What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-03-08 compared with 2020-03-06 · 724 added, 636 removed, 142 unchanged (91% of the section changed)

statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute

forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

See “Cautionary

Statement Regarding Forward-Looking Information”

Certain statements contained in this Annual

Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of the

Private Securities Litigation Reform Act of 1995.

See “Cautionary Statement Regarding Forward-Looking Information”

under Item 1A.

Risk Factors on page 18 of this Annual Report on

Financial Group, Inc., an Ohio corporation (the “Company”), is a financial holding company subject to regulation under

the Bank Holding Company Act of 1956, as amended, and to inspection, examination and supervision by the Board of Governors of

the Federal Reserve System (the “Federal Reserve Board”).

Risk Factors on page 17 of this Annual Report on Form 10-K.

SB Financial Group, Inc., an Ohio corporation

(the “Company”), is a financial holding company subject to regulation under the Bank Holding Company Act of 1956,

as amended, and to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the “Federal

Reserve Board”).

The Company was organized in 1983.

The executive offices

of the Company are located at 401 Clinton Street, Defiance, Ohio 43512.

its direct and indirect subsidiaries, the Company is engaged in a variety of financial activities, including commercial banking,

and wealth management services, as explained in more detail below.

Bank and Trust Company

State Bank and Trust Company (“State Bank”) is an Ohio state-chartered bank and wholly owned subsidiary of the Company.

State Bank offers a full range of commercial banking services, including checking accounts, savings accounts, money market accounts

and time certificates of deposit;

automatic teller machines;

The executive offices of the Company are located at 401 Clinton Street,

Defiance, Ohio 43512.

Through its direct and indirect subsidiaries,

the Company is engaged in a variety of financial activities, including commercial banking, and wealth management services, as

explained in more detail below.

State Bank and Trust Company

The State Bank and Trust Company (“State

Bank”) is an Ohio state-chartered bank and wholly owned subsidiary of the Company.

State Bank offers a full range of commercial

banking services, including checking accounts, savings accounts, money market accounts and time certificates of deposit;

teller machines;

commercial, consumer, agricultural and residential mortgage loans;

personal and corporate trust services;

commercial leasing;

bank credit card services;

2 unchanged sentences

private client group services;

and other personalized banking services.

The trust and financial services division of State Bank

offers various trust and financial services, including asset management services for individuals and corporate employee benefit

plans, as well as brokerage services through Cetera Investment Services, an unaffiliated company.

State Bank presently operates

19 banking centers, located within the Ohio counties of Allen, Defiance, Franklin, Fulton, Hancock, Lucas, Paulding, Wood and

Williams, and one banking center located in Allen County, Indiana.

State Bank also presently operates seven loan production offices,

located in Cuyahoga, Franklin, Lucas and Seneca Counties, Ohio, Hamilton and Steuben County, Indiana and Monroe County, Michigan.

and other personalized

banking services.

The trust and financial services division of State Bank offers various trust and financial services, including

asset management services for individuals and corporate employee benefit plans, as well as brokerage services through Cetera Investment

Services, an unaffiliated company.

State Bank presently operates 21 banking centers, located within the Ohio counties of Allen,

Defiance, Franklin, Fulton, Hancock, Lucas, Paulding, Wood and Williams, and one banking center located in Allen County, Indiana.

State Bank also presently operates five loan production offices, located in Franklin, Lucas and Seneca Counties, Ohio, Hamilton

County, Indiana and Monroe County, Michigan.

At December 31, 2020, State Bank had 238 full-time equivalent employees.

Title, LLC dba Peak Title Agency (“SBFG Title”) was formed as an Ohio limited liability company in March 2019 and

purchased all of the assets and real estate of an Ohio-based title agency effective March 15, 2019.

At December 31, 2019 SBFG

Title, LLC had five full-time equivalent employees.

(“RFCBC”) is an Ohio corporation and wholly owned subsidiary of the Company that was incorporated in August 2004.

RFCBC operates as a loan subsidiary in servicing and working out problem loans and is presently inactive.

At December 31, 2019,

RFCBC had no employees.

Data Services

Data Services, Inc.

dba RDSI Banking Systems (“RDSI”) was formed in 1964 and became an Ohio corporation in June 1976.

In September 2006, RDSI acquired Diverse Computer Marketers, Inc.

SBFG Title, LLC

SBFG Title, LLC dba Peak Title Agency

(“SBFG Title”) was formed as an Ohio limited liability company in March 2019 and purchased all of the assets and real

estate of an Ohio-based title agency effective March 15, 2019.

At December 31, 2020, SBFG Title, LLC had six full-time equivalent

(“RFCBC”) is an

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

RFCBC operates as a loan subsidiary

in servicing and working out problem loans and is presently inactive.

At December 31, 2020, RFCBC had no employees.

Rurbanc Data Services

Rurbanc Data Services, Inc.

dba RDSI Banking

Systems (“RDSI”) was formed in 1964 and became an Ohio corporation in June 1976.

In September 2006, RDSI acquired

Diverse Computer Marketers, Inc.

(“DCM”), which was merged into RDSI effective December 31, 2007.

Effective January 1, 2018, the Company completed the sale of the customer contracts and certain other assets of RDSI’s

remaining check and statement processing business operated through the DCM division.

As a result of the sale, RDSI is presently

inactive and had no material operations or employees at December 31, 2019.

Mortgage Company

Mortgage Company (“RMC”) is an Ohio corporation and wholly owned subsidiary of State Bank.

RMC is a mortgage company

and is presently inactive.

At December 31, 2019, RMC had no employees.

Insurance, LLC (“SBI”) is an Ohio corporation and wholly owned subsidiary of State Bank.

SBI is an insurance company

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

At December 31, 2019, SBI had

no employees.

Captive, Inc.

(“SB Captive”) is a Nevada corporation and wholly owned subsidiary of SB Financial Group, Inc.

is a self-insurance company that provides coverage to State Bank and SB Financial Group.

The purpose of the Captive is to mitigate

insurance risk by participating in a pool with other banks.

Effective January

1, 2018, the Company completed the sale of the customer contracts and certain other assets of RDSI’s remaining check and

statement processing business operated through the DCM division.

As a result of the sale, RDSI is presently inactive and had no

material operations or employees at December 31, 2020.

Rurban Mortgage Company

Rurban Mortgage Company (“RMC”)

is an Ohio corporation and wholly owned subsidiary of State Bank.

RMC is a mortgage company and is presently inactive.

31, 2020, RMC had no employees.

SBT Insurance

SBT Insurance, LLC (“SBI”) is an Ohio corporation

and wholly owned subsidiary of State Bank.

SBI is an insurance company that engages in the sale of insurance products to retail

and commercial customers of State Bank.

At December 31, 2020, SBI had no employees.

SB Captive, Inc.

(“SB Captive”)

is a Nevada corporation and wholly owned subsidiary of SB Financial Group, Inc.

SB Captive is a self-insurance company that provides

coverage to State Bank and SB Financial Group.

The purpose of the Captive is to mitigate insurance risk by participating in a

pool with other banks.

At December 31, 2020, SB Captive, Inc.

had no employees.

Statutory Trust II

Statutory Trust II (“RST II”) is a trust that was organized in August 2005.

In September 2005, RST II closed a pooled

private offering of 10,000 Capital 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 with terms similar to the Capital Securities.

The sole assets

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

guarantee by the Company of the obligations of RST II under the Capital Securities.

Company experiences significant competition in attracting depositors and borrowers.

Competition in lending activities comes principally

from other commercial banks in the lending areas of State Bank, and to a lesser extent, from savings associations, insurance companies,

governmental agencies, credit unions, securities brokerage firms and pension funds.

The primary factors in competing for loans

are interest rates and overall banking services.

Bank’s competition for deposits comes from other commercial banks, savings associations, money market funds and credit unions

as well as from insurance companies and securities brokerage firms.

The primary factors in competing for deposits are interest

rates paid on deposits and convenience of office location.

State Bank operates in the highly competitive wealth management services

field and its competition consists primarily of other bank wealth management departments.

and Regulation

following is a description of the significant statutes and regulations applicable to the Company and its subsidiaries.

The description

is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are described.

such statutes, regulations and policies are continually under review by the U.S.

Congress and state legislatures and federal and

state regulatory agencies.

A change in statutes, regulations or regulatory policies applicable to the Company or its subsidiaries

could have a material effect on our business.

of Bank Holding Companies and Their Subsidiaries in General

Company is a financial holding company and, as such, is subject to regulation under the Bank Holding Company Act of 1956, as amended

(the “Bank Holding Company Act”).

The Bank Holding Company Act requires the prior approval of the Federal Reserve

Board (“FRB”) before a financial or bank holding company may acquire direct or indirect ownership or control of more

than 5 percent of the voting shares of any bank (unless the bank is already majority owned by the bank holding company), acquire

all or substantially all of the assets of another bank or another financial or bank holding company, or merge or consolidate with

any other bank holding company.

Subject to certain exceptions, the Bank Holding Company Act also prohibits a financial or bank

holding company from acquiring 5 percent or more of the voting shares of any company that is not a bank and from engaging in any

business other than banking or managing or controlling banks.

The primary exception to this prohibition allows a bank holding

company to own shares in any company the activities of which the FRB had determined, as of November 19, 1999, to be so closely

related to banking as to be a proper incident thereto.

a result of the Gramm-Leach-Bliley Act of 1999, also known as the Financial Services Modernization Act of 1999, which amended

the Bank Holding Company Act, bank holding companies that are financial holding companies may engage in any activity, or acquire

and retain the shares of a company engaged in any activity, that is either (1) financial in nature or incidental to such financial

activity (as determined by the FRB in consultation with the Secretary of the Treasury), or (2) complementary to a financial activity,

and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

Activities that are financial in nature include securities underwriting and dealing, insurance underwriting and making merchant

banking investments.

On January 2, 2019, the Company elected, and received approval from the FRB, to become a financial holding

Company is subject to the reporting requirements of, and examination and regulation by, the FRB.

The FRB has extensive enforcement

authority over bank holding companies, including, without limitation, the ability to assess civil money penalties, issue cease

and desist or removal orders, and require that a bank holding company divest subsidiaries, including its subsidiary banks.

general, the FRB may initiate enforcement actions for violations of laws and regulations and for unsafe or unsound practices.

A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions

of credit and/or the provision of other property or services to a customer by the bank holding company or its subsidiaries.

requirements and restrictions under the laws of the United States and the State of Ohio affect the operations of State Bank, including

requirements to maintain reserves against deposits, restrictions on the nature and amount of loans that may be made and the interest

that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent

banks, limitations on activities based on capital and surplus, limitations on payment of dividends, and limitations on branching.

consumer laws and regulations also affect the operations of State Bank.

The Dodd-Frank Wall Street Reform and Consumer Protection

Act of 2010 (the “Dodd-Frank Act”) established the Consumer Financial Protection Bureau (the “CFPB”),

which regulates consumer financial products and services and certain financial services providers.

The CFPB is authorized to prevent

unfair, deceptive or abusive acts or practices and ensures consistent enforcement of laws so that consumers have access to fair,

transparent and competitive markets for consumer financial products and services.

Since it was established, the CFPB has exercised

extensively its rulemaking and interpretative authority.

Federal Home Loan Bank (“FHLB”) provide credit to their members in the form of advances.

As a member of the FHLB of

Cincinnati, State Bank must maintain certain minimum investments in the capital stock of the FHLB of Cincinnati.

State Bank was

in compliance with these requirements at December 31, 2019.

Growth, Regulatory Relief and Consumer Protection Act

Regulatory Relief Act repealed or modified certain provisions of the Dodd-Frank Act and eased restrictions on all but the largest

banks (those with consolidated assets in excess of $250 billion).

Bank holding companies with consolidated assets of less than

$100 billion, including the Company, are no longer subject to enhanced prudential standards.

The Regulatory Relief Act also relieves

bank holding companies and banks with consolidated assets of less than $100 billion, including the Company, from certain record-keeping,

reporting and disclosure requirements.

Certain other regulatory requirements applied only to banks with consolidated assets in

excess of $50 billion and so did not apply to the Company even before the enactment of the Regulatory Relief Act.

can be no assurance as to the amount of dividends which may be declared in future periods with respect to the common shares of

the Company, since such dividends are subject to the discretion of the Company’s Board of Directors, cash needs, general

business conditions, dividends from the Company’s subsidiaries and applicable governmental regulations and policies.

ability of the Company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the

amount of dividends that may be declared by State Bank and the Company’s other subsidiaries.

State Bank may not pay dividends

to the Company if, after paying such dividends, it would fail to meet the required minimum levels under the risk-based capital

guidelines and the minimum leverage ratio requirements.

In addition, State Bank must obtain the approval of the FRB and the Ohio

Division of Financial Institutions (“ODFI”) if a dividend in any year would cause the total dividends for that year

to exceed the sum of the current year’s net profits and the retained net profits for the preceding two years, less required

transfers to surplus.

At December 31, 2019, State Bank had $29.8 million of excess earnings over the preceding three years.

of dividends by State Bank may be restricted at any time at the discretion of the regulatory authorities, if they deem such dividends

to constitute an unsafe and/or unsound banking practice.

Moreover, the FRB expects the Company to serve as a source of strength

to its subsidiary banks, which may require it to retain capital for further investment in the subsidiary, rather than for dividends

to shareholders of the Company.

Company and State Bank are separate and distinct legal entities.

The Federal Reserve Board’s Regulation W and various other

legal limitations restrict State Bank from lending funds to, or engaging in other “covered transactions”

Company (or any other affiliate), generally limiting such covered transactions with any one affiliate to 10 percent of State Bank’s

capital and surplus and limiting all such covered transactions with all affiliates to 20 percent of State Bank’s capital

Covered transactions, including extensions of credit, sales of securities or assets and provision of services, also

must be on terms and conditions consistent with safe and sound banking practices, including credit standards, that are substantially

the same or at least as favorable to State Bank as those prevailing at the time for transactions with unaffiliated companies.

bank’s authority to extend credit to executive officers, directors and greater than 10 percent shareholders, as well as

entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated

thereunder by the Federal Reserve Board.

Among other things, these loans must be made on terms (including interest rates charged

and collateral required) that are substantially the same as those offered to unaffiliated individuals or be made as part of a

benefit or compensation program and on terms widely available to employees, and must not involve a greater than normal risk of

In addition, the amount of loans a bank may make to these persons is based, in part, on the bank’s capital position,

and certain approval procedures must be followed in making loans which exceed specified amounts.

insured banks are subject, with certain exceptions, to certain additional restrictions (including collateralization) on extensions

of credit to their parent holding companies or other affiliates, on investments in the stock or other securities of affiliates

and on the taking of such stock or securities as collateral from any borrower.

In addition, such banks are prohibited from engaging

in certain tying arrangements in connection with any extension of credit or the providing of any property or service.

risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital

Measurement and Capital Standard”

Rurban Statutory Trust II

Rurban Statutory Trust II (“RST

II”) is a trust that was organized in August 2005.

In September 2005, RST II closed a pooled private offering of 10,000

Capital 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 with terms similar to the Capital Securities.

The sole assets of RST II are the junior

subordinated debentures and the back-up obligations, which in the aggregate, constitute a full and unconditional guarantee by

the Company of the obligations of RST II under the Capital Securities.

The Company experiences significant competition

in attracting depositors and borrowers.

Competition in lending activities comes principally from other commercial banks in the

lending areas of State Bank, and to a lesser extent, from savings associations, insurance companies, governmental agencies, credit

unions, securities brokerage firms and pension funds.

The primary factors in competing for loans are interest rates and overall

banking services.

State Bank’s competition for deposits

comes from other commercial banks, savings associations, money market funds and credit unions as well as from insurance companies

and securities brokerage firms.

The primary factors in competing for deposits are interest rates paid on deposits and convenience

of office location.

State Bank operates in the highly competitive wealth management services field and its competition consists

primarily of other bank wealth management departments.

Supervision and Regulation

The following is a description of the

significant statutes and regulations applicable to the Company and its subsidiaries.

The description is qualified in its entirety

by reference to the full text of the statutes, regulations and policies that are described.

Also, such statutes, regulations and

policies are continually under review by the U.S.

Congress and state legislatures and federal and state regulatory agencies.

change in statutes, regulations or regulatory policies applicable to the Company or its subsidiaries could have a material effect

on our business.

Regulation of Bank Holding Companies and Their Subsidiaries

The Company is a financial holding company

and, as such, is subject to regulation under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company

The Bank Holding Company Act requires the prior approval of the Federal Reserve Board (“FRB”) before

a financial or bank holding company may acquire direct or indirect ownership or control of more than 5 percent of the voting shares

of any bank (unless the bank is already majority owned by the bank holding company), acquire all or substantially all of the assets

of another bank or another financial or bank holding company, or merge or consolidate with any other bank holding company.

to certain exceptions, the Bank Holding Company Act also prohibits a financial or bank holding company from acquiring 5 percent

or more of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing

or controlling banks.

The primary exception to this prohibition allows a bank holding company to own shares in any company the

activities of which the FRB had determined, as of November 19, 1999, to be so closely related to banking as to be a proper incident

As a result of the Gramm-Leach-Bliley

Act of 1999, also known as the Financial Services Modernization Act of 1999, which amended the Bank Holding Company Act, bank

holding companies that are financial holding companies may engage in any activity, or acquire and retain the shares of a company

engaged in any activity, that is either (1) financial in nature or incidental to such financial activity (as determined by the

FRB in consultation with the Secretary of the Treasury), or (2) complementary to a financial activity, and that does not pose

a substantial risk to the safety and soundness of depository institutions or the financial system generally.

Activities that are

financial in nature include securities underwriting and dealing, insurance underwriting and making merchant banking investments.

On January 2, 2019, the Company elected, and received approval from the FRB, to become a financial holding company.

The Company is subject to the reporting

requirements of, and examination and regulation by, the FRB.

The FRB has extensive enforcement authority over bank holding companies,

including, without limitation, the ability to assess civil money penalties, issue cease and desist or removal orders, and require

that a bank holding company divest subsidiaries, including its subsidiary banks.

In general, the FRB may initiate enforcement

actions for violations of laws and regulations and for unsafe or unsound practices.

A bank holding company and its subsidiaries

are prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other

property or services to a customer by the bank holding company or its subsidiaries.

Various requirements and restrictions

under the laws of the United States and the State of Ohio affect the operations of State Bank, including requirements to maintain

reserves against deposits, restrictions on the nature and amount of loans that may be made and the interest that may be charged

thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations

on activities based on capital and surplus, limitations on payment of dividends, and limitations on branching.

Various consumer laws and regulations

also affect the operations of State Bank.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank

Act”) established the Consumer Financial Protection Bureau (the “CFPB”), which regulates consumer financial

products and services and certain financial services providers.

The CFPB is authorized to prevent unfair, deceptive or abusive

acts or practices and ensures consistent enforcement of laws so that consumers have access to fair, transparent and competitive

markets for consumer financial products and services.

Since it was established, the CFPB has exercised extensively its rulemaking

and interpretative authority.

The Federal Home Loan Bank (“FHLB”)

provide credit to their members in the form of advances.

As a member of the FHLB of Cincinnati, State Bank must maintain certain

minimum investments in the capital stock of the FHLB of Cincinnati.

State Bank was in compliance with these requirements at December

Economic Growth, Regulatory Relief and Consumer Protection

On May 25, 2018, the Economic Growth,

Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was enacted, which repealed or modified

certain provisions of the Dodd-Frank Act and eased restrictions on all but the largest banks (those with consolidated assets in

excess of $250 billion).

Bank holding companies with consolidated assets of less than $100 billion, including the Company, are

no longer subject to enhanced prudential standards.

The Regulatory Relief Act also relieves bank holding companies and banks with

consolidated assets of less than $100 billion, including the Company, from certain record-keeping, reporting and disclosure requirements.

Certain other regulatory requirements applied only to banks with consolidated assets in excess of $50 billion and so did not apply

to the Company even before the enactment of the Regulatory Relief Act.

Restrictions on Dividends

There can be no assurance as to the amount

of dividends which may be declared in future periods with respect to the common shares of the Company, since such dividends are

subject to the discretion of the Company’s Board of Directors, cash needs, and general business conditions, dividends from

the Company’s subsidiaries and applicable governmental regulations and policies.

The ability of the Company to obtain funds

for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends that may be declared

by State Bank and the Company’s other subsidiaries.

State Bank may not pay dividends to the Company if, after paying such

dividends, it would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage

ratio requirements.

In addition, State Bank must obtain the approval of the FRB and the Ohio Division of Financial Institutions

(“ODFI”) if a dividend in any year would cause the total dividends for that year to exceed the sum of the current

year’s net profits and the retained net profits for the preceding two years, less required transfers to surplus.

31, 2020, State Bank had $26.9 million of excess earnings over the preceding three years.

Payment of dividends by State Bank may

be restricted at any time at the discretion of the regulatory authorities, if they deem such dividends to constitute an unsafe

and/or unsound banking practice.

Moreover, the FRB expects the Company to serve as a source of strength to its subsidiary banks,

which may require it to retain capital for further investment in the subsidiary, rather than for dividends to shareholders of

Affiliate Transactions

The Company and State Bank are separate

and distinct legal entities.

The FRB’s Regulation W and various other legal limitations restrict State Bank from lending

funds to, or engaging in other “covered transactions”

with, the Company (or any other affiliate), generally limiting

such covered transactions with any one affiliate to 10 percent of State Bank’s capital and surplus and limiting all such

covered transactions with all affiliates to 20 percent of State Bank’s capital and surplus.

Covered transactions, including

extensions of credit, sales of securities or assets and provision of services, also must be on terms and conditions consistent

with safe and sound banking practices, including credit standards, that are substantially the same or at least as favorable to

State Bank as those prevailing at the time for transactions with unaffiliated companies.

A bank’s authority to extend credit

to executive officers, directors and greater than 10 percent shareholders, as well as entities such persons control, is subject

to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the FRB.

Among other things,

these loans must be made on terms (including interest rates charged and collateral required) that are substantially the same as

those offered to unaffiliated individuals or be made as part of a benefit or compensation program and on terms widely available

to employees, and must not involve a greater than normal risk of repayment.

In addition, the amount of loans a bank may make to

these persons is based, in part, on the bank’s capital position, and certain approval procedures must be followed in making

loans which exceed specified amounts.

Federally insured banks are subject, with

certain exceptions, to certain additional restrictions (including collateralization) on extensions of credit to their parent holding

companies or other affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or

securities as collateral from any borrower.

In addition, such banks are prohibited from engaging in certain tying arrangements

in connection with any extension of credit or the providing of any property or service.

The Coronavirus Aid, Relief, and Economic

Security Act of 2020

In response to the novel COVID-19 pandemic

(“COVID-19”), the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”),

was signed into law on March 27, 2020, to provide national emergency economic relief measures.

Many of the CARES Act’s programs

are dependent upon the direct involvement of U.S.

financial institutions, such as the Company and State Bank, and have been implemented

through rules and guidance adopted by federal departments and agencies, including the U.S.

Department of Treasury, the FRB and

other federal banking agencies, including those with direct supervisory jurisdiction over the Company and State Bank.

as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation,

lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for

In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including amendments

to the CARES Act or new bills comparable in scope to the CARES Act.

For example, on December 27, 2020, the Consolidated Appropriations

Act, 2021 (the “CAA”) was signed into law, which, among other things, allowed certain banks to temporarily postpone

implementation of the current expected credit loss model (accounting standard), which is described below.

The Company is continuing

to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to COVID-19.

The CARES Act amended the loan program

of the Small Business Administration (the “SBA”), in which State Bank participates, to create a guaranteed, unsecured

loan program, the Paycheck Protection Program (the “PPP”), to fund operational costs of eligible businesses, organizations

and self-employed persons during COVID-19.

In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which, among

other things, gave borrowers additional time and flexibility to use PPP loan proceeds.

Shortly thereafter, and due to the evolving

impact of COVID-19, additional legislation was enacted authorizing the SBA to resume accepting PPP applications on July 6, 2020,

and extending the PPP application deadline to August 8, 2020.

As a participating lender in the PPP, State Bank continues to monitor

legislative, regulatory, and supervisory developments related thereto.

On September 29, 2020, the federal bank regulatory agencies

issued a final rule that neutralizes the regulatory capital and liquidity coverage ratio effects of participating in certain COVID-19

liquidity facilities due to the fact there is no credit or market risk in association with exposures pledged to such facilities.

As a result, the final rule supports the flow of credit to households and businesses affected by COVID-19.

The CARES Act encouraged the FRB, in coordination

with the Secretary of the Treasury, to establish or implement various programs to help mitigate the adverse effects of COVID-19

on midsize businesses, nonprofits, and municipalities.

In April 2020, the Federal Reserve established the Main Street Lending

Program (“MSLP”) to implement certain of these recommendations.

The MSLP supported lending to small and medium-sized

businesses that were in sound financial condition before the onset of COVID-19.

On November 19, 2020, Treasury Secretary Steven

Mnuchin indicated that he would not reauthorize extending the MSLP past December 31, 2020.

However, the FRB extended the program

to January 8, 2021, in order to process loans that were submitted on or before December 14, 2020.

The program ended on January

Regulatory Capital

The risk-based capital guidelines adopted

by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standard”

(Basel I), published by the Basel Committee on Banking Supervision (the “Basel Committee”).

In July 2013, the United States banking regulators issued new capital rules applicable to smaller banking organizations which

also implement certain of the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”).

Community banking

organizations, including the Company and State Bank, began transitioning to the new rules on January 1, 2015.

The new minimum

capital requirements became effective on January 1, 2015, whereas a new capital conservation buffer and deductions from common

equity capital phased in from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1

capital phased in from January 1, 2015 through January 1, 2019.

Basel III Capital Rules include (a) a minimum common equity tier 1 capital ratio of 4.5%, (b) a minimum Tier 1 capital

ratio of 6.0%, (c) a minimum total capital ratio of 8.0%, and (d) a minimum leverage ratio of 4.0%.

equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited

amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.

1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred

stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered

(but which are not permitted going forward), and limited amounts of minority interests in the form of additional Tier 1 capital

instruments, less certain deductions.

2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt)

and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria, less applicable deductions.

deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing

assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s

own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).

The deductions

phased in beginning in 2015 and were fully phased in as of January 1, 2019.

the guidelines, capital is compared to the relative risk related to the balance sheet.

To derive the risk included in the balance

sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the

relative credit risk of the counterparty.

The capital amounts and classification are also subject to qualitative judgments by

the regulators about components, risk weightings and other factors.

new rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus

payments to executive officers if the banking organization does not hold a capital conservation buffer of greater than 2.5 percent

composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income

is negative in that quarter and its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter.

The capital conservation buffer began to phase in starting on January 1, 2016, at 0.625% of risk-weighted assets, and was

increased by that amount each year until fully phased in effective January 1, 2019, at 2.5%.

September 2019, the FRB, along with other federal bank regulatory agencies, issued a final rule, effective January 1, 2020, that

gives community banks, including the Company, the option to calculate a simple leverage ratio to measure capital adequacy if the

community banks meet certain requirements.

Under the rule, a community bank is eligible to elect the Community Bank Leverage Ratio

(“CBLR”) framework if it has less than $10 billion in total consolidated assets, limited amounts of certain assets and

off-balance sheet exposures, and a leverage ratio greater than 9.0%.

Qualifying institutions that elect to use the CBLR framework

and that maintain a leverage ratio of greater than 9.0% will be considered to have satisfied the risk-based and leverage capital

requirements in the regulatory agencies’

generally applicable capital rules and to have met the well-capitalized ratio requirements.

It is the Company’s intent to opt out of the simplified framework and continue to follow existing capital rules.

December 2018, the federal banking agencies issued a final rule to address regulatory capital treatment of credit loss allowances

under the current expected credit loss (“CECL”) model (accounting standard).

The rule revises the federal banking

agencies’

regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion

in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects

on regulatory capital that may result from the adoption of the CECL model.

The Company currently anticipates recording a one-time

cumulative effect adjustment upon adoption, and does not anticipate utilizing the three year phase in.

The Company expects to

maintain risk-based capital ratios in excess of “well-capitalized”

after the impact of the one-time cumulative effect

December 31, 2019, State Bank was in compliance with all of the regulatory capital requirements to which it was subject.

For State Bank’s capital ratios, see Note 15 to the Consolidated Financial Statements under Item of 8 of this report (the

“Consolidated Financial Statements”).

FRB has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled

state-chartered member banks.

At each successively lower defined capital category, a bank is subject to more restrictive and numerous

mandatory or discretionary regulatory actions or limits, and the FRB has less flexibility in determining how to resolve the problems

of the institution.

In addition, the FRB generally can downgrade a bank’s capital category, notwithstanding its capital

level, if, after notice and opportunity for hearings, the bank is deemed to be engaged in an unsafe or unsound practice, because

it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than

capital or it is deemed to be in an unsafe or unsound condition.

State Bank’s capital at December 31, 2019, met the

standards for the highest capital category, a “well-capitalized”

April 2015, the FRB issued a final rule which increased the size limitation for qualifying bank holding companies under the FRB’s

Small Bank Holding Company Policy Statement from $500 million to $1 billion of total consolidated assets.

In August 2018, the

FRB issued an interim final rule, as required by the Economic Growth Regulatory Relief, and consumer Protection Act of 2018, to

further increase size limitations under the Small Bank Holding Company Policy Statement to $3 billion of total consolidated assets.

The Company continues to qualify under the Small Bank Holding Company Policy Statement for exemption from the Federal Reserve

Board’s consolidated risk-based capital and leverage rules at the holding company level.

Deposit Insurance Corporation

Federal Deposit Insurance Corporation (“FDIC”) is an independent federal agency, which insures the deposits of federally

insured banks and savings associations up to certain prescribed limits and safeguards the safety and soundness of financial institutions.

The general insurance limit is $250,000 per separately insured depositor.

This insurance is backed by the full faith and credit

of the United States Government.

insurer, the FDIC is authorized to conduct examinations of and to require reporting by insured institutions, including State Bank,

to prohibit any insured institution from engaging in any activity the FDIC determines to pose a threat to the Deposit Insurance

Fund (“DIF”), and to take enforcement actions against insured institutions.

The FDIC may terminate insurance of deposits

of any institution if the FDIC finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound

condition or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or other regulatory agency.

FDIC assesses a quarterly deposit insurance premium on each insured institution based on risk characteristics of the institution

and may also impose special assessments in emergency situations, which fund the DIF.

Pursuant to the Dodd-Frank Act, the FDIC

has established 2 percent as the Designated Reserve Ratio (“DRR”), which is the amount in the DIF as a percentage

of all DIF insured deposits.

In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35 percent

by September 30, 2020, the deadline imposed by the Dodd-Frank Act.

As of September 30, 2018, the DRR met the statutory minimum

As a result, the previous surcharge imposed on banks with assets of $10 billion or more was lifted.

In addition, preliminary

assessment credits have been determined by the FDIC for banks with assets of less than $10 billion, which had previously contributed

to the increase of the DRR to 1.35%.

These credits may be redeemed beginning in the quarterly assessment period in which the DRR

reaches a minimum of 1.38%, and is not to exceed the total quarterly assessment due.

addition, all FDIC-insured institutions are required to pay assessments to fund interest payments on bonds issued by the Financing

Corporation, which was established by the government to recapitalize a predecessor to the DIF.

These assessments continued until

the Financing Corporation bonds matured in September 2019.

The final assessment was collected on the March 2019 FDIC invoice.

FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance

fund and may initiate enforcement actions against a bank, after first giving the institution’s primary regulatory authority

an opportunity to take such action.

The FDIC may also terminate the deposit insurance of any institution that has engaged in or

is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable

law, order or condition imposed by the FDIC.

Reinvestment Act

Community Reinvestment Act (“CRA”) requires State Bank’s primary federal regulatory agency, the FRB, to assess

State Bank’s record in meeting the credit needs of the communities served by State Bank.

In July 2013, the United

States banking regulators issued new capital rules applicable to smaller banking organizations which also implement certain of

the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”).

Community banking organizations, including the

Company and State Bank, began transitioning to the new rules on January 1, 2015.

The new minimum capital requirements became effective

on January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phased in from January

1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015 through

January 1, 2019.

The Basel III Capital Rules include (a)

a minimum common equity tier 1 capital ratio of 4.5%, (b) a minimum Tier 1 capital ratio of 6.0%, (c) a minimum total capital

ratio of 8.0%, and (d) a minimum leverage ratio of 4.0%.

Common equity for the common equity tier

1 capital ratio generally includes common stock (plus related surplus), retained earnings, accumulated other comprehensive income

(unless an institution elects to exclude such income from regulatory capital), and limited amounts of minority interests in the

form of common stock, subject to applicable regulatory adjustments and deductions.

Tier 1 capital generally includes common

equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus,

cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not permitted

going forward), and limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included

in the total capital ratio, generally consists of other preferred stock and subordinated debt meeting certain conditions plus

limited amounts of the allowance for loan and lease losses, subject to specified eligibility criteria, less applicable deductions.

The deductions from common equity tier

1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels,

gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments

in the capital of unconsolidated financial institutions (above certain levels).

Under the guidelines, capital is compared

to the relative risk related to the balance sheet.

To derive the risk included in the balance sheet, one of several risk weights

is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty.

The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings

and other factors.

The Basel III Capital Rules also place

restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive

officers if the banking organization does not hold a capital conservation buffer of greater than 2.5 percent composed of common

equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that

quarter and its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter.

In September 2019, the FRB, along with

other federal bank regulatory agencies, issued a final rule, effective January 1, 2020, that gave community banks, including the

Company, the option to calculate a simple leverage ratio to measure capital adequacy if the community banks met certain requirements.

Under the rule, a community bank was eligible to elect the Community Bank Leverage Ratio (“CBLR”) framework if it had

less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a leverage

ratio greater than 9.0%.

Under the rule, a community bank is eligible to elect the Community Bank Leverage Ratio (“CBLR”)

framework if it had less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet

exposures, and a leverage ratio greater than 9.0%.

Qualifying institutions that elected to use the CBLR framework (each, a CBLR

Bank”) and that maintain a leverage ratio of greater than 9.0% will be considered to have satisfied the risk-based and leverage

capital requirements in the regulatory agencies’

generally applicable capital rules and to have met the well-capitalized ratio

requirements.

No CBLR Bank was required to calculate or report risk-based capital, and each CBLR Bank could opt out of the framework

at any time, without restriction, by reverting to the generally applicable risk-based capital rule.

Pursuant to the CARES Act,

on August 26, 2020, the federal banking agencies adopted a final rule that temporarily lowered the CBLR threshold and provides

a gradual transition back to the prior level.

Specifically, the CBLR threshold was reduced to 8.0% for the remainder of 2020,

increased to 8.5% for 2021, and will return to 9.0% beginning January 1, 2022.

This final rule became effective on October 1,

The Company does not intend to elect utilization of the CBLR in assessing capital adequacy and intends to continue to follow

existing capital rules.

In December 2018, the federal banking

agencies issued a final rule to address regulatory capital treatment of credit loss allowances under the current expected credit

loss (“CECL”) model (accounting standard).

The rule revises the federal banking agencies’

regulatory capital

rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide

banking organizations the option to phase in over three years the day-one adverse effects on regulatory capital that may result

from the adoption of the CECL model.

The Company currently anticipates recording a one-time cumulative effect adjustment upon

adoption, and does not anticipate utilizing the three year phase in.

The Company expects to maintain risk-based capital ratios

in excess of “well-capitalized”

after the impact of the one-time cumulative effect adjustment.

At December 31, 2020, State Bank was in

compliance with all of the regulatory capital requirements to which it was subject.

For State Bank’s capital ratios, see

Note 17 to the Consolidated Financial Statements under Item of 8 of this report (the “Consolidated Financial Statements”).

The FRB has adopted regulations governing

prompt corrective action to resolve the problems of capital deficient and otherwise troubled state-chartered member banks.

each successively lower defined capital category, a bank is subject to more restrictive and numerous mandatory or discretionary

regulatory actions or limits, and the FRB has less flexibility in determining how to resolve the problems of the institution.

In addition, the FRB generally can downgrade a bank’s capital category, notwithstanding its capital level, if, after notice

and opportunity for hearings, the bank is deemed to be engaged in an unsafe or unsound practice, because it has not corrected

deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is

deemed to be in an unsafe or unsound condition.

State Bank’s capital at December 31, 2020, met the standards for the highest

capital category, a “well-capitalized”

In April 2015, the FRB issued a final

rule which increased the size limitation for qualifying bank holding companies under the FRB’s Small Bank Holding Company

Policy Statement from $500 million to $1 billion of total consolidated assets.

In August 2018, the FRB issued an interim final

rule, as required by the Economic Growth Regulatory Relief, and consumer Protection Act of 2018, to further increase size limitations

under the Small Bank Holding Company Policy Statement to $3 billion of total consolidated assets.

The Company continues to qualify

under the Small Bank Holding Company Policy Statement for exemption from the FRB’s consolidated risk-based capital and leverage

rules at the holding company level.

Federal Deposit Insurance Corporation

The Federal Deposit Insurance Corporation

(“FDIC”) is an independent federal agency, which insures the deposits of federally insured banks and savings associations

up to certain prescribed limits and safeguards the safety and soundness of financial institutions.

The general insurance limit

is $250,000 per separately insured depositor.

This insurance is backed by the full faith and credit of the United States Government.

As insurer, the FDIC is authorized to

conduct examinations of and to require reporting by insured institutions, including State Bank, to prohibit any insured institution

from engaging in any activity the FDIC determines to pose a threat to the Deposit Insurance Fund (“DIF”), and to take

enforcement actions against insured institutions.

The FDIC may terminate insurance of deposits of any institution if the FDIC

finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition or has violated any

applicable law, regulation, rule, order or condition imposed by the FDIC or other regulatory agency.

The FDIC assesses a quarterly deposit

insurance premium on each insured institution based on risk characteristics of the institution and may also impose special assessments

in emergency situations, which fund the DIF.

Pursuant to the Dodd-Frank Act, the FDIC has established 2 percent as the Designated

Reserve Ratio (“DRR”), which is the amount in the DIF as a percentage of all DIF insured deposits.

In March 2016,

the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35 percent by September 30, 2020, the deadline imposed

by the Dodd-Frank Act.

The Dodd-Frank Act requires the FDIC to offset the effect on insured institutions with assets of less than

$10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%.

Although the FDIC’s

rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets of $10 billion or more to be paid until

the DRR reached 1.35%.The DRR met the statutory minimum of 1.35% on September 30, 2018.

As a result, the previous surcharge imposed

on banks with assets of $10 billion or more was lifted.

In addition, preliminary assessment credits have been determined by the

FDIC for banks with assets of less than $10 billion, which had previously contributed to the increase of the DRR to 1.35%.

June 30, 2019, the DRR reached 1.40%, and the FDIC applied credits for banks with assets of less than $10 billion (“small

bank credits”) beginning September 30, 2019.

The FDIC will continue to apply small bank credits so long as the DRR is at

State Bank utilized its $0.2 million assessment credit during the [third and fourth quarters of 2019].

The FDIC rules

further changed the method of determining risk-based assessment rates for established banks with less than $10 billion in assets

to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk.

The FDIC is authorized to prohibit any

insured institution from engaging in any activity that poses a serious threat to the insurance fund and may initiate enforcement

actions against a bank, after first giving the institution’s primary regulatory authority an opportunity to take such action.

The FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices,

is in an unsafe or unsound condition to continue operations or has violated any applicable law, order or condition imposed by

Community Reinvestment Act

The Community Reinvestment Act (“CRA”)

requires State Bank’s primary federal regulatory agency, the FRB, to assess State Bank’s record in meeting the credit

needs of the communities served by State Bank.

The FRB assigns one of four ratings:

outstanding, satisfactory;

needs to improve or substantial noncompliance.

The rating assigned to a financial institution is considered

in connection with various applications submitted by the financial institution or its holding company to its banking regulators,

including applications to acquire another financial institution or to open or close a branch office.

In addition, all subsidiary

banks of a financial holding company must maintain a satisfactory or outstanding rating in order for the financial holding company

to avoid limitations on its activities.

needs to improve

or substantial noncompliance.

The rating assigned to a financial institution is considered in connection with various applications

submitted by the financial institution or its holding company to its banking regulators, including applications to acquire another

financial institution or to open or close a branch office.

In addition, all subsidiary banks of a financial holding company must

maintain a satisfactory or outstanding rating in order for the financial holding company to avoid limitations on its activities.

State Bank currently maintains a satisfactory CRA rating.

and NASDAQ Regulation

Company is subject to the jurisdiction of the Securities and Exchange Commission (the “SEC”) and certain state securities

authorities relating to the offering and sale of its securities.

The Company is subject to the registration, reporting and other

regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange

Act”), and the rules adopted by the SEC under those acts.

The Company’s common shares are listed on The NASDAQ Capital

Market (“NASDAQ”) under the symbol “SBFG”.

As a result, the Company is subject to NASDAQ rules and regulations

applicable to listed companies.

SEC has adopted rules and regulations governing, among other matters, corporate governance, auditing and accounting, executive

compensation, and enhanced and timely disclosure of corporate information.

The SEC has also approved corporate governance rules

promulgated by NASDAQ.

The Company has adopted and implemented a Code of Conduct and Ethics and a copy of that policy can be found

on the Company’s website at www.YourSBFinancial.com by first clicking “Corporate Governance”

and then “Code

of Conduct”.

The Company has also adopted charters of the Audit Committee, the Compensation Committee and the Governance

and Nominating Committee, which charters are available on the Company’s website at www.YourSBFinancial.com by first clicking

“Corporate Governance”

SEC and NASDAQ Regulation

The Company is subject to the jurisdiction

of the Securities and Exchange Commission (the “SEC”) and certain state securities authorities relating to the offering

and sale of its securities.

The Company is subject to the registration, reporting and other regulatory requirements of the Securities

Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules adopted

by the SEC under those acts.

The Company’s common shares are listed on The NASDAQ Capital Market (“NASDAQ”)

under the symbol “SBFG”.

As a result, the Company is subject to NASDAQ rules and regulations applicable to listed

The SEC has adopted rules and regulations

governing, among other matters, corporate governance, auditing and accounting, executive compensation, and enhanced and timely

disclosure of corporate information.

The SEC has also approved corporate governance rules promulgated by NASDAQ.

The Company has

adopted and implemented a Code of Conduct and Ethics and a copy of that policy can be found on the Company’s website at

www.YourSBFinancial.com by first clicking “Corporate Governance”

and then “Code of Conduct”.

has also adopted charters of the Audit Committee, the Compensation Committee and the Governance and Nominating Committee, which

charters are available on the Company’s website at www.YourSBFinancial.com by first clicking “Corporate Governance”

and then “Supplementary Info”.

Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the

“Patriot Act”) gives the United States Government greater powers over financial institutions to combat money laundering

and terrorist access to the financial system in our country.

The Patriot Act requires regulated financial institutions to establish

programs for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence

policies, procedures and controls designed to detect and report suspicious activity.

of Foreign Assets Control Regulation

Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade

sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries,

nationals and others.

OFAC publishes lists of specially designated targets and countries.

State Bank is responsible for, among

other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial

transactions with them and reporting blocked transactions after their occurrence.

Failure to comply with these sanctions could

have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve

merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not

Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to

be violating these obligations.

and Incentive Compensation

June 2010, the Federal Reserve Board, the Office of the Controller of the Currency (“OCC”) and the FDIC issued joint

interagency guidance on incentive compensation policies (the “Joint Guidance”) intended to ensure that the incentive

compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging

excessive risk-taking.

This principles-based guidance, which covers all employees that have the ability to materially affect the

risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s

incentive compensation arrangements should (a) provide incentives that do not encourage risk-taking beyond the organization’s

ability to effectively identify and manage risks, (b) be compatible with effective internal controls and risk management and (c)

be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

2011, federal banking regulatory agencies jointly issued proposed rules on incentive-based compensation arrangements under applicable

provisions of the Dodd-Frank Act (the “First Proposed Rules”).

The First Proposed Rules generally would have applied

to financial institutions with $1 billion or more in assets that maintain incentive-based compensation arrangements for certain

covered employees.

In May 2016, the federal bank regulatory agencies approved a second joint notice of proposed rules (the “Second

Proposed Joint Rules”) designed to prohibit incentive-based compensation arrangements that encourage inappropriate risks

at financial institutions.

The Second Proposed Joint Rules would apply to covered financial institutions with total assets of

$1 billion or more, and are still in proposed rule status.

The requirements of the Second Proposed Joint Rules would differ for

each of three categories of financial institutions:

1 consists of institutions with assets of $250 billion or more;

2 consists of institutions with assets of at least $50 billion and less than $250 billion;

3 consists of institutions with assets of at least $1 billion and less than $50 billion.

of the requirements would apply only to Level 1 and Level 2 institutions.

For all covered institutions, including Level 3 institutions

like us, the Second Proposed Rules would:

incentive-based compensation arrangements that are “excessive”

or “could

lead to material financial loss”;

incentive-based compensation that is consistent with a balance of risk and reward, effective

management and control of risk, and effective governance;

board oversight, recordkeeping and disclosure to the appropriate regulatory agency.

1 and Level 2 institutions would have additional requirements, including deferrals of awards to certain covered persons;

downward adjustments, forfeitures or clawbacks;

and additional risk-management and control standards, policies and procedures.

In addition, certain practices and types of incentive compensation would be prohibited.

company compensation committee members must meet heightened independence requirements and consider the independence of compensation

consultants, legal counsel and other advisors to the compensation committee.

A compensation committee must have the authority

to hire advisors and to have the public company fund reasonable compensation of such advisors.

regulations require public companies to provide various disclosures about executive compensation in annual reports and proxy statements

and to present to their shareholders a non-binding vote on the approval of executive compensation.

companies will be required, once stock exchanges impose additional listing requirements under the Dodd-Frank Act, to implement

“clawback”

procedures for incentive compensation payments and to disclose the details of the procedures which allow

recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating a restatement due

to material noncompliance with financial reporting requirements.

This clawback policy is intended to apply to compensation paid

within a three-year look-back window of the restatement and would cover all executives who received incentive awards.

Protection Laws and Regulations

are subject to regular examination to ensure compliance with federal consumer protection statutes and regulations, including,

but not limited to, the following:

Equal Credit Opportunity Act (prohibiting discrimination in any credit transaction on

the basis of any of various criteria);

Truth in Lending Act (requiring that credit terms are disclosed in a manner that permits

a consumer to understand and compare credit terms more readily and knowledgeably);

Fair Housing Act (making it unlawful for a lender to discriminate in housing-related

lending activities against any person on the basis of certain criteria);

Home Mortgage Disclosure Act (requiring financial institutions to collect data that enables

regulatory agencies to determine whether financial institutions are serving the housing

credit needs of the communities in which they are located);

Real Estate Settlement Procedures Act (requiring that lenders provide borrowers with

disclosures regarding the nature and cost of real estate settlements and prohibits abusive

practices that increase borrowers’

provisions of the Gramm-Leach-Bliley Act (requiring financial institutions to establish

policies and procedures to restrict the sharing of non-public customer data with non-affiliated

parties and to protect customer information from unauthorized access).

banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with

respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of a specific banking

or consumer finance law.

October 2017, the CFPB issued a final rule (the “Payday Rule”) to establish regulations for payday loans, vehicle

title loans, and certain high-cost installment loans.

The Payday Rule addressed two discrete topics.

First, it contained a set

of provisions with respect to the underwriting of certain covered loans and related reporting and recordkeeping requirements (the

“Mandatory Underwriting Provisions”).

Second, it contained a set of provisions establishing certain requirements and

limitations with respect to attempts to withdraw payments from consumers’

checking or other accounts and related recordkeeping

requirements (the “Payment Provisions”).

The Payday Rule became effective on January 16, 2018.

However, most provisions

had a compliance date of August 19, 2019.

February 6, 2019, the CFPB proposed delaying the August 19, 2019, compliance date for the Mandatory Underwriting Provisions to

November 19, 2020.

The CFPB proposed in a separate notice to rescind the Mandatory Underwriting Provisions.

June 6, 2019, the CFPB issued a final rule delaying the compliance date for most Mandatory Underwriting Provisions until November

However, the final rule did not delay the compliance date for the Payment Provisions.

Company does not currently expect the Payday Rule to have a material effect on the Company’s financial condition or results

of operations on a consolidated basis.

USA Patriot Act

The Uniting and Strengthening of America

by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”) gives

the United States government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance

powers, increased information sharing and broadened anti-money laundering requirements.

Title III of the Patriot Act encourages

information sharing among bank regulatory agencies and law enforcement bodies.

Further, certain provisions of Title III impose

affirmative obligations on a broad range of financial institutions.

Among other requirements, Title III and related regulations

require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from

customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect

and report suspicious activity.

State Bank has established policies and procedures that State Bank believes comply with the requirements

of the Patriot Act.

Office of Foreign Assets Control Regulation

Treasury Department’s Office

of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign

countries and regimes, under authority of various laws, including designated foreign countries, nationals and others.

OFAC publishes

lists of specially designated targets and countries.

State Bank is responsible for, among other things, blocking accounts of,

and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting

blocked transactions after their occurrence.

Failure to comply with these sanctions could have serious financial, legal and reputational

consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when

regulatory approval is required or to prohibit such transactions even if approval is not required.

Regulatory authorities have

imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

Executive and Incentive Compensation

The Dodd-Frank Act requires that the federal

banking agencies, including the FRB and the FDIC, issue a rule related to incentive-based compensation.

No final rule implementing

this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a

proposed rule was published in 2016 that expanded upon a prior proposed rule published in 2011.

The proposed rule is intended

(i) prohibit incentive-based payment arrangements that the banking agencies determine could encourage certain financial institutions

to take inappropriate risks by providing excessive compensation or that could lead to material financial loss;

(ii) require the

board of directors of those financial institutions to take certain oversight actions related to incentive-based compensation;

and (iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to

the appropriate federal regulator.

Although a final rule has not been issued, the Company has undertaken efforts to ensure that

the Company’s incentive compensation plans do not encourage inappropriate risks, consistent with the principles identified

above.Public company compensation committee members must meet heightened independence requirements and consider the independence

of compensation consultants, legal counsel and other advisors to the compensation committee.

A compensation committee must have

the authority to hire advisors and to have the public company fund reasonable compensation of such advisors.

SEC regulations require public companies

to provide various disclosures about executive compensation in annual reports and proxy statements and to present to their shareholders

a non-binding vote on the approval of executive compensation.

Public companies will be required, once

stock exchanges impose additional listing requirements under the Dodd-Frank Act, to implement “clawback”

for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation

that was paid on the basis of erroneous financial information necessitating a restatement due to material noncompliance with financial

reporting requirements.

This clawback policy is intended to apply to compensation paid within a three-year look-back window of

the restatement and would cover all executives who received incentive awards.

Consumer Protection Laws and Regulations

Banks are subject to regular examination

to ensure compliance with federal consumer protection statutes and regulations, including, but not limited to, the following:

● The Equal Credit Opportunity

Act (prohibiting discrimination in any credit transaction on the basis of any of various

● The Truth in Lending Act

(requiring that credit terms are disclosed in a manner that permits a consumer to understand

and compare credit terms more readily and knowledgeably);

● The Fair Housing Act (making

it unlawful for a lender to discriminate in housing-related lending activities against

any person on the basis of certain criteria);

● The Home Mortgage Disclosure

Act (requiring financial institutions to collect data that enables regulatory agencies

to determine whether financial institutions are serving the housing credit needs of the

communities in which they are located);

● The Real Estate Settlement

Procedures Act (requiring that lenders provide borrowers with disclosures regarding the

nature and cost of real estate settlements and prohibits abusive practices that increase

borrowers’

● Privacy provisions of the

Gramm-Leach-Bliley Act (requiring financial institutions to establish policies and procedures

to restrict the sharing of non-public customer data with non-affiliated parties and to

protect customer information from unauthorized access).

The banking regulators also use their

authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive

acts or practices by banks that may not necessarily fall within the scope of a specific banking or consumer finance law.

Cybersecurity

March 2015, federal regulators issued two related statements regarding cybersecurity.

One statement indicates that financial institutions

should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management

processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate

customers accessing Internet-based services of the financial institution.

The other statement indicates that a financial institution’s

management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption

and maintenance of the financial institution’s operations after a cyber attack involving destructive malware.

institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding

network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type

of cyber-attack.

If State Bank fails to observe the regulatory guidance, it could be subject to various regulatory sanctions,

including financial penalties.

February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity

risks and incidents.

These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements

under state and federal banking law and regulations.

regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.

Recently, several

states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed

requirements with respect to these programs, including data encryption requirements.

Many states have also recently implemented

or modified their data breach notification and data privacy requirements.

The Company expects this trend of state-level activity

in those areas to continue, and is continually monitoring developments in the states in which our customers are located.

the ordinary course of business, the Company relies on electronic communications and information systems to conduct its operations

and to store sensitive data.

The Company employs an in-depth, layered, defensive approach that leverages people, processes and

technology to manage and maintain cybersecurity controls.

The Company employs a variety of preventative and detective tools to

monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats.

The Company has also invested over the last eighteen months to further enhance these tools and mechanisms.

Notwithstanding the

strength of the Company’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing

in volume, and attackers respond rapidly to changes in defensive measures.

While to date, the Company has not detected a significant

compromise, significant data loss or any material financial losses related to cybersecurity attacks, Company’s systems and

those of its customers and third-party service providers are under constant threat and it is possible that the Company could experience

a significant event in the future.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable

future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet

banking, mobile banking and other technology-based products and services by us and our customers.

of Environmental Regulation

with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to

the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position

of the Company and its subsidiaries.

The Company believes that the nature of the operations of its subsidiaries has little, if

any, environmental impact.

The Company, therefore, anticipates no material capital expenditures for environmental control facilities

for its current fiscal year or for the near future.

The Company’s subsidiaries may be required to make capital expenditures

for environmental control facilities related to properties which they may acquire through foreclosure proceedings in the future;

however, the amount of such capital expenditures, if any, is not currently determinable.

OF ASSETS, LIABILITIES AND SHAREHOLDERS’

RATES AND INTEREST DIFFERENTIAL

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

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

In March 2015, federal regulators issued

two related statements regarding cybersecurity.

One statement indicates that financial institutions should design multiple layers

of security controls to establish several lines of defense and to ensure that their risk management processes also address the

risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based

services of the financial institution.

The other statement indicates that a financial institution’s management is expected

to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the

financial institution’s operations after a cyber-attack involving destructive malware.

A financial institution is also expected

to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities

and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack.

State Bank fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial

In February 2018, the SEC published interpretive

guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.

These SEC guidelines, and

any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law

and regulations.

State regulators have also been increasingly

active in implementing privacy and cybersecurity standards and regulations.

Recently, several states have adopted regulations

requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect

to these programs, including data encryption requirements.

Many states have also recently implemented or modified their data breach

notification and data privacy requirements.

The Company expects this trend of state-level activity in those areas to continue,

and is continually monitoring developments in the states in which our customers are located.

In the ordinary course of business, the

Company relies on electronic communications and information systems to conduct its operations and to store sensitive data.

Company employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain

cybersecurity controls.

The Company employs a variety of preventative and detective tools to monitor, block, and provide alerts

regarding suspicious activity, as well as to report on any suspected advanced persistent threats.

The Company has also invested

over the last eighteen months to further enhance these tools and mechanisms.

Notwithstanding the strength of the Company’s

defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers

respond rapidly to changes in defensive measures.

While to date, the Company has not detected a significant compromise, significant

data loss or any material financial losses related to cybersecurity attacks, Company’s systems and those of its customers

and third-party service providers are under constant threat and it is possible that the Company could experience a significant

event in the future.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future

due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking,

mobile banking and other technology-based products and services by us and our customers.

Effect of Environmental Regulation

Compliance with federal, state and local

provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment,

has not had a material effect upon the capital expenditures, earnings or competitive position of the Company and its subsidiaries.

The Company believes that the nature of the operations of its subsidiaries has little, if any, environmental impact.

therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for

the near future.

The Company’s subsidiaries may be required to make capital expenditures for environmental control facilities

related to properties which they may acquire through foreclosure proceedings in the future;

however, the amount of such capital

expenditures, if any, is not currently determinable.

Human Capital Resources

At December 31, 2020, we employed 244

full time equivalent employees.

Approximately 69% of our team are female with an average tenure for our entire team of 8.80 years.

The success of our business is highly dependent on our team members, who provide value to our customers and communities through

their dedication to our Value Proposition –

“Your lifetime provider of convenient and innovative financial services,

delivered by a passionate and caring staff”.

We seek to hire a well-qualified team who are a good fit for our organization,

and our selection and promotion processes are without bias and include the active recruitment of minorities and women.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’

INTEREST RATES AND INTEREST DIFFERENTIAL

The following are the condensed

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

interest rate, on each asset and liability:

($ in thousands)

Taxable securities

securities/cash

Non-taxable securities

1 unchanged sentence

Cash and due from banks

Allowance for loan losses

Allowance for loan

Premises and equipment

Savings and interest-bearing demand deposits

Savings and interest-bearing

demand deposits

Time deposits

Repurchase agreements & other

Repurchase agreements

Advances from FHLB

Trust preferred securities

Total interest-bearing liabilities

preferred securities

Total interest-bearing

Demand deposits

Other liabilities

Total liabilities

Shareholders’

Total liabilities and shareholders’

Net interest income (tax equivalent

Net interest income as a percent of average interest-earning

Total liabilities

and shareholders’

interest income (tax equivalent basis)

Net interest income

as a percent of average interest-earning

assets - GAAP measure

1 unchanged sentence

Computed on a fully tax equivalent basis (FTE)

1 Nonaccruing loans and loans held for sale are

included in the average balances.

2 Interest on tax exempt securities is computed

on a tax equivalent basis using a 21 (2019/2018) and 34 percent (2017) statutory tax

rate, and added to the net interest income.

The tax equivalent adjustment was $0.07,

$0.17 and $0.27 million in 2019, 2018 and 2017, respectively.

3 Interest on tax exempt loans is computed on a

tax equivalent basis using a 21 (2019/2018) and 34 percent (2017) statutory tax rate,

and added to the net interest income.

The tax equivalent adjustment was $0.06, $0.03

and $0.04 million in 2019, 2018 and 2017, respectively.

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

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

1 Nonaccruing loans and loans held for sale are included

in the average balances.

2 Interest on tax exempt securities and loans is computed

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

The tax equivalent adjustment

was $0.15, $0.17 and $0.14 million in 2020, 2019 and 2018, respectively.

The following tables set forth

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

For purposes of these tables, changes

in interest due to volume and rate were determined as follows:

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

20 unchanged sentences

Net interest income

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

fair value of securities available-for-sale as of December 31 in each of the following

years are summarized as follows:

1 Interest on non-taxable securities and loans has been

adjusted to fully tax equivalent

INVESTMENT PORTFOLIO

The fair value of securities available-for-sale as of December 31 in each of the following years

are summarized as follows:

($ in thousands)

2 unchanged sentences

State and political subdivisions

Equity securities

maturity distribution and weighted-average interest rates of securities available-for-sale

Other corporate securities

The maturity distribution and weighted-average interest rates of securities available-for-sale

at December 31, 2020, are set forth in the table below.

The weighted-average interest

rates are based on coupon rates for securities purchased at par value and on effective

interest rates considering amortization or accretion if the securities were purchased

at a premium or discount:

The weighted-average interest rates are based on coupon rates for securities

purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at

a premium or discount:

($ in thousands)

After One Year but within Five Years

After Five Years but within Ten Years

Treasury and government agencies

1 unchanged sentence

State and political subdivisions

Other corporate securities

Total securities by maturity

Weighted-average yield by maturity 1

are presented on a tax-equivalent basis.

those holdings of the investment portfolio in U.S.

1 Yields are presented on a tax-equivalent basis.

Excluding those holdings of the investment portfolio in U.S.

Treasury securities and other agencies

Government, there were no other securities of any one issuer, which exceeded

10 percent of the shareholders’

equity of the Company at December 31, 2019.

Total loans on the balance sheet were comprised of the following classifications

at December 31 for the years indicated:

Government, there were no other securities of any one issuer, which exceeded 10 percent of the shareholders’

of the Company at December 31, 2020.

LOAN PORTFOLIO

Types of Loans :

Total loans on the balance sheet

were comprised of the following classifications at December 31 for the years indicated:

($ in thousands)

Loans held for investment (HFI)

Commercial Business & Agricultural

Commercial RE & Construction

Commercial business and agricultural

Commercial real estate

Residential real estate

Consumer & Other

Consumer & other loans

Unearned income

Total loans, net of unearned income

Concentrations

of Credit Risk :

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

region of Ohio, Indiana and Michigan.

Commercial loans include loans collateralized by commercial real estate, business assets

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

of businesses.

As of December 31, 2019, commercial business and agricultural loans made up approximately 24.5 percent of the loans

held for investment (“HFI”) loan portfolio while commercial real estate loans accounted for approximately 44.5 percent

of the HFI loan portfolio.

As of December 31, 2019, residential first mortgage loans made up approximately 23.4 percent of the

HFI loan portfolio and are secured by first mortgages on residential real estate, while consumer loans to individuals made up

approximately 7.6 percent of the HFI loan portfolio and are primarily secured by consumer assets.

and Sensitivities of Loans to Changes in Interest Rates:

The following tables shows

the amounts of commercial, business and agricultural loans and commercial real estate

loans outstanding as of December 31, 2019, which, based on remaining scheduled repayments

of principal, are due in the periods indicated.

Also, the amounts have been classified

according to sensitivity to changes in interest rates for loans due after one year (variable-rate

loans are those loans with floating or adjustable interest rates).

Concentrations of Credit Risk :

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

and Michigan.

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

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

As of December

31, 2020, commercial business and agricultural loans made up approximately 29.6 percent of the loans held for investment (“HFI”)

loan portfolio while commercial real estate loans accounted for approximately 42.5 percent of the HFI loan portfolio.

first mortgage loans made up approximately 20.9 percent of the HFI loan portfolio and are secured by first mortgages on residential

real estate, while consumer loans to individuals made up approximately 7.0 percent of the HFI loan portfolio and are primarily

secured by consumer assets.

Maturities and Sensitivities of Loans to Changes in Interest Rates:

The following tables

show the amounts of commercial, business and agricultural loans and commercial real estate loans outstanding as of December 31,

2020, which, based on remaining scheduled repayments of principal, are due in the periods indicated.

Also, the amounts have been

classified according to sensitivity to changes in interest rates for loans due after one year (variable-rate loans are those loans

with floating or adjustable interest rates).

($ in thousands)

Business & Ag.

Within one year

After one year but within five years

After five years

After one year but

within five years

Interest Sensitivity

11 unchanged sentences

Due after five years

accrual of interest income is discontinued when the collection of a loan or interest,

in whole or in part, is doubtful.

When interest accruals are discontinued, interest income

accrued in the current period is reversed.

Loans that are past due 90 days or more as

to interest or principal payments are considered for nonaccrual status.

The following

schedule summarizes nonaccrual, past due, and troubled debt restructured (TDR) loans

at December 31 for the years indicated:

Risk Elements:

The accrual of interest income is discontinued when the

collection of a loan or interest, in whole or in part, is doubtful.

When interest accruals are discontinued, interest income accrued

in the current period is reversed.

Loans that are past due 90 days or more as to interest or principal payments are considered

for nonaccrual status.

The following schedule summarizes nonaccrual, past due, and troubled debt restructured (TDR) loans at December

31 for the years indicated:

($ in thousands)

2 unchanged sentences

Total nonperforming loans and TDRs

below is the interest income on impaired and nonaccrual loans greater than $100,000 at December 31 for the years indicated:

Listed below is the interest

income on impaired and nonaccrual loans greater than $100,000 at December 31 for the years indicated:

($ in thousands)

2 unchanged sentences

Unrecorded interest income on nonaccrual loans

of December 31, 2019, in addition to the $6.4 million of nonperforming loans reported

under Item III.C above (whose amount includes all loans classified by management as doubtful

or loss), there were approximately $3.7 million in other outstanding loans where known

information about possible credit problems of the borrowers caused management to have

concerns as to the ability of such borrowers to comply with the present loan repayment

terms (loans classified as substandard by management) and which may result in disclosure

of such loans pursuant to Item III.C.1.

As of December 31, 2020, in addition to the $7.2 million of nonperforming loans reported under

Item III.C above (which amount includes all loans classified by management as doubtful or loss), there were approximately $12.0

million in other outstanding loans where known information about possible credit problems of the borrowers caused management to

have concerns as to the ability of such borrowers to comply with the present loan repayment terms (loans classified as substandard

by management) and which may result in disclosure of such loans pursuant to Item III.C.1.

at some future date.

In regard to loans classified

as substandard, management believes that such potential problem loans have been adequately

evaluated in the allowance for loan losses.

Loans Outstanding

Concentrations

December 31, 2019, loans outstanding related to agricultural operations or collateralized by agricultural real estate and equipment

aggregated approximately $51.0 million, or 6.2 percent of total HFI loans.

Interest-Bearing Assets

were no other interest-bearing assets as of December 31, 2019, which would be required to be disclosed under Item III.C.1 or Item

if such assets were loans.

believes the allowance for loan losses at December 31, 2019 was adequate to absorb any losses on nonperforming loans, as the allowance

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

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

values, and other factors and estimates which are subject to change over time.

OF LOAN LOSS EXPERIENCE

following schedule presents an analysis of the allowance for loan losses, average loan

data and related ratios at December 31 for the years indicated:

In regard to loans

classified as substandard, management believes that such potential problem loans have been adequately evaluated in the allowance

for loan losses.

Foreign Loans Outstanding

Loan Concentrations

At December 31, 2020, loans

outstanding related to agricultural operations or collateralized by agricultural real estate and equipment aggregated approximately

$55.2 million, or 6.3 percent of total HFI loans.

Other Interest Bearing Assets

There were no other interest

bearing assets as of December 31, 2020, which would be required to be disclosed under Item III.C.1 or Item III.C.2.

if such assets

Management believes the allowance

for loan losses at December 31, 2020 was adequate to absorb any losses on nonperforming loans, as the allowance balance is maintained

by management at a level considered adequate to cover losses that are probable based on past loss experience, general economic

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

factors and estimates which are subject to change over time.

SUMMARY OF LOAN LOSS EXPERIENCE

The following schedule presents an analysis of the allowance

for loan losses, average loan data and related ratios at December 31 for the years indicated:

($ in thousands)

17 unchanged sentences

Ratio of net charge offs to average loans

allowance for loan losses balance and the provision for loan losses are determined by management based upon periodic reviews of

the loan portfolio.

In addition, management considers the level of charge offs on loans, as well as the fluctuations of charge

offs and recoveries on loans, in the factors which caused these changes.

Estimating the risk of loss and the amount of loss is

necessarily subjective.

Accordingly, the allowance is maintained by management at a level considered adequate to cover losses

that are currently anticipated based on past loss experience, economic conditions, information about specific borrower situations,

including their financial position and collateral values, and other factors and estimates which are subject to change over time.

following schedule provides a breakdown of the allowance for loan losses allocated by

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

Allowance Amount