What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-08 compared with 2023-03-07 · 1384 added, 1048 removed, 560 unchanged (81% of the section changed)

Financial Statements and Supplementary Data.

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

Our Consolidated Financial Statements and Notes thereto and other supplementary

Index to Consolidated Financial Statements

6 unchanged sentences

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

Financial Group, Inc.

Balance Sheets

SB Financial Group, Inc.

Consolidated Balance Sheets

at December 31,

($ in thousands)

and due from banks

bearing time deposits

Available-for-sale

held for sale

net of unearned income

for loan losses

and equipment, net

Reserve and Federal Home Loan Bank Stock, at cost

assets and other assets held for sale, net

Cash and due from banks

Interest bearing time deposits

Available-for-sale securities

Loans held for sale

Loans, net of unearned income

Allowance for credit losses

Premises and equipment, net

Federal Reserve and Federal Home Loan Bank Stock, at cost

Foreclosed assets and other assets held for sale, net

Interest receivable

Cash value of life insurance

servicing rights

Liabilities and shareholders’

Mortgage servicing rights

Liabilities and shareholders’ equity

Non interest bearing demand

Interest bearing demand

bearing demand

Home Loan Bank advances

preferred securities

debt net of issuance costs

Commitments & Contingent

Time deposits

Total deposits

Repurchase agreements

Federal Home Loan Bank advances

Trust preferred securities

Subordinated debt net of issuance costs

Interest payable

Other liabilities

Total liabilities

Commitments & Contingent Liabilities

Shareholders’ Equity

2 unchanged sentences

2023 - 0 shares outstanding, 2022 - 0 shares outstanding

Common stock, no par

Common stock, no par value;

2023 - 10,500,000 shares authorized, 8,525,375 shares issued;

2022 - 10,500,000 shares authorized, 8,525,375 shares issued

paid-in capital

other comprehensive loss

stock, at cost;

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

Treasury stock, at cost;

(2023 - 1,756,733 common shares;

2022 - 1,589,913 common shares)

shareholders’ equity

liabilities and shareholders’ equity

Notes to Consolidated Financial Statements

Financial Group, Inc.

Statements of Income

Total shareholders’ equity

Total liabilities and shareholders’ equity

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Consolidated Statements of Income

Years Ended December 31,

($ in thousands,

except per share data)

Interest Income

($ in thousands, except per share data)

Interest Income

Interest Expense

agreements & other

Home Loan Bank advance expense

preferred securities expense

Other interest income

Total interest income

Interest Expense

Repurchase agreements & other

Federal Home Loan Bank advance expense

Trust preferred securities expense

Subordinated debt expense

Total interest expense

Net Interest Income

for loan losses

interest income after provision for loan losses

Noninterest Income

management fees

on sale of mortgage loans & OMSR

loan servicing fees, net

on sale of non-mortgage loans

insurance income

Provision for credit losses - loans

Provision for unfunded commitments

Total provision for credit losses

Net interest income after provision for loan losses

Noninterest Income

Noninterest Expense

and employee benefits

occupancy expense

processing fees

and communications

and delivery expense

local and other taxes

Wealth management fees

Customer service fees

Gain on sale of mortgage loans & OMSR

Mortgage loan servicing fees, net

Gain on sale of non-mortgage loans

Title insurance income

Net gain on sale of securities

Total noninterest income

Noninterest Expense

Salaries and employee benefits

Net occupancy expense

Equipment expense

Data processing fees

Professional fees

Marketing expense

Telephone and communications

Postage and delivery expense

State, local and other taxes

Employee expense

Other expense

Total noninterest expense

Income before income tax

for income taxes

Basic earnings per common

Diluted earnings per common

Notes to Consolidated Financial Statements

Financial Group, Inc.

Statements of Comprehensive Income (Loss)

Provision for income taxes

Basic earnings per common share

Diluted earnings per common share

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Consolidated Statements of Comprehensive Income

Years Ended December 31,

($ in thousands)

Other comprehensive (loss)

for sale investment securities:

unrealized holding (loss) arising in the period

effect on other comprehensive (loss)

comprehensive income (loss)

Notes to Consolidated Financial Statements

Financial Group, Inc.

Statements of Shareholders’ Equity

Other comprehensive income (loss)

Available for sale investment securities:

Gross unrealized holding gain (loss) arising in the period

Related tax benefit

Net effect on other comprehensive income (loss)

Total comprehensive income (loss)

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Consolidated Statements of Shareholders’

Years Ended December 31,

($ in thousands, except

per share data)

Paid-in Capital

Comprehensive

comprehensive loss

Stock dividends on common ( 344,663 shares)

($ in thousands, except per share data)

Income (Loss)

January 1, 2023

Other comprehensive income

CECL initial adjustment

Dividends on common, $ 0.52 per share

stock vesting

Restricted stock vesting

Repurchased stock ( 244,325 shares)

based compensation expense

in thousands, except per share data)

Paid-in Capital

Stock based compensation expense

December 31, 2023

Comprehensive

comprehensive loss

($ in thousands, except per share data)

Income (Loss)

January 1, 2022

Other comprehensive loss

Stock dividends on common ( 344,663 shares)

Dividends on common, $ 0.48 per share

stock vesting

Restricted stock vesting

Repurchased stock ( 317,356 shares)

based compensation expense

Notes to Consolidated Financial Statements

Financial Group, Inc.

Stock based compensation expense

December 31, 2022

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Consolidated Statements of Cash Flows

Investing Activities Years Ended December 31,

Years Ended December 31,

($ in thousands)

2 unchanged sentences

Depreciation and amortization

Provision for loan losses

Provision for credit losses

Expense of share-based compensation plan

7 unchanged sentences

Gain from sale of loans

Net gains on sales of securities

Interest receivable

7 unchanged sentences

Purchase of premises, equipment

Proceeds from bank owned life insurance

Purchase of bank owned life insurance

1 unchanged sentence

Proceeds from sale of foreclosed assets

Acquisition, net of cash acquired (paid)

Net cash used in investing activities

Financing Activities

Net increase (decrease) in demand deposits, money

market, interest checking & savings accounts

Net increase (decrease) in time deposits

Net decrease in demand deposits, money market, interest checking & savings

Net increase in time deposits

Net decrease in securities sold under agreements to repurchase

3 unchanged sentences

Dividends on common shares

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Increase in cash and cash equivalents

3 unchanged sentences

Interest paid

Income taxes paid

Supplemental non-cash disclosure

Recognition of right-of-use lease assets

Transfer of loans to foreclosed assets

Stock dividends declared and paid

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Notes to Consolidated Financial Statements

Financial Group, Inc.

to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

Organization and Summary of Significant Accounting Policies

and Nature of Operations

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, Inc.

(“SB Captive”), RFCBC, Inc.

Organization and Summary of

Significant Accounting Policies

Organization and Nature of Operations

SB Financial Group, Inc.

(“SB Financial”)

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.

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.

dba RDSI Banking Systems (“RDSI”), Rurban

Statutory Trust II (“RST II”), and SBFG Mortgage, LLC.

State Bank owns all the outstanding stock of Rurban Mortgage Company

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

The “Company” refers to SB Financial and its consolidated

subsidiaries collectively, except where the context indicates the reference relates solely to the registrant, SB Financial.

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 in its market areas.

The Company is regulated

by certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

of Consolidation

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

All significant intercompany accounts and transactions were eliminated in consolidation.

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

The Company is 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, SBFG Mortgage, LLC, 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.

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

At December 31, 2022

and 2021, cash equivalents consisted primarily of interest-bearing and noninterest bearing demand deposit balances held by correspondent

December 31, 2022, the Company’s correspondent cash accounts exceeded federally insured limits by

Additionally, the Company had approximately $ 9.8 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.

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.

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.

Loans Held for Sale

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.

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.

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

loan servicing rights, and fair value of financial instruments.

Significant Accounting Policies

Cash Equivalents

The Company considers all liquid investments with

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

At December 31, 2023 and 2022, cash equivalents consisted primarily

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

At December 31, 2023, the Company’s correspondent

cash accounts exceeded federally insured limits by $ .4 million.

Additionally, the Company had approximately $ 5.9 million of cash held

by the Federal Reserve Bank (“FRB”) and the Federal Home Loan Bank (“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.

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.

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.

The Company has made a policy election to exclude

accrued interest from the amortized cost basis of securities and report accrued interest separately in other assets on the consolidated

balance sheets.

A security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent

or if full collection of interest or principal becomes uncertain.

Accrued interest for a security placed on nonaccrual is reversed against

interest income.

There was no accrued interest related to securities reversed against interest income for the years ended December 31,

2023 or 2022.

Allowance for Credit Losses – Available-for-Sale

For available-for-sale securities in an unrealized

loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the

security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s

amortized cost basis is written down to fair value through income as a provision for credit losses.

For available-for-sale securities

that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses

or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes

to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared

to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost

basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value

is less than the amortized cost basis.

Changes in the ACL are

recorded as provision for (or reversal of) credit losses.

Available-for-sale securities are charged-off against the allowance or, in the

absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria

regarding intent or requirement to sell is met.

At December 31, 2023, no ACL on available-for-sale securities

was recorded.

Management has made the accounting policy election

to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses.

Accrued interest receivable

on available-for-sale debt securities totaled $ 0.7 million at December 31, 2023.

Should the decline in fair value be the result of credit

losses or other factors, the security would be moved into a nonaccrual status and all accrued interest be reversed.

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 income.

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

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 ACL, 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.

for Loan Losses

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.

recoveries, if any, are credited to the allowance.

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.

allowance consists of allocated and general components.

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

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.

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

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

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.

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.

and Equipment

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.

Asset Impairment

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.

Reserve Bank and Federal Home Loan Bank Stock

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.

Assets and Other Assets Held for Sale

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.

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.

Deposits and Other Intangibles

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

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

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.

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.

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.

Servicing Rights

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.

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.

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.

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

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 Credit Losses - Loans

The ACL is a valuation account that is deducted

from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the

allowance when management believes that the uncollectability of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate

of amounts previously charged-off and expected to be charged-off.

Management estimates the ACL using relevant available

information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information

are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency

level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant

The Company measures expected credit losses for

loans on a pooled basis when similar risk characteristics exist.

The Company has identified the following portfolio segments:

& Industrial - Commercial & industrial loans consist of loans or lines of credit

to finance accounts receivable, inventory or other general business needs, and lease financing

agreements for equipment, vehicles, or other assets.

The primary risk associated with commercial

& industrial loans and lease financing agreements is the ability of borrowers to achieve

business results consistent with those projected at origination.

Failure to achieve these

projections presents risk the borrower will be unable to service the debt consistent with

the contractual terms of the loan or lease.

Real Estate - Owner Occupied - Owner occupied commercial real estate loans consist of

loans to purchase or re-finance owner occupied nonresidential properties.

This includes office

buildings and other commercial facilities.

Commercial mortgages secured by owner occupied

properties are primarily dependent on the ability of borrowers to achieve business results

consistent with those projected at loan origination.

While these loans are collateralized

by real property in an effort to mitigate risk, it is possible the liquidation of collateral

will not fully satisfy the obligation as the commercial real estate collateral may be more

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

Real Estate – Nonowner Occupied - Nonowner occupied commercial real estate loans

consist of loans to purchase, construct, or refinance investment nonresidential properties.

This includes office buildings and other facilities rented or leased to unrelated parties,

as well as multifamily properties.

The primary risk associated with nonowner occupied commercial

real estate loans is the ability of the income-producing property that collateralizes the

loan to produce adequate cash flow to service the debt.

While these loans are collateralized

by real property in an effort to mitigate risk, it is possible the liquidation of collateral

will not fully satisfy the obligation as the commercial real estate collateral may be more

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

● Agricultural

- Agricultural loans consist of loans or lines of credit to finance farmland, equipment,

and general business needs or other assets.

The primary risk associated with agricultural

loans is the ability of borrowers to achieve business results consistent with those projected

at origination.

Failure to achieve these projections presents risk the borrower will be unable

to service the debt consistent with the contractual terms of the loan.

● Residential

Real Estate – Residential real estate mortgage loans consist of loans to purchase

or refinance the borrower’s primary dwelling, second residence or vacation home and

are often secured by 1-4 family residential property.

Significant and rapid declines in real

estate values can result in borrowers having debt levels in excess of the current market

value of the collateral.

● Home Equity

Line of Credit (HELOCs) - Home equity loans consist of HELOCs and

other lines of credit secured by first or second liens on the borrower’s primary residence.

These loans are secured by both senior and junior liens on the residential real estate and

are particularly susceptible to declining collateral values.

This risk is elevated for loans

secured by junior liens as a substantial decline in value could render the junior lien position

effectively unsecured.

- Consumer loans consist of loans to finance unsecured home improvements, personal assets,

such as automobiles or recreational vehicles, and revolving lines of credit that can be secured

or unsecured.

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.

of the underlying collateral within this class is at risk of potential rapid depreciation

which could result in unpaid balances in excess of the collateral.

The Company utilizes a Discounted Cash Flow (“DCF”)

method to estimate the quantitative portion of the ACL for all loan pools evaluated on a collective pooled basis, with the exception of

the credit card portfolio, which was estimated using the Remaining Life Method.

For each segment, a Loss Driver Analysis (“LDA”)

was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows.

The LDA utilized

the Company’s own Federal Financial Institutions Examination Council’s (“FFIEC”) Call Report data, as well as peer

institution data.

In creating the DCF model, the Company has established

a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.

Company’s own loan-level loss data contained within the model is being supplemented

with peer data in most loan pools as there was not sufficient loan-level detail from prior cycles reflecting similar economic conditions

as the forecasted loss drivers to result in a sound calculation.

Key inputs into the DCF model include loan-level

detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers.

utilizes data from Federal Reserve Economic Data (“FRED”) to provide economic forecasts under various scenarios, which are

applied to loan pools to reflect credit risk in the current economic environment.

Additional key assumptions in the DCF model include

the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment rates.

When possible,

the Company utilizes its own PDs for the reasonable and supportable forecast period.

When it is not possible to use the Company’s

own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors.

When possible, the Company utilizes its own LGDs

for the reasonable and supportable forecast period.

When it is not possible to use the Company’s own LGDs, the LGD is derived using

a method referred to as Frye Jacobs.

The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD

over time and projects the LGD based on the level of PD forecasted.

In all cases, the Frye Jacobs method is utilized to calculate LGDs

during the reversion period and long-term historical average.

Benchmark prepayment and curtailment rates were used in the ACL estimate.

Management also considers further adjustments

to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist

for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered

in the quantitative analyses.

A number of factors are considered including economic forecast uncertainty, credit quality trends, valuation

trends, concentration risk, quality of loan review, changes in personnel, impact of rising interest rates, external factors and other

considerations.

The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools.

The qualitative analysis

increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above.

During each reporting

period, management also considers the need to adjust the baseline lifetime loss rates for factors that may cause expected losses to differ

from those experienced in the historical loss periods.

Loans that do not share risk characteristics are

evaluated on an individual basis.

When management determines that foreclosure is probable and the borrower is experiencing financial difficulty,

the expected credit losses are based on the fair value of collateral at the reporting dated adjusted for selling costs as appropriate.

The Company is also required to consider expected

credit losses associated with loan commitments over the contractual period in which it is exposed to credit risk on the underlying commitments.

Any allowance for off-balance sheet credit exposures is reported in Other liabilities on the Company’s consolidated balance sheet

and is increased or decreased through a provision for credit loss expense on the Company’s consolidated statement of income.

calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be

funded over their estimated lives.

The allowance is calculated using the same methodology, inputs and assumptions as the funded portion

of loans at the segment level applied to the amount of commitments expected to be funded.

While the Company’s policies and procedures

used to estimate the ACL, as well as the resultant provision for credit losses charged to income, are considered adequate by management

and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise.

are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or particular industry

conditions, which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses.

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

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 value.

Federal Reserve Bank (FRB) and Federal Home

Loan Bank (FHLB) 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

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.

Goodwill is tested for impairment annually or

upon a triggering event.

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 eight 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 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.

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.

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.

Employee Compensation Plan

December 31, 2022 and 2021, the Company had a share-based employee compensation plan (see Note 18 to the Consolidated Financial Statements).

of Financial Assets

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, 2023 and 2022, the Company had

a share-based employee compensation plan (see Note 18 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.

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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.

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).

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current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.

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.

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.

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.

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

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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.

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 U.S.

Federal, State and Local examinations by tax authorities for the years before 2019.

As of December 31, 2022, the Company had no uncertain

income tax positions.

stock is stated at cost.

Cost is determined by the weighted-average cost method.

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

State and Local examinations by tax authorities for the years before 2020.

As of December 31, 2023, the Company had no uncertain income

tax positions.

Treasury stock is stated at cost.

Cost is determined

by the weighted-average cost method.

Earnings Per Share

Earnings per share (“EPS”) is

computed using the two-class method.

Basic EPS represent income available to common shareholders divided by the

weighted-average number of common shares outstanding during each period.

Diluted EPS 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 (Loss)

Comprehensive

income (loss) 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.

December 31, 2022, 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 provide additional

funds for various corporate obligations of the Company, including share buybacks, acquisition costs and organic asset growth (see Note

13 to the Consolidated Financial Statements).

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.

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

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 title insurance.

and applicable accounting pronouncements:

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

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 for fiscal years beginning after December 15, 2020.

The impact of this new guidance did not have

a material impact on the Company’s consolidated financial statements.

standards not yet adopted:

Treasury stock shares are not deemed outstanding for EPS calculations.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income

(loss) and other comprehensive income (loss), net of applicable income taxes.

Other comprehensive income (loss) 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, 2023, 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 provide additional funds for various corporate obligations

of the Company, including share buybacks, acquisition costs and organic asset growth (see Note 13 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.

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 and 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 title insurance.

Adoption of New Accounting Standards:

Financial Instruments –

Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments

On January 1, 2023, the Company adopted ASU 2016-13

- Financial Instruments - Credit Losses (Topic 326):

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.

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.

2016-13 is effective for annual and interim periods beginning after December 15, 2019.

However, on October 16, 2019, the FASB voted to

defer the effective date for ASC 326, Financial Instruments – Credit Losses , for smaller reporting companies to fiscal years

beginning after December 15, 2022, and interim periods within those fiscal years, which was codified in the final ASU issued by the FASB

on November 15, 2019.

As a result, because the Company qualified as a smaller reporting company, based on its most recent determination

under applicable rules of the Securities and Exchange Commission, as of November 15, 2019, the Company is not subject to ASU 2016-13

until its annual and interim periods beginning January 1, 2023.

Company established a committee and engaged an outside consultant to assist in the transition to the new standard.

Specific loan level

history was incorporated into the model and the Company is comfortable with the assumptions related to each loan product type.

expects to recognize a one-time cumulative effect adjustment (increase) to the allowance for credit losses between $ 1.0 million and $ 2.0

million upon adoption as of January 1, 2023.

In addition, the Company expects to establish a related reserve for unfunded commitments

of between $ 1.0 million and $ 2.0 million as of January 1, 2023.

Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures

guidance was issued in March 2022 to enhance the disclosure requirements for certain loan refinancing and restructurings by creditors

when a borrower is experiencing financial difficulties.

The amendments in this update require that an entity evaluate whether the modification

represents a new loan or a continuation of an existing loan.

The guidance is effective beginning after December 15, 2022.

of this new guidance should not have a material impact on the Company’s consolidated financial statements.

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

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.

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) (“ASC

326”) as amended.

The new accounting guidance in this ASU replaces the incurred loss methodology with an expected loss methodology,

which is referred to as the current expected credit loss (“CECL”) methodology.

The CECL methodology is applicable to the measurement

of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity (“HTM”) debt

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of

credit, financial guarantees, and other similar instruments that are noncancellable), and net investments in leases recognized by a lessor.

The CECL methodology requires an entity to estimate credit losses over the life of an asset or off-balance sheet credit exposure.

In addition, CECL made changes to the accounting

for available-for-sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down

on available-for-sale debt securities if management determines that the Company does not intend to sell and it is more likely than not,

that the Company will not be required to sell the securities.

The Company adopted ASC 326 using the

modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

for reporting periods beginning on or after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be

reported in accordance with previously applicable GAAP.

The transition adjustment of the CECL adoption included an increase in the

ACL of $ 1.4 million and an increase of $ 1.1 million to establish a reserve for unfunded commitments, with a $ 2.0 million decrease to

retained earnings, and $ 0.5 million of deferred tax being recorded as part of the deferred tax asset in the

Company’s consolidated balance sheet.

The following table details the impact of the

adoption of ASC 326:

January 1, 2023

($ in thousands)

Pre-ASC 326 adoption

Cummulative Effect on Retained Earnings

Allowance for credit loss on loans

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Home equity line of credit (HELOC)

Total ACL on loans

ACL on off-balance sheet commitments

Financial Instruments –

Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures

On January 1, 2023, the Company adopted ASU 2022-02

Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, which removed the existing measurement

and disclosure requirements for loans considered to be Troubled Debt Restructurings (“TDRs”) and added additional disclosure

requirements related to modifications provided to borrowers experiencing financial difficulty.

Prior to adoption of ASU 2022-02, a change

in contractual terms of a loan where a borrower was experiencing financial difficulty and received a concession not available through

other sources was required to be disclosed as a TDR, whereas now a borrower that is experiencing financial difficulty and receives a modification

in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment delay or a term extension in the current

period needs to be disclosed.

The amendment was adopted prospectively and had no impact on the Company’s consolidated financial

statements aside from additional and revised financial statement disclosures (See Note 4 to the Consolidated Financial Statements).

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.

However, a deferral of the implementation of the Reference Rate Reform was issued in December of 2022, which extends the implementation

to December 31, 2024.

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.

However, a deferral of the implementation

of the Reference Rate Reform was issued in December of 2022, which extends the implementation to December 31, 2024.

The Company has implemented

a replacement for the reference rate and has determined that the changes did not have a material impact on the Company’s consolidated

financial statements.

Accounting for Investments in Tax Credit Structures

Using the Proportional Amortization Method (ASU 2023-02).

This ASU permits reporting entities to elect to

account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the

proportional amortization if certain conditions are met.

A reporting entity makes an accounting policy election to apply the proportional

amortization method on a tax-credit-by-tax-credit-program basis rather than electing to apply the proportional amortization method at

the reporting entity level or to individual investments.

The Company adopted the standard using a modified retrospective transition approach

to the amendments related to our low income housing tax credit (“LIHTC”) investments that are eligible to apply proportional

amortization.

The adoption of this standard did not have a material effect on the Company’s operating results or financial condition.

Accounting Standards not yet adopted:

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” The amendments

in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures,

primarily related to effective tax rate reconciliation and information related to income taxes paid, among certain other amendments to

improve the effectiveness of such disclosures.

The amendments of this ASU are effective for fiscal years beginning after December 15,

2024 and are to be applied on a prospective basis.

Adoption of this ASU is not expected to have a material impact on the Company’s

Consolidated Financial Statements.

Earnings Per Share

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

Basic earnings per common share is computed by dividing

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

excluding participating securities.

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 dilutive effect of stock compensation using the treasury stock method.

EPS for the years

ended December 31, 2022 and 2021 is computed as follows:

is computed using the two-class method.

Basic EPS 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 EPS is computed using the weighted-average number of shares determined for the basic EPS plus the dilutive

effect of stock compensation using the treasury stock method.

EPS for the years ended December 31, 2023 and 2022 is computed as follows:

Twelve Months Ended

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

Less net income allocated to participating securities

Net income allocated to common shares

Distributed earnings allocated to common shares

Undistributed earnings allocated to common shares

Net earnings allocated to common shares

Net earnings allocated to participating securities

Net Income allocated to common shares and participating securities

Weighted average shares outstanding for basic earnings per share

Average participating securities

Dilutive effect of stock compensation

Weighted average shares outstanding for diluted earnings per share

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Diluted earnings per common share

were no anti-dilutive shares in 2022 or 2021.

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 21, 2022.

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.

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.

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

There were no anti-dilutive shares in 2023 or

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.

Available-for-Sale Securities

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

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

are as follows:

($ in thousands)

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Other corporate securities

amortized cost and fair value of securities available-for-sale at December 31, 2022, by contractual maturity, are shown below.

maturities differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or

prepayment penalties.

The amortized cost and fair value of securities

available-for-sale at December 31, 2023, by contractual maturity, are shown below.

Expected maturities differ from contractual maturities

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

($ in thousands)

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Mortgage-backed securities

fair value of securities pledged as collateral, to secure public deposits and for other purposes, was $ 53.9 million at December 31,

2022, and $ 54.2 million at December 31, 2021.

Securities delivered for repurchase agreements (not included above) were $ 17.8 million

at December 31, 2022 and $ 23.6 million at December 31, 2021.

were no realized gains or losses on available-for-sale securities in 2022 and 2021.

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

There were 144

securities and 65 securities reported with amounts less than their historical value at December 31, 2022 and 2021, respectively.

fair value of these investments were $ 235.5 million and $ 214.2 million at December 31, 2022 and 2021, respectively, which was approximately

99 percent and 81 percent, respectively, of the Company’s available-for-sale investment portfolio.

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

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

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

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

following tables present securities with unrealized losses at December 31, 2022 and 2021:

The fair value of securities pledged as collateral,

to secure public deposits and for other purposes, was $ 89.7 million at December 31, 2023, and $ 53.9 million at December 31, 2022.

delivered for repurchase agreements (not included above) were $ 19.7 million at December 31, 2023 and $ 17.8 million at December 31, 2022.

During the 4th quarter of 2023, the Company sold

all of the equity shares it owned in Visa Class “B” shares.

As a result of this sale, the Company no longer owns any Visa

Class B shares.

The carrying value of the Visa Class B shares on the Company’s balance sheet was nominal as the Company had a historical

cost basis of $ 0.01 per share.

After transaction costs, the Company realized a pre-tax gain on the sale of $ 1.45 million.

Certain investments in debt securities are reported

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

There were 139 securities and 144 securities reported with amounts

less than their historical value at December 31, 2023 and 2022, respectively.

Total fair value of these investments was $ 217.0 million

and $ 235.5 million at December 31, 2023 and 2022, respectively, which was approximately 99 percent and 99 percent, respectively, of the

Company’s available-for-sale investment portfolio.

The following tables present securities with unrealized

losses at December 31, 2023 and 2022:

($ in thousands)

1 unchanged sentence

12 Months or Longer

Unrealized Losses

December 31, 2023

5 unchanged sentences

12 Months or Longer

Unrealized Losses

December 31, 2022

3 unchanged sentences

Other corporate securities

unrealized loss on the securities portfolio increased by $ 37.1 million as of December 31, 2022, 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 (loss).

Loans and Allowance for Loan Losses

following tables present the categories of loans at December 31, 2022 and 2021:

Nonaccrual Loans

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.

Management reviews these securities on a quarterly basis and evaluates

if any security has a fair value less than its amortized cost.

Once these securities are identified, management determines whether a decline

in fair value resulted from a credit loss or other factors.

In making the assessment, the Company may consider various factors including

the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the

security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically

related to the security.

If the assessment indicates that a credit loss exists, a provision is recorded to the ACL.

Loans and Allowance for Credit Losses

The following tables

present the categories of loans at December 31, 2023 and 2022:

($ in thousands)

December 2022

December 2021

December 2022

December 2021

Commercial & industrial

3 unchanged sentences

Home equity line of credit (HELOC)

Net deferred costs (fees)

Total loans, net deferred costs (fees)

Allowance for loan losses

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

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

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

Since a portion of the

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

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

The amount of collateral obtained, if deemed necessary,

is based on management’s credit evaluation of the customer.

Collateral held varies, but may include accounts receivable, inventory,

property, plant and equipment, commercial real estate and residential real estate.

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

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.

below is a summary of loan commitments, unused lines of credit and standby letters of credit as of December 31, 2022 and 2021.

Allowance for credit 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

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

held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real

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.

Listed below is a summary of loan commitments,

unused lines of credit, and standby letters of credit as of December 31, 2023 and 2022.

($ in thousands)

1 unchanged sentence

Standby letters of credit

risk characteristics of each loan portfolio segment are as follows:

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

Commercial & Industrial and Agricultural

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

underlying collateral provided by the borrower.

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

securing these loans may fluctuate in value.

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

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

Short-term loans may be made on an unsecured

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

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

Real Estate (Owner and Nonowner Occupied)

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

Commercial real estate lending

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

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

Commercial real estate loans may be more

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

The characteristics of properties securing the

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

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.

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

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

These estimates

may be inaccurate.

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

success of the ultimate project.

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

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

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

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

of long-term financing.

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

and consumer loans consist of two segments – 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.

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, 2022 and 2021:

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

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

In the case of loans secured by accounts receivable, the availability of

funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial Real Estate (Owner and Nonowner

Commercial real estate loans are viewed primarily

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

Commercial real estate lending typically involves higher loan principal

amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business

conducted on the property securing the loan.

Commercial real estate loans may be more adversely affected by conditions in the real estate

markets or in the general economy.

The characteristics of properties securing the Company’s commercial real estate portfolio are

diverse, but with geographic location almost entirely in the Company’s market area.

Management monitors and evaluates commercial

real estate loans based on collateral, geography and risk grade criteria.

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 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.

Allowance for Credit Losses (ACL)

The ACL is an estimate of the expected credit

losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical

credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts

that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

A provision for credit losses

is charged to operations based on management’s periodic evaluation of these and other pertinent factors.

As a result of the adoption of ASC 326, the Company

recorded a $ 1.4 million increase to the ACL as a cumulative-effect adjustment on January 1, 2023.

The following table summarizes the activity

related to the ACL for the twelve months ended December 31, 2023 under the CECL methodology.

($ in thousands)

1 unchanged sentence

December 31, 2023

Beginning balance

Ending balance

December 31, 2022

Ending balance:

individually evaluated for

Ending balance:

collectively evaluated for impairment

Ending balance:

individually evaluated for impairment

Ending balance:

collectively evaluated for impairment

Provision for

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Prior to the adoption of ASC 326 on January 1,

2023, the Company calculated the ACL under the incurred loss methodology.

The following table contains disclosures

related to the ACL for the year ended December 31, 2022 under this methodology.

($ in thousands)

1 unchanged sentence

December 31, 2022

Beginning balance

Provision (credit)

Ending balance

December 31, 2021

Ending balance:individually evaluated for impairment

Ending balance:

evaluated for impairment

Ending balance:

evaluated for impairment

Ending balance:

evaluated for impairment

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

This analysis is performed on a quarterly basis.

The Company uses the following definitions for risk ratings:

(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.

Mention (grade 5):

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

If left uncorrected, these potential

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

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

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

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

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

They are characterized

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

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

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

and improbable.

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

financial statement is not feasible.

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

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

following tables present the credit risk profile of the Company’s loan portfolio based on rating category as of December 31, 2022

($ in thousands) December 31, 2022

real estate -

Adopting ASC 326

Provision for

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Special Mention (5)

Substandard (6)

December 31, 2021

real estate -

Special Mention (5)

Substandard (6)

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

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.

following tables present the Company’s loan portfolio aging analysis as of December 31, 2022 and 2021:

The following table presents gross chargeoffs

for the year ended December 31, 2023 by loan category and origination year.

($ in thousands)

Term Loans by Year of Origination

December 31, 2023

3 unchanged sentences

Residential real estate

Home equity line of credit (HELOC)

Collateral dependent loans are loans for which

the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing

financial difficulty.

The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other

loans that management of the Company designates as having higher risk.

These loans do not share common risk characteristics and are not

included within the collectively evaluated loans for determining the ACL.

The following table presents an analysis of collateral-dependent

loans of the Company as of December 31, 2023.

($ in thousands)

Collateral Type

December 31, 2023

3 unchanged sentences

Residential real estate

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

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

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

terms of the loan.

Impaired loans include nonperforming commercial loans but also include loans modified in 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.

following tables present impaired loan activity for the twelve months ended December 31, 2022 and 2021:

Under CECL, for collateral dependent loans, the

Company has adopted the practical expedient to measure the ACL based on the fair value of collateral.

The ACL is calculated on an individual

loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts,

and amortized cost.

If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The following table disaggregates the allowance

for loan losses and recorded investment in loans by impairment methodology under the incurred loss methodology as of December 31, 2022.

December 31, 2022

Commercial & industrial

Commercial real estate

Residential real estate

Allowance for loan losses:

Ending allowance attributable to loans:

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated for impairment

Collectively evaluated for impairment

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.

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

The Company uses the following definitions for risk ratings:

Pass (grades 1 – 4):

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):

potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may result in deterioration

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

Special mention assets are not

adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Ordinarily, special mention credits

have characteristics which corrective management action would remedy.

Substandard (grade 6):

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.

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 feasible.

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 Company evaluates the loan risk grading system

definitions and allowance for credit loss methodology on an ongoing basis.

The following table presents loan balances by credit quality

indicators by year of origination as of December 31, 2023.

in thousands)

Twelve Months Ended

Unpaid Principal

Average Recorded

Interest Income

Loans by Year of Origination

Loans Converted

real estate - owner occupied

real estate - nonowner occupied

equity line of credit (HELOC)

The following table presents loan balances by

credit quality indicators and loan categories as of December 31, 2022.

($ in thousands)

December 31, 2022

With no related allowance recorded:

real estate -

Special Mention (5)

Substandard (6)

The following tables present the Company’s

loan portfolio aging analysis as of December 31, 2023 and 2022:

($ in thousands)

December 31, 2023

Commercial & industrial

2 unchanged sentences

Residential real estate

With a specific allowance recorded:

December 31, 2022

Commercial & industrial

2 unchanged sentences

Residential real estate

All loans past due 90 days are systematically placed on nonaccrual

When a loan is moved 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 nonaccrual 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

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.

The categories of nonaccrual loans as of December

31, 2023 and December 31, 2022 are presented in the following table.

($ in thousands)

Nonaccrual loans with no allowance

Nonaccrual loans with an allowance

Total nonaccrual loans

Commercial & industrial

2 unchanged sentences

Residential real estate

Home equity line of credit (HELOC)

Impaired Loans (Prior to the Adoption of ASC

Prior to the adoption of ASU 2016-13, a loan was

considered impaired when, based on current information and events, it was probable that the Company would 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 included payment status, collateral value and the probability of collecting scheduled principal and interest

payments when due.

Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired.

Management determined 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 was 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

Large groups of smaller balance homogenous loans

were collectively evaluated for impairment.

Accordingly, the Company did not separately identify individual consumer and residential loans

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

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

These loans were evaluated based on delinquency status.

Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured,

in which case interest was recognized on a cash basis.

The following table presents impaired loan activity

for the twelve months ended December 31, 2022:

($ in thousands)

Twelve Months Ended

Unpaid Principal

1 unchanged sentence

Interest Income

Twelve Months Ended

December 31, 2022

13 unchanged sentences

Residential real estate

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

These loans are evaluated based on delinquency status.

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

Modifications made to Borrowers Experiencing Financial Difficulty

In the normal course of business, the Company

may execute loan modifications with borrowers.

These modifications are analyzed to determine whether the modification is considered concessionary,

long term and made to a borrower experiencing financial difficulty.

The Company’s modifications generally include interest rate

adjustments, principal reductions, and amortization and maturity date extensions.

These modifications provide the borrowers with short-term

cash relief to allow them to improve their financial condition.

If a loan modification is determined to be made to a borrower experiencing

financial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowance

for Credit Losses section of this Note.

For the twelve months ended December 31, 2023,

the Company did not modify any loans made to borrowers experiencing financial difficulty.

The Company had no commitments to lend to borrowers

experiencing financial difficulty for which the Company had modified an existing loan as of December 31, 2023.

Prior to the adoption of ASU 2022-02, the Company reported 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.

Concession Types

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

analysis, and collateral valuations.

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

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

All loan modifications, including those classified as TDRs, are

reviewed and approved.

The types of concessions provided to borrowers include:

rate reduction:

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

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

● Amortization

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

(1) Lengthens

the amortization period of the amortized principal beyond market terms.

This concession reduces the minimum monthly payment and increases

the amount of the balloon payment at the end of the term of the loan.

Principal is generally not forgiven.

the amount of loan principal to be amortized.

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.

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

This concession generally applies to loans without a balloon

payment at the end of the term of the loan.

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

terms and would then be reclassified as TDRs.

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

These concessions include, but are not limited to:

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

Principal forgiveness may result from any

TDR modification of any concession type.

were no new TDRs during the period ended December 31, 2022.

The following table represents new TDR activity for the twelve months ended

December 31, 2021.

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.

There were no new TDRs during the period ended December 31, 2022.

The Company monitors loan payments on an on-going

basis to determine if a loan is considered to have a payment default.

Determination of payment default involves analyzing the economic

conditions that exist for each customer and its ability to generate positive cash flows during the loan term.

For the twelve-month period

ended December 31, 2023, the Company had no loan modifications made to borrowers experiencing financial difficulty for which there was

a payment default within the 12 months following the modification date.

Unfunded Loan Commitments

The Company maintains an allowance for off-balance

sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby

and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally

cancellable (i.e.

commitment cannot be canceled at any time).

The allowance for off-balance sheet credit exposures is adjusted as a provision

for credit loss expense.

The estimate includes consideration of the likelihood that funding will occur, which is based on a historical

funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its

estimated life, which are the same loss rates that are used in computing the ACL for loans.

The ACL for unfunded loan commitments is classified

on the balance sheet within Other liabilities.

The following table presents the balance and activity

in the ACL for unfunded loan commitments for the twelve months ended December 31, 2023 and 2022.

($ in thousands)

Total modifications

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

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

The Company originated

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

As of December 31, 2022, only one PPP loan remained outstanding.

for PPP loan originations totaled $ 4.9 million, of which $ 0.1 million and $ 3.4 million were taken into income during 2022 and 2021, respectively.

to directors and their related interests, including loans to companies for which directors are principal owners and executive officers

are presented in the following table at December 31:

Balance, beginning of period

Adjustment for adoption of ASU 2016-13

Provision for unfunded commitments

Balance, end of period

Related Party Loans

Loans to directors and their related interests, including loans to

companies for which directors are principal owners and executive officers are presented in the following table at December 31:

($ in thousands)

6 unchanged sentences

Premises and Equipment

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

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

of goodwill as of December 31, 2022 and December 31, 2021 was $ 23.2 million and $ 23.2 million, respectively.

Twelve Months

balance of goodwill was $ 23.2 million for the twelve months ended December 31, 2023 and December 31, 2022.

($ in thousands)

2 unchanged sentences

Beginning balance

Acquired goodwill

Measurement period adjustments

3 unchanged sentences

quarter of each calendar year.

At December 31, 2022, 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:

The Company performed a quantitative analysis of goodwill as of September 30, 2023, and determined that

no impairment was required.

At December 31, 2023, the Company determined that no events had occurred to change the assessment from the

quantitative analysis and it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including

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

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expense for each of the following five years is immaterial.

Mortgage Banking and Servicing Rights

Mortgage Banking

and Servicing Rights

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

The unpaid principal balance of mortgage

loans serviced for others approximated $ 1.4 billion and $ 1.4 billion at December 31, 2022 and 2021, respectively.

Contractually specified

servicing fees of approximately $ 3.2 million and $ 3.1 million were included in mortgage loan servicing fees in the consolidated income

statement for the years ended December 31, 2022 and 2021, respectively.

The unpaid principal balance of mortgage loans

serviced for others approximated $ 1.4 billion at both December 31, 2023 and 2022.

Contractually specified servicing fees of approximately

$ 3.4 million and $ 3.2 million were included in mortgage loan servicing fees in the consolidated income statement for the years ended December

31, 2023 and 2022, respectively.

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

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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.

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

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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.

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

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Amount of gain (loss)

Statement of income classification

($ in thousands)

Statement of income classification

Interest rate swap contracts

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following table shows the offsetting of financial assets and derivative assets at December 31, 2023 and 2022.

Gross amounts

offset in the

Net amounts of

Gross amounts not offset in the

consolidated balance sheet

Gross amounts not offset

in the consolidated

balance sheet

($ in thousands)

balance sheet

Cash collateral

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following table shows the offsetting of financial liabilities and derivative liabilities at December 31, 2023 and 2022.

Gross amounts

offset in the

Net amounts of

Gross amounts not offset in the

consolidated balance sheet

of liabilities

Gross amounts not offset

in the consolidated

balance sheet

($ in thousands)

balance sheet

Cash collateral

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time deposits in denominations of $ 250,000 or more totaled $ 54.1 million on December 31, 2023 and $ 23.4 million on December 31, 2022.

Certificates of deposit obtained from brokers totaled $ 7.0 million as of December 31, 2022.

There were no certificates

of deposits from brokers as of December 31, 2021.

December 31, 2022, the scheduled maturities of time deposits were as follows:

There were no certificates of deposits from brokers as of December 31, 2023 and $ 7.0 million as of December 31, 2022.

At December 31,

2023, the scheduled maturities of time deposits were as follows:

($ in thousands)

in time deposits at December 31, 2022 and 2021 were $ 58.0 million and $ 55.6 million, respectively, of deposits which were obtained through

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

This service allows deposit customers to maintain fully insured

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

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 .

of directors and their associates, including deposits of companies for which directors are principal owners and executive officers were

$ 7.0 million and $ 3.9 million at December 31, 2022 and 2021, respectively.

Included in time deposits at December 31, 2023

and 2022 were $ 56.5 million and $ 58.0 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 .

Deposits of directors and their associates, including

deposits of companies for which directors are principal owners and executive officers, totaled $ 5.2 million and $ 7.0 million at December

31, 2023 and 2022, respectively.

Short-Term Borrowings

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Securities Sold Under Repurchase Agreements

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

These obligations

were secured by agency securities of $ 5.4 million and $ 8.4 million for 2022 and 2021, respectively, and mortgage-backed securities

of $ 12.4 million and $ 15.2 million for 2022 and 2021, respectively.

The collateral is held at the FHLB and has maturities from 2025

through 2061 .

At December 31, 2022, these repurchase agreements totaled $ 14.9 million.

The maximum amount of outstanding agreements

at any month end during 2022 and 2021 totaled $ 30.9 million and $ 34.2 million, respectively, and the monthly average of such

agreements totaled $ 20.3 million and $ 22.8 million during 2022 and 2021, respectively.

The repurchase agreements mature within one

Company has borrowing capabilities at the Federal Reserve Discount Window (“Discount Window”) by pledging either securities

or loans as collateral.

As of December 31, 2022, there was no collateral pledged or borrowings drawn at the Discount Window.

December 31, 2022 and 2021, the Company had $ 56.0 million and $ 41.0 million in federal funds lines, of which none were drawn.

Federal Home Loan Bank Advances

The Company has retail repurchase agreements to

facilitate cash management transactions with commercial customers.

These obligations were secured by agency securities of $ 4.5 million

and $ 5.4 million as of December 31, 2023 and 2022, respectively, and mortgage-backed securities of $ 15.2 million and $ 12.4 million for

2023 and 2022, respectively.

The collateral is held at the FHLB and has maturities from 2025 through 2051.

At December 31, 2023, these

repurchase agreements totaled $ 13.4 million.

The maximum amount of outstanding agreements at any month end during 2023 and 2022 totaled

$ 24.6 million and $ 30.9 million, respectively, and the monthly average of such agreements totaled $ 15.8 million and $ 20.3 million during

2023 and 2022, respectively.

The repurchase agreements mature within one month.

The Company has borrowing capabilities at the

Federal Reserve Discount Window (“Discount Window”) and the Bank Term Funding Program (“BTFP”) by pledging either

securities or loans as collateral.

As of December 31, 2023, there was $ 20.1 million of collateral pledged, but no borrowings drawn at

either borrowing facilities.

At December 31, 2023 and 2022, the Company had

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

Federal Home Loan Bank (FHLB) Advances

FHLB advances were secured by $ 272.1 million in mortgage loans at December 31, 2023.

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debentures with terms similar to the Capital Securities.

Distributions on the Capital Securities are payable quarterly at a variable

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

The issuers of these securities have proposed Secured Overnight Financing Rate (“SOFR”) as a replacement rate for

the LIBOR-based interest rate and will amend the documents governing the securities prior to LIBOR cessation.

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, 2022 and 2021 was $ 10.3 million, with a maturity

date of September 15, 2035 .

Distributions on the Capital Securities are payable quarterly at a variable rate

that is currently based upon the 3-month CME Group Benchmark Administration (“CME”) Term Secured Overnight Financing Rate

(“SOFR”) as adjusted by the relevant spread adjustment 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 any time without penalty (with certain

limitations applicable) under current regulatory guidelines and interpretations.

The balance of the Capital Securities as of December

31, 2023 and 2022 was $ 10.3 million, with a maturity date of September 15, 2035 .

Subordinated Debt

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,

May 27, 2021, the Company entered into Subordinated Note Purchase Agreements with qualified institutional buyers and accredited investors

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.

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.

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 SOFR provided by the Federal Reserve Bank of New York plus 296 basis points.

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.

provision for income taxes includes these components:

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:

For The Year Ended

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Income tax expense

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

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Actual tax expense

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

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Deferred tax assets

Allowance for loan losses

Allowance for credit losses

Unrealized losses on available-for-sale securities

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FHLB stock dividends

Net deferred tax asset (liability)

Accumulated Other Comprehensive Income (Loss)

Net deferred tax asset

As of December 31, 2023 the Company had $ 13.1 million in net operating losses.

No valuation allowance is recorded as these are expected

to be fully utilized and have no expiration.

Accumulated Other Comprehensive Income

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

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Regulatory Matters

of December 31, 2022, 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

There are no conditions or events since December 31, 2022 that management believes have changed State Bank’s capital classification.

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

Capital levels are presented for State Bank only

as the Company is exempt from quarterly reporting at the holding company level:

Capital Adequacy

To Be Well Capitalized

Corrective Action

As of December 31, 2023, 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, 2023 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 State Bank only as the Company is exempt from quarterly

reporting at the holding company level:

For Capital Adequacy

To Be Well Capitalized Under Prompt Corrective

Action Procedures

($ in thousands)

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

Management believes as of December

31, 2022, State Bank met all capital adequacy requirements to which they are subject.

Management believes that State

Bank met all capital adequacy requirements to which State Bank was subject as of December 31, 2023.

Employee Benefits

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 18 to

the Consolidated Financial Statements).

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

The Company provides 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 2022 and 2021 were $ 0.7

million and $ 0.7 million, respectively.

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

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

The charges to expense for the current agreements were $ 0.2 million and $ 0.3 million for 2022 and 2021, respectively.

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

By way of a separate

split-dollar agreement, each policy’s interests are divided between the Company and the insured’s beneficiary.

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

the insured’s beneficiary.

In May 2022, an additional $ 10.5 million in BOLI policies were purchased.

The cash surrender

value of all life insurance policies totaled $ 28.9 million

and $ 17.9 million at December 31, 2022 and 2021, respectively.

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, 2022 and 2021, were 370,876 and 380,450 , respectively.

on allocated shares in the ESOP 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

ESOP expense for the years ended December 31, 2022 and 2021 was $ 0.0 million and $ 0.5 million, respectively.

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 through grants of restricted common shares of the Company (see Note 18 to the Consolidated Financial Statements).

The Company has a retirement savings 401(k) plan

covering substantially all employees.

The Company provides 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 2023 and 2022 were $ 0.6 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 $ 0.2 million and $ 0.2 million for 2023 and 2022, respectively.

Additional life insurance is provided to certain

officers through bank-owned life insurance (“BOLI”) policies.

By way of a separate split-dollar agreement, each policy’s

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

The Company owns the policy’s cash value and a portion

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

In May 2022, an additional

$ 10.5 million in BOLI policies were purchased.

The cash surrender value of all life insurance policies totaled $ 29.1 million and $ 28.9

million at December 31, 2023 and 2022, 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.

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, 2023 and 2022, were 328,187

and 370,876 , respectively.

Dividends on allocated shares in the ESOP 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, 2023 and 2022 was $ 0.1 million and $ 0.0 million, respectively.

Share-Based Compensation Plan

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.

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.

awards are granted with an exercise price equal to the market price of the Company’s common shares 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.

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”).

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 permits

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 common shares 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 2023 or 2022.

no stock options outstanding, and no compensation expense charged against income with respect to option awards under the Plan, as of

December 31, 2022 or 2021.

of December 31, 2022, there was no unrecognized compensation cost related to incentive option share- based compensation arrangements

granted under the 2017 Plan.

to the Long Term Incentive (“LTI”) Plan, the Company awards restricted common shares of 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 2022 and 2021, the Company met certain performance targets and restricted stock awards were approved by the

The compensation cost charged against income for the LTI Plan was $ 0.6 million and $ 0.4 million for 2022 and 2021, 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 2022 and 2021, respectively.

summary of restricted stock activity under the Company’s LTI Plan as of December 31, 2022 and changes during the year ended is

presented below:

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, 2023 or 2022.

As of December 31, 2023, there was no unrecognized

compensation cost related to incentive option share-based compensation arrangements granted under the 2017 Plan.

Pursuant to the Long Term Incentive (“LTI”)

Plan, the Company awards restricted common shares of 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 2023 and 2022, 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 $ 0.6 million and $ 0.6 million for 2023 and 2022, 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 2023 and 2022, respectively.

A summary of restricted stock activity under the

Company’s LTI Plan as of December 31, 2023 and changes during the year ended is presented below:

Average Value

1 unchanged sentence

Nonvested, December 31, 2023

of December 31, 2022, there was $ 0.7 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.

is expected to be recognized over a weighted-average period of 1.82 years.

Disclosures About Fair Value of Assets and Liabilities

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;

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

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

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

Level 2 securities include U.S.

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.

rate contracts

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.

fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets, or benchmarked thereto

Rate Lock Commitments

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).

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, 2022 and 2021:

As of December 31, 2023, there was $ 0.6 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 1.62 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;

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

and 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.

Level 2 securities include obligations of 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.

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.

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).

Interest Rate Lock Commitments (IRLCs)

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, 2023 and 2022:

($ in thousands)

Fair value at

December 31, 2023

Treasury and Government Agencies

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Fair value at

December 31, 2022

Treasury and Government Agencies

5 unchanged sentences

Forward contracts

1 - quoted prices in active markets for identical assets

Level 1 - quoted prices in active markets for identical assets

Level 2 - significant other observable inputs

3 - significant unobservable inputs

following table reconciles the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated

balance sheets using significant unobservable (Level 3) inputs for the years ended December 31, 2022 and 2021.

Level 3 - significant

unobservable inputs

The following table reconciles the beginning and

ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable

(Level 3) inputs for the years ended December 31, 2023 and 2022.

for the Twelve Months Ended

2 unchanged sentences

Balance at beginning of period

Total realized gains (losses)

Change in fair value

Balance at end of period

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

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

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

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, 2022 and 2021.

Servicing Rights

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;

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 Individually Evaluated Loans, Net of ACL

Loans for which it is probable the Company will

not collect all principal and interest due according to contractual terms are measured for collateral dependency.

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

Collateral-dependent 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 individually evaluated loans held by the Company were collateral

dependent at December 31, 2023 and 2022.

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 rates.

The servicing portfolio

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

costs of servicing;

the cost of carry of advances;

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.

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

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, 2022 and 2021:

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, 2023 and 2022:

($ in thousands)

Fair value at

December 31, 2022

Impaired loans

Collateral-dependent Individually evaluated loans

Mortgage servicing rights

($ in thousands)

Fair value at December 31, 2021

Impaired loans

Fair value at

Collateral-dependent impaired loans

Mortgage servicing rights

2 unchanged sentences

Level 3 - significant unobservable inputs

(Level 3) Inputs

following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements

at December 31, 2022 and 2021:

Fair value at

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, 2023 and 2022:

($ in thousands)

Fair value at

Unobservable inputs

Range (weighted-

Collateral-dependent impaired loans

Collateral-dependent

individually evaluated loans

Market comparable properties

10 unchanged sentences

Loan closing rates

Fair value at

($ in thousands)

December 31, 2021

Fair value at

Unobservable inputs

Range (weighted-

Collateral-dependent impaired loans

Collateral-dependent impaired

Market comparable properties

Comparability adjustments (%)

6.4 - 18% (13 %)

Mortgage servicing rights

7 unchanged sentences

Loan closing rates

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 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 3.42 percent decrease in the constant prepayment

rate reflects the change in market rates.

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 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 3.42 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.

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.

and Due From Banks, Interest Bearing Time Deposits, Federal Reserve and Federal Home Loan Bank Stock and Interest Receivable and Payable

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.

Held for Sale

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.

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.

Repurchase Agreements & FHLB Advances

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

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, FRB and FHLB 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 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

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, 2022 and 2021.

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, 2022 and 2021 and are not considered significant to this presentation.

Preferred Securities

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

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

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 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, 2023 and 2022.

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, 2023 and 2022 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.

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.

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)

5 unchanged sentences

Loans held for sale

Loans, net of allowance for loan losses

Loans, net of allowance for credit losses

Federal Reserve and FHLB Bank stock, at cost

34 unchanged sentences

Total liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Condensed Statements

Shareholders’ equity

Total liabilities and shareholders’ equity

Statements of Income

($ in thousands)

11 unchanged sentences

Nonbanking subsidiaries

Condensed Statements

of Comprehensive Income (Loss)

Statements of Comprehensive Income (Loss)

($ in thousands)

5 unchanged sentences

Total comprehensive income (loss)

Condensed Statements

of Cash Flows

Statements of Cash Flows

($ in thousands)

5 unchanged sentences

Net cash provided by (used in) operating activities

Investing activities

Capital contributed to nonbanking subsidiary

Net cash used in investing activities

Financing activities

2 unchanged sentences

Repurchase of common shares

Proceeds from sub-debt net of issuance cost

Other financing activities

Net cash provided by (used in) financing activities

Net cash used in financing activities

Net change in cash and cash equivalents

2 unchanged sentences

Quarterly Financial Information (unaudited)

Financial Information (unaudited)

Quarterly Financial Information (unaudited)

Years ended December 31,

21 unchanged sentences

of Independent Registered Public Accounting Firm

the Shareholders, Board of Directors, and Audit Committee

SB Financial Group, Inc.

on the Consolidated Financial Statements

We have audited the accompanying consolidated

balance sheets of SB Financial Group, Inc.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements

of income, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years ended December 31, 2022 and 2021,

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, 2022 and

2021, 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.

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.

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.

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.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits,

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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 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) 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 the

critical audit matter 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 opinions on the critical audit matter or on the accounts or

To the Shareholders, Board of Directors, and Audit Committee

SB Financial Group,

Defiance, Ohio

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of SB

Financial Group, Inc.

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive

income (loss), shareholders’ equity, and cash flows for each of the years ended December 31, 2023 and 2022, 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, 2023 and 2022, 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.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method of accounting

for credit losses effective January 1, 2023 due to the adoption of Accounting Standards Topic 326:

Financial Instruments – Credit

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter.

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 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.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for

the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

we express no such opinion.

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.

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 are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication

of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are

not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or

disclosures to which it relates.

for Loan Losses

of the Matter

described in Note 4 to the financial statements, the Company’s consolidated allowance for loan and lease losses (ALLL) was $13.8

million at December 31, 2022.

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

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.

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.

We Addressed the Matter in Our Audit

audit procedures related to the estimated allowance for loan losses included:

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.

clerical/computational accuracy of the formulas within the ALLL model.

of completeness and accuracy of the information and reports utilized in the ALLL, including

reports used in management review controls over the ALLL.

an independent calculation of an acceptable range and comparing it to the Company’s

the qualitative adjustment to the historical loss rates, including assessing the basis for

the adjustments and the reasonableness of the significant assumptions.

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.

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.

FORVIS, LLP (Formerly, BKD, LLP)

have served as the Company’s auditor since 2002.

Indianapolis ,

Allowances for Credit Losses

As discussed in Note 1 to the consolidated financial statements, the Company changed its method

of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Topic 326:

Financial Instruments

– Credit Losses .

The Company’s loan portfolio totaled $1.0 billion as of December 31, 2023, and the associated allowance

for credit losses (“ACL”) on loans was $15.8 million.

As discussed in Notes 1 and 4 to the consolidated financial statements,

the Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist using relevant available

information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts.

credit loss experience provides the basis for the estimation of expected credit losses.

Management also considers further adjustments

to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist

for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered

in the quantitative analyses.

The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools.

have identified the ACL, and more specifically the qualitative adjustments applied in the ACL, as a critical audit matter.

The principal

consideration for our determination is the high degree of judgment and subjectivity in auditing the assumptions utilized by management

in calculating the qualitative reserve component.

This required a high degree of judgement due to the nature and extent of audit evidence

and effort required to address this matter.

The primary procedures we performed related to this critical audit matter included:

● Obtained an understanding of the Company’s process

and internal controls for establishing the ACL, including the selection, application and related adjustments of the qualitative factor

components of the ACL.

● Evaluated the relevancy and reliability of the underlying

data used to derive the qualitative factors, including comparison to internal, external and/or peer data to ensure movement in a directionally

consistent manner.

● Assessed the appropriateness and reasonableness of

the qualitative factor adjustments, including evaluating management’s judgments as to which factors and relevant assessed risks

impacted the qualitative adjustments for each loan pool.

● Evaluated the reasonableness of the assumptions utilized

by management in calculating the qualitative reserve component.

● Tested the accuracy of the mathematical application of the

qualitative factors to adjust the historical loss experience.

/s/ FORVIS, LLP

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

Indianapolis, Indiana

March 8, 2024

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

Not Applicable.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data