UNITED STATES

~~UNITED STATES~~

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~_________to_____________~~_________________to___________________________

Commission file number 1-36785

SB FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Ohio		34-1395608
(State or other jurisdiction of		~~(I.R.S. Employer~~
incorporation or organization)		(I.R.S. Employer Identification No.)

401 Clinton Street, Defiance, Ohio 43512

(Address of principal executive offices)

(Zip Code)

(419) 783-8950

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Shares, No Par Value ~~7,163,935~~ 7,029,635Outstanding at ~~May 6,~~August 5, 2022		SBFG		The NASDAQ Stock Market, LLC (NASDAQ Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerate Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☒ Smaller Reporting Company ☒ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

SB FINANCIAL GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3031
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3941
Item 4.	Controls and Procedures		3941

PART II – OTHER INFORMATION		42

Item 1.	Legal Proceedings		4042
Item 1A.	Risk Factors		4042
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		4042
Item 3.	Defaults Upon Senior Securities		4042
Item 4.	Mine Safety Disclosures		4042
Item 5.	Other Information		4042
Item 6.	Exhibits		4142

Signatures		4243

PART I – FINANCIAL INFORMATION

~~PART I – FINANCIAL INFORMATION~~

Item 1. Financial Statements

SB ~~Financial Group, Inc.~~FINANCIAL GROUP, INC.

~~Condensed Consolidated Balance Sheets~~
CONDENSED CONSOLIDATED BALANCE SHEETS

($ in thousands) March
2022 December
2021
(unaudited) (audited)
Assets
Cash and due from banks $ 130,003 $ 149,511
Interest bearing time deposits 1,894 2,643
Available-for-sale securities 265,311 263,259
Loans held for sale 4,737 7,472
Loans, net of unearned income 850,671 822,714
Allowance for loan losses (13,804 ) (13,805 )
Premises and equipment, net 23,039 23,212
Federal Reserve and Federal Home Loan Bank Stock, at cost 5,303 5,303
Foreclosed assets and other assets held for sale, net 527 2,104
Interest receivable 2,815 2,920
Goodwill 23,239 23,191
Cash value of life insurance 17,932 17,867
Mortgage servicing rights 13,135 12,034
Other assets 10,328 12,429
Total assets $ 1,335,130 $ 1,330,854

Liabilities and shareholders’ equity

Liabilities
Deposits
Non interest bearing demand $ 252,273 $ 247,044
Interest bearing demand 211,152 195,464
Savings 236,394 237,571
Money market 289,699 276,462
Time deposits 148,553 156,504
Total deposits 1,138,071 1,113,045

Repurchase agreements 19,035 15,320
Federal Home Loan Bank advances 5,500 5,500
Trust preferred securities 10,310 10,310
Subordinated debt net of issuance costs 19,558 19,546
Interest payable 536 299
Other liabilities 9,483 21,905
Total liabilities 1,202,493 1,185,925

Commitments & Contingent Liabilities

Shareholders’ Equity
Preferred stock, no par value; authorized 200,000 shares; 2022 - 0 shares outstanding, 2021 - 0 shares outstanding - -
Common stock, no par value; authorized 10,500,000 shares; 2022 - 8,525,375 shares issued, 2021 - 8,180,712 shares issued 61,319 54,463
Additional paid-in capital 14,872 14,944
Retained earnings 94,833 99,716
Accumulated other comprehensive loss (13,659 ) (1,845 )
Treasury stock, at cost; (2022 - 1,414,624 common shares, 2021 - 1,296,382 common shares) (24,728 ) (22,349 )
Total shareholders’ equity 132,637 144,929
Total liabilities and shareholders’ equity $ 1,335,130 $ 1,330,854

	June 2022			December 2021
($ in thousands)	(unaudited)			(audited)

Assets
Cash and due from banks	$	29,567		$	149,511
Interest bearing time deposits		1,691			2,643
Available-for-sale securities		266,162			263,259
Loans held for sale		4,242			7,472
Loans, net of unearned income		895,611			822,714
Allowance for loan losses		(13,801	)		(13,805	)
Premises and equipment, net		23,122			23,212
Federal Reserve and Federal Home Loan Bank Stock, at cost		5,303			5,303
Foreclosed assets and other assets held for sale, net		730			2,104
Interest receivable		3,256			2,920
Goodwill		23,239			23,191
Cash value of life insurance		28,556			17,867
Mortgage servicing rights		13,408			12,034
Other assets		12,886			12,429
Total assets	$	1,293,972		$	1,330,854

Liabilities and shareholders’ equity

Liabilities
Deposits
Non interest bearing demand	$	239,676		$	247,044
Interest bearing demand		198,286			195,464
Savings		215,285			237,571
Money market		276,274			276,462
Time deposits		142,258			156,504
Total deposits		1,071,779			1,113,045

Short-term borrowings		30,772			15,320
Federal Home Loan Bank advances		25,000			5,500
Trust preferred securities		10,310			10,310
Subordinated debt net of issuance costs		19,570			19,546
Interest payable		307			299
Other liabilities		11,678			21,905
Total liabilities		1,169,416			1,185,925

Commitments & Contingent Liabilities

Shareholders’ Equity
Preferred stock, no par value; authorized 200,000 shares; 2022 - 0 shares outstanding, 2021 - 0 shares outstanding		-			-
Common stock, no par value; authorized 10,500,000 shares; 2022 - 8,525,375 shares issued, 2021 - 8,180,712 shares issued		61,319			54,463
Additional paid-in capital		15,069			14,944
Retained earnings		96,809			99,716
Accumulated other comprehensive loss		(22,210	)		(1,845	)
Treasury stock, at cost; (2022 - 1,508,835 common shares, 2021 - 1,296,382 common shares)		(26,431	)		(22,349	)
Total shareholders’ equity		124,556			144,929
Total liabilities and shareholders’ equity	$	1,293,972		$	1,330,854

See notes to condensed consolidated financial statements (unaudited)

Note: The balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date.

SB ~~Financial Group, Inc.~~FINANCIAL GROUP, INC.

~~Condensed Consolidated Income Statement (unaudited)~~CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

					Three Months Ended					Six Months Ended
					June 30,					June 30,
($ in thousands, except per share data)	Three Months Ended				2022		2021			2022		2021
	March		March
	2022		2021
Interest Income
Loans
Taxable	$	8,052	$	9,926	$	8,880	$	9,196		$	16,932	$	19,122
Tax exempt		61		48		73		47			134		95
Securities
Taxable		1,235		643		1,469		835			2,704		1,478
Tax exempt		47		88		52		85			99		173
Total interest income		9,395		10,705		10,474		10,163			19,869		20,868

Interest Expense
Deposits		618		962		567		818			1,185		1,780
Repurchase agreements & other		13		11		11		12			24		23
Federal Home Loan Bank advance expense		39		56		38		51			77		107
Trust preferred securities expense		53		51		71		50			124		101
Subordinated debt expense		195		-		194		75			389		75
Total interest expense		918		1,080		881		1,006			1,799		2,086

Net Interest Income		8,477		9,625		9,593		9,157			18,070		18,782
Provision for loan losses		-		750		-		-			-		750

Net interest income after provision for loan losses		8,477		8,875		9,593		9,157			18,070		18,032

Noninterest Income
Wealth management fees		955		912		936		955			1,891		1,867
Customer service fees		794		758		860		820			1,654		1,578
Gain on sale of mortgage loans & OMSR		1,676		5,859		1,196		4,255			2,872		10,114
Mortgage loan servicing fees, net		1,204		2,378		606		(217	)		1,810		2,161
Gain on sale of non-mortgage loans		169		17		167		45			336		62
Title insurance income		602		521		697		532			1,299		1,053
Gain on sale/disposal of assets						-		2			55		-
Other income		402		477		211		145			558		624
Total noninterest income		5,802		10,922		4,673		6,537			10,475		17,459

Noninterest Expense
Salaries and employee benefits		6,189		6,620		6,418		6,881			12,607		13,501
Net occupancy expense		742		740		719		748			1,461		1,488
Equipment expense		854		732		827		778			1,681		1,510
Data processing fees		576		534		643		653			1,219		1,187
Professional fees		950		764		760		574			1,710		1,338
Marketing expense		231		135		222		220			453		355
Telephone and communications		111		154		105		139			216		293
Postage and delivery expense		116		111		110		97			226		208
State, local and other taxes		278		323		277		278			555		601
Employee expense		136		153		175		161			311		314
Other expense		676		643
Other expenses						546		547			1,222		1,190
Total noninterest expense		10,859		10,909		10,802		11,076			21,661		21,985

Income before income tax		3,420		8,888		3,464		4,618			6,884		13,506

Provision for income taxes		607		1,807		630		857			1,237		2,664

Net Income	$	2,813	$	7,081	$	2,834	$	3,761		$	5,647	$	10,842

Basic earnings per common share	$	0.40	$	0.97	$	0.40	$	0.53		$	0.80	$	1.50

Diluted earnings per common share	$	0.40	$	0.97	$	0.40	$	0.52		$	0.79	$	1.49

Average common shares outstanding (in thousands):
Basic:						7,075		7,148			7,055		7,232
Diluted:						7,149		7,200			7,116		7,256

See notes to condensed consolidated financial statements (unaudited)

SB FINANCIAL GROUP, INC.

~~SB Financial Group, Inc.~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

~~Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)~~

	Three Months Ended						Three Months Ended						Six Months Ended
	March			March			June			June			June			June
($ in thousands)	2022			2021			2022			2021			2022			2021

Net income	$	2,813		$	7,081		$	2,834		$	3,761		$	5,647		$	10,842
Other comprehensive loss
Other comprehensive income (loss)
Available for sale investment securities:
Gross unrealized holding loss arising in the period		(14,953	)		(3,377	)
Related tax benefit		3,139			710
Net effect on other comprehensive loss		(11,814	)		(2,667	)
Gross unrealized holding income (loss) arising in the period								(10,824	)		1,211			(25,777	)		(2,165	)
Related tax benefit (expense)								2,273			(255	)		5,412			454
Net effect on other comprehensive income (loss)								(8,551	)		956			(20,365	)		(1,711	)
Total comprehensive income (loss)	$	(9,001	)	$	4,414		$	(5,717	)	$	4,717		$	(14,718	)	$	9,131

See notes to condensed consolidated financial statements (unaudited)

SB ~~Financial Group, Inc.~~FINANCIAL GROUP, INC.

~~Condensed Consolidated Statements of Shareholders’ Equity (unaudited)~~CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

	Common		Additional Paid-in			Retained			Accumulated Other Comprehensive			Treasury										Additional						Accumulated Other
($ in thousands, except per share data)	Stock		Capital			Earnings			Loss			Stock			Total			Preferred Stock		Common Stock		Paid-in Capital			Retained Earnings			Comprehensive Income (Loss)			Treasury Stock			Total

January 1, 2022	$	54,463	$	14,944		$	99,716		$	(1,845	)	$	(22,349	)	$	144,929		$	-	$	54,463	$	14,944		$	99,716		$	(1,845	)	$	(22,349	)	$	144,929
Net income							2,813									2,813										2,813									2,813
Other comprehensive loss										(11,814	)					(11,814	)												(11,814	)					(11,814	)
Stock dividends on common - 344,663 shares		6,856					(6,864	)								(8	)
Stock dividends on common (344,663 shares)																					6,856					(6,864	)								(8	)
Cash dividends on common, $0.115 per share							(832	)								(832	)									(832	)								(832	)
Restricted stock vesting				(230	)								230			-							(230	)								230			-
Repurchased stock - 130,848 shares													(2,609	)		(2,609	)
Repurchased stock (130,848 shares)																																(2,609	)		(2,609	)
Stock based compensation expense				158												158							158												158
March 31, 2022	$	61,319	$	14,872		$	94,833		$	(13,659	)	$	(24,728	)	$	132,637		$	-	$	61,319	$	14,872		$	94,833		$	(13,659	)	$	(24,728	)	$	132,637
Net income																										2,834									2,834
Other comprehensive loss																													(8,551	)					(8,551	)
Dividends on common, $0.12 per share																										(858	)								(858	)
Repurchased stock (94,211 shares)																																(1,703	)		(1,703	)
Stock based compensation expense																							197												197
Balance, June 30, 2022																		$	-	$	61,319	$	15,069		$	96,809		$	(22,210	)	$	(26,431	)	$	124,556

	Common		Additional Paid-in			Retained			Accumulated Other Comprehensive			Treasury										Additional						Accumulated Other
($ in thousands, except per share data)	Stock		Capital			Earnings			Loss			Stock			Total			Preferred Stock		Common Stock		Paid-in Capital			Retained Earnings			Comprehensive Income			Treasury Stock			Total

January 1, 2021	$	54,463	$	14,845		$	84,578		$	2,210		$	(13,173	)	$	142,923		$	-	$	54,463	$	14,845		$	84,578		$	2,210		$	(13,173	)	$	142,923
Net income							7,081									7,081										7,081									7,081
Other comprehensive loss										(2,667	)					(2,667	)												(2,667	)					(2,667	)
Cash dividends on common, $0.105 per share							(776	)								(776	)
Dividends on common, $0.105 per share																										(776	)								(776	)
Restricted stock vesting				(213	)								213			-							(213	)								213			-
Repurchased stock - 111,266 shares													(2,718	)		(2,718	)
Repurchased stock (142,094 shares)																																(2,718	)		(2,718	)
Stock based compensation expense				123												123							123												123
March 31, 2021	$	54,463	$	14,755		$	90,883		$	(457	)	$	(15,678	)	$	143,966		$	-	$	54,463	$	14,755		$	90,883		$	(457	)	$	(15,678	)	$	143,966
Net income																										3,761									3,761
Other comprehensive income																													956						956
Dividends on common, $0.11 per share																										(793	)								(793	)
Repurchased stock (215,097 shares)																																(4,024	)		(4,024	)
Stock based compensation expense																							151												151
Balance, June 30, 2021																		$	-	$	54,463	$	14,906		$	93,851		$	499		$	(19,702	)	$	144,017

See notes to condensed consolidated financial statements (unaudited)

SB FINANCIAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~SB Financial Group, Inc.~~

	Six Months Ended June 30,
($ in thousands)	2022			2021
Operating Activities
Net Income	$	5,647		$	10,842
Items not requiring (providing) cash
Depreciation and amortization		1,092			1,004
Provision for loan losses		-			750
Expense of share-based compensation plan		355			274
Amortization of premiums and discounts on securities		566			549
Amortization of intangible assets		34			35
Amortization of originated mortgage servicing rights		1,044			2,135
Impairment (recovery) of mortgage servicing rights		(1,129	)		(2,607	)
Proceeds from sale of loans held for sale		125,051			255,773
Originations of loans held for sale		(119,902	)		(249,542	)
Gain from sale of loans		(3,209	)		(10,176	)
Changes in
Interest receivable		(336	)		799
Other assets		2,342			2,886
Interest payable & other liabilities		(7,863	)		(10,685	)
Net cash provided by operating activities		3,692			2,037
Investing Activities
Purchases of available-for-sale securities		(50,618	)		(88,379	)
Proceeds from maturities of interest bearing time deposits		952			2,917
Proceeds from maturities of available-for-sale securities		21,371			23,315
Net change in loans		(73,073	)		20,584
Purchase of premises, equipment		(1,044	)		(1,790	)
Purchase of bank owned life insurance		(10,500	)		(50	)
Proceeds from sale of foreclosed assets		1,600			28
Net cash used in investing activities		(111,312	)		(43,375	)

Financing Activities
Net increase (decrease) in demand deposits, money market, interest checking & savings accounts		(27,020	)		98,876
Net decrease in time deposits		(14,246	)		(56,853	)
Net increase in short term borrowings		15,452			4,907
Proceeds from Federal Home Loan Bank advances		25,000			-
Repayment of Federal Home Loan Bank advances		(5,500	)		(2,500	)
Net proceeds from subordinated debt		-			19,522
Stock repurchase plan		(4,312	)		(6,742	)
Dividends on common shares		(1,698	)		(1,569	)
Net cash provided by (used in) financing activities		(12,324	)		55,641
Increase (decrease) in cash and cash equivalents		(119,944	)		14,303
Cash and cash equivalents, beginning of period		149,511			140,690
Cash and cash equivalents, end of period	$	29,567		$	154,993
Supplemental cash flow information
Interest paid	$	1,807		$	2,285
Income taxes paid	$	-		$	3,030
Supplemental non-cash disclosure
Transfer of loans to foreclosed assets	$	172		$	1,608
Stock dividends declared and paid	$	6,856		$	-

~~Condensed Consolidated Statements of Cash Flows (unaudited)~~

($ in thousands) Three Months Ended
March 31,
2022 2021
Operating Activities
Net Income $ 2,813 $ 7,081
Items not requiring (providing) cash
Depreciation and amortization 548 489
Provision for loan losses - 750
Expense of share-based compensation plan 158 123
Amortization of premiums and discounts on securities 336 280
Amortization of intangible assets 17 17
Amortization of originated mortgage servicing rights 547 1,187
Impairment (recovery) of mortgage servicing rights (890 ) (2,706 )
Proceeds from sale of loans held for sale 73,897 136,708
Originations of loans held for sale (70,077 ) (133,500 )
Gain from sale of loans (1,856 ) (5,876 )
Changes in
Interest receivable 105 428
Other assets (373 ) 2,467
Interest payable & other liabilities (6,690 ) (8,332 )
Net cash used in operating activities (1,465 ) (882 )

Investing Activities
Purchases of available-for-sale securities (30,635 ) (44,143 )
Proceeds from maturities of interest bearing time deposits 749 2,261
Proceeds from maturities of available-for-sale securities 13,294 11,975
Net change in loans (27,958 ) 24,524
Purchase of premises, equipment (417 ) (165 )
Purchase of bank owned life insurance - (50 )
Proceeds from sale of foreclosed assets 1,632 3
Net cash used in investing activities (43,335 ) (5,595 )

Financing Activities
Net increase in demand deposits, money market, interest checking & savings accounts 32,977 112,505
Net decrease in time deposits (7,951 ) (41,320 )
Net increase in securities sold under agreements to repurchase 3,715 4,132
Stock repurchase plan (2,609 ) (2,718 )
Dividends on common shares (840 ) (776 )
Net cash provided by financing activities 25,292 71,823
Increase (decrease) in cash and cash equivalents (19,508 ) 65,346
Cash and cash equivalents, beginning of period 149,511 140,690
Cash and cash equivalents, end of period $ 130,003 $ 206,036
Supplemental cash flow information
Interest paid $ 681 $ 1,207
Supplemental non-cash disclosure
Transfer of loans to foreclosed assets $ - $ 25
Stock dividends declared and paid $ 6,856 $ -

See notes to condensed consolidated financial statements (unaudited)

SB FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1—BASIS OF PRESENTATION

SB Financial Group, Inc., an Ohio corporation (the “Company”), is a financial holding company whose principal activity is the ownership and management of its wholly-owned subsidiaries, including The State Bank and Trust Company (“State Bank”), SBFG Title, LLC (“SBFG Title”), SB Captive, Inc. (“SB Captive”), RFCBC, Inc. (“RFCBC”), Rurbanc Data Services, Inc. dba RDSI Banking Systems (“RDSI”), and Rurban Statutory Trust II (“RST II”). RDSI is presently inactive and has had no material operations or employees. In addition, State Bank owns all of the outstanding stock of Rurban Mortgage Company (“RMC”), which is inactive, and State Bank Insurance, LLC (“SBI”).

The consolidated financial statements include the accounts of the Company, State Bank, RFCBC, RDSI, RMC, SBFG Title, SB Captive and SBI. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by ~~generally accepted accounting principles~~GAAP for complete financial statements. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments. Results of operations for the three and six months ended ~~March 31,~~June 30, 2022, are not necessarily indicative of results for the complete year.

The condensed consolidated balance sheet of the Company as of December 31, 2021 has been derived from the audited consolidated balance sheet of the Company as of that date.

For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

New and applicable accounting pronouncements:

ASU No. 2020-01: Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323 and Topic 815

This guidance was issued in January 2020 to clarify that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments-Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments also clarify that when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The impact of this new guidance did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards not yet adopted:

ASU No. 2020-04: Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)

This guidance provides temporary options to ease the potential burden in accounting for reference rate reform. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company anticipates being fully prepared to implement a replacement for the reference rate and has determined that any change will not have a material impact on the Company’s consolidated financial statements.

ASU No. 2016-13: Financial Instruments – Credit Losses (Topic 326)

This ASU, which is commonly known as CECL, replaces the current GAAP incurred impairment methodology regarding credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this update affect an entity to varying degrees depending on the credit quality of the assets held by the entity, their duration, and how the entity applies current GAAP.

The adoption of ASU 2016-13 has the potential to result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses on debt securities.

The new accounting guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019. However, the FASB has deferred the effective date for this ASU for smaller reporting companies, such as the Company, to annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2022.

The Company will continue to estimate the impact of adopting ASU 2016-13 throughout 2022. We expect to be fully prepared for implementation by January 1, 2023.

ASU No. 2022-02: Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures

The amendments to ASU 2016-13 (Financial Instruments – Credit Losses) update the ~~final adoption~~prior guidance on Troubled Debt Restructurings (“TDR”) by eliminating the TDR recognition and measurement guidance and, instead, require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. In addition, entities are required to disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases.

The new accounting guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019. However, the ~~standard~~FASB has deferred the effective date for this ASU for smaller reporting companies, such as the Company, to annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2022.

The Company will ~~not have a material~~continue to estimate the impact onof adopting the ~~Company’s consolidated financial statements.~~amendments throughout 2022. We expect to be fully prepared for implementation by January 1, 2023.

NOTE 2—EARNINGS PER SHARE

Earnings per share ~~(EPS)~~(“EPS”) have been computed based on the weighted average number of common shares outstanding during the periods presented. ~~There were no anti-dilutive shares in 2022 or 2021. Participating securities in the table reflect dividends on unvested restricted shares.~~ The average number of common shares used in the computation of basic and diluted earnings per share are set forth in the tables ~~below:~~below. There were no anti-dilutive shares in 2022 or 2021. Participating securities in the tables reflect dividends on nonvested restricted shares.

	Three Months Ended March 31,				Three Months Ended June 30,
($ and outstanding shares in thousands - except per share data)	2022		2021		2022		2021

Distributed earnings allocated to common shares	$	835	$	776	$	858	$	793
Undistributed earnings allocated to common shares		1,972		6,299		1,968		2,962

Net earnings allocated to common shares		2,807		7,075		2,826		3,755
Net earnings allocated to participating securities		6		6		8		6

Net Income allocated to common shares and participating securities	$	2,813	$	7,081	$	2,834	$	3,761

Weighted average shares outstanding for basic earnings per share		7,035		7,317		7,075		7,148
Dilutive effect of stock compensation		65		18		74		52

Weighted average shares outstanding for diluted earnings per share		7,100		7,335		7,149		7,200

Basic earnings per common share	$	0.40	$	0.97	$	0.40	$	0.53

Diluted earnings per common share	$	0.40	$	0.97	$	0.40	$	0.52

	Six Months Ended June 30,
($ and outstanding shares in thousands - except per share data)	2022		2021

Distributed earnings allocated to common shares	$	1,694	$	1,569
Undistributed earnings allocated to common shares		3,939		9,262

Net earnings allocated to common shares		5,633		10,831
Net earnings allocated to participating securities		14		11

Net Income allocated to common shares and participating securities	$	5,647	$	10,842

Weighted average shares outstanding for basic earnings per share		7,055		7,232
Dilutive effect of stock compensation		61		24

Weighted average shares outstanding for diluted earnings per share		7,116		7,256

Basic earnings per common share	$	0.80	$	1.50

Diluted earnings per common share	$	0.79	$	1.49

On January 10, 2022, the Company announced that its board of directors had declared a 5 percent common stock dividend payable on February 4, 2022, to shareholders of record as of January 21, 2022. Holders of the Company’s common shares as of the record date received one additional common share for every twenty common shares held on the record date. No fractional shares were issued, and shareholders received cash for such fractional interests based on the closing price of the Company’s common shares on the record date of $19.89.

Had the 5 percent common stock dividend been included in the Company’s 2021 financial statements, common shares outstanding would have increased by approximately 345,000 and diluted earnings per share, assuming the shares were outstanding for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2021, would have decreased by ~~$0.05~~$0.03 and $0.07 per ~~share.~~share, respectively.

~~On January 25, 2022,~~In connection with the 5 percent common stock dividend, the Company filed a Certificate of Amendment with the Ohio Secretary of State on January 25, 2022 to amend Article FIRST of its Amended Articles of Incorporation to proportionately increase the authorized number of common shares, without par value, of the Company from 10,000,000 to 10,500,000. The addition of these authorized shares did not have a material impact on the Company’s consolidated financial statements.

Note 3 – AVAILABLE FOR SALE Securities

The amortized cost and appropriate fair values, together with gross unrealized gains and losses, of securities at ~~March 31,~~June 30, 2022 and December 31, 2021 were as follows:

												Gross		Gross
($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized		Unrealized		Unrealized
March 31, 2022
U.S. Treasury and
Government agencies	$	8,746	$	13	$	(351	)	$	8,408
										Cost		Gains		Losses			Fair Value
June 30, 2022
U.S. Treasury and Government agencies										$	9,056	$	1	$	(585	)	$	8,472
Mortgage-backed securities		243,092		14		(16,170	)		226,936		254,483		7		(25,573	)		228,917
State and political subdivisions		13,563		184		(577	)		13,170		13,538		24		(1,345	)		12,217
Other corporate securities		17,200		-		(403	)		16,797		17,200		-		(644	)		16,556

Totals	$	282,601	$	211	$	(17,501	)	$	265,311	$	294,277	$	32	$	(28,147	)	$	266,162

												Gross		Gross
										Amortized		Unrealized		Unrealized
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost		Gains		Losses			Fair Value
December 31, 2021
U.S. Treasury and
Government agencies	$	8,986	$	135	$	(16	)	$	9,105
U.S. Treasury and Government agencies										$	8,986	$	135	$	(16	)	$	9,105
Mortgage-backed securities		231,057		614		(3,537	)		228,134		231,057		614		(3,537	)		228,134
State and political subdivisions		12,352		536		(9	)		12,879		12,352		536		(9	)		12,879
Other corporate securities		13,200		2		(61	)		13,141		13,200		2		(61	)		13,141

Totals	$	265,595	$	1,287	$	(3,623	)	$	263,259	$	265,595	$	1,287	$	(3,623	)	$	263,259

The amortized cost and fair value of securities available for sale at ~~March 31,~~June 30, 2022, by contractual maturity, are

shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair		Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value

Within one year	$	749	$	747	$	1,256	$	1,263
Due after one year through five years		3,299		3,266		3,089		3,037
Due after five years through ten years		25,188		24,606		26,189		25,005
Due after ten years		10,273		9,756		9,260		7,940
		39,509		38,375		39,794		37,245
Mortgage-backed securities		243,092		226,936		254,483		228,917

Totals	$	282,601	$	265,311	$	294,277	$	266,162

The fair value of securities pledged as collateral, to secure public deposits and for other purposes, was ~~$65.4~~$60.3 million at ~~March 31,~~June 30, 2022 and $54.2 million at December 31, 2021. The fair value of securities delivered for repurchase agreements was ~~$25.3~~$27.5 million at ~~March 31,~~June 30, 2022 and $23.6 million at December 31, 2021.

There were no realized gains or losses from sales of available-for-sale securities for the ~~three~~six months ended ~~March 31,~~June 30, 2022 or ~~March 31,~~June 30, 2021.

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments was ~~$252.6~~$257.1 million at ~~March 31,~~June 30, 2022, and $214.2 million at December 31, 2021, which consisted of ~~124~~139 securities, or approximately 9597 percent, and 64 securities, or approximately 81 percent, respectively, of the Company’s available-for-sale investment portfolio at such dates. Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

Securities with unrealized losses, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at ~~March 31,~~June 30, 2022 and December 31, 2021, are as follows:

($ in thousands)	Less than 12 Months					12 Months or Longer					Total
March 31, 2022	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
																Less than 12 Months					12 Months or Longer					Total
U.S. Treasury and
Government agencies	$	6,787	$	(350	)	$	249	$	(1	)	$	7,036	$	(351	)
June 30, 2022 ($ in thousands)																Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

U.S. Treasury and Government agencies																$	7,858	$	(584	)	$	250	$	(1	)	$	8,108	$	(585	)
Mortgage-backed securities		147,270		(8,870	)		77,798		(7,300	)		225,068		(16,170	)		156,242		(14,928	)		72,095		(10,645	)		228,337		(25,573	)
State and political subdivisions		7,556		(577	)		-		-			7,556		(577	)		9,409		(1,345	)		-		-			9,409		(1,345	)
Other corporate securities		12,947		(403	)		-		-			12,947		(403	)		11,206		(644	)		-		-			11,206		(644	)

Totals	$	174,560	$	(10,200	)	$	78,047	$	(7,301	)	$	252,607	$	(17,501	)	$	184,715	$	(17,501	)	$	72,345	$	(10,646	)	$	257,060	$	(28,147	)

	Less than 12 Months					12 Months or Longer					Total					Less than 12 Months					12 Months or Longer					Total
December 31, 2021	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

U.S. Treasury and
Government agencies	$	3,397	$	(16	)	$	-	$	-		$	3,397	$	(16	)
U.S. Treasury and Government agencies																$	3,397	$	(16	)	$	-	$	-		$	3,397	$	(16	)
Mortgage-backed securities		183,727		(2,856	)		18,566		(681	)		202,293		(3,537	)		183,727		(2,856	)		18,566		(681	)		202,293		(3,537	)
State and political subdivisions		1,673		(9	)		-		-			1,673		(9	)		1,673		(9	)		-		-			1,673		(9	)
Other corporate securities		6,889		(61	)		-		-			6,889		(61	)		6,889		(61	)		-		-			6,889		(61	)

Totals	$	195,686	$	(2,942	)	$	18,566	$	(681	)	$	214,252	$	(3,623	)	$	195,686	$	(2,942	)	$	18,566	$	(681	)	$	214,252	$	(3,623	)

The total unrealized loss in the securities portfolio was ~~$17.5~~$28.1 million as of ~~March 31,~~June 30, 2022 compared to a $3.6 million unrealized loss at December 31, 2021. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the investment and whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost. Management has determined there is no other-than-temporary-impairment on its securities as of ~~March 31,~~June 30, 2022.

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Generally, all loan classes are placed on nonaccrual status not later than 90 days past due, unless the loan is well-secured and in the process of collection. All interest accrued, but not collected, for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the non-collectability of a loan balance is probable. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as new information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that State Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration each of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial, agricultural, and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

When State Bank moves a loan to nonaccrual status, total unpaid interest accrued to date is reversed from income. Subsequent payments are applied to the outstanding principal balance with the interest portion of the payment recorded on the balance sheet as a contra-loan. Interest received on impaired loans may be realized once all contractual principal amounts are received or when a borrower establishes a history of six consecutive timely principal and interest payments. It is at the discretion of management to determine when a loan is placed back on accrual status upon receipt of six consecutive timely payments.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, State Bank does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Categories of loans at ~~March 31,~~June 30, 2022 and December 31, 2021 include:

	Total Loans						Nonaccrual Loans				Total Loans						Nonaccrual Loans
($ in thousands)	March 2022			December 2021			March 2022		December 2021		June 2022			December 2021			June 2022		December 2021

Commercial & industrial	$	124,599		$	122,250		$	142	$	143	$	127,434		$	122,250		$	140	$	143
Commercial real estate - owner occupied		125,304			118,891			88		88		129,496			118,891			88		88
Commercial real estate - nonowner occupied		274,643			262,277			456		466		274,583			262,277			271		466
Agricultural		55,660			57,403			-		-		60,490			57,403			-		-
Residential real estate		214,183			206,424			3,199		2,484		241,776			206,424			3,176		2,484
Home equity line of credit (HELOC)		41,222			41,682			399		464		44,142			41,682			291		464
Consumer		14,741			13,474			9		7		17,303			13,474			32		7

Total loans	$	850,352		$	822,401		$	4,293	$	3,652	$	895,224		$	822,401		$	3,998	$	3,652

Net deferred costs (fees)	$	319		$	313						$	387		$	313

Total loans, net deferred costs (fees)	$	850,671		$	822,714						$	895,611		$	822,714

Allowance for loan losses	$	(13,804	)	$	(13,805	)					$	(13,801	)	$	(13,805	)

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 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 Occupied)

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. 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 versus non-owner-occupied commercial real estate loans.

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential Real Estate, HELOC and Consumer

Residential and consumer loans consist of two segments – residential mortgage loans and personal loans. Residential mortgage loans are secured by 1-4 family residences and are generally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. HELOCs are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that these loans are of smaller individual amounts and spread over a large number of borrowers.

The following tables present the activity in the allowance for loan losses for the ~~three-month periods~~three and six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021, and the recorded investment in loans based on portfolio segment and impairment method as of ~~March 31,~~June 30, 2022 and December 31, 2021.

($ in thousands)
For the Three Months Ended March 31, 2022	Commercial & industrial		Commercial real estate		Agricultural			Residential real estate			Consumer			Total
For the Three Months Ended June 30, 2022																	Commercial & industrial			Commercial real estate			Agricultural		Residential real estate		Consumer			Total

Beginning balance	$	1,890	$	6,781	$	599		$	3,515		$	1,020		$	13,805		$	1,892		$	6,883		$	547	$	3,502	$	980		$	13,804
Charge offs		-		-		-			-			(9	)		(9	)		-			-			-		-		(9	)		(9	)
Recoveries		-		-		-			-			8			8			-			-			-		-		6			6
Provision		2		102		(52	)		(13	)		(39	)		-			(64	)		(212	)		13		249		14			-
Ending balance	$	1,892	$	6,883	$	547		$	3,502		$	980		$	13,804		$	1,828		$	6,671		$	560	$	3,751	$	991		$	13,801

For the Three Months Ended March 31, 2021	Commercial & industrial			Commercial real estate		Agricultural			Residential real estate			Consumer			Total
For the Six Months Ended June 30, 2022																		Commercial & industrial			Commercial real estate			Agricultural			Residential real estate		Consumer			Total

Beginning balance	$	3,074		$	5,451	$	496		$	2,534		$	1,019		$	12,574		$	1,890		$	6,781		$	599		$	3,515	$	1,020		$	13,805
Charge offs		-			-		-			(21	)		(31	)		(52	)		-			-			-			-		(18	)		(18	)
Recoveries		-			-		-			49			5			54			-			-			-			-		14			14
Provision		(115	)		726		(23	)		46			116			750			(62	)		(110	)		(39	)		236		(25	)		-
Ending balance	$	2,959		$	6,177	$	473		$	2,608		$	1,109		$	13,326		$	1,828		$	6,671		$	560		$	3,751	$	991		$	13,801

Loans Receivable at March 31, 2022 Commercial
& industrial Commercial
real estate Agricultural Residential
real estate Consumer Total
Allowance:
Ending balance: individually evaluated for impairment $ - $ 10 $ - $ 172 $ 4 $ 186
Ending balance: collectively evaluated for impairment $ 1,892 $ 6,873 $ 547 $ 3,330 $ 976 $ 13,618

Totals $ 1,892 $ 6,883 $ 547 $ 3,502 $ 980 $ 13,804

Loans:
Ending balance: individually evaluated for impairment $ 118 $ 346 $ - $ 2,974 $ 141 $ 3,579
Ending balance: collectively evaluated for impairment $ 124,481 $ 399,601 $ 55,660 $ 211,209 $ 55,822 $ 846,773

Totals $ 124,599 $ 399,947 $ 55,660 $ 214,183 $ 55,963 $ 850,352

For the Three Months Ended June 30, 2021	Commercial & industrial			Commercial real estate		Agricultural		Residential real estate			Consumer			Total

Beginning balance	$	2,959		$	6,177	$	473	$	2,608		$	1,109		$	13,326
Charge offs		-			-		-		(22	)		(4	)		(26	)
Recoveries		-			-		-		-			6			6
Provision		(1,241	)		495		21		839			(114	)		-
Ending balance	$	1,718		$	6,672	$	494	$	3,425		$	997		$	13,306

For the Six Months Ended June 30, 2021	Commercial & industrial			Commercial real estate		Agricultural			Residential real estate			Consumer			Total

Beginning balance	$	3,074		$	5,451	$	496		$	2,534		$	1,019		$	12,574
Charge offs		-			-		-			(43	)		(35	)		(78	)
Recoveries		-			-		-			49			11			60
Provision		(1,356	)		1,221		(2	)		885			2			750
Ending balance	$	1,718		$	6,672	$	494		$	3,425		$	997		$	13,306

Loans Receivable at December 31, 2021 Commercial
& industrial Commercial
real estate Agricultural Residential
real estate Consumer Total
Allowance:
Ending balance: individually evaluated for impairment $ - $ 10 $ - $ 120 $ 3 $ 133
Ending balance: collectively evaluated for impairment $ 1,890 $ 6,771 $ 599 $ 3,395 $ 1,017 $ 13,672

Totals $ 1,890 $ 6,781 $ 599 $ 3,515 $ 1,020 $ 13,805

Loans:
Ending balance: individually evaluated for impairment $ 118 $ 354 $ - $ 2,307 $ 135 $ 2,914
Ending balance: collectively evaluated for impairment $ 122,132 $ 380,814 $ 57,403 $ 204,117 $ 55,021 $ 819,487

Totals $ 122,250 $ 381,168 $ 57,403 $ 206,424 $ 55,156 $ 822,401

Loans Receivable at June 30, 2022	Commercial & industrial		Commercial real estate		Agricultural		Residential real estate		Consumer		Total
Allowance:
Ending balance:
individually evaluated for impairment	$	-	$	-	$	-	$	167	$	4	$	171
Ending balance:
collectively evaluated for impairment	$	1,828	$	6,671	$	560	$	3,584	$	987	$	13,630
Totals	$	1,828	$	6,671	$	560	$	3,751	$	991	$	13,801

Loans:
Ending balance:
individually evaluated for impairment	$	117	$	295	$	-	$	2,997	$	131	$	3,540
Ending balance:
collectively evaluated for impairment	$	127,317	$	403,784	$	60,490	$	238,779	$	61,314	$	891,684
Totals	$	127,434	$	404,079	$	60,490	$	241,776	$	61,445	$	895,224

Loans Receivable at December 31, 2021	Commercial & industrial		Commercial real estate		Agricultural		Residential real estate		Consumer		Total
Allowance:
Ending balance:
individually evaluated for impairment	$	-	$	10	$	-	$	120	$	3	$	133
Ending balance:
collectively evaluated for impairment	$	1,890	$	6,771	$	599	$	3,395	$	1,017	$	13,672
Totals	$	1,890	$	6,781	$	599	$	3,515	$	1,020	$	13,805

Loans:
Ending balance:
individually evaluated for impairment	$	118	$	354	$	-	$	2,307	$	135	$	2,914
Ending balance:
collectively evaluated for impairment	$	122,132	$	380,814	$	57,403	$	204,117	$	55,021	$	819,487
Totals	$	122,250	$	381,168	$	57,403	$	206,424	$	55,156	$	822,401

Credit Risk Profile

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Pass (grades 1 – 4): Loans which management has determined to be performing as expected and in agreement with the terms established at the time of loan origination.

Special Mention (5): Assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.

Substandard (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 jeopardize 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 (7): Loans classified as doubtful have all the weaknesses inherent in those classified as 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 (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 warranted. Loans will be classified as Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category as of ~~March 31,~~June 30, 2022 and December 31, 2021.

($ in thousands) March 31, 2022	Commercial & industrial		Commercial real estate - owner occupied		Commercial real estate - nonowner occupied		Agricultural		Residential real estate		HELOC		Consumer		Total
($ in thousands) June 30, 2022																	Commercial & industrial		Commercial real estate - owner occupied		Commercial real estate - nonowner occupied		Agricultural		Residential real estate		HELOC		Consumer		Total

Pass (1 - 4)	$	123,668	$	117,826	$	265,749	$	55,660	$	210,649	$	40,823	$	14,732	$	829,107	$	126,532	$	126,444	$	269,015	$	60,490	$	238,272	$	43,851	$	17,272	$	881,876
Special Mention (5)		627		7,390		5,617		-		-		-		-		13,634		600		2,964		5,292		-		-		-		-		8,856
Substandard (6)		186		-		2,821		-		3,507		399		9		6,922		161		-		5		-		3,479		291		31		3,967
Doubtful (7)		118		88		456		-		27		-		-		689		141		88		271		-		25		-		-		525
Loss (8)		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total Loans	$	124,599	$	125,304	$	274,643	$	55,660	$	214,183	$	41,222	$	14,741	$	850,352	$	127,434	$	129,496	$	274,583	$	60,490	$	241,776	$	44,142	$	17,303	$	895,224

December 31, 2021	Commercial & industrial		Commercial real estate - owner occupied		Commercial real estate - nonowner occupied		Agricultural		Residential real estate		HELOC		Consumer		Total		Commercial & industrial		Commercial real estate - owner occupied		Commercial real estate - nonowner occupied		Agricultural		Residential real estate		HELOC		Consumer		Total


Pass (1 - 4)	$	121,285	$	111,232	$	253,269	$	57,403	$	203,295	$	41,218	$	13,467	$	801,169	$	121,285	$	111,232	$	253,269	$	57,403	$	203,295	$	41,218	$	13,467	$	801,169
Special Mention (5)		659		7,571		5,694		-		-		-		-		13,924		659		7,571		5,694		-		-		-		-		13,924
Substandard (6)		188		-		2,848		-		3,102		464		7		6,609		188		-		2,848		-		3,102		464		7		6,609
Doubtful (7)		118		88		466		-		27		-		-		699		118		88		466		-		27		-		-		699
Loss (8)		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total Loans	$	122,250	$	118,891	$	262,277	$	57,403	$	206,424	$	41,682	$	13,474	$	822,401	$	122,250	$	118,891	$	262,277	$	57,403	$	206,424	$	41,682	$	13,474	$	822,401

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. The following tables present the Company’s loan portfolio aging analysis as of ~~March 31,~~June 30, 2022 and December 31, 2021.

($ in thousands)	30-59 Days		60-89 Days		Greater Than		Total Past				Total Loans		30-59 Days		60-89 Days		Greater Than 90 Days		Total Past				Total Loans
March 31, 2022	Past Due		Past Due		90 Days Past Due		Due		Current		Receivable
June 30, 2022													Past Due		Past Due		Past Due		Due		Current		Receivable

Commercial & industrial	$	1,620	$	-	$	142	$	1,762	$	122,837	$	124,599	$	156	$	-	$	140	$	296	$	127,138	$	127,434
Commercial real estate - owner occupied		-		-		88		88		125,216		125,304		48		-		88		136		129,360		129,496
Commercial real estate - nonowner occupied		116		443		245		804		273,839		274,643		255		-		71		326		274,257		274,583
Agricultural		-		-		-		-		55,660		55,660		-		-		-		-		60,490		60,490
Residential real estate		216		65		1,652		1,933		212,250		214,183		23		374		1,361		1,758		240,018		241,776
HELOC		194		-		235		429		40,793		41,222		118		94		134		346		43,796		44,142
Consumer		14		13		6		33		14,708		14,741		18		19		22		59		17,244		17,303
Total Loans	$	2,160	$	521	$	2,368	$	5,049	$	845,303	$	850,352	$	618	$	487	$	1,816	$	2,921	$	892,303	$	895,224

	30-59 Days		60-89 Days		Greater Than		Total Past				Total Loans		30-59 Days		60-89 Days		Greater Than 90 Days		Total Past				Total Loans
December 31, 2021	Past Due		Past Due		90 Days Past Due		Due		Current		Receivable		Past Due		Past Due		Past Due		Due		Current		Receivable

Commercial & industrial	$	166	$	25	$	118	$	309	$	121,941	$	122,250	$	166	$	25	$	118	$	309	$	121,941	$	122,250
Commercial real estate - owner occupied		-		-		88		88		118,803		118,891		-		-		88		88		118,803		118,891
Commercial real estate - nonowner occupied		221		233		246		700		261,577		262,277		221		233		246		700		261,577		262,277
Agricultural		-		-		-		-		57,403		57,403		-		-		-		-		57,403		57,403
Residential real estate		265		716		1,344		2,325		204,099		206,424		265		716		1,344		2,325		204,099		206,424
HELOC		53		80		248		381		41,301		41,682		53		80		248		381		41,301		41,682
Consumer		20		14		7		41		13,433		13,474		20		14		7		41		13,433		13,474
Total Loans	$	725	$	1,068	$	2,051	$	3,844	$	818,557	$	822,401	$	725	$	1,068	$	2,051	$	3,844	$	818,557	$	822,401

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

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable State Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following tables present impaired loan information as of and for the three and six months ended ~~March 31,~~June 30, 2022 and 2021, and for the twelve months ended December 31, 2021:

($ in thousands)											Recorded		Unpaid Principal		Related		Average Recorded		Interest Income
Three Months Ended	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income
March 31, 2022	Investment		Balance		Allowance		Investment		Recognized
Six Months Ended June 30, 2022											Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Commercial & industrial	$	118	$	203	$	-	$	216	$	-	$	117	$	202	$	-	$	216	$	1
Commercial real estate - owner occupied		88		88		-		88		-		88		88		-		88		-
Commercial real estate - nonowner occupied		215		215		-		351		5		207		207		-		350		11
Agricultural		-		-		-		-		-		-		-		-		-		-
Residential real estate		1,709		1,775		-		1,935		18		1,750		1,816		-		2,011		35
HELOC		21		21				23		-		19		19				23		1
Consumer		-		-		-		-		-		-		-		-		-		-
With a specific allowance recorded:
Commercial & industrial		-		-		-		-		-		-		-		-		-		-
Commercial real estate - owner occupied		-		-		-		-		-		-		-		-		-		-
Commercial real estate - nonowner occupied		43		173		10		173		-		-		-		-		-		-
Agricultural		-		-		-		-		-		-		-		-		-		-
Residential real estate		1,265		1,265		172		1,280		1		1,247		1,247		167		1,279		1
HELOC		120		120		4		130		1		112		112		4		125		1
Consumer		-		-		-		-		-		-		-		-		-		-
Totals:
Commercial & industrial	$	118	$	203	$	-	$	216	$	-	$	117	$	202	$	-	$	216	$	1
Commercial real estate - owner occupied	$	88	$	88	$	-	$	88	$	-	$	88	$	88	$	-	$	88	$	-
Commercial real estate - nonowner occupied	$	258	$	388	$	10	$	524	$	5	$	207	$	207	$	-	$	350	$	11
Agricultural	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential real estate	$	2,974	$	3,040	$	172	$	3,215	$	19	$	2,997	$	3,063	$	167	$	3,290	$	36
HELOC	$	141	$	141	$	4	$	153	$	1	$	131	$	131	$	4	$	148	$	2
Consumer	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

($ in thousands)
Twelve Months Ended Recorded Unpaid Principal Related Average Recorded Interest Income
December 31, 2021 Investment Balance Allowance Investment Recognized
With no related allowance recorded:
Commercial & industrial $ 118 $ 204 $ - $ 217 $ 2
Commercial real estate - owner occupied 88 88 - 88 -
Commercial real estate - nonowner occupied 223 223 - 357 28
Agricultural - - - - -
Residential real estate 1,391 1,458 - 1,663 60
HELOC 33 33 41 2
Consumer - - - - -
With a specific allowance recorded:
Commercial & industrial - - - - -
Commercial real estate - owner occupied - - - - -
Commercial real estate - nonowner occupied 43 173 10 173 -
Agricultural - - - - -
Residential real estate 916 916 120 933 20
HELOC 102 102 3 124 5
Consumer - - - - -
Totals:
Commercial & industrial $ 118 $ 204 $ - $ 217 $ 2
Commercial real estate - owner occupied $ 88 $ 88 $ - $ 88 $ -
Commercial real estate - nonowner occupied $ 266 $ 396 $ 10 $ 530 $ 28
Agricultural $ - $ - $ - $ - $ -
Residential real estate $ 2,307 $ 2,374 $ 120 $ 2,596 $ 80
HELOC $ 135 $ 135 $ 3 $ 165 $ 7
Consumer $ - $ - $ - $ - $ -

($ in thousands)					Average Recorded		Interest Income
Three Months Ended June 30, 2022					Investment		Recognized
	Three Months Ended
March 31, 2021	Average Recorded		Interest Income
($ in thousands)	Investment		Recognized
With no related allowance recorded:
Commercial & industrial	$	1,598	$	12	$	216	$	1
Commercial real estate - owner occupied		1,450		-		88		-
Commercial real estate - nonowner occupied		534		7		348		6
Agricultural		-		-		-		-
Residential real estate		1,843		7		2,002		16
HELOC		86		1		21		-
Consumer		7		-		-		-
With a specific allowance recorded:
Commercial & industrial		-		-		-		-
Commercial real estate - owner occupied		-		-		-		-
Commercial real estate - nonowner occupied		579		-		-		-
Agricultural		-		-		-		-
Residential real estate		647		6		1,278		15
HELOC		75		1		123		1
Consumer		-		-		-		-
Totals:
Commercial & industrial	$	1,598	$	12	$	216	$	1
Commercial real estate - owner occupied	$	1,450	$	-	$	88	$	-
Commercial real estate - nonowner occupied	$	1,113	$	7	$	348	$	6
Agricultural	$	-	$	-	$	-	$	-
Residential real estate	$	2,490	$	13	$	3,280	$	31
HELOC	$	161	$	2	$	144	$	1
Consumer	$	7	$	-	$	-	$	-

($ in thousands)	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income
Twelve Months Ended December 31, 2021	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Commercial & industrial	$	118	$	204	$	-	$	217	$	2
Commercial real estate - owner occupied		88		88		-		88		-
Commercial real estate - nonowner occupied		223		223		-		357		28
Agricultural		-		-		-		-		-
Residential real estate		1,391		1,458		-		1,663		60
HELOC		33		33				41		2
Consumer		-		-		-		-		-
With a specific allowance recorded:
Commercial & industrial		-		-		-		-		-
Commercial real estate - owner occupied		-		-		-		-		-
Commercial real estate - nonowner occupied		43		173		10		173		-
Agricultural		-		-		-		-		-
Residential real estate		916		916		120		933		20
HELOC		102		102		3		124		5
Consumer		-		-		-		-		-
Totals:
Commercial & industrial	$	118	$	204	$	-	$	217	$	2
Commercial real estate - owner occupied	$	88	$	88	$	-	$	88	$	-
Commercial real estate - nonowner occupied	$	266	$	396	$	10	$	530	$	28
Agricultural	$	-	$	-	$	-	$	-	$	-
Residential real estate	$	2,307	$	2,374	$	120	$	2,596	$	80
HELOC	$	135	$	135	$	3	$	165	$	7
Consumer	$	-	$	-	$	-	$	-	$	-

	Six Months Ended				Three Months Ended
($ in thousands)	Average Recorded		Interest Income		Average Recorded		Interest Income
June 30, 2021	Investment		Recognized		Investment		Recognized

With no related allowance recorded:
Commercial & industrial	$	855	$	22	$	849	$	11
Commercial real estate - owner occupied		88		-		88		-
Commercial real estate - nonowner occupied		532		15		531		8
Agricultural		-		-		-		-
Residential real estate		1,453		26		1,447		13
HELOC		46		1		44		-
Consumer		6		-		5		-
With a specific allowance recorded:
Commercial & industrial		-		-		-		-
Commercial real estate - owner occupied		-		-		-		-
Commercial real estate - nonowner occupied		579		-		579		-
Agricultural		-		-		-		-
Residential real estate		645		9		644		4
HELOC		129		3		127		1
Consumer		-		-		-		-
Totals:
Commercial & industrial	$	855	$	22	$	849	$	11
Commercial real estate - owner occupied	$	88	$	-	$	88	$	-
Commercial real estate - nonowner occupied	$	1,111	$	15	$	1,110	$	8
Agricultural	$	-	$	-	$	-	$	-
Residential real estate	$	2,098	$	35	$	2,091	$	17
HELOC	$	175	$	4	$	171	$	1
Consumer	$	6	$	-	$	5	$	-

Impaired loans less than $100,000 are included in groups of homogenous loans. These loans are evaluated based on delinquency status.

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

Troubled Debt Restructured (TDR) Loans

TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided are not available to the borrower through either normal channels or other sources. However, not all loan modifications are TDRs.

TDR Concession Types

The Company’s standards relating to loan modifications consider, among other factors, minimum verified income requirements, cash flow analysis, and collateral valuations. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower’s specific circumstances at a point in time. All loan modifications, including those ~~classified~~classified as TDRs, are reviewed and approved by management. The types of concessions provided to borrowers include:

●

Interest rate reduction: A reduction of the stated interest rate to a nonmarket rate for the remaining original life of the loan. The Company also may grant interest rate concessions for a limited timeframe on a case by case basis.

●

Amortization or maturity date change: A change in the amortization or maturity date beyond what the collateral supports, including a concession that does any of the following:

(1)

Lengthens the amortization period of the amortized principal beyond market terms. This concession reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.

(2)

Reduces the amount of loan principal to be amortized. This concession also reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.

(3)

Extends the maturity date or dates of the debt beyond what the collateral supports. This concession generally applies to loans without a balloon payment at the end of the term of the loan. In addition, there may be instances where renewing loans potentially require non-market terms and would then be reclassified as TDRs.

●

Other: A concession that is not categorized as one of the concessions described above. These concessions include, but are not limited to: principal forgiveness, collateral concessions, covenant concessions, and reduction of accrued interest. Principal forgiveness may result from any TDR modification of any concession type.

The Company had no new TDR activity in the three and six months ended ~~March 31,~~June 30, 2022, and ~~March 31,~~June 30, 2021, respectively. ~~There were no TDRs modified~~The Company had one TDR, a residential loan with a recorded balance of $62,000,that during the past twelve months ~~that have subsequently defaulted.~~defaulted on its modified contractual agreement.

On March 22, 2020, a statement was issued by the Company’s bank regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encouraged financial institutions to work prudently with borrowers unable to meet the contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”) further provided that a qualified loan modification is exempt by law from classification as a troubled debt restructure as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2021 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. As of ~~March 31,~~June 30, 2022, all loans previously modified under Section 4013 of the CARES Act had returned to normal payment terms.

NOTE 5 – GOODWILL

A summary of the activity in goodwill is presented below:

	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)	2022		2021		2022		2021		2022		2021

Beginning balance	$	23,191	$	22,091	$	23,239	$	22,091	$	23,191	$	22,091
Measurement period adjustments		48		-		-		-		48		-

Ending balance	$	23,239	$	22,091	$	23,239	$	22,091	$	23,239	$	22,091

Goodwill is not amortized but is evaluated for impairment annually, and on an interim basis if events or circumstances change that indicate an impairment may exist.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the carrying amount of goodwill was $23.2 million. Goodwill is assessed for impairment annually as of December 31, or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

Goodwill was assessed for impairment using a qualitative test performed as of December 31, 2021. The results of the test indicated no goodwill impairment existed as of that date.

NOTE 6 – MORTGAGE SERVICING RIGHTS

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others approximated ~~$1.38~~$1.37 billion at ~~March 31,~~June 30, 2022 and $1.36 billion at December 31, 2021. Contractually specified servicing fees of $0.9 million and ~~$0.8~~$1.7 million were included in mortgage loan servicing fees in the consolidated income statement for the three months and six months ended ~~March 31,~~June 30, 2022, respectively. Servicing fees of $0.8 million and $1.7 million were included for the three and six months ended June 30, 2021, respectively.

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

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2022			2021			2022			2021			2022			2021

Balance at beginning of period	$	12,034		$	7,759		$	13,135		$	10,490		$	12,034		$	7,759
Mortgage servicing rights capitalized during the period		758			1,212			530			1,235			1,288			2,447
Mortgage servicing rights amortization during the period		(547	)		(1,187	)		(496	)		(948	)		(1,043	)		(2,135	)
Net change in valuation allowance		890			2,706			239			(99	)		1,129			2,607
Balance at end of period	$	13,135		$	10,490		$	13,408		$	10,678		$	13,408		$	10,678

Valuation allowance:
Balance at beginning of period	$	1,456		$	4,892		$	566		$	2,186		$	1,456		$	4,892
Increase (decrease)		(890	)		(2,706	)		(239	)		99			(1,129	)		(2,607	)
Balance at end of period	$	566		$	2,186		$	327		$	2,285		$	327		$	2,285

Fair value, beginning of period	$	12,629		$	7,759		$	14,433		$	11,160		$	12,629		$	7,759
Fair value, end of period	$	14,433		$	11,160		$	15,135		$	11,067		$	15,135		$	11,067

NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to certain variable-rate assets.

Non-designated Hedges

The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into Interest Rate Lock Commitments (“IRLCs”) with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts that are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.

The table below presents the notional amount and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of ~~March 31,~~June 30, 2022 and December 31, 2021.

	March 31, 2022					December 31, 2021					June 30, 2022					December 31, 2021
	Notional		Fair			Notional		Fair			Notional		Fair			Notional		Fair
($ in thousands)	Amount		Value			Amount		Value			Amount		Value			Amount		Value

Asset Derivatives

Derivatives not designated as hedging instruments
Interest rate swaps associated with loans	$	75,640	$	482		$	84,733	$	3,655		$	69,348	$	2,918		$	84,733	$	3,655
IRLCs		-		-			21,391		22			12,120		54			21,391		22
Forward contracts		17,750		281			-		-			-		-			-		-
Total contracts	$	93,390	$	763		$	106,124	$	3,677		$	81,468	$	2,972		$	106,124	$	3,677

Liability Derivatives

Derivatives not designated as hedging instruments
Interest rate swaps associated with loans	$	75,640	$	(482	)	$	84,733	$	(3,655	)	$	69,348	$	(2,918	)	$	84,733	$	(3,655	)
Forward contracts		-		-			25,000		(32	)		15,000		(44	)		25,000		(32	)
IRLCs		13,285		(155	)		-		-			-		-			-		-
Total contracts	$	88,925	$	(637	)	$	109,733	$	(3,687	)	$	84,348	$	(2,962	)	$	109,733	$	(3,687	)

The fair value of interest rate swaps were estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.

The following table presents the amounts included in the consolidated statements of income for non-hedging derivative financial instruments for the three and six months ended ~~March 31,~~June 30, 2022 and 2021.

		Amount of gain (loss)							Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	Statement of income classification	2022			2021			Statement of income classification	2022			2021			2022			2021
Interest rate swap contracts	Other income	$	-		$	133		Other income	$	3		$	-		$	3		$	133
IRLCs	Gain on sale of mortgage loans & OMSR		(177	)		(692	)	Gain on sale of mortgage loans & OMSR		209			534			32			(158	)
Forward contracts	Gain on sale of mortgage loans & OMSR		313			762		Gain on sale of mortgage loans & OMSR		(325	)		(605	)		(12	)		157

The following table shows the offsetting of financial assets and derivative assets at ~~March 31,~~June 30, 2022 and December 31, 2021.

	Gross amounts		Gross amounts offset in the		Net amounts of assets presented in the		Gross amounts not offset in the consolidated balance sheet						Gross		Gross amounts		Net amounts of assets presented		Gross amounts not offset in the consolidated balance sheet
($ in thousands)	of recognized assets		consolidated balance sheet		consolidated balance sheet		Financial instruments		Cash collateral received		Net amount		amounts of recognized assets		offset in the consolidated balance sheet		in the consolidated balance sheet		Financial instruments		Cash collateral received		Net amount
March 31, 2022

June 30, 2022
Interest rate swaps	$	1,211	$	729	$	482	$	-	$	-	$	482	$	2,918	$	-	$	2,918	$	-	$	-	$	2,918

December 31, 2021
Interest rate swaps	$	3,746	$	91	$	3,655	$	-	$	-	$	3,655	$	3,746	$	91	$	3,655	$	-	$	-	$	3,655

The following table shows the offsetting of financial liabilities and derivative liabilities at ~~March 31,~~June 30, 2022 and December 31, 2021.

	Gross amounts		Gross amounts offset in the		Net amounts of liabilities presented in the		Gross amounts not offset in the consolidated balance sheet							Gross		Gross amounts		Net amounts of liabilities presented		Gross amounts not offset in the consolidated balance sheet
($ in thousands)	of recognized liabilities		consolidated balance sheet		consolidated balance sheet		Financial instruments		Cash collateral pledged		Net amount			amounts of recognized liabilities		offset in the consolidated balance sheet		in the consolidated balance sheet		Financial instruments		Cash collateral pledged		Net amount
March 31, 2022

June 30, 2022
Interest rate swaps	$	1,211	$	729	$	482	$	-	$	6,897	$	(6,415	)	$	2,918	$	-	$	2,918	$	-	$	5,001	$	(2,083	)

December 31, 2021
Interest rate swaps	$	3,746	$	91	$	3,655	$	-	$	6,906	$	(3,251	)	$	3,746	$	91	$	3,655	$	-	$	6,906	$	(3,251	)

NOTE 8 – DEPOSITS

Major classification of deposits at ~~March 31,~~June 30, 2022 and at December 31, 2021 were as follows:

($ in thousands)	March 31, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Non interest bearing demand	$	252,273	$	247,044	$	239,676	$	247,044
Interest bearing demand		211,152		195,464		198,286		195,464
Savings		236,394		237,571		215,285		237,571
Money market		289,699		276,462		276,274		276,462
Time deposits less than $250,000		136,722		142,736		128,241		142,736
Time deposits $250,000 or greater		11,831		13,768		14,017		13,768
Total Deposits	$	1,138,071	$	1,113,045	$	1,071,779	$	1,113,045

Included in time deposits at ~~March 31,~~June 30, 2022 and December 31, 2021 were ~~$52.5~~$45.0 million and $55.6 million, respectively, of deposits which were obtained through the Certificate of Deposit Account Registry Service (CDARS).

NOTE 9 – SHORT-TERM BORROWINGS

($ in thousands)	March 31, 2022		December 31, 2021		June 30, 2022		December 31, 2021

Fed funds borrowed					$	5,000	$	-
Securities sold under repurchase agreements	$	19,035	$	15,320		25,772		15,320
					$	30,772	$	15,320

The Company has retail repurchase agreements (“REPO”) to facilitate cash management transactions with commercial customers. These obligations are secured by agency and mortgage-backed securities and such collateral is held by the Federal Home Loan Bank (“FHLB”). These securities have various maturity dates from ~~2022~~2024 through 2061. As of ~~March 31,~~June 30, 2022, these ~~repurchase~~REPO agreements were secured by securities totaling ~~$25.3~~$27.5 million. The ~~repurchase~~REPO 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 ~~March 31,~~June 30, 2022, there was no collateral pledged or borrowings drawn at the Discount Window.

At ~~March 31,~~June 30, 2022 and December 31, 2021, the Company had $41.0 million in federal funds lines, of which ~~none were~~$5.0 million was drawn.

NOTE 10 – FEDERAL HOME LOAN BANK ADVANCES

The Company’s FHLB advances were secured by ~~$163.7~~$174.2 million in mortgage loans at ~~March 31,~~June 30, 2022. ~~Advances,~~All advances at June 30, 2022 had a 90 day maturity and a variable interest ~~rates from 2.88 to 2.93 percent, are subject to restrictions or penalties in the event of prepayment.~~rate. Aggregate annual maturities of FHLB advances at ~~March 31,~~June 30, 2022 were:

($ in thousands)	Debt		Debt

2022	$	3,000	$	25,000
2023		2,500
Total	$	5,500	$	25,000

NOTE 11 – TRUST PREFERRED SECURITIES

On September 15, 2005, RST II, a wholly-owned subsidiary of the Company, closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures with terms similar to the Capital Securities. Distributions on the Capital Securities are payable quarterly at a variable rate that is based upon the 3-month LIBOR plus 1.80 percent and are included in interest expense in the consolidated financial statements. The issuers of these securities have not yet determined the replacement rate index for LIBOR. These securities may be included in Tier 1 capital and may be prepaid at any time without penalty (with certain limitations applicable) under current regulatory guidelines and interpretations. The balance of the Capital Securities as of ~~March 31,~~June 30, 2022 and December 31, 2021 was $10.3 million, with a maturity date of September 15, 2035.

NOTE 12 – SUBORDINATED DEBT

On May 27, 2021, the Company entered into Subordinated Note Purchase Agreements (collectively, the ~~“Purchase Agreements”~~"Purchase Agreements'') with qualified institutional buyers and accredited investors (collectively, the ~~“Purchasers”~~"Purchasers") pursuant to which the Company issued and sold $20.0 million in aggregate principal amount of its 3.65% Fixed to Floating Rate Subordinated Notes due 2031 (the ~~“Notes”~~"Notes"). The Notes were sold by the Company in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended.

The Notes mature on June 1, 2031 and bear interest at a fixed rate of 3.65% through May 31, 2026. From June 1, 2026 to the maturity date or earlier redemption of the Notes, the interest rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month Secured Overnight Financing Rate ~~(“SOFR”~~("SOFR") provided by the Federal Reserve Bank of New York plus 296 basis points. The Company may redeem the Notes at any time after May 31, 2026, and at any time in whole, but not in part, upon the occurrence of certain events. Any redemption of the Notes will be subject to prior regulatory approval. The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately $0.5 million, which are being amortized over the life of the Notes.

NOTE 13 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is 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 fair value measurement must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

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

Level 3

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 consolidated balance sheets, as well as the general classifications of such assets pursuant to the valuation hierarchy.

Available-for-Sale Securities

The fair values of available-for-sale securities are determined by various valuation methodologies. Level 1 securities include money market mutual funds. Level 1 inputs include quoted prices in an active market. Level 2 securities include U.S. treasury and government agencies, mortgage-backed securities, and obligations of political and state subdivisions. Level 2 inputs do not include quoted prices for individual securities in active 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 assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at ~~March 31,~~June 30, 2022 and December 31, 2021.

($ in thousands)	Fair value at March 31, 2022			(Level 1)		(Level 2)			(Level 3)			Fair value at June 30, 2022			(Level 1)			(Level 2)			(Level 3)

U.S. Treasury and Government Agencies	$	8,408		$	-	$	8,408		$	-		$	8,472		$	-		$	8,472		$	-
Mortgage-backed securities		226,936			-		226,936			-			228,917			-			228,917			-
State and political subdivisions		13,170			-		13,170			-			12,217			-			12,217			-
Other corporate securities		16,797			-		16,797			-			16,556			-			16,556			-
Interest rate contracts - assets		482			-		482			-			2,918			-			2,918			-
Interest rate contracts - liabilities		(482	)		-		(482	)		-			(2,918	)		-			(2,918	)		-
Forward contracts		281			281		-			-			(44	)		(44	)		-			-
IRLCs		(155	)		-		-			(155	)		54			-			-			54

($ in thousands)	Fair value at December 31, 2021			(Level 1)			(Level 2)			(Level 3)		Fair value at December 31, 2021			(Level 1)			(Level 2)			(Level 3)

U.S. Treasury and Government Agencies	$	9,105		$	-		$	9,105		$	-	$	9,105		$	-		$	9,105		$	-
Mortgage-backed securities		228,134			-			228,134			-		228,134			-			228,134			-
State and political subdivisions		12,879			-			12,879			-		12,879			-			12,879			-
Other corporate securities		13,141			-			13,141			-		13,141			-			13,141			-
Interest rate contracts - assets		3,655			-			3,655			-		3,655			-			3,655			-
Interest rate contracts - liabilities		(3,655	)		-			(3,655	)		-		(3,655	)		-			(3,655	)		-
Forward contracts		(32	)		(32	)		-			-		(32	)		(32	)		-			-
IRLCs		22			-			-			22		22			-			-			22

~~Level 1 - quoted prices in active markets for identical assets~~

~~Level 2 - significant other observable inputs~~

~~Level 3 - significant unobservable inputs~~

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 balance sheets using significant unobservable (Level 3) inputs for the three and six months ended ~~March 31,~~June 30, 2022 and 2021.

	Three Months Ended March 31,						for the Three Months Ended June 30,						for the Six Months Ended June 30,
($ in thousands)	2022			2021			2022			2021			2022		2021

Interest Rate Lock Commitments
Balance at beginning of period	$	22		$	278		$	(155	)	$	(414	)	$	22	$	278
Total realized gains (losses)
Change in fair value		(177	)		(692	)		209			534			32		(158	)
Balance at end of period	$	(155	)	$	(414	)	$	54		$	120		$	54	$	120

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

Collateral-dependent Impaired Loans, Net of ALLL

Loans for which it is probable the Company will not collect all principal and interest due according to contractual terms are measured for impairment. The estimated fair value of collateral-dependent impaired loans is based on the appraised value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy. This method requires obtaining an independent appraisal of the collateral, which is reviewed for accuracy and consistency by Credit Administration. These appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by applying a discount factor to the value based on the Company’s loan review policy. All impaired loans held by the Company were collateral dependent at ~~March 31,~~June 30, 2022 and December 31, 2021.

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; 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.

($ in thousands)	Fair value at March 31, 2022		(Level 1)		(Level 2)		(Level 3)		Fair value at June 30, 2022		(Level 1)		(Level 2)		(Level 3)

Impaired loans	$	819	$	-	$	-	$	819	$	1,096	$	-	$	-	$	1,096
Mortgage servicing rights		2,527		-		-		2,527		2,854		-		-		2,854

($ in thousands)	Fair value at December 31, 2021		(Level 1)		(Level 2)		(Level 3)		Fair value at December 31, 2021		(Level 1)		(Level 2)		(Level 3)

Impaired loans	$	464	$	-	$	-	$	464	$	464	$	-	$	-	$	464
Mortgage servicing rights		3,301		-		-		3,301		3,301		-		-		3,301

Level 1	- quoted prices in active markets for identical assets
Level 2	- significant other observable inputs
Level 3	- significant unobservable inputs

~~Level 1 - quoted prices in active markets for identical assets~~

~~Level 2 - significant other observable inputs~~

~~Level 3 - significant unobservable inputs~~

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

($ in thousands)	Fair value at March 31, 2022			Valuation technique	Unobservable inputs	Range (weighted- average)			Fair value at June 30, 2022		Valuation technique	Unobservable inputs	Range (weighted-average)

Collateral-dependent impaired loans	$	819		Market comparable properties	Comparability adjustments (%)		11.5 - 18.2% (14	%)	$	1,096	Market comparable properties	Comparability adjustments (%)		11.5 - 18.2% (14	%)

Mortgage servicing rights		2,527		Discounted cash flow	Discount Rate		9.77	%		2,854	Discounted cash flow	Discount Rate		10.89	%
					Constant prepayment rate		7.57	%				Constant prepayment rate		7.01	%
					P&I earnings credit		0.46	%				P&I earnings credit		1.67	%
					T&I earnings credit		1.90	%				T&I earnings credit		3.01	%
					Inflation for cost of servicing		1.50	%				Inflation for cost of servicing		1.50	%

IRLCs		(155	)	Discounted cash flow	Loan closing rates		43% - 99	%		54	Discounted cash flow	Loan closing rates		37% - 99	%

($ in thousands)	Fair value at December 31, 2021		Valuation technique	Unobservable inputs	Range (weighted-average)

Collateral-dependent impaired loans	$	464	Market comparable properties	Comparability adjustments (%)		6.4 - 18% (13	%)

Mortgage servicing rights		3,301	Discounted cash flow	Discount Rate		8.65	%
				Constant prepayment rate		10.94	%
				P&I earnings credit		0.10	%
				T&I earnings credit		1.25	%
				Inflation for cost of servicing		1.50	%

IRLCs		22	Discounted cash flow	Loan closing rates		49% - 99	%

($ in thousands)
Fair value at
December 31,
2021

Valuation
technique
Unobservable inputs
Range (weighted-
average)

Collateral-dependent impaired loans $ 464 Market comparable properties Comparability adjustments (%) 6.4 - 18% (13 %)
Mortgage servicing rights 3,301 Discounted cash flow Discount Rate 8.65 %
Constant prepayment rate 10.94 %
P&I earnings credit 0.10 %
T&I earnings credit 1.25 %
Inflation for cost of servicing 1.50 %
IRLCs 22 Discounted cash flow Loan closing rates 49% - 99 %

There were no changes in the inputs or methodologies used to determine fair value at ~~March 31,~~June 30, 2022 as compared to December 31, 2021.

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.

Cash and Due From Banks, Federal Reserve and Federal Home Loan Bank Stock and Accrued Interest Receivable and Payable

The carrying amount approximates the fair value.

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.

Loans

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, Short-Term Borrowings, and FHLB Advances ~~& Repurchase Agreements~~

Deposits include demand deposits, savings accounts, and certain money market deposits. Short-term borrowings include federal funds borrowed and REPO agreements. The carrying amount of these instruments approximates the fair value. The estimated fair value for fixed-maturity time deposits ~~as well as borrowings, is~~and FHLB advances are based on estimates of the rate State Bank could pay on similar instruments with similar terms and maturities at ~~March 31,~~June 30, 2022 and December 31, 2021.

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 ~~March 31,~~June 30, 2022 and December 31, 2021 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 a discount rate equal to the rate currently offered on similar borrowings.

The following table presents estimated fair values of the Company’s other financial instruments carried at other than fair value. The fair values of certain of these 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 certain of 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)	Carrying		Fair		Fair value measurements using						Carrying		Fair		Fair value measurements using
March 31, 2022	amount		value		(Level 1)		(Level 2)		(Level 3)
June 30, 2022											amount		value		(Level 1)		(Level 2)		(Level 3)

Financial assets
Cash and due from banks	$	130,003	$	130,003	$	130,003	$	-	$	-	$	29,567	$	29,567	$	29,567	$	-	$	-
Interest bearing time deposits		1,894		1,894		-		1,894		-		1,691		1,691		-		1,691		-
Loans held for sale		4,737		4,700		-		4,700		-		4,242		4,295		-		4,295		-
Loans, net of allowance for loan losses		836,866		839,070		-		-		839,070		881,810		880,089		-		-		880,089
Federal Reserve and FHLB Bank stock, at cost		5,303		5,303		-		5,303		-		5,303		5,303		-		5,303		-
Interest receivable		2,815		2,815		-		2,815		-		3,256		3,256		-		3,256		-
Mortgage servicing rights		13,135		14,433		-		-		14,433		13,408		15,135		-		-		15,135

Financial liabilities
Deposits	$	1,138,071	$	1,136,257	$	989,518	$	146,739	$	-	$	1,071,779	$	1,068,773	$	929,521	$	139,252	$	-
Short-term borrowings		19,035		19,035		-		19,035		-		30,772		30,772		-		30,772		-
FHLB advances		5,500		5,536		-		5,536		-		25,000		24,972		-		24,972		-
Trust preferred securities		10,310		9,669		-		9,669		-		10,310		9,353		-		9,353		-
Subordinated debt, net of issuance costs		19,558		21,218		-		21,218		-		19,570		20,544		-		20,544		-
Interest payable		536		536		-		536		-		307		307		-		307		-

($ in thousands)	Carrying		Fair		Fair value measurements using
December 31, 2021	amount		value		(Level 1)		(Level 2)		(Level 3)

Financial assets
Cash and due from banks	$	149,511	$	149,511	$	149,511	$	-	$	-
Interest bearing time deposits		2,643		2,643		-		2,643		-
Loans held for sale		7,472		7,561		-		7,561		-
Loans, net of allowance for loan losses		808,909		813,766		-		-		813,766
Federal Reserve and FHLB Bank stock, at cost		5,303		5,303		-		5,303		-
Interest receivable		2,920		2,920		-		2,920		-
Mortgage servicing rights		12,034		12,629		-		-		12,629

Financial liabilities
Deposits	$	1,113,045	$	1,112,710	$	956,541	$	156,169	$	-
Short-term borrowings		15,320		15,320		-		15,320		-
FHLB advances		5,500		5,596		-		5,596		-
Trust preferred securities		10,310		9,067		-		9,067		-
Subordinated debt, net of issuance costs		19,546		20,581		-		20,581		-
Interest payable		299		299		-		299		-

NOTE 14 – SHARE BASED COMPENSATION

In April 2017, the Company’s shareholders approved a new share-based incentive compensation plan, the SB Financial Group, Inc. 2017 Stock Incentive Plan (the ~~“2017 Plan”~~"2017 Plan"), which replaced the Company’s 2008 Stock Incentive Plan. The 2017 Plan permits the Company to grant or award incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock, and restricted stock units to employees and directors of the Company and its subsidiaries. A total of 500,000 common shares of the Company are available for grants or awards under the 2017 Plan, of which ~~122,198~~121,823 shares had been granted under the plan as of ~~March 31,~~June 30, 2022.

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.

Stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant and those option awards vest based on 5 years of continuous service and have 10-year contractual terms. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model. As of ~~March 31,~~June 30, 2022, there were no stock options outstanding, and no unrecognized compensation cost related to stock option awards. No stock options were granted in the first ~~three~~six months of 2022.

On February 5, 2013, the Company adopted a Long Term Incentive (LTI) Plan, which provides for awards of restricted stock in the Company 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 2021, the Company met certain performance targets under the LTI Plan and restricted stock awards were approved and issued in February 2022.~~ The compensation cost charged against income for awards under the LTI Plan for the three and six months ended ~~March 31,~~June 30, 2022, ~~and March 31, 2021,~~ was $0.2 million and $0.4 million, respectively, and for the three and six months ended June 30, 2021, was $0.1 million ~~respectively, with a total income tax benefit recognized in the income statement of $0.03 million~~ and ~~$0.03~~$0.2 million, respectively.

As of ~~March 31,~~June 30, 2022, there was ~~$1.1~~$0.9 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 2.6 years.

The table below is a summary of restricted stock activity under the Company’s 2017 Plan for the ~~three~~six months ended ~~March 31,~~June 30, 2022.

Shares
Weighted-
Average Value
per Share

Nonvested, January 1, 2022 40,922 $ 18.43
Granted 38,340 20.00
Vested (25,939 ) 19.03
Forfeited (924 ) 18.78
Nonvested, March 31, 2022 52,399 $ 19.27

	Shares			Weighted- Average Value per Share
Nonvested, January 1, 2022		40,922		$	18.43
Granted		38,340			20.00
Vested		(25,939	)		19.03
Forfeited		(1,299	)		18.49
Nonvested, June 30, 2022		52,024		$	19.28

NOTE 15 – GENERAL LITIGATION

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. Additionally, the Company is subject to periodic examinations by various regulatory agencies. It is the opinion of management that the disposition or ultimate resolution of any such claims, lawsuits and examinations pending at ~~March 31,~~June 30, 2022, will not have a material adverse effect on the consolidated financial position, results of operations and cash flow of the Company.

Item 2. Management’s Discussion and ~~Analysis~~Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. Examples of forward-looking statements include: (a) projections of income or expense, earnings per share, the payment or non-payment of dividends, capital structure and other financial items; (b) statements of plans and objectives of the Company or our management or Board of Directors, including those relating to products or services; (c) statements of future economic performance; (d) statements regarding future customer attraction or retention; and (e) statements of assumptions underlying such statements. Words such as “anticipates”, “believes”, “plans”, “intends”, “expects”, “projects”, “estimates”, “should”, “may”, “would be”, “will allow”, “will likely result”, “will continue”, “will remain”, or other similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying those statements. Forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation:

●

the ever-changing effects of the novel coronavirus (COVID-19) pandemic – the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence of the spread of COVID-19 and variants thereof -- on national, regional and local economies, supply chains, labor markets and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the development, availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages;

	●	current and future economic and financial market conditions, either nationally or in the states in which we do business, including the effects of inflation, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the conflict in Ukraine), and any slowdown in global economic growth, in addition to the continuing impact of the COVID-19 pandemic on our customers’ operations and financial condition, any of which may result in adverse impacts on our deposit levels and composition, the quality of investment securities available for purchase, demand for loans, the ability of our borrowers to repay their loans, and the value of the collateral securing loans;

	●	changes in interest rates resulting from national and local economic conditions and the policies of regulatory authorities, including monetary policies of the Board of Governors of the Federal Reserve System, which may adversely affect interest rates, interest margins, loan demand and interest rate sensitivity;

	●	the volatility of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;

	●	factors that can impact the performance of our loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our borrowers and the success of construction projects that we finance;

	●	the transition away from LIBOR as a reference rate for financial contracts, which could negatively impact our income and expenses and the value of various financial contracts;

	●	changes in customers’, suppliers’, and other counterparties’ performance and creditworthiness may be different than anticipated due to the continuing impact of and the various responses to the COVID-19 pandemic;

●

operational risks, reputational risks, legal and compliance risks, and other risks related to potential fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, or failures, disruptions or breaches in security of our systems, including those resulting from computer viruses or cyber-attacks;

	●	our ability to secure sensitive or confidential client information against unauthorized disclose or access through computer systems and telecommunication networks, including those of our third-party vendors and other service providers, which may prove inadequate;

	●	a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber-attacks;

	●	competitive pressures and factors among financial services organizations could increase significantly, including product and pricing pressures, changes to third-party relationships and our ability to recruit and retain qualified management and banking personnel;

●

unexpected losses of services of our key management personnel, or the inability to recruit and retain qualified personnel in the future;

	●	risks inherent in pursuing strategic growth initiatives, including integration and other risks involved in past and possible future acquisitions;

	●	uncertainty regarding the nature, timing, cost and effect of legislative or regulatory changes in the banking industry or otherwise affecting the Company, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, as well as the reforms provided for in the Coronavirus Aid, Relief and Economic Security (CARES) Act and the follow-up legislation in the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act of 2021;

	●	the effect of changes in federal, state and/or local tax laws may adversely affect our reported financial condition or results of operations;

	●	the effect of changes in accounting policies and practices may adversely affect our reported financial condition or results of operations;

	●	litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or inquiries;

	●	continued availability of earnings and dividends from State Bank and excess capital sufficient for us to service our debt and pay dividends to our shareholders in compliance with applicable legal and regulatory requirements;

	●	our ability to anticipate and successfully keep pace with technological changes affecting the financial services industry; and

●

other risks identified from time to time in the Company’s other filings with the Securities and Exchange Commission, including the risks identified under the heading “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statement to reflect unanticipated events or circumstances after the date on w~~hich~~which the statement is made.

Overview of SB Financial

SB Financial Group, Inc. (“SB Financial”) is an Ohio corporation and a financial holding company registered with the Federal Reserve Board. SB Financial’s wholly-owned subsidiary, The State Bank and Trust Company (“State Bank”), is an Ohio-chartered bank engaged in commercial banking.

Rurban Statutory Trust II (“RST II”) was established in August 2005. In September 2005, RST II completed a pooled private offering of 10,000 Trust Preferred Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to SB Financial in exchange for junior subordinated debentures of SB Financial with terms substantially similar to the Trust Preferred Securities. The sole assets of RST II are the junior subordinated debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by SB Financial of the obligations of RST II.

RFCBC, Inc. (“RFCBC”) is an Ohio corporation and wholly-owned subsidiary of SB Financial that was incorporated in August 2004. RFCBC operates as a loan subsidiary in servicing and working out problem loans.

State Bank Insurance, LLC (“SBI”) is an Ohio corporation and a wholly-owned subsidiary of State Bank incorporated in June of 2010. SBI is an insurance company that engages in the sale of insurance products to retail and commercial customers of State Bank.

SBFG Title, LLC (“SBFG Title”) is an Ohio corporation that was formed in March 2019. SBFG Title engages in the sale of title insurance services.

SB Captive, Inc. (“SB Captive”) is a Nevada corporation that was formed in March 2019. SB Captive pools insurance risk among like sized banking institutions.

Unless the context indicates otherwise, all references herein to “we”, “us”, “our”, or the “Company” refer to SB Financial and its consolidated subsidiaries.

Critical Accounting Policies

Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 describes the significant accounting policies used in the development and presentation of the Company’s financial statements. The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective, and/or complex.

Allowance for Loan Losses - The allowance for loan losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan losses each quarter based on changes, if any, in underwriting activities, loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.

The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for credit losses relating to impaired loans is based on the loan’s observable market price, the collateral for certain collateral-dependent loans, or the discounted cash flows using the loan’s effective interest rate.

Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors, including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the subjective nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are also factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of imprecise risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment. To the extent that actual results differ from management’s estimates, additional loan loss provisions may be required that could adversely impact earnings for future periods.

Goodwill and Other Intangibles - The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line or accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition. A decrease in earnings resulting from these or other factors could lead to an impairment of goodwill that could adversely impact earnings for future periods.

Three Months Ended ~~March 31,~~June 30, 2022 compared to Three Months Ended ~~March 31,~~June 30, 2021

Net Income: Net income for the ~~first~~second quarter of 2022 was $2.8 million compared to net income of ~~$7.1~~$3.8 million for the ~~first~~second quarter of 2021, a decrease of ~~60.3~~24.6 percent. ~~Earnings~~Diluted earnings per ~~diluted~~ share ~~(EPS)~~(“DEPS”) of $0.40 were down ~~58.8~~23.1 percent from ~~EPS~~DEPS of ~~$0.97~~$0.52 for the ~~first~~second quarter of 2021. Net income for the ~~first quarters~~second quarter of 2022 ~~and 2021 were both~~was positively impacted by the Company’s recapture of ~~the Company’s~~ temporary impairment of $0.24 million on its mortgage servicing rights. The 2021 second quarter was negatively impacted by temporary impairment of mortgage servicing rights ~~impairment in the amounts~~ of ~~$0.9 million and $2.7 million, respectively.~~$0.1 million. Net income for the ~~first~~second quarter of 2022 was negatively impacted by the significant decline in mortgage loan volume and loan sales, ~~during the first quarter of 2022,~~ as compared to the ~~first quarter of~~same period in 2021, as rising rates reduced refinance activity and compressed inventories of available housing constrained new purchase volume. Mortgage loan volume was down ~~over 37~~nearly 42 percent ~~from~~during the ~~prior year~~second quarter of 2022, and a lower percentage of originated volume was sold on the secondary ~~market.~~

~~Loan growth was positive~~market, as compared to the same period in ~~the quarter and remaining balances on the~~2021. In addition, Paycheck Protection Program (“PPP”) ~~initiative were~~related revenue compared to the prior year was down ~~to $0.8 million at March 31, 2022.~~by $2.05 million.

Provision for Loan Losses: The ~~first~~second quarter provision for loan losses was ~~$0.0 million, compared to $0.75 million~~zero for both the ~~year-ago quarter.~~current and prior year quarters. The total reserve level of $13.8 million is up ~~3.6~~nearly 4 percent from the prior year. ~~The Company had~~Given that level of reserve (1.54 percent), zero provision for the quarter was appropriate. Net charge-offs for the quarter were $3,000 compared to net charge-offs of ~~$.01 million for the quarter compared to net recoveries of $0.02 million~~$20,000 for the year-ago quarter. Total delinquent loans ended the quarter at ~~$5.1~~$2.9 million, or ~~0.59~~0.32 percent of total loans, which ~~increased $0.1~~is down $0.6 million from the prior year.

Asset Quality Review – For the Period Ended
($ in thousands)
March 31,
2022 March 31,
2021
Net charge-offs (recoveries) $ 1 $ (2 )
Nonaccruing loans 4,293 5,635
Accruing Trouble Debt Restructures 762 794
Nonaccruing and restructured loans 5,055 6,429
OREO / OAO 527 43
Nonperforming assets 5,582 6,472
Nonperforming assets/Total assets 0.42 % 0.49 %
Allowance for loan losses/Total loans 1.62 % 1.57 %
Allowance for loan losses/Nonperforming loans 273.1 % 207.3 %

Asset Quality Review – For the Period Ended ($ in thousands)	June 30, 2022			June 30, 2021

Net charge-offs – QTD/YTD		$3/$4			$20/$18
Nonaccruing loans		3,998			3,615
Accruing Troubled Debt Restructures		683			758
Nonaccruing and restructured loans		4,681			4,373
OREO / Other Assets Owned (OAO)		730			1,603
Nonperforming assets		5,411			5,976
Nonperforming assets/Total assets		0.42	%		0.46	%
Allowance for loan losses/Total loans		1.54	%		1.56	%
Allowance for loan losses/Nonperforming loans		294.8	%		304.3	%

Consolidated Revenue: Total revenue, consisting of net interest income and noninterest income, was $14.3 million for the ~~first~~second quarter of 2022, a decrease of ~~$6.3~~$1.4 million, or ~~30.5~~9.1 percent, from the ~~$20.5~~$15.7 million generated during the ~~first~~second quarter of 2021.

Net interest income (“NII”) was ~~$8.5~~$9.6 million, ~~for the first quarter of 2022,~~ which ~~was down $1.1~~is up $0.4 million from the prior year ~~first~~second quarter’s ~~$9.6~~$9.2 million. ~~Included in NII was $0.1 million in fees and interest from PPP loans compared to $0.8 million for the prior year quarter.~~ The Company’s earning assets ~~increased $66.9~~decreased $35.1 million, ~~coupled with a 60 basis point decrease in~~but the average yield on earning ~~assets.~~assets increased by 20 basis points. The net interest margin, ~~(FTE)~~ for the ~~first~~second quarter of 2022 was ~~2.68~~3.16 percent compared to ~~3.21~~2.93 percent for the ~~first~~second quarter of 2021. Funding costs (interest paid to consumers and other entities) for interest bearing liabilities for the ~~first~~second quarter of 2022 were 0.39 percent compared to ~~0.50~~0.44 percent for the prior year ~~first~~second quarter. PPP fees and interest increased the 2021 net interest margin by 12 basis points.

Noninterest income was ~~$5.8~~$4.7 million for the ~~first~~second quarter of 2022, which was down ~~$5.1~~$1.9 million from the prior year ~~first~~second quarter’s ~~$10.9~~$6.5 million. In addition to the mortgage revenue detailed below, wealth management revenue was ~~$1.0~~$0.9 million. Recapture of our mortgage servicing rights impairment increased noninterest income by $0.2 million in the quarter. Our title agency contributed revenue of $0.7 million in the second quarter of 2022, up $0.2 million from the prior year. Noninterest income as a percentage of average assets for the second quarter of 2022 was 1.43 percent compared to 1.97 percent for the prior year second quarter.

State Bank originated $95.4 million of mortgage loans for the second quarter of 2022, of which $49.9 million was sold with the remainder of loans held for investment. This compares to $164.9 million originated for the second quarter of 2021, of which $119.1 million was sold with the remainder of loans held for investment. These second quarter 2022 originations and subsequent sales resulted in $1.2 million of gains, down $3.1 million from the gains for the second quarter of 2021. Net mortgage banking revenue was $1.8 million for the second quarter of 2022 compared to $4.0 million for the second quarter of 2021. The 2022 second quarter included a $0.2 million recapture of our mortgage servicing rights impairment compared to a $0.1 million valuation impairment for the second quarter of 2021. As detailed above, mortgage loan originations have decreased significantly in 2022 as rising rates have reduced refinance activity and compressed inventories of available housing have constrained new purchase volume.

Consolidated Noninterest Expense: Noninterest expense for the second quarter of 2022 was $10.8 million, which was down $0.3 million compared to $11.1 million in the prior-year second quarter. The second quarter of 2022 included lower commission and incentives on mortgage sales, offset by higher equipment expense due to several technology related improvements.

Income Taxes: Income taxes for the second quarter of 2022 were $0.6 million (effective rate of 18.2 percent) compared to $0.9 million (effective rate of 18.6 percent) for the second quarter of 2021.

Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021

Net Income: Net income for the first six months of 2022 was $5.6 million compared to net income of $10.8 million for the first six months of 2021, a decrease of 47.9 percent. DEPS of $0.79 were down 47.0 percent from DEPS of $1.49 for the first six months of 2021. Net income for both periods were positively impacted by the recapture of the Company’s temporary mortgage servicing rights impairment in the amounts of $1.1 million and $2.6 million for the first six months of 2022 and 2021, respectively. Net income for the first six months of 2022 was negatively impacted by the significant decline in mortgage loan volume and loan sales, as compared to the same period in 2021, as rising rates reduced refinance activity and compressed inventories of available housing constrained new purchase volume. Mortgage loan volume was down nearly 40 percent from the prior year and a lower percentage of originated volume was sold on the secondary market.

Loan growth since December 31, 2021 was $72.9 million with remaining balances on PPP loans down to $0.6 million at June 30, 2022.

Provision for Loan Losses: Provision for loan losses for the first six months of 2022 was $0.0 million, compared to $0.75 million for the year-ago period. The Company had net charge-offs of $4,000 for the first six months of 2022 compared to net charge-offs of $18,000 for the year-ago period.

Consolidated Revenue: Total revenue, consisting of net interest income and noninterest income, was $28.5 million for the first six months of 2022, a decrease of $7.7 million, or 21.2 percent, from the $36.2 million generated during the first six months of 2021.

Net interest income was $18.1 million for the first six months of 2022, which was down $0.7 million from $18.8 million for the prior year first six months. Included in NII for the first six months of 2022 was $0.1 million in fees and interest from PPP loans compared to $2.2 million for the prior year first six months. The Company’s earning assets increased $15.7 million, but the yield on average earning assets decreased 20 basis points. The net interest margin for the first six months of 2022 was 2.91 percent compared to 3.06 percent for the first six months of 2021. Funding costs for interest bearing liabilities for the first six months of 2022 were 0.38 percent compared to 0.47 percent for the prior year similar period.

Noninterest income was $10.5 million for the first six months of 2022, which was down $7.0 million from $17.5 million for the prior year first six months. In addition to the mortgage revenue detailed below, wealth management revenue was $1.9 million. Recapture of mortgage servicing rights impairment increased noninterest income by ~~$0.9~~$1.1 million in the ~~quarter,~~period, compared to an increase of ~~$2.7~~$2.6 million in the prior year. During the ~~quarter,~~first six months, we sold ~~$1.6~~$2.7 million in Small Business Administration (“SBA”) loans, with gains on sale of ~~$0.17~~$0.3 million. Our title agency contributed revenue of ~~$0.6~~$1.3 million in the first ~~quarter~~six months of 2022. Noninterest income as a percentage of average assets for the first ~~quarter~~six months of 2022 was ~~1.72~~1.58 percent compared to ~~3.41~~2.67 percent for the prior year first ~~quarter.~~six months.

State Bank originated ~~$97.4~~$192.8 million of mortgage loans for the first ~~quarter~~six months of 2022, which resulted in ~~$72.2~~$122.1 million in loan proceeds, with the remainder of loans held for investment. This compares to ~~$155.8~~$320.7 million originated for the first ~~quarter~~six months of 2021, of which ~~$136.7~~$255.8 million of loans were sold with the remainder of loans held for investment. The Company is experiencing stronger competition for new purchase volume due to the compressed inventory levels of homes available for sale. In addition, the rise in rates has reduced the economic advantage for clients to refinance existing mortgage loans. These ~~first quarter 2022~~ originations and subsequent sales resulted in ~~$1.7~~$2.9 million of gains, compared to ~~$5.9~~$10.1 million of gains for the first ~~quarter~~six months of 2021. Net mortgage banking revenue was ~~$2.9~~$4.7 million for the first ~~quarter~~six months of 2022 compared to ~~$8.2~~$12.3 million for the first ~~quarter of 2021. The 2022 first quarter included a $0.9 million recapture of mortgage servicing rights compared to a $2.7 million recapture for the first quarter~~six months of 2021.

Consolidated Noninterest Expense: Noninterest expense for the first ~~quarter~~six months of 2022 was ~~$10.9~~$21.7 million, which was down slightly compared to the ~~$10.9~~$22.0 million in the prior-year first ~~quarter.~~six months. The first ~~quarter~~half of 2022 included lower incentives on mortgage activity and higher unfilled salaried positions throughout the Company, which was offset by higher data processing and professional fee expense due to expanded implementation of technology solutions.

Income Taxes: Income taxes for the first ~~quarter~~six months of 2022 were ~~$0.6~~$1.2 million (effective rate of ~~17.7~~18.0 percent) compared to ~~$1.8~~$2.7 million (effective rate of ~~20.3~~19.7 percent) for the first ~~quarter~~six months of 2021. In addition to the impact of the lower pretax income, ~~this quarter~~the first six months of 2022 was impacted by having additional earning assets that are tax free in nature.

Changes in Financial Condition

Total assets at ~~March 31,~~June 30, 2022 were ~~$1.34~~$1.29 billion, ~~an increase~~a decrease of ~~$4.3~~$36.9 million, or ~~0.3~~2.8 percent, since December 31, 2021. Total loans, net of unearned income, were ~~$850.7~~$895.6 million as of ~~March 31,~~June 30, 2022, up ~~$28.0~~$73.0 million, or ~~3.4~~8.9 percent, from year-end. PPP loan balances of ~~$0.8~~$0.6 million and $2.0 million were included in our total loans at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

Total deposits at ~~March 31,~~June 30, 2022 were ~~$1.14~~$1.07 billion, ~~an increase~~a decrease of ~~$25.0~~$41.3 million or ~~2.2~~3.77 percent since 2021 year end. Borrowed funds (consisting of FHLB advances, ~~retail repurchase~~federal funds borrowed, REPO agreements, trust preferred securities and subordinated debt) totaled ~~$54.4~~$85.7 million at ~~March 31,~~June 30, 2022. This is up from year-end 2021 when borrowed funds totaled $50.7 million due to an increase in ~~REPOs.~~REPO agreements, federal funds borrowed, and FHLB advances. Total equity for the Company of ~~$132.6~~$124.6 million now stands at ~~9.9~~9.6 percent of total assets compared to the December 31, 2021 level of $144.9 million and 10.9 percent of total assets. The reduction was due to ~~an $11.8~~a $20.4 million increase in the unrealized loss on the Company’s investment portfolio.

The allowance for loan loss of $13.8 million is flat from the December 2021 year end level.The Company's loan growth was offset by continued improvement of overall asset quality metrics, including reductions in non-performing assets and delinquencies.

Other liabilities are down $10.2 million from December 31, 2021 due to escrow balances held for our serviced mortgage customers at December 31 that were paid in the first quarter of 2022, and a reclassification of deferred taxes resulting from a change in unrealized losses in the securities portfolio.

Capital Resources

As of ~~March 31,~~June 30, 2022, based on the computations for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve Board, 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 ~~March 31,~~June 30, 2022 that management believes have changed State Bank’s capital classification.

State Bank’s actual capital levels and ratios as of ~~March 31,~~June 30, 2022 and December 31, 2021 are presented in the following table. Capital levels are presented for State Bank only as the Company is exempt from quarterly reporting on capital levels at the holding company level:

Actual
For Capital Adequacy
Purposes
To Be Well Capitalized
Under Prompt Corrective
Action
Procedures
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2022
Tier I Capital to average assets $ 136,243 10.35 % $ 52,651 4.0 % $ 65,814 5.0 %
Tier I Common equity capital to risk-weighted assets 136,243 13.71 % 44,716 4.5 % 64,590 6.5 %
Tier I Capital to risk-weighted assets 136,243 13.71 % 59,621 6.0 % 79,495 8.0 %
Total Risk-based capital to risk-weighted assets 148,681 14.96 % 79,495 8.0 % 99,369 10.0 %
As of December 31, 2021
Tier I Capital to average assets $ 133,202 10.18 % $ 52,324 4.0 % $ 65,405 5.0 %
Tier I Common equity capital to risk-weighted assets 133,202 13.94 % 42,986 4.5 % 62,090 6.5 %

Tier I Capital to risk-weighted assets 133,202 13.94 % 57,314 6.0 % 76,419 8.0 %

Total Risk-based capital to risk-weighted assets 145,165 15.20 % 76,419 8.0 % 95,523 10.0 %

											To Be Well Capitalized
						For Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Procedures
($ in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of June 30, 2022
Tier I Capital to average assets	$	139,209		10.72	%	$	51,953		4.0	%	$	64,941		5.0	%
Tier I Common equity capital to risk-weighted assets		139,209		13.21	%		47,426		4.5	%		68,505		6.5	%

Tier I Capital to risk-weighted assets		139,209		13.21	%		63,235		6.0	%		84,313		8.0	%
Total Risk-based capital to risk-weighted assets		152,372		14.46	%		84,313		8.0	%		105,392		10.0	%

As of December 31, 2021
Tier I Capital to average assets	$	133,202		10.18	%	$	52,324		4.0	%	$	65,405		5.0	%
Tier I Common equity capital to risk-weighted assets		133,202		13.94	%		42,986		4.5	%		62,090		6.5	%

Tier I Capital to risk-weighted assets		133,202		13.94	%		57,314		6.0	%		76,419		8.0	%
Total Risk-based capital to risk-weighted assets		145,165		15.20	%		76,419		8.0	%		95,523		10.0	%

~~New regulatory~~Regulatory capital requirements commonly referred to as “Basel III” were fully phased in as of January 1, 2019 and are reflected in the ~~March 31,~~June 30, 2022 capital table above. Management opted out of the accumulated other comprehensive income treatment under the new requirements and, as such, unrealized gains and losses from available-for-sale securities will continue to be excluded from State Bank’s regulatory capital.

LIQUIDITY

Liquidity relates primarily to the Company’s ability to fund loan demand, meet deposit customers’ withdrawal requirements and provide for operating expenses. Assets used to satisfy these needs consist of cash and due from banks, federal funds sold, interest-earning deposits in other financial institutions, securities available-for-sale and loans held for sale. These assets are commonly referred to as liquid assets. Liquid assets totaled ~~$401.9~~$301.7 million at ~~March 31,~~June 30, 2022, compared to $422.9 million at December 31, 2021.

Liquidity risk arises from the possibility that the Company may not be able to meet the Company’s financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, the Board of Directors of the Company has established a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements. This policy designates the Asset/Liability Committee (“ALCO”) as the body responsible for meeting these objectives. The ALCO reviews liquidity regularly and evaluates significant changes in strategies that affect balance sheet or cash flow positions. Liquidity is centrally managed on a daily basis by the Company’s Chief Financial Officer and Asset Liability Manager.

The Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolio of ~~$669.8~~$706.5 million at ~~March 31,~~June 30, 2022 and $645.1 million at December 31, 2021, which can and has been used to collateralize borrowings, is an additional source of liquidity. Management believes the Company’s current liquidity level, without these borrowings, is sufficient to meet its liquidity needs. At ~~March 31,~~June 30, 2022, all eligible commercial real estate, first mortgage residential and multi-family mortgage loans were pledged under an FHLB blanket lien.

The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain an adequate level of liquidity. A discussion of the cash flow statements for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 follows.

The Company experienced ~~negative~~positive cash flows from operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021. Net cash ~~used~~provided by operating activities was ~~$1.5~~$3.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~$0.9~~$2.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Highlights for the current year include ~~$73.9~~$125.1 million in proceeds from the sale of loans, which is down ~~$62.8~~$130.7 million from the prior year. Originations of loans held for sale was a use of cash of ~~$70.1~~$119.9 million, which is down from the prior year by ~~$63.4~~$129.6 million. For the ~~three~~six months ended ~~March 31,~~June 30, 2022, there was a gain on sale of loans of ~~$1.9~~$3.2 million, and depreciation and amortization of ~~$0.6~~$1.1 million.

The Company experienced negative cash flows from investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021. Net cash used in investing activities was ~~$43.3~~$111.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~$5.6~~$43.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Highlights for the current year include purchases of available-for-sale securities of ~~$30.6~~$50.6 million. These cash payments were offset by ~~$13.3~~$21.4 million in proceeds from maturities and sales of securities, which is ~~up $1.3~~down $1.9 million from the prior year ~~three-month~~six-month period. The Company experienced a ~~$28.0~~$73.1 million increase in loans, which is up ~~$52.5~~$93.7 million from the prior year ~~three-month~~six-month period.

The Company experienced ~~positive~~negative cash flows from financing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~positive cash flows for the six months ended June 30, 2021. Net cash used by financing activities was $12.3 million for the six months ended June 30, 2022 and net cash provided by financing activities was ~~$25.3~~$55.6 million for the ~~three~~six months ended ~~March 31, 2022 and $71.8 million for the three months ended March 31,~~June 30, 2021. Highlights for the current period include a ~~$33.0~~$27.0 million ~~increase~~decrease in transaction deposits for the ~~three~~six months ended ~~March 31,~~June 30, 2022, which is down ~~$79.5~~$125.9 million from the prior year. Certificates of deposit decreased by ~~$8.0~~$14.2 million in the current year compared to ~~$41.3~~$56.9 million for the prior year ~~three-month~~six-month period. Proceeds from Federal Home Loan Bank advances for the six months ended June 30, 2022 were $25.0 million, an increase of $25.0 million from the prior year six-month period.

ALCO uses an economic value of equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE analysis calculates the net present value of the Company’s assets and liabilities in rate shock environments that range from -400 basis points to +400 basis points. The likelihood of a significant decrease in rates as of ~~March 31,~~June 30, 2022 and December 31, 2021 was considered unlikely given the current interest rate environment and therefore, only the minus 100 and 200 basis point rate change was included in this analysis. The results are reflected in the following tables for ~~March 31,~~June 30, 2022 and December 31, 2021.

~~Economic Value of Equity~~

~~March 31, 2022~~

~~($ in thousands)~~

Economic Value of Equity
June 30, 2022
($ in thousands)

Change in rates	$ Amount		$ Change			% Change
+400 basis points	$	276,969	$	9,281			3.47	%
+300 basis points		277,070		9,382			3.50	%
+200 basis points		274,829		7,141			2.67	%
+100 basis points		271,921		4,233			1.58	%
Base Case		267,688		-			-
-100 basis points		258,679		(9,009	)		-3.37	%
-200 basis points		244,064		(23,624	)		-8.83	%

Change in rates $ Amount $ Change % Change
+400 basis points $ 287,682 $ 24,404 9.27 %
+300 basis points 284,476 21,198 8.05 %
+200 basis points 278,814 15,536 5.90 %
+100 basis points 272,118 8,840 3.36 %
Base Case 263,278 - -
-100 basis points 249,230 (14,048 ) -5.34 %

~~Economic Value of Equity~~

~~December 31, 2021~~

~~($ in thousands)~~

Economic Value of Equity									Economic Value of Equity
December 31, 2021									December 31, 2021
($ in thousands)									($ in thousands)

Change in rates	$ Amount		$ Change			% Change				$ Amount		$ Change			% Change
+400 basis points	$	278,254	$	35,684			14.71	%		$	278,254	$	35,684			14.71	%
+300 basis points		273,190		30,620			12.62	%			273,190		30,620			12.62	%
+200 basis points		265,711		23,142			9.54	%			265,711		23,142			9.54	%
+100 basis points		256,110		13,540			5.58	%			256,110		13,540			5.58	%
Base Case		242,570		-			-				242,570		-			-
-100 basis points		217,281		(25,289	)		-10.43	%			217,281		(25,289	)		-10.43	%

Off-Balance-Sheet Borrowing Arrangements:

Significant additional off-balance-sheet liquidity is available in the form of FHLB advances and unused federal funds lines from correspondent banks. Management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings.

The Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of ~~$669.8~~$706.5 million were pledged to meet FHLB collateralization requirements as of ~~March 31,~~June 30, 2022. Based on the current collateralization requirements of the FHLB, the Company had approximately ~~$108.9~~$96.6 million of additional borrowing capacity at ~~March 31,~~June 30, 2022. The Company also had ~~$173.6~~$176.9 million in unpledged securities available to pledge for additional borrowings.

The Company’s contractual obligations as of ~~March 31,~~June 30, 2022 were comprised of long-term debt obligations, other debt obligations, operating lease obligations and other long-term liabilities. Long-term debt obligations were comprised of ~~FHLB advances of $5.5 million,~~ trust preferred securities of $10.3 million, and subordinated debt of $20.0 million, or $19.5 million, net of issuance costs. Total time deposits at ~~March 31,~~June 30, 2022 were ~~$148.6~~$142.3 million, of which ~~$62.5~~$82.2 million mature beyond one year.

In addition, as of ~~March 31,~~June 30, 2022, the Company had commitments to sell mortgage loans totaling ~~$16.2~~$15.5 million. The Company believes that it has adequate resources to fund commitments as they arise and that it can adjust the rate on savings certificates to retain deposits in changing interest rate environments. If the Company requires funds beyond its internal funding capabilities, advances from the FHLB of Cincinnati and other financial institutions are available.

ASSET LIABILITY MANAGEMENT

Asset liability management involves developing, executing and monitoring strategies to maintain appropriate liquidity, maximize net interest income and minimize the impact that significant fluctuations in market interest rates would have on current and future earnings. The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans, mortgage-backed securities, and securities available for sale) which are primarily funded by interest-bearing liabilities (deposits and borrowings). With the exception of specific loans which are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes. All of the Company’s transactions are denominated in U.S. dollars with no specific foreign exchange exposure. In addition, the Company has limited exposure to commodity prices related to agricultural loans. The impact of changes in foreign exchange rates and commodity prices on interest rates are assumed to be insignificant. The Company’s financial instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk. Interest rate risk is the Company’s primary market risk exposure; to a lesser extent, liquidity risk also impacts market risk exposure.

Interest rate risk is the exposure of a banking institution’s financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability and shareholder value; however, excessive levels of interest rate risk could pose a significant threat to the Company’s earnings and capital base. Accordingly, effective risk management that maintains interest rate risks at prudent levels is essential to the Company’s safety and soundness.

Evaluating a financial institution’s exposure to changes in interest rates includes assessing both the adequacy of the management process used to control interest rate risk and the organization’s quantitative level of exposure. When assessing the interest rate risk management process, the Company seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest rate risks at prudent levels of consistency and continuity. Evaluating the quantitative level of interest rate risk exposure requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition, including capital adequacy, earnings, liquidity and asset quality (when appropriate).

The Federal Reserve Board together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Company adopted a Joint Agency Policy Statement on interest rate risk effective June 26, 1996. The policy statement provides guidance to examiners and bankers on sound practices for managing interest rate risk, which will form the basis for ongoing evaluation of the adequacy of interest rate risk management at supervised institutions. The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve Board guidance and discusses the importance of these elements in the context of managing interest rate risk. Specifically, the guidance emphasizes the need for active board of director and senior management oversight and a comprehensive risk management process that effectively identifies, measures and controls interest rate risk.

Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest rate changes. For example, assume that an institution’s assets carry intermediate or long-term fixed rates and that those assets are funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution’s interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution’s profits could decrease on existing assets because the institution will either have lower net interest income or possibly, net interest expense. Similar risks exist when assets are subject to contractual interest rate ceilings, or rate-sensitive assets are funded by longer-term, fixed-rate liabilities in a declining rate environment.

There are several ways an institution can manage interest rate risk including: 1) matching repricing periods for new assets and liabilities, for example, by shortening or lengthening terms of new loans, investments, or liabilities; 2) selling existing assets or repaying certain liabilities; and 3) hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest rate risk. Interest rate swaps, futures contracts, options on futures contracts, and other such derivative financial instruments can be used for this purpose. Because these instruments are sensitive to interest rate changes, they require management’s expertise to be effective. The Company does not currently utilize any derivative financial instruments to manage interest rate risk. As market conditions warrant, the Company may implement various interest rate risk management strategies, including the use of derivative financial instruments.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Management believes there has been no material change in the Company’s market risk from the information contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

With the participation of the President and Chief Executive Officer (the principal executive officer) and the Executive Vice President and Chief Financial Officer (the principal financial officer) of the Company, the Company’s management has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the quarterly period covered by this Quarterly Re~~port~~Report on Form 10-Q. Based on that evaluation, the Company’s President and Chief Executive Officer and the Company’s Executive Vice President and Chief Financial Officer have concluded that:

●

information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and other reports which the Company files or submits under the Exchange Act would be accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure;

	●	information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and other reports which the Company files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

●

the Company’s disclosure controls and procedures were effective as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended ~~March 31,~~June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of our business, the Company and its subsidiaries are parties to various legal actions which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. A detailed discussion of our risk factors is included in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Not Applicable

(b)

Not Applicable

(c)

Repurchases of Common Shares

On May 25, 2021, the Company announced ~~that its board of directors had approved~~ a ~~new~~ share repurchase program authorizing the repurchase of up to 750,000 common shares of the Company through May 31, 2022. On May 18, 2022, the Company announced that its board of directors had approved an extension of the Company’s share repurchase program through December 31, 2022. The table below sets forth information regarding common shares repurchased by the Company during the quarter ended ~~March 31,~~June 30, 2022.

(c) (d)
Period
(a)
Total Number of Shares Purchased

(b)
Weighted Average Price Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number
of Shares that May
Yet be Purchased
Under the Plans or
Programs

01/01/22 - 01/31/22 38,864 $ 19.85 38,864 456,775
02/01/22 - 02/28/22 62,651 19.60 62,651 394,124
03/01/22 - 03/31/22 29,333 19.27 29,333 364,791
Total 130,848 $ 19.60 130,848 364,791

	(a)		(b)		(c)		(d)
Period	Total Number of Shares Purchased		Weighted Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
04/01/22 - 04/30/22		17,766	$	19.10		17,766		347,025
05/01/22 - 05/31/22		33,068		18.07		33,068		313,957
06/01/22 - 06/30/22		43,377		17.65		43,377		270,580
Total		94,211	$	18.07		94,211		270,580

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

Item 6. Exhibits

~~Exhibits~~

~~31.1~~		– ~~Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)~~
~~31.2~~		– ~~Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)~~
~~32.1~~		– ~~Section 1350 Certification (Principal Executive Officer)~~
~~32.2~~		– ~~Section 1350 Certification (Principal Financial Officer)~~
~~101.INS~~		~~Inline XBRL Instance Document.~~
~~101.SCH~~		~~Inline XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~		~~Inline XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~		~~Inline XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~		~~Inline XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~		~~Inline XBRL Taxonomy Extension Presentation Linkbase Document.~~
~~104~~		~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).~~

Exhibits
31.1	–	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)
31.2	–	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)
32.1	–	Section 1350 Certification (Principal Executive Officer)
32.2	–	Section 1350 Certification (Principal Financial Officer)
101.INS	–	Inline XBRL Instance Document.
101.SCH	–	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	–	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	–	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	–	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	–	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	–	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SB FINANCIAL GROUP, INC.

Date: ~~May 6,~~August 5, 2022	By:	/s/ Mark A. Klein
		Mark A. Klein
		~~Mark A. Klein~~
		Chairman, President & CEO


	By:	/s/ Anthony V. Cosentino
		Anthony V. Cosentino
		Executive Vice President &
		Chief Financial Officer

4243

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Loans Receivable at March 31, 2022	Commercial & industrial		Commercial real estate		Agricultural		Residential real estate		Consumer		Total
Allowance:
Ending balance: individually evaluated for impairment	$	-	$	10	$	-	$	172	$	4	$	186
Ending balance: collectively evaluated for impairment	$	1,892	$	6,873	$	547	$	3,330	$	976	$	13,618

Totals	$	1,892	$	6,883	$	547	$	3,502	$	980	$	13,804

Loans:
Ending balance: individually evaluated for impairment	$	118	$	346	$	-	$	2,974	$	141	$	3,579
Ending balance: collectively evaluated for impairment	$	124,481	$	399,601	$	55,660	$	211,209	$	55,822	$	846,773

Totals	$	124,599	$	399,947	$	55,660	$	214,183	$	55,963	$	850,352

($ in thousands)
Twelve Months Ended	Recorded		Unpaid Principal		Related		Average Recorded		Interest Income
December 31, 2021	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial & industrial	$	118	$	204	$	-	$	217	$	2
Commercial real estate - owner occupied		88		88		-		88		-
Commercial real estate - nonowner occupied		223		223		-		357		28
Agricultural		-		-		-		-		-
Residential real estate		1,391		1,458		-		1,663		60
HELOC		33		33				41		2
Consumer		-		-		-		-		-
With a specific allowance recorded:
Commercial & industrial		-		-		-		-		-
Commercial real estate - owner occupied		-		-		-		-		-
Commercial real estate - nonowner occupied		43		173		10		173		-
Agricultural		-		-		-		-		-
Residential real estate		916		916		120		933		20
HELOC		102		102		3		124		5
Consumer		-		-		-		-		-
Totals:
Commercial & industrial	$	118	$	204	$	-	$	217	$	2
Commercial real estate - owner occupied	$	88	$	88	$	-	$	88	$	-
Commercial real estate - nonowner occupied	$	266	$	396	$	10	$	530	$	28
Agricultural	$	-	$	-	$	-	$	-	$	-
Residential real estate	$	2,307	$	2,374	$	120	$	2,596	$	80
HELOC	$	135	$	135	$	3	$	165	$	7
Consumer	$	-	$	-	$	-	$	-	$	-

	Shares			Weighted- Average Value per Share

Nonvested, January 1, 2022		40,922		$	18.43
Granted		38,340			20.00
Vested		(25,939	)		19.03
Forfeited		(924	)		18.78
Nonvested, March 31, 2022		52,399		$	19.27

Asset Quality Review – For the Period Ended ($ in thousands)	March 31, 2022			March 31, 2021
Net charge-offs (recoveries)	$	1		$	(2	)
Nonaccruing loans		4,293			5,635
Accruing Trouble Debt Restructures		762			794
Nonaccruing and restructured loans		5,055			6,429
OREO / OAO		527			43
Nonperforming assets		5,582			6,472
Nonperforming assets/Total assets		0.42	%		0.49	%
Allowance for loan losses/Total loans		1.62	%		1.57	%
Allowance for loan losses/Nonperforming loans		273.1	%		207.3	%

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Procedures
($ in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2022
Tier I Capital to average assets	$	136,243		10.35	%	$	52,651		4.0	%	$	65,814		5.0	%
Tier I Common equity capital to risk-weighted assets		136,243		13.71	%		44,716		4.5	%		64,590		6.5	%
Tier I Capital to risk-weighted assets		136,243		13.71	%		59,621		6.0	%		79,495		8.0	%
Total Risk-based capital to risk-weighted assets		148,681		14.96	%		79,495		8.0	%		99,369		10.0	%
As of December 31, 2021
Tier I Capital to average assets	$	133,202		10.18	%	$	52,324		4.0	%	$	65,405		5.0	%
Tier I Common equity capital to risk-weighted assets		133,202		13.94	%		42,986		4.5	%		62,090		6.5	%

Tier I Capital to risk-weighted assets		133,202		13.94	%		57,314		6.0	%		76,419		8.0	%

Total Risk-based capital to risk-weighted assets		145,165		15.20	%		76,419		8.0	%		95,523		10.0	%

					(c)		(d)
Period	(a) Total Number of Shares Purchased		(b) Weighted Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
01/01/22 - 01/31/22		38,864	$	19.85		38,864		456,775
02/01/22 - 02/28/22		62,651		19.60		62,651		394,124
03/01/22 - 03/31/22		29,333		19.27		29,333		364,791
Total		130,848	$	19.60		130,848		364,791