What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-03-07 compared with 2024-03-08 · 547 added, 635 removed, 1309 unchanged (47% of the section changed)

Financial Statements and Supplementary Data.

Our Consolidated Financial Statements and Notes thereto and other supplementary

Index to Consolidated Financial Statements

Our Consolidated

Financial Statements and Notes thereto and other supplementary data follow.

to Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2024, and 2023 F-2

Consolidated Statements of Income for the Years ended December 31, 2024, and 2023 F-3

Consolidated Statements of Comprehensive Income (Loss) for the Years ended December 31, 2023 and 2022 F-4

Consolidated Statements of Comprehensive Income for the Years ended December 31, 2024 and 2023 F-4

Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2024, and 2023 F-5

1 unchanged sentence

Notes to Consolidated Financial Statements F-7

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

SB Financial Group, Inc.

Consolidated Balance Sheets

at December 31,

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

Financial Group, Inc.

Balance Sheets

($ in thousands)

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

Mortgage servicing rights

Liabilities and shareholders’ equity

Non interest bearing demand

and due from banks

bearing time deposits

Available-for-sale

held for sale

net of unearned income

for credit losses

and equipment, net

Reserve and Federal Home Loan Bank Stock, at cost

assets and other assets held for sale, net

Cash value of life

servicing rights

and shareholders’ equity

interest bearing demand

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

bearing demand

Home Loan Bank advances

preferred securities

debt net of issuance costs

& Contingent Liabilities

Shareholders’

Preferred stock, no par value;

4 unchanged sentences

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

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

paid-in capital

other comprehensive loss

Treasury stock, at cost;

1 unchanged sentence

2023 - 1,756,733 common shares)

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,

shareholders’ equity

liabilities and shareholders’ equity

Notes to Consolidated Financial Statements

Financial Group, Inc.

Statements of Income

Ended December 31,

($ in thousands, except per share data)

9 unchanged sentences

Net Interest Income

Provision for credit losses - loans

Provision for unfunded commitments

Provision (benefit) for credit losses - loans

Provision (benefit) for unfunded commitments

Total provision for credit losses

Net interest income after provision for loan losses

Net interest income after provision for credit losses

Noninterest Income

24 unchanged sentences

Diluted earnings per common share

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Consolidated Statements of Comprehensive Income

Years Ended December 31,

Notes to Consolidated Financial Statements

Financial Group, Inc.

Statements of Comprehensive Income

Ended December 31,

($ in thousands)

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,

Other comprehensive

income (loss)

securities available for sale Available-for-sale investment securities:

Gross unrealized holding

gain (loss) arising in the period

tax benefit (expense)

effect on other comprehensive income (loss)

Total comprehensive income

Notes to Consolidated Financial Statements

Financial Group, Inc.

Statements of Shareholders’ Equity

Ended December 31,

Comprehensive

in thousands, except per share data)

Income (Loss)

January 1, 2024

Other comprehensive income

CECL initial adjustment

Other comprehensive loss

Dividends on common, $ 0.56 per share

1 unchanged sentence

Repurchased stock ( 253,817 shares)

Stock based compensation expense

based compensation expense

December 31, 2024

1 unchanged sentence

in thousands, except per share data)

Income (Loss)

January 1, 2023

Other comprehensive loss

Stock dividends on common ( 344,663 shares)

Other comprehensive income

CECL initial adjustment

Dividends on common, $ 0.52 per share

1 unchanged sentence

Repurchased stock ( 244,325 shares)

Stock based compensation expense

based compensation expense

December 31, 2023

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31,

Notes to Consolidated Financial Statements

Financial Group, Inc.

Statements of Cash Flows

Ended December 31,

($ in thousands)

2 unchanged sentences

Depreciation and amortization

Provision for credit losses

Expense of share-based compensation plan

Amortization of premiums and discounts on securities

Amortization of intangible assets

Amortization of originated mortgage servicing rights

Impairment (recovery) of mortgage servicing rights

Provision for credit

Expense of share-based

compensation plan

Amortization of premiums

and discounts on securities

Amortization of intangible

Amortization of originated

mortgage servicing rights

Impairment (recovery)

of mortgage servicing rights

Deferred income taxes

Proceeds from sale of loans held for sale

Originations of loans held for sale

Proceeds from sale of

loans held for sale

Originations of loans

held for sale

Gain from sale of loans

Net gains on sales of securities

Net gains on sales of

Interest receivable

Interest payable & other liabilities

Net cash provided by operating activities

payable & other liabilities

Net cash provided by

operating activities

Investing Activities

Purchases of available-for-sale securities

Proceeds from maturities of interest bearing time deposits

Proceeds from maturities of available-for-sale securities

Purchases of available-for-sale

Proceeds from maturities

of interest bearing time deposits

Purchase of interest

bearing time deposits

Proceeds from maturities

of available-for-sale securities

Net change in loans

Purchase of premises, equipment

Proceeds from bank owned life insurance

Purchase of bank owned life insurance

Purchase of Federal Reserve and Federal Home Loan Bank Stock

Proceeds from sale of foreclosed assets

Net cash used in investing activities

Purchase of premises,

Proceeds from bank owned

life insurance

Purchase of bank owned

life insurance

Purchase of Federal

Reserve and Federal Home Loan Bank Stock

Proceeds from sale of

Federal Reserve and Federal Home Loan Bank Stock

from sale of foreclosed assets

Net cash used in investing

Financing Activities

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

Net increase in time deposits

Net decrease in securities sold under agreements to repurchase

Proceeds from Federal Home Loan Bank advances

Repayment of Federal Home Loan Bank advances

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

Net increase (decrease)

in time deposits

Net decrease in securities

sold under agreements to repurchase

Proceeds from Federal

Home Loan Bank advances

Repayment of Federal

Home Loan Bank advances

Stock repurchase plan

Dividends on common shares

Net cash provided by (used in) financing activities

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Dividends on common

Net cash provided by

(used in) financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents,

beginning of year

Cash and cash equivalents,

Supplemental cash flow information

Interest paid

Income taxes paid

Supplemental non-cash disclosure

Transfer of loans to foreclosed assets

Stock dividends declared and paid

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Transfer of loans to

foreclosed assets

Notes to Consolidated Financial Statements

Years Ended December 31, 2023 and 2022

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”), 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.

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.

Financial Group, Inc.

to Consolidated Financial Statements

Ended December 31, 2024 and 2023

Organization and Summary of Significant Accounting Policies

and Nature of Operations

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”), and SB Captive, Inc.

(“SB Captive”).

State Bank owns all the outstanding stock of State Bank

Insurance, LLC (“SBI”).

In December 2024, the Company completed the dissolution of four of its inactive subsidiaries –

RFCBC, Inc., Rurbanc Data Services Inc., Rurban Mortgage Company and SBFG Mortgage, LLC.

The “Company” refers to SB Financial

and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to the registrant, SB

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

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, and SBI.

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

Actual results could differ from those estimates.

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.

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.

Accounting Policies

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

At December 31, 2024

and 2023, cash equivalents consisted primarily of interest-bearing and noninterest bearing demand deposit balances held by correspondent

December 31, 2024, the Company’s correspondent cash accounts exceeded federally insured limits by $ 0.6 million.

Additionally, the

Company had approximately $ 18.4 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.

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.

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, 2024, or 2023.

for Credit Losses – Available-for-Sale Securities

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.

If 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.

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, 2024, no ACL on available-for-sale securities was recorded.

has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of

credit losses.

Should a 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.

Accrued interest receivable on available-for-sale debt securities totaled $ 0.6 million at

December 31, 2024.

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 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

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:

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 Credit Losses - Loans

ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on

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.

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

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 factors.

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

44 unchanged sentences

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.

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.

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

1 unchanged sentence

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.

● Consumer - 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.

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

market areas.

The value 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”)

8 unchanged sentences

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.

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

16 unchanged sentences

during the reversion period and long-term historical average.

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

The Company’s own prepayment and curtailment rates were used in the

ACL estimate.

Management also considers further adjustments

116 unchanged sentences

At December 31, 2024 and 2023, the Company had

a share-based employee compensation plan (see Note 18 to the Consolidated Financial Statements).

a share-based employee 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 (see Note 18 to the Consolidated Financial Statements).

Transfers of Financial Assets

41 unchanged sentences

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 EPS calculations.

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 EPS calculations.

Comprehensive Income (Loss)

24 unchanged sentences

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):

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 –

22 unchanged sentences

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

Segment Reporting (Topic 280) Improvements to Reportable

Segment Disclosures

This ASU expands operating segment disclosures

and requires all segment disclosures to be reported in both annual and interim periods.

The new standard requires disclosure of the following:

significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) for reportable segments;

the title and position of the CODM as well as how the CODM uses the reported measure(s) of profit and loss to assess segment performance;

and “other segment items” by reportable segment and a description of its composition.

The Company adopted the standard on

January 1, 2024, and its adoption did not have a material effect on our financial statements.

Accounting Standards not yet adopted:

1 unchanged sentence

Improvements to Income Tax Disclosures

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

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

Improvements to Income Tax Disclosures.” The amendments

7 unchanged sentences

Earnings Per Share

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:

Earnings Per Share (“EPS”) 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.

the years ended December 31, 2024 and 2023 is computed as follows:

Twelve Months Ended

11 unchanged sentences

There were no anti-dilutive shares in 2024 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 follows:

at December 31, 2024 and December 31, 2023 were as follows:

($ in thousands)

22 unchanged sentences

delivered for repurchase agreements (not included above) were $ 17.3 million at December 31, 2024 and $ 19.7 million at December 31, 2023.

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

10 unchanged sentences

12 Months or Longer

Unrealized Losses

December 31, 2024

5 unchanged sentences

12 Months or Longer

Unrealized Losses

December 31, 2023

108 unchanged sentences

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.

The following table summarizes the activity related

to the ACL for the twelve months ended December 31, 2024.

($ in thousands)

1 unchanged sentence

December 31, 2024

Provision for

Provision for Credit Losses

Commercial & industrial

2 unchanged sentences

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.

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.

($ in thousands)

1 unchanged sentence

December 31, 2023

Adopting ASC 326

Provision for

Balance, beginning of period

Provision for Credit Losses

Commercial & industrial

2 unchanged sentences

Residential real estate

The following table presents gross chargeoffs

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

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.

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, 2024.

($ in thousands)

Term Loans by Year of Origination

Collateral Type

December 31, 2024

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)

5 unchanged sentences

Residential real estate

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

36 unchanged sentences

The following table presents loan balances by credit quality

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

indicators and gross chargeoffs by year of origination as of December 31, 2024.

Revolving Loans

($ in thousands)

Loans by Year of Origination

Loans Converted

Commercial & industrial

Substandard (6)

period gross chargeoffs

real estate - owner occupied

Substandard (6)

period gross chargeoffs

real estate - nonowner occupied

Substandard (6)

period gross chargeoffs

Substandard (6)

period gross chargeoffs

Substandard (6)

period gross chargeoffs

equity line of credit (HELOC)

Substandard (6)

period gross chargeoffs

Substandard (6)

period gross chargeoffs

Substandard (6)

period gross chargeoffs

The following table presents loan balances by

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

credit quality indicators and gross chargeoffs by year of origination as of December 31, 2023.

Revolving Loans

in thousands)

December 31, 2022

real estate -

Special Mention (5)

Loans by Year of Origination

Commercial & industrial

Substandard (6)

period gross chargeoffs

real estate - owner occupied

Substandard (6)

period gross chargeoffs

real estate - nonowner occupied

Substandard (6)

period gross chargeoffs

Substandard (6)

period gross chargeoffs

Substandard (6)

period gross chargeoffs

equity line of credit (HELOC)

Substandard (6)

period gross chargeoffs

Substandard (6)

period gross chargeoffs

Substandard (6)

period gross chargeoffs

The following tables present the Company’s

1 unchanged sentence

($ in thousands)

Greater Than 90 Days

December 31, 2024

3 unchanged sentences

Residential real estate

Greater Than 90 Days

December 31, 2023

14 unchanged sentences

31, 2024 and December 31, 2023 are presented in the following table.

December 31, 2024

($ in thousands)

2 unchanged sentences

Total nonaccrual loans

Commercial & industrial

3 unchanged sentences

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)

Unpaid Principal

Average Recorded

Interest Income

Twelve Months Ended

December 31, 2023

With no related allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

With a specific allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

($ 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)

Modifications made to Borrowers Experiencing Financial Difficulty

14 unchanged sentences

experiencing financial difficulty for which the Company had modified an existing loan as of December 31, 2024.

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

Debt Restructured loans (“TDRs”).

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

30 unchanged sentences

Balance at beginning of period

Effect of change in compostioin of directors and executive officers

Effect of change in compostion of directors and executive officers

New Term Loans

12 unchanged sentences

balance of goodwill was $ 23.2 million for the twelve months ended December 31, 2024, and December 31, 2023.

($ in thousands)

Carrying Amount

Beginning balance

Measurement period adjustments

Ending balance

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

1 unchanged sentence

quarter of each calendar year.

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

At December 31, 2024, 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

2 unchanged sentences

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

Gross Carrying

($ in thousands)

11 unchanged sentences

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.

$ 3.5 million and $ 3.4 million were included in mortgage loan servicing

fees in the consolidated income statement for the years ended December 31, 2024, and 2023, respectively.

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

42 unchanged sentences

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

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

at December 31:

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

($ in thousands)

Asset Derivatives

Derivatives not designated as hedging instruments

Interest rate swaps associated with loans

Forward contracts

Total contracts

Derivatives not designated

as hedging instruments

Interest rate

swaps associated with loans

Liability Derivatives

Derivatives not designated as hedging instruments

Interest rate swaps associated with loans

Forward contracts

Total contracts

rate swaps associated with loans

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

5 unchanged sentences

Amount of gain (loss)

($ in thousands)

Statement of income classification

Interest rate swap contracts

Gain on sale of mortgage loans & OMSR

Forward contracts

Gain on sale of mortgage loans & OMSR

($ in thousands) Statement of income classification 2024 2023

Interest rate swap contracts Other income $ 240 $ 132

IRLCs Gain on sale of mortgage loans & OMSR ( 66 ) 65

Forward contracts Gain on sale of mortgage loans & OMSR 105 ( 63 )

following table shows the offsetting of financial assets and derivative assets at December 31, 2024, and 2023.

26 unchanged sentences

time deposits in denominations of $ 250,000 or more totaled $ 53.7 million on December 31, 2024, and $ 54.1 million on December 31, 2023.

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:

At December 31, 2024, the scheduled maturities of time deposits were as follows:

($ in thousands)

3 unchanged sentences

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

FDIC insurance 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 .

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

17 unchanged sentences

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.

Federal Reserve Discount Window (“Discount Window”) by pledging either securities or loans as collateral.

As of December 31,

2024, there were no borrowings drawn at the Discount Window.

At December 31, 2024 and 2023, the Company had

28 unchanged sentences

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 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.

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.

The Company may redeem the Notes at any time after May 31,

2026, and at any time in whole, but not in part, upon the occurrence of certain events.

Any redemption of the Notes will be subject to

prior regulatory approval.

The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately

$ 0.5 million, which are being amortized over the life of the Notes.

There is $ 0.3 million of unamortized expense as of December 31, 2024.

The provision for income taxes includes these components:

29 unchanged sentences

FHLB stock dividends

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

of income tax.

Net deferred tax (liability) asset

At December 31, 2024, and 2023, the Company had

$ 3.8 million and $ 13.1 million, respectively, in net operating losses.

No valuation allowance was recorded as these are expected to be

fully utilized and have no expiration.

Accumulated Other Comprehensive Loss

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

There were no reclassifications for the years ending December 31, 2024, and 2023.

10 unchanged sentences

reporting at the holding company level:

To Be Well Capitalized

For Capital Adequacy

To Be Well Capitalized Under Prompt Corrective

Action Procedures

Corrective Action

($ in thousands)

1 unchanged sentence

Tier I Capital to average assets

Tier I Common equity capital to risk-weighted assets

Tier I Common equity capital to risk-weighted

Tier I Capital to risk-weighted assets

Total Risk-based capital to risk-weighted assets

Total Risk-based capital to risk-weighted

As of December 31, 2023

2 unchanged sentences

Tier I Capital to risk-weighted assets

Total Risk-based capital to risk-weighted assets

Total Risk-based capital to risk-weighted

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

32 unchanged sentences

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 cash surrender value of

all life insurance policies totaled $ 30.7 million and $ 29.1 million at December 31, 2024 and 2023, respectively.

The Company has a noncontributory employee stock

33 unchanged sentences

There were no options granted in 2024 or 2023.

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.

There were no stock options outstanding as of December 31,

2024 or 2023, and no compensation expense was charged against income with respect to option awards under the Plan for the years ended

December 31, 2024, or 2023.

As of December 31, 2024, there was no unrecognized

1 unchanged sentence

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.

Plan, the Company awards restricted common shares of the Company under the 2017 Plan to certain key executives.

These restricted stock

8 unchanged sentences

Company’s LTI Plan as of December 31, 2024, and changes during the year ended is presented below:

Average Value

Nonvested, January 1, 2024

55 unchanged sentences

Fair value at

December 31, 2023

Treasury and Government Agencies

7 unchanged sentences

Fair value at

December 31, 2022

Treasury and Government Agencies

7 unchanged sentences

Level 2 - significant other observable inputs

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.

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, 2024, and 2023.

for the Twelve Months Ended

4 unchanged sentences

Balance at end of period

The following is a description of the valuation

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

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

The following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis

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

Collateral-Dependent Individually Evaluated Loans, Net of ACL

1 unchanged sentence

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.

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, 2024 and 2023.

Mortgage Servicing Rights

12 unchanged sentences

rights are tested for impairment on a quarterly basis.

The following table presents the fair value measurements

The following tables 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

2 unchanged sentences

Fair value at

Collateral-dependent Individually evaluated loans

Collateral-dependent Individually evaluated

Mortgage servicing rights

5 unchanged sentences

Level 2 - significant other observable inputs

Level 3 - significant unobservable inputs

Level 3 - significant unobservable

Unobservable (Level 3) Inputs

1 unchanged sentence

about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at December 31, 2024 and 2023:

($ in thousands)

Fair value at

Unobservable inputs

Collateral-dependent

individually evaluated loans

Market comparable properties

Comparability adjustments (%)

- 100% (25 %)

Mortgage servicing rights

Discounted cash flow

Discount rate

($ in thousands) Fair value at

2024 Valuation technique Unobservable inputs Range

(weighted- average)

Collateral-dependent individually evaluated loans $ 1,167 Market comparable properties Comparability adjustments (%) 24 - 404% (84 %)

Mortgage servicing rights 1,814 Discounted cash flow Discount rate 11.13 %

Constant prepayment rate 7.30 %

2 unchanged sentences

Inflation for cost of servicing 3.50 %

Discounted cash flow

Loan closing rates

($ in thousands)

Fair value at

Unobservable inputs

Collateral-dependent impaired

Market comparable properties

Comparability adjustments (%)

Mortgage servicing rights

Discounted cash flow

Discount rate

IRLCs ( 21 ) Discounted cash flow Loan closing rates 64% - 99 %

($ in thousands) Fair value at

2023 Valuation technique Unobservable inputs Range

(weighted- average)

Collateral-dependent impaired loans $ 864 Market comparable properties Comparability adjustments (%) 2 - 100% (25 %)

Mortgage servicing rights 1,896 Discounted cash flow Discount rate 11.01 %

Constant prepayment rate 7.16 %

2 unchanged sentences

Inflation for cost of servicing 3.50 %

Discounted cash flow

Loan closing rates

IRLCs 45 Discounted cash flow Loan closing rates 27% - 91 %

The mortgage servicing rights portfolio is measured

5 unchanged sentences

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.

The following methods were used to estimate the

13 unchanged sentences

and marketability factors.

Deposits, Repurchase Agreements & FHLB

Deposits, Repurchase Agreements and FHLB Advances

Deposits include demand deposits, savings accounts

16 unchanged sentences

by discounting the cash flows using an appropriate discount rate.

The following table presents estimated fair values

The following tables present estimated fair values

of the Company’s financial instruments.

17 unchanged sentences

Financial liabilities

Short-term borrowings

Repurchase agreements

FHLB advances

13 unchanged sentences

Financial liabilities

Short-term borrowings

Repurchase agreements

FHLB advances

3 unchanged sentences

Parent Company Financial Information

below is condensed financial information of the parent company only:

Balance Sheets

Presented below is condensed financial information

of the parent company only:

Condensed Balance Sheets

($ in thousands)

9 unchanged sentences

Total liabilities and shareholders’ equity

Statements of Income

Condensed Statements

($ in thousands)

11 unchanged sentences

Nonbanking subsidiaries

Statements of Comprehensive Income (Loss)

Condensed Statements

of Comprehensive Income

($ in thousands)

Other comprehensive income (loss):

Other comprehensive income:

Available-for-sale investment securities:

2 unchanged sentences

Net effect on other comprehensive income (loss)

Total comprehensive income (loss)

Statements of Cash Flows

Total comprehensive income

Condensed Statements

of Cash Flows

($ in thousands)

4 unchanged sentences

Other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Investing activities

Return of capital from nonbanking subsidiary

Net cash provided by investing activities

Financing activities

Dividends on common shares

Stock dividends on common shares

Repurchase of common shares

28 unchanged sentences

Dividends per share

of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors, and Audit Committee

SB Financial Group,

Operating Segments

The Company provides a range of community banking

services, including commercial and consumer lending, personal and business banking, treasury management and merchant services, personal

wealth management and brokerage services, and other financial services primarily to individuals, businesses, and municipalities.

the Company’s business activities are dependent and assessed based on the manner in which it supports the other activities of the

The chief operating decision maker (“CODM”)

of the Company is the Chief Executive Officer, who along with others in the Company’s executive management, evaluates performance

and allocates resources based upon analysis of the Company as one operating segment.

The activities of the Company comprise one reportable

segment, "Banking." All the consolidated assets are attributable to the Banking segment.

The accounting policies of the Banking

segment are the same as those described in the Note 1 “Organization and Summary of Significant Accounting Policies.”

The CODM is provided with the Company’s consolidated statements

of financial condition and operations and evaluates the Company’s operating results based on consolidated net interest income, non-interest

income, non-interest expense, and net income, which can be seen on the consolidated statement of operations.

These results are used to

benchmark the Company against its competitors.

Other significant non-cash items assessed by the CODM are depreciation, amortization and

provision for credit losses consistent with the reporting on the consolidated statements of cash flows.

Expenditures for long-lived assets

are also evaluated and are consistent with the reporting on the consolidated statements of cash flows.

Strategic plans and budget to actual

monitoring are evaluated as one reportable segment.

The actual results are used in assessing performance of the segment, determining the

allocation of resources, and in establishing management’s compensation.

Information reported internally for performance assessment

by the chief operating decision maker is identical to that which is shown in the Consolidated Statements of Income.

All revenues were

derived from banking operations for the years ended December 31, 2024, and 2023, and there was no customer that accounted for more than

10% of the Company's consolidated revenue.

Subsequent Event

On January 17, 2025, the Company completed the

acquisition of Marblehead Bancorp, Inc., parent company of The Marblehead Bank of Marblehead, Ohio.

Under the terms of the merger agreement,

shareholders of Marblehead Bancorp received $ 196.31 in cash in exchange for each share of Marblehead Bancorp common stock for a transaction

valued in aggregate at approximately $ 5.0 million.

The Company has engaged third-party consultants to assist with determining the fair

value of assets and liabilities acquired from Marblehead as of the acquisition date.

That determination is in process and is expected

to be completed with the Company’s March 31, 2025, 10Q filing .

Report of Independent Registered Public Accounting

To the Shareholders, Board of Directors, and Audit

SB Financial Group, Inc.

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.

We have audited the accompanying consolidated

balance sheets of SB Financial Group, Inc.

(the “Company”) as of December 31, 2024 and 2023, the related consolidated statements

of income, comprehensive income, shareholders’ equity, and cash flows for each of the years ended December 31, 2024 and 2023, 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, 2024 and 2023, and

the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally

accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility

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

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

We are a public accounting firm registered with

3 unchanged sentences

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.

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 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.

Our audits included performing procedures to assess

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

to those risks.

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

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

the overall presentation of the financial statements.

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

Critical Audit 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.

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) relate to accounts or disclosures that is 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

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

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

As discussed in Note 1 to the consolidated

financial statements, The Company’s loan portfolio totaled $1.047 billion as of December 31, 2024, and the associated allowance

for credit losses (“ACL”) on loans was $15.096 million.

8 unchanged sentences

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.

We 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 Mazars, LLP

We have served as the Company’s auditor

Indianapolis, Indiana

1 unchanged sentence

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