What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-03-06 compared with 2025-03-07 · 1102 added, 1111 removed, 745 unchanged (75% of the section changed)

Financial Statements and Supplementary Data.

Our Consolidated

Financial Statements and Notes thereto and other supplementary data follow.

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

to Consolidated Financial Statements

18 unchanged sentences

assets and other assets held for sale, net

Cash value of life

value of life insurance

servicing rights

20 unchanged sentences

liabilities and shareholders’ equity

Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

Financial Group, Inc.

13 unchanged sentences

Provision (benefit) for credit losses - loans

Provision (benefit) for unfunded commitments

Provision for unfunded commitments

Total provision for credit losses

7 unchanged sentences

Title insurance income

Net gain on sale of securities

Total noninterest income

16 unchanged sentences

Diluted earnings per common share

Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

Financial Group, Inc.

2 unchanged sentences

($ in thousands)

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)

Other comprehensive income (loss)

Available-for-sale investment securities:

Gross unrealized holding gain (loss) arising in the period

Related tax benefit (expense)

Net effect on other comprehensive income (loss)

Total comprehensive income

Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

Financial Group, Inc.

1 unchanged sentence

Ended December 31,

Comprehensive

($ in thousands, except per share data)

Accumulated Other Comprehensive

January 1, 2025

Other comprehensive loss

Other comprehensive income

Dividends on common, $ 0.60 per share

1 unchanged sentence

Repurchased stock ( 283,490 shares)

based compensation expense

Stock based compensation expense

December 31, 2025

Comprehensive

($ in thousands, except per share data)

Accumulated Other Comprehensive

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)

based compensation expense

Stock based compensation expense

December 31, 2024

Notes to Consolidated Financial Statements

Financial Group, Inc.

Statements of Cash Flows

Ended December 31,

See Notes to Consolidated Financial Statements

SB Financial Group, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31,

($ in thousands)

2 unchanged sentences

Depreciation and amortization

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

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

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

Interest receivable

payable & other liabilities

Net cash provided by

operating activities

Interest payable & other liabilities

Net cash provided by operating activities

Investing Activities

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

Purchases of available-for-sale securities

Proceeds from maturities of interest bearing time deposits

Purchase of interest bearing time deposits

Proceeds from maturities of available-for-sale securities

Proceeds from sales of available-for-sale securities

Net change in loans

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

Purchase of premises, equipment

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

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 securities

sold under agreements to repurchase

Proceeds from Federal

Home Loan Bank advances

Repayment of Federal

Home Loan Bank advances

Net increase 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

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,

Dividends on common shares

Net cash provided by financing activities

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Supplemental cash flow information

2 unchanged sentences

Supplemental non-cash disclosure

Transfer of loans to

foreclosed assets

Notes to Consolidated Financial Statements

Recognition of right-of-use lease assets

Transfer of loans to foreclosed assets

See Notes to Consolidated Financial Statements

Financial Group, Inc.

8 unchanged sentences

(“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

State Bank owns all the outstanding stock of SBT Insurance,

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 Financial.

Company is primarily engaged in providing a full range of banking and wealth management services to individual and corporate customers

98 unchanged sentences

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

● Commercial & 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.

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

● Commercial 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.

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.

● Commercial 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.

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

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.

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

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

effectively unsecured.

● 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”)

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.

The Company’s own 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” 860-50), 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.

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.

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

● 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.

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.

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.

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 is estimated using the Remaining Life

For each segment, a Loss Driver Analysis (“LDA”) is performed in order to identify appropriate loss drivers and create

a regression model for use in forecasting cash flows.

The LDA utilizes the Company’s own Federal Financial Institutions Examination

Council’s (“FFIEC”) Call Report data, as well as peer institution data.

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.

The 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.

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.

The Company 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.

key assumptions in the DCF model include the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment

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.

The Company’s own prepayment and curtailment rates

were used in the ACL estimate.

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

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.

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.

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.

The 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.

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.

There 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.

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 (FRB) and Federal Home Loan Bank (FHLB) 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 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.

Deposits and Other Intangibles

assets are being amortized on a straight-line basis over weighted-average periods ranging from one to ten 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 on the consolidated balance sheets, while the derivative instruments with a negative fair

value are reported in accrued expenses and other liabilities on 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” 860-50), 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.

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

Servicing fee income is recorded for fees earned

for servicing loans.

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

as income when earned.

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

Share-Based Employee Compensation Plan

At December 31, 2024 and 2023, the Company had

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

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, 2025 and 2024, the Company had 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).

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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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.

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.

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

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

Company files consolidated income tax returns with its subsidiaries.

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

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

As of December 31, 2024, the Company had no uncertain income

tax positions.

Treasury stock is stated at cost.

Cost is determined

by the weighted-average cost method.

Federal, State and Local examinations by tax authorities for the years before 2021.

As of December 31, 2025, the Company had no uncertain

income tax positions.

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 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, 2024, 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:

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.

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

Treasury stock shares are not deemed outstanding for EPS calculations.

Comprehensive

income consists of net income 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.

December 31, 2025, 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, and title insurance

provided by SBFG Title.

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.

of New Accounting Standards:

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.

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 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

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

to December 31, 2025.

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)

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

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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:

Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures

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

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

The Company adopted the standard on January 1, 2024, and its adoption did not have a material effect on our financial statements.

Income Taxes (Topic 740):

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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.

Improvements to Income Tax Disclosures” and became

effective on January 1, 2025.

The amendments require that public business entities on an annual basis (1) disclose specific categories

in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect

of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the

applicable statutory income tax rate).

The amendments require that all entities disclose on an annual basis the following information

about income taxes paid:

(1) the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and

foreign taxes; and (2) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which

income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received).

The amendments also require that all entities disclose the following information:

(1) income (or loss) from continuing operations before

income tax expense (or benefit) disaggregated between domestic and foreign; and (2) income tax expense (or benefit) from continuing

operations disaggregated by federal (national), state, and foreign.

The Company adopted ASU No.

2023-09 on a retrospective basis and

its adoption did not have a material impact to the financial statements of the Company.

Earnings Per Share

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

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.

EPS for the years ended December 31, 2025, and 2024 is computed as follows:

Twelve Months Ended Dec.

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

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Diluted earnings per common share

There were no anti-dilutive shares in 2024 or

were no anti-dilutive shares in 2025 or 2024.

Available-for-Sale Securities

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

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

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

December 31, 2025 and December 31, 2024 were as follows:

($ in thousands)

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Other corporate securities

The amortized cost and fair value of securities

available-for-sale at December 31, 2024, 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.

amortized cost and fair value of securities available-for-sale at December 31, 2025, 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.

($ in thousands)

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Mortgage-backed securities

The fair value of securities pledged as collateral,

to secure public deposits and for other purposes, was $ 115.5 million at December 31, 2024, and $ 89.7 million at December 31, 2023.

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

Certain investments in debt securities are reported

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

There were 138 securities and 139 securities reported with amounts

less than their historical value at December 31, 2024 and 2023, respectively.

Total fair value of these investments was $ 201.3 million

and $ 217.0 million at December 31, 2024 and 2023, 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, 2024 and 2023:

fair value of securities pledged as collateral, to secure public deposits and for other purposes, was $ 115.1 million at December 31,

2025, and $ 115.5 million at December 31, 2024.

Securities delivered for repurchase agreements (not included above) were $ 26.0 million

at December 31, 2025, and $ 17.3 million at December 31, 2024.

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

There were 125

securities and 138 securities reported with amounts less than their historical value at December 31, 2025, and 2024, respectively.

fair value of these investments was $ 187.0 million and $ 201.3 million at December 31, 2025 and 2024, respectively, which was approximately

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

following tables present securities with unrealized losses at December 31, 2025 and 2024 aggregated by major security type and length

of time in a continuous unrealized loss position:

($ in thousands)

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December 31, 2025

Number of Securities

Unrealized Losses

Treasury and Government agencies

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December 31, 2024

Number of Securities

Unrealized Losses

Treasury and Government agencies

2 unchanged sentences

Other corporate securities

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

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.

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, 2024, and 2023:

following table presents the categories of loans at December 31, 2025, and 2024:

($ in thousands)

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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, 2024, and 2023.

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, 2025, and 2024.

($ in thousands)

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Standby letters of credit

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

Commercial & Industrial and Agricultural

Commercial & industrial and agricultural loans

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

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

risk characteristics of each loan portfolio segment are as follows:

& Industrial and Agricultural

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

collateral provided by the borrower.

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

may fluctuate in value.

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

or inventory, and may include a personal guarantee.

Short-term loans may be made on an unsecured 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.

The following table summarizes the activity related

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

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.

for Credit Losses (ACL)

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.

following tables summarize the activity related to the ACL for the twelve months ended December 31, 2025, and 2024.

($ in thousands)

1 unchanged sentence

December 31, 2025

Balance, beginning of period

Initial allowance for credit losses on acquired PCD loans

Provision for Credit Losses

Balance, end of period

Commercial & industrial

2 unchanged sentences

Residential real estate

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)

2 unchanged sentences

Balance, beginning of period

Initial allowance for credit losses on acquired PCD loans

Provision for Credit Losses

Balance, end of period

Commercial & industrial

2 unchanged sentences

Residential real estate

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.

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.

following tables present an analysis of collateral-dependent loans of the Company as of December 31, 2025, and 2024.

($ in thousands)

12 unchanged sentences

Residential real estate

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

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:

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

Revolving Loans

(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):

Loans 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 loan or in the Company’s credit position at some future

Special mention loans 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.

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 and gross chargeoffs by year of origination as of December 31, 2025.

($ in thousands)

Loans by Year of Origination

Term Loans by Year of Origination

Revolving Loans

December 31, 2025

Commercial & industrial

Special Mention (5)

Substandard (6)

period gross chargeoffs

real estate - owner occupied

Current period gross chargeoffs

Commercial real estate - owner occupied

Special Mention (5)

Substandard (6)

period gross chargeoffs

real estate - nonowner occupied

Current period gross chargeoffs

Commercial real estate - nonowner occupied

Special Mention (5)

Substandard (6)

period gross chargeoffs

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

period gross chargeoffs

Current period gross chargeoffs

Residential real estate

Special Mention (5)

Substandard (6)

period gross chargeoffs

equity line of credit (HELOC)

Current period gross chargeoffs

Home equity line of credit (HELOC)

Special Mention (5)

Substandard (6)

period gross chargeoffs

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

period gross chargeoffs

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

period gross chargeoffs

The following table presents loan balances by

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

Revolving Loans

Current period gross chargeoffs

following table presents loan balances by credit quality indicators and gross chargeoffs by year of origination as of December 31, 2024.

($ in thousands)

Loans by Year of Origination

Term Loans by Year of Origination

Revolving Loans

December 31, 2024

Commercial & industrial

Special Mention (5)

Substandard (6)

period gross chargeoffs

real estate - owner occupied

Current period gross chargeoffs

Commercial real estate - owner occupied

Special Mention (5)

Substandard (6)

period gross chargeoffs

real estate - nonowner occupied

Current period gross chargeoffs

Commercial real estate - nonowner occupied

Special Mention (5)

Substandard (6)

period gross chargeoffs

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

period gross chargeoffs

Current period gross chargeoffs

Residential real estate

Special Mention (5)

Substandard (6)

period gross chargeoffs

equity line of credit (HELOC)

Current period gross chargeoffs

Home equity line of credit (HELOC)

Special Mention (5)

Substandard (6)

period gross chargeoffs

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

period gross chargeoffs

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

period gross chargeoffs

The following tables present the Company’s

loan portfolio aging analysis as of December 31, 2024 and 2023:

Current period gross chargeoffs

following tables present the Company’s loan portfolio aging analysis as of December 31, 2025 and 2024:

($ in thousands)

Greater Than 90 Days

December 31, 2025

3 unchanged sentences

Residential real estate

Greater Than 90 Days

December 31, 2024

3 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, 2024 and December 31, 2023 are presented in the following table.

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

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.

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 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.

categories of nonaccrual loans as of December 31, 2025, and 2024 are presented in the following tables.

December 31, 2025

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Home equity line of credit (HELOC)

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, 2024,

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, 2024.

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, 2024, 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.

Modifications

made to Borrowers Experiencing Financial Difficulty

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.

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.

the twelve months ended December 31, 2025, 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, 2025.

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, 2025, 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.

Loan Commitments

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, 2024, and 2023.

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.

following table presents the balance and activity in the ACL for unfunded loan commitments for the twelve months ended December 31, 2025,

($ in thousands)

Balance, beginning of period

Adjustment for adoption of ASU 2016-13

Adjustment for acquired loans

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:

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, 2025, and 2024.

($ in thousands)

Balance at beginning of period

Effect of change in compostion of directors and executive officers

New Term Loans

3 unchanged sentences

Premises and Equipment

Major classifications

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

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

($ in thousands)

4 unchanged sentences

Goodwill and Intangibles

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

January 17, 2025, the Company acquired The Marblehead Bank of Marblehead, Ohio.

The acquisition resulted in approximately $ 3.9 million

The balance of goodwill was $ 27.2 million at December 31, 2025, and $ 23.2 million at December 31, 2024.

($ in thousands)

Carrying Amount

Beginning balance

Acquired goodwill

Ending balance

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

5 unchanged sentences

carrying value, resulting in no impairment.

Carrying basis

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

connection with the acquisition of Marblehead Bank, $ 1.7 million of core deposit intangible was recorded.

Carrying basis and accumulated

amortization of intangible assets were as follows at December 31:

($ in thousands)

Gross Carrying

Core deposits intangible

2 unchanged sentences

expense for intangibles for the years ended December 31, 2025, and 2024 was $ 0.24 million and $ 0.07 million, respectively.

Estimated amortization

expense for each of the following five years is immaterial.

Mortgage Banking

and Servicing Rights

amortization expense for each of the following five years is reflected in the table below.

($ in thousands)

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 at both December 31, 2024, and 2023.

Contractually specified servicing fees of approximately

$ 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.

The unpaid principal balance of mortgage

loans serviced for others approximated $ 1.5 billion at December 31, 2025, and $ 1.4 million at December 31, 2024.

Contractually specified

servicing fees of approximately $ 3.6 million and $ 3.5 million were included in mortgage loan servicing fees in the consolidated income

statement for the years ended December 31, 2025, and 2024, respectively.

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

26 unchanged sentences

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

10 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

Derivatives not designated as hedging instruments

Interest rate swaps associated with loans

Forward contracts

Total contracts

Liability Derivatives

Derivatives not designated as hedging instruments

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

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.

Interest rate swaps associated with loans

Forward contracts

Total contracts

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

as of the balance sheet date.

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

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

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

6 unchanged sentences

following table shows the offsetting of financial assets and derivative assets at December 31, 2025, and 2024.

Gross amounts not offset

in the consolidated

balance sheet

($ in thousands)

Gross amounts

offset in the

Net amounts of

presented in the

Gross amounts not offset in

the consolidated balance sheet

balance sheet

6 unchanged sentences

following table shows the offsetting of financial liabilities and derivative liabilities at December 31, 2025, and 2024.

of liabilities

Gross amounts not offset

in the consolidated

balance sheet

($ in thousands)

Gross amounts

offset in the

Net amounts of

presented in the

Gross amounts not offset in

the consolidated balance sheet

balance sheet

8 unchanged sentences

time deposits in denominations of $ 250,000 or more totaled $ 56.1 million on December 31, 2025, and $ 53.7 million on December 31, 2024.

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

December 31, 2025, the scheduled maturities of time deposits were as follows:

($ in thousands)

Included in time deposits at December 31, 2024

and 2023 were $ 58.2 million and $ 56.5 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 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 .

Deposits of directors and their associates, including

deposits of companies for which directors are principal owners and executive officers, totaled $ 4.3 million and $ 5.2 million at December

31, 2024, and 2023, respectively.

in time deposits at December 31, 2025 and 2024 were $ 49.9 million and $ 58.2 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 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 .

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

$ 3.8 million and $ 4.3 million at December 31, 2025, and 2024, respectively.

Short-Term Borrowings

1 unchanged sentence

Securities Sold Under Repurchase Agreements

The Company has retail repurchase agreements to

facilitate cash management transactions with commercial customers.

These obligations were secured by agency securities of $ 3.9 million

and $ 4.5 million as of December 31, 2024, and 2023, respectively, and mortgage-backed securities of $ 13.4 million and $ 15.2 million for

2024 and 2023, respectively.

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

At December 31, 2024, these

repurchase agreements totaled $ 10.6 million.

The maximum amount of outstanding agreements at any month end during 2024 and 2023 totaled

$ 26.9 million and $ 24.6 million, respectively, and the monthly average of such agreements totaled $ 14.3 million and $ 15.8 million during

2024 and 2023, respectively.

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

These obligations were

secured by agency securities of $ 5.2 million and $ 3.9 million as of December 31, 2025, and 2024, respectively, and mortgage-backed securities

of $ 20.8 million and $ 13.4 million as of December 31, 2025 and 2024, respectively.

The collateral is held at the FHLB and has maturities

from 2027 through 2061.

At December 31, 2025, these repurchase agreements totaled $ 9.2 million.

The maximum amount of outstanding agreements

at any month end during 2025 and 2024 totaled $ 16.7 million and $ 26.9 million, respectively, and the monthly average of such agreements

totaled $ 12.0 million and $ 14.3 million during 2025 and 2024, respectively.

The repurchase agreements mature within one month .

The Company has borrowing capabilities at the

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

As of December 31,

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

At December 31, 2024 and 2023, the Company had

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

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

or loans as collateral.

As of December 31, 2025, there were no borrowings drawn at the Discount Window.

December 31, 2025 and 2024, the Company had $ 41.0 million in federal funds lines, of which none were drawn.

Federal Home Loan Bank (FHLB) Advances

11 unchanged sentences

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 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, 2024, and 2023 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, 2025, and 2024 was $ 10.3 million, with a maturity date of September 15, 2035 .

Subordinated Debt

15 unchanged sentences

There is $ 0.3 million of unamortized expense as of December 31, 2025.

The provision for income taxes includes these components:

provision for income taxes includes these components:

For The Year Ended

($ in thousands)

Taxes currently payable

Deferred provision

Current expense

Current income tax expense

Deferred expense

Deferred income tax expense

Income tax expense

A reconciliation of income tax expense at the statutory rate to the

Company’s actual income tax expense is shown below:

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

For The Year Ended December 31,

($ in thousands)

US federal statutory income tax rate

State and local income taxes - net of federal income tax effect*

Low-income housing tax credits

Amortization of LIHTC Investments net of other benefits

Nontaxable and nondeductible items

Tax-exempt interest income net of disallowed interest expense

Captive premium income

Other nontaxable and nondeductible items

Income tax expense;

effective tax rate

majority of the Company's activities for 2025 and 2024 are sourced to states that do not impose an income tax on financial institutions.

Company’s business activity, there were no State and local income tax, net of federal (national) income tax effect;

Foreign tax effects;

Effect of changes in tax laws or rates enacted in the current period;

Effect of cross-border tax laws;

valuation allowances;

tax benefits.

taxes paid were as follows:

For The Year Ended

($ in thousands)

Computed at the statutory rate ( 21 %)

Increase (decrease) resulting from

Tax exempt interest

831(b) election

Actual tax expense

The tax effects of temporary differences related to deferred taxes

shown on the balance sheets are:

State and local

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

For The Year Ended

6 unchanged sentences

Net operating loss

Unearned loan fees

Deferred tax liabilities

4 unchanged sentences

FHLB stock dividends

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.

Net deferred tax liability

December 31, 2024, the Company had $ 3.8 million in net operating losses.

During 2025, the Company acquired Net Operating Losses with

a remaining balance of $ 1.4 million.

The Net Operating Losses is subject to an annual limitation of $ 171 thousand with no expiration

Accumulated Other Comprehensive Loss

2 unchanged sentences

Regulatory Matters

As of December 31, 2024, 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, 2024, 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:

To Be Well Capitalized

of December 31, 2025, 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, 2025, 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:

For Capital Adequacy

Corrective Action

To Be Well Capitalized Under Prompt Corrective Action Procedures

($ in thousands)

1 unchanged sentence

Tier I Capital to average assets

Tier I Common equity capital to risk-weighted

Tier I Common equity capital to risk-weighted assets

Tier I Capital to risk-weighted assets

Total Risk-based capital to risk-weighted

Total Risk-based capital to risk-weighted assets

As of December 31, 2024

2 unchanged sentences

Tier I 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

dividend payments and certain discretionary bonus payments to executive officers.

The capital conservation buffer was 2.50 percent at

December 31, 2024 and the Company still would have met the minimum capital requirements when the capital buffer is considered.

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

Management believes that State

Bank met all capital adequacy requirements to which State Bank was subject as of December 31, 2024.

Total Risk-based capital to risk-weighted assets

above minimum capital requirements exclude the capital conservation buffer required to be maintained in order to avoid limitations on

capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.

The capital conservation

buffer was 2.50 percent at both December 31, 2025, and December 31, 2024.

The Company’s capital ratios exceeded the minimum capital

requirements by more than the 2.50 percent capital conservation buffer at December 31, 2025, and December 31, 2024.

The net unrealized

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

Management believes that State Bank met

all capital adequacy requirements to which State Bank was subject as of December 31, 2025.

Employee Benefits

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 2024 and 2023 were $ 0.6 million and $ 0.6 million, respectively.

Also, the Company has Supplemental Executive Retirement

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

The agreements provide monthly payments for up to 15 years

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

The charges to expense for the current agreements

were $ 0.2 million and $ 0.2 million for 2024 and 2023, 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.

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

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, 2024 and 2023, were 304,286

and 328,187 , 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, 2024 and 2023, was $ 0.0 million and $ 0.1 million, respectively.

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).

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 2025 and 2024 were $ 0.7

million and $ 0.6 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 $ 0.1 million and $ 0.2 million for 2025 and 2024, 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.

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

In September 2025, an additional $ 0.8 million in BOLI policies were purchased.

The cash surrender value of all life insurance

policies totaled $ 32.2 million and $ 30.7 million at December 31, 2025 and 2024, 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, 2025 and 2024, were 258,196 and 304,286 , 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, 2025 and 2024, was $ 0.2 million and $ 0.0 million, respectively.

Share-Based Compensation Plan

In April 2017, the shareholders approved a new

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

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

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.

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

2017 Stock Incentive

Plan (the “2017 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 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.

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 2025 or 2024.

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

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 under the 2017 Plan to certain key executives.

These restricted stock

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

During 2024 and 2023, 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 2024 and 2023, 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 2024 and 2023, respectively.

A summary of restricted stock activity under the

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

no stock options outstanding as of December 31, 2025, or 2024, and no compensation expense was charged against income with respect to

option awards under the 2017 Plan for the years ended December 31, 2025, or 2024.

of December 31, 2025, 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 under the 2017 Plan to

certain key executives.

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

of key executives.

During 2025 and 2024, 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 $ 0.5 million and $ 0.6 million for

2025 and 2024, 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 2025 and 2024, respectively.

summary of restricted stock activity under the Company’s LTI Plan for the year ended December 31, 2025, is presented below:

Weighted-Average Value per Share

Nonvested, January 1, 2025

Nonvested, December 31, 2025

As of December 31, 2024, 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 1.67 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, 2024 and 2023:

of December 31, 2025, there was $ 0.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements

related to the restricted stock awards under the 2017 Plan which were granted in accordance with the LTI Plan.

That cost is expected

to be recognized over a weighted-average period of 1.89 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

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

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

Level 2 securities include obligations

government agencies, mortgage-backed securities, obligations of political and state subdivisions, and corporate securities.

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 (IRLCs)

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, 2025 and 2024:

($ in thousands)

Fair value at

December 31, 2025

Treasury and Government Agencies

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Fair value at

December 31, 2024

Treasury and Government Agencies

5 unchanged sentences

Forward contracts

Level 1 - quoted prices in active markets for identical assets

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

1 - quoted prices in active markets for identical assets

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, 2025, and 2024.

5 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.

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, 2024 and 2023.

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;

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

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

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, 2025 and 2024.

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 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.

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

fell at December 31, 2024 and 2023:

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 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 fell at December 31, 2025 and 2024:

($ in thousands)

Fair value at

Collateral-dependent Individually evaluated

December 31, 2025

Collateral-dependent Individually evaluated loans

Mortgage servicing rights

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Fair value at

Collateral-dependent impaired loans

December 31, 2024

Collateral-dependent Individually evaluated loans

Mortgage servicing rights

Level 1 - quoted prices in active markets for identical assets

Level 2 - significant other observable inputs

Level 3 - significant unobservable

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, 2024 and 2023:

1 - quoted prices in active markets for identical assets

2 - significant other observable inputs

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, 2025 and 2024:

($ in thousands) Fair value at

2024 Valuation technique Unobservable inputs Range

(weighted- average)

December 31, 2025 Valuation technique Unobservable inputs Range (weighted-

Collateral-dependent individually evaluated loans $ 955 Market comparable properties Comparability adjustments (%) 1 - 19% (12%)

6 unchanged sentences

($ 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 %)

December 31, 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%

4 unchanged sentences

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

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 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 and FHLB Advances

Deposits include demand deposits, savings accounts

and certain money market deposits.

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.

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, FRB and FHLB 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 and FHLB Advances

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, 2024 and 2023.

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, 2025 and 2024.

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, 2024 and 2023 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 tables present 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.

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, 2025 and 2024 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 tables present estimated fair values of the Company’s financial instruments.

The fair values of certain instruments were

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

Fair value is the

estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other

than in a forced or liquidation sale.

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

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

financial instruments could be sold individually or in the aggregate.

($ in thousands)

21 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

6 unchanged sentences

Interest payable

Business Combinations

January 17, 2025, the Company acquired all of the outstanding common shares of Marblehead Bancorp and its subsidiary The Marblehead Bank

of Marblehead, Ohio (collectively, “Marblehead”).

Marblehead was headquartered in Marblehead, Ohio and had two retail offices.

At closing, Marblehead Bancorp was merged with and into SBFG, with SBFG surviving, and immediately thereafter, The Marblehead Bank was

merged with and into State Bank, with State Bank surviving.

Under the terms of the merger agreement, shareholders of Marblehead received

fixed consideration of $ 196.31 in cash for each share of Marblehead common stock for total consideration of $ 5.0 million.

The acquisition

of Marblehead enabled the Company to increase both its deposit and loan base and acquire new households in a new market.

It is expected

that this transaction will result in business synergies and economies of scale.

The acquisition was consistent with the Company’s

strategy to expand its presence in Northwest Ohio and to increase profitability by introducing existing products and services to the

acquired customer base.

Company accounted for the transaction under the acquisition method of accounting, which means that the acquired assets and liabilities

were recorded at fair value at the date of acquisition.

In accordance with ASC 805, the Company expensed approximately $ 0.7 million of

direct acquisition costs during the twelve months ended December 31, 2025.

The $ 0.7 million in merger expense is split between data processing

and professional fees expense.

As a result of the acquisition, the Company recorded $ 3.9 million of goodwill and $ 1.7 million of intangible

assets in the first quarter of 2025.

The intangible assets are related to core deposits, which are being amortized over 10 years on a

straight-line basis.

Loans acquired with deteriorated credit quality (“PCD loans”) since origination were not material.

tax purposes, goodwill is nondeductible but will be evaluated annually for impairment.

following table summarizes the fair value of the total consideration transferred as part of the acquisition as well as the fair value

of identifiable assets and liabilities assumed as of the effective date of the transaction based on assumptions that are subject to change

as management continues to evaluate as relevant information becomes available.

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

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

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

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

at the acquisition date.

($ in thousands)

January 17, 2025

Fair value of assets acquired

Cash and cash equivalents

Investment securities

Federal Reserve and Federal Home Loan Bank stock

Loans held for investment

Premises and equipment

Core deposit intangible

Total assets acquired

Fair value of liabilities assumed

Other liabilities

Total liabilities assumed

Total purchase price (cash)

Forma Financial Information

results of operations of Marblehead have been included in the Company’s consolidated financial statements since the acquisition

date of January 17, 2025.

The following schedule includes the pro forma results for December 31, 2025, and 2024, as if the Marblehead

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

Twelve Months Ended

of Operations ($ in thousands)

Net interest income

Provision for loan losses

Net interest income after provision

Non interest income

Non interest expense

Income before income taxes

Income tax expense*

Net income to common shareholders

Basic earnings per share

Diluted earnngs per share

* Income tax expense for Marblehead calculated using a 21 % statutory rate

Parent Company Financial Information

Presented below is condensed financial information

of the parent company only:

below is condensed financial information of the parent company only:

Condensed Balance Sheets

10 unchanged sentences

Total liabilities and shareholders’ equity

Condensed Statements

Condensed Statements of Income

($ in thousands)

7 unchanged sentences

Income tax benefit

Income (loss) before equity in undistributed income of subsidiaries

Income before equity in undistributed income of subsidiaries

Equity in undistributed income of subsidiaries

1 unchanged sentence

Nonbanking subsidiaries

Condensed Statements

of Comprehensive Income

Condensed Statements of Comprehensive Income

($ in thousands)

5 unchanged sentences

Total comprehensive income

Condensed Statements

of Cash Flows

Condensed Statements of Cash Flows

($ in thousands)

6 unchanged sentences

Investing activities

Capital contributed to banking subsidiary

Return of capital from nonbanking subsidiary

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Financing activities

31 unchanged sentences

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, 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

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 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.

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.

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

it supports the other activities of the Company.

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

Note 1 “Organization and Summary of Significant Accounting Policies.”

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.

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,

2025, and 2024, and there was no customer that accounted for more than 10% of the Company’s consolidated revenue.

of Independent Registered Public Accounting Firm

the Shareholders, Board of Directors, and Audit Committee

Financial Group, Inc.

on the Consolidated Financial Statements

have audited the accompanying consolidated balance sheets of SB Financial Group, Inc.

(the “Company”) as of December 31,

2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each

of the years ended December 31, 2025 and 2024, 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, 2025 and 2024, 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.

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) 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’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.

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.

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

March 7, 2025

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) 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 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

for Credit Losses

discussed in Note 1 to the consolidated financial statements, the Company’s loan portfolio totaled $1.181 billion as of December

31, 2025, and the associated allowance for credit losses (“ACL”) on loans was $16.114 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.

Historical 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.

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.

have served as the Company’s auditor since 2002.

Indianapolis,

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

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