What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 199 added, 196 removed, 380 unchanged (51% of the section changed)

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materially from those expressed or implied in such statements.

Risks and uncertainties that could cause actual results to differ materially

include, without limitation:

● the ever-changing effects of the novel coronavirus

(COVID-19) pandemic – the duration, extent and severity of which are impossible to predict, including the possibility of further

resurgence of the spread of COVID-19 and variants thereof -- on national, regional and local economies, supply chains, labor markets and

on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental

and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19

pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the development,

Risks and uncertainties that

could cause actual results to differ materially include, without limitation:

ever-changing effects of the novel coronavirus (COVID-19) pandemic – the duration,

extent and severity of which are impossible to predict, including the possibility of further

resurgence of the spread of COVID-19 and variants thereof -- on national, regional and local

economies, supply chains, labor markets and on our customers, counterparties, employees and

third-party service providers, as well as the effects of various responses of governmental

and nongovernmental authorities to the COVID-19 pandemic, including public health actions

directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs

and other restrictions on travel and commercial, social or other activities), the development,

availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages;

● current and future economic and financial market

conditions, either nationally or in the states in which we do business, including the effects of inflation, U.S.

fiscal debt, budget and

tax matters, geopolitical matters (including the conflict in Ukraine), and any slowdown in global economic growth, in addition to the

continuing impact of the COVID-19 pandemic on our customers’ operations and financial condition, any of which may result in adverse

impacts on our deposit levels and composition, the quality of investment securities available for purchase, demand for loans, the ability

of our borrowers to repay their loans, and the value of the collateral securing loans;

and future economic and financial market conditions, either nationally or in the states in

which we do business, including the effects of inflation, U.S.

fiscal debt, budget and tax

matters, geopolitical matters (including the conflict in Ukraine), and any slowdown in global

economic growth, in addition to the continuing impact of the COVID-19 pandemic on our customers’

operations and financial condition, any of which may result in adverse impacts on our deposit

levels and composition, the quality of investment securities available for purchase, demand

for loans, the ability of our borrowers to repay their loans, and the value of the collateral

securing loans;

● changes in interest rates resulting from national

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● changes in customers’, suppliers’,

and other counterparties’ performance and creditworthiness may be different than anticipated due to the continuing impact of and

the various responses to the COVID-19 pandemic;

and other counterparties’ performance and creditworthiness may be different than anticipated due to the continuing inflationary

pressures and the continuing impact of the COVID-19 pandemic;

● operational risks, reputational risks, legal

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historical losses, adjusted for current trends, for each homogeneous category or group of loans.

The allowance for credit losses relating

The allowance for loan losses relating

to impaired loans is based on the loan’s observable market price, the collateral for certain collateral-dependent loans, or the

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that could adversely impact earnings for future periods.

Three Months Ended June 30, 2022 compared

to Three Months Ended June 30, 2021

Net income for the second

quarter of 2022 was $2.8 million compared to net income of $3.8 million for the second quarter of 2021, a decrease of 24.6 percent.

earnings per share (“DEPS”) of $0.40 were down 23.1 percent from DEPS of $0.52 for the second quarter of 2021.

for the second quarter of 2022 was positively impacted by the Company’s recapture of temporary impairment of $0.24 million on its

mortgage servicing rights.

The 2021 second quarter was negatively impacted by temporary impairment of mortgage servicing rights of $0.1

Net income for the second quarter of 2022 was negatively impacted by the significant decline in mortgage loan volume and loan

sales, as compared to the same period in 2021, as rising rates reduced refinance activity and compressed inventories of available housing

constrained new purchase volume.

Mortgage loan volume was down nearly 42 percent during the second quarter of 2022, and a lower percentage

of originated volume was sold on the secondary market, as compared to the same period in 2021.

In addition, Paycheck Protection Program

(“PPP”) related revenue compared to the prior year was down by $2.05 million.

Three Months Ended September 30, 2022 compared

to Three Months Ended September 30, 2021

Net income for the third

quarter of 2022 was $3.3 million compared to net income of $4.1 million for the third quarter of 2021, a decrease of 18.5 percent.

earnings per share (“DEPS”) of $0.47 were down 19.0 percent from DEPS of $0.58 for the third quarter of 2021.

Net income for

the third quarter of 2022 was positively impacted by the Company’s recapture of temporary impairment of $0.07 million on its mortgage

servicing rights, while net income for the 2021 third quarter was positively impacted by a recovery of mortgage servicing rights of $0.25

Net income for the third quarter of 2022 was negatively impacted by the significant decline in mortgage loan volume and loan

sales, as compared to the same period in 2021, as rising rates have nearly eliminated all refinance activity and continued compression

of available housing inventory has constrained new purchase volume.

Mortgage loan volume was down over 55 percent during the third quarter

of 2022, and a lower percentage of originated volume was sold on the secondary market, as compared to the same period in 2021.

Paycheck Protection Program (“PPP”) related revenue compared to the prior year was down by $1.13 million.

Provision for Loan Losses:

quarter provision for loan losses was zero for both the current and prior year quarters.

The total reserve level of $13.8 million is up

nearly 4 percent from the prior year.

Given that level of reserve (1.54 percent), zero provision for the quarter was appropriate.

charge-offs for the quarter were $3,000 compared to net charge-offs of $20,000 for the year-ago quarter.

Total delinquent loans ended

the quarter at $2.9 million, or 0.32 percent of total loans, which is down $0.6 million from the prior year.

quarter provision for loan losses was zero as compared to $0.3 million for the prior year quarter.

Net recoveries for the quarter were

$23,000 compared to net recoveries of $206,000 for the year-ago quarter.

Total delinquent loans ended the quarter at $2.9 million, or

0.31 percent of total loans, which is flat to the prior year.

Asset Quality Review – For the Period Ended

($ in thousands)

Net charge-offs – QTD/YTD

September 30,

Net recoveries – QTD/YTD

($206)/($188)

Nonaccruing loans

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Total revenue,

consisting of net interest income and noninterest income, was $14.3 million for the second quarter of 2022, a decrease of $1.4 million,

or 9.1 percent, from the $15.7 million generated during the second quarter of 2021.

Net interest income (“NII”) was $9.6

million, which is up $0.4 million from the prior year second quarter’s $9.2 million.

The Company’s earning assets decreased

$35.1 million, but the average yield on earning assets increased by 20 basis points.

The net interest margin, for the second quarter of

2022 was 3.16 percent compared to 2.93 percent for the second quarter of 2021.

Funding costs (interest paid to consumers and other entities)

for interest bearing liabilities for the second quarter of 2022 were 0.39 percent compared to 0.44 percent for the prior year second quarter.

PPP fees and interest increased the 2021 net interest margin by 12 basis points.

Noninterest income was $4.7 million for the second

quarter of 2022, which was down $1.9 million from the prior year second quarter’s $6.5 million.

consisting of net interest income and noninterest income, was $14.5 million for the third quarter of 2022, a decrease of $2.2 million,

or 13.2 percent, from the $16.7 million generated during the third quarter of 2021.

Net interest income (“NII”) for the

third quarter of 2022 was $10.4 million, which was up $0.4 million from the prior year third quarter’s $10.0 million.

the third quarter of 2022 to the prior year third quarter, the Company’s earning assets decreased $43.8 million, but the average

yield on earning assets increased by 47 basis points.

The net interest margin, for the third quarter of 2022 was 3.46 percent compared

to 3.21 percent for the third quarter of 2021.

Funding costs (interest paid to consumers and other entities) for interest bearing liabilities

for the third quarter of 2022 were 0.58 percent compared to 0.44 percent for the prior year third quarter.

PPP fees and interest increased

the 2021 net interest margin by 31 basis points.

Noninterest income was $4.0 million for the third

quarter of 2022, which was down $2.6 million from the prior year third quarter’s $6.6 million.

In addition to the mortgage revenue

detailed below, wealth management revenue was $0.9 million.

Recapture of our mortgage servicing rights impairment increased noninterest

income by $0.2 million in the quarter.

Our title agency contributed revenue of $0.7 million in the second quarter of 2022, up $0.2 million

from the prior year.

Noninterest income as a percentage of average assets for the second quarter of 2022 was 1.43 percent compared to

1.97 percent for the prior year second quarter.

detailed below, wealth management revenue was $0.9 million for the third quarter of 2022.

Recapture of our mortgage servicing rights impairment

increased noninterest income by $0.07 million in the quarter.

Our title agency contributed revenue of $0.5 million in the third quarter

of 2022, even to the prior year.

Noninterest income as a percentage of average assets for the third quarter of 2022 was 1.24 percent compared

to 1.99 percent for the prior year third quarter.

State Bank originated $68.6 million of mortgage

loans for the second quarter of 2022, of which $49.9 million was sold with the remainder of loans held for investment.

loans for the third quarter of 2022, of which $39.2 million was sold with the remainder of loans held for investment.

This compares to

$164.9 million originated for the second quarter of 2021, of which $119.1 million was sold with the remainder of loans held for investment.

These second quarter 2022 originations and subsequent sales resulted in $1.2 million of gains, down $3.1 million from the gains for the

second quarter of 2021.

Net mortgage banking revenue was $1.8 million for the second quarter of 2022 compared to $4.0 million for the

second quarter of 2021.

The 2022 second quarter included a $0.2 million recapture of our mortgage servicing rights impairment compared

to a $0.1 million valuation impairment for the second quarter of 2021.

$152.6 million originated for the third quarter of 2021, of which $123.1 million was sold with the remainder of loans held for investment.

These third quarter 2022 originations and subsequent sales resulted in $0.9 million of gains, down $3.1 million from the gains for the

third quarter of 2021.

Net mortgage banking revenue was $1.4 million for the third quarter of 2022 compared to $4.1 million for the third

quarter of 2021.

The 2022 third quarter included a $0.07 million recapture of our mortgage servicing rights impairment compared to a $0.25

million valuation recapture for the third quarter of 2021.

As detailed above, mortgage loan originations have decreased significantly

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Consolidated Noninterest Expense:

Noninterest expense for the second quarter of 2022 was $10.8 million, which was down $0.3 million compared to $11.1 million in the prior-year

second quarter.

The second quarter of 2022 included lower commission and incentives on mortgage sales, offset by higher equipment expense

Noninterest expense for the third quarter of 2022 was $10.4 million, which was down $0.9 million compared to $11.3 million in the prior-year

third quarter.

The third quarter of 2022 included lower commission and incentives on mortgage sales, offset by higher equipment expense

due to several technology related improvements.

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Income taxes for the

second quarter of 2022 were $0.6 million (effective rate of 18.2 percent) compared to $0.9 million (effective rate of 18.6 percent) for

the second quarter of 2021.

Six Months Ended June 30, 2022 compared

to Six Months Ended June 30, 2021

third quarter of 2022 were $0.7 million (effective rate of 18.2 percent) compared to $1.0 million (effective rate of 19.8 percent) for

the third quarter of 2021.

Nine Months Ended September 30, 2022 compared

to Nine Months Ended September 30, 2021

Net income for the first

six months of 2022 was $5.6 million compared to net income of $10.8 million for the first six months of 2021, a decrease of 47.9 percent.

DEPS of $0.79 were down 47.0 percent from DEPS of $1.49 for the first six months of 2021.

nine months of 2022 was $9.0 million compared to net income of $14.9 million for the first nine months of 2021, a decrease of 39.9 percent.

DEPS of $1.27 were down 38.9 percent from DEPS of $2.08 for the first nine months of 2021.

Net income for both periods were positively

impacted by the recapture of the Company’s temporary mortgage servicing rights impairment in the amounts of $1.2 million and $2.9

million for the first six months of 2022 and 2021, respectively.

Net income for the first six months of 2022 was negatively impacted by

the significant decline in mortgage loan volume and loan sales, as compared to the same period in 2021, as rising rates reduced refinance

million for the first nine months of 2022 and 2021, respectively.

Net income for the first nine months of 2022 was negatively impacted

by the significant decline in mortgage loan volume and loan sales, as compared to the same period in 2021, as rising rates reduced refinance

activity and compressed inventories of available housing constrained new purchase volume.

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Loan growth since December 31, 2021 was $102.7

million with remaining balances on PPP loans down to $0.6 million at June 30, 2022.

million with remaining balances on PPP loans down to $0.1 million at September 30, 2022.

Provision for Loan Losses:

for loan losses for the first six months of 2022 was $0.0 million, compared to $0.75 million for the year-ago period.

for loan losses for the first nine months of 2022 was $0.0 million, compared to $1.05 million for the year-ago period.

The Company had

net charge-offs of $4,000 for the first six months of 2022 compared to net charge-offs of $18,000 for the year-ago period.

net recoveries of $19,000 for the first nine months of 2022 compared to net recoveries of $188,000 for the year-ago period.

Consolidated Revenue:

Total revenue,

consisting of net interest income and noninterest income, was $28.5 million for the first six months of 2022, a decrease of $7.7 million,

or 21.2 percent, from the $36.2 million generated during the first six months of 2021.

consisting of net interest income and noninterest income, was $43.0 million for the first nine months of 2022, a decrease of $9.9 million,

or 18.7 percent, from the $52.9 million generated during the first nine months of 2021.

Net interest income was $28.5 million for the

first six months of 2022, which was down $0.7 million from $18.8 million for the prior year first six months.

first nine months of 2022, which was down $0.3 million from $28.8 million for the prior year first nine months.

Included in NII for the

first six months of 2022 was $0.1 million in fees and interest from PPP loans compared to $2.2 million for the prior year first six months.

The Company’s earning assets increased $15.7 million, but the yield on average earning assets decreased 20 basis points.

interest margin for the first six months of 2022 was 2.91 percent compared to 3.06 percent for the first six months of 2021.

Funding costs

for interest bearing liabilities for the first six months of 2022 were 0.38 percent compared to 0.47 percent for the prior year similar

first nine months of 2022 was $0.1 million in fees and interest from PPP loans compared to $3.3 million for the prior year first nine

Comparing the first nine months of 2022 to the first nine months of 2021, the Company’s earning assets decreased $4.4 million,

and the yield on average earning assets decreased 2 basis points.

The net interest margin for the first nine months of 2022 was 3.09 percent

compared to 3.12 percent for the first nine months of 2021.

Funding costs for interest bearing liabilities for the first nine months of

2022 were 0.45 percent compared to 0.46 percent for the prior year similar period.

Noninterest income was $14.5 million for the first

six months of 2022, which was down $7.0 million from $17.5 million for the prior year first six months.

In addition to the mortgage revenue

detailed below, wealth management revenue was $1.9 million.

Recapture of mortgage servicing rights impairment increased noninterest income

by $1.1 million in the period, compared to an increase of $2.6 million in the prior year.

During the first six months, we sold $2.7 million

in Small Business Administration (“SBA”) loans, with gains on sale of $0.3 million.

Our title agency contributed revenue of

$1.3 million in the first six months of 2022.

Noninterest income as a percentage of average assets for the first six months of 2022 was

1.58 percent compared to 2.67 percent for the prior year first six months.

nine months of 2022, which was down $9.6 million from $24.1 million for the prior year first nine months.

In addition to the mortgage

revenue detailed below, wealth management revenue was $2.8 million.

During the first nine months, we sold $3.7 million in Small Business

Administration (“SBA”) loans, with gains on sale of $0.5 million.

Our title agency contributed revenue of $1.8 million in

the first nine months of 2022.

Noninterest income as a percentage of average assets for the first nine months of 2022 was 1.47 percent

compared to 2.44 percent for the prior year first nine months.

State Bank originated $261.4 million of mortgage

loans for the first six months of 2022, which resulted in $122.1 million in loan proceeds, with the remainder of loans held for investment.

This compares to $320.7 million originated for the first six months of 2021, of which $255.8 million of loans were sold with the remainder

loans for the first nine months of 2022, which resulted in $161.2 million in loan sales, with the remainder of loans held for investment.

This compares to $473.3 million originated for the first nine months of 2021, of which $378.9 million of loans were sold with the remainder

of loans held for investment.

These originations and subsequent sales resulted in $2.9 million of gains, compared to $10.1 million of

gains for the first six months of 2021.

Net mortgage banking revenue was $4.7 million for the first six months of 2022 compared to $12.3

million for the first six months of 2021.

These originations and subsequent sales resulted in $3.7 million of gains for the first nine months of 2022,

compared to $14.1 million of gains for the first nine months of 2021.

Net mortgage banking revenue was $6.1 million for the first nine

months of 2022 compared to $16.4 million for the first nine months of 2021.

Consolidated Noninterest Expense:

Noninterest expense for the first six months of 2022 was $21.7 million, which was down slightly compared to the $22.0 million in the prior-year

first six months.

The first half of 2022 included lower incentives on mortgage activity and higher unfilled salaried positions throughout

the Company, which was offset by higher data processing and professional fee expense due to expanded implementation of technology solutions.

Noninterest expense for the first nine months of 2022 was $32.0 million, which was down $1.2 million compared to the $33.2 million in

the prior-year first nine months.

For the year to date in 2022, lower incentives on mortgage activity and higher unfilled salaried positions

throughout the Company, were offset by higher data processing and professional fee expense due to expanded implementation of technology

Income Taxes:

Income taxes for the

first six months of 2022 were $1.2 million (effective rate of 18.0 percent) compared to $2.7 million (effective rate of 19.7 percent)

for the first six months of 2021.

In addition to the impact of the lower pretax income, the first six months of 2022 was impacted by having

additional earning assets that are tax free in nature.

first nine months of 2022 were $2.0 million (effective rate of 18.1 percent) compared to $3.7 million (effective rate of 19.8 percent)

for the first nine months of 2021.

In addition to the impact of the lower pretax income, the first nine months of 2022 was impacted by

having additional earning assets that are tax free in nature.

Changes in Financial Condition

Total assets at June 30, 2022 were $1.29 billion,

a decrease of $36.9 million, or 2.8 percent, since December 31, 2021.

Total loans, net of unearned income, were $895.6 million as of June

30, 2022, up $73.0 million, or 8.9 percent, from year-end.

PPP loan balances of $0.6 million and $2.0 million were included in our total

loans at June 30, 2022 and December 31, 2021, respectively.

Total deposits at June 30, 2022 were $1.07 billion,

a decrease of $41.3 million or 3.77 percent since 2021 year end.

Borrowed funds (consisting of FHLB advances, federal funds borrowed,

REPO agreements, trust preferred securities and subordinated debt) totaled $85.7 million at June 30, 2022.

This is up from year-end 2021

when borrowed funds totaled $50.7 million due to an increase in REPO agreements, federal funds borrowed, and FHLB advances.

for the Company of $124.6 million now stands at 9.6 percent of total assets compared to the December 31, 2021 level of $144.9 million

and 10.9 percent of total assets.

The reduction was due to a $20.4 million increase in the unrealized loss on the Company’s investment

Total assets at September 30, 2022 were $1.30

billion, a decrease of $27.5 million, or 2.1 percent, since December 31, 2021.

Total loans, net of unearned income, were $925.2 million

as of September 30, 2022, up $102.7 million, or 12.5 percent, from year-end.

PPP loan balances of $0.1 million and $2.0 million were included

in our total loans at September 30, 2022 and December 31, 2021, respectively.

Total deposits at September 30, 2022 were $1.09

billion, a decrease of $27.2 million, or 2.4 percent, since 2021 year end.

Borrowed funds (consisting of FHLB advances, federal funds

borrowed, REPO agreements, trust preferred securities and subordinated debt) totaled $84.6 million at September 30, 2022.

This is up from

year-end 2021 when borrowed funds totaled $50.7 million due to an increase in REPO agreements and FHLB advances.

Total equity for the

Company of $114.6 million now stands at 8.8 percent of total assets compared to the December 31, 2021 level of $144.9 million and 10.9

percent of total assets.

The reduction was due to a $31.6 million increase in the unrealized loss on the Company’s investment portfolio.

The allowance for loan loss of $13.8 million is

flat from the December 2021 year end level.

The Company's loan growth was offset

by continued improvement of overall asset quality metrics, including reductions in non-performing assets and delinquencies.

Other liabilities are down $10.2 million from

December 31, 2021 due to escrow balances held for our serviced mortgage customers at December 31 that were paid in the first quarter of

2022, and a reclassification of deferred taxes resulting from a change in unrealized losses in the securities portfolio.

The Company’s loan growth was offset by continued improvement of overall asset quality metrics,

including reductions in non-performing assets and delinquencies.

Other liabilities are down $4.3 million from December

31, 2021 due to escrow balances held for our serviced mortgage customers at December 31 that were paid in the first quarter of 2022, and

a reclassification of deferred taxes resulting from a change in unrealized losses in the securities portfolio.

Capital Resources

As of June 30, 2022, based on the computations

As of September 30, 2022, based on the computations

for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve Board, State Bank was classified

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maintain capital ratios as set forth in the table below.

There are no conditions or events since June 30, 2022 that management believes

There are no conditions or events since September 30, 2022 that management believes

have changed State Bank’s capital classification.

State Bank’s actual capital levels and ratios

as of June 30, 2022 and December 31, 2021 are presented in the following table.

Capital levels are presented for State Bank only as the

Company is exempt from quarterly reporting on capital levels at the holding company level:

To Be Well Capitalized

as of September 30, 2022 and December 31, 2021 are presented in the following table.

Capital levels are presented for State Bank only

as the Company is exempt from quarterly reporting on capital levels at the holding company level:

For Capital Adequacy

Under Prompt Corrective

Action Procedures

To Be Well Capitalized Under

Prompt Corrective Action

($ in thousands)

As of June 30, 2022

As of September 30, 2022

Tier I Capital to average assets

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Tier I Capital to risk-weighted assets

Total Risk-based capital to risk-weighted assets

Total Risk-based capital to risk-weighted

Regulatory capital requirements commonly referred

to as “Basel III” were fully phased in as of January 1, 2019 and are reflected in the June 30, 2022 capital table above.

to as “Basel III” were fully phased in as of January 1, 2019 and are reflected in the September 30, 2022 capital table above.

Management opted out of the accumulated other comprehensive income treatment under the new requirements and, as such, unrealized gains

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Liquid assets totaled $276.3

million at June 30, 2022, compared to $422.9 million at December 31, 2021.

million at September 30, 2022, compared to $422.9 million at December 31, 2021.

Liquidity risk arises from the possibility that

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The Company’s commercial real estate, first

mortgage residential, agricultural and multi-family mortgage portfolio of $706.5 million at June 30, 2022 and $645.1 million at December

mortgage residential, agricultural and multi-family mortgage portfolio of $730.9 million at September 30, 2022 and $645.1 million at December

31, 2021, which can and has been used to collateralize borrowings, is an additional source of liquidity.

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current liquidity level, without these borrowings, is sufficient to meet its liquidity needs.

At June 30, 2022, all eligible commercial

At September 30, 2022, all eligible commercial

real estate, first mortgage residential and multi-family mortgage loans were pledged under an FHLB blanket lien.

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an adequate level of liquidity.

A discussion of the cash flow statements for the six months ended June 30, 2022 and 2021 follows.

A discussion of the cash flow statements for the nine months ended September 30, 2022 and 2021 follows.

The Company experienced positive cash flows from

operating activities for the six months ended June 30, 2022 and June 30, 2021.

Net cash provided by operating activities was $3.7 million

for the six months ended June 30, 2022 and $2.0 million for the six months ended June 30, 2021.

Highlights for the current year include

$125.1 million in proceeds from the sale of loans, which is down $130.7 million from the prior year.

Originations of loans held for sale

was a use of cash of $119.9 million, which is down from the prior year by $129.6 million.

For the six months ended June 30, 2022, there

was a gain on sale of loans of $3.2 million, and depreciation and amortization of $1.1 million.

operating activities for the nine months ended September 30, 2022 and September 30, 2021.

Net cash provided by operating activities was

$12.8 million for the nine months ended September 30, 2022 and $6.0 million for the nine months ended September 30, 2021.

Highlights for

the current year include $165.3 million in proceeds from the sale of loans, which is down $213.6 million from the prior year.

of loans held for sale was a use of cash of $158.3 million, which is down from the prior year by $213.2 million.

For the nine months ended

September 30, 2022, there was a gain on sale of loans of $4.2 million, and depreciation and amortization of $1.6 million.

The Company experienced negative cash flows from

investing activities for the six months ended June 30, 2022 and June 30, 2021.

Net cash used in investing activities was $111.3 million

for the six months ended June 30, 2022 and $43.4 million for the six months ended June 30, 2021.

Highlights for the current year include

purchases of available-for-sale securities of $50.6 million.

These cash payments were offset by $21.4 million in proceeds from maturities

and sales of securities, which is down $1.9 million from the prior year six-month period.

The Company experienced a $73.1 million increase

in loans, which is up $93.7 million from the prior year six-month period.

investing activities for the nine months ended September 30, 2022 and September 30, 2021.

Net cash used in investing activities was $133.0

million for the nine months ended September 30, 2022 and $77.9 million for the nine months ended September 30, 2021.

Highlights for the

current year include purchases of available-for-sale securities of $50.6 million.

These cash payments were offset by $29.9 million in

proceeds from maturities and sales of securities, which is down $4.7 million from the prior year nine-month period.

The Company experienced

a $102.7 million increase in loans, which is up $127.4 million from the prior year nine-month period.

The Company experienced negative cash flows from

financing activities for the six months ended June 30, 2022 and positive cash flows for the six months ended June 30, 2021.

Net cash used

by financing activities was $12.3 million for the six months ended June 30, 2022 and net cash provided by financing activities was $55.6

million for the six months ended June 30, 2021.

Highlights for the current period include a $27.0 million decrease in transaction deposits

for the six months ended June 30, 2022, which is down $125.9 million from the prior year.

Certificates of deposit decreased by $14.2 million

in the current year compared to $56.9 million for the prior year six-month period.

Proceeds from Federal Home Loan Bank advances for the

six months ended June 30, 2022 were $25.0 million, an increase of $25.0 million from the prior year six-month period.

financing activities for the nine months ended September 30, 2022 and positive cash flows for the nine months ended September 30, 2021.

Net cash used by financing activities was $1.4 million for the nine months ended September 30, 2022 and net cash provided by financing

activities was $69.2 million for the nine months ended September 30, 2021.

Highlights for the current period include a $45.9 million decrease

in transaction deposits for the nine months ended September 30, 2022, which is down $179.5 million from the prior year.

Certificates of

deposit increased by $18.7 million in the current year compared to a decrease of $71.0 million for the prior year nine-month period.

proceeds from Federal Home Loan Bank advances for the nine months ended September 30, 2022 were $29.5 million, an increase of $27.0 million

from the prior year nine-month period.

ALCO uses an economic value of equity (“EVE”)

2 unchanged sentences

from -400 basis points to +400 basis points.

The likelihood of a significant decrease in rates as of June 30, 2022 and December 31, 2021

The likelihood of a significant decrease in rates as of September 30, 2022 and December 31,

2021 was considered unlikely given the current interest rate environment and therefore, only the minus 100 and 200 basis point rate change

was included in this analysis.

The results are reflected in the following tables for June 30, 2022 and December 31, 2021.

The results are reflected in the following tables for September 30, 2022 and December 31, 2021.

Economic Value of Equity

June 30, 2022

September 30, 2022

($ in thousands)

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real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of $732.4 million were

pledged to meet FHLB collateralization requirements as of June 30, 2022.

Based on the current collateralization requirements of the FHLB,

the Company had approximately $96.6 million of additional borrowing capacity at June 30, 2022.

The Company also had $176.9 million in

unpledged securities available to pledge for additional borrowings.

pledged to meet FHLB collateralization requirements as of September 30, 2022.

Based on the current collateralization requirements of the

FHLB, the Company had approximately $92.3 million of additional borrowing capacity at September 30, 2022.

The Company also had $154.6

million in unpledged securities available to pledge for additional borrowings.

The Company’s contractual obligations as

of June 30, 2022 were comprised of long-term debt obligations, other debt obligations, operating lease obligations and other long-term

of September 30, 2022 were comprised of long-term debt obligations, other debt obligations, operating lease obligations and other long-term

Long-term debt obligations were comprised of trust preferred securities of $10.3 million, and subordinated debt of $20.0

million, or $19.5 million, net of issuance costs.

Total time deposits at June 30, 2022 were $142.3 million, of which $82.2 million mature

beyond one year.

In addition, as of June 30, 2022, the Company

Total time deposits at September 30, 2022 were $175.2 million, of which $144.2 million

mature beyond one year.

In addition, as of September 30, 2022, the Company

had commitments to sell mortgage loans totaling $9.3 million.

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The Federal Reserve Board together with

the Office of the Comptroller of the Currency and the Federal Deposit Insurance Company adopted a Joint Agency Policy Statement on interest

rate risk effective June 26, 1996.

The policy statement provides guidance to examiners and bankers on sound practices for managing interest

rate risk, which will form the basis for ongoing evaluation of the adequacy of interest rate risk management at supervised institutions.

the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation adopted a Joint Agency Policy Statement on

Interest Rate Risk effective June 26, 1996.

The policy statement provides guidance to examiners and bankers on sound practices for managing

interest rate risk, which will form the basis for ongoing evaluation of the adequacy of interest rate risk management at supervised institutions.

The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve Board guidance

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis