What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-08 compared with 2020-03-06 · 818 added, 638 removed, 1210 unchanged (55% of the section changed)

Financial Statements and Supplementary Data.

Financial Statements and

Supplementary Data.

Our Consolidated Financial Statements and notes thereto and

2 unchanged sentences

Consolidated Balance Sheets

at December 31,

($ in thousands)

Cash and due from banks

Interest bearing time deposits

Available-for-sale securities

6 unchanged sentences

Interest receivable

Goodwill and other intangibles

Cash value of life insurance

15 unchanged sentences

authorized 200,000 shares;

2019 - 0 shares outstanding, 2018 - 14,995 shares

2020 - 0 shares outstanding, 2019 -

0 shares outstanding

Common stock, no par value;

4 unchanged sentences

Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Treasury stock, at cost;

3 unchanged sentences

Total liabilities and shareholders’

Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

20 unchanged sentences

Net gain on sale of securities

Gain (loss) on sale/disposal of assets

Total noninterest income

18 unchanged sentences

Diluted earnings per common share

Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

4 unchanged sentences

Available for sale investment securities:

Gross unrealized holding gain (loss) arising in the period

Related tax (expense) benefit

Gross unrealized holding gain arising in the period

Related tax expense

reclassification adjustment for gain realized in income

2 unchanged sentences

Total comprehensive income

Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

6 unchanged sentences

Other comprehensive income

Conversion of preferred to common

Stock reissue for purchase of Peak Title

Dividends on common, $0.40 per share

Dividends on preferred, $0.65 per share

Restricted stock vesting

1 unchanged sentence

Repurchased stock

Stock based compensation

Stock based compensation expense

December 31, 2020

Comprehensive

($ in thousands,

except per share data)

($ in thousands, except per share data)

Income (Loss)

January 1, 2019

Other comprehensive

Common stock issuance

(1,666,666 shares)

Conversion of preferred

Other comprehensive income

Conversion of preferred to common

Stock reissue for purchase of Peak Title

Dividends on common, $0.36 per share

3 unchanged sentences

Repurchased stock

based compensation expense

Balance, December

Notes to Consolidated Financial Statements

Stock based compensation expense

December 31, 2019

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

3 unchanged sentences

Operating Activities

Items not requiring (providing) cash

and amortization

Provision for

Items not requiring

(providing) cash

Depreciation and amortization

Provision for loan

Expense of share-based

compensation plan

of premiums and discounts on securities

of intangible assets

of originated mortgage servicing rights

Impairment of

Amortization of premiums

and discounts on securities

Amortization of intangible

Amortization of originated

mortgage servicing rights

Deferred income

Proceeds from

sale of loans held for sale

Impairment of mortgage

servicing rights

Deferred income taxes

Proceeds from sale

of loans held for sale

Gain from sale

Loss (gain) on

sales of assets

sales of securities

Originations of loans

held for sale

Gain from sale of loans

Loss (gain) on sales

Net gains on sales

of securities

Interest receivable

payable & other liabilities

Net cash provided

by operating activities

Investing Activities

available-for-sale securities

Proceeds from

maturities of available-for-sale securities

Proceeds from

sales of available-for-sale securities

Proceeds from

sales of portfolio loans

Net change in

cash provided by operating activities

Purchases of available-for-sale

Proceeds from maturities

of interest bearing time deposits

Proceeds from maturities

of available-for-sale securities

Proceeds from sales

of available-for-sale securities

Proceeds from sales

of portfolio loans

Net change in loans

Purchase of premises,

Proceeds from

sales of premises, equipment

Purchase of bank

owned life insurance

Proceeds from sales

of premises, equipment

Purchase of bank owned

life insurance

Purchase of Federal

Reserve and Federal Home Loan Bank Stock

Proceeds from

sale of foreclosed assets

Proceeds from sale

of foreclosed assets

net of cash acquired

Net cash used

in investing activities

Financing Activities

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

in certificates of deposit

(decrease) in securities sold under agreements to repurchase

Proceeds from

Federal Home Loan Bank advances

from share-based compensation plans

Stock repurchase

cash used in investing activities

Net increase in demand

deposits, money market, interest checking & savings accounts

Net increase (decrease)

in time deposits

Net increase (decrease)

in securities sold under agreements to repurchase

Repayment of Federal

Home Loan Bank advances

Net proceeds from share-based

compensation plans

Stock repurchase plan

Issuance of common shares

Conversion of

preferred stock

common shares

Conversion of preferred

Dividends on common

on preferred shares

Net cash provided

by financing activities

Increase (decrease) in cash and cash

Cash and cash

equivalents, beginning of year

Cash and cash equivalents,

Supplemental cash

flow information

cash provided by financing activities

Increase (decrease)

in cash and cash equivalents

and cash equivalents, beginning of year

and cash equivalents, end of year

cash flow information

Interest paid

Fair value of

assets acquired - premises and equipment

Supplemental non-cash

Income taxes paid

Fair value of assets

acquired - premises and equipment (Peak Title)

non-cash disclosure

Initial recognition

of right-of-use lease assets

Transfer of loans

to loans held for sale

Transfer of loans

to foreclosed assets

Transfer of loans

to premises and equipment

Notes to Consolidated Financial Statements

Transfer of loans to

loans held for sale

Transfer of loans to

foreclosed assets

conjunction with the Edon acquisition, liabilities assumed were:

Fair value of assets acquired

paid in acquisition

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

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The Company determines deferred income taxes using the liability (or balance sheet) method.

Under this method,

the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets

and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax

expense results from changes in deferred tax assets and liabilities between periods.

Deferred tax assets are reduced by a valuation

allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax

asset will not be realized.

Under this method, the

net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and

liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense

results from changes in deferred tax assets and liabilities between periods.

Deferred tax assets are reduced by a valuation allowance

if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will

not be realized.

tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized

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The term more likely than not means a likelihood of more than 50 percent;

the term “upon

examination”

the term “upon examination”

also includes resolution of the related appeals or litigation processes, if any.

A tax position that meets

the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that

has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of

all relevant information.

The determination of whether or not a tax position has met the more-likely-than-not recognition threshold

considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

A tax position that meets the more-likely-than-not

recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent

likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.

The determination

of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and

information available at the reporting date and is subject to management’s judgment.

Company recognizes interest and penalties on income taxes as a component of income tax expense.

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Federal, State and Local examinations by tax authorities for the years before 2017.

As of December 31, 2019, the Company

had no uncertain income tax positions.

Company uses the specific identification (or portfolio) method for reclassifying material stranded tax effects in Accumulated Other

Consolidated Income (“AOCI”) to earnings.

As of December 31, 2020, the Company had

no uncertain income tax positions.

Treasury stock is stated at cost.

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Other comprehensive income includes unrealized appreciation (depreciation)

on available-for-sale securities, and unrealized and realized gains and losses in derivative financial instruments that qualify

for hedge accounting.

AOCI consists solely of the cumulative unrealized gains and losses on available-for-sale securities net of

on available-for-sale securities.

AOCI consists solely of the cumulative unrealized gains and losses on available-for-sale securities

net of income tax.

Revenue Recognition

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New and applicable accounting pronouncements:

Stock Compensation (Topic 718)

This ASU expands the scope of

Topic 718, to include share-based payments issued to nonemployees for goods or services.

Consequently, the accounting for share-based

payments to nonemployees and employees will be substantially aligned.

This ASU supersedes Subtopic 505-50, Equity-Based Payments

to Non-Employees.

The amendments in this ASU became effective for periods beginning after December 15, 2018.

At this time, the

Company does not have any share-based payments to nonemployees.

and Hedging (Topic 815)

This ASU improves the financial

reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its

financial statements.

The ASU also makes targeted improvements to simplify the application of the hedge accounting guidance.

amendments in this ASU became effective for fiscal years after December 15, 2018 and the Company adopted these amendments.

impact of these amendments was immaterial to the Company’s financial statements.

Leases (Topic

FASB issued ASU 2016-02, Leases.

The new standard establishes a right-of-use asset model that requires a lessee to record an asset and a lease liability on the

balance sheet for all leases with terms longer than 12 months.

Leases will be classified as either finance or operating, with classification

affecting the pattern of expense recognition in the income statement.

The new standard is effective for fiscal years beginning

after December 15, 2018, including interim periods within those fiscal years.

As the Company owns most of its branch locations,

the impact of adoption of this ASU resulted in a $0.2 million right-of-use asset and a corresponding lease obligation liability

of $0.2 million.

The right-of-use asset is included in other assets and the lease obligation liability is included in other liabilities

in the Company’s December 31, 2019 consolidated balance sheet.

The Company has given consideration to the materiality of

their leases and has determined that the additional required disclosures for leases is immaterial to the consolidated financial

Accounting standards not yet adopted:

Goodwill and Other (Topic 350)

This ASU simplifies the test

for goodwill impairment.

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

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

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

The Company has adopted this ASU, and management

did not believe the changes will have a material effect on the Company’s accounting and disclosures.

Measurement - Disclosure Framework –

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value measurements.

The amendments in this update become effective for fiscal years, and interim periods within those fiscal years

The amendments in this update are effective for fiscal years, and interim periods within those fiscal years

beginning after December 15, 2019.

Early adoption is permitted.

The Company is currently evaluating the impact of adopting the

new guidance on its consolidated financial statements, but it is not expected to have a material impact.

Goodwill and Other (Topic 350)

This ASU simplifies the test

for goodwill impairment.

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

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

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

The amendments in this ASU are effective for annual

goodwill impairment tests in fiscal years beginning after December 15, 2019, and management does not believe the changes will have

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

The impact of this new guidance did not have a material impact on the Company’s consolidated

financial statements.

Accounting standards not yet adopted:

Reference Rate Reform

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)

This guidance provides temporary options

to ease the potential burden in accounting for reference rate reform.

It is intended to help stakeholders during the global market-wide

reference rate transition period.

The guidance is effective as of March 12, 2020 through December 31, 2022.

The Company anticipates

being fully prepared to implement a replacement for the reference rate and has determined that any change will not have a material

impact to the consolidated financial statements.

Investments –

Equity Securities (Topic 321), Investments –

Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic

Clarifying the Interactions between Topic 321, Topic 323 and Topic 815

This guidance was issued in January 2020

to clarify that a company should consider observable transactions that require a company to either apply or discontinue the equity

method of accounting under Topic 323, Investments-Equity Method and Joint Ventures, for the purposes of applying the measurement

alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

The amendments also

clarify that when determining the accounting for certain forward contracts and purchased options a company should not consider,

whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value

The guidance is effective beginning after December 15, 2020.

The Company is currently assessing the impact on its accounting

and disclosures.

Instruments –

Credit Losses (Topic 326)

This ASU, which is commonly known as CECL,

This ASU, which is commonly known as “CECL,”

replaces the current GAAP incurred impairment methodology regarding credit losses with a methodology that reflects expected credit

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

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

2016-13 to the fiscal year beginning January 1, 2023.

While we are currently unable

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Earnings Per Share

per common share (“EPS”) is computed using the two-class method.

Basic earnings per common share is computed by dividing

net income available to common shareholders by the weighted-average number of common shares outstanding during the applicable

period, excluding participating securities.

Earnings per common share (“EPS”)

is computed using the two-class method.

Basic earnings per common share is computed by dividing net income available to common

shareholders by the weighted-average number of common shares outstanding during the applicable period, excluding participating

Participating securities include non-vested restricted stock awards.

Non-vested restricted

stock awards are considered participating securities to the extent the holders of these securities receive non-forfeitable dividends

at the same rate as holders of common shares.

Diluted earnings per common share is computed using the weighted-average number

of shares determined for the basic earnings per common share plus the convertible impact of preferred shares and the dilutive

effect of stock compensation using the treasury stock method.

EPS for the years ended December 31, 2019 and 2018 is computed as

Non-vested restricted stock awards are considered

participating securities to the extent the holders of these securities receive non-forfeitable dividends at the same rate as holders

of common shares.

Diluted earnings per common share is computed using the weighted-average number of shares determined for the

basic earnings per common share plus the convertible impact of preferred shares and the dilutive effect of stock compensation using

the treasury stock method.

EPS for the years ended December 31, 2020 and 2019 is computed as follows:

Twelve Months Ended Dec.

1 unchanged sentence

Distributed earnings allocated to common shares

Undistributed earnings allocated to common shares

Undistributed (in excess of) earnings allocated to common shares

Net earnings allocated to common shares

4 unchanged sentences

Dilutive effect of stock compensation

Dilutive effect of preferred convertible shares

Dilutive effect of convertible shares

Weighted average shares outstanding for diluted earnings per share

1 unchanged sentence

Diluted earnings per common share

were no anti-dilutive shares in 2019 or 2018.

There were no anti-dilutive shares in 2020

Business Combination

Effective June 5, 2020, the Company acquired

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

Edon Bancorp was headquartered in Edon, Ohio and had

one retail banking office.

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

Under the terms

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

for total consideration of $15.5 million.

The Company accounted for the transaction under the acquisition method of accounting,

which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.

In accordance with ASC 805, the Company

expensed approximately $1.2 million of direct acquisition costs during the twelve months ended December 31, 2020.

The $1.2 million

in merger expense was split between data processing and professional fees expense.

As a result of the acquisition, the Company

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

The Company was able to

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

It is expected that this transaction will result

in business synergies and economies of scale.

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

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

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

For tax purposes,

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

The following table summarizes the fair

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

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

evaluate relevant information as it becomes available.

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

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

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

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

the acquisition date.

The contractual principal of loans at the acquisition date was

$16.8 million and the estimate of the contractual cash flows not expected to be collected is $0.4 million.

($ in thousands)

Fair value of assets acquired

Cash and cash equivalents

Interest bearing time deposits

Investment securities

Federal Home Loan Bank stock

Loans held for investment

Premises and equipment

Core deposit intangible

Total assets acquired

Fair value of liabilities assumed

Other liabilities

Total liabilities assumed

Total purchase price (cash)

Pro Forma Financial Information

The results of operations of Edon Bancorp

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

The following

schedule includes the pro forma results for the three and twelve months ended December 31, 2020 and 2019, as if the Edon acquisition

had occurred as of the beginning of the reporting periods presented.

The acquisition’s impact was immaterial to the Company’s

operating performance for the twelve months ended December 31, 2020.

Twelve Months Ended

Summary of Operations ($ in thousands)

Net interest income

Provision for loan losses

Net interest income after provision

Non interest income

Non interest expense

Income before income taxes

Income tax expense*

Preferred share dividends

Net income to common shareholders

Basic earnings per share

Diluted earnngs per share

* Income tax expense for Edon calculated using a 21% statuatory

nonrecurring costs were included in the pro-forma, specifically $0.7 million was incurred by Edon prior to the acquisition in the

2020 fiscal year and the Company incurred $1.2 million in nonrecurring costs for the acquisition in the 2020 fiscal year.

and Edon incurred no acquisition related costs for the 2019 fiscal year.

Available-for-Sale Securities

1 unchanged sentence

are as follows:

Gross Unrealized

($ in thousands)

3 unchanged sentences

State and political subdivisions

Other corporate securities

December 31, 2019:

2 unchanged sentences

State and political subdivisions

amortized cost and fair value of securities available-for-sale at December 31, 2019, by contractual maturity, are shown below.

Expected maturities differ from contractual maturities because issuers may have the right to call or prepay obligations with or

without call or prepayment penalties.

The amortized cost and fair value of securities

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

Expected maturities differ from contractual

maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

($ in thousands)

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Mortgage-backed securities

fair value of securities pledged as collateral, to secure public deposits and for other purposes, was $34.8 million at December

31, 2019, and $30.7 million at December 31, 2018.

Securities delivered for repurchase agreements (not included above) were $19.5

million at December 31, 2019 and $17.9 million at December 31, 2018.

gains of $0.2 million was a reclassification from accumulated other comprehensive income and is included in the net gain on sales

of securities for 2019.

Gross gains of $0.07 million was a reclassification from accumulated other comprehensive income and is

included in the net gain on sales of securities for 2018.

The related tax expense for net security gains for 2019 was $0.04 million

and for 2018 was $0.01 million and was a reclassification from accumulated other comprehensive income and is included in the income

tax expense line in the income statement.

investments in debt securities are reported in the financial statements at an amount less than their historical cost.

value of these investments at December 31, 2019 and 2018, was $38.8 million and $59.0 million, respectively, which was approximately

38 percent and 65 percent, respectively, of the Company’s available-for-sale investment portfolio.

on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information

obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the

resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

following tables present securities with unrealized losses at December 31, 2019 and 2018:

The fair value of securities pledged as

collateral, to secure public deposits and for other purposes, was $53.7 million at December 31, 2020, and $34.8 million at December

Securities delivered for repurchase agreements (not included above) were $28.2 million at December 31, 2020 and $19.5

million at December 31, 2019.

There were no realized gains or losses

on available-for-sale securities in 2020.

Gross gains of $0.2 million was a reclassification from accumulated other comprehensive

income and is included in the net gain on sales of securities for 2019.

The related tax expense for net security gains for 2019

was $0.04 million and was a reclassification from accumulated other comprehensive income and is included in the income tax expense

line in the income statement.

Certain investments in debt securities

are reported in the financial statements at an amount less than their historical cost.

Total fair value of these investments at

December 31, 2020 and 2019, was $27.3 million and $38.8 million, respectively, which was approximately 18 percent and 38 percent,

respectively, of the Company’s available-for-sale investment portfolio.

Based on evaluation of available evidence,

including recent changes in market interest rates, credit rating information and information obtained from regulatory filings,

management believes the declines in fair value for these securities are temporary.

Should the impairment of any of these securities

become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in

the period the other-than-temporary impairment is identified.

The following tables present securities

with unrealized losses at December 31, 2020 and 2019:

Less than 12 Months

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State and political subdivisions

Other corporate securities

Less than 12 Months

1 unchanged sentence

December 31, 2019

Unrealized Losses

Treasury and Government agencies

1 unchanged sentence

State and political subdivisions

unrealized loss on the securities portfolio decreased by $0.98 million as of December 31, 2019, from the prior year.

reviews these securities on a quarterly basis and has determined that no impairment exists.

Management evaluates securities for

other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such

When the Company does not intend to sell a debt security, and it is more likely than not the Company will not have

to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment

of a debt security in earnings and the remaining portion in other comprehensive income.

Loans and Allowance for Loan Losses

following tables present the categories of loans at December 31, 2019 and 2018:

The unrealized loss on the securities portfolio

decreased by $0.15 million as of December 31, 2020, from the prior year.

Management reviews these securities on a quarterly basis

and has determined that no impairment exists.

Management evaluates securities for other-than-temporary impairment at least on a

quarterly basis, and more frequently when economic or market concern warrants such evaluation.

When the Company does not intend

to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost

basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining

portion in other comprehensive income.

Loans and Allowance for Loan

The following

tables present the categories of loans at December 31, 2020 and 2019:

Nonaccrual Loans

($ in thousands)

December 2020

December 2019

December 2020

December 2019

Commercial & industrial

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Home equity line of credit (HELOC)

Net deferred costs

Total Loans, net deferred costs

Net deferred costs (fees)

Total loans, net deferred costs (fees)

Allowance for loan losses

Company makes commercial, agri-business, consumer and residential loans to customers throughout its defined market area.

to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since a portion

of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash

requirements.

Each customer’s creditworthiness is evaluated on a case-by-case basis.

The amount of collateral obtained,

if deemed necessary, is based on management’s credit evaluation of the customer.

Collateral held varies, but may include

accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing

and similar transactions.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending

loans to customers.

sale commitments are commitments to sell groups of residential mortgage loans that the Company originates or purchases as part

of its mortgage banking activities.

The Company commits to sell the loans at specified prices in a future period, typically within

forty-five days.

These commitments are acquired to reduce market risk on mortgage loans in the process of origination and mortgage

loans held-for-sales since the Company is exposed to interest rate risk during the period between issuing a loan commitment and

the sales of the loan into the secondary market.

below is a summary of loan commitments, unused lines of credit and standby letters of credit as of December 31, 2019 and 2018.

The Company makes commercial, agri-business,

consumer and residential loans to customers throughout its defined market area.

Commitments to extend credit are agreements to

lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed

expiration dates or other termination clauses and may require payment of a fee.

Since a portion of the commitments may expire without

being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Each customer’s creditworthiness

is evaluated on a case-by-case basis.

The amount of collateral obtained, if deemed necessary, is based on management’s credit

evaluation of the customer.

Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment,

commercial real estate and residential real estate.

Standby letters of credit are conditional

commitments issued by the Company to guarantee the performance of a customer to a third party.

Those guarantees are primarily issued

to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions.

credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

Forward sale commitments are commitments

to sell groups of residential mortgage loans that the Company originates or purchases as part of its mortgage banking activities.

The Company commits to sell the loans at specified prices in a future period, typically within forty-five days.

These commitments

are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held-for-sales since the

Company is exposed to interest rate risk during the period between issuing a loan commitment and the sales of the loan into the

secondary market.

Listed below is a summary of loan commitments,

unused lines of credit and standby letters of credit as of December 31, 2020 and 2019.

($ in thousands)

1 unchanged sentence

Standby letters of credit

are various contingent liabilities that are not reflected in the consolidated financial statements, including claims and legal

actions arising in the ordinary course of business.

In the opinion of management, after consultation with legal counsel, the ultimate

disposition of these matters is not expected to have a material effect on the Company’s consolidated financial condition

or results of operations.

risk characteristics of each loan portfolio segment are as follows:

& Industrial and Agricultural

& industrial and agricultural loans are primarily based on the identified cash flows of the borrower and secondarily on the

underlying collateral provided by the borrower.

The cash flows of borrowers, however, may not be as expected and the collateral

securing these loans may fluctuate in value.

Most commercial loans are secured by the assets being financed or other business

assets, such as accounts receivable or inventory, and may include a personal guarantee.

Short-term loans may be made on an unsecured

In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be

substantially dependent on the ability of the borrower to collect amounts due from its customers.

Real Estate (Owner and Nonowner Occupied)

real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.

Commercial real estate

lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful

operation of the property securing the loan or the business conducted on the property securing the loan.

Commercial real estate

loans may be more adversely affected by conditions in the real estate markets or in the general economy.

The characteristics of

properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely

in the Company’s market area.

Management monitors and evaluates commercial real estate loans based on collateral, geography

and risk grade criteria.

In general, the Company avoids financing single purpose projects unless other underwriting factors are

present to help mitigate risk.

In addition, management tracks the level of owner-occupied commercial real estate versus non-owner-occupied

loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and

property owners.

Construction loans are generally based on estimates of costs and value associated with the completed project.

There are various contingent liabilities

that are not reflected in the consolidated financial statements, including claims and legal actions arising in the ordinary course

In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is

not expected to have a material effect on the Company’s consolidated financial condition or results of operations.

The risk characteristics of each loan portfolio segment are

Commercial & Industrial and Agricultural

Commercial & industrial and agricultural

loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by

the borrower.

The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate

Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable

or inventory, and may include a personal guarantee.

Short-term loans may be made on an unsecured basis.

In the case of loans secured

by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability

of the borrower to collect amounts due from its customers.

Commercial Real Estate (Owner and Nonowner

Commercial real estate loans are viewed

primarily as cash flow loans and secondarily as loans secured by real estate.

Commercial real estate lending typically involves

higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property

securing the loan or the business conducted on the property securing the loan.

Commercial real estate loans may be more adversely

affected by conditions in the real estate markets or in the general economy.

The characteristics of properties securing the Company’s

commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area.

Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria.

the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk.

management tracks the level of owner-occupied commercial real estate versus non-owner-occupied loans.

Construction loans are underwritten utilizing

feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners.

Construction loans

are generally based on estimates of costs and value associated with the completed project.

These estimates may be inaccurate.

Construction loans often involve the disbursement of substantial funds with repayment substantially

dependent on the success of the ultimate project.

Sources of repayment for these types of loans may be pre-committed permanent

loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent

financing is obtained.

These loans are closely monitored by on-site inspections and are considered to have higher risks than other

real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property,

general economic conditions and the availability of long-term financing.

Real Estate, Home Equity Line of Credit (“HELOC”) and Consumer

and consumer loans consist of two segments –

loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate

Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales

of developed property or an interim loan commitment from the Company until permanent financing is obtained.

These loans are closely

monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment

being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability

of long-term financing.

Residential Real Estate, Home Equity

Line of Credit (“HELOC”) and Consumer

Residential and consumer loans consist

of two segments –

residential mortgage loans and personal loans.

Residential mortgage loans are

secured by 1-4 family residences and are generally owner-occupied, and the Company generally establishes a maximum loan-to-value

ratio and requires private mortgage insurance if that ratio is exceeded.

HELOCs are typically secured by a subordinate interest

in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational

Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit.

these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their

market areas, such as unemployment levels.

Residential mortgage loans are secured by 1-4 family residences

and are generally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage

insurance if that ratio is exceeded.

HELOCs are typically secured by a subordinate interest in 1-4 family residences, and consumer

personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles.

Some consumer personal loans

are unsecured, such as small installment loans and certain lines of credit.

Repayment of these loans is primarily dependent on

the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment

Repayment can also be impacted by changes in property values on residential properties.

Risk is mitigated by the fact that these loans are of smaller individual amounts and spread over a large number of borrowers.

following tables present the balance of the allowance for loan and lease losses (“ALLL”) and the recorded investment

in loans based on portfolio segment and impairment method as of December 31, 2019 and 2018:

Risk is mitigated by the fact that

these loans are of smaller individual amounts and spread over a large number of borrowers.

The following tables present the balance

of the allowance for loan and lease losses (“ALLL”) and the recorded investment in loans based on portfolio segment

and impairment method as of December 31, 2020 and 2019:

($ in thousands)

For the Twelve Months Ended

December 31, 2019

Residential real

For the Twelve Months Ended December 31, 2020

Beginning balance

Ending balance

Residential real

Loans Receivable at December 31, 2019

December 31, 2020

Ending balance:

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For the Twelve Months Ended December 31, 2019

Residential real

Beginning balance

Provision (credit)

Ending balance

Loans Receivable at

December 31, 2019

Commercial real estate

Residential real estate

Ending balance:

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Credit Risk Profile

Company categorizes loans into risk categories (loan grades) based on relevant information about the ability of borrowers to service

their debt such as current financial information, historical payment experience, credit documentation, public information and

current economic trends, among other factors.

The Company categorizes loans into risk

categories (loan grades) based on relevant information about the ability of borrowers to service their debt such as current financial

information, historical payment experience, credit documentation, public information and current economic trends, among other factors.

The Company analyzes loans individually by classifying the loans as to credit risk.

This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and

commercial real estate loans.

This analysis is performed on a quarterly basis.

The Company uses the following definitions for

risk ratings:

(grades 1 –

Loans which management has determined to be performing as expected and in agreement with the terms established

at the time of loan origination.

Mention (grade 5):

Assets have potential weaknesses that deserve management’s close attention.

If left uncorrected,

these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit

position at some future date.

Special mention assets are not adversely classified and do not expose the Company to sufficient

risk to warrant adverse classification.

Ordinarily, special mention credits have characteristics which corrective management action

would remedy.

Loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral

pledged, if any.

Loans so classified must have a well-defined weakness or weaknesses that jeopardized the liquidation of the debt.

They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Loans classified as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic

that the weaknesses make collection or liquidation in full, on the basis of current known facts, conditions and values, highly

questionable and improbable.

Loans are considered uncollectable and of such little value that continuing to carry them as assets on the Company’s

financial statement is not feasible.

Loans will be classified as loss when it is neither practical nor desirable to defer writing

off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in

following tables present the credit risk profile of the Company’s loan portfolio based on rating category as of December

31, 2019 and 2018:

This analysis includes loans with an outstanding

balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans.

This analysis is

performed on a quarterly basis.

The Company uses the following definitions for risk ratings:

Pass (grades 1 –

which management has determined to be performing as expected and in agreement with the terms established at the time of loan origination.

Special Mention (grade 5):

have potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may

result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Ordinarily, special mention credits have characteristics which corrective management action would remedy.

Substandard (grade 6):

inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

so classified must have a well-defined weakness or weaknesses that jeopardized the liquidation of the debt.

They are characterized

by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful (grade 7):

Loans classified

as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses

make collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.

Loss (grade 8):

Loans are considered

uncollectable and of such little value that continuing to carry them as assets on the Company’s financial statement is not

Loans will be classified as loss when it is neither practical nor desirable to defer writing off or reserving all or

a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The following tables present the credit

risk profile of the Company’s loan portfolio based on rating category as of December 31, 2020 and 2019:

($ in thousands)

December 31, 2020

Commercial real estate -

owner occupied

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Special Mention (5)

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December 31, 2019

real estate -

owner occupied

real estate -

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Special Mention (5)

Substandard (6)

Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis.

uses a five-year average of historical losses for the general component of the allowance for loan loss calculation.

No significant

changes were made to the loan risk grading system definitions and allowance for loan loss methodology during the periods presented.

following tables present the Company’s loan portfolio aging analysis as of December 31, 2019 and 2018:

The Company evaluates the loan risk grading

system definitions and allowance for loan loss methodology on an ongoing basis.

The Company uses a five-year average of historical

losses for the general component of the allowance for loan loss calculation.

No significant changes were made to the loan risk

grading system definitions and allowance for loan loss methodology during the periods presented.

The following tables present the Company’s

loan portfolio aging analysis as of December 31, 2020 and 2019:

($ in thousands)

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Residential real estate

loans past due 90 days are systematically placed on nonaccrual status.

loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information

and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the

contractual terms of the loan.

Impaired loans include nonperforming commercial loans but also include loans modified in TDRs where

concessions have been granted to borrowers experiencing financial difficulties.

These concessions could include a reduction in

the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize

following tables present impaired loan activity for the twelve months ended December 31, 2019 and 2018:

All loans past due 90 days are systematically placed on nonaccrual

A loan is considered impaired, in accordance

with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable that the

Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

loans include nonperforming commercial loans but also include loans modified in TDRs where concessions have been granted to borrowers

experiencing financial difficulties.

These concessions could include a reduction in the interest rate on the loan, payment extensions,

forgiveness of principal, forbearance or other actions intended to maximize collection.

The following tables present impaired loan

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

($ in thousands)

Twelve Months Ended

Unpaid Principal

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Interest Income

Twelve Months Ended December 31, 2019

December 31, 2020

With no related allowance recorded:

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($ in thousands)

Twelve Months Ended

Unpaid Principal

1 unchanged sentence

Interest Income

Twelve Months Ended December 31, 2018

December 31, 2019

With no related allowance recorded:

12 unchanged sentences

Residential real estate

loans less than $100,000 are included in groups of homogenous loans.

Impaired loans less than $100,000 are included

in groups of homogenous loans.

These loans are evaluated based on delinquency status.

income recognized on a cash basis does not materially differ from interest income recognized on an accrual basis.

Debt Restructured (TDR) Loans

are modified loans where a concession was provided to a borrower experiencing financial difficulties.

Loan modifications are considered

TDRs when the concessions provided are not available to the borrower through either normal channels or other sources.

not all loan modifications are TDRs.

Concession Types

Company’s standards relating to loan modifications consider, among other factors, minimum verified income requirements,

cash flow analysis, and collateral valuations.

Each potential loan modification is reviewed individually and the terms of the

loan are modified to meet a borrower’s specific circumstances at a point in time.

All loan modifications, including those

classified as TDRs, are reviewed and approved.

The types of concessions provided to borrowers include:

rate reduction:

A reduction of the stated interest rate to a nonmarket rate for the remaining original life of the debt.

also may grant interest rate concessions for a limited timeframe on a case by case basis.

● Amortization

or maturity date change beyond what the collateral supports, including a change that does any of the following:

(1) Lengthens

the amortization period of the amortized principal beyond market terms.

Interest income recognized on a cash basis

does not materially differ from interest income recognized on an accrual basis.

Troubled Debt Restructured (TDR) Loans

TDRs are modified loans where a concession

was provided to a borrower experiencing financial difficulties.

Loan modifications are considered TDRs when the concessions provided

are not available to the borrower through either normal channels or other sources.

However, not all loan modifications are TDRs.

TDR Concession Types

The Company’s standards relating

to loan modifications consider, among other factors, minimum verified income requirements, cash flow analysis, and collateral valuations.

Each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower’s specific

circumstances at a point in time.

All loan modifications, including those classified as TDRs, are reviewed and approved.

of concessions provided to borrowers include:

● Interest rate reduction:

A reduction of

the stated interest rate to a nonmarket rate for the remaining original life of the debt.

The Company also may grant interest rate

concessions for a limited timeframe on a case by case basis.

● Amortization or maturity date change beyond

what the collateral supports, including a change that does any of the following:

(1) Lengthens the amortization period of the amortized principal beyond market terms.

This concession

reduces the minimum monthly payment and increases the amount of the balloon payment at

the end of the term of the loan.

Principal is generally not forgiven.

the amount of loan principal to be amortized.

reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan.

is generally not forgiven.

(2) Reduces the amount of loan principal to be amortized.

This concession also reduces the minimum

monthly payment and increases the amount of the balloon payment at the end of the term

Principal is generally not forgiven.

the maturity date or dates of the debt beyond what the collateral supports.

monthly payment and increases the amount of the balloon payment at the end of the term of the loan.

Principal is generally not

(3) Extends the maturity date or dates of the debt beyond what the collateral supports.

This concession

generally applies to loans without a balloon payment at the end of the term of the loan.

In addition, there may be instances where renewing loans potentially require non-market

terms and would then be reclassified as TDRs.

A concession that is not categorized as one of the concessions described above.

These concessions include, but are not limited

principal forgiveness, collateral concessions, covenant concessions, and reduction of accrued interest.

Principal forgiveness

may result from any TDR modification of any concession type.

were no new TDRs during the period ended December 31, 2018.

following table represents new TDR activity for the twelve months ended December 31, 2019:

In addition, there may be instances where

renewing loans potentially require non-market terms and would then be reclassified as TDRs.

A concession that is not categorized

as one of the concessions described above.

These concessions include, but are not limited to:

principal forgiveness, collateral

concessions, covenant concessions, and reduction of accrued interest.

Principal forgiveness may result from any TDR modification

of any concession type.

There were no new TDRs during the period

ended December 31, 2020.

The following table represents new TDR

activity for the twelve months ended December 31, 2019:

($ in thousands)

Number of Loans

Pre-Modification

Post Modification

Recorded Balance

Commercial & industrial

2 unchanged sentences

Total modifications

were no TDRs modified during the past twelve months that have subsequently defaulted.

Mortgage Banking and Servicing Rights

There were no TDRs modified during the

past twelve months that have subsequently defaulted.

On March 22, 2020, a statement was issued

by the Company’s bank regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial

Institutions Working with Customers Affected by the Coronavirus”

(the “Interagency Statement”) that encourages

financial institutions to work prudently with borrowers who are unable to meet the contractual payment obligations due to the effects

Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from

classification as a troubled debt restructure as defined by GAAP, from the period beginning March 1, 2020 until the earlier of

December 31, 2021 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak under

the National Emergencies Act (50 U.S.C.

1601 et seq.) terminates.

As of December 31, 2020, the Company had nine loans with a total

balance of $23.2 million still on payment deferral.

The Company was an active participant in

the Paycheck Protection Program (“PPP”) initiative as detailed in the discussion of financial results for 2020.

Company originated approximately 700 loans with a total balance of $83.6 million.

As of December 31, 2020, $70.6 million in balances

remained outstanding.

Fees for the originations were $3.2 million of which $1.4 million was taken into income during 2020.

Accounting for Certain Loans

Acquired in a Transfer

The Company acquired loans in the acquisition

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

None of the acquired loans had evidence of deterioration

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

The following table presents the carrying

amount of the acquired loans included in the balance sheet as of December 31, 2020:

($ in thousands)

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Home equity line of credit (HELOC)

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

31, 2020 is $0.3 million.

Premises and Equipment

Major classifications

of premises and equipment stated at cost were as follows at December 31:

($ in thousands)

Buildings and improvements

Construction in process

Less accumulated depreciation

Net premises and equipment

Goodwill and Intangibles

June 5, 2020, the Company acquired Edon Bancorp (“Edon”) and its subsidiary, The Edon State Bank Company of Edon, Ohio.

The acquisition resulted in approximately $4.3 million in goodwill.

On March 15, 2019, the Company formed SBFG Title, LLC (“Title”)

and purchased all of the assets and real estate of an Ohio based title agency.

The purchase resulted in approximately $1.4 million

The balance of goodwill as of December 31, 2020 and December 31, 2019 was $22.1 million and $17.8 million, respectively.

($ in thousands)

Carrying Amount

Beginning balance

Acquired goodwill

Measurement period adjustments

Ending balance

exists when a reporting unit’s carrying value of goodwill exceeds its fair value.

Goodwill is tested on the last day of the

last quarter of each calendar year.

At December 31, 2020, the Company elected to perform a qualitative assessment to determine

if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill.

The qualitative

assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting

in no impairment.

basis and accumulated amortization of intangible assets were as follows at December 31:

Gross Carrying

($ in thousands)

Core deposits intangible

Customer relationship intangible

Banking intangibles

expense for intangibles for the years ended December 31, 2020 and 2019 was $0.05 million and $0.01 million, respectively.

amortization expense for each of the following five years is immaterial.

Banking and Servicing Rights

loans serviced for others are not included in the accompanying balance sheets.

The unpaid principal balance of mortgage loans

serviced for others approximated $1.2 billion and $1.1 billion at December 31, 2019 and 2018.

The unpaid principal balance of mortgage loans serviced

for others approximated $1.3 billion and $1.2 billion at December 31, 2020 and 2019, respectively.

Contractually specified servicing

fees of approximately $2.6 million and $2.6 million were included in mortgage loan servicing fees in the income statement for

the years ended December 31, 2019 and 2018, respectively.

following table summarizes mortgage servicing rights capitalized and related amortization, along with activity in the related

valuation allowance:

fees of approximately $3.2 million and $2.6 million were included in mortgage loan servicing fees in the income statement for the

years ended December 31, 2020 and 2019, respectively.

following table summarizes mortgage servicing rights capitalized and related amortization, along with activity in the related valuation

($ in thousands)

13 unchanged sentences

exposures to a wide variety of business and operational risks primarily through management of its core business activities.

Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources

and duration of its assets and liabilities and through the use of derivative financial instruments.

Specifically, the Company

enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt

or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company’s

derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known

or expected cash payments principally related to certain variable-rate assets.

Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and

duration of its assets and liabilities and through the use of derivative financial instruments.

Specifically, the Company enters

into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment

of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company’s derivative

financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected

cash payments principally related to certain variable-rate assets.

Company does not use derivatives for trading or speculative purposes.

1 unchanged sentence

and result from a service the Company provides to certain customers.

The Company executes interest rate swaps with commercial

banking customers to facilitate their respective risk management strategies.

Those interest rate swaps are simultaneously hedged

by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure

resulting from such transactions.

As the interest rate swaps associated with this program do not meet the strict hedge accounting

requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

The Company executes interest rate swaps with commercial banking

customers to facilitate their respective risk management strategies.

Those interest rate swaps are simultaneously hedged by offsetting

interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting

from such transactions.

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements,

changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Additionally,

2 unchanged sentences

The forward contracts that

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

fund the loans.

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

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

33 unchanged sentences

following table shows the offsetting of financial assets and derivative assets at December 31, 2020 and 2019.

Gross amounts offset in the

Net amounts of assets

Gross amounts not offset in the consolidated balance sheet

($ in thousands)

offset in the

amounts not offset in the

consolidated balance sheet

balance sheet

the consolidated

December 31, 2020

Interest rate swaps

December 31, 2019

Interest rate swaps

following table shows the offsetting of financial liabilities and derivative liabilities at December 31, 2020 and 2019.

Gross amounts offset in the

Net amounts of liabilities presented in

Gross amounts not offset in the consolidated balance sheet

($ in thousands)

offset in the

amounts not offset in the

consolidated balance sheet

balance sheet

the consolidated

December 31, 2020

Interest rate swaps

December 31, 2019

Interest rate swaps

Premises and Equipment

classifications of premises and equipment stated at cost were as follows at December 31:

($ in thousands)

Buildings and improvements

Construction in process

Less accumulated depreciation

Net premises and equipment

Goodwill and Intangibles

March 15, 2019, the Company purchased all of the assets of a title agency through a newly-formed, wholly-owned subsidiary, SBFG

This acquisition resulted in approximately $1.4 million in goodwill.

The balance of goodwill as of December 31, 2019

was $17.8 million and at December 31, 2018, $16.4 million, respectively.

exists when a reporting unit’s carrying value of goodwill exceeds its fair value.

Goodwill is tested on the last day of

the last quarter of each calendar year.

At December 31, 2019, the Company’s reporting unit had positive equity and the Company

elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit

exceeded its carrying value, including goodwill.

The qualitative assessment indicated that it was more likely than not that the

fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

basis and accumulated amortization of intangible assets were as follows at December 31:

($ in thousands)

Gross Carrying

Core deposits intangible

Customer relationship intangible

Banking intangibles

expense for intangibles for the years ended December 31, 2019 and 2018 was $0.01 and $0.01 million, respectively.

Estimated amortization

expense for each of the following five years is immaterial.

Interest-Bearing Deposits

1 unchanged sentence

time deposits in denominations of $250,000 or more totaled $27.8 million on December 31, 2020 and $36.2 million on December 31,

Certificates of deposit obtained from brokers totaled approximately $5.2 million and $13.2 million at December 31, 2019

and 2018, respectively, and mature between 2020 and 2021.

December 31, 2019, the scheduled maturities of time deposits were as follows:

Certificates of deposit obtained from brokers totaled approximately $5.0 million and $5.2 million at December 31, 2020 and

2019, respectively, and mature in 2021.

31, 2020, the scheduled maturities of time deposits were as follows:

($ in thousands)

in time deposits at December 31, 2019 and 2018 were $88.3 million and $72.6 million, respectively, of deposits which were obtained

through the Certificate of Deposit Account Registry Service (“CDARS”).

This service allows deposit customers to maintain

fully insured balances in excess of the $250,000 FDIC limit without the inconvenience of having multi-banking relationships.

the reciprocal program that the Company is currently participating in, customers agree to allow their deposits to be placed with

other participating banks in the CDARS program in insurable amounts under $250,000.

In exchange, other banks in the program agree

to place their deposits with the Company also in insurable amounts under $250,000.

Included in time deposits at December 31,

2020 and 2019 were $73.1 million and $88.3 million, respectively, of deposits which were obtained through the Certificate of Deposit

Account Registry Service (“CDARS”).

This service allows deposit customers to maintain fully insured balances in excess

of the $250,000 FDIC limit without the inconvenience of having multi-banking relationships.

Under the reciprocal program that the

Company is currently participating in, customers agree to allow their deposits to be placed with other participating banks in the

CDARS program in insurable amounts under $250,000.

In exchange, other banks in the program agree to place their deposits with the

Company also in insurable amounts under $250,000.

Short-Term Borrowings

1 unchanged sentence

Securities Sold Under Repurchase Agreements

Company has retail repurchase agreements to facilitate cash management transactions with commercial customers.

Securing these

obligations are agency securities of $4.5 and $3.1 million for 2019 and 2018, respectively, and mortgage-backed securities of

$15.0 and $14.8 million for 2019 and 2018, respectively, which are held at the FHLB.

This collateral has maturities from 2022

through 2044.

At December 31, 2019, retail repurchase agreements totaled $12.9 million.

The maximum amount of outstanding agreements

at any month end during 2019 and 2018 totaled $22.7 and $18.3 million, respectively, and the monthly average of such agreements

totaled $15.3 and $16.5 million, respectively.

The retail repurchase agreements mature within one month.

December 31, 2019 and December 31, 2018, the Company had $41.0 million in federal funds lines, of which none were drawn.

The Company has retail repurchase agreements

to facilitate cash management transactions with commercial customers.

Securing these obligations are agency securities of $10.7

million and $4.5 million for 2020 and 2019, respectively, and mortgage-backed securities of $17.5 million and $15.0 million for

2020 and 2019, respectively, which are held at FHLB.

This collateral has maturities from 2022 through 2061.

At December 31, 2020,

these repurchase agreements totaled $20.2 million.

The maximum amount of outstanding agreements at any month end during 2020 and

2019 totaled $25.6 million and $22.7 million, respectively, and the monthly average of such agreements totaled $20.8 million and

$15.3 million, respectively.

The repurchase agreements mature within one month.

The Company has borrowing capabilities

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

As of December 31, 2020, there was

no collateral pledged or borrowings drawn at the Discount Window.

The Company participated in the PPP initiative

and also has the ability to borrow from the Federal Reserve’s special purpose Paycheck Protection Program Liquidity Facility

(“PPPLF”) for additional funding.

At December 31, 2020, the Company had no borrowings from the PPPLF.

At December 31, 2020 and December 31, 2019,

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

Federal Home Loan Bank Advances

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Net deferred loan fees

Unrealized losses on available-for-sale securities

Section 475 MTM

Accrued bonus

Deferred tax liabilities

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For Capital Adequacy Purposes

To Be Well Capitalized Under Prompt Corrective Action Procedures

To Be Well Capitalized

Corrective Action

($ in thousands)

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The capital conservation buffer was

phased beginning in 2015 and was fully phased in at 2.50 percent at January 1, 2019.

The net unrealized gain or loss on available-for-sale

securities is not included in computing regulatory capital.

Management believes as of December 31, 2019, State Bank met all capital

adequacy requirements to which they are subject.

2.50 percent at December 31, 2020.

The net unrealized gain or loss on available-for-sale securities is not included in computing

regulatory capital.

Management believes as of December 31, 2020, State Bank met all capital adequacy requirements to which they

Employee Benefits

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vested after three years of credited service.

Employer contributions charged to expense for 2019 and 2018 were $0.6 and $0.5 million,

respectively.

Employer contributions charged to expense for 2020 and 2019 were $0.7 million and

$0.6 million, respectively.

Also, the Company has Supplemental Executive

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The charges to expense

for the current agreements were $0.3 and $0.3 million for 2019 and 2018, respectively.

for the current agreements were $0.3 million and $0.3 million for 2020 and 2019, respectively.

Additional life insurance is provided to

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and a portion of the policy net death benefit, over and above the cash value assigned to the insured’s beneficiary.

surrender value of all life insurance policies totaled $17.2 and $16.8 million at December 31, 2019 and 2018, respectively.

surrender value of all life insurance policies totaled $17.5 million and $17.2 million at December 31, 2020 and 2019, respectively.

The Company has a noncontributory employee

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ESOP expense for the

years ended December 31, 2019 and 2018 was $0.0 and $0.2 million, respectively.

years ended December 31, 2020 and 2019 was $0.2 million and $0.0 million, respectively.

Share Based Compensation Plan

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for up to 500,000 Common Shares of the Company.

The 2008 Plan, which was approved by the

shareholders in April 2008, permitted the grant or award of incentive stock options, nonqualified stock options, stock appreciation

rights, and restricted stock for up to 250,000 Common Shares of the Company.

The Company’s 2008 Stock Incentive

Plan (the “2008 Plan”), which was approved by the shareholders in April 2008, permitted the grant or award of incentive

stock options, nonqualified stock options, stock appreciation rights, and restricted stock for up to 250,000 Common Shares of the

The 2008 and 2017 Plans are intended to

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and its subsidiaries an opportunity to acquire or increase their ownership interest in the Company through grants of equity-based

The Plans permit equity-based awards to be used to attract, motivate, reward and retain highly competent individuals upon

whose judgment, initiative, leadership and efforts are key to the success of the Company by encouraging those individuals to become

shareholders of the Company.

The 2008 and 2017 Plans permit equity-based awards to be used to attract, motivate, reward and retain highly competent

individuals upon whose judgment, initiative, leadership and efforts are key to the success of the Company by encouraging those

individuals to become shareholders of the Company.

Option awards are granted with an exercise

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of continuous service and have 10-year contractual terms.

The fair value of each option award was estimated on the date of grant

The fair value of each option award is estimated on the date of grant

using the Black-Scholes valuation model.

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A summary of incentive stock option activity

under the Company’s plans as of December 31, 2019 and changes during the year ended is presented below:

Weighted-Average

Exercise Price

Weighted-Average

Remaining Term

Intrinsic Value

under the 2008 and 2017 Plans as of December 31, 2020 and changes during the year ended is presented below:

Weighted-Average Exercise Price

Weighted-Average Remaining Term

Aggregate Intrinsic Value

Outstanding, beginning of year

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compensation cost related to incentive option share-based compensation arrangements granted under the 2008 Plan.

On February 5, 2013, the Company adopted

a Long Term Incentive (“LTI”) Plan.

The LTI Plan awards restricted stock in the Company to certain key executives under

the 2008 and 2017 Plans.

These restricted stock awards vest over a four-year period and are intended to assist the Company in retention

of key executives.

During 2019 and 2018, the Company met certain performance targets and restricted stock awards were approved

by the Board.

The compensation cost charged against income for the LTI Plan was $0.4 and $0.3 million for 2019 and 2018, respectively.

The total income tax benefit recognized in the income statement for share-based compensation arrangements was $0.1 and $0.1 million

for 2019 and 2018, respectively.

The Long Term Incentive (“LTI”)

Plan awards restricted stock in the Company to certain key executives under the 2008 and 2017 Plans.

These restricted stock awards

vest over a four-year period and are intended to assist the Company in retention of key executives.

During 2020 and 2019, the Company

met certain performance targets and restricted stock awards were approved by the Board.

The compensation cost charged against income

for the LTI Plan was $0.4 million and $0.4 million for 2020 and 2019, respectively.

The total income tax benefit recognized in

the income statement for share-based compensation arrangements was $0.1 million and $0.1 million for 2020 and 2019, respectively.

A summary of restricted stock activity

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ended is presented below:

Weighted-Average

Value per Share

Weighted-Average Value per Share

Nonvested, beginning of year

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

stock awards under the 2008 and 2017 Plan which were granted in accordance with the LTI Plan.

stock awards under the 2008 and 2017 Plans which were granted in accordance with the LTI Plan.

That cost is expected to be recognized

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depositary shares (and underlying Series A Preferred Shares) on December 15, 2019.

No further dividends will be accrued, declared

No further dividends were accrued, declared

or paid on the depositary shares or underlying Series A Preferred Shares following the December 26, 2019 Conversion Date.

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of an asset or liability:

Quoted prices in

active markets for identical assets or liabilities

Quoted prices

in active markets for identical assets or liabilities

Observable inputs other

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government agencies, mortgage-backed securities,

and obligations of political and state subdivisions.

Level 2 inputs do not include quoted prices for individual securities in active

however, they do include inputs that are either directly or indirectly observable for the individual security being valued.

Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, credit

risks and default rates.

Also included are inputs derived principally from or corroborated by observable market data by correlation

or other means.

obligations of political and state subdivisions, and corporate securities.

Level 2 inputs do not include quoted prices for individual

securities in active markets;

however, they do include inputs that are either directly or indirectly observable for the individual

security being valued.

Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities,

prepayment speeds, credit risks and default rates.

Also included are inputs derived principally from or corroborated by observable

market data by correlation or other means.

Interest rate contracts

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fair value measurements fell at December 31, 2020 and 2019:

Fair Value Measurements Using:

($ in thousands)

Available-for-sale securities:

Fair Values at 12/31/2020

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State and political subdivisions

Other corporate securities

Interest rate contracts - assets

1 unchanged sentence

Forward contracts

Fair Value Measurements Using:

($ in thousands)

Available-for-sale securities:

Fair Values at 12/31/2019

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Constant prepayment rate

Discounted cash flow

P&I earnings credit

1 unchanged sentence

Inflation for cost of servicing

Discounted cash flow

Loan closing rates

Fair Value at

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Constant prepayment rate

Discounted cash flow

P&I earnings credit

1 unchanged sentence

Inflation for cost of servicing

Discounted cash flow

Loan closing rates

The mortgage servicing rights portfolio

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The prepayment assumptions are based upon the historical performance of the Company’s portfolio as well as market

With the increasing interest rates during 2018, the mortgage servicing rights have increased in value.

With interest rates decreasing during 2020, the mortgage servicing rights have decreased in value.

The servicing rights

have had a decline in prepayments and the 0.49 percent decrease in the constant prepayment rate reflects the change in market rates.

In addition, the earnings credit rates increased as did the discount rate.

have had an increase in prepayments and the 10.68 percent increase in the constant prepayment rate reflects the change in market

In addition, the earnings credit rates decreased as did the discount rate.

The following methods were used to estimate

the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

Cash and Due From Banks, Federal Reserve

and Federal Home Loan Bank Stock and Interest Receivable and Payable

Cash and Due From Banks, Interest Bearing

Time Deposits, Federal Reserve and Federal Home Loan Bank Stock and Interest Receivable and Payable

Fair value is determined to be the carrying

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Cash and due from banks

Interest bearing time deposits

Loans held for sale

3 unchanged sentences

Financial liabilities

Repurchase agreements

Short term borrowings

FHLB advances

15 unchanged sentences

Interest payable

Parent Company Financial Information

Parent Company Financial

Presented below is condensed financial

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Net income available to common shareholders

Condensed Statements of Comprehensive Income

Condensed Statements of Comprehensive

($ in thousands)

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Other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Investing activities

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Repurchase of common shares

Net cash provided by (used in) financing activities

Net cash used in financing activities

Net change in cash and cash equivalents

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Dividends per share

Subsequent Events

On February 6,

2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Edon Bancorp, Inc.

(“Edon”),

The Edon State Bank Company (“Edon State Bank”), Edon’s subsidiary bank, State Bank and Trust Company (“State

Bank and Trust”), the Company’s subsidiary bank, and Garden Acquisition Co.

(“Merger Sub”), a wholly owned

subsidiary of the Company, pursuant to which the Company will acquire Edon.

Subject to the

terms and conditions of the Merger Agreement, which has been approved by the boards of directors of each party, (i) Merger

Sub will merge with and into Edon, with Edon surviving as a wholly-owned subsidiary of the Company (the “Merger”);

(ii) immediately thereafter, Edon will liquidate and dissolve into the Company;

and (iii) immediately following, Edon State Bank

will merge with and into State Bank and Trust, with State Bank and Trust surviving.

Under the terms

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

for a transaction valued in aggregate at approximately $15.5 million.

The Merger is

subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of Edon,

and is expected to close in the second quarter of 2020.

Concurrently with

entering into the Merger Agreement, the Company entered into Voting Agreements with each of the directors and certain shareholders

of Edon, pursuant to which such directors and shareholders agreed to vote their shares of Edon common stock in favor of the Merger.

If the Merger

is not consummated under specified circumstances, each party may be required to pay the other party a termination fee of $465,000.

Report of Independent Registered Public

Accounting Firm

Audit Committee, Board of Directors and Stockholders

To the Stockholders, Board of Directors and Audit Committee

SB Financial Group, Inc.

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statements of income, comprehensive income, stockholders’

equity and cash flows for each of the years ended December 31, 2019 and

2018, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated

financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December

31, 2019 and 2018, and the results of its operations and its cash flows for each of the years the ended, in conformity with accounting

principles generally accepted in the United States of America.

We also have audited, in accordance with

the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control

over financial reporting as of December 31, 2019, based on criteria established in Internal Control –

Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 6, 2020,

expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

equity and cash flows for each of the years ended December 31,

2020 and 2019, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the

consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company

as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended, in conformity

with accounting principles generally accepted in the United States of America.

Basis for Opinion

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of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based

on our audits.

We are a public accounting firm registered

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reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated

below are matters arising from the current-period audit of the financial statements that was communicated or required to be communicated

to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved

our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any

way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,

providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowances for Loan Losses

Description of the Matter

As described in Note 5 to the consolidated

financial statements, the Company’s consolidated allowance for loan and lease losses (ALLL) was $12.6 million at December

The Company also describes in Note 1 of the consolidated financial statements the accounting policy around this estimate.

The ALLL is an estimate of losses inherent in the loan and lease portfolio.

The determination of the reserve requires significant

judgment reflecting the Company’s best estimate of probable loan and lease losses.

The estimate consists of several key elements,

which include:

specific reserves for impaired loans, general reserves for each business lending division portfolio including percentage

allocations for special attention loans and leases not deemed impaired, and reserves for pooled homogenous loans and leases, among

The Company’s evaluation is based upon a continuing review of these portfolios, estimates of customer performance,

collateral values and dispositions, and assessments of economic and geopolitical events, all of which are subject to judgment and

We identified the valuation of the ALLL

as a critical audit matter.

Auditing the ALLL involves a high degree of subjectivity in evaluating management’s estimates,

such as evaluating management’s assessment of economic conditions and other environmental factors used to adjust historical

loss rates, evaluating the adequacy of specific reserves associated with impaired loans and assessing the appropriateness of loan

How We Addressed the Matter in Our Audit

Our audit procedures related to the estimated allowance for

loan losses included:

● Testing the design of internal controls,

including those related to technology, over the ALLL including data completeness and accuracy, classifications of loans by loan

segment, historical loss data, the calculation of a loss rate, the establishment of qualitative adjustments, grading and risk classification

of loans and establishment of specific reserves on impaired loans and management’s review controls over the ALLL balance

● Testing clerical/computational accuracy

of the formulas within the ALLL model.

● Testing of completeness and accuracy of

the information and reports utilized in the ALLL, including reports used in management review controls over the ALLL.

● Computing an independent calculation of

an acceptable range and comparing it to the Company’s estimate.

● Evaluating the qualitative adjustment

to the historical loss rates, including assessing the basis for the adjustments and the reasonableness of the significant assumptions.

● Testing of the loan review function and

the accuracy of loan grades determined.

Specifically, utilizing internal loan grading professionals to assist us in evaluating

the appropriateness of loan grades and to assess the reasonableness of specific impairments on loans.

● Evaluating the overall reasonableness

of qualitative factors and the appropriateness of their direction and magnitude and the Company’s support for the direction

and magnitude compared to previous years.

Description of the Matter

As described in Note 3 to the consolidated

financial statements, the Company completed the acquisition of a bank holding company and its wholly owned subsidiary during the

year ended December 31, 2020 with total consideration of $15.5 million, including the recognition of $4.3 million of goodwill.

As part of the acquisition, management determined that the acquisition qualified as a business and accordingly all identifiable

assets and liabilities acquired were valued at fair value as part of the purchase price allocation as of the acquisition date.

The identification and valuation of such acquired assets and assumed liabilities required management to exercise significant judgment

and the use of third-party specialists to estimate the fair value allocations.

We identified the acquisition and the valuation

of acquired assets and assumed liabilities a critical audit matter.

Auditing the acquisition transaction involved a high degree

of subjectivity in evaluating management’s operational assumptions, fair value estimates, purchase price allocations and

assessing the appropriateness of valuation models.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical

audit matter included:

● Obtaining and reviewing executed Plan

and Agreement of Merger documents to gain an understanding of the underlying terms of the consummated acquisition;

● Obtaining and reviewing management’s

reconciliation procedures of significant accounts and testing of completion procedures performed and asset/liability identification

considerations made;

● Testing management’s computation

of purchase price and determination of goodwill recognized focusing on the completeness and accuracy of the balance sheet acquired

and related fair value purchase price allocations made to identified assets acquired and liabilities assumed;

● Obtaining and reviewing valuation estimates

prepared by specialists engaged by the Company, and challenging management’s review of the appropriateness of the valuations

assessed and allocation to assets acquired and liabilities assumed.

The procedures included but were not limited to, testing critical

inputs, including key assumptions applied and the valuation models utilized by the Company’s specialists;

● Utilization of our internal specialists

to assist with testing and challenging the related fair value purchase price allocations made to identified assets acquired and

liabilities assumed;

● Reviewing and evaluating the adequacy

of the disclosures made in the footnotes related to the acquisition.

Goodwill Impairment Analysis

The Company’s goodwill totaled $22.1

million at December 31, 2020.

As discussed in Notes 1 and 8 to the consolidated financial statements, goodwill is tested for impairment

on an annual basis, or more often if events or circumstances indicate that there may be impairment.

During the third quarter of

2020, the Company’s market value fell below book value, which caused the Company to engage a third-party valuation specialist

to perform a quantitative assessment of the reporting unit’s value as of September 30, 2020.

The Company performed an additional

qualitative assessment as of March 31, 2020, June 30, 2020 and December 31, 2020.

Based on each of these assessments, the Company’s

reporting segment’s fair value exceeded the carrying value and no goodwill impairment was recorded.

We identified the valuation of goodwill

as a critical audit matter due to the subjective nature of the assumptions used to estimate the reporting unit’s fair value.

The Company’s estimate of future cash flows is based on multiple assumptions, such as revenue growth projections and the

ability to adhere to anticipated expense levels, as well as the selected discount rate and terminal value, which are sensitive

to changes in expectations about future market or economic conditions, including uncertainty resulting from the COVID-19 pandemic.

To test the estimated fair value of the

Company’s reporting unit, with the support from our internal valuation specialists, we performed audit procedures that included,

among others:

● Assessing methodologies selected by management

and testing the significant assumptions discussed above.

● Testing the accuracy of the underlying

data used by the Company in its analysis.

● Comparing the significant assumptions

used by management to current industry and economic trends.

● Performing sensitivity analyses of significant

assumptions to evaluate changes in the fair value estimate of the reporting unit resulting from changes in the assumptions.

● Testing management’s reconciliation

of the fair value of the reporting unit to the market capitalization of the Company.

We have served as the Company’s auditor since 2002.

Indianapolis, Indiana

March 6, 2020

Report of Independent Registered Public

Accounting Firm

Audit Committee, Board of Directors and Stockholders

SB Financial Group, Inc.

Defiance, Ohio

Opinion on the Internal Control over Financial Reporting

We have audited SB Financial Group Inc.’s

(the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal

Control –

Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained,

in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established

in Internal Control –

Integrated Framework:

(2013) issued by COSO.

We also have audited, in accordance with

the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial

statements of the Company and our report dated March 6, 2020, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible

for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control

over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered

with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws

and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding

of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the

design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other

procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definitions and Limitations of Internal Control over Financial

A company’s internal control over financial

reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation

of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal

control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in

reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable

assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally

accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations

of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness

to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree

of compliance with the policies or procedures may deteriorate.

Indianapolis, Indiana

Indianapolis, IN

March 8, 2021

Changes in and Disagreements

With Accountants on Accounting and Financial Disclosure .

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .

Not Applicable.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data