# SB FINANCIAL GROUP, INC. (SBFG) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from SB FINANCIAL GROUP, INC.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/767405/000121390022010887/f10k2021_sbfinancial.htm
Accession: 0001213900-22-010887
Filing date: 2022-03-07
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SBFG/
All MD&A years: /company/SBFG/mda/
Next year: /company/SBFG/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SB Financial Group, Inc. (“SB Financial”), is a financial holding company registered with the Federal Reserve Board and subject to regulation under the Bank Holding Company Act of 1956, as amended. Through its direct and indirect subsidiaries, SB Financial is engaged in commercial and retail banking, wealth management and private client financial services.

The following discussion provides a review of the consolidated financial condition and results of operations of SB Financial and its subsidiaries (collectively, the “Company”). This discussion should be read in conjunction with the Company’s consolidated financial statements and related footnotes as of and for the years ended December 31, 2021 and 2020.

Strategic Discussion

The focus and strategic goal of the Company is to grow into and remain a top decile (90th percentile) independent financial services company. The Company intends to achieve and maintain that goal by executing our five key initiatives.

Increase profitability through ongoing diversification of revenue streams: For the twelve months ended December 31, 2021, the Company generated $30.7 million in noninterest income, or 44.8 percent of total operating revenue, from fee-based products. These revenue sources include fees generated from saleable residential mortgage loans, retail deposit products, wealth management services, saleable business-based loans (small business and farm service) and title agency revenue. For the twelve months ended December 31, 2020, the Company generated $30.1 million in revenue from fee-based products, or 45.6 percent of total operating revenue.

Strengthen our penetration in all markets served: Over our 119-year history of continuous operation in Northwest Ohio, we have established a significant presence in our traditional markets in Defiance, Fulton, Paulding and Williams counties in Ohio. In our newer markets of Bowling Green, Columbus, Findlay, Toledo (Ohio) and Ft. Wayne (Indiana), our current market penetration is minimal but we believe our potential for growth is significant. We have expanded and committed additional resources to our presence in the Findlay and Edgerton markets. We continue to seek to expand the presence and penetration in all of our markets.

Expand product utilization by new and existing customers: As of December 31, 2021, we operated in ten counties in Northwest Ohio and Northeast Indiana with 23 full service offices, 24 full service ATM’s and five loan production offices. Combined in the ten counties of operation, we command 4.47 percent of the deposit market share, which has steadily grown.

Deliver gains in operational excellence: Our management team believes that becoming and remaining a high-performance financial services company will depend upon seamlessly and consistently delivering operational excellence, as demonstrated by the Company’s leadership in the origination and servicing of residential mortgage loans. As of December 31, 2021, the Company serviced 8,614 residential mortgage loans with a principal balance of $1.36 billion. As of December 31, 2020, the Company serviced 8,543 loans with a principal balance of $1.30 billion.

Sustain asset quality: As of December 31, 2021, the Company’s asset quality metrics remained strong. Specifically, total nonperforming assets were $6.5 million, or 0.49 percent of total assets. Total delinquent loans at December 31, 2021 were 0.46 percent of total loans. As of December 31, 2020, the Company had total nonperforming assets of $7.3 million, or 0.58 percent of total assets. Total delinquent loans at December 31, 2020 were 0.75 percent of total loans.

The successful execution of these five strategies have enabled the Company to improve financial performance across a broad series of metrics. These metrics over the last five years are outlined in the following table. Specifically, the Company has increased total assets by $454.3 million, or 52 percent. The growth has been on both sides of the balance sheet over the five year period, with loans growing $126.1 million or 18 percent and deposits growing $383.4 million or 52.6 percent.

The Company has raised capital through the issuance of equity and debt to the market on two separate occasions during the period, which has raised equity capital significantly and expanded liquidity for potential strategic expansion. Strategic expansion has occurred with the acquisition of a small community bank, the opening of three branch offices and the acquisition of two full service title agencies.

30

Financial Highlights

Year Ended December 31,

[[GREPCENT_TABLE]]
[["($ in thousands, except per share data)"],["Earnings","","2021","","","2020","","","2019","","","2018","","","2017"],["Interest income","","$","41,904","","","$","42,635","","","$","44,400","","","$","39,479","","","$","32,480"],["Interest expense","","","4,020","","","","6,705","","","","9,574","","","","6,212","","","","4,094"],["Net interest income","","","37,884","","","","35,930","","","","34,826","","","","33,267","","","","28,386"],["Provision for loan losses","","","1,050","","","","4,500","","","","800","","","","600","","","","400"],["Noninterest income","","","30,697","","","","30,096","","","","18,016","","","","16,624","","","","17,217"],["Noninterest expense","","","44,808","","","","43,087","","","","37,410","","","","34,847","","","","31,578"],["Provision for income taxes","","","4,446","","","","3,495","","","","2,659","","","","2,806","","","","2,560"],["Net income","","","18,277","","","","14,944","","","","11,973","","","","11,638","","","","11,065"],["Preferred stock dividends","","","-","","","","-","","","","950","","","","975","","","","975"],["Net income available to common shareholders","","","18,277","","","","14,944","","","","11,023","","","","10,663","","","","10,090"],["Per Common Share Data"],["Basic earnings","","$","2.58","","","$","1.96","","","$","1.71","","","$","1.72","","","$","2.10"],["Diluted earnings","","","2.56","","","","1.96","","","","1.51","","","","1.51","","","","1.74"],["Cash dividends declared","","","0.44","","","","0.40","","","","0.36","","","","0.32","","","","0.28"],["Total equity per share","","","21.05","","","","19.39","","","","17.53","","","","16.36","","","","15.03"],["Total tangible equity per share","","","17.60","","","","16.30","","","","15.23","","","","15.39","","","","13.27"],["Average Balances"],["Average total assets","","$","1,322,253","","","$","1,161,396","","","$","1,027,932","","","$","947,266","","","$","854,569"],["Average equity","","","144,223","","","","139,197","","","","133,190","","","","121,094","","","","89,538"],["Ratios"],["Return on average total assets","","","1.38","%","","","1.29","%","","","1.16","%","","","1.23","%","","","1.29","%"],["Return on average equity","","","12.67","","","","10.74","","","","8.99","","","","9.61","","","","12.36"],["Cash dividend payout ratio1","","","17.18","","","","20.54","","","","23.84","","","","19.60","","","","13.50"],["Average equity to average assets","","","10.91","","","","11.99","","","","12.96","","","","12.78","","","","10.48"],["Period End Totals"],["Total assets","","$","1,330,854","","","$","1,257,839","","","$","1,038,577","","","$","986,828","","","$","876,627"],["Available-for-sale securities","","","263,259","","","","149,406","","","","100,948","","","","90,969","","","","82,790"],["Loans held for sale","","","7,472","","","","7,234","","","","7,258","","","","4,445","","","","3,940"],["Total loans & leases","","","822,714","","","","872,723","","","","825,510","","","","771,883","","","","696,615"],["Allowance for loan losses","","","13,805","","","","12,574","","","","8,755","","","","8,167","","","","7,930"],["Total deposits","","","1,113,045","","","","1,049,011","","","","840,219","","","","802,552","","","","729,600"],["Advances from FHLB","","","5,500","","","","8,000","","","","16,000","","","","16,000","","","","18,500"],["Trust preferred securities","","","10,310","","","","10,310","","","","10,310","","","","10,310","","","","10,310"],["Subordinated debt, net","","","19,546","","","","-","","","","-","","","","-","","","","-"],["Total equity","","","144,929","","","","142,923","","","","136,094","","","","130,435","","","","94,000"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["1","Cash dividends on common shares divided by net income available to common."]]
[[/GREPCENT_TABLE]]

31

Critical Accounting Policies

The accounting and reporting policies of the Company are in accordance with generally accepted accounting principles in the United States and conform to general practices within the banking industry. The Company’s significant accounting policies are described in detail in the notes to the Company’s Consolidated Financial Statements for the years ended December 31, 2021 and 2020. 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 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 the nature and amount of problem assets and associated collateral, 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 each impaired 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 valuations, 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.

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 and 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.

Deferred Tax Liability: The Company has evaluated its deferred tax liability to determine if it is more likely than not that the liability will be realized in the future. The Company’s most recent evaluation has determined that the Company will more likely than not be able to realize the remaining deferred tax liability.

Income Tax Accounting: The Company files a consolidated federal income tax return. The provision for income taxes is based upon income in the consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in rates on the deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.

32

Changes in Financial Condition

Total assets at December 31, 2021, were $1.33 billion, compared to $1.26 billion at December 31, 2020. Loans (excluding loans held for sale) were $822.7 million at December 31, 2021, compared to $872.7 million at December 31, 2020. Total deposits were $1.11 billion at December 31, 2021, compared to $1.05 billion at December 31, 2020. The Company continued to experience elevated levels of liquidity as the balance sheets of both personal and business clients were supplemented by government intervention and support. The increase in liquidity by these parties has resulted in higher deposit levels, which in turn increased the overall asset size of the Company.

The following are the condensed average balance sheets of the Company for the years ending December 31 and includes the interest earned or paid, and the average interest rate, on each asset and liability:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","Average","","","","","","Average","","","Average","","","","","","Average","","","Average","","","","","","Average"],["($ in thousands)","","Balance","","","Interest","","","Rate","","","Balance","","","Interest","","","Rate","","","Balance","","","Interest","","","Rate"],["Assets"],["Taxable securities/cash","","$","380,770","","","$","3,386","","","","0.89","%","","$","185,480","","","$","2,328","","","","1.26","%","","$","95,216","","","$","3,226","","","","3.39","%"],["Non-taxable securities","","","7,802","","","","353","","","","4.52","%","","","6,625","","","","333","","","","5.03","%","","","10,108","","","","345","","","","3.41","%"],["Loans, net1","","","854,521","","","","38,165","","","","4.47","%","","","880,338","","","","39,974","","","","4.54","%","","","809,651","","","","40,829","","","","5.04","%"],["Total earning assets","","","1,243,093","","","","41,904","","","","3.37","%","","","1,072,443","","","","42,635","","","","3.98","%","","","914,975","","","","44,400","","","","4.85","%"],["Cash and due from banks","","","7,290","","","","","","","","","","","","14,553","","","","","","","","","","","","47,135"],["Allowance for loan losses","","","(13,422",")","","","","","","","","","","","(10,165",")","","","","","","","","","","","(8,370",")"],["Premises and equipment","","","24,710","","","","","","","","","","","","23,776","","","","","","","","","","","","23,779"],["Other assets","","","60,582","","","","","","","","","","","","60,789","","","","","","","","","","","","50,413"],["Total assets","","$","1,322,253","","","","","","","","","","","$","1,161,396","","","","","","","","","","","$","1,027,932"],["Liabilities"],["Savings and interest-bearing demand deposits","","$","672,296","","","$","1,813","","","","0.27","%","","$","492,267","","","$","3,152","","","","0.64","%","","$","427,858","","","$","2,846","","","","0.67","%"],["Time deposits","","","177,918","","","","1,316","","","","0.74","%","","","247,955","","","","2,918","","","","1.18","%","","","262,040","","","","5,814","","","","2.22","%"],["Repurchase agreements & other","","","22,821","","","","42","","","","0.18","%","","","22,832","","","","70","","","","0.31","%","","","15,288","","","","82","","","","0.54","%"],["Advances from FHLB","","","6,507","","","","188","","","","2.89","%","","","14,186","","","","309","","","","2.18","%","","","16,066","","","","402","","","","2.50","%"],["Trust preferred securities","","","10,310","","","","199","","","","1.93","%","","","10,310","","","","256","","","","2.48","%","","","10,310","","","","430","","","","4.17","%"],["Subordianted debt","","","12,057","","","","462","","","","3.83","%"],["Total interest-bearing liabilities","","","901,909","","","","4,020","","","","0.45","%","","","787,550","","","","6,705","","","","0.85","%","","","731,562","","","","9,574","","","","1.31","%"],["Demand deposits","","","255,908","","","","","","","","","","","","211,004","","","","","","","","","","","","146,401"],["Other liabilities","","","20,213","","","","","","","","","","","","23,645","","","","","","","","","","","","16,779"],["Total liabilities","","","1,178,030","","","","","","","","","","","","1,022,199","","","","","","","","","","","","894,742"],["Shareholders\u2019 equity","","","144,223","","","","","","","","","","","","139,197","","","","","","","","","","","","133,190"],["Total liabilities and shareholders\u2019 equity","","$","1,322,253","","","","","","","","","","","$","1,161,396","","","","","","","","","","","$","1,027,932"],["Net interest income (tax equivalent basis)","","","","","","$","37,884","","","","","","","","","","","$","35,930","","","","","","","","","","","$","34,826"],["Net interest income as a percent of average interest-earning assets - GAAP measure","","","","","","","","","","","3.05","%","","","","","","","","","","","3.35","%","","","","","","","","","","","3.81","%"],["Net interest income as a percent of average interest-earning assets - Non-GAAP measure 2","","","","","","","","","","","3.06","%","","","","","","","","","","","3.36","%","","","","","","","","","","","3.82","%"],["-- Computed on a fully tax equivalent basis (FTE)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["1","Nonaccruing loans and loans held for sale are included in the average balances."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["2","Interest on tax exempt securities and loans is computed on a tax equivalent basis using a 21 percent statutory tax rate, and added to the net interest income. The tax equivalent adjustment was $0.15, $0.15 and $0.17 million in 2021, 2020 and 2019, respectively."]]
[[/GREPCENT_TABLE]]

33

The following tables set forth the effect of volume and rate changes on interest income and expense for the periods indicated. For purposes of these tables, changes in interest due to volume and rate were determined as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Volume variance - change in volume multiplied by the previous year\u2019s rate."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Rate variance - change in rate multiplied by the previous year\u2019s volume."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Rate/volume variance - change in volume multiplied by the change in rate. This variance allocates the volume variance and rate variance in proportion to the relationship of the absolute dollar amount of the change in each."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Total"],["","","Variance","","","Variance Attributable To"],["($ in thousands)","","2021/2020","","","Volume","","","Rate"],["Interest income"],["Taxable securities","","$","1,058","","","$","2,451","","","$","(1,393",")"],["Non-taxable securities1","","","20","","","","59","","","","(39",")"],["Loans, net of unearned income and deferred fees1","","","(1,809",")","","","(1,172",")","","","(637",")"],["Total interest income","","","(731",")","","","1,338","","","","(2,069",")"],["Interest expense"],["Savings and interest-bearing demand deposits","","","(1,339",")","","","1,153","","","","(2,492",")"],["Time deposits","","","(1,602",")","","","(824",")","","","(778",")"],["Repurchase agreements & other","","","(28",")","","","(0",")","","","(28",")"],["Advances from FHLB","","","(121",")","","","(167",")","","","46"],["Trust preferred securities","","","(57",")","","","-","","","","(57",")"],["Subordinated debt","","","462","","","","462","","","","-"],["Total interest expense","","","(2,685",")","","","623","","","","(3,308",")"],["Net interest income","","$","1,954","","","$","715","","","$","1,239"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["1","Interest on non-taxable securities and loans has been adjusted to fully tax equivalent"]]
[[/GREPCENT_TABLE]]

The maturity distribution and weighted-average interest rates of debt securities available-for-sale at December 31, 2021, are set forth in the table below. The weighted-average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at a premium or discount:

[[GREPCENT_TABLE]]
[["","","Maturing"],["($ in thousands)","","Within 1 Year","","","Weighted Average Yield","","","1-5 Years","","","Weighted Average Yield","","","5-10 Years","","","Weighted Average Yield","","","After 10 Years","","","Weighted Average Yield","","","Total","","","Weighted Average Yield"],["Available for sale:"],["U.S. Treasury and Government agencies","","$","606","","","","0.44","%","","$","707","","","","2.13","%","","$","7,792","","","","2.02","%","","$","-","","","","","","","$","9,105","","","","1.92","%"],["Mortgage-backed securities","","","63","","","","1.93","%","","","1,668","","","","3.01","%","","","31,293","","","","1.49","%","","","195,110","","","","1.36","%","","","228,134","","","","1.39","%"],["State and political subdivisions","","","-","","","","","","","","2,065","","","","3.21","%","","","2,473","","","","4.28","%","","","8,341","","","","2.64","%","","","12,879","","","","3.04","%"],["Other corporate securities","","","-","","","","","","","","-","","","","","","","","13,141","","","","3.47","%","","","-","","","","","","","","13,141","","","","3.47","%"],["Total securities by maturity","","$","669","","","","0.58","%","","$","4,440","","","","2.96","%","","$","54,699","","","","2.17","%","","$","203,451","","","","1.41","%","","$","263,259","","","","1.59","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["1","Yields are presented on a tax-equivalent basis."]]
[[/GREPCENT_TABLE]]

34

In June of 2020, we completed the acquisition of The Edon State Bank, which added approximately $50 million in deposits and $15 million in loans. Building on the success of our entry into the city of Edon, we opened an office in nearby Edgerton, Ohio in May of 2021. The Edgerton expansion has also been positive as we ended the year with over $15 million in both loans and deposits in that office.

[[GREPCENT_TABLE]]
[["($ in thousands)","","Years Ended December 31,"],["","","2021","","","2020","","","% Change"],["Total loans"],["Commercial business & agriculture","","$","179,653","","","$","260,002","","","","-30.9","%"],["Commercial real estate","","","381,168","","","","370,820","","","","2.8","%"],["Residential real estate","","","206,424","","","","182,165","","","","13.3","%"],["Consumer & other","","","55,156","","","","61,157","","","","-9.8","%"],["Total loans","","","822,401","","","","874,144","","","","-5.9","%"],["Net deferred costs (fees)","","","313","","","","(1,421",")","","","-122.0","%"],["Total loans, net deferred costs (fees)","","","822,714","","","","872,723","","","","-5.7","%"],["Loans held for sale","","$","7,472","","","$","7,234","","","","3.3","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","% Change"],["Total deposits"],["Noninterest bearing demand","","$","247,044","","","$","251,649","","","","-1.8","%"],["Interest-bearing demand","","","195,464","","","","176,785","","","","10.6","%"],["Savings & money market","","","514,033","","","","391,028","","","","31.5","%"],["Time deposits","","","156,504","","","","229,549","","","","-31.8","%"],["Total deposits","","","1,113,045","","","","1,049,011","","","","6.1","%"],["Total shareholders\u2019 equity","","$","144,929","","","$","142,923","","","","1.4","%"]]
[[/GREPCENT_TABLE]]

Loans held for investment decreased $50.0 million,
or 5.7 percent, to $822.7 million at December 31, 2021, which was due to a decrease in outstanding PPP loans during 2021. The Company
participated fully in the PPP initiative in both 2020 and 2021, which in total, encompassed 1,100 loans with an aggregate principal amount
of $111.4 million. At year-end 2021, the balance of PPP was down to approximately 50 loans, with an aggregate principal amount of $2 million,
as a result of SBA forgiveness of a majority of the PPP loans that we originated. Adjusted for PPP activity, loan growth compared to 2020
was up $18.5 million, or 2.3 percent. In the first quarter of 2021, the Company introduced a Private Client Residential Mortgage product.
This product, of which $76 million was originated during 2021, offset the refinance activity that occurred in our portfolio during the
year.

Concentrations of Credit Risk: The Company makes commercial, real estate and installment loans to customers located mainly in the Tri-State region of Ohio, Indiana and Michigan. Commercial loans include loans collateralized by commercial real estate, business assets and, in the case of agricultural loans, crops and farm equipment and the loans are expected to be repaid from cash flow from operations of businesses. As of December 31, 2021, commercial business and agricultural loans made up approximately 29.6 percent of the loans held for investment (“HFI”) loan portfolio while commercial real estate loans accounted for approximately 42.5 percent of the HFI loan portfolio. Residential first mortgage loans made up approximately 20.9 percent of the HFI loan portfolio and are secured by first mortgages on residential real estate, while consumer loans to individuals made up approximately 7.0 percent of the HFI loan portfolio and are primarily secured by consumer assets.

35

Maturities and Sensitivities of Loans to Changes in Interest Rates: The following table shows the maturity distribution of loans outstanding as of December 31, 2021. The amounts have been categorized between loans with a fixed or floating interest rate (floating rate loans have an adjustable interest rate that changes in accordance to a rate index).

[[GREPCENT_TABLE]]
[["($ in thousands)","","Within one year","","","After one, but within five years","","","After five, but within fifteen years","","","After fifteen years","","","Total"],["Loans with fixed interest rates:"],["Commercial & industrial","","$","981","","","$","20,715","","","$","28,106","","","$","23","","","$","49,825"],["Commercial real estate - owner occupied","","","168","","","","9,567","","","","10,302","","","","-","","","","35,051"],["Commercial real estate - nonowner occupied","","","6,828","","","","14,246","","","","13,815","","","","162","","","","20,037"],["Agricultural","","","122","","","","4,094","","","","5,557","","","","1,362","","","","11,135"],["Residential real estate","","","1,615","","","","1,915","","","","12,774","","","","25,328","","","","41,632"],["HELOC","","","5","","","","-","","","","-","","","","-","","","","5"],["Consumer","","","2,416","","","","6,364","","","","2,380","","","","-","","","","11,160"],["Total","","$","12,135","","","$","56,901","","","$","72,934","","","$","26,875","","","$","168,845"],["Loans with floating interest rates:"],["Commercial & industrial","","$","28,754","","","$","6,213","","","$","35,464","","","$","1,994","","","$","72,425"],["Commercial real estate - owner occupied","","","-","","","","11,109","","","","44,565","","","","43,180","","","","227,226"],["Commercial real estate - nonowner occupied","","","8,739","","","","26,514","","","","120,819","","","","71,154","","","","98,854"],["Agricultural","","","1,646","","","","7,846","","","","16,670","","","","20,106","","","","46,268"],["Residential real estate","","","4,558","","","","485","","","","13,294","","","","146,455","","","","164,792"],["HELOC","","","223","","","","469","","","","30,487","","","","10,498","","","","41,677"],["Consumer","","","990","","","","1,324","","","","-","","","","-","","","","2,314"],["Total","","$","44,910","","","$","53,960","","","$","261,299","","","$","293,387","","","$","653,556"],["Total loans:"],["Commercial & industrial","","$","29,735","","","$","26,928","","","$","63,570","","","$","2,017","","","$","122,250"],["Commercial real estate - owner occupied","","","168","","","","20,676","","","","54,867","","","","43,180","","","","118,891"],["Commercial real estate - nonowner occupied","","","15,567","","","","40,760","","","","134,634","","","","71,316","","","","262,277"],["Agricultural","","","1,768","","","","11,940","","","","22,227","","","","21,468","","","","57,403"],["Residential real estate","","","6,173","","","","2,400","","","","26,068","","","","171,783","","","","206,424"],["HELOC","","","228","","","","469","","","","30,487","","","","10,498","","","","41,682"],["Consumer","","","3,406","","","","7,688","","","","2,380","","","","-","","","","13,474"],["Total loans","","$","57,045","","","$","110,861","","","$","334,233","","","$","320,262","","","$","822,401"]]
[[/GREPCENT_TABLE]]

Deposits increased $64.0 million, or 6.1 percent, to $1.11 billion at December 31, 2021. Deposits continued growing in 2021 on top of the over $200 million in growth experienced during 2020. Expanded government support and reduced economic activity has resulted in higher balances in client deposit accounts. During 2021, we experienced a shift in the mix of our deposit balances as more of our clients moved balances to short-term transactional accounts. Specifically, during 2021, time deposits decreased $73.0 million or 32 percent while other deposits increased $137.1 million or 17 percent.

The average amount of deposits and weighted-average rates paid are summarized as follows for the years ended December 31:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","Average","","","Average","","","Average","","","Average","","","Average","","","Average"],["($ in thousands)","","Amount","","","Rate","","","Amount","","","Rate","","","Amount","","","Rate"],["Savings and interest bearing demand deposits","","$","672,296","","","","0.27","%","","$","492,267","","","","0.64","%","","$","427,858","","","","0.67","%"],["Time deposits","","","177,918","","","","0.74","%","","","247,955","","","","1.18","%","","","262,040","","","","2.22","%"],["Non interest bearing demand deposits","","","255,908","","","","-","","","","211,004","","","","-","","","","146,401","","","","-"],["Totals","","$","1,106,122","","","","0.28","%","","$","951,226","","","","0.64","%","","$","836,299","","","","1.04","%"]]
[[/GREPCENT_TABLE]]

36

Time deposits that exceeded the FDIC insurance limit of $250,000 are summarized as follows:

[[GREPCENT_TABLE]]
[["($ in thousands)","","2021","","","2020"],["Three months or less","","$","1,033","","","$","811"],["Over three months through six months","","","415","","","","4,894"],["Over six months and through twelve months","","","3,083","","","","1,658"],["Over twelve months","","","238","","","","2,640"],["Total","","$","4,769","","","$","10,003"]]
[[/GREPCENT_TABLE]]

Stockholders’ equity at December 31, 2021, was $144.9 million or 10.9 percent of total assets compared to $142.9 million or 11.4 percent of total assets at December 31, 2020. Retained earnings increased during the year by $15.1 million due to earnings of $18.3 million less dividends paid to common shareholders of $3.2 million. The fair market value of the bond portfolio decreased during 2021 due to the rise in interest rates, which resulted in a decrease in Other Comprehensive Income (“OCI”) of $4.1 million.

The Company continued to repurchase its own stock during the year. Specifically, the Company repurchased approximately 500,000 shares during 2021 at an average price of $18.50 per share, which was just slightly below book value. As of December 31, 2021, the Company had 495,639 shares remaining of the 750,000 shares authorized for repurchase under the Company’s existing share repurchase program which was authorized on May 25, 2021 and expires May 21, 2022.

[[GREPCENT_TABLE]]
[["Asset Quality","","Years Ended December 31,"],["($ in thousands)","","2021","","","2020","","","% Change"],["Nonaccruing loans","","$","3,652","","","$","6,426","","","","-43.2","%"],["Accruing restructured loans (TDRs)","","","725","","","","810","","","","-10.5","%"],["Foreclosed assets and other assets held for sale, net","","","2,104","","","","23","","","","9047.8","%"],["Nonperforming assets","","","6,481","","","","7,259","","","","-10.7","%"],["Net charge offs (recoveries)","","","(181",")","","","681","","","","-126.6","%"],["Loan loss provision","","","1,050","","","","4,500","","","","-76.7","%"],["Allowance for loan losses","","","13,805","","","","12,574","","","","9.8","%"],["Nonaccruing loans/total loans","","","0.44","%","","","0.74","%","","","-39.7","%"],["Allowance/nonaccruing loans","","","378.01","%","","","195.67","%","","","93.2","%"],["Nonperforming assets/total assets","","","0.49","%","","","0.58","%","","","-15.6","%"],["Net charge offs/average loans","","","-0.02","%","","","0.08","%","","","-125.0","%"],["Allowance/loans","","","1.68","%","","","1.44","%","","","16.5","%"],["Allowance/nonperforming loans","","","315.40","%","","","173.80","%","","","81.5","%"]]
[[/GREPCENT_TABLE]]

Nonperforming assets consisting of loans, Other Real Estate Owned (“OREO”) and accruing TDRs totaled $6.5 million, or 0.49 percent of total assets at December 31, 2021, a decrease of $0.8 million or 10.7 percent from 2020. Net charge offs were down significantly during 2021, with total recoveries of $0.18 million, which was a $0.86 million decrease compared to total charge offs of $0.68 million for 2020. The Company’s loan loss allowance at December 31, 2021, now covers nonperforming loans at 315 percent, up from 174 percent at December 31, 2020.

37

The following schedule presents an analysis of the allowance for loan losses, average loan data and related ratios at December 31 for the years indicated:

[[GREPCENT_TABLE]]
[["($ in thousands)","","Provision for Loan Loss","","","Net (Chargeoffs) Recoveries","","","Average Loans","","","Ratio of annualized net (chargeoffs) recoveries to average loans"],["December 31, 2021"],["Commercial & industrial","","$","(1,411",")","","$","227","","","$","160,267","","","","0.14","%"],["Commercial real estate - owner occupied","","","505","","","","-","","","","118,713","","","","0.00","%"],["Commercial real estate - nonowner occupied","","","825","","","","-","","","","264,980","","","","0.00","%"],["Agricultural","","","103","","","","-","","","","53,122","","","","0.00","%"],["Residential real estate","","","975","","","","6","","","","195,277","","","","0.00","%"],["HELOC","","","(16",")","","","-","","","","43,488","","","","0.00","%"],["Consumer","","","69","","","","(52",")","","","11,546","","","","-0.45","%"],["Total","","$","1,050","","","$","181","","","$","847,393","","","","0.02","%"],["December 31, 2020"],["Commercial & industrial","","$","1,757","","","$","(566",")","","$","198,991","","","","-0.28","%"],["Commercial real estate - owner occupied","","","721","","","","-","","","","104,856","","","","0.00","%"],["Commercial real estate - nonowner occupied","","","1,128","","","","-","","","","269,924","","","","0.00","%"],["Agricultural","","","62","","","","-","","","","51,840","","","","0.00","%"],["Residential real estate","","","373","","","","(42",")","","","185,311","","","","-0.02","%"],["HELOC","","","203","","","","(8",")","","","47,227","","","","-0.02","%"],["Consumer","","","256","","","","(65",")","","","11,595","","","","-0.56","%"],["Total","","$","4,500","","","$","(681",")","","$","869,744","","","","-0.08","%"],["December 31, 2019"],["Commercial & industrial","","$","582","","","$","(134",")","","$","139,616","","","","-0.10","%"],["Commercial real estate - owner occupied","","","210","","","","-","","","","96,106","","","","0.00","%"],["Commercial real estate - nonowner occupied","","","468","","","","1","","","","257,756","","","","0.00","%"],["Agricultural","","","(48",")","","","-","","","","51,836","","","","0.00","%"],["Residential real estate","","","(325",")","","","(39",")","","","194,390","","","","-0.02","%"],["HELOC","","","(102",")","","","10","","","","47,770","","","","0.02","%"],["Consumer","","","15","","","","(50",")","","","11,862","","","","-0.42","%"],["Total loans","","$","800","","","$","(212",")","","$","799,336","","","","-0.03","%"]]
[[/GREPCENT_TABLE]]

The allowance for loan losses balance and the provision for loan losses are determined by management based upon periodic reviews of the loan portfolio. In addition, management considers the level of charge offs on loans, as well as the fluctuations of charge offs and recoveries on loans, in the factors which caused these changes. Estimating the risk of loss and the amount of loss is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, economic conditions, information about specific borrower situations, including their financial position and collateral values, and other factors and estimates which are subject to change over time.

The Company has substantially increased the reserve level over the last two years. Specifically, since December 31, 2019 the allowance balance has increased from $8.8 million to $13.8 million at December 31, 2021, which is an increase of $5.0 million or 59 percent. This increase was the result of $5.6 million in provision expense during the period ($4.5 million in 2020 and $1.1 million in 2021) and minimal charge-offs, which were just $0.5 million over the two year period.

38

The following schedule provides a breakdown of the allowance for loan losses allocated by type of loan and related ratios at December 31 for the years indicated:

[[GREPCENT_TABLE]]
[["","","Allowance Amount","","","Percentage of Loans In Each Category to Total Loans","","","Allowance Amount","","","Percentage of Loans In Each Category to Total Loans","","","Allowance Amount","","","Percentage of Loans In Each Category to Total Loans"],["($ in thousands)","","2021","","","2020","","","2019"],["Commercial & industrial","","$","1,890","","","","14.9","%","","$","3,074","","","","23.4","%","","$","1,883","","","","18.3","%"],["Commercial real estate - owner occupied","","","2,588","","","","14.5","%","","","2,059","","","","12.9","%","","","1,220","","","","11.9","%"],["Commercial real estate - nonowner occupied","","","4,193","","","","31.9","%","","","3,392","","","","29.5","%","","","2,382","","","","32.5","%"],["Agricultural","","","599","","","","7.0","%","","","496","","","","6.3","%","","","434","","","","6.2","%"],["Residential real estate","","","3,515","","","","25.1","%","","","2,534","","","","20.8","%","","","2,203","","","","23.4","%"],["Home equity line of credit (HELOC)","","","631","","","","5.1","%","","","647","","","","5.3","%","","","454","","","","5.8","%"],["Consumer","","","389","","","","1.6","%","","","372","","","","1.7","%","","","179","","","","1.8","%"],["","","$","13,805","","","","100.0","%","","$","12,574","","","","100.0","%","","$","8,755","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

As detailed in the risk factors, the CARES Act provided for significant consumer and small business relief due to the impact of the COVID-19 pandemic. The Company provided payment relief to a number of consumer and small business customers throughout 2020 and 2021, which we believe was successful and enabled our clients to weather the pandemic effectively. All such COVID-related payment deferrals had expired or been removed by December 31, 2021 and all clients were back to contractual terms at such date.

Regulatory capital reporting is required for State Bank only, as the Company is currently exempt from quarterly regulatory capital level measurement pursuant to the Small Bank Holding Company Policy Statement. As of December 31, 2021, State Bank met all regulatory capital levels required to be considered well-capitalized (see Note 18 to the Consolidated Financial Statements).

On May 27, 2021, the Company issued and sold $20.0 million in aggregate principal amount of its 3.65% Fixed to Floating Rate Subordinated Notes due 2031 in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended. The Subordinated Notes 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 Subordinated Notes, the interest rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month Secured Overnight Financing Rate (“SOFR”) provided by the Federal Reserve Bank of New York plus 296 basis points. The proceeds from the Subordinated Notes will be used to assist the Company in meeting various corporate obligations, including share buyback, acquisition costs and organic asset growth. The Subordinated Notes have a maturity of 10 years.

Earnings Summary – 2021 vs. 2020

Net income for 2021 was $18.3 million, or $2.56 per diluted share, compared with net income of $14.9 million, or $1.96 per diluted share, for 2020. State Bank reported net income for 2021 of $18.6 million, which was up from the $16.0 million in net income in 2020. SBFG Title reported net income for 2020 of $0.5 million, which was down from net income of $0.6 million in 2020.

Positive results for 2021 included loan growth
of $18.5 million when excluding the impact of the PPP initiative, and deposit growth of $64.0 million. The Company fully participated
in both phases of PPP, with a total of $111.4 million in loans to over 1,100 clients with revenue of $3.4 million for 2021 compared to
$1.4 million for 2020. The mortgage banking business line continued to contribute significant revenues, with residential real estate loan
production of $600.0 million for the year, resulting in $17.3 million of revenue from gains on sale. The level of mortgage origination
was down from the $694.2 million in 2020. The Company’s loans serviced for others ended the year at $1.36 billion, up from $1.30
billion at December 31, 2020.

39

Operating revenue increased by $2.6 million, or 3.9 percent, from $66.0 million in 2020 to $68.6 million in 2021 due to increased PPP fees and OMSR recapture which offset lower mortgage gain revenue. SBFG Title increased revenue by $0.1 million of $2.1 million for 2021.

Operating expense increased by $1.7 million, or 4.0 percent, from $43.1 million in 2020 to $44.8 million in 2021, due to compensation and fringe benefit cost increases and higher spend on technology/digital initiatives. These expense increases were offset by lower mortgage commission expense due to lower volume.

Results of Operations

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["($ in thousands, except per share data)","","2021","","","2020","","","% Change"],["Total assets","","$","1,330,854","","","$","1,257,839","","","","5.8","%"],["Total investments","","","263,259","","","","149,406","","","","76.2","%"],["Loans held for sale","","","7,472","","","","7,234","","","","3.3","%"],["Loans, net of unearned income","","","822,714","","","","872,723","","","","-5.7","%"],["Allowance for loan losses","","","13,805","","","","12,574","","","","9.8","%"],["Total deposits","","","1,113,045","","","","1,049,011","","","","6.1","%"],["Total operating revenue1","","$","68,581","","","$","66,026","","","","3.9","%"],["Net interest income","","","37,884","","","","35,930","","","","5.4","%"],["Loan loss provision","","","1,050","","","","4,500","","","","-76.7","%"],["Noninterest income","","","30,697","","","","30,096","","","","2.0","%"],["Noninterest expense","","","44,808","","","","43,087","","","","4.0","%"],["Net income","","","18,277","","","","14,944","","","","22.3","%"],["Diluted earnings per share","","","2.56","","","","1.96","","","","30.6","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","1","Operating revenue equals net interest income plus noninterest income."]]
[[/GREPCENT_TABLE]]

Net interest income was $37.9 million for 2021 compared to $35.9 million for 2020, an increase of $2.0 million or 5.4 percent. Average earning assets increased to $1.24 billion in 2021, compared to $1.07 billion in 2020, an increase of $170.7 million or 15.9 percent due to a higher bond portfolio, which offset slightly lower loan volume. The consolidated 2021 full year net interest margin on an FTE basis decreased 30 basis points to 3.06 percent compared to 3.36 percent for the full year of 2020. PPP activity during 2021 increased margin revenue by $3.0 million for the full year of 2021.

Provision for loan losses of $1.0 million was taken in 2021 compared to $4.5 million taken for 2020. For 2021, net recoveries totaled $0.18 million, or (0.02) percent of average loans. This charge off level was significantly lower than 2020, in which net charge offs were $0.68 million or 0.08 percent of average loans.

[[GREPCENT_TABLE]]
[["Noninterest Income","","Years Ended December 31,"],["($ in thousands)","","2021","","","2020","","","% Change"],["Wealth management fees","","$","3,814","","","$","3,245","","","","17.5","%"],["Customer service fees","","","3,217","","","","2,807","","","","14.6","%"],["Gains on sale of residential loans & OMSR\u2019s","","","17,255","","","","25,350","","","","-31.9","%"],["Mortgage loan servicing fees, net","","","2,940","","","","(5,138",")","","","157.2","%"],["Gain on sale of non-mortgage loans","","","158","","","","453","","","","-65.1","%"],["Title Insurance income","","","2,089","","","","1,913","","","","9.2","%"],["Other","","","1,224","","","","1,466","","","","-16.5","%"],["Total noninterest income","","$","30,697","","","$","30,096","","","","2.0","%"]]
[[/GREPCENT_TABLE]]

40

Total noninterest income was $30.7 million for 2021 compared to $30.1 million for 2020, representing an increase of $0.6 million, or 2.0 percent, year-over-year. Although mortgage gain on sale was down from the record year in 2020 by $8.1 million, or 31.9 percent, the Company was able to offset that reduction by recapture of mortgage servicing rights of $3.9 million during 2021. The Company sold $489.4 million of originated mortgages into the secondary market in 2021, which allowed our serviced loan portfolio to grow to $1.36 billion at December 31, 2021 from $1.30 billion at December 31, 2020. The higher servicing balance of the portfolio led to the 5.6 percent increase in mortgage loan servicing income. Sales of non-mortgage loans (small business and farm credits) decreased in 2021 as compared to 2020, as SBA activity continued to be focused on the PPP initiative. The Company expanded its wealth management assets under management to $618.3 million, up $59.9 million, which resulted in a 17.5 percent increase in wealth fee income.

[[GREPCENT_TABLE]]
[["Noninterest Expense","","Years Ended December 31,"],["($ in thousands)","","2021","","","2020","","","% Change"],["Salaries & employee benefits","","$","26,838","","","$","25,397","","","","5.7","%"],["Net occupancy expense","","","3,048","","","","2,891","","","","5.4","%"],["Equipment expense","","","3,281","","","","3,186","","","","3.0","%"],["Data processing fees","","","2,579","","","","3,055","","","","-15.6","%"],["Professional fees","","","3,027","","","","3,307","","","","-8.5","%"],["Marketing expense","","","784","","","","658","","","","19.1","%"],["Telephone and communications","","","581","","","","535","","","","8.6","%"],["Postage and delivery expense","","","414","","","","415","","","","-0.2","%"],["State, local and other taxes","","","1,175","","","","1,146","","","","2.5","%"],["Employee expense","","","663","","","","535","","","","23.9","%"],["Other expense","","","2,418","","","","1,962","","","","23.2","%"],["Total noninterest expense","","$","44,808","","","$","43,087","","","","4.0","%"]]
[[/GREPCENT_TABLE]]

Total noninterest expense was $44.8 million for 2021 compared to $43.1 million for 2020, representing a $1.7 million, or 4.0 percent, increase year-over-year. Total full-time equivalent employees ended 2021 at 269, which was up 25 from year end 2020.

Salaries and benefits were driven by the increase in total full time employees as we filled a number of open positions during the year. We also have seen higher costs in technology as we have continued to add resources and digital options for our clients.

Earnings Summary – 2020 vs. 2019

Net income for 2020 was $14.9 million, or $1.96 per diluted share, compared with net income of $12.0 million and net income available to common of $11.0 million, or $1.51 per diluted share, for 2019. State Bank reported net income for 2020 of $16.0 million, which was up from the $12.5 million in net income in 2020. SBFG Title reported net income for 2020 of $0.6 million, which was up from the $0.3 million in 2019.

Positive results for 2020 included loan growth of $47.2 million, and deposit growth of $208.8 million. The mortgage banking business line continues to contribute significant revenues, with residential real estate loan production of $694.2 million for the year, resulting in $25.4 million of revenue from gains on sale. The level of mortgage origination was up from the $445.3 million in 2019. The Company’s loans serviced for others ended the year at $1.3 billion, up from $1.2 billion at December 31, 2019. The Company realized over $1.4 million in revenue from the PPP initiative.

Operating revenue was up compared to the prior year by $13.2 million, or 25.0 percent, which was impacted by a $3.6 million temporary OMSR impairment. Our 2020 results include the full year impact from SBFG Title with net income of $0.6 million, and SB Captive, with net income of $0.9 million. Net interest margin on a fully tax equivalent basis (“FTE”) for 2020 was 3.36 percent, down 46 basis points from 2019.

Operating expense was up compared to the prior year by $5.7 million, or 15.2 percent, due to compensation and fringe benefit cost increases as a result of higher mortgage commission levels. Operating leverage (growth in revenue divided by growth in operating expense) for the year was a positive 1.6 times.

Net charge offs for 2020 of $0.68 million resulted in a loan loss provision of $4.5 million, compared to net charge offs of $0.21 million and a $0.8 million loan loss provision in 2019.

41

Goodwill, Intangibles and Capital Purchases

The Company completed its most recent annual goodwill impairment review as of December 31, 2021. At December 31, 2021, the Company concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment. The Company’s goodwill is further discussed in Note 8 to the Consolidated Financial Statements.

Management plans to continue from time to time to purchase additional premises and equipment and improve current facilities to meet the current and future needs of the Company’s customers. These purchases will include buildings, leasehold improvements, furniture and equipment. Management expects that cash on hand and cash generated from current operations will fund these capital expenditures and purchases.

Liquidity

Liquidity relates primarily to the Company’s ability to fund loan demand, meet deposit customers’ withdrawal requirements and provide for operating expenses. Sources used to satisfy these needs consist of cash and due from banks, interest-bearing deposits in other financial institutions, securities available-for-sale, loans held for sale and borrowings from various sources. These assets, excluding the borrowings, are commonly referred to as liquid assets. Liquid assets were $422.9 million at December 31, 2021, compared to $303.2 million at December 31, 2020.

The Company does not have material cash requirements for capital expenditures over the next year. Any cash needs for capital requirements would be funded by cash existing at the Company. It is not anticipated that the Company will be required to initiate external borrowings in order to fund ongoing operations.

The Company’s commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolio of $645.1 million at December 31, 2021, can and is readily used to collateralize borrowings, which is an additional source of liquidity. Management believes the Company’s current liquidity level, without these borrowings, is sufficient to meet its current and anticipated liquidity needs. At December 31, 2021, all eligible commercial real estate, residential first, multi-family mortgage and agricultural loans were pledged under a Federal Home Loan Bank (“FHLB”) blanket lien.

Significant additional off-balance-sheet liquidity is available in the form of FHLB advances, unused federal funds lines from correspondent banks and the national certificate of deposit market. Management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings. Based on the current collateralization requirements of the FHLB, approximately $110.5 million of additional borrowing capacity existed at December 31, 2021.

At December 31, 2021 and 2020, the Company had $41.0 million in federal funds lines available. The Company also had $184.9 million in unpledged securities at December 31, 2021 available for additional borrowings.

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 2021 and 2020 follows:

The Company experienced positive cash flows from
operating activities in 2021 and 2020. Net cash from operating activities was $17.3 million and $23.9 million for the years ended December
31, 2021 and 2020, respectively. Significant operating items for 2021 included gain on sale of loans of $17.4 million and net income of
$18.3 million. Cash provided by the sale of loans held for sale were $490.6 million. Cash used in the origination of loans held for sale
were $478.1 million.

The Company experienced negative cash flows from investing activities in 2021 and 2020. Net cash used in investing activities was $72.0 million and $57.2 million for the years ended December 31, 2021 and 2020, respectively. The changes for 2021 include the purchase of available-for-sale securities of $170.7 million, and net decrease in loans of $48.5 million. The changes for 2020 include the purchase of available-for-sale securities of $129.8 million and net increase in loans of $31.7 million. The Company had proceeds from repayments, maturities, sales and calls of securities of $50.5 million and $84.0 million in 2021 and 2020, respectively.

The Company experienced positive cash flows from financing activities in 2021 and 2020. Net cash from financing activities was $63.6 million and $146.9 million for the years ended December 31, 2021 and 2020, respectively. Positive cash flows of $64.0 million and $157.7 million is attributable to the change in deposits for 2021 and 2020, respectively.

42

The
Company 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 -100 basis points to +400 basis points. The results of this analysis
are reflected in the following table.

[[GREPCENT_TABLE]]
[["Economic Value of Equity"],["December 31, 2021"],["($ in thousands)"],["Change in rates","","$ Amount","","","$ Change","","","% Change"],["+400 basis points","","$","278,254","","","$","35,684","","","","14.71","%"],["+300 basis points","","","273,190","","","","30,620","","","","12.62","%"],["+200 basis points","","","265,711","","","","23,142","","","","9.54","%"],["+100 basis points","","","256,110","","","","13,540","","","","5.58","%"],["Base Case","","","242,570","","","","-","","","","-"],["-100 basis points","","","217,281","","","","(25,289",")","","","-10.43","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Economic Value of Equity"],["December 31, 2020"],["($ in thousands)"],["Change in rates","","$ Amount","","","$ Change","","","% Change"],["+400 basis points","","$","243,779","","","$","61,586","","","","33.80","%"],["+300 basis points","","","231,590","","","","49,398","","","","27.11","%"],["+200 basis points","","","217,936","","","","35,743","","","","19.62","%"],["+100 basis points","","","202,260","","","","20,067","","","","11.01","%"],["Base Case","","","182,193","","","","-","","","","-"],["-100 basis points","","","154,509","","","","(27,684",")","","","-15.19","%"]]
[[/GREPCENT_TABLE]]