SELECTED FINANCIAL DATA

The following data should be read in conjunction with the unaudited consolidated financial statements and management's discussion and analysis that follows:





                                           As of or for the three months ended     As of or for the nine months ended
                                                      September 30,                           September 30,
                                               2022                   2021             2022                   2021
SIGNIFICANT RATIOS (Unaudited)
Net income to:
Average assets (a)                                 1.15 %                 1.54 %           0.96 %                 1.39 %
Average tangible shareholders' equity
(non-GAAP) (a)                                    20.33 %                18.59 %          14.90 %                17.03 %
Net interest margin (a)                            3.91 %                 4.12 %           3.65 %                 3.84 %
Efficiency ratio (a)                              71.42 %                65.33 %          73.62 %                66.68 %
Average shareholders' equity to average
assets                                             8.34 %                11.05 %           9.18 %                11.02 %
Loans to deposits (end of period)                 66.35 %                63.58 %          66.35 %                63.58 %
Allowance for loan losses to loans (end
of period)                                         1.63 %                 1.75 %           1.63 %                 1.75 %

Book value per share                       $      22.79           $      35.46     $      22.79           $      35.46
Tangible book value per share (a)          $      13.83           $      26.56     $      13.83           $      26.56

(a) Some of the financial measures included in this table are not measures of

financial performance recognized by U.S. Generally Accepted Accounting

Principles, or GAAP. These non-GAAP financial measures include tangible book

value, return on average tangible equity, net interest margin

(tax-equivalent), and the efficiency ratio. Management uses these non-GAAP

financial measures in its analysis of its performance, and believes financial

analysts and investors frequently use these measures, and other similar

measures, to evaluate capital adequacy. Reconciliations of non-GAAP

disclosures used in this table to the comparable GAAP measures are provided

in the accompanying table. Management, as well as regulators, financial

analysts and other investors may use these measures in conjunction with more

traditional bank capital ratios to compare the capital adequacy of banking

organizations with significant amounts of goodwill or other intangible

assets, which typically stem from the use of the purchase accounting method

of accounting for mergers and acquisitions.

These non-GAAP financial measures should not be considered in isolation or as

a substitute for total shareholders' equity, total assets, book value per

share, return on average assets, return on average equity, or any other

measure calculated in accordance with GAAP. Moreover, the manner in which we

calculate these non-GAAP financial measures may differ from that of other


    companies reporting measures with similar names.




Reconciliation of common shareholders' equity to            September        September
tangible common equity                                       30, 2022         30, 2021
Shareholders' equity                                       $     73,820     $    116,144
Less goodwill and other intangibles                              28,616           29,151
Tangible common equity                                     $     45,204     $     86,993
Average shareholders' equity                               $     98,637     $    114,244
Less average goodwill and other intangibles                      29,057

29,199


Average tangible common equity                             $     69,580

$ 85,045



Tangible Book Value per Common Share
Tangible common equity (a)                                 $     45,204     $     86,993
Total common shares issued and outstanding (b)                3,269,647

3,275,430


Tangible book value per common share (a)/(b)               $      13.83

$ 26.56



Return on Average Tangible Equity
Year-to-date net income, annualized ( c )                  $     10,368     $     14,484
Average tangible common equity (d)                         $     69,580     $     85,045
Return on average tangible common equity (c/d)                    14.90 %

17.03 %



Net Interest Margin, Tax- Equivalent
Year-to-date net interest income, annualized               $     34,951     $     35,989
Tax-equivalent adjustment                                           984

745

Tax-equivalent net interest income, annualized (e) $ 35,935 $ 36,735 Average earning assets (f)

$    983,763     $    957,815
Net interest margin, tax equivalent (e)/(f)                        3.65 %

3.84 %



Efficiency Ratio, Tax-Equivalent
Year-to-date non-interest expense, annualized (g)          $     34,436     $     37,145
Year-to-date tax-equivalent net interest income,
annualized                                                       35,935

36,735


Year-to-date non-interest income, annualized                     10,839

18,973


Year-to-date total revenue, annualized (h)                 $     46,773     $     55,708
Efficiency ratio (g)/(h)                                          73.62 %          66.68 %




                                       26

--------------------------------------------------------------------------------


  Table of Contents



Forward-Looking Statements



When used in this document, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimated," "projected" or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, which
statements are subject to numerous assumptions, risks, and uncertainties. Actual
results could differ materially from those contained or implied by such
statements for a variety of factors, including: changes in economic conditions;
movements in interest rates; competitive pressures on product pricing and
services; success and timing of business strategies; the nature, extent, and
timing of government actions and reforms; and extended disruption of vital
infrastructure and the impact of the COVID-19 pandemic. Significant progress has
been made to combat the outbreak of COVID-19, and while it appears that the
epidemiological and macroeconomic conditions are trending in a positive
direction as of September 30, 2022, if there is a resurgence in the virus,
United Bancshares, Inc. (the "Corporation") could experience further adverse
effects on its business, financial condition, results of operations and cash
flows.



The Corporation cautions readers not to place undue reliance on any such forward
looking statements, which speak only as of the date made. The Corporation does
not undertake, and specifically disclaims any obligation, to update any forward
looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.



Introduction



The Corporation is a registered financial holding company incorporated under
Ohio law and is subject to regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The Corporation was incorporated
and organized in 1985. The executive offices of the Corporation are located at
105 Progressive Drive, Columbus Grove, Ohio 45830. The Corporation is a one-bank
holding company, as that term is defined by the Federal Reserve Board.



The Union Bank Company (the "Bank"), a wholly-owned subsidiary of the
Corporation, is a full service community bank offering a full range of
commercial and consumer banking services. The Bank is an Ohio state-chartered
bank, which serves Allen, Delaware, Franklin, Hancock, Huron, Marion, Paulding,
Putnam, Sandusky, Van Wert and Wood counties in Ohio, with office locations in
Bowling Green, Columbus Grove, Delaware, Delphos, Findlay, Gahanna, Gibsonburg,
Kalida, Leipsic, Lima, Marion, Ottawa, Paulding, Pemberville, Plymouth,
Westerville and Worthington, Ohio.



Deposit services include checking accounts, savings and money market accounts;
certificates of deposit and individual retirement accounts. Additional
supportive services include online banking, bill pay, mobile banking, Zelle
payment service, ATM's and safe deposit box rentals.  Treasury management and
remote deposit capture products are also available to commercial deposit
customers.  Deposits of Union Bank are insured up to applicable limits by the
Deposit Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation.



Loan products offered include commercial and residential real estate loans,
agricultural loans, commercial and industrial loans, home equity loans, various
types of consumer loans, and small business administration and USDA backed
loans. Union Bank's residential loan activities consist primarily of loans for
purchasing or refinancing personal residences.  The majority of these loans are
sold to the secondary market.



Wealth management services are offered by Union Bank through an arrangement with
LPL Financial LLC, a registered broker/dealer.  Licensed representatives offer a
full range of investment services and products, including financial needs
analysis, mutual funds, securities trading, annuities and life insurance.



Union Bank has two subsidiaries: UBC Investments, Inc. ("UBC"), an entity formed
to hold its securities portfolio, and UBC Property, Inc. ("UBC Property"), an
entity formed to hold and manage certain property that is acquired in lieu of
foreclosure.



UBC Risk Management, Inc. is a subsidiary of the Corporation and is located in
Las Vegas, Nevada. It is a captive insurance subsidiary which insures various
liability and property damage policies for the Corporation and its related
subsidiaries.



The Corporation is registered as a Securities Exchange Act of 1934 reporting
company, however the Corporation filed a Form 25 with the SEC to remove its
common stock from listing on the NASDAQ Capital Market and to deregister its
stock under Section 12(b) of the Exchange Act on August 17, 2022. The last
trading day of its shares of common stock on the NASDAQ Capital Market
was August 26, 2022.  As of August 29, 2022, the corporation's shares commenced
trading on the OTCQX Market under the symbol "UBOH".  The Corporation filed a
Form 15 with the SEC on September 1, 2022, to terminate the registration of its
common stock under section 12(g) of the Exchange Act.  Once the termination is
effective, which is expected to occur within 90 days of filing, the Company's
obligation to file proxy materials and comply with Section 16 Exchange Act
beneficial ownership reporting rules will end.



The obligation of the Corporation to file periodic reports with the SEC,
including reports on Forms 10-K, 10-Q and 8-K, pursuant to Section 15(d) of the
Exchange Act, will continue for the balance of its fiscal year ending December
31, 2022. The Corporation intends to file a Form 15 with the SEC after the
filing of its Annual Report on SEC form 10-K for its fiscal year ended December
31, 2022, filed in early 2023, and upon such filing the Company's obligation to
file reports under Section 15(d) of the Exchange Act, including SEC Form 10-K,
10-Q, and 8-K, will be suspended immediately.



The following discussion and analysis of the consolidated financial statements
of the Corporation is presented to provide insight into management's assessment
of the financial results.



                                       27

--------------------------------------------------------------------------------


  Table of Contents



Economic Environment



Growth in the U.S. economy has slowed in 2022, compared to the higher rates of
growth experienced in 2021, as pressures from higher inflation and rising energy
prices as well as concerns over the Russia-Ukraine war and the continued
economic uncertainty caused by the COVID-19 pandemic resulted in U.S. Gross
Domestic Product ("GDP") that shrank slightly in the first half of 2022, before
rebounding somewhat in the third quarter.  Despite the FRB's efforts to control
inflation by raising short-term interest rates, it remains elevated, reflecting
supply and demand imbalances related to the pandemic and higher energy prices as
well as other broader price pressures, and exceeded an annual rate of 8.2% in
the first nine months of 2022, well above the FRB's target inflation rate. In
addition, the Russia-Ukraine war and related events are likely to create
additional upward pressure on inflation and weigh on economic activity.  Other
geo-political pressures and mid-term elections continue to play a part in the
uncertain economic conditions through the end of the year.  Despite the fact
that GDP declined slightly in the first and second quarters, before recovering
slightly in the third quarter of 2022, the total unemployment rate has remained
low, and is 3.5 percent at September 2022 compared with 3.9 percent at December
2021. The FRB has increased short-term interest rates by 300 basis points
year-to-date in 2022 and indicated that ongoing increases in short-term interest
rates will continue in the last quarter of 2022 and early in 2023 to control the
rate of inflation.



As a result of these uncertainties, our credit administration continues to
closely monitor and analyze the higher risk segments within the loan portfolio,
tracking loan payment deferrals, customer liquidity and providing timely reports
to senior management and the board of directors. Based on the
Corporation's capital levels, prudent underwriting policies, loan concentration
diversification and our geographic footprint, we are cautiously optimistic that
the Corporation is positioned to continue managing the impact of the varied set
of risks and uncertainties currently impacting our customer base and local
economies.  While we remain adequately capitalized, with strong levels of loan
loss provisions, the Corporation may be required to make additional loan loss
provisions as warranted by the extremely fluid global economic condition.



                                       28

--------------------------------------------------------------------------------


  Table of Contents





RESULTS OF OPERATIONS

Overview of the Income Statement





For the quarter ended September 30, 2022, the Corporation reported net income of
$3,086,000, or $0.94 basic earnings per share, a decrease of $1,006,000 (24.6%)
compared to the third quarter of 2021 net income of $4,092,000, or $1.25 basic
earnings per share. The decrease in operating results for the third quarter of
2022 as compared to the same period in 2021 was primarily attributable to a
decrease in non-interest income of $1,889,000 (40.1%) and a decrease in net
interest income of $574,000 (5.8%), offset by a decrease in non-interest
expenses of $815,000 (8.4%), and a decrease in the provision for income taxes of
$642,000 (76.2%).  The third quarter results include a $793,000, or $0.24 basic
earnings per share, increase in non-interest income due to a BOLI death benefit
payment.



Net income for the nine months ended September 30, 2022 totaled $7,776,000, or
$2.37 basic earnings per share, compared to $10,863,000, or $3.31 basic earnings
per share for the same period in 2021, a decrease of $3,087,000 (28.4%). The
decrease in operating results for the nine month period ended September 30, 2022
as compared to the nine month period ended September 30, 2021 was primarily
attributable to a decrease in net interest income of $779,000 (2.9%) and a
decrease in non-interest income of $6,101,000 (42.9%), offset by a decrease in
non-interest expenses of $2,032,000 (7.3%), a decrease in the provision for loan
losses of $300,000, and a decrease in the provision for income taxes of
$1,461,000 (66.4%).



Net Interest Income



Net interest income is the amount by which income from interest-earning assets
exceeds interest incurred on interest-bearing liabilities. Interest-earning
assets consist principally of loans and investment securities while
interest-bearing liabilities include interest-bearing deposit accounts and
borrowed funds. Net interest income remains the primary source of revenue for
the Corporation. Changes in market interest rates, as well as changes in the mix
and volume of interest-bearing assets and interest-bearing liabilities impact
net interest income. Net interest income was $9,329,000 for the third quarter of
2022, compared to $9,903,000 for the same period of 2021, a decrease of $574,000
(5.8%). Net interest income was $26,213,000 for the nine months ended
September 30, 2022 compared to $26,992,000 for the same period of 2021,
a decrease of $779,000 (2.9%).



The decrease of $574,000 in net interest income for the quarter ended September
30, 2022 is attributable to a decrease in interest income of $522,000 (4.9%) and
a $52,000 (7.0%) decrease in interest expense. The decrease of $779,000 in net
interest income for the nine months ended September 30, 2022 was due to a
decrease in interest income of $1,242,000 (4.2%), offset by a decrease of
interest expense of $463,000 (19.3%).



The $522,000 decrease in interest income for the three months ended September
30, 2022 was a result of a $1,286,000 (13.8%) decrease in loan interest income,
partially offset by an increase in investment portfolio income of $525,000 and
an increase in other interest income of $239,000.  The reduction in loan
interest income was due to a $2,238,000 reduction in the loan fee income
generated through PPP loans offset by an increase of $952,000 in loan interest
income from higher volumes.  The increase in the investment portfolio income
was due to increased volumes when compared to the previous year and the increase
in other interest income was due to higher interest earned on balances at the
Federal Reserve.



Interest income decreased $1,242,000 for the nine months ended September 30,
2022.  Loan interest income decreased $3,232,000, due primarily to a reduction
in PPP loan fees of $3,722,000, offset by an increase of $490,000 in interest
income from rising portfolio rates and volumes.  Investment portfolio income
increased $1,622,000 due to increased volumes, and other interest income
increased $368,000 due to higher interest earned on balances at the Federal
Reserve.



The yield on average earning assets was 3.91% for the nine months ended
September 30, 2022 compared to 4.17% for the same period of 2021.  This is due
to the decrease in PPP and mortgage origination fees and a shifting mix of
earning assets.  The average interest-bearing cash, securities, and loan
balances were $52.9 million, $300.8 million and $630.0 million for the
nine months ended September 30, 2022, respectively compared to
$97.4 million, $219.8 million and $640.6 million for the nine months ended
September 30, 2021, respectively.  The average loan balance decreased
$10.6 million between the periods as a result of the average balance of PPP
loans decreasing $64.7 million between the periods, offset by $54.1 million in
new loan growth.



Interest expense increased $52,000 for the three months ended September 30,
2022, and decreased $463,000 for the nine months ended September 30, 2022
compared to the same periods in 2021.  Interest expense increased in the third
quarter of 2022 due to the increase in interest rates increasing the cost of
funds to 0.42% for the third quarter of 2022 compared to 0.40% in the third
quarter of 2021.  Year-to-date deposit expense has decreased as the year-to-date
average balance of higher yielding time deposits decreased $42.9 million, while
lower yielding non-maturity deposit accounts increased $101.9 million.  This
lowered the cost of funds for the nine months ended September 30, 2022 to 0.34%
compared to 0.44% for the same period of 2021.  Management expects the cost of
funds to increase through the remainder of 2022 and 2023 as deposit offering
rates for non-maturity and time deposits have increased with the market and
competition.



Net interest margin is calculated by dividing net interest income (adjusted to
reflect tax-exempt interest income on a taxable equivalent basis) by average
interest-earning assets. The resulting percentage serves as a measurement for
the Corporation in comparing its results with those of past periods as well as
those of peer institutions. For the quarter and nine months ended September 30,
2022 the net interest margin (on a taxable equivalent basis) was 3.91% and 3.65%
compared with 4.12% and 3.84% for the same periods in 2021. This decrease can
largely be attributed to PPP fee collected in the comparable periods in 2021.
Loans comprised 66.9% of interest-earning assets at September 30, 2022 compared
to 61.0% of interest-earning assets at September 30, 2021.  Interest-bearing
deposits comprised 97.5% of interest-bearing liabilities at September 30, 2022,
compared to 97.2% for the same period in 2021.



                                       29

--------------------------------------------------------------------------------


  Table of Contents



Provision for Loan Losses



The Corporation's provision for loan losses is determined based upon
management's calculation of the allowance for loan losses and is reflective of
management's assessment of the quality of the portfolio and overall management
of the inherent credit risk of the loan portfolio. Changes in the provision for
loan losses are dependent, among other things, on loan delinquencies, collateral
position, portfolio risks and general economic conditions in the Corporation's
lending markets. In assessing the adequacy of the allowance, management
considers the size and quality of the loan portfolio measured against prevailing
economic conditions, regulatory guidelines, and historical loan loss experience.
However, there is no assurance that loan credit losses will not exceed the
allowance, and any growth in the loan portfolio and the uncertainty of the
general economy may require additional provisions in future periods.



Due to a general stabilization of uncertainties related to COVID-19 in the
regional and broader U.S. economy, as well as the current status of the Bank's
loan portfolio, there was no provision for loan losses recognized during the
nine-month period ended September 30, 2022, compared to a $300,000 provision for
the nine months ended September 30, 2021.  The allowance for loan losses at
September 30, 2022 is 1.63% of total loans compared to 1.75% of total loans at
September 30, 2021.



There is a possibility that the provision for loan losses could further increase
in future periods based on the significant potential for the credit quality of
our loan portfolio to decline and loan defaults to increase as a result of
economic conditions.  See "Allowance for Loan Losses" under Financial Condition
for further discussion relating to the provision for loan losses.



Non-Interest Income



The Corporation's non-interest income is largely generated from activities
related to the origination, servicing and gain on sales of fixed rate mortgage
loans; customer deposit account fees; earnings on life insurance policies;
income arising from sales of investment products to customers; and occasional
security sale transactions. Income related to customer deposit accounts and life
insurance policies provides a relatively steady flow of income while the other
sources are more volume or transaction related and consequently can vary from
quarter to quarter.



For the quarter ended September 30, 2022, non-interest income was $2,823,000,
compared to $4,712,000 for the third quarter of 2021, a decrease of
$1,889,000. The decrease was primarily attributable to a decrease in gain on
sales of loans of $2,947,000 (77.6%), offset by an increase in other
non-interest income of $1,092,000 (119.1%).



Non-interest income for the nine months ended September 30, 2022 totaled
$8,129,000, compared to $14,230,000 for the same period in 2021, a decrease of
$6,101,000. The decrease in non-interest income was primarily attributable to
decreases in gain on sales of loans of $9,722,000 (86.4%), offset by an increase
in other non-interest income of $3,730,000 (125.2%).



The significant decrease in gain on sale of loans was attributable to a decrease
in loan activity by the residential mortgage operations, along with a decrease
in the net gain on sale, expressed as a percentage of loan balances sold. During
the quarter ended September 30, 2022, there were 158 loans sold totaling
$41.666 million, compared to 328 loans sold totaling $90.4 million during the
same period of 2021.  The net gain on sale was 1.77% for the third quarter of
2022 compared to 4.06% for the same period of 2021. For the nine months ended
September 30, 2022, there were 541 loans sold totaling $148.7 million at a net
gain on sale of 0.79% compared to the same period of 2021 when there were
1,098 loans sold totaling $286.9 million at a net gain on sale of 3.76%.



The increases in other non-interest income of $1,092,000 for the quarter ended
September 30, 2022 and $3,730,000 year-to-date are both primarily due to
increases in income from the Corporation's loan hedging program and a $793,000
increase in BOLI income due to a death benefit payment.



                                       30

--------------------------------------------------------------------------------


  Table of Contents



Non-Interest Expenses



For the quarter ended September 30, 2022, non-interest expenses were $8,865,000,
compared to $9,680,000 for the comparable quarter of 2021, a $815,000 decrease.
The significant quarter-over-quarter decreases include salaries and benefits of
$604,000 (11.2%), a result of lower mortgage loan commissions, loan origination
expenses of $219,000 (46.8%), data processing expense of $125,000 (21.2%),
and advertising and promotional expense of $119,000 (21.1%), offset by increases
in exam and auditing expense of $61,000 (42.3%), and legal fees of $58,000
(190.9%).



Non-interest expenses were $25,827,000 for the nine months ended September 30,
2022, compared to $27,859,000 for the same period in 2021, a decrease of
$2,032,000. The decrease in non-interest expenses was primarily attributable to
decreases in salaries and benefits of $1,480,000 (9.4%), a result of lower
mortgage loan commissions, loan origination expenses of $486,000 (39.7%),
 advertising and promotional expense of $294,000 (17.8%), and data processing
expense of $233,000 (13.6%) offset by increases in equipment service expense of
$75,000 (8.7%), travel and entertainment expense of $92,000 (133.9%), ATM
processing expense of $63,000 (10.1%), and Ohio franchise tax expense of $62,000
(10.6%).



Maintaining acceptable levels of non-interest expenses and operating efficiency
are key performance indicators for the Corporation in its strategic initiatives.
The financial services industry uses the efficiency ratio (total non-interest
expense as a percentage of the aggregate of fully-tax equivalent net interest
income and non-interest income) as one of the key indicators of performance. For
the quarter ended September 30, 2022, the Corporation's efficiency ratio was
71.42%, compared to 65.33% for the same period of 2021.  For the nine months
ended September 30, 2022, the Corporation's efficiency ratio was 73.62% compared
to 66.68% for the same period of 2021. A lower efficiency ratio generally
indicates that a bank is spending less to generate every dollar of income.  The
increase in the efficiency ratio between the quarter and year-to-date periods is
due to the significant reduction in residential mortgage activity, which
has reduced non-interest income at a faster pace than non-interest expenses.



Provision for Income Taxes



The provision for income taxes for the quarter ended September 30, 2022, was
$201,000 (effective rate of 6.1%), compared to $843,000 (effective rate of
17.1%) for the comparable 2021 period.  The provision for the nine-month period
ended September 30, 2022 was $739,000 (effective rate of 8.7%) compared to
$2,200,000 (effective rate of 16.8%) for the comparable 2021 period.  The
decrease in the effective tax rate is largely due to tax-exempt securities and
the BOLI death benefit payment comprising 41.5% of pre-tax income
year-to-date September 30, 2022, compared to 15.5% for the comparable period in
2021.



                                       31

--------------------------------------------------------------------------------


  Table of Contents



FINANCIAL CONDITION



Overview of Balance Sheet



Total assets amounted to $1.06 billion at September 30, 2022 compared to $1.08
billion at December 31, 2021, a decrease of $17.3 million (1.6%). The decrease
in total assets was primarily the result of decreases of $26.2 million (34.8%)
in cash and cash equivalents, and $32.2 million (10.5%) in securities available
for sale, offset by a $27.9 million (4.6%) increase in loans, and $13.5 million
increase in other assets (136.4%). Deposits totaled $960.8 million at September
30, 2022, compared to $930.4 million at December 31, 2021, an increase of $30.4
million (3.3%).



Shareholders' equity decreased by $45.3 million (38.0%) from $119.1 million at
December 31, 2021 to $73.8 million at September 30, 2022. This was the result of
an increase in unrealized losses on available for sale securities, net of tax of
$50.3 million and dividends paid of $2,067,000 offset by net income of
$7,776,000. The increase in unrealized losses on available for sale securities
from December 31, 2021 to September 30, 2022 was attributable to increasing
long-term treasury yields.  Net unrealized gains and losses on available for
sale securities are reported as accumulated other comprehensive (loss) income in
the consolidated balance sheets.

Cash and Cash Equivalents



Cash and cash equivalents totaled $49.0 million at September 30, 2022 and
$75.2 million at December 31, 2021, including interest-bearing deposits in other
banks of $35.5 million at September 30, 2022 and $63.5 million at December 31,
2021.  Management believes the current level of cash and cash equivalents is
sufficient to meet the Corporation's present liquidity and performance needs
especially considering the availability of other funding sources, as described
below. Total cash and cash equivalents fluctuate on a daily basis due to
transactions in process and corresponding liquidity sources and uses. Management
believes the Corporation's liquidity needs in the near term will be satisfied by
the current level of cash and cash equivalents, readily available access to
traditional and non-traditional funding sources, and the portions of the
investment and loan portfolios that will mature within one year. These sources
of funds should enable the Corporation to meet cash obligations and off-balance
sheet commitments as they come due. In addition, the Corporation has access to
various sources of additional borrowings by virtue of long-term assets that can
be used as collateral for such borrowings.

Securities



Management monitors the earnings performance and liquidity of the securities
portfolio on a regular basis through Asset/Liability Committee (ALCO) meetings.
As a result, all securities, except FHLB stock, have been designated as
available-for-sale and may be sold if needed for liquidity, asset-liability
management or other reasons. Such securities are reported at fair value, with
any net unrealized gains or losses reported as a separate component of
shareholders' equity, net of related incomes taxes.

The amortized cost and fair value of available-for-sale securities as
of September 30, 2022 totaled $334.1 million and $275.5 million, respectively,
resulting in net unrealized loss before tax of $58.6 million and a corresponding
after-tax loss reflected in shareholders' equity of$46.3 million.  While the
unrealized loss negatively impacts tangible book value, and is being monitored
closely, the Corporation has significant sources of liquidity, mitigating the
risk of having to sell available-for-sale securities and realizing a loss.

Loans



The Corporation's primary lending areas are Northwestern, West Central, and
Central Ohio. Gross loans totaled $637.4 million at September 30, 2022, compared
to $609.6 million at December 31, 2021, an increase of $27.8 million (4.6%). As
compared to December 31, 2021, commercial and multi-family real estate loans
increased $33.1 million, residential 1-4 family real estate loans increased
$11.3 million, commercial loans decreased $16.5 million, and consumer loans
decreased $101,000.  Loans originated through the PPP program are included in
the Commercial segment and had an outstanding balance of $1.2 million as of
September 30, 2022 and $6.6 million at December 31, 2021. Excluding the impact
of PPP loans forgiven, loans increased $33.2 million at September 30, 2022 as
compared to December 31, 2021.

There are also unrecognized financial instruments at September 30, 2022 and December 31, 2021 which relate to commitments to extend credit and letters of credit. The contract amount of such financial instruments approximated $207.0 million at September 30, 2022 and $198.7 million at December 31, 2021.





Loan demand has been moderate through the first nine months of 2022, and it is
possible that uncertainties in economic conditions in our market areas
may lead to reductions in the growth of our commercial and industrial loan,
commercial real estate loan, residential real estate loan and consumer loan
portfolios.  The Corporation continues to source relationship-based clients in
markets and geographies that we are familiar with and understand.



                                       32

--------------------------------------------------------------------------------


  Table of Contents



Allowance for Loan Losses

The following table presents a summary of activity in the allowance for loan losses for the nine-month periods ended September 30, 2022 and 2021:





                                          (in thousands)
                                  Nine months ended September 30,
                                    2022                  2021
Balance, beginning of period   $        10,355       $         9,994
Provision for loan losses                    -                   300
Charge offs                                  -                    (5 )
Recoveries                                  45                    22
Net recoveries                              45                    17
Balance, end of period         $        10,400       $        10,311




The allowance for loan losses as a percentage of gross loans was 1.63% at
September 30, 2022, 1.70% at December 31, 2021, and 1.75% at September 30, 2021.
Excluding PPP loans and the related allocation of allowance, the allowance for
loan losses as a percentage of gross loans was 1.63% at September 30, 2022,
1.72% at December 31, 2021, and 1.82% at September 30, 2021.  Based on current
economic indicators, the Corporation increased the economic factors within the
allowance for loan losses evaluation.



Regular provisions are made in amounts sufficient to maintain the balance in the
allowance for loan losses at a level considered by management to be adequate for
losses within the portfolio. Even though management uses all available
information to assess possible loan losses, future additions or reductions to
the allowance may be required as changes occur in economic conditions and
specific borrower circumstances. The regulatory agencies that periodically
review the Corporation's allowance for loan losses may also require additions to
the allowance or the charge-off of specific loans based upon the information
available to them at the time of their examinations.



Loans on non-accrual status amounted to $1,014,000 at September 30, 2022 and
$320,000 at December 31, 2021. Non-accrual loans as a percentage of outstanding
loans amounted to 0.16% at September 30, 2022 and 0.05% at December 31, 2021.

There were $524,000 in commercial loans over 90 days but still accruing at September 30, 2022. These loans were originated through the PPP program and are pending a determination of forgiveness from the SBA.





The Corporation considers a loan to be impaired when it becomes probable that
the Corporation will be unable to collect under the contractual terms of the
loan based on current information and events. The Corporation had impaired loans
totaling $1,642,000 at September 30, 2022 and $1,948,000 at December 31, 2021



In addition to impaired loans the Corporation had other potential problem
credits, consisting of loans graded substandard or special mention, as well as
loans over 90 days past due, loans on non-accrual, and TDR loans, amounting
to $10.3 million at September 30, 2022 and $24.7 million at December 31, 2021.
The Corporation's credit administration department continues to closely monitor
these credits.





The Corporation provides pooled reserves for potential problem loans using loss
rates calculated considering historic net loan charge-off experience, as well as
other environmental and qualitative factors. The Corporation experienced no loan
charge-offs during the first nine months of 2022 compared to $5,000 during the
first nine months of 2021. The Corporation also provides pooled general reserves
for the remaining portion of its loan portfolio not considered to be problem or
potential problem loans. These general reserves are also calculated considering,
among other things, the historic net charge-off experience for the related loan
type.



                                       33

--------------------------------------------------------------------------------


  Table of Contents



Funding Sources



The Corporation considers a number of alternatives, including but not limited
to, deposits, as well as short-term and long-term borrowings when evaluating
funding sources. Deposits, including customer deposits, and public funds
deposits continue to be the most significant source of funds for the
Corporation, totaling $960.8 million, or 97.5% of the Corporation's outstanding
funding sources at September 30, 2022, compared to $930.4 million at December
31, 2021.

Non-interest bearing deposits comprised 22.6% of total deposits at September 30, 2022 and 21.0% at December 31, 2021.





In addition to traditional deposits, the Corporation maintains both short-term
and long-term borrowing arrangements. Other borrowings consisted of $6,250,000
and $7,012,000 of a term borrowing from the United Bankers' Bank (UBB) at
September 30, 2022 and December 31, 2021, respectively. The Corporation also has
outstanding junior subordinated deferrable interest debentures of $13,001,000
and $12,976,000 at September 30, 2022 and December 31, 2021, respectively.
Management plans to maintain access to various borrowing alternatives as an
appropriate funding source.



Regulatory Capital



The Corporation and Bank met all regulatory capital requirements as of September
30, 2022, and the Bank is considered "well capitalized" under regulatory and
industry standards of risk-based capital.



Cash Flow from Operations



As part of the Bank's hedging program, loans held for sale are accumulated into
larger blocks before being sold.  Depending on the timing of the sales of these
blocks, there could be a positive or negative impact to net income and cash flow
from operations.  As of September 30, 2022, loans held for sale amounted to
$8,078,000 compared to $9,146,000 as of December 31, 2021 resulting in a
positive impact to cash flow from operations for the nine month period ended
September 30, 2022 of $1,068,000.  There was a positive impact on cash flow from
operations for the nine-month period ended September 30, 2021 of $3,882,000 from
a decrease in loans held for sale. Excluding these changes in loans held for
sale, cash flow from operations for the nine months ended September 30, 2022 and
2021 would have been a positive $10,275,000 and $18,610,000, respectively.

Liquidity and Interest Rate Sensitivity

The objective of the Corporation's asset/liability management function is to maintain consistent growth in net interest income through management of the Corporation's balance sheet liquidity and interest rate exposure based on changes in economic conditions, interest rate levels, and customer preferences.





The Corporation manages interest rate risk to minimize the impact of fluctuating
interest rates on earnings. The Corporation uses simulation techniques that
attempt to measure the volatility of changes in the level of interest rates,
basic banking interest rate spreads, the shape of the yield curve, and the
impact of changing product growth patterns. The primary method of measuring the
sensitivity of earnings of changing market interest rates is to simulate
expected cash flows using varying assumed interest rates while also adjusting
the timing and magnitude of non-contractual deposit re-pricing to more
accurately reflect anticipated pricing behavior. These simulations include
adjustments for the lag in prime loan re-pricing and the spread and volume
elasticity of interest-bearing deposit accounts, regular savings and money
market deposit accounts.



The principal function of interest rate risk management is to maintain an
appropriate relationship between those assets and liabilities that are sensitive
to changing market interest rates. The Corporation closely monitors the
sensitivity of its assets and liabilities on an ongoing basis and projects the
effect of various interest rate changes on its net interest margin. Interest
sensitive assets and liabilities are defined as those assets or liabilities that
mature or re-price within a designated time frame.



Management believes the Corporation's current mix of assets and liabilities
provides a reasonable level of risk related to significant fluctuations in net
interest income and the resulting volatility of the Corporation's earning base.
The Corporation's management reviews interest rate risk in relation to its
effect on net interest income, net interest margin, and the volatility of the
earnings base of the Corporation.

Effects of Inflation on Financial Statements





All of the Corporation's assets relate to commercial banking operations and are
generally monetary in nature. Therefore, they are not impacted by inflation to
the same degree as companies in capital-intensive industries in a replacement
cost environment. During a period of rising prices, a net monetary asset
position results in loss of purchasing power and conversely a net monetary
liability position results in an increase in purchasing power. In the commercial
banking industry, monetary assets typically exceed monetary liabilities. The
Corporation has not experienced a significant level of inflation or deflation
during the nine-month period ended September 30, 2022. Management continues to
closely monitor interest rate sensitivity trends through the Corporation's asset
liability management program and in calculating the allowance for loan losses.



                                       34

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses