What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-07 compared with 2021-03-08 · 697 added, 1368 removed, 660 unchanged (76% of the section changed)

Financial Statements and

Supplementary Data.

Our Consolidated Financial Statements and notes thereto and

other supplementary data begin on the following page.

Financial Statements and Supplementary Data .

Our Consolidated Financial Statements and notes thereto and other supplementary data follow.

Index to Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2021 and 2020 F-2

Consolidated Statements of Income for the Years ended December 31, 2021 and 2020 F-3

Consolidated Statements of Comprehensive Income for the Years ended December 31, 2021 and 2020 F-4

Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2021 and 2020 F-5

Consolidated Statements of Cash Flows for the Years ended December 31, 2021 and 2020 F-6

Notes to Consolidated Financial Statements F-7

Report of Independent Registered Public Accounting Firm (BKD, LLP) (PCAOB ID:

SB Financial Group, Inc.

Consolidated Balance Sheets

at December 31,

($ in thousands)

7 unchanged sentences

Federal Reserve and Federal Home Loan Bank Stock, at cost

Foreclosed assets held for sale, net

Foreclosed assets and other assets held for sale, net

Interest receivable

1 unchanged sentence

Mortgage servicing rights

Liabilities and shareholders’

Liabilities and shareholders’ equity

Non interest bearing demand

5 unchanged sentences

Trust preferred securities

Subordinated debt net of issuance costs

Interest payable

2 unchanged sentences

Commitments & Contingent Liabilities

Shareholders’

Shareholders’ Equity

Preferred stock, no par value;

authorized 200,000 shares;

2020 - 0 shares outstanding, 2019 -

0 shares outstanding

2021 - 0 shares outstanding, 2020 - 0 shares outstanding

Common stock, no par value;

authorized 10,000,000 shares;

2020 - 8,180,712 shares issued, 2019

- 8,180,712 shares issued

2021 - 8,180,712 shares issued, 2020 - 8,180,712 shares issued

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Treasury stock, at cost;

(2020 - 808,456 common shares, 2019 - 417,785

common shares)

Total shareholders’

Total liabilities and shareholders’

(2021 - 1,296,382 common shares, 2020 - 808,456 common shares)

Total shareholders’ equity

Total liabilities and shareholders’ equity

See Notes to Consolidated Financial Statements

9 unchanged sentences

Trust preferred securities expense

Subordinated debt expense

Total interest expense

9 unchanged sentences

Title insurance income

Net gain on sale of securities

Total noninterest income

14 unchanged sentences

Provision for income taxes

Preferred share dividends

Net income available to common shareholders

Basic earnings per common share

2 unchanged sentences

SB Financial Group, Inc.

Consolidated Statements of Comprehensive

Consolidated Statements of Comprehensive Income

Years Ended December 31,

2 unchanged sentences

Available for sale investment securities:

Gross unrealized holding gain arising in the period

Related tax expense

reclassification adjustment for gain realized in income

Related tax expense

Net effect on other comprehensive income

Gross unrealized holding gain (loss) arising in the period

Related tax expense (benefit)

Net effect on other comprehensive income (loss)

Total comprehensive income

1 unchanged sentence

SB Financial Group, Inc.

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

Years Ended December 31,

Comprehensive

Accumulated Other Comprehensive

($ in thousands, except per share data)

Income (Loss)

January 1, 2021

Other comprehensive income

Other comprehensive loss

Dividends on common, $ 0.44 per share

Restricted stock vesting

Stock options exercised

Repurchased stock

1 unchanged sentence

December 31, 2021

Comprehensive

Accumulated Other Comprehensive

($ in thousands, except per share data)

Income (Loss)

January 1, 2020

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

9 unchanged sentences

Operating Activities

Items not requiring

(providing) cash

Items not requiring (providing) cash

Depreciation and amortization

Provision for loan

Expense of share-based

compensation plan

Amortization of premiums

and discounts on securities

Amortization of intangible

Amortization of originated

mortgage servicing rights

Impairment of mortgage

servicing rights

Provision for loan losses

Expense of share-based compensation plan

Amortization of premiums and discounts on securities

Amortization of intangible assets

Amortization of originated mortgage servicing rights

Impairment (recovery) of mortgage servicing rights

Deferred income taxes

Proceeds from sale

of loans held for sale

Originations of loans

held for sale

Proceeds from sale of loans held for sale

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

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

Interest payable & other liabilities

Net cash provided by operating activities

Investing Activities

Purchases of available-for-sale securities

Proceeds from maturities of interest bearing time deposits

Proceeds from maturities of available-for-sale securities

Net change in loans

Purchase of premises,

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

net of cash acquired

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

Purchase of premises, equipment

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

Acquisition, net of cash acquired (paid)

Net cash used in investing activities

Financing 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 subordinated debt

Net proceeds from share-based compensation plans

Stock repurchase plan

Issuance of common shares

Conversion of preferred

Dividends on common

on preferred shares

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

Dividends on common shares

Net cash provided by financing activities

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Supplemental cash flow information

Interest paid

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

conjunction with the Edon acquisition, liabilities assumed were:

Supplemental non-cash disclosure

Recognition of right-of-use lease assets

Transfer of loans to foreclosed assets

In conjunction with the Edon acquisition, liabilities assumed were:

Fair value of assets acquired

paid in acquisition

Cash paid in acquisition

Liabilities assumed

See Notes to Consolidated Financial Statements

2 unchanged sentences

Years Ended December 31, 2021 and 2020

Organization and Summary of

Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

Organization and Nature of Operations

SB Financial Group, Inc.

(the “Company”)

is a financial holding company whose principal activity is the ownership and management of its wholly-owned subsidiaries, The State

Bank and Trust Company (“State Bank”), SBFG Title, LLC dba Peak Title Agency (“SBFG Title”), SB Captive,

(“SB Captive”), RFCBC, Inc.

(“RFCBC”), Rurbanc Data Services, Inc.

dba RDSI Banking Systems (“RDSI”),

and Rurban Statutory Trust II (“RST II”).

State Bank owns all the outstanding stock of Rurban Mortgage Company (“RMC”),

and State Bank Insurance, LLC (“SBI”).

The Company is primarily engaged in providing a full range of banking and wealth

management services to individual and corporate customers primarily located in Ohio, Indiana, and Michigan.

The Company is subject

to competition from other financial institutions, and regulated by certain federal and state agencies and undergoes periodic examinations

by those regulatory authorities.

(the “Company”) is a financial holding company whose principal activity is the ownership and management of its wholly-owned subsidiaries, The State Bank and Trust Company (“State Bank”), SBFG Title, LLC dba Peak Title Agency (“SBFG Title”), SB Captive, Inc.

(“SB Captive”), RFCBC, Inc.

(“RFCBC”), Rurbanc Data Services, Inc.

dba RDSI Banking Systems (“RDSI”), and Rurban Statutory Trust II (“RST II”).

State Bank owns all the outstanding stock of Rurban Mortgage Company (“RMC”), and State Bank Insurance, LLC (“SBI”).

The Company is primarily engaged in providing a full range of banking and wealth management services to individual and corporate customers primarily located in Ohio, Indiana, and Michigan.

The Company is subject to competition from other financial institutions, and regulated by certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Principles of Consolidation

The Consolidated Financial Statements include

the accounts of the Company, State Bank, SBFG Title, SB Captive, RFCBC, RDSI, RMC, RST II, and SBI.

All significant intercompany

accounts and transactions were eliminated in consolidation.

The Consolidated Financial Statements include the accounts of the Company, State Bank, SBFG Title, SB Captive, RFCBC, RDSI, RMC, RST II, and SBI.

All significant intercompany accounts and transactions were eliminated in consolidation.

Use of Estimates

The preparation of financial statements

in conformity with accounting principles generally accepted in the United States of America requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities

at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results

could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination

of the allowance for loan losses, loan servicing rights, and fair value of financial instruments.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, loan servicing rights, and fair value of financial instruments.

Cash Equivalents

The Company considers all liquid investments

with original maturities of three months or less to be cash equivalents.

At December 31, 2020 and 2019, cash equivalents consisted

primarily of interest-bearing and noninterest bearing demand deposit balances held by correspondent banks.

At December 31, 2020, the Company’s

correspondent cash accounts exceeded federally insured limits by $10.6 million.

Additionally, the Company had approximately $115.9

million of cash held by the FRB and the FHLB, which is not federally insured.

Available-for-sale securities, which include

any debt security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.

At December 31, 2021 and 2020, cash equivalents consisted primarily of interest-bearing and noninterest bearing demand deposit balances held by correspondent banks.

At December 31, 2021, the Company’s correspondent cash accounts exceeded federally insured limits by $ 7.9 million.

Additionally, the Company had approximately $ 129.1 million of cash held by the FRB and the FHLB, which is not federally insured.

Available-for-sale securities, which include any debt security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value.

Unrealized gains and losses are recorded, net of related income tax effects, in other comprehensive income.

Amortization of premiums and accretion

of discounts are recorded as interest income from securities.

Amortization of premiums and accretion of discounts are recorded as interest income from securities.

Realized gains and losses are recorded as net security gains (losses).

Gains and losses on sales of securities are determined on the specific-identification method.

For debt securities with fair value below

carrying value when the Company does not intend to sell the debt security, and it is more likely than not the Company will not

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

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

For debt securities with fair value below carrying value when the Company does not intend to sell the debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, the Company recognizes the credit component of an other-than-temporary impairment of the debt security in earnings and the remaining portion in other comprehensive income.

Mortgage Loans Held for Sale

Mortgage loans originated and intended

for sale in the secondary market are carried at the lower of cost or fair value in the aggregate.

Net unrealized losses, if any,

are recognized through a valuation allowance by charges to noninterest income.

Gains and losses on loan sales are recorded in noninterest

The Company utilizes third-party hedges to minimize the impact of interest rate risk fluctuations, and their impact is

realized through noninterest income.

Loans that management has the intent and

ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances

adjusted for any charge offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums

or discounts on purchased loans.

Interest income is reported on the interest method and includes amortization of net deferred loan

fees and costs over the loan term.

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate.

Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income.

Gains and losses on loan sales are recorded in noninterest income.

The Company utilizes third-party hedges to minimize the impact of interest rate risk fluctuations, and their impact is realized through noninterest income.

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for any charge offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term.

Generally, loans are placed on nonaccrual status not later than 90 days past due.

Past due status

is based on the contractual terms of the loan.

All interest accrued, but not collected for loans that are placed on nonaccrual

or charged off, is reversed against interest income.

The interest on these loans is accounted for on the cash-basis or cost-recovery

method, until qualifying for return to accrual.

Loans are returned to accrual status when all the principal and interest amounts

contractually due are brought current and future payments are reasonably assured.

Past due status is based on the contractual terms of the loan.

All interest accrued, but not collected for loans that are placed on nonaccrual or charged off, is reversed against interest income.

The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established

as losses are estimated to have occurred through a provision for loan losses charged to income.

Loan losses are charged against

the allowance when management believes the non-collectability of a loan balance is probable.

Subsequent recoveries, if any, are

credited to the allowance.

The allowance for loan losses is evaluated

on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light

of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s

ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

This evaluation is inherently

subjective as it requires estimates that are susceptible to significant revision as new information becomes available.

The allowance consists of allocated and

general components.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.

Loan losses are charged against the allowance when management believes the non-collectability of a loan balance is probable.

Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.

The allowance consists of allocated and general components.

The allocated component relates to loans that are classified as impaired.

For those loans that are classified

as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the

impaired loan is lower than the carrying value of that loan.

The general component covers non-classified loans and is based on

historical charge off experience and expected loss given default derived from the Company’s internal risk rating process.

Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit

quality that are not fully reflected on the historical loss or risk rating data.

A loan is considered impaired when, based

on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal

or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining

impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments

For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The general component covers non-classified loans and is based on historical charge off experience and expected loss given default derived from the Company’s internal risk rating process.

Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected on the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration each of

the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s

prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on

a loan-by-loan basis for commercial, agricultural, and construction loans by either the present value of expected future cash flows

discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral

if the loan is collateral dependent.

When a loan moves to nonaccrual status,

total unpaid interest accrued to date is reversed from income.

Subsequent payments are applied to the outstanding principal balance

with the interest portion of the payment recorded on the balance sheet as a contra-loan.

Interest received on impaired loans may

be realized once all contractual principal amounts are received or when a borrower establishes a history of six consecutive timely

principal and interest payments.

It is at the discretion of management to determine when a loan is placed back on accrual status

upon receipt of six consecutive timely payments.

Large groups of smaller balance homogenous

loans are collectively evaluated for impairment.

Accordingly, individual consumer and residential loans are not separately identified

for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration each of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for commercial, agricultural, and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

When a loan moves to nonaccrual status, total unpaid interest accrued to date is reversed from income.

Subsequent payments are applied to the outstanding principal balance with the interest portion of the payment recorded on the balance sheet as a contra-loan.

Interest received on impaired loans may be realized once all contractual principal amounts are received or when a borrower establishes a history of six consecutive timely principal and interest payments.

It is at the discretion of management to determine when a loan is placed back on accrual status upon receipt of six consecutive timely payments.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment.

Accordingly, individual consumer and residential loans are not separately identified for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Premises and Equipment

Depreciable assets are stated at cost less

accumulated depreciation.

Depreciation is charged to expense using the straight-line method for buildings and equipment over the

estimated useful lives of the assets.

Leasehold improvements are capitalized and depreciated using the straight-line method over

the terms of the respective leases.

Depreciable assets are stated at cost less accumulated depreciation.

Depreciation is charged to expense using the straight-line method for buildings and equipment over the estimated useful lives of the assets.

Leasehold improvements are capitalized and depreciated using the straight-line method over the terms of the respective leases.

Long-lived Asset Impairment

The Company evaluates the recoverability

of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable.

If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the

use and eventual disposition of the asset is less than the carrying amount of the asset, the asset’s cost is adjusted to

fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair

Federal Reserve Bank and Federal Home

Loan Bank Stock

FRB and FHLB stock are required investments

for institutions that are members of the FRB and FHLB systems.

The required investment in the common stock is based on a predetermined

formula, carried at cost and evaluated for impairment.

Foreclosed Assets Held for Sale

Assets acquired through, or in lieu of,

loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure, establishing

a new cost basis.

Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at

the lower of the carrying amount or the fair value less cost to sell.

Revenue and expenses from operations related to foreclosed

assets and changes in the valuation allowance are included in net income or expense from foreclosed assets.

The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable.

If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset’s cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Federal Reserve Bank and Federal Home Loan Bank Stock

FRB and FHLB stock are required investments for institutions that are members of the FRB and FHLB systems.

The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

Foreclosed Assets and Other Assets Held for Sale

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis.

Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of the carrying amount or the fair value less cost to sell.

Revenue and expenses from operations related to foreclosed assets and changes in the valuation allowance are included in net income or expense from foreclosed assets.

The Company has a vacant lot in our Columbus region that was acquired for the construction of our Columbus office location in 2014.

Due to an agreement in principle to sell the vacant lot, the Company has reclassified the asset into held for sale.

Goodwill is tested for impairment annually.

If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written

down to its implied fair value.

If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value.

Core Deposits and Other Intangibles

Intangible assets are being amortized on

a straight-line basis over weighted-average periods ranging from one to fifteen years.

Such assets are periodically evaluated as

to the recoverability of their carrying value.

Purchased software is being amortized using the straight-line method over periods

ranging from one to three years.

The Company utilizes derivative financial

instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income

and the fair value of assets and liabilities.

The Company enters into interest rate swap agreements as part of its asset liability

management strategy to help manage its interest rate risk position.

Additionally, the Company enters into forward contracts for

the future delivery of mortgage loans to third-party investors and enters into interest rate lock commitments (“IRLCs”)

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

The forward contracts are

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

to fund the loans.

The IRLCs and forward contracts are not

designated as accounting hedges and are recorded at fair value with the changes in fair value reflected in noninterest income on

the consolidated statements of income.

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

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

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

For exchange-traded contracts, fair value

is based on quoted market prices.

For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted

cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment

or estimation.

Intangible assets are being amortized on a straight-line basis over weighted-average periods ranging from one to fifteen years .

Such assets are periodically evaluated as to the recoverability of their carrying value.

Purchased software is being amortized using the straight-line method over periods ranging from one to three years .

The Company utilizes derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities.

The Company enters into interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position.

Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into interest rate lock commitments (“IRLCs”) with potential borrowers to fund specific mortgage loans that will be sold into the secondary market.

The forward contracts are entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.

The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with the changes in fair value reflected in noninterest income on the consolidated statements of income.

The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while the derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.

For exchange-traded contracts, fair value is based on quoted market prices.

For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation.

Mortgage Servicing Rights

Mortgage servicing assets are recognized

separately when rights are acquired through purchase or through sale of financial assets.

Under the servicing assets and liabilities

accounting guidance, (Accounting Standards Codification “ASC”

806-50), servicing rights from the sale or securitization

of loans originated by the Company are initially measured at fair value at the date of transfer.

The Company subsequently measures

each class of servicing asset using the amortization method.

Under the amortization method, servicing rights are amortized in proportion

to and over the period of estimated net servicing income.

The amortized assets are assessed for impairment based on fair value

at each reporting date.

Fair value is based on market prices for

comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present

value of estimated future net servicing income.

The valuation model incorporates assumptions that market participants would use

in estimating future net servicing income, such as the cost of service, the discount rate, the custodial earning rate, an inflation

rate, ancillary income, prepayment speeds and default rates and losses.

These variables change from quarter to quarter as market

conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage servicing right and

may result in a reduction to noninterest income.

Each class of separately recognized servicing

assets subsequently measured using the amortization method is evaluated and measured for impairment.

Impairment is determined by

stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type.

is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying

amount of the servicing assets for that tranche.

The valuation allowance is adjusted to reflect changes in the measurement of impairment

after the initial measurement of impairment.

Changes in valuation allowances are reported with “Mortgage loan servicing fees,

in the income statement.

Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets.

Under the servicing assets and liabilities accounting guidance, (Accounting Standards Codification “ASC” 806-50), servicing rights from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer.

The Company subsequently measures each class of servicing asset using the amortization method.

Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income.

The amortized assets are assessed for impairment based on fair value at each reporting date.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost of service, the discount rate, the custodial earning rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.

These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.

Each class of separately recognized servicing assets subsequently measured using the amortization method is evaluated and measured for impairment.

Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type.

Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche.

The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment.

Changes in valuation allowances are reported with “Mortgage loan servicing fees, net” in the income statement.

Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.

Servicing fee income is recorded for fees

earned for servicing loans.

The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan

and are recorded as income when earned.

Servicing fee income is recorded for fees earned for servicing loans.

The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.

The amortization of mortgage servicing rights is netted against loan servicing fee income.

Share-Based Employee Compensation Plan

At December 31, 2020 and 2019, the Company

had a share-based employee compensation plan (see Note 19 to the Consolidated Financial Statements).

At December 31, 2021 and 2020, the Company had a share-based employee compensation plan (see Note 20 to the Consolidated Financial Statements).

Transfers of Financial Assets

of financial assets are accounted for as sales, when control over the assets has been surrendered.

Control over transferred assets

is deemed to be surrendered when (1) the assets have been isolated from the Company –

put presumptively beyond the reach

of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions

that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not

maintain effective control over the transferred assets through an agreement to repurchase them before the maturity or the ability

to unilaterally cause the holder to return specific assets.

Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740).

The income tax accounting guidance

results in two components of income tax expense:

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.

Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company – put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before the maturity or the ability to unilaterally cause the holder to return specific assets.

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740).

The income tax accounting guidance results in two components of income tax expense:

current and deferred.

Current income tax expense reflects taxes to be paid or

refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions

over revenues.

Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.

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.

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

or sustained upon examination.

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.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.

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

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.

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

Company files consolidated income tax returns with its subsidiaries.

With a few exceptions, the Company is no longer subject to

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.

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

The Company files consolidated income tax returns with its subsidiaries.

With a few exceptions, the Company is no longer subject to U.S.

Federal, State and Local examinations by tax authorities for the years before 2018.

As of December 31, 2020, the Company had

no uncertain income tax positions.

As of December 31, 2021, the Company had no uncertain income tax positions.

Treasury Shares

Treasury stock is stated at cost.

is determined by the weighted-average cost method.

Cost is determined by the weighted-average cost method.

Earnings Per Share

Earnings per common share is computed using

the two-class method.

Basic earnings per share represent income available to common shareholders divided by the weighted-average

number of common shares outstanding during each period.

Diluted earnings per share reflect additional potential common shares and

convertible preferred shares that would have been outstanding if dilutive potential common shares had been issued, as well as any

adjustment to income that would result from the assumed issuance.

Potential common shares that may be issued by the Company relate

solely to outstanding stock options which are determined using the treasury stock method and convertible preferred shares which

are determined using the converted method.

Earnings per common share is computed using the two-class method.

Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during each period.

Diluted earnings per share reflect additional potential common shares that may be issued by the Company related solely to outstanding stock options or awards which are determined using the treasury stock method.

Treasury stock shares are not deemed outstanding for earnings per share calculations.

Comprehensive Income

Comprehensive income consists of net income

and other comprehensive income, net of applicable income taxes.

Other comprehensive income includes unrealized appreciation (depreciation)

on available-for-sale securities.

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

net of income tax.

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes.

Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities.

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

Subordinated Debt

At December 31, 2021, the Company had subordinated debt obligations of $ 20.0 million related to its 3.65 % Fixed to Floating Rate Subordinated Notes due 2031, which were issued and sold by the Company on May 27, 2021.

The Subordinated Notes were issued in order to assist the Company in meeting various corporate obligations, including share buybacks, acquisition costs and organic asset growth (see Note 15 to the Consolidated Financial Statements).

Revenue Recognition

The Company recognizes revenues as they

are earned based on contractual terms, as transactions occur, or services are provided and collectability is reasonably assured.

The Company’s principal source of revenue is interest income from loans and leases and investment securities.

also earns noninterest income from various banking and financial services offered through State Bank.

Interest income is the largest source of

revenue for the Company which is primarily recognized on an accrual basis.

Noninterest income is earned through a

variety of financial and transaction services provided to corporate and consumer clients such as trust and wealth advisory, deposit

account, debit card, mortgage banking and insurance.

The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or services are provided and collectability is reasonably assured.

The Company’s principal source of revenue is interest income from loans and leases and investment securities.

The Company also earns noninterest income from various banking and financial services offered through State Bank.

Interest income is the largest source of revenue for the Company which is primarily recognized on an accrual basis.

Noninterest income is earned through a variety of financial and transaction services provided to corporate and consumer clients such as trust and wealth advisory, deposit account, debit card, mortgage banking and insurance.

New and applicable accounting pronouncements:

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 –

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

The updated guidance improves

the disclosure requirements for fair value measurements.

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

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

the policy for timing of transfers between levels;

and the valuation processes

for Level 3 fair value measurements.

The ASU modifies certain disclosures required by Topic 820 related to disclosure of transfers

into and out of Level 3 of the fair value hierarchy;

the requirement to disclose the timing of liquidation of an investee’s

assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity

or announced the timing publicly for investments in certain entities that calculate net asset value;

and clarification that the

measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

The ASU adds certain disclosure requirements related to changes in unrealized gains and losses for the period included in other

comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted-average

of significant unobservable inputs used to develop Level 3 fair value measurements.

For certain unobservable inputs, an entity

may disclose other quantitative information in lieu of the weighted- average if the entity determines that other quantitative information

would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair

value measurements.

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

beginning after December 15, 2019.

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

financial statements.

Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – 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 option.

The guidance is effective beginning after December 15, 2020.

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.

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,”

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

losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The amendments in this update affect an entity to varying degrees depending on the credit quality of the assets held by the entity,

their duration, and how the entity applies current GAAP.

The adoption of ASU 2016-13 is likely to

result in an increase in the allowance for loan losses as a result of changing from an “incurred loss”

encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss”

encompasses allowances for losses expected to be incurred over the life of the portfolio.

Furthermore, ASU 2016-13 will necessitate

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

In December 2018, the OCC,

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

banking organizations’

implementation of CECL.

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

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

On November 15, 2019, the FASB

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

As the Company is currently a smaller

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

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

While we are currently unable

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

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

and forecasts as of the adoption date.

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

in preparation for compliance.

We anticipate being fully prepared for implementation by January 1, 2023.

Reclassifications:

Certain reclassifications have been made

to prior period financial statements to conform to the current financial statement presentation.

These reclassifications had no

effect on net income.

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.

Financial Instruments – Credit Losses (Topic 326)

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 losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The amendments in this update affect an entity to varying degrees depending on the credit quality of the assets held by the entity, their duration, and how the entity applies current GAAP.

The adoption of ASU 2016-13 has the potential

to result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses

allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances

for losses expected to be incurred over the life of the portfolio.

Furthermore, ASU 2016-13 will necessitate that we establish an allowance

for expected credit losses on debt securities.

The Company will continue to estimate

the impact of adopting ASU 2016-13 throughout 2022.

We expect the final adoption of the standard will not have a material impact on the

Company’s consolidated financial statements.

We expect to be fully prepared for implementation by January 1, 2023.

Earnings Per Share

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

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 securities.

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.

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 dilutive effect of stock compensation using the treasury stock method.

EPS for the years ended December 31, 2021 and 2020 is computed as follows:

Twelve Months Ended Dec.

Twelve Months Ended

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

Distributed earnings allocated to common shares

Undistributed (in excess of) earnings allocated to common shares

Undistributed earnings allocated to common shares

Net earnings allocated to common shares

Net earnings allocated to participating securities

Dividends on convertible preferred shares

Net Income allocated to common shares and participating securities

1 unchanged sentence

Dilutive effect of stock compensation

Dilutive effect of convertible shares

Weighted average shares outstanding for diluted earnings per share

1 unchanged sentence

Diluted earnings per common share

There were no anti-dilutive shares in 2020

There were no anti-dilutive shares in 2021 or 2020.

On January 10, 2022 the Company announced that

its board of directors had declared a 5 percent common stock dividend payable on February 4, 2022, to shareholders of record as of January

Holders of the Company’s common shares as of the record date received one additional common share for every twenty common

shares held on the record date.

No fractional shares were issued, and shareholders received cash for such fractional interests based on

the closing price of $ 19.89 of the Company’s common shares on the record date.

Had the 5 percent common stock dividend been included

in the Company’s 2021 financial statements, common shares outstanding would have increased by approximately 345,000 and diluted

earnings per share, assuming the shares were outstanding for the entire year would have decreased by $ 0.11 per share.

On January 25, 2022, the Company filed a Certificate

of Amendment with the Ohio Secretary of State to amend Article FIRST of its Amended Articles of Incorporation to increase the authorized

number of common shares, without par value, of the Company from 10,000,000 to 10,500,000 .The addition of these authorized shares will

not have a material impact on the Company’s consolidated financial statements.

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.

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

Edon Bancorp and Edon State Bank were 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.

Under the terms of the merger agreement, shareholders of Edon Bancorp received fixed consideration of $ 103.50 in cash for each share of Edon Bancorp 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.

The 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.

Potential 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)

13 unchanged sentences

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

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 twelve months ended December 31, 2021 and 2020, as if the Edon State Bank 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 and 2021.

Twelve Months

Ended December 31,

Summary of Operations ($ in thousands)

6 unchanged sentences

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.

Diluted earnings per share

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

nonrecurring costs were included in the pro-forma, specifically $ 0.7 million was incurred by Edon State Bank 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.

Available-for-Sale Securities

amortized cost and appropriate fair values, together with gross unrealized gains and losses, of available-for-sale securities

are as follows:

The amortized cost and appropriate fair values, together with gross unrealized gains and losses, of available-for-sale securities are as follows:

($ in thousands)

8 unchanged sentences

State and political subdivisions

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.

Other corporate securities

The amortized cost and fair value of securities available-for-sale at December 31, 2021, 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)

4 unchanged sentences

Mortgage-backed securities

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:

The fair value of securities pledged as collateral, to secure public deposits and for other purposes, was $ 54.2 million at December 31, 2021, and $ 53.7 million at December 31, 2020.

Securities delivered for repurchase agreements (not included above) were $ 23.6 million at December 31, 2021 and $ 28.2 million at December 31, 2020.

There were no realized gains or losses on available-for-sale securities in 2021 and 2020.

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, 2021 and 2020, was $ 214.2 million and $ 27.3 million, respectively, which was approximately 81 percent and 18 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, 2021 and 2020:

($ in thousands)

Less than 12 Months

12 Months or Longer

($ in thousands)

December 31, 2021

Unrealized Losses

Treasury and Government agencies

11 unchanged sentences

State and political subdivisions

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:

Other corporate securities

The unrealized loss on the securities portfolio increased by $ 3.6 million as of December 31, 2021, 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 Losses

The following tables present the categories of loans at December 31, 2021 and 2020:

Nonaccrual Loans

($ in thousands)

December 2020

December 2019

December 2020

December 2019

Commercial & industrial

6 unchanged sentences

Allowance for loan losses

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 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.

The 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.

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 sale 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, 2021 and 2020.

($ in thousands)

1 unchanged sentence

Standby letters of credit

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

There 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.

The risk characteristics of each loan portfolio segment are as follows:

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.

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 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 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.

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 Occupied)

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.

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.

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.

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 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

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.

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 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 levels.

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.

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:

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, 2021 and 2020:

($ in thousands)

For the Twelve Months Ended December 31, 2020

For the Twelve Months Ended

December 31, 2021

Commercial & industrial

Commercial real estate

Residential real estate

Beginning balance

1 unchanged sentence

December 31, 2021

Commercial & industrial

Commercial real estate

Residential real estate

Ending balance:

7 unchanged sentences

($ in thousands)

For the Twelve Months Ended December 31, 2019

For the Twelve Months Ended

December 31, 2020

Commercial & industrial

Commercial real estate

Residential real estate

Beginning balance

2 unchanged sentences

December 31, 2020

Commercial & industrial

Commercial real estate

9 unchanged sentences

Credit Risk Profile

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 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.

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.

Pass (grades 1 – 4):

Loans 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.

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.

1 unchanged sentence

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.

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.

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.

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:

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 the future.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category as of December 31, 2021 and 2020:

($ in thousands)

7 unchanged sentences

December 31, 2020

Commercial & industrial

Commercial real estate - owner occupied

3 unchanged sentences

Substandard (6)

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:

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, 2021 and 2020:

($ in thousands)

December 31, 2021

90 Days Past Due

Commercial & industrial

3 unchanged sentences

December 31, 2020

90 Days Past Due

Commercial & industrial

2 unchanged sentences

Residential real estate

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:

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

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.

Impaired loans include nonperforming commercial loans but also include loans modified in a Troubled Debt Restructure (“TDR”) 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, 2021 and 2020:

($ in thousands)

Twelve Months Ended

Unpaid Principal

1 unchanged sentence

Interest Income

December 31, 2020

Twelve Months Ended December 31, 2021

With no related allowance recorded:

13 unchanged sentences

($ in thousands)

Twelve Months Ended

Unpaid Principal

1 unchanged sentence

Interest Income

December 31, 2019

Twelve Months Ended December 31, 2020

With no related allowance recorded:

12 unchanged sentences

Residential real estate

Impaired 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.

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.

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

Troubled Debt Restructured 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.

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:

The types 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:

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:

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.

is generally not forgiven.

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.

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 of the loan.

Principal is generally not

This concession also 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.

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.

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 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:

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

Principal forgiveness may result from any TDR modification of any concession type.

The following table represents new TDR activity for the twelve months ended December 31, 2021:

($ in thousands)

Number of Loans

Pre-Modification

Post Modification

Recorded Balance

Commercial & industrial

Recorded Balance

Total modifications

Commercial & industrial

Total modifications

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.

There were no new TDRs during the period ended December 31, 2020.

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 encouraged financial institutions to work prudently with borrowers unable to meet the contractual payment obligations due to the effects of COVID-19.

Additionally, Section 4013 of the CARES Act further provided 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:

As of December 31, 2021, all loans previously modified under Section 4013 of the CARES Act had returned to normal payment terms.

The Company was an active participant in the PPP initiative as detailed in the discussion of financial results for 2021 and 2020.

The Company originated approximately 1,100 loans with a total balance of $ 111.4 million.

As of December 31, 2021, $ 2.0 million in balances remained outstanding.

Fees for the originations totaled $ 4.9 million of which $ 3.4 million and $ 1.4 million were taken into income during 2021 and 2020, respectively.

Accounting for Certain Loans Acquired in an Acquisition

The Company acquired loans in the acquisition of Edon State Bank, 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 at December 31:

($ 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.

Accretable yield, or income expected to be collected as of December 31, 2021 is $ 0.2 million.

Premises and Equipment

Major classifications

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

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

($ in thousands)

4 unchanged sentences

Goodwill and Intangibles

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

On December 31, 2021, the Company purchased an Ohio based title agency resulting in approximately $ 1.1 million in goodwill.

On June 5, 2020, the Company acquired Edon Bancorp and its subsidiary, Edon State Bank.

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, 2021 and December 31, 2020 was $ 23.2 million and $ 22.1 million, respectively.

($ in thousands)

Twelve Months Ended

Carrying Amount

Twelve Months Ended

Carrying Amount

3 unchanged sentences

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:

Impairment 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, 2021, 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.

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

Gross Carrying

4 unchanged sentences

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

Contractually specified servicing

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

Amortization expense for intangibles for the years ended December 31, 2021 and 2020 was $ 0.07 million and $ 0.05 million, respectively.

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

Mortgage Banking and Servicing Rights

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

The unpaid principal balance of mortgage loans serviced for others approximated $ 1.4 billion and $ 1.3 billion at December 31, 2021 and 2020, respectively.

Contractually specified servicing fees of approximately $ 3.1 million and $ 3.2 million were included in mortgage loan servicing fees in the income statement for the years ended December 31, 2021 and 2020, respectively.

The following table summarizes mortgage servicing rights capitalized and related amortization, along with activity in the related valuation allowance at December 31:

($ in thousands)

10 unchanged sentences

Derivative Financial Instruments

Company is exposed to certain risks arising from both its business operations and economic conditions.

The Company manages its

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 does not use derivatives for trading or speculative purposes.

Derivatives not designated as hedges are not speculative

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.

Additionally,

the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into IRLCs

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

The forward contracts that

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

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

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

The fair value of derivative instruments

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

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

table below presents the notional amount and fair value of the Company’s interest rate swaps, IRLCs and forward contracts

utilized as of December 31, 2020 and 2019.

December 31, 2020

December 31, 2019

The Company is exposed to certain risks arising from both its business operations and economic conditions.

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

The 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.

The Company does not use derivatives for trading or speculative purposes.

Derivatives not designated as hedges are not speculative 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.

Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into IRLCs with potential borrowers to fund specific mortgage loans that will be sold into the secondary market.

The forward contracts that are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.

The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income.

The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.

The table below presents the notional amount and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized at December 31:

($ in thousands)

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Total contracts

fair value of interest rate swaps were estimated using a discounted cash flow method that incorporates current market interest

rates as of the balance sheet date.

Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest

rates from the date the Company entered into the IRLC and the balance sheet date.

following table presents the amounts included in the consolidated statements of income for non-hedging derivative financial instruments

for the twelve months ended December 31, 2020 and 2019.

The fair value of interest rate swaps were estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date.

Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.

The following table presents the amounts included in the consolidated statements of income for non-hedging derivative financial instruments for the twelve months ended December 31, 2021 and 2020.

Amount of gain (loss)

2 unchanged sentences

Interest rate swap contracts

Other expense

Gain on sale of mortgage loans & OMSR

1 unchanged sentence

Gain on sale of mortgage loans & OMSR

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

The following table shows the offsetting of financial assets and derivative assets at December 31, 2021 and 2020.

Gross amounts

offset in the

Gross amounts not offset in the consolidated balance sheet

($ in thousands)

the consolidated

of recognized

December 31, 2021

2 unchanged sentences

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

The following table shows the offsetting of financial liabilities and derivative liabilities at December 31, 2021 and 2020.

Gross amounts

offset in the

Gross amounts not offset in the consolidated balance sheet

($ in thousands)

the consolidated

of recognized

December 31, 2021

3 unchanged sentences

Interest-Bearing Deposits

Interest-bearing

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 $5.0 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:

Interest-bearing time deposits in denominations of $250,000 or more totaled $ 13.8 million on December 31, 2021 and $ 27.8 million on December 31, 2020.

There were no certificates of deposit from brokers as of December 31, 2021.

Certificates of deposit obtained from brokers totaling $ 5.0 million as of December 31, 2020 subsequently matured in 2021.

At December 31, 2021, the scheduled maturities of time deposits were as follows:

($ in thousands)

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.

Included in time deposits at December 31, 2021 and 2020 were $ 55.6 million and $ 73.1 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

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

These obligations were secured by agency securities of $ 8.4 million and $ 10.7 million for 2021 and 2020, respectively, and mortgage-backed securities of $ 15.2 million and $ 17.5 million for 2021 and 2020, respectively.

The collateral is held at the FHLB and has maturities from 2022 through 2051 .

At December 31, 2021, these repurchase agreements totaled $ 15.3 million.

The maximum amount of outstanding agreements at any month end during 2021 and 2020 totaled $ 34.2 million and $ 25.6 million, respectively, and the monthly average of such agreements totaled $ 22.8 million and $ 20.8 million during 2021 and 2020, 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.

The Company has borrowing capabilities at the Federal Reserve Discount Window (“Discount Window”) by pledging either securities or loans as collateral.

As of December 31, 2021, there was no collateral pledged or borrowings drawn at the Discount Window.

At December 31, 2021 and December 31, 2020, the Company had $ 41.0 million in federal funds lines, of which none were drawn.

Federal Home Loan Bank Advances

FHLB advances were secured by $147.1 million in mortgage loans at December 31, 2020.

Advances, at interest rates from 2.77 to

2.93 percent, are subject to restrictions or penalties in the event of prepayment.

Aggregate annual maturities of FHLB advances

at December 31, 2020, were:

The FHLB advances were secured by $ 153.7 million in mortgage loans at December 31, 2021.

Advances, at interest rates from 2.88 to 2.93 percent, are subject to restrictions or penalties in the event of prepayment.

Aggregate annual maturities of FHLB advances at December 31, 2021, were:

($ in thousands)

Trust Preferred Securities

September 15, 2005, RST II, a wholly-owned subsidiary of the Company, closed a pooled private offering of 10,000 Capital Securities

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

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

subordinated debentures with terms similar to the Capital Securities.

Distributions on the Capital Securities are payable quarterly

at a variable rate that is based upon the 3-month LIBOR plus 1.80 percent and are included in interest expense in the consolidated

financial statements.

These securities may be included in Tier 1 capital and may be prepaid at anytime without penalty (with certain

limitations applicable) under current regulatory guidelines and interpretations.

The balance of the Capital Securities as of December

31, 2020 and 2019 was $10.3 million, with a maturity date of September 15, 2035.

On September 15, 2005, RST II, a wholly-owned subsidiary of the Company, closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $1,000 per security.

The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures with terms similar to the Capital Securities.

Distributions on the Capital Securities are payable quarterly at a variable rate that is based upon the 3-month LIBOR plus 1.80 percent and are included in interest expense in the consolidated financial statements.

The issuers of these securities have not yet determined the replacement rate index for LIBOR.

These securities may be included in Tier 1 capital and may be prepaid at any time without penalty (with certain limitations applicable) under current regulatory guidelines and interpretations.

The balance of the Capital Securities as of December 31, 2021 and 2020 was $ 10.3 million, with a maturity date of September 15, 2035 .

Subordinated Debt

On May 27, 2021, the Company entered into Subordinated Note Purchase Agreements (collectively, the “Purchase Agreements’’) with qualified institutional buyers and accredited investors (collectively, the “Purchasers”) pursuant to which the Company issued and sold $ 20.0 million in aggregate principal amount of its 3.65 % Fixed to Floating Rate Subordinated Notes due 2031 (the “Notes”).

The Notes were sold by the Company in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended.

The Notes mature on June 1, 2031 and bear interest at a fixed rate of 3.65% through May 31, 2026.

From June 1, 2026 to the maturity date or earlier redemption of the Notes, the interest rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month Secured Overnight Financing Rate (“SOFR”) provided by the Federal Reserve Bank of New York plus 296 basis points.

The Company may redeem the Notes at any time after May 31, 2026, and at any time in whole, but not in part, upon the occurrence of certain events.

Any redemption of the Notes will be subject to prior regulatory approval.

The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately $ 0.5 million, which are being amortized over the life of the Notes.

The provision for income taxes includes these components:

4 unchanged sentences

Income tax expense

A reconciliation of income tax expense at the statutory rate

to the Company’s actual income tax expense is shown below:

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:

For The Year Ended

5 unchanged sentences

Actual tax expense

The tax effects of temporary differences related to deferred

taxes shown on the balance sheets are:

The tax effects of temporary differences related to deferred taxes shown on the balance sheets are:

For The Year Ended

3 unchanged sentences

Net deferred loan fees

Unrealized losses on available-for-sale securities

Section 475 MTM

4 unchanged sentences

Purchase accounting adjustments

Net deferred loan costs

Section 475 MTM

FHLB stock dividends

Net deferred tax liability

Accumulated Other Comprehensive

following table presents reclassifications out of accumulated other comprehensive income related to unrealized gains and losses

on available-for-sale securities for the two years ending December 31:

($ in thousands)

Affected Line Item in Income Statement

Realized gains included in net income

Gains on investment securities

Income before income taxes

Provision for income taxes

Accumulated Other Comprehensive Income(Loss)

other comprehensive income (Loss) represents reclassifications out of unrealized gains and losses on available-for-sale securities

net of income tax.

There were no reclassifications for the years ending December 31, 2021 and 2020.

Regulatory Matters

As of December 31, 2020, based on its call

report computations, State Bank was classified as well capitalized under the regulatory framework for prompt corrective action.

As of December 31, 2021, based on its call report computations, State Bank was classified as well capitalized under the regulatory framework for prompt corrective action.

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

There are no conditions

or events since December 31, 2020 that management believes have changed State Bank’s capital classification.

State Bank’s actual capital amounts

and ratios are presented in the following table.

Capital levels are presented for the State Bank only as the Company is exempt

from quarterly reporting at the holding company level:

For Capital Adequacy Purposes

There are no conditions or events since December 31, 2021 that management believes have changed State Bank’s capital classification.

State Bank’s actual capital amounts and ratios are presented in the following table.

Capital levels are presented for the State Bank only as the Company is exempt from quarterly reporting at the holding company level:

($ in thousands)

For Capital Adequacy

To Be Well Capitalized

Corrective Action

($ in thousands)

As of December 31, 2021

8 unchanged sentences

Total Risk-based capital to risk-weighted assets

above minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions,

including dividend payments and certain discretionary bonus payments to executive officers.

The capital conservation buffer was

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

The above minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.

The capital conservation buffer was 2.50 percent at December 31, 2021 and the Company still would have met the minimum capital requirements when the capital buffer is considered.

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

Management believes as of December 31, 2021, State Bank met all capital adequacy requirements to which they are subject.

Employee Benefits

The Company has instituted a long-term

incentive program, with the objective of rewarding senior management with restricted shares of the Company, in addition to the

existing stock option program (see Note 19 to the Consolidated Financial Statements).

The Company has a retirement savings 401(k)

plan covering substantially all employees.

The Company contributes a safe harbor matching contribution equal to 100% of an employees’

salary deferral amounts up to 4% of the employees’

eligible compensation.

Employees are immediately vested in their voluntary

contributions and in any Company safe harbor matching contributions.

Any discretionary contribution made by the Company is fully

vested after three years of credited service.

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

$0.6 million, respectively.

Also, the Company has Supplemental Executive

Retirement Plan (“SERP”) Agreements with certain active and retired officers.

The agreements provide monthly payments

for up to 15 years that equal 15 percent to 25 percent of average compensation prior to retirement or death.

The charges to expense

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

Additional life insurance is provided to

certain officers through a bank-owned life insurance policy (“BOLI”).

By way of a separate split-dollar agreement,

the policy interests are divided between the Company and the insured’s beneficiary.

The Company owns the policy cash value

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 $17.5 million and $17.2 million at December 31, 2020 and 2019, respectively.

The Company has a noncontributory employee

stock ownership plan (“ESOP”) covering substantially all employees of the Company and its subsidiaries.

Voluntary contributions

are made by the Company to the plan.

The Company has a share-based incentive compensation plan that permits the grant of stock options, restricted stock and other share-based awards to employees, directors and advisory board members of the Company and its subsidiaries.

In addition, the Company has instituted a long-term incentive program, with the objective of rewarding senior management with restricted shares of the Company (see Note 20 to the Consolidated Financial Statements).

The Company has a retirement savings 401(k) plan covering substantially all employees.

The Company contributes a safe harbor matching contribution equal to 100 % of an employees’ salary deferral amounts up to 4 % of the employees’ eligible compensation.

Employees are immediately vested in their voluntary contributions and in any Company safe harbor matching contributions.

Any discretionary contribution made by the Company is fully vested after three years of credited service.

Employer contributions charged to expense for 2021 and 2020 were $ 0.7 million and $ 0.7 million, respectively.

Also, the Company has Supplemental Executive Retirement Plan (“SERP”) Agreements with certain active and retired officers.

The agreements provide monthly payments for up to 15 years that equal 15 percent to 25 percent of average compensation prior to retirement or death.

The charges to expense for the current agreements were $ 0.3 million and $ 0.3 million for 2021 and 2020, respectively.

Additional life insurance is provided to certain officers through a bank-owned life insurance policy (“BOLI”).

By way of a separate split-dollar agreement, the policy interests are divided between the Company and the insured’s beneficiary.

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

The cash surrender value of all life insurance policies totaled $ 17.9 million and $ 17.5 million at December 31, 2021 and 2020, respectively.

The Company has a noncontributory employee stock ownership plan (“ESOP”) covering substantially all employees of the Company and its subsidiaries.

Voluntary contributions are made by the Company to the plan.

Each eligible employee is vested based upon years of service, including prior years of service.

The Company’s contributions to the account of each employee become fully vested after three years of service.

Benefit expense for the value of the stock

purchased is recorded equal to the fair market value of the stock when contributions, which are determined annually by the Board

of Directors of the Company, are made to the ESOP.

Allocated shares in the ESOP at December 31, 2020 and 2019, were 412,402 and

415,286, respectively.

Dividends on allocated shares are recorded

as dividends and charged to retained earnings.

Compensation expense is recorded equal to the fair market value of the stock when

contributions, which are determined annually by the Board of Directors of the Company, are made to the ESOP.

ESOP expense for the

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

The Company’s contributions to the account of each employee become fully vested after three years of service.

Benefit expense for the value of the stock purchased is recorded equal to the fair market value of the stock when contributions, which are determined annually by the Board of Directors of the Company, are made to the ESOP.

Allocated shares in the ESOP at December 31, 2021 and 2020, were 380,450 and 412,402 , respectively.

Dividends on allocated shares are recorded as dividends and charged to retained earnings.

Compensation expense is recorded equal to the fair market value of the stock when contributions, which are determined annually by the Board of Directors of the Company, are made to the ESOP.

ESOP expense for the years ended December 31, 2021 and 2020 was $ 0.5 million and $ 0.2 million, respectively.

Share-Based Compensation Plan

In April 2017, the shareholders approved

a new share-based incentive compensation plan, the SB Financial Group, Inc.

2017 Stock Incentive Plan (the “2017 Plan”),

which replaced the Company’s 2008 Stock Incentive Plan.

This plan permits the grant or award of incentive stock options,

nonqualified stock options, stock appreciation rights (“SAR’s”), restricted stock, and restricted stock units (“RSU’s”)

for up to 500,000 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

advance the interests of the Company and its shareholders by offering employees, directors and advisory board members of the Company

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

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

price equal to the market price of the Company’s stock at the date of grant and those option awards vest based on 5 years

of continuous service and have 10-year contractual terms.

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

using the Black-Scholes valuation model.

No options were granted in 2020 or 2019.

There was no compensation expense charged against

income with respect to option awards under the Plans for 2020 or 2019.

A summary of incentive stock option activity

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

Outstanding, end of year

Exercisable, end of year

During 2020, the 26,950 option shares exercised

had a total intrinsic value of $0.3 million and the cash received from these exercised options was $0.2 million.

The tax benefit

from these transactions was immaterial.

As of December 31, 2020, there was no unrecognized

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

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

under the Company’s LTI Plan as of December 31, 2020 (issued under both the 2008 and 2017 plan) and changes during the year

ended is presented below:

Weighted-Average Value per Share

In April 2017, the shareholders approved a new share-based incentive compensation plan, the SB Financial Group, Inc.

2017 Stock Incentive Plan (the “2017 Plan”), which replaced the Company’s 2008 Stock Incentive Plan.

This plan permits the grant or award of incentive stock options, nonqualified stock options, stock appreciation rights (“SAR’s”), restricted stock, and restricted stock units (“RSU’s”) for up to 500,000 Common Shares of the Company.

The 2017 Plan is intended to advance the interests of the Company and its shareholders by offering employees, directors and advisory board members of the Company and its subsidiaries an opportunity to acquire or increase their ownership interest in the Company through grants of equity-based awards.

The 2017 Plan 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 price equal to the market price of the Company’s stock at the date of grant and those option awards vest based on five years of continuous service and have 10 -year contractual terms.

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model.

There were no options granted in 2021 or 2020.

There were no stock options outstanding, and no compensation expense charged against income with respect to option awards under the Plan as of December 31, 2021 or 2020.

As of December 31, 2021, there was no unrecognized compensation cost related to incentive option share-based compensation arrangements granted under the 2017 Plan.

During 2020, 26,950 option shares exercised had a total intrinsic value of $ 0.3 million and the cash received from these exercised options was $ 0.2 million.

The tax benefit from these transactions was immaterial.

Pursuant to the Long Term Incentive (“LTI”) Plan, the Company awards restricted stock in the Company to certain key executives under the 2017 Plan.

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

During 2021 and 2020, 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 2021 and 2020, 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 2021 and 2020, respectively.

A summary of restricted stock activity under the Company’s LTI Plan as of December 31, 2021 and changes during the year ended is presented below:

Nonvested, beginning of year

Nonvested, end of year

As of December 31, 2020, there was $0.4

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 Plans which were granted in accordance with the LTI Plan.

That cost is expected to be recognized

over a weighted-average period of 1.66 years.

Preferred Stock

On December 23, 2014, the Company completed

its public offering of 1,500,000 depositary shares, each representing a 1/100th ownership interest in a 6.50 percent Noncumulative

Convertible Perpetual Preferred Share, Series A (“Series A Preferred Shares”), of the Company with a liquidation preference

of $1,000 per share (equivalent to $10.00 per depositary shares).

The Company sold the maximum of 1,500,000 depositary shares in

the offering, resulting in gross proceeds to the Company of $15.0 million.

Net proceeds to the Company after all expenses related

to the offering were $14.0 million.

On December 26, 2019, the Company exercised

its right to convert all of its Series A Preferred Shares and all of its depositary shares, representing interests in the Series

A Preferred Shares, into common shares, no par value, of the Company (“Common Shares”) in accordance with the terms

of the Series A Preferred Shares and depositary shares.

Each outstanding Series A Preferred Share

converted into the right to receive 990 Common Shares, and each outstanding depositary share converted into the right to receive

0.9908093 Common Shares based on the December 26 th conversion price of $10.09276.

There were 1,412,425 depositary shares

and 1,412 underlying Series A Preferred Shares issued and outstanding.

A total of 1,399,443 Common Shares were issued as a result

of the conversion.

No fractional Common Shares were issued upon conversion of the depositary shares and Series A Preferred Shares;

instead, cash was paid in lieu of any fractional Common Share in an amount equal to the fraction multiplied by $18.49, which was

the average closing price of the Common Shares during the previous 30 consecutive trading days.

The Company paid its last dividend on the

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

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.

Disclosures About Fair Value

of Assets and Liabilities

Pursuant to ASC 820, fair value is defined

as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date.

A three level hierarchy exists in ASC 820 for fair value measurements based upon the inputs to the valuation

of an asset or liability:

Quoted prices

in active markets for identical assets or liabilities

Observable inputs other

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

As of December 31, 2021, there was $ 0.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to the restricted stock awards under the 2017 Plan which were granted in accordance with the LTI Plan.

That cost is expected to be recognized over a weighted-average period of 1.83 years.

Disclosures About Fair Value of Assets and Liabilities

Pursuant to ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

A three level hierarchy exists in ASC 820 for fair value measurements based upon the inputs to the valuation of an asset or liability:

Quoted prices in active markets for identical assets or liabilities

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

quoted prices in markets that are not active;

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

or liabilities.

Unobservable inputs that

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

Following is a description of the valuation

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

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

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

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

Following is a description of the valuation methodologies, inputs used for assets measured at fair value on a recurring basis, recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-sale securities

The fair value of available-for-sale securities

are determined by various valuation methodologies.

The fair value of available-for-sale securities are determined by various valuation methodologies.

Level 2 securities include U.S.

government agencies, mortgage-backed securities,

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.

government agencies, mortgage-backed securities, 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

The fair values of interest rate contracts

are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account

underlying interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness

of the counterparties.

The fair values of interest rate contracts are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlying interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties.

Forward contracts

The fair values of forward contracts on

to-be-announced securities are determined using quoted prices in active markets, or benchmarked thereto (Level 1).

The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets, or benchmarked thereto (Level 1).

Interest Rate Lock Commitments

The fair value of IRLCs are determined

using the projected sale price of individual loans based on changes in the market interest rates, projected pull-through rates

(the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s

option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market

costs (Level 3).

The following table presents the fair value

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

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

The fair value of IRLCs are determined using the projected sale price of individual loans based on changes in the market interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3).

The following table presents the fair value measurements of securities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at December 31, 2021 and 2020:

($ in thousands)

Fair Values at 12/31/2020

Fair value at

Treasury and Government Agencies

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($ in thousands)

Fair Values at 12/31/2019

Fair value at

Treasury and Government Agencies

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State and political subdivisions

Other corporate securities

Interest rate contracts - assets

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Level 3 - significant unobservable inputs

The following is a description of the valuation

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

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

The following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Collateral-dependent Impaired Loans, Net of ALLL

Loans for which it is probable the Company

will not collect all principal and interest due according to contractual terms are measured for impairment.

The estimated fair

value of collateral-dependent impaired loans is based on the appraised value of the collateral, less estimated cost to sell.

Collateral-dependent

impaired loans are classified within Level 3 of the fair value hierarchy.

This method requires obtaining independent appraisals

of the collateral from a list of preapproved appraisers, which are reviewed for accuracy and consistency by the Company.

The appraised

values are reduced by applying a discount factor to the value based on the Company’s loan review policy.

All impaired loans

held by the Company were collateral dependent at December 31, 2020 and 2019.

Loans for which it is probable the Company will not collect all principal and interest due according to contractual terms are measured for impairment.

The estimated fair value of collateral-dependent impaired loans is based on the appraised value of the collateral, less estimated cost to sell.

Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

This method requires obtaining independent appraisals of the collateral from a list of preapproved appraisers, which are reviewed for accuracy and consistency by the Company.

The appraised values are reduced by applying a discount factor to the value based on the Company’s loan review policy.

All impaired loans held by the Company were collateral dependent at December 31, 2021 and 2020.

Mortgage Servicing Rights

Mortgage servicing rights do not trade

in an active, open market with readily observable prices.

Accordingly, fair value is estimated using discounted cash flow models

associated with the servicing rights and discounting the cash flows using discount market rates, prepayment speeds and default

The servicing portfolio has been valued using all relevant positive and negative cash flows including servicing fees, miscellaneous

income and float;

Mortgage servicing rights do not trade in an active, open market with readily observable prices.

Accordingly, fair value is estimated using discounted cash flow models associated with the servicing rights and discounting the cash flows using discount market rates, prepayment speeds and default rates.

The servicing portfolio has been valued using all relevant positive and negative cash flows including servicing fees, miscellaneous income and float;

marginal costs of servicing;

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and foreclosure losses;

and applying certain prevailing

assumptions used in the marketplace.

Due to the nature of the valuation inputs, mortgage servicing rights are classified within

Level 3 of the hierarchy.

and applying certain prevailing assumptions used in the marketplace.

Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

These mortgage servicing rights are tested for impairment on a quarterly basis.

The following table presents the fair value

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

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

The following table presents the fair value measurements of assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at December 31, 2021 and 2020:

($ in thousands)

Fair values at

Fair value at

Impaired loans

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($ in thousands)

Fair values at

Fair value at

Impaired loans

4 unchanged sentences

Unobservable (Level 3) Inputs

The following tables present quantitative

information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at December 31, 2020 and

Fair value at

Range (weighted-

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at December 31, 2021 and 2020:

($ in thousands)

Fair value at

Unobservable inputs

Range (weighted- average)

Collateral-dependent impaired loans

Market comparable properties

Market comparable

Comparability adjustments (%)

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Loan closing rates

Fair Value at

Range (weighted-

($ in thousands)

Fair value at

Unobservable inputs

Range (weighted- average)

Collateral-dependent impaired loans

Market comparable properties

Market comparable

Comparability adjustments (%)

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Loan closing rates

The mortgage servicing rights portfolio

is measured for fair value by an independent third party.

The mortgage servicing rights portfolio is measured for fair value by an independent third party.

The valuation of the portfolio hinges on a number of quantitative factors.

These factors include, but are not limited to, a discount rate applied to the cash flows, and an assumption of future principal

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

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

The servicing rights

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, 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

amount for these items (which include cash on hand, due from banks, and federal funds sold) because they represent cash or mature

in 90 days or less, and do not represent unanticipated credit concerns.

These factors include, but are not limited to, a discount rate applied to the cash flows, and an assumption of future principal prepayments.

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

The servicing rights have had a decrease in prepayments and the 9.93 percent decrease in the constant prepayment rate reflects the change in market rates.

In addition, the earnings credit rate decreased and the discount rate increased.

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, 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 amount for these items (which include cash on hand, due from banks, and federal funds sold) because they represent cash or mature in 90 days or less, and do not represent unanticipated credit concerns.

Loans Held for Sale

The fair value of loans held for sale is

based upon quoted market prices, where available, or is determined by discounting estimated cash flows using interest rates approximating

the Company’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.

The estimated fair value of loans follows

the guidance in ASU 2016-01, which prescribes an “exit price”

approach in estimating and disclosing fair value of financial

The fair value calculation at that date discounted estimated future cash flows using rates that incorporated discounts

for credit, liquidity, and marketability factors.

Deposits, Repurchase Agreements &

FHLB Advances

Deposits include demand deposits, savings

accounts and certain money market deposits.

The fair value of loans held for sale is based upon quoted market prices, where available, or is determined by discounting estimated cash flows using interest rates approximating the Company’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.

The estimated fair value of loans follows the guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments.

The fair value calculation at that date discounted estimated future cash flows using rates that incorporated discounts for credit, liquidity, and marketability factors.

Deposits, Repurchase Agreements & FHLB Advances

Deposits include demand deposits, savings accounts and certain money market deposits.

The carrying amount approximates the fair value.

The estimated fair value for fixed-maturity

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

terms and maturities at December 31, 2020 and 2019.

The estimated fair value for fixed-maturity time deposits, as well as borrowings, is based on estimates of the rate the Company could pay on similar instruments with similar terms and maturities at December 31, 2021 and 2020.

Loan Commitments

The fair value of commitments is estimated

using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and

the present creditworthiness of the counterparties.

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

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

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.

The estimated fair values for other financial instruments and off-balance-sheet loan commitments approximate cost at December 31, 2021 and 2020 and are not considered significant to this presentation.

Trust Preferred Securities

The fair value for Trust Preferred Securities

is estimated by discounting the cash flows using an appropriate discount rate.

The following table presents estimated

fair values of the Company’s financial instruments.

The fair values of certain instruments were calculated by discounting

expected cash flows, which involves significant judgments by management and uncertainties.

Fair value is the estimated amount at

which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced

or liquidation sale.

Because no market exists for these financial instruments, and because management does not intend to sell these

financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial

instruments could be sold individually or in the aggregate.

The fair value for Trust Preferred Securities is estimated by discounting the cash flows using an appropriate discount rate.

Subordinated Debt

The fair value for Subordinated Debt is estimated by discounting the cash flows using an appropriate discount rate.

The following table presents estimated fair values of the Company’s financial instruments.

The fair values of certain instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties.

Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

Because no market exists for these financial instruments, and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

($ in thousands)

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Trust preferred securities

Subordinated debt, net of issuance costs

Interest payable

4 unchanged sentences

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

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Interest payable

Parent Company Financial

Presented below is condensed financial

information of the parent company only:

Parent Company Financial Information

Presented below is condensed financial information of the parent company only:

Condensed Balance Sheets

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Trust preferred securities

Sub debt net of issuance cost

Borrowings from nonbanking subsidiaries

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Total liabilities

Stockholders’

Total liabilities and stockholders’

Stockholders’ equity

Total liabilities and stockholders’ equity

Condensed Statements of Income

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Nonbanking subsidiaries

Preferred stock dividends

Net income available to common shareholders

Condensed Statements of Comprehensive

Condensed Statements of Comprehensive Income

($ in thousands)

3 unchanged sentences

Related tax (expense) benefit

reclassification adjustment for gain realized in income

Related tax expense

Net effect on other comprehensive income

14 unchanged sentences

Dividends on common shares

Dividends on preferred shares

Proceeds from issuance of common shares

Conversion of preferred shares

Proceeds from share-based compensation plans

Repurchase of common shares

Net cash used in financing activities

Proceeds from sub-debt net of issuance cost

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents at end of year

Quarterly Financial Information

Quarterly Financial Information (unaudited)

Years ended December 31,

($ in thousands, except per share data)

6 unchanged sentences

Income tax expense

Preferred share dividend

Net income available to common

Basic earnings per common share

8 unchanged sentences

Income tax expense

Preferred share dividend

Net income available to common

Basic earnings per common share

1 unchanged sentence

Dividends per share

Report of Independent Registered Public

Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders, Board of Directors and Audit Committee

4 unchanged sentences

balance sheets of SB Financial Group, Inc.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated

statements of income, comprehensive income, stockholders’

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.

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements

of income, comprehensive income, stockholders’ equity and cash flows for each of the years ended December 31, 2021 and 2020, 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, 2021 and 2020, 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

These financial statements are the responsibility

of the Company’s management.

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

on our audits.

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 audits in accordance with

the standards of the PCAOB.

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

the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

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.

of the Company’s management.

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

We are a public accounting firm registered with

the Public Company Accounting Oversight Board (United States) (“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 audits in accordance with the

standards of the PCAOB.

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

statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks

of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall

presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is

a matter 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) relates to accounts or disclosures that is 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 matter below, providing separate opinion on

the critical audit matter or on the accounts or disclosures to which it relates.

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.

As described in Note 5 to the financial statements,

the Company’s consolidated allowance for loan and lease losses (ALLL) was $13.8 million at December 31, 2021.

The Company also describes

in Note 1 of the 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 others.

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 will change.

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 grades.

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, IN

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.

We have served as the Company’s auditor since 2002

Indianapolis, Indiana

March 7, 2022

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data