHLB of Cincinnati and other financial

institutions are available.

ASSET LIABILITY MANAGEMENT

involves developing, executing and monitoring strategies to maintain appropriate liquidity, maximize net interest income and

minimize the impact that significant fluctuations in market interest rates would have on current and future earnings.

business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily

loans, mortgage-backed securities, and securities available for sale) which are primarily funded by interest-bearing

liabilities (deposits and borrowings).

With the exception of specific loans which are originated and held for sale, all of

the financial instruments of the Company are for other than trading purposes.

All of the Company’s transactions are

denominated in U.S.

dollars with no specific foreign exchange exposure.

In addition, the Company has limited exposure to

commodity prices related to agricultural loans.

The impact of changes in foreign exchange rates and commodity prices on

interest rates are assumed to be insignificant.

The Company’s financial instruments have varying levels of sensitivity

to changes in market interest rates resulting in market risk.

Interest rate risk is the Company’s primary market risk

Asset liability management involves

developing, executing and monitoring strategies to maintain appropriate liquidity, maximize net interest income and minimize the

impact that significant fluctuations in market interest rates would have on current and future earnings.

The business of the Company

and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans, mortgage-backed securities,

and securities available for sale) which are primarily funded by interest-bearing liabilities (deposits and borrowings).

exception of specific loans which are originated and held for sale, all of the financial instruments of the Company are for other

than trading purposes.

All of the Company’s transactions are denominated in U.S.

dollars with no specific foreign exchange

In addition, the Company has limited exposure to commodity prices related to agricultural loans.

The impact of changes

in foreign exchange rates and commodity prices on interest rates are assumed to be insignificant.

The Company’s financial

instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk.

Interest rate risk

is the Company’s primary market risk exposure;

to a lesser extent, liquidity risk also impacts market risk exposure.

61 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-Q

Item 1. Financial Statements