OVERVIEW

The Company has continued its tremendous start to 2022 by carrying forward the
momentum from 2021. The first six months have been the first post-acquisitions
months since the acquisitions of Ossian and Perpetual which gives us a picture
of our core business going forward. Organic loan growth increased 19.9%, which
excludes acquisition and PPP balances, on a year-over-year basis with second
quarter being the fourth consecutive quarter with organic loan growth greater
than 10%.

On April 1st, the Bank officially celebrated its 125th birthday in each of the
locations with management delivering treats for employees and customers. A
committee has been formed within the Bank to promote the Bank's birthday and
continue the celebration with special events throughout the year. In July, in
conjunction with the five year anniversary of being traded on NASDAQ, the
Company will ring the closing bell in New York.

On June 14th, Farmers & Merchants Bancorp, Inc., entered into an Agreement and
Plan of Merger with Peoples-Sidney Financial Corporation, a Delaware corporation
("PPSF"), which provides for the merger of PPSF with and into F&M and the merger
of PPSF's wholly-owned banking subsidiary, Peoples Federal Savings and Loan
Association ("Peoples Bank"), with and into F&M's wholly-owned banking
subsidiary, The Farmers & Merchants State Bank ("F&M Bank"). All of the
outstanding shares of PPSF's common stock will be converted into the right to
receive the cash or stock consideration as described in, and subject to, the
terms and conditions of the Merger Agreement. Refer to Note 9 Proposed Business
Combination for additional detail on the merger.

F&M Commercial Banking Division entered the second quarter 2022 with a strong
loan pipeline and demand throughout F&M's footprint.  Client performance results
from 2021 and year to date 2022 remain good. As second quarter 2022 came to an
end, client concerns about availability of workforce, interruptions and delays
in the supply chain and concerns over energy prices remained.  Rising interest
rates were also a concern for clients, but to date have not dramatically slowed
commercial activity. Credit quality of the portfolio remains good, past dues and
delinquencies remained low at the end of the quarter.  Second quarter fee income
remained solid and kept pace with first quarter.

The agriculture sector saw favorable planting conditions for 2022, and growing
conditions have been acceptable to date. Commodity prices remain high and at
levels that remain profitable for our farm customers. Our ag clients are closely
watching higher input costs and potential supply issues. Agri-business continues
to remain stable. With rising interest rates, it is anticipated that our clients
will carefully evaluate borrowing decisions. The agriculture portfolio remains
sound.

Home loan rates have continued to increase and the volume of refinancing loans
has slowed as compared to the same time in 2021. Turn times have become more
manageable and the Bank is focusing on home equity lines as an opportunity for
growth. Limited inventory and the demand for homes remain strong. During the
quarter, 266 loans, including home equity and lines of credit, were closed
totaling $32.1 million which compares to 297 loans and $33.0 million during the
second quarter in 2021. The second quarter gain on 1-4 family mortgage sales was
down by approximately 64.3% compared to second quarter 2021. According to
ATTOM's latest home affordability analysis, the portion of average wages
required for major home-ownership expenses nationwide rose in Q2 2022 to 31.5
percent, as the median price of a single-family home hit a new high
of $349,000 and 30-year mortgage rates shot up above 5 percent. Increased lumber
prices have impacted remodeling costs and new construction; however, we have
seen input prices begin to decrease.

Net interest earnings increased by $10.6 million as compared to first six months
of 2021. The improvement was primarily due to growth in the balance sheet as the
Company continues to operate in the low rate environment following the national
prime rate drop of 150 basis points in the first quarter of 2020. Interest rates
have increased as the national prime rate increased 25 basis points this March,
50 basis points in May and 75 basis points in June. Year to date net interest
margin increased 3 basis points compared to year to date 2021. For second
quarter, net interest margin increased 26 basis points compared to same quarter
prior year and 33 basis points compared to first quarter 2022.  The asset yield
increased by 2 basis points compared to prior year to date, 26 basis points for
second quarter compared to prior year second quarter and 32 basis points
compared to first quarter 2022. Loan interest for 2021 included the impact of
the PPP origination fees. Cost of funds decreased 4 basis points on a year to
date basis, remained constant when comparing second quarter 2022 to prior year
second quarter and decreased 1 basis point when comparing second quarter to
first quarter 2022. Interest expense has been positively impacted with the time
deposit and FHLB borrowing accretions resulting from the acquisitions as a
reduction to interest expense. Further discussion of the balance sheet
composition movements and the impact on the earnings can be viewed in the
Material Results of Operations section that follows.

Net income improved 65.5% in comparing the first half of 2022 to the first half
of 2021 and earnings per share increased 42.0% in the same comparison. The
higher net income was mainly driven by higher interest income. Interest income
on a

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year to date basis increased 33.6% or $11.5 million compared to 2021. Interest
income included $776 thousand of net loan accretion income resulting from the
acquisitions year to date and $403 thousand for second quarter. As mentioned
previously, interest expense was offset by acquisition accretions for time
deposits and FHLB borrowings which equaled $1.3 million year to date and $640
thousand for the quarter. Interest expense increased by 26.8% and $881 thousand
on a year to date basis compared to first six months 2021 on 33.0% higher
average balances in 2022. Provision expense decreased $133 thousand. Noninterest
income decreased 15.0% or $1.4 million over the same period 2021. Decreased gain
on sales of both 1-4 family mortgage loans and fixed rate agricultural loans
along with gain on sale of available-for-sale securities were the biggest
contributors. 1-4 family mortgage activity remains strong though has slowed
compared to 2021 activity. We expect additional slowing in 2022 as refinancing
has slowed, housing prices had increased, inventory of available homes is low
due to quick turnover throughout most of the Bank's market area due to the
increase in interest rates. The Bank has increased the number of Home Loan
Originators (HLOs) due to a larger footprint which we hope stabilizes the
activity. Noninterest expenses increased $1.3 million or 5.1% with salaries and
wages increasing $1.9 million.

The Company has worked diligently to manage during volatile times and the
increase in our size and footprint has helped establish diversity of revenue
streams and insulate our earnings. While we report and recognize the many
one-time costs incurred by our strategic focus, we continue to realize the
long-term benefits of our strategies. Our historical prudent approach to lending
has continued to demonstrate its benefits in our credit quality. Past dues over
30 days as of June 30, 2022 were 0.20% of total loans outstanding. We continue
to strengthen relationships with our customers, employees, shareholders and
communities in support of our mission to "help people live their best lives."
The Company remains well capitalized and plans to continue in our strategic
vision of expansion to be a $3 billion bank by the end of 2022.

TYPE OF ACTIVITIES

Farmers & Merchants Bancorp, Inc. (the "Company") is a financial holding company
incorporated under the laws of Ohio in 1985. Our subsidiaries are The Farmers &
Merchants State Bank (the "Bank"), a local independent community bank that has
been primarily serving Northwest Ohio and Northeast Indiana since 1897, and
Farmers & Merchants Risk Management, Inc., a captive insurance company formed in
December 2014 and located in Nevada. We report our financial condition and net
income on a consolidated basis and we have only one segment.

Our executive offices are located at 307 North Defiance Street, Archbold, Ohio
43502, and our telephone number is (419) 446-2501. The Bank operates thirty
full-service banking offices throughout Northwest Ohio and Northeast Indiana and
a drive-up facility in Archbold. The Bank also operates four Loan Production
Offices (LPOs), two in Ohio and one in Indiana and Michigan.

The Farmers & Merchants State Bank engages in general commercial banking and
savings business including commercial, agricultural and residential mortgage,
consumer and credit card lending activities. The largest segment of the lending
business relates to commercial, both real estate and non-real estate. The type
of commercial business ranges from small business to multi-million dollar
companies. The loans are a reflection of business located within the Banks'
market area. Because the Bank's offices are primarily located in Northwest Ohio
and Northeast Indiana, a substantial amount of the loan portfolio is comprised
of loans made to customers in the farming industry for such items as farm land,
farm equipment and operating loans for seed, fertilizer, and feed. Other types
of lending activities include loans for home improvements, and loans for the
purchase of autos, trucks, recreational vehicles, motorcycles, and other
consumer goods.

The Bank also provides checking account services, as well as savings and time
deposit services such as certificates of deposits. In addition, Automated Teller
Machines (ATMs) or Interactive Teller Machines (ITMs) are provided at most
branch locations along with other independent locations in the market area. ITMs
operate as an ATM with the addition of remote teller access to assist the
user. The Bank has custodial services for Individual Retirement Accounts (IRAs)
and Health Savings Accounts (HSAs). The Bank provides on-line banking access for
consumer and business customers. For consumers, this includes bill-pay, on-line
statement opportunities and mobile banking. For business customers, it provides
the option of electronic transaction origination such as wire and Automated
Clearing House (ACH) file transmittal. In addition, the Bank offers remote
deposit capture or electronic deposit processing and merchant credit card
services. Mobile banking was added in 2012 and has been widely accepted and used
by consumers. Upgrades to our digital products and services continue to occur in
both retail and business lines. The Bank continues to offer new suites of
products as customer preferences change and the Bank adapts and adopts new
technologies. The Bank continues to offer products that also meet the needs of
our more traditional customers.

The Bank has established underwriting policies and procedures which facilitate
operating in a safe and sound manner in accordance with supervisory and
regulatory guidance. Within this sphere of safety and soundness, the Bank's
practice has been to not promote innovative, unproven credit products which may
not be in the best interest of the Bank or its customers. The Bank does offer a
hybrid mortgage loan. Hybrid loans are loans that start out as a fixed rate
mortgage but after a set

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number of years automatically adjust to an adjustable rate mortgage. The Bank
offers a three year, a five year and a seven year fixed rate mortgage after
which the interest rate will adjust annually. In order to offer longer term
fixed rate mortgages, the Bank does participate in the Freddie Mac, Farmer Mac
and Small Business Lending programs. The Bank also normally retains the
servicing rights on these partially or 100% sold loans. In order for the
customer to participate in these programs they must meet the requirements
established by those agencies. In addition, the Bank does sell some of its
longer term fixed rate agricultural mortgages into the secondary market with the
aid of brokers. With the acquisition in the 4th quarter of 2021, the Bank saw an
increase in fixed rate, long-term mortgage loans to our portfolio from that
banking service area.

The Bank does not have a program to fund sub-prime loans. Sub-prime loans are
characterized as a lending program or strategy that targets borrowers who pose a
significantly higher risk of default than traditional retail banking customers.

All loan requests are reviewed as to credit worthiness and are subject to the
Bank's underwriting guidelines as to secured versus unsecured credit. Secured
loans are in turn subject to loan to value (LTV) requirements based on
collateral types as set forth in the Bank's Loan Policy. In addition, credit
scores of those seeking consumer credit are reviewed and if they do not meet the
Bank's Loan Policy guidelines an additional officer approval is required.

Consumer loans:

         •  Maximum loan to value (LTV) for cars, SUVs, and trucks is 110%
            depending on whether direct or indirect.


  • Loans above 100% are generally the result of sales tax.


• Boats, motorhomes, motorcycles, motorhomes and coaches vary from 80% to 90%

            based on age of vehicle.


  • 1st or 2nd mortgages on 1-4 family homes maximum range from 80-85%.


         •  Raw land LTV maximum ranges from 65%-75% depending on whether or not
            the property has been improved.

Trade/Agriculture:

Accounts Receivable:

• Up to 80% LTV less holdbacks and over 90 days.


Inventory:
  • Agriculture:


                o  Livestock and grain up to 80% LTV, crops (insured) up to 75%
                   and Warehouse Receipts up to 87%.


  • Commercial:


  o Maximum LTV of 50% on raw and finished goods.


  • Floor plan:


  o New/used vehicles to 100% of wholesale.


  o New/Used recreational vehicles and manufactured homes to 80% of wholesale.


Equipment:
           •  New NTE 80% of invoice, used NTE 50% of listed book or 75% of
              appraised value.


  • Restaurant equipment up to 35% of market value.


           •  Heavy trucks, titled trailers NTE 75% LTV and aircraft up to 75% of
              appraised value.


Immovable:

  • Maximum LTVs range from 70%-80% depending on type.


  • Maximum LTV on non-traditional loan up to 85%.


FM Investment Services, the brokerage department of the Bank, opened for
business in April 1999. Securities are offered through Raymond James Financial
Services, Inc. In November of 2020, FM Investment Services purchased the assets
and clients of Adams County Financial Resources (ACFR) which is discussed in
further detail in Note 2 to the Company's financial statements. Securities are
offered through Raymond James Financial Services, Inc.

In December of 2014, the Company became a financial holding company within the
meaning of the Bank Holding Company Act of 1956 as amended (the "Act"), in order
to provide the flexibility to take advantage of the expanded powers available to
a financial holding company under the Act. Our subsidiary bank is in turn
regulated and examined by the Ohio Division of Financial Institutions and the
Federal Deposit Insurance Corporation. The activities of our bank subsidiary are
also subject to other federal and state laws and regulations. The Company also
formed a captive insurance company (the "captive") in December 2014 which is
located in Nevada and regulated by the State of Nevada Division of Insurance.

The Bank's primary market includes communities located in the Ohio counties of
Champaign, Defiance, Fulton, Hancock, Henry, Lucas, Williams, Wood and in the
Indiana counties of Adams, Allen, DeKalb, Jay, Steuben and Wells. In our banking
activities, we compete directly with other commercial banks, credit unions, farm
credit services, and savings and loan institutions in each of our operating
localities. In a number of our locations, we compete against entities which are
much larger

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that we. The main competitive factors for loans and deposits are the rates charged as well as the location and quality of services provided.

At June 30, 2022, we had 390 full time equivalent employees. The employees are
not represented by a collective bargaining unit. We provide our employees with a
comprehensive benefit program, some of which is contributory. We consider our
employee relations to be good.

RECENT REGULATORY DEVELOPMENTS

The Bank remains attentive to the current regulatory environment in light of the
regulatory agencies' risk-based approach to examinations. Regulatory changes and
the complexity of new and amended rules have resulted in challenges and
uncertainties which could pose an increased risk of noncompliance. Various
significant mortgage rules require monitoring by means of testing, validation of
results, additional training, and further research or consultation to assist
with ongoing compliance.

The global spread of the Coronavirus (COVID-19) and resulting declaration of a
world-wide pandemic have impacted the financial services industry and banking
operations in the United States (US) and world-wide. The financial services
sector is identified as a Critical Infrastructure Sector by the Department of
Homeland Security during the COVID-19 response efforts. How basic business
operations can be conducted has undergone a rapid and dramatic change. At the
same time continuity of business operations involves promoting safety and
security of customers and employees, providing a quality customer experience,
and maintaining effective delivery systems and channels of communication.
Regulatory guidance has been issued to manage and mitigate the unprecedented
impact of the COVID-19 pandemic on business operations. Regulatory agencies
promote prudent and practical efforts to assist customers and communities during
this national emergency. Such assistance to alleviate the financial impact on
affected customers involved modification of loan terms for existing borrowers,
waiver of certain fees and charges, providing small dollar loans, and offering
forbearance and payment deferrals on mortgage loan obligations due to financial
hardship. Legislation enacted in March 2020 has provided the CARES Act. The
CARES Act, among other matters, resulted in expansion of SBA Lending Programs;
provided for a financial election to suspend GAAP principles and regulatory
determinations for COVID-19 related loan modifications that would otherwise be
deemed Troubled Debt Restructuring; gave the FDIC authority to establish a
temporary Debt Guarantee Program for bank liabilities; delayed Current Expected
Credit Losses (CECL) compliance; reduced the Community Bank Leverage Ratio to 8%
to eliminate risk-based capital compliance for banks under $10 billion; required
credit furnishers that agree to deferred loan payments, forbearance on a
delinquent account, or any other relief during the national emergency to report
accounts as current to Credit Reporting Agencies; and defined forbearance
requirements and terms for single family and multi-family loans backed by
federal government agencies or government sponsored entities due to COVID-19
financial hardship. Of immediate and significant importance was the rollout of
the SBA Paycheck Protection Program (PPP). The PPP authorized lending of up to
$350 billion in 100% guaranteed 7(a) loans to cover payroll costs, interest on
mortgage payments, rent obligations, and utilities. The PPP provided a
guaranteed loan for which a portion of the loan up to or equal to 8 weeks of
covered payroll and specific operating expenses can be forgiven. The maximum
loan size was capped at the lessor of 250% of the average monthly payroll costs
or $10 million.

In April 2020, legislation known as the Paycheck Protection Program and Health
Care Enhancement Act provided additional funding to replenish and supplement key
programs under the CARES Act. Included in this legislation was the extension of
the PPP with an additional $320 billion in funding. At least $60 billion of this
funding was to be set aside for small and midsize banks and community lenders.
Since April, the SBA has issued various Interim Final Rules to supplement and
clarify matters involving the PPP. The Paycheck Protection Program Flexibility
Act of 2020 (PPPFA) was enacted in early June 2020. This provided more
flexibility to Borrowers regarding use of PPP loan funds. Certain provisions
were retroactive to the date of the CARES Act and all PPP loans. Among these
provisions were the extension of the covered period of the loan, extension of
the forgiveness period, deferral of payments based on the loan forgiveness
period, reduction in the minimum that must be spent for payroll costs, extended
date by which employees must be rehired, and removal of restrictions on payroll
tax deferral. The term for subsequent PPO loans made after enactment of the
PPPFA was extended to five years from two. A primary focus is now directed to
aiding PPP borrowers in navigating the loan forgiveness process.

FFCRA requirements to provide paid leave to employees ended on December 31,
2020. Due to the extended duration of the COVID-19 pandemic, employers subject
to FFCRA could voluntarily extend the paid leave option until March 31, 2021. If
the employer has elected to voluntarily apply the FFCRA extension, employees
eligible for leave in 2020 and did not use the leave may take the leave in
2021. Under the American Rescue Plan of 2021 enacted in March 2021, for those
employers who voluntarily extend the paid leave option, paid leave was reset
starting April 1, 2021. If employees previously exhausted their paid leave under
FFCRA, they may be entitled to an additional 10 days/80 hours for use.
Additionally, the PPP was reauthorized with passage of the Economic Aid to
Hard-Hit Small Businesses, Nonprofits, and Venues Act. It was originally

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intended to run through March 31, 2021 and was subsequently extended to May 31,
2021. Under the new legislation, $284 billion in funding for first and
second-time PPP loan borrowers was provided to the SBA. Three categories of
businesses are eligible to apply for PPP: 1) qualified business that did not
receive a PPP loan during the first funding round; 2) previous PPP loan
recipients who need a second loan and meet certain criteria; previous PPP loan
recipients who returned all or a portion of their original loans and want to
apply to additional funding. To be eligible, any business applying for PPP must
have been in operation since at least February 15, 2020. Specific eligibility
criteria apply to first-time PPP borrowers and previous PPP loan recipients. For
2021, PPP provides expanded coverage for expenditures in addition to covered
payroll and specific operating expenses. For second-time loan recipients, the
maximum loan amount was reduced from $10 million to $2 million. A loan recipient
is eligible for full loan forgiveness if at least 60% of the loan amount is
spent on payroll costs. Funds must be spent over a covered period of the loan
recipients' choosing between eight and 24 weeks after loan origination to be
eligible for forgiveness. Depending on the continued duration of COVID-19
spread, further legislation and regulatory guidance may continue due to the
economic impact on customers, businesses, communities, and industry sectors.

The Coronavirus Response and Relief Supplemental Appropriations Act, passed by
Congress in December 2020, extended certain provisions of the CARES Act
affecting the Company into 2021. Key banking provisions under this legislation
include the following:
         •  Provided an additional $284.6 billion in Paycheck Protection Program
            (PPP) funding for loans to small businesses, including for borrowers
            who have previously received a PPP loan.


  • A one-page simplified forgiveness process for PPP loans under $150,000.


         •  Clarification to various CARES Act provisions, the tax treatment of
            PPP expenses, lender responsibilities for agent fees, and

lender

            harmless" protections under the PPP and other laws.


• A further deferral of the recognition of the Troubled Debt Restructuring (TDR) until

            60 days after the termination of the national emergency, or 

January 1st,

            2022. During third quarter 2021, there was one loan 

changes for

            $3.1 million that would have been previously treated as TDR under the
            guidance in ASC 310-40.


         •  A further optional delay in Current Expected Credit Loss (CECL)
            accounting until January 1, 2022.


         •  A new round of Economic Impact Payments (EIPs) for consumers, with
            aggressive distribution timelines and new exemptions from
            garnishments.


         •  Significant added support for Community Development Financial
            Institutions (CDFIs) and Minority Depository Institutions (MDIs).

• Funding for farm support programs and tenant assistance programs.


         •  Termination of existing Federal Reserve emergency lending authority
            under the CARES Act, while preserving the Fed's general 13(3)
            emergency authority existing prior to that Act.



In December 2020, new Qualified Mortgage (QM) Definition rules were issued by
the Consumer Financial Protection Bureau. One set of rules revised the General
QM definition and another set added the definition of a Seasoned QM Loan. Both
QM Loan rules had an effective date of March 1, 2021. The revised General QM
rule replaced the General QM loans definition of a 43% debt-to-income (DTI)
limit with a focus on the loan pricing and whether the Annual Percentage Rate
exceeds the average prime offer rate by less than 2.25 percentage points.
Compliance with the revised General QM Loan rule had a mandatory compliance date
of July 1, 2021. The existing Temporary Government Sponsored Entity (GSE) QM
option was set to expire as of the mandatory compliance date for the revised
General QM Rule. Subsequently, the CFPB issued a final rule published in the
Federal Register on April 30, 2021 which delayed and extended the mandatory
compliance date for the revised General QM rule to October 1, 2022. At the
present time, the Company has the option to comply with either the original
DTI-based General QM Loan definition or the revised price-based new General QM
Loan definition. Since the Company sells fixed rate consumer mortgage loans to
the Federal Home Loan Mortgage Corporation, it must remain attentive to their
current loan underwriting requirements and how they evolve in the extended
interim period.

With regard to all regulatory matters, the Bank remains committed in making good
faith efforts to comply with technical requirements of the laws, rules,
regulations, and guidance from both federal and state agencies which govern its
activities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, and
the Company follows general practices within the financial services industry in
which it operates. At times the application of these principles requires
management to make assumptions, estimates and judgments that affect the amounts
reported in the financial statements and accompanying notes.

These assumptions, estimates and judgments are based on the information available at the date of the financial statements. As this information changes, the financial statements may reflect different assumptions, estimates and judgments. Certain

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policies inherently have a greater reliance on assumptions, estimates and
judgments and as such have a greater possibility of producing results that could
be materially different than originally reported. Examples of critical
assumptions, estimates and judgments are when assets and liabilities are
required to be recorded at fair value, when a decline in the value of an asset
not required to be recorded at fair value warrants an impairment write-down or
valuation reserve to be established, or when an asset or liability must be
recorded contingent upon a future event. These policies, along with the
disclosures presented in the notes to the condensed consolidated financial
statements and in the management discussion and analysis of the financial
condition and results of operations, provide information on how significant
assets and liabilities are valued and how those values are determined for the
financial statements. Based on the valuation techniques used and the sensitivity
of financial statement amounts to assumptions, estimates, and judgments
underlying those amounts, management has identified the determination of the
ALLL, the valuation of its Mortgage Servicing Rights and the valuation of real
estate acquired through or in lieu of loan foreclosures ("OREO Property") as the
accounting areas that require the most subjective or complex judgments, and as
such could be the most subject to revision as new information becomes available.

OREO Property held for sale is initially recorded at fair value at the date of
foreclosure. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of cost or fair value minus
estimated costs to sell.

Costs of holding foreclosed real estate are charged to expense in the current
period, except for significant property improvements, which are capitalized.
Valuations are periodically performed by management and a write-down is recorded
by a charge to non-interest expense if the carrying value exceeds the fair value
minus estimated costs to sell.

Net income from transactions of foreclosed real estate held for sale is reported as either non-interest income or non-interest expense, depending on whether the property is overall in a gain or loss position. To June 30, 2022
there was no Heritage OREO. OREO totaled $159,000 and $198,000 of the December 31, 2021 and June 30, 2021 respectively.

The ALLL and ACL represents management's estimate of probable credit losses
inherent in the Bank's loan portfolio, unfunded loan commitments, and letters of
credit at the report date. The ALLL methodology is regularly reviewed for its
appropriateness and is approved annually by the Board of Directors. This written
methodology is consistent with Generally Accepted Accounting Principles which
provides for a consistently applied analysis.

The Bank's methodology provides an estimate of the probable credit losses either
by calculating a specific loss per credit or by applying a composite of
historical factors over a relevant period of time with current internal and
external factors which may affect credit collectability. Such factors which may
influence estimated losses are the conditions of the local and national economy,
local unemployment trends, and abilities of lending staff, valuation trends of
fixed assets, and trends in credit delinquency, classified credits, and credit
losses.

Inherent in most estimates is imprecision. The Bank's ALLL may include a margin
for imprecision with an unallocated portion. Bank regulatory agencies and
external auditors periodically review the Bank's methodology and adequacy of the
ALLL. Any required changes in the ALLL or loan charge-offs by these agencies or
auditors may have a material effect on the ALLL. For more information regarding
the estimates and calculations used to establish the ALLL please see Note 4 to
the consolidated financial statements provided herewith.

The Bank is also required to estimate the value of its mortgage servicing
rights. The Bank's mortgage servicing rights relating to fixed rate
single-family mortgage loans that it has sold without recourse but services for
others for a fee represent an asset on the Bank's balance sheet. The valuation
is completed by an independent third party.

The expected and actual rates of mortgage loan prepayments are the most
significant factors driving the potential for the impairment of the value of
mortgage servicing assets. Increases in mortgage loan prepayments reduce
estimated future net servicing cash flows because the life of the underlying
loan is reduced.

The Bank's mortgage servicing rights relating to loans serviced for others
represent an asset. This asset is initially capitalized and included on the
Company's consolidated balance sheet. The mortgage servicing rights are then
amortized as noninterest expense in proportion to, and over the period of the
estimated future net servicing income of the underlying mortgage servicing
rights. There are a number of factors, however, that can affect the ultimate
value of the mortgage servicing rights to the Bank. The expected and actual
rates of mortgage loan prepayments are the most significant factors driving the
potential for the impairment of the value of mortgage servicing assets.
Increases in mortgage loan prepayments reduce estimated future net servicing
cash flows because the life of the underlying loan is reduced, meaning that the
present value of the mortgage servicing rights is less than the carrying value
of those rights on the Bank's balance sheet. Therefore, in an attempt to reflect
an accurate expected value to the Bank of the mortgage servicing rights, the
Bank receives a valuation of its mortgage servicing rights from an independent
third party. The independent third party's valuation of the mortgage servicing
rights is

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based on relevant characteristics of the Bank's loan servicing portfolio, such
as loan terms, interest rates and recent national prepayment experience, as well
as current national market interest rate levels, market forecasts and other
economic conditions. For purposes of determining impairment, the mortgage
servicing assets are stratified into like groups based on loan type, term, new
versus seasoned and interest rate. Management, with the advice from its
third-party valuation firm, reviewed the assumptions related to prepayment
speeds, discount rates, and capitalized mortgage servicing income on a quarterly
basis. Changes are reflected in the following quarter's analysis related to the
mortgage servicing asset. In addition, based upon the independent third party's
valuation of the Bank's mortgage servicing rights, management then establishes a
valuation allowance by each stratum, if necessary, to quantify the likely
impairment of the value of the mortgage servicing rights to the Bank. The
estimates of prepayment speeds and discount rates are inherently uncertain, and
different estimates could have a material impact on the Bank's net income and
results of operations. The valuation allowance is evaluated and adjusted
quarterly by management to reflect changes in the fair value of the underlying
mortgage servicing rights based on market conditions. The accuracy of these
estimates and assumptions by management and its third party valuation specialist
can be directly tied back to the fact that management has only been required to
record minor valuation allowances through its income statement over time based
upon the valuation of each stratum of servicing rights.

MATERIAL CHANGES IN FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

The Company plans to continue in its growth mode in 2022 led by loan growth from
within our newer markets. The Bank is focused on funding the loan growth with
the least expensive source of deposits, sale of securities or borrowings.
Growing deposits will also be a focus especially in our newer markets. The Bank
offers the Insured Cash Sweep ("ICS") product accessed through the Promontory
network of financial institutions which helps to reduce the amount of pledged
securities. This has provided more availability for runoff of securities by the
Bank if warranted to fund loan growth.

Liquidity in terms of cash and cash equivalents ended $109.4 million lower as of
June 30, 2022 than it was at yearend December 31, 2021. Prior year's excess
liquidity along with an increase in deposits of $30.6 million helped to fund the
$175.2 million increase in net loans since year end 2021. All loan portfolios
with the exception of the consumer and other portfolios increased compared to
December 31, 2021 with the largest increase in the commercial real estate
portfolio.

In comparing to the same prior year period, the June 30, 2022 (net of deferred
fees and cost) loan balances of approximately $2.0 billion accounted for $576.4
million or 39.5% increase when compared to 2021's $1.5 billion. The year over
year improvement was made up of a combined increase of 50.7% in commercial and
industrial related loans (comprised of 41.7% in commercial real estate loans and
9.0% in non-real estate commercial loans). PPP loans of approximately $8
thousand and $47.1 million are included in the non-real estate commercial
portfolio as of June 30, 2022 and June 30, 2021, respectively. Consumer real
estate loans increased by 111.0% and other loans by 130.6%. Consumer loans
decreased by 1.6%. Agricultural related loans increased 31.6% year over year
(comprised of 5.4% in agricultural real estate and 26.2% in non-real estate
agricultural loans). The Company credits the growth not only to the OFSI and
PFSB acquisitions but also to the strong team of lenders focused on providing
customers valuable localized services and thereby increasing our market share.

The graph below presents the breakdown of the category of the loan portfolio in
June 30thfor the last three years, net of deferred costs and charges.

                                                                  (In Thousands)
                                               June 30, 2022       June 30, 2021       June 30, 2020
                                                  Amount              Amount              Amount
Consumer Real Estate                          $       410,468     $       194,574     $       173,615
Agricultural Real Estate                              199,650             189,426             194,310
Agricultural                                          127,340             100,905             107,615
Commercial Real Estate                                977,588             689,728             588,176
Commercial and Industrial                             232,881             213,707             221,034
Consumer                                               55,648              56,534              50,259
Other                                                  31,243              13,549               9,714

Total loans, net of fees and deferred costs $2,034,818 $1,458,423 $1,344,723

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Here is a contractual schedule by major category of loans excluding fair value adjustments at June 30, 2022.

                                           (In Thousands)
                                            After One
                             Within        Year Within         After
                            One Year       Five Years        Five Years
Consumer Real Estate        $   6,903     $      32,255     $    375,256
Agricultural Real Estate        1,581             6,838          191,897
Agricultural                   66,263            37,602           23,305
Commercial Real Estate         37,643           298,161          643,569
Commercial and Industrial      92,114            84,318           57,302
Consumer                        2,163            37,422           15,921
Other                             247             1,451           29,553



While the security portfolio has been utilized to fund loan growth for the last
three years, additional sources have been cultivated during 2020, 2021, and
2022. The security portfolio decreased $30.2 million in the first six months of
2022 from year end 2021 due to an increase of gross unrealized losses of $35.5
million. The security portfolio decreased $7.8 million from June 2021 due to an
increase of gross unrealized losses of $40.5 million. The amount of pledged
investment securities increased by $15.0 million as compared to year end and
$51.6 million as compared to June 30, 2021. Liquidity is improved with the
additional option of selling unpledged investment securities if needed to fund
loan growth or other initiatives. As of June 30, 2022, pledged investment
securities totaled $130.0 million. The current portfolio is in a net unrealized
loss position of $39.6 million.

For the Bank, an additional $68.3 million is also available from the Federal
Home Loan Bank based on current amounts of pledged collateral. At the present
time, only 1-4 family and home equity portfolios are pledged. Additional
borrowings would be available if additional portfolios (i.e. commercial real
estate) were pledged.

On July 30, 2021, the Company announced the completion of a private placement of
$35 million aggregate principal amount of its 3.25% fixed-to-floating rate
subordinated notes due July 30, 2031 (the "Notes") to various accredited
investors (the "Offering"). The price for the Notes was 100% of the principal
amount of the Notes. The Notes qualify as Tier 2 capital for regulatory purposes
in proportionate amounts until July 30, 2026. The Company used the net proceeds
from the Offering for general corporate purposes, including financing
acquisitions and organic growth.

Due to the funding requirement for the acquisition of PFSB to be provided from
the holding company, the Company secured borrowings from a correspondent bank.
Two loans were secured, the first a $30 million 12-month term note and the
second a 12-month line of credit for $10 million. Both loans were advanced on
October 1, 2021. Interest on both loans is due quarterly and accrues at a rate
2.50% per annum with reporting and capital covenants included. The structure of
the acquisition required all accounting of the transaction to be recorded at the
Bank level as Perpetual did not have a holding company. Therefore, the Company
advanced funds from the Bank to the Company to facilitate payoff of the term
note. The term note and the line of credit balance were paid off in the second
quarter of 2022. The line of credit remains open for future liquidity needs.

With the exception of FHLB shares, recorded at cost, which are presented as other securities, the Company’s entire securities portfolio is classified as “available for sale” and, as such, is recorded at fair value. .

Management feels confident that liquidity needs for future growth can be met
through additional maturities and/or sales from the security portfolio,
increased deposits and additional borrowings. For short term needs, the Bank has
$69 million of unsecured borrowing capacity through its correspondent banks as
of June 30, 2022 and June 30, 2021. The Bank also had access to $130.4 million
and $94.2 million through a Cash Management Advance with the Federal Home Loan
Bank as of June 30, 2022 and June 30, 2021, respectively.

Overall total assets increased 1.4% since year end 2021 and grew 23.4% since
June 30, 2021. The largest growth in both periods was in the loan
portfolios. Securities and goodwill also increased significantly compared to
June 30, 2021. Refer to Note 2 for information on assets acquired from OFSI and
PFSB.

Federal Home Loan Bank advances accounted for the largest growth within
liabilities, up 77.2% or $18.6 million since year end and 138.6% or $24.8
million over June 30, 2021 balances. Deposits also experienced growth, up 1.4%
or $30.6 million since year end 2021 and 20.0% or $370 million over June 30,
2021. Refer to Note 2 for information on liabilities acquired

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from OFSI and PFSB. The growth of deposits correlated to a flight to safety as
the stock market continues to experience some volatility. Core deposits continue
to drive the increase which provide the opportunity to generate additional
noninterest income. This growth aided the Company's liquidity position and
helped to fund the loan growth for the periods along with usage of Federal Home
Loan Bank advances and federal funds purchased.

Shareholders' equity decreased by $16.3 million as of the second quarter of 2022
compared to year end 2021. Earnings exceeded dividend declarations during the
six months ended June 30, 2022. Accumulated other comprehensive loss increased
in unrealized loss position by $28.1 million from December 2021 to an unrealized
loss of $31.3 million on June 30, 2022. The increase in unrealized loss position
has no impact on regulatory tangible book price. The available-for-sale security
portfolio is used as a protection to falling rates. If there is an unrealized
loss in our security portfolio due to rising interest rates, it bodes well for
our adjustable rate loan portfolio and new loan production to price
up. Dividends declared increased over the previous quarter by $0.0125 per share
to $0.2025 per share from $0.19 per share. Compared to June 30, 2021,
shareholders' equity increased 12.1% or $30.3 million mostly attributable to the
issuance of stock in the Perpetual acquisition as discussed in Note 2. Profits
were higher year to date June 2022 than year to date June 2021 by $6.5 million.

Basel III regulatory capital requirements became effective in 2016. The Bank and
Company include a capital conservation buffer as a part of the transition
provision. For calendar year 2016, the applicable required capital conservation
buffer percentage of 0.625% was the base above which institutions avoid
limitations on distributions and certain discretionary bonus payments. The total
buffer requirement increased to 2.5% for calendar year 2019. As of June 30,
2022, the Company and the Bank are both positioned well above the 2019
requirement.

The holding company has sufficient liquidity to maintain its dividend policy without depending on the amount of the Bank’s dividends.

The Bank continues to be well capitalized at June 30, 2022 in accordance with federal regulatory capital requirements, as shown in the capital ratios below:

Tier I Leverage Ratio                  9.16 %
Risk Based Capital Tier I             11.58 %
Total Risk Based Capital              12.54 %
Stockholders' Equity/Total Assets     10.87 %
Capital Conservation Buffer            4.54 %



MATERIAL CHANGES IN OPERATING RESULTS

Comparison of interest income and expense results for the three-month periods ended June 30, 2022 and 2021

interest income

When comparing second quarter 2022 to second quarter 2021, average loan balances
with the acquisitions of OFSI and PFSB grew $579.8 million with average
quarterly PPP loans decreasing $52.8 million. This represented a 40.8% increase
in a one-year time period. Interest income on loan balances experienced an
increase of $6.1 million as compared to the quarter ended June 30, 2021. This
increase was primarily the result of the significant growth in the end of period
loan balances between periods, 19.7% of which was directly attributable to the
Company's recent acquisitions and 19.9% of which was due to organic loan growth
within the Bank's broader markets. Net fee income for the PPP loans was
recognized on a straight line basis over 24 months for the first draw and 60
months for the second draw and was accelerated upon payoff. PPP loan balances at
the end of June 2022 were $8 thousand compared to $47.1 million at the end of
June 2021. PPP loan income for the quarter included interest income of $0.3
thousand and net fee income of $9.8 thousand compared to $134.7 thousand of loan
interest income and $615.4 thousand of net fee income for 2021.

The available-for-sale securities portfolio increased in average balances by
$59.4 million when comparing to the previous year while the income increased
$237 thousand over second quarter. Federal funds sold and interest-bearing
deposits decreased in average balances by $106.5 million as compared to the same
quarter in 2021 with increased income of $15 thousand for the current
quarter. Refer to Note 2 Business Combination and Asset Purchase for information
on assets acquired from OFSI and PFSB.

The overall total average balance of the Bank's earning assets increased by
$532.7 million and interest income for the quarter comparisons was higher for
second quarter 2022 by 36.4% or $6.4 million as compared to second quarter
2021. Increases in the prime lending rate between periods has contributed to an
increase in rate yield.

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Annualized yield, for the quarter ended June 30, 2022, was 3.79% as compared to
3.53% for the quarter ended June 30, 2021. The following charts demonstrate the
value of increased loan balances in the balance sheet mix, as well as the impact
on the changes in interest rates. The yields on tax-exempt securities and the
portion of the tax-exempt IDB loans included in loans have been tax adjusted
based on a 21% tax rate in the charts to follow.

                                            (In Thousands)
                                  Quarter to Date Ended June 30, 2022                   Annualized Yield/Rate
Interest Earning Assets:      Average Balance           Interest/Dividends       June 30, 2022         June 30, 2021
Loans                       $          1,999,357       $             22,388                4.48 %                4.58 %
Taxable investment
securities                               422,482                      1,344                1.27 %                1.20 %
Tax-exempt investment
securities                                21,649                         70                1.64 %                2.23 %
Fed funds sold & other                    81,091                        109                0.54 %                0.20 %
Total Interest Earning
Assets                      $          2,524,579       $             23,911                3.79 %                3.53 %



  Change in Interest Income Quarter to Date June 30, 2022 Compared to June 30,
                                      2021

                                                   (In Thousands)
                                                      Change Due      Change Due
Interest Earning Assets:           Total Change       to Volume         to Rate
Loans                              $       6,129     $      6,643     $      (514 )
Taxable investment securities                244              165              79
Tax-exempt investment securities              (7 )             23             (30 )
Fed funds sold & other                        15              (53 )         

68

Total interest-earning assets $6,381 $6,778 $

 (397 )



Interest Expense

Offsetting the higher interest income for the quarter was an increase in
interest expense in 2022 of $493 thousand or 31.7% compared to second quarter
2021. Since 2021, average interest-bearing deposit balances have increased
$374.1 million or 27.2% and the Company recognized $103 thousand more in
interest expense for the most recent quarter. The prime rate dropped 150 basis
points in March of 2020 and management adjusted deposit rates accordingly. March
2022 saw the first rate change since 2020 with an increase of 25 basis points
which was followed by increases of 50 and 75 basis points in May and June
respectively. Interest expense on FHLB borrowings and other borrowings increased
$103 thousand in the second quarter 2022 over the same time frame in 2021 due to
borrowings taken on from the Perpetual acquisition and new FHLB borrowings of
$20 million in May 2022 used to fund loan growth. Interest expense on fed funds
purchased and securities sold under agreement to repurchase increased $3
thousand compared to second quarter 2021. Interest expense on subordinated notes
was $284 thousand for the most recent quarter. Refer to Note 8 for additional
information on subordinated notes. Liabilities assumed from OFSI and PFSB can be
seen in Note 2.

                                          (In Thousands)
                                Quarter to Date Ended June 30, 2022                 Annualized Yield/Rate
Interest Bearing
Liabilities:                   Average Balance             Interest          June 30, 2022         June 30, 2021
Savings deposits            $           1,312,444       $           777                0.24 %                0.20 %
Other time deposits                       435,091                   602                0.55 %                1.13 %
Other borrowed money                       39,172                   218                2.23 %                2.58 %
Fed funds purchased &
securities
sold under agreement to
repurchase                                 35,260                   166                1.88 %                2.17 %
Subordinated notes                         34,509                   284                3.29 %                0.00 %
Total Interest Bearing
Liabilities                 $           1,856,476       $         2,047                0.44 %                0.44 %


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 Change in Interest Expense Quarter to Date June 30, 2022 Compared to June 30,
                                      2021

                                                     (In Thousands)
                                                         Change Due      Change Due
Interest Bearing Liabilities:         Total Change       to Volume         to Rate
Savings deposits                     $          211     $         95     $       116
Other time deposits                            (108 )            524            (632 )
Other borrowed money                            103              137             (34 )
Fed funds purchased & securities
sold under agreement to repurchase                3               29             (26 )
Subordinated notes                              284              284        

Total interest-bearing liabilities $493 $1,069 $

(576 )



Overall, net interest spread for the second quarter 2022 was 26 basis points
higher than last year. As the following chart indicates, the improvement in
yields on interest earning assets was solely responsible for the increase in net
interest spread as cost of funds remained constant when comparing to the same
period a year ago.

                                  June 30, 2022       June 30, 2021       June 30, 2020
Interest/Dividend income/yield              3.79 %              3.53 %              4.25 %
Interest Expense/cost                       0.44 %              0.44 %              0.91 %
Net Interest Spread                         3.35 %              3.09 %              3.34 %
Net Interest Margin                         3.47 %              3.21 %              3.59 %



Net Interest Income

Net interest income increased $5.9 million for the second quarter 2022 over the
same time frame in 2021 with the increase in interest income of $6.4 million
offset by the higher interest expense of $493 thousand, as previously
mentioned. As the new loans added in 2021 and 2022 generate more income,
management expects the benefits of the Company's strategy of repositioning the
balance sheet to continue to increase net interest income. In terms of net
interest margin rate, the Bank recognizes competition for deposits may again
increase and put pressure on the margin which may lead to a tightening.

Comparison of non-interest operating results for the three-month periods ended
June 30, 2022 and 2021

Provision Expense

The Allowance for Loan and Lease Losses (ALLL) has a direct impact on the
provision expense. The increase in the ALLL is funded through recoveries and
provision expense. The following tables both deal with the allowance for credit
losses. The first table breaks down the activity within ALLL for each loan
portfolio class and shows the contribution provided by both the recoveries and
the provision along with the reduction of the allowance caused by charge-offs.
The second table discloses how much of the ALLL is attributed to each class of
the loan portfolio, as well as the percent that each particular class of the
loan portfolio represents to the entire loan portfolio in the aggregate. The
consumer loan portfolio accounted for the largest component of charge-offs and
recoveries for second quarter of 2022 and 2021. The commercial real estate
portfolio is currently creating a large impact on the ALLL due to the loan
growth.

Total provision for loan losses was $987 thousand higher for the second quarter
2022 as compared to the same quarter 2021. Provision for loan loss has
stabilized beginning in third quarter of 2021 and the provision expense for the
second quarter of 2022 was adequate. There is still some lingering uncertainty
regarding COVID-19; therefore, it is prudent to incorporate the impact of
COVID-19 in the evaluation of the adequacy of ALLL. The restaurant and
hospitality sectors have been hit especially hard.  Risk in the Consumer and 1-4
Family Portfolio has also increased.  Management continues to monitor asset
quality, making adjustments to the provision as necessary. The impact of higher
interest rates and inflation will be taken into consideration when reviewing
qualitative factors. Loan charge-offs were $79 thousand higher in second quarter
2022 than the same quarter 2021. Recoveries were $83 thousand higher in second
quarter 2022 as compared to second quarter 2021. Combined net charge-offs were
$4 thousand lower in second quarter 2022 than the same time period 2021.

Past due loans, which include no deferrals related to COVID-19, increased $2.4
million at June 30, 2022 as compared to June 30, 2021. The largest changes were
attributed to the increase of past due balances in the agricultural real estate
portfolio and consumer real estate portfolio.

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The following table breaks down the activity within the ALLL for each loan
portfolio class and shows the contribution provided by both recoveries and the
provision, along with the reduction of the allowance caused by charge-offs. The
time period covered is for three months ended June 30, 2022, 2021, and 2020.

                                                                 (In Thousands)
                                  Three Months Ended           Three Months Ended           Three Months Ended
                                    June 30, 2022                June 30, 2021                June 30, 2020
Loans, net of deferred fees and
costs                            $          2,034,818         $          1,458,423         $          1,344,723
Daily average of outstanding
loans                            $          1,999,357         $          1,419,531         $          1,321,405
Nonaccrual loans                 $              5,247         $              7,031         $              8,473
Nonperforming loans*             $              5,247         $              7,031         $              8,473

Allowance for Loan Losses -
January 1,                       $             16,771         $             14,425         $              8,533
Loans Charged off:
Consumer Real Estate                                -                            -                            -
Agriculture Real Estate                             -                            -                            -
Agricultural                                        -                            -                            -
Commercial Real Estate                              -                            -                            8
Commercial and Industrial                           -                            -                          165
Consumer                                          117                           38                           64
                                                  117                           38                          237
Loan Recoveries:
Consumer Real Estate                                4                            3                            2
Agriculture Real Estate                             -                            -                            -
Agricultural                                        -                            6                            -
Commercial Real Estate                              3                            3                            2
Commercial and Industrial                          65                            5                            6
Consumer                                           70                           42                           58
                                                  142                           59                           68
Net Charge Offs:
Consumer Real Estate                               (4 )                         (3 )                         (2 )
Agriculture Real Estate                             -                            -                            -
Agricultural                                        -                           (6 )                          -
Commercial Real Estate                             (3 )                         (3 )                          6
Commercial and Industrial                         (65 )                         (5 )                        159
Consumer                                           47                           (4 )                          6
                                                  (25 )                        (21 )                        169
Provision for loan loss                         1,628                          641                        1,569
Acquisition provision for loan
loss                                                -                            -                            -
Allowance for Loan & Lease
Losses - June 30,                              18,424                       15,087                        9,933
Allowance for Unfunded Loan
Commitments
  & Letters of Credit - June 30,                1,167                        1,145                          605
Total Allowance for Credit
Losses - June 30,                $             19,591         $             16,232         $             10,538
Ratio of Net Charge-offs to
Average Outstanding Loans                        0.00 %                       0.00 %                       0.01 %
Ratio of Nonaccrual Loans to
Loans                                            0.26 %                       0.48 %                       0.63 %
Ratio of the Allowance for Loan
& Lease Losses
  to Loans                                       0.91 %                       1.03 %                       0.74 %
Ratio of the Allowance for Loan
& Lease Losses to
  Nonaccrual Loans                             351.44 %                     214.58 %                     117.24 %
Ratio of the Allowance for Loan
& Lease Losses to
  Nonperforming Loans*                         351.44 %                     214.58 %                     117.24 %



      *  Nonperforming loans are defined as all loans on nonaccrual, plus any
         loans 90 days past due not on nonaccrual.


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The Bank uses the following guidelines as stated in policy to determine when to
realize a charge-off of a loan, whether partial loan balance or full loan
balance. The Bank is also following the guidelines established under the CARES
Act. A charge down in whole or in part is realized when unsecured consumer
loans, credit card credits and overdraft lines of credit reach 90 days
delinquency. At 120 days delinquent, secured consumer loans are charged down to
the value of the collateral, if repossession of the collateral is assured and/or
in the process of repossession. Consumer mortgage loan deficiencies are charged
down upon the sale of the collateral or sooner upon the recognition of
collateral deficiency. A broker's price opinion or appraisal will be completed
on all home loans in litigation and any deficiency will be charged off before
reaching 150 days delinquent. Commercial and agricultural credits are charged
down/allocated at 120 days delinquency, unless an established and approved
work-out plan is in place or litigation of the credit will likely result in
recovery of the loan balance. Upon notification of bankruptcy, unsecured debt is
charged off. Additional charge-offs may be realized as further unsecured
positions are recognized.

Loans classified as nonaccrual were lower as of June 30, 2022 at $5.2 million as
compared to $7.0 million as of June 30, 2021. The consumer real estate portfolio
decreased $68 thousand while the commercial real estate portfolio decreased $504
thousand. The agricultural real estate decreased $3.0 million as compared to
June 30, 2021 while the agricultural portfolio increased $1.2 million for the
same period of comparison.

In determining the allocation for impaired loans, the Bank applies the appraised
market value of the collateral securing the asset, reduced by applying a
discount for estimated costs of collateral liquidation. In some instances where
the discounted market value is less than the loan amount, a specific impairment
allocation is assigned, which may be reduced or eliminated by the write down of
the credit's active principal outstanding balance.

For the majority of the Bank's impaired loans, including all collateral
dependent loans, the Bank will apply the appraised market value methodology.
However, the Bank may also utilize a measurement incorporating the present value
of expected future cash flows discounted at the loan's effective rate of
interest. To determine appraised market value, collateral asset values securing
an impaired loan are periodically evaluated. Maximum time of re-evaluation is
every 12 months for chattels and titled vehicles and every two years for real
estate. In this process, third party evaluations are obtained and heavily relied
upon. Until such time that updated appraisals are received, the Bank may
discount the collateral value used.

The following table shows the allowance for loan loss balances by type of loan for the six months ended June 30, 2022 and June 30, 2021.

                                          (In Thousands)                       (In Thousands)
                                           June 30, 2022                        June 30, 2021
                                                                 % of Loan                            % of Loan
Balance at End of Period Applicable To:       Amount              Category         Amount              Category
Consumer Real Estate                      $           939            20.17 %   $           649            13.34 %
Agricultural Real Estate                              346             9.81 %             1,217            12.99 %
Agricultural                                          754             6.26 %               720             6.92 %
Commercial Real Estate                             10,427            48.04 %             8,831            47.29 %
Commercial and Industrial                           5,365            12.99 %             2,837            15.58 %
Consumer                                              567             2.73 %               613             3.88 %
Unallocated                                            26             0.00 %               220             0.00 %
Allowance for Loan & Lease Losses                  18,424                               15,087
Off Balance Sheet Commitments                       1,167                                1,145
Total Allowance for Credit Losses         $        19,591                      $        16,232



Noninterest Income

Noninterest income was down $707 thousand for the second quarter 2022 over the
same time frame in 2021. The Company has seen a decrease in its mortgage
production volume and the gain on the sale of these loans was $791 thousand
lower for the second quarter 2022 over the same period in 2021. Loan
originations on loans held for sale for the second quarter 2022 were $20.9
million with proceeds from sale at $22.9 million for 2022 compared to 2021's
second quarter activity of $29.5 million in originations and $29.9 million in
sales. Loan originations driven by the refinance activity associated with the
reduction in interest rates has slowed. The mortgages sold were both 1-4 family
and agricultural real estate loans originated for sale.

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Combined service fees decreased by $84 thousand as compared to second quarter
2021. Debit card income increased by $95 thousand and bank owned life insurance
cash surrender value increased $19 thousand. Also contributing to the increase
was overdraft and returned check charges which increased $291 thousand compared
to first quarter 2021. Service fee income for 1-4 family and agricultural real
estate loans increased by $30 thousand while servicing rights income decreased
$501 thousand.

The impact of mortgage servicing rights, both to income and expense, is shown in
the following table which reconciles the value of mortgage servicing rights. The
capitalization runs through noninterest income while the amortization thereof is
included in non-interest expense. For the second quarter of 2022 and 2021,
mortgage servicing rights caused a net $1 thousand in expense and $19 thousand
in income, respectively. The lower capitalized additions for 2022 are attributed
to a lower loan origination level of 1-4 families. A low interest rate
environment has helped to generate the mortgage refinance activity. For loans of
15 years and less, the market value of the mortgage servicing rights was 0.970%
in the second quarter 2022 versus 1.131% in second quarter 2021. For loans over
15 years, the value was 1.099% versus a higher 1.191% for the same periods
respectively. The carrying value is greater than the market value of $3.4
million. A valuation allowance of $414 thousand was established during
2021. During first quarter 2022, $134 thousand of the valuation allowance was
reversed. An additional $91 thousand of the valuation allowance was reversed
during the second quarter of 2022.

                                           Three Months             Six Months
                                          (In Thousands)          (In Thousands)
                                         2022        2021        2022        2021
Beginning Balance                       $ 3,336     $ 3,444     $ 3,571     $ 3,320
Capitalized Additions                       149         226         354         855
Amortization                               (150 )      (207 )      (310 )      (712 )
Ending Balance, June 30,                  3,335       3,463       3,615       3,463
Valuation Allowance                          91        (317 )      (189 )  

(317) Net mortgage service fees, June 30th, $3,426 $3,146 $3,426 $3,146



Noninterest Expense

For the second quarter 2022, noninterest expenses were $175 thousand higher than
for the same quarter in 2021. Salaries, wages, and employee benefits (includes
normal merit increases, restricted stock expense, incentive payout and all
employee benefits) increased $406 thousand in total. This was comprised of
increased salaries of $775 thousand partially offset by decreased benefits of
$369 thousand. The second quarter of 2022 also saw the effects of the minimum
living wage at $13.50 per hour as compared to $12.50 per hour for the second
quarter in 2021. Consulting fees decreased $161 thousand during the second
quarter 2022 due to acquisition activity in 2021 of $292 thousand that was not
repeated in 2022. Legal fees decreased $183 thousand. Ohio Financial Institution
Tax increased $463 thousand over second quarter 2021 due to overall
growth.. Data processing expenses also increased $226 thousand. Other general
and administrative expenses increased $15 thousand as compared to second quarter
2021 primarily attributable to the Company's overall growth for the year.

Income taxes

The income tax expense was $731,000 higher for the second quarter of 2022 compared to the same quarter in 2021. The effective tax rates were 19.86% and 20.92% for the second quarters of 2022 and 2021 respectively.

Net revenue

Results overall, net income in the second quarter of 2022 was up $3.3 million as
compared to the same quarter last year. Although second quarter 2022 included an
increase of $987 thousand of loan loss provision as compared to second quarter
2021, net interest income after provision for loan losses increased $4.9 million
during the same period of comparison. The Company has done an exceptional job of
growing loans while keeping past dues low. The Company remains strong, stable,
and well capitalized and has the capacity to continue to cover the increased
costs of expansion.









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Comparison of interest income and interest expense results for the six-month periods ended June 30, 2022 and 2021

Interest Income

Higher loan balances of $579.4 million created an improvement in the interest
income for the first six months of 2022 as compared to the first six months of
2021. PPP average loan balances decreased $46.9 million year over year. Interest
income in total rose 33.6% or $11.5 million with interest income from loans
accounting for $11.0 million of the increase. Contributing to the overall
improvement was also an increase in securities income of $493 thousand and an
increase from fed funds sold and interest-bearing deposits of $50 thousand over
2021. The asset yield increased by 2 basis points to 3.63% for the first six
months of 2022 compared to the first six months of 2021's 3.61%.

PPP loan interest income recognized was $2.2 thousand for the first six months
of 2022 with net fee income of $77.2 thousand compared to $234.7 thousand of
loan interest income and $1.5 million of net fee income for 2021. The growth
factor contribution is shown in the charts which follow.

The average interest earning asset base was $622.3 million higher in the first
six months 2022 than the first six months of 2021, an increase of approximately
32.7%. Refer to Note 2 Business Combination and Asset Purchase for information
on assets acquired from OFSI and PFSB.

The yields on tax-exempt securities and the portion of the tax-exempt IDB loans
included in loans have been tax adjusted based on a 21% tax rate in the charts
to follow.

                                             (In Thousands)
                                    Year to Date Ended June 30, 2022                     Annualized Yield/Rate
Interest Earning Assets:      Average Balance           Interest/Dividends        June 30, 2022         June 30, 2021
Loans                       $         1,953,671       $               42,843                4.39 %                4.64 %
Taxable investment
securities                              426,189                        2,639                1.24 %                1.22 %
Tax-exempt investment
securities                               20,119                          140                1.76 %                2.37 %
Fed funds sold & other                  124,050                          188                0.30 %                0.17 %
Total Interest Earning
Assets                      $         2,524,029       $               45,810                3.63 %                3.61 %



 Change in Interest Income Year to Date June 30, 2022 Compared to June 30, 2021
                                                    (In Thousands)
                                                       Change Due       Change Due
Interest Earning Assets:            Total Change       to Volume         to Rate
Loans                              $       10,972     $     13,442     $     (2,470 )
Taxable investment securities                 530              490               40
Tax-exempt investment securities              (37 )             14              (51 )
Fed funds sold & other                         50              (33 )             83
Total Interest Earning Assets      $       11,515     $     13,913     $     (2,398 )



Interest Expense

Interest expense was higher for the first six months of 2022 compared to the
first six months of 2021. At $4.2 million, the first six months of 2022 was up
$881 thousand as compared to the same time period 2021 or 26.8%.

The average balance of interest-bearing liabilities was higher by $504.1 million
in 2022 than the first six months of 2021. Interest bearing deposits increased
$434.1 million while Fed Funds purchased and securities sold under agreement to
repurchase increased by a combined $2.1 million. Other borrowed money and
subordinated notes increased $33.3 million and $34.5 million, respectively as
compared to a year ago. The higher balance coupled with the slight variation of
the balance sheet mix, resulted in a 4 basis point decrease in the cost of funds
at 0.44% for the first six months of 2022 as compared to 2021's
0.48%. Liabilities assumed from OFSI and PFSB can be seen in Note 2.







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The change chart below shows the increased cost was driven more by volume than
rate.

                                          (In Thousands)
                                 Year to Date Ended June 30, 2022                  Annualized Yield/Rate
Interest Bearing
Liabilities:                  Average Balance             Interest          June 30, 2022         June 30, 2021
Savings deposits            $         1,302,005       $          1,365                0.21 %                0.21 %
Other time deposits                     447,471                  1,374                0.61 %                1.20 %
Other borrowed money                     51,180                    553                2.16 %                3.78 %
Fed funds purchased &
securities
sold under agreement to
repurchase                               32,182                    318                1.98 %                2.19 %
Subordinated notes                       34,495                    553                3.12 %                0.00 %
Total Interest Bearing
Liabilities                 $         1,867,333       $          4,163                0.44 %                0.48 %



Change in Interest Expense Year to Date June 30, 2022 Compared to June 30, 2021

                                                      (In Thousands)
                                                         Change Due       Change Due
Interest Bearing Liabilities:         Total Change       to Volume         to Rate
Savings deposits                     $          225     $        248     $        (23 )
Other time deposits                            (102 )          1,207           (1,309 )
Other borrowed money                            216              629             (413 )
Fed funds purchased & securities
sold under agreement to repurchase              (11 )             23              (34 )
Subordinated notes                              553              553        

Total interest-bearing liabilities $881 $2,660 $

(1,779)



Overall, net interest spread figures for the first six months of 2022 were up
from 2021 by 6 basis points and down 19 basis points from 2020. Net interest
margin for the first six months of 2022 was higher than the same period of 2021
but lower than 2020. As the chart below illustrates, a slightly higher overall
yield on interest earning assets aided by a lower overall cost of funds resulted
in total net interest margin up 3 basis points since the first six months of
2021 and under the first six months of 2020 by 37 basis points.

                                  June 30, 2022       June 30, 2021       June 30, 2020
Interest/Dividend income/yield              3.63 %              3.61 %              4.44 %
Interest Expense/cost                       0.44 %              0.48 %              1.06 %
Net Interest Spread                         3.19 %              3.13 %              3.38 %
Net Interest Margin                         3.30 %              3.27 %              3.67 %



Net Interest Income

Net interest income was up $10.6 million in the first six months of 2022 over
the same time frame in 2021 due to the higher interest income offset by the
increase in interest expense as previously mentioned. As the new loans added in
2021 and 2022 generate more income, management expects the benefits of the
Company's strategy of repositioning the balance sheet to continue to widen this
margin as measured in dollars. In terms of net interest margin rate, the Bank
recognizes competition for deposits may again increase and put pressure on the
margin which may lead to a tightening.

Comparison of results of non-interest operating results for the six-month periods ended June 30, 2022 and 2021

Provision Expense

Total provision for loan losses was $133 thousand lower for the first six months
2022 than for the first six months 2021 attributable primarily to the lessened
uncertainties associated with COVID-19 and its effects on the ability of
individuals, businesses and other entities to meet their financial obligations.
Therefore, it is prudent to incorporate the impact of COVID-19 in the evaluation
of the adequacy of Allowance for Loan and Lease Losses (ALLL).  The restaurant
and hospitality sectors have been hit especially hard.  Risk in the Consumer and
1-4 Family Portfolio has increased but the full impact remains unknown.
Increases to the Bank's ALLL for the first six months of 2022, centered around
current customers and businesses

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that are particularly vulnerable and qualitative factors were adjusted
accordingly. Management continues to monitor asset quality, making adjustments
to the provision as necessary. Loan charge-offs were $840 thousand lower in the
first six months of 2022 compared to the same period 2021. Recoveries were $60
thousand higher in the first six months of 2022 as compared to first six months
of 2021. Combined net charge-offs were $900 thousand lower in the six months
ended June 2022 as compared to the same time period 2021. Management continues
to evaluate the potential financial implications resulting from COVID-19 and
adjusts ALLL qualitative factors as necessary.















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The following table breaks down the activity within the ALLL for each loan
portfolio class and shows the contribution provided by both recoveries and the
provision, along with the reduction of the allowance caused by charge-offs. The
time period covered is for six months ended June 30, 2021, 2020, and 2019.

                                                              (In Thousands)
                                  Six Months Ended           Six Months Ended           Six Months Ended
                                   June 30, 2022              June 30, 2021              June 30, 2020
Loans, net of deferred fees and
costs                            $        2,034,818         $        1,458,423         $        1,344,723
Daily average of outstanding
loans                            $        1,953,671         $        1,374,302         $        1,279,127
Nonaccrual loans                 $            5,247         $            7,031         $            8,473
Nonperforming loans*             $            5,247         $            7,031         $            8,473

Allowance for Loan Losses -
January 1,                       $           16,242         $           13,672         $            7,228
Loans Charged off:
Consumer Real Estate                              -                          -                         35
Agriculture Real Estate                           -                          -                          -
Agricultural                                      -                        142                          -
Commercial Real Estate                            -                          -                          8
Commercial and Industrial                         6                        809                        165
Consumer                                        205                        100                        193
                                                211                      1,051                        401
Loan Recoveries:
Consumer Real Estate                              9                          6                          5
Agriculture Real Estate                           -                          -                          -
Agricultural                                      -                          6                          -
Commercial Real Estate                            5                          5                          5
Commercial and Industrial                        74                         10                          9
Consumer                                         97                         98                         88
                                                185                        125                        107
Net Charge Offs:
Consumer Real Estate                             (9 )                       (6 )                       30
Agriculture Real Estate                           -                          -                          -
Agricultural                                      -                        136                          -
Commercial Real Estate                           (5 )                       (5 )                        3
Commercial and Industrial                       (68 )                      799                        156
Consumer                                        108                          2                        105
                                                 26                        926                        294
Provision for loan loss                       2,208                      2,341                      2,999
Acquisition provision for loan
loss                                              -                          -                          -
Allowance for Loan & Lease
Losses - June 30,                            18,424                     15,087                      9,933
Allowance for Unfunded Loan
Commitments
  & Letters of Credit - June 30,              1,167                      1,145                        605
Total Allowance for Credit
Losses - June 30,                $           19,591         $           16,232         $           10,538
Ratio of Net Charge-offs to
Average Outstanding Loans                      0.00 %                     0.07 %                     0.02 %
Ratio of Nonaccrual Loans to
Loans                                          0.26 %                     0.48 %                     0.63 %
Ratio of the Allowance for Loan
& Lease Losses to Loans                        0.91 %                     1.03 %                     0.74 %
Ratio of the Allowance for Loan
& Lease Losses to Nonaccrual
Loans                                        351.44 %                   214.58 %                   117.24 %
Ratio of the Allowance for Loan
& Lease Losses to
  Nonperforming Loans*                       351.44 %                   214.58 %                   117.24 %



      *  Nonperforming loans are defined as all loans on nonaccrual, plus any
         loans 90 days past due not on nonaccrual.


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Non-interest income

Noninterest income for the first six months of 2022 decreased over the first six
months of 2021 by $1.4 million. Gain on sale of loans showed a $1.1 million
decrease over the first six months of 2021. Combined service fees increased by
$78 thousand with increased debit card income of $95 thousand and bank owned
life insurance cash surrender value increases of $19 thousand. Servicing rights
income decreased by $501 thousand. Service charge income increased by $1
thousand while overdraft and returned check income increased by $291
thousand. The Company did sell some of its available-for-sale securities in the
first six months of 2021 and recognized a gain of $293 thousand that was not
repeated in 2022.

Noninterest Expense

Through the first six months of 2022, noninterest expenses were $1.3 million
higher than in the first six months of 2021. 2021 included $1.2 million of third
party acquisition related costs incurred with the Ossian and Perpetual
transactions that were not repeated in 2022. The six months of 2022 included an
increase of $1.9 million in salaries and wages partially offset by a decrease of
$309 thousand in employee benefits.

Data processing fees were $325 thousand higher than last year. Part of that
increase was due to a credit for product upgrades in the amount of $100 thousand
that was received during the first six months of 2021 that was not repeated in
2022. Consulting fees decreased $206 thousand due to acquisition activity in
2021 of $337 thousand that was not repeated in 2022. FDIC assessment expense
decreased by $128 thousand due to a decreased assessment rate that has offset an
increased assessment base.

Ohio Financial Institution Tax increased $435 thousand in the first six months
of 2022 due to overall growth. General and administrative expenses increased
$161 thousand over the first six months of 2021. Legal fees decreased $293
thousand over 2021 while loan and collection expense increased $114 thousand .

Income taxes

Income tax expense was $1.6 million higher for the first six months of 2022
compared to the first six months of 2021. Effective tax rates were 19.64% and
19.39% for the first six months of 2022 and 2021 respectively. The slightly
higher effective tax rate for the first six months of 2022 equaled an increase
in income tax expense of $51 thousand with the remainder driven from increased
earnings.

Net Income

Overall, net income through the first six months of 2022 was up $6.5 million as
compared to the first six months of 2021. Increased interest income of $11.5
million partially offset by increased interest expense was the largest
contributor to the increased net income for 2022.





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FORWARD-LOOKING STATEMENTS

Statements contained in this portion of the Company's report may be
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may be identified by
the use of words such as "intend," "believe," "expect," "anticipate," "should,"
"planned," "estimated," and "potential." Such forward-looking statements are
based on current expectations, but actual results may differ materially from
those currently anticipated due to a number of factors, which include, but are
not limited to, factors discussed in documents filed by the Company with the
Securities and Exchange Commission from time to time. Other factors which could
have a material adverse effect on the operations of the Company and its
subsidiaries include, but are not limited to, changes in interest rates, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Bank's market area, changes in relevant accounting
principles and guidelines and other factors over which management has no
control, including, but not limited to, the ongoing impact of the COVID-19
pandemic. The forward-looking statements are made as of the date of this report,
and the Company assumes no obligation to update the forward-looking statements
or to update the reasons why actual results differ from those projected in the
forward-looking statements.



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