What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-11 compared with 2022-11-04 · 610 added, 511 removed, 782 unchanged (59% of the section changed)

8 unchanged sentences

Loans, net of unearned income

Allowance for loan losses

Allowance for credit losses

Premises and equipment, net

9 unchanged sentences

Total deposits

Short-term borrowings

Repurchase agreements

Federal Home Loan Bank advances

10 unchanged sentences

Common stock, no par value;

authorized 10,500,000 shares;

2022 - 8,525,375 shares issued, 2021 - 8,180,712 shares issued

2023 - 10,500,000 shares authorized, 8,525,375 shares issued;

2022 - 10,500,000 shares authorized, 8,525,375 shares issued

Additional paid-in capital

2 unchanged sentences

Treasury stock, at cost;

(2022 - 1,575,061 common shares, 2021 - 1,296,382 common shares)

(2023 - 1,568,056 common shares;

2022 - 1,589,913 common shares)

Total shareholders’ equity

1 unchanged sentence

See notes to condensed consolidated financial statements (unaudited)

The balance sheet at December 31, 2021 has been derived

from the audited consolidated financial statements at that date.

SB Financial Group, Inc.

2 unchanged sentences

Interest Income

Other interest income

Total interest income

6 unchanged sentences

Net Interest Income

Provision for loan losses

Net interest income after provision for loan losses

Provision for credit losses

Net interest income after provision for credit losses

Noninterest Income

5 unchanged sentences

Title insurance income

Gain (loss) on sale/disposal of assets

Total noninterest income

10 unchanged sentences

Employee expense

Other expenses

Other expense

Total noninterest expense

3 unchanged sentences

Diluted earnings per common share

Average common shares outstanding (in thousands):

See notes to condensed consolidated

2 unchanged sentences

($ in thousands)

Other comprehensive loss

Available for sale investment securities:

Gross unrealized holding loss arising in the period

Other comprehensive gain (loss)

Investment securities available for sale Available for sale investment securities:

Gross unrealized holding gain (loss) arising in the period

Related tax benefit

Net effect on other comprehensive loss

Net effect on other comprehensive income (loss)

Total comprehensive income (loss)

1 unchanged sentence

Consolidated Statements of Shareholders’ Equity (unaudited)

Comprehensive

Other Comprehensive

in thousands, except per share data)

Income (Loss)

January 1, 2023

Other comprehensive loss

Stock dividends on common ( 344,663 shares)

Other comprehensive income

Adoption of ASU 2016-13

Cash dividends on common, $ 0.125 per share

3 unchanged sentences

March 31, 2023

Other comprehensive loss

Dividends on common, $ 0.12 per share

Repurchased stock ( 94,211 shares)

Stock based compensation expense

Balance, June 30, 2022

Other comprehensive loss

Dividends on common, $ 0.12 per share

Restricted stock vesting

Repurchased stock ( 77,326 shares)

Stock based compensation expense

Balance, September 30, 2022

Comprehensive

Other Comprehensive

in thousands, except per share data)

Income (Loss)

January 1, 2022

Other comprehensive loss

Dividends on common, $ 0.105 per share

Stock dividends on common - 344,663 shares

Cash dividends on common, $ 0.115 per share

Restricted stock vesting

2 unchanged sentences

March 31, 2022

Other comprehensive income

Dividends on common, $ 0.11 per share

Repurchased stock ( 215,097 shares)

Stock based compensation expense

Balance, June 30, 2021

Other comprehensive loss

Dividends on common, $ 0.11 per share

Restricted stock vesting

Repurchased stock ( 106,911 shares)

Stock based compensation expense

Balance, September 30, 2021

See notes to condensed consolidated financial statements (unaudited)

2 unchanged sentences

Flows (unaudited)

September 30,

($ in thousands)

2 unchanged sentences

Depreciation and amortization

Provision for loan losses

Provision for credit losses

Expense of share-based compensation plan

8 unchanged sentences

Interest payable & other liabilities

Net cash provided by operating activities

Net cash used in operating activities

Investing Activities

4 unchanged sentences

Purchase of premises, equipment

Purchase of bank owned life insurance

Purchase of Federal Reserve and Federal Home Loan Bank Stock

Proceeds from sale of Federal Reserve and Federal Home Loan Bank Stock

Proceeds from sale of Federal Home Loan Bank Stock

Proceeds from sale of foreclosed assets

1 unchanged sentence

Financing Activities

Net increase (decrease) in demand deposits, money market, interest checking

& savings accounts

Net increase (decrease) in demand deposits, money market, interest checking & savings accounts

Net increase (decrease) in time deposits

Net increase in short term borrowings

Net increase in securities sold under agreements to repurchase

Proceeds from Federal Home Loan Bank advances

Repayment of Federal Home Loan Bank advances

Net proceeds from subordinated debt

Stock repurchase plan

Dividends on common shares

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Net cash provided by financing activities

Decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

2 unchanged sentences

Interest paid

Income taxes paid

Supplemental non-cash disclosure

Transfer of loans to foreclosed assets

Stock dividends declared and paid

10 unchanged sentences

and Rurban Statutory Trust II (“RST II”).

RDSI is presently inactive and has had no material operations or employees.

State Bank owns all of the outstanding stock of Rurban Mortgage Company (“RMC”), which is inactive, and State Bank Insurance,

RDSI is presently inactive and has had no material operations or employees since

In addition, State Bank owns all of the outstanding stock of Rurban Mortgage Company (“RMC”), which is inactive, and

State Bank Insurance, LLC (“SBI”).

The consolidated financial statements include

11 unchanged sentences

recurring adjustments.

Results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of

results for the complete year.

Results of operations for the three months ended March 31, 2023, are not necessarily indicative of results for

the complete year.

The condensed consolidated balance sheet of the

3 unchanged sentences

New and applicable accounting pronouncements:

Accounting Standards Update (ASU) No.

Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and

Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323 and Topic 815

This guidance was issued in January 2020 to clarify

that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting

under Topic 323, Investments-Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance

with Topic 321 immediately before applying or upon discontinuing the equity method.

The amendments also clarify that when determining

the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise,

if the underlying securities would be accounted for under the equity method or fair value option.

The guidance is effective for fiscal

years beginning after December 15, 2020, and interim periods within those fiscal years.

The impact of this new guidance did not have a

material impact on the Company’s consolidated financial statements.

Accounting Standards not yet adopted:

Reference Rate Reform –

5 unchanged sentences

The guidance is effective as of March 12, 2020 through December 31, 2022.

The Company anticipates being fully

prepared to implement a replacement for the reference rate and has determined that any change will not have a material impact on the Company’s

consolidated financial statements.

Financial Instruments –

Credit Losses (Topic 326)

This ASU, which is commonly known as CECL, replaces

the current GAAP incurred impairment methodology regarding credit losses with a methodology that reflects expected credit losses and requires

consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The amendments in this update

affect an entity to varying degrees depending on the credit quality of the assets held by the entity, their duration, and how the entity

applies current GAAP.

The adoption of ASU 2016-13 has the potential

to result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses

allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances

for losses expected to be incurred over the life of the portfolio.

Furthermore, ASU 2016-13 will necessitate that we establish an allowance

for expected credit losses on debt securities.

The new accounting guidance is effective for annual

reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.

However, the Financial

Accounting Standards Board (“FASB”) has deferred the effective date for this ASU for smaller reporting companies, such as

the Company, to annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2022.

The Company will continue to estimate the impact

of adopting ASU 2016-13 throughout 2022.

We expect to be fully prepared for implementation by January 1, 2023.

However, a deferral of the implementation

of the Reference Rate Reform was issued in December of 2022, which extends the implementation to December 31, 2024.

The Company anticipates

being fully prepared to implement a replacement for the reference rate and has determined that any change will not have a material impact

on the Company’s consolidated financial statements.

Financial Instruments - Credit

Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

On January 1, 2023, the Company adopted ASU 2016-13

- Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) (“ASC

326”) as amended.

The new accounting guidance in this ASU replaces the incurred loss methodology with an expected loss methodology,

which is referred to as the current expected credit loss (“CECL”) methodology.

The CECL methodology is applicable to the measurement

of credit losses on financial assets measured at amortized cost, including loan receivables and HTM debt securities.

It also applies to

off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees,

and other similar instruments), and net investments in leases recognized by a lessor.

The CECL methodology requires an entity to estimate

credit losses over the life of an asset or off-balance sheet credit exposure.

In addition, CECL made changes to the accounting

for available for sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down

on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they

will be required to sell.

The Company adopted ASU 326 using the modified

retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for reporting

periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with

previously applicable GAAP.

The transition adjustment of the CECL adoption included an increase in the allowance for credit losses (“ACL”)

of $ 1.4 million and an increase of $ 1.1 million to establish a reserve for unfunded commitments, with a $ 2.0 million decrease to retained

earnings, and $ 0.5 million of income tax portion being recorded as part of the deferred tax asset in the Company’s Consolidated

Balance Sheet.

The following table details the impact of the

adoption of ASC 326:

January 1, 2023

($ in thousands)

Pre-ASC 326 adoption

Impact of ASC 326 adoption

As reported under ASC 326

Cummulative Effect on Retained Earnings

Allowance for credit loss on loans

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Home equity line of credit (HELOC)

Total ACL on loans

ACL on off-balance sheet commitments

Allowance for Credit Losses - Securities Available

For available for sale debt securities, management

evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions

warrant such evaluation.

If the Company has the intent to sell the security or it is more likely than not that the Company will be required

to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the

Company evaluates whether the decline in fair value is the result of credit losses or other factors.

In making the assessment, the Company

may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral,

downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments

and adverse conditions specifically related to the security.

If the assessment indicates that a credit loss exists, the present value

of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance

for credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any amount of unrealized loss that has

not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the ACL under CECL are recorded as

provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management believes an available-for-sale

security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met.

2023, there was no allowance for credit losses related to the available-for-sale debt securities portfolio.

Accrued interest receivable on available for sale

debt securities totaled $ 0.7 million at March 31, 2023 and was excluded from the estimate of credit losses.

Allowance for Credit Losses - Loans

The ACL is a valuation account that is deducted

from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the

allowance when management believes that the uncollectability of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate

of amounts previously charged-off and expected to be charged-off.

Management estimates the ACL using relevant available

information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information

are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency

level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant

Accrued interest receivable related to loans totaled

$ 2.3 million at March 31, 2023 and is excluded from the estimate of credit losses.

The Company measures expected credit losses for

loans on a pooled basis when similar risk characteristics exist.

The Company has identified the following portfolio segments:

& Industrial - Commercial & industrial loans consist of loans or lines of credit to finance accounts receivable, inventory

or other general business needs, and lease financing agreements for equipment, vehicles, or other assets.

The primary risk associated

with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those

projected at origination.

Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent

with the contractual terms of the loan or lease.

Real Estate - Owner Occupied - Owner occupied commercial real estate loans consist of loans to purchase or re-finance owner occupied

nonresidential properties.

This includes office buildings and other commercial facilities.

Commercial mortgages secured by owner occupied

properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination.

While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will

not fully satisfy the obligation as they may be more adversely affected by conditions in the real estate markets or in the general economy.

● Commercial Real Estate – Nonowner Occupied

- Nonowner occupied commercial real estate loans consist of loans to purchase, construct, or refinance investment nonresidential properties.

This includes office buildings and other facilities rented or leased to unrelated parties, as well as multifamily properties.

risk associated with income producing commercial real estate loans is the ability of the income-producing property that collateralizes

the loan to produce adequate cash flow to service the debt.

While these loans are collateralized by real property in an effort to mitigate

risk, it is possible the liquidation of collateral will not fully satisfy the obligation as they may be more adversely affected by conditions

in the real estate markets or in the general economy.

● Agricultural - Agricultural loans consist

of loans or lines of credit to finance farmland, equipment, and general business needs or other assets.

The primary risk associated with

agricultural loans is the ability of borrowers to achieve business results consistent with those projected at origination.

achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan

● Residential Real Estate – Residential

mortgages consist of loans to purchase or refinance the borrower’s primary dwelling, second residence or vacation home and are often

secured by 1-4 family residential property.

Significant and rapid declines in real estate values can result in borrowers having debt levels

in excess of the current market value of the collateral.

● Home Equity Line of Credit (HELOCs)

- Home equity loans consist of home equity lines of credit and other lines of credit secured by first or second liens on the borrower’s

primary residence.

These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible

to declining collateral values.

This risk is elevated for loans secured by junior lines as a substantial decline in value could render

the junior lien position effectively unsecured.

- Consumer loans consist of loans to finance unsecured home improvements, personal assets, such as automobiles or recreational vehicles,

and revolving lines of credit that can be secured or unsecured.

Repayment of these loans is primarily dependent on the personal income

of the borrowers, which can be impacted by economic conditions in their market areas.

The value of the underlying collateral within this

class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.

The Company utilized a Discounted Cash Flow (“DCF”)

method to estimate the quantitative portion of the allowance for credit losses for all loan pools evaluated on a collective pooled basis,

with the exception of the credit card portfolio, which was estimated using the Remaining Life Method.

For each segment, a Loss Driver

Analysis (“LDA”) was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting

The LDA analysis utilized the Company’s own Federal Financial Institutions Examination Councils’ (“FFIEC”)

Call Report data, as well as peer institution data.

In creating the DCF model, the Company has established

a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.

Company’s own loan-level loss data from January 2016 through March 31, 2023 contained within the model is being supplemented with

peer data in most loan pools as there was not sufficient loan-level detail from prior cycles reflecting similar economic conditions as

the forecasted loss drivers to result in a statistically sound calculation.

Key inputs into the DCF model include loan-level

detail, including the amortized cost basis of individual loans, payment structure, and loss history, and forecasted loss drivers.

Company utilizes data from Federal Reserve Economic Data (“FRED”) to provide economic forecasts under various scenarios, which

are applied to loan pools to reflect model risk in the current economic environment.

Additional key assumptions in the DCF model include

the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment rates.

When possible,

the Company utilizes its own PDs for the reasonable and supportable forecast period.

When it is not possible to use the Company’s

own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors.

In all cases, the LDA is then utilized to determine

the long-term historical average which is reached over the reversion period.

When possible, the Company utilizes its own LGDs for the

reasonable and supportable forecast period.

When it is not possible to use the Company’s own LGDs, the LGD is derived using a method

referred to as Frye Jacobs.

The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time

and projects the LGD based on the level of PD forecasted.

In all cases, the Frye Jacobs method is utilized to calculate LGDs during the

reversion period and long-term historical average.

Benchmark prepayment and curtailment rates were used in the ACL estimate.

Management also considers further adjustments

to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist

for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered

in the quantitative analyses.

A number of factors are considered including economic forecast uncertainty, credit quality trends, valuation

trends, concentration risk, quality of loan review, changes in personnel, impact of rising interest rates, external factors and other

considerations.

The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools.

The qualitative analysis

increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above.

During each reporting

period, management also considers the need to adjust the baseline lifetime loss rates for factors that may cause expected losses to differ

from those experienced in the historical loss periods.

Loans that do not share risk characteristics are

evaluated on an individual basis.

When management determines that foreclosure is probable and the borrower is experiencing financial difficulty,

the expected credit losses are based on the fair value of collateral at the reporting dated unadjusted for selling costs as appropriate.

The Company is also required to consider expected credit losses associated

with loan commitments over the contractual period in which it is exposed to credit risk on the underlying commitments.

Any allowance for

off-balance sheet credit exposures is reported in Other liabilities on the Company’s Consolidated Balance Sheet and is increased

or decreased through a provision for credit loss expense on the Company’s Consolidated Statement of Income.

The calculation includes

consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated

The allowance is calculated using the same methodology, inputs and assumptions as the funded portion of loans at the segment level

applied to the amount of commitments expected to be funded.

While the Company’s policies and procedures

used to estimate the allowance for credit losses, as well as the resultant provision for credit losses charged to income, are considered

adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate

and imprecise.

There are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets

or particular industry conditions which may materially impact asset quality and the adequacy of the allowance for credit losses and thus

the resulting provision for credit losses.

Financial Instruments

– Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures

The amendments to ASU 2016-13 (Financial Instruments

– Credit Losses) update the prior guidance on Troubled Debt Restructurings (“TDR”) by eliminating the TDR recognition

and measurement guidance and, instead, require that an entity evaluate whether the modification represents a new loan or a continuation

of an existing loan.

In addition, entities are required to disclose current-period gross writeoffs by year of origination for financing

receivables and net investment in leases.

The new accounting guidance is effective for annual

reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.

However, the FASB has

deferred the effective date for this ASU for smaller reporting companies, such as the Company, to annual reporting periods and interim

reporting periods within those annual periods, beginning after December 15, 2022.

The Company will continue to estimate the impact

of adopting the amendments throughout 2022.

We expect to be fully prepared for implementation by January 1, 2023.

On January 1, 2023, the Company adopted

ASU 2022-02 Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, which removed the

existing measurement and disclosure requirements for loans considered to be Troubled Debt Restructurings (“TDRs”) and added

additional disclosure requirements related to modifications provided to borrowers experiencing financial difficulty.

Prior to adoption

of ASU 2022-02, a change in contractual terms of a loan where a borrower was experiencing financial difficulty and received a concession

not available through other sources the loans was required to be disclosed as a TDR, whereas now a borrower that is experiencing financial

difficulty and receives a modification in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment

delay or a term extension in the current period needs to be disclosed.

The amendment was adopted prospectively and had no impact on the

Consolidated Financial Statements aside from additional and revised financial statement disclosures (See Note 4 to the Consolidated Financial

NOTE 2 - EARNINGS PER SHARE

7 unchanged sentences

Three Months Ended

September 30,

($ and outstanding shares in thousands - except per share data)

9 unchanged sentences

Diluted earnings per common share

Nine Months Ended

September 30,

($ and outstanding shares in thousands - except per share data)

Distributed earnings allocated to common shares

Undistributed earnings allocated to common shares

Net earnings allocated to common shares

Net earnings allocated to participating securities

Net Income allocated to common shares and participating securities

Weighted average shares outstanding for basic earnings per share

Dilutive effect of stock compensation

Weighted average shares outstanding for diluted earnings per share

Basic earnings per common share

Diluted earnings per common share

On January 10, 2022, the Company announced that

6 unchanged sentences

in the Company’s 2022 financial statements, common shares outstanding would have increased by approximately 345,000 and diluted

earnings per share, assuming the shares were outstanding for the three and nine months ended September 30, 2021, would have decreased

by $ 0.03 and $ 0.07 per share, respectively.

earnings per share, assuming the shares were outstanding for the three months ended March 31, 2022, would have decreased by $ 0 .03per share.

In connection with the 5 percent common stock

7 unchanged sentences

The amortized cost and appropriate fair values,

together with gross unrealized gains and losses, of securities at September 30, 2022 and December 31, 2021 were as follows:

together with gross unrealized gains and losses, of securities at March 31, 2023 and December 31, 2022 were as follows:

($ in thousands)

September 30, 2022

Treasury and Government agencies

March 31, 2023

Government agencies

Mortgage-backed securities

2 unchanged sentences

December 31, 2022

Treasury and Government agencies

Government agencies

Mortgage-backed securities

2 unchanged sentences

The amortized cost and fair value of securities

available for sale at September 30, 2022, by contractual maturity, are shown below.

available for sale at March 31, 2023, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities

7 unchanged sentences

The fair value of securities pledged as collateral,

to secure public deposits and for other purposes, was $ 63.1 million at September 30, 2022 and $ 54.2 million at December 31, 2021.

fair value of securities delivered for repurchase agreements was $ 24.6 million at September 30, 2022 and $ 23.6 million at December 31,

to secure public deposits and for other purposes, was $ 60.2 million at March 31, 2023 and $ 53.9 million at December 31, 2022.

value of securities delivered for repurchase agreements was $ 23.8 million at March 31, 2023 and $ 17.8 million at December 31, 2022.

There were no realized gains or losses from sales

of available-for-sale securities for the three and nine months ended September 30, 2022 or September 30, 2021.

of available-for-sale securities for the three months ended March 31, 2023 or March 31, 2022.

Certain investments in debt securities are reported

1 unchanged sentence

Total fair value of these investments was $ 235.0

million at September 30, 2022, and $ 214.2 million at December 31, 2021, which consisted of 145 securities, or approximately 99 percent,

and 64 securities, or approximately 81 percent, respectively, of the Company’s available-for-sale investment portfolio at such dates.

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information

obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

Should the impairment

of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized

in net income in the period the other-than-temporary impairment is identified.

million at March 31, 2023, and $ 235.5 million at December 31, 2022, which consisted of 149 securities, or 100 percent, and 144 securities,

or approximately 99 percent, respectively, of the Company’s available-for-sale investment portfolio at such dates.

Based on evaluation

of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory

filings, management believes the declines in fair value for these securities are temporary.

Securities with unrealized losses, aggregated

by investment class and length of time that individual securities have been in a continuous unrealized loss position at September 30,

by investment class and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023

and December 31, 2022, are as follows:

2 unchanged sentences

($ in thousands)

September 30, 2022

Treasury and Government agencies

March 31, 2023

Unrealized Losses

Government agencies

Mortgage-backed securities

7 unchanged sentences

Unrealized Losses

Treasury and Government agencies

Government agencies

Mortgage-backed securities

2 unchanged sentences

The total unrealized loss in the securities portfolio

was $ 42.3 million as of September 30, 2022 compared to a $ 3.6 million unrealized loss at December 31, 2021.

Management evaluates securities

for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation.

Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition

and near-term prospects of the issuer, and (3) the intent of the Company to not sell the investment and whether it is more likely than

not that the Company will be required to sell the security before recovery of its amortized cost.

Management has determined there is no

other-than-temporary-impairment on its securities as of September 30, 2022.

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

was $ 37.6 million as of March 31, 2023 compared to a $ 40.7 million unrealized loss at December 31, 2022.

Management evaluates if any security

has a fair value less than its amortized cost on a quarterly basis.

Once these securities are identified, management determines whether

a decline in fair value resulted from a credit loss or other factors.

In making the assessment, the Company may consider various factors

including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings

of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions

specifically related to the security.

If the assessment indicates that a credit loss exists, a provision is recorded to the ACL.

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans that management has the intent and ability

10 unchanged sentences

and future payments are reasonably assured.

The allowance for loan losses is established as

losses are estimated to have occurred through a provision for loan losses charged to income.

Loan losses are charged against the allowance

when management believes the non-collectability of a loan balance is probable.

Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on

a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical

experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated

value of any underlying collateral and prevailing economic conditions.

This evaluation is inherently subjective as it requires estimates

that are susceptible to significant revision as new information becomes available.

The allowance consists of allocated and general

The allocated component relates to loans that are classified as impaired.

For those loans that are classified as impaired,

an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower

than the carrying value of that loan.

The general component covers nonclassified loans and is based on historical charge-off experience

and expected loss given default derived from the Company’s internal risk rating process.

Other adjustments may be made to the allowance

for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical

loss or risk rating data.

A loan is considered impaired when, based on current

information and events, it is probable that State Bank will be unable to collect the scheduled payments of principal or interest when

due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment

status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant

payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays

and payment shortfalls on a case-by-case basis, taking into consideration each of the circumstances surrounding the loan and the borrower,

including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall

in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for commercial, agricultural, and construction

loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s

obtainable market price or the fair value of the collateral if the loan is collateral dependent.

When State Bank moves a loan to nonaccrual status,

total unpaid interest accrued to date is reversed from income.

Subsequent payments are applied to the outstanding principal balance with

the interest portion of the payment recorded on the balance sheet as a contra-loan.

Interest received on impaired loans may be realized

once all contractual principal amounts are received or when a borrower establishes a history of six consecutive timely principal and interest

It is at the discretion of management to determine when a loan is placed back on accrual status upon receipt of six consecutive

timely payments.

Large groups of smaller balance homogenous loans

are collectively evaluated for impairment.

Accordingly, State Bank does not separately identify individual consumer and residential loans

for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Categories of loans at September 30, 2022 and December 31, 2021 include:

Nonaccrual Loans

The following table summarizes the composition of the loan portfolio:

($ in thousands)

4 unchanged sentences

Home equity line of credit (HELOC)

Net deferred costs (fees)

Total loans, net deferred costs (fees)

Allowance for loan losses

Allowance for credit losses

The totals shown above are net of deferred loan fees and costs, which

totaled $ 0.45 million and $ 0.31 million at March 31, 2023 and December 31, 2022, respectively.

The risk characteristics of each loan portfolio segment are as follows:

51 unchanged sentences

and spread over a large number of borrowers.

The following tables present the activity in the

allowance for loan losses for the three and nine months ended September 30, 2022 and September 30, 2021, and the recorded investment in

loans based on portfolio segment and impairment method as of September 30, 2022 and December 31, 2021.

Allowance for Credit Losses

The ACL is an estimate of the expected credit

losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical

credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts

that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

A provision for credit losses

is charged to operations based on management’s periodic evaluation of these and other pertinent factors.

As a result of the adoption of ASC 326, the Company

recorded a $ 1.4 million increase to the ACL as a cumulative-effect adjustment on January 1, 2023.

The following table summarizes the activity

related to the allowance for credit losses for the three months ended March 31, 2023 under the CECL methodology.

($ in thousands)

For the three months ended

September 30, 2022

Beginning balance

Ending balance

For the Nine Months Ended

September 30, 2022

Beginning balance

Ending balance

March 31, 2023

Balance, beginning of period

Impact of Adopting ASC 326

Provision for Credit Losses

Balance, end of period

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Prior to the adoption of ASC 326 on January 1,

2023, the Company calculated the allowance for loan losses under the incurred loss methodology.

The following two tables are disclosures

related to the allowance for loan losses in prior periods under this methodology.

($ in thousands)

For the twelve months ended

December 31, 2022

Provision for

Credit Losses

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

($ in thousands)

For the three months ended

September 30, 2021

Beginning balance

Ending balance

For the Nine Months Ended

September 30, 2021

Commercial real estate

March 31, 2022

Balance, beginning of period

Provision for Credit Losses

Balance, end of period

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Beginning balance

Ending balance

Loans Receivable at

September 30, 2022

Collateral dependent loans are loans for which

the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing

financial difficulty.

The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other

loans that management of the Company designates as having higher risk.

These loans do not share common risk characteristics and are not

included within the collectively evaluated loans for determining the allowance for credit losses.

The following table presents an analysis of collateral-dependent

loans of the Company as of March 31, 2023.

($ in thousands)

Collateral Type

March 31, 2023

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Under CECL, for collateral dependent loans, the

Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral.

The allowance

for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral,

which is adjusted for liquidation costs/discounts, and amortized cost.

If the fair value of the collateral exceeds the amortized cost,

no allowance is required.

The following table disaggregates the allowance

for loan losses and recorded investment in loans by impairment methodology under the incurred loss methodology as of December 31, 2022

and March 31, 2022.

December 31, 2022

Commercial & industrial

Commercial real estate

Residential real estate

Ending balance:

Allowance for credit losses:

Ending allowance attributable to loans:

Individually evaluated for impairment

Ending balance:

Collectively evaluated for impairment

Ending balance:

Individually evaluated for impairment

Ending balance:

Collectively evaluated for impairment

Loans Receivable at

Ending balance:

March 31, 2022

Commercial & industrial

Commercial real estate

Residential real estate

Allowance for credit losses:

Ending allowance attributable to loans:

Individually evaluated for impairment

Ending balance:

Collectively evaluated for impairment

Ending balance:

Individually evaluated for impairment

Ending balance:

Collectively evaluated for impairment

11 unchanged sentences

Pass (grades 1 – 4):

Loans which management has determined to be performing as expected and in agreement with the terms established at the time of loan origination.

which management has determined to be performing as expected and in agreement with the terms established at the time of loan origination.

Special Mention (5):

Assets have potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may

result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

special mention credits have characteristics which corrective management action would remedy.

have potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may result

in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

Special mention

assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Ordinarily, special

mention credits have characteristics which corrective management action would remedy.

Substandard (6):

are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

They are characterized by the

distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Loans are inadequately

protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Loans so classified must

have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

They are characterized by the distinct possibility

that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful (7):

6 unchanged sentences

worthless asset, even though partial recovery may be possible at some time in the future.

The following tables present the credit risk profile

of the Company’s loan portfolio based on rating category as of September 30, 2022 and December 31, 2021.

($ in thousands)

September 30, 2022

real estate -

Special Mention (5)

Substandard (6)

December 31, 2021

real estate -

Special Mention (5)

Substandard (6)

The Company evaluates the loan risk grading system

definitions and allowance for loan loss methodology on an ongoing basis.

The following tables present the Company’s loan portfolio

aging analysis as of September 30, 2022 and December 31, 2021.

The following table presents loan balances by credit quality

indicators by year of origination as of March 31, 2023.

($ in thousands)

September 30, 2022

90 Days Past Due

Term Loans by Year of Origination

Revolving Loans Converted

March 31, 2023

Commercial & industrial

Special Mention (5)

Substandard (6)

Commercial real estate - owner occupied

Special Mention (5)

Substandard (6)

Commercial real estate - nonowner occupied

Special Mention (5)

Substandard (6)

($ in thousands)

Term Loans by Year of Origination

Revolving Loans Converted

March 31, 2023

Special Mention (5)

Substandard (6)

Residential real estate

Special Mention (5)

Substandard (6)

Home equity line of credit (HELOC)

Special Mention (5)

Substandard (6)

Special Mention (5)

Substandard (6)

Special Mention (5)

Substandard (6)

The following table presents loan balances by

credit quality indicators and loan categories as of December 31, 2022.

($ in thousands)

December 31, 2022

90 Days Past Due

Commercial & industrial

2 unchanged sentences

Residential real estate

All loans past due 90 days are systematically placed on nonaccrual

A loan is considered impaired, in accordance with

the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable State Bank will be

unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

Impaired loans include nonperforming

commercial loans but also include loans modified in troubled debt restructurings (“TDRs”) where concessions have been granted

to borrowers experiencing financial difficulties.

These concessions could include a reduction in the interest rate on the loan, payment

extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following tables present impaired loan information as of and for

the three and nine months ended September 30, 2022 and 2021, and for the twelve months ended December 31, 2021:

Special Mention (5)

Substandard (6)

The following tables present the Company’s

loan portfolio aging analysis as of March 31, 2023 and December 31, 2022.

($ in thousands)

Nine Months Ended

Unpaid Principal

Average Recorded

Interest Income

September 30, 2022

With no related allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

With a specific allowance recorded:

March 31, 2023

Commercial & industrial

2 unchanged sentences

Residential real estate

December 31, 2022

Commercial & industrial

2 unchanged sentences

Residential real estate

Three Months Ended

September 30, 2022

All loans past due 90 days are systematically placed on nonaccrual

When a loan is moved to nonaccrual status, total unpaid interest accrued

to date is reversed from income.

Subsequent payments are applied to the outstanding principal balance with the interest portion of the

payment recorded on the balance sheet as a contra-loan.

Interest received on nonaccrual loans may be realized once all contractual principal

amounts are received or when a borrower establishes a history of six consecutive timely principal and interest payments.

discretion of management to determine when a loan is placed back on accrual status upon receipt of six consecutive timely payments.

categories of nonaccrual loans as of March 31, 2023 and December 31, 2022 are presented in the following table.

March 31, 2023

($ in thousands)

With no related allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

With a specific allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Nonaccrual loans with no allowance

Nonaccrual loans with an allowance

Total nonaccrual loans

Commercial & industrial

2 unchanged sentences

Residential real estate

Home equity line of credit (HELOC)

Impaired Loans (Prior to the Adoption of ASC 326)

Prior to the adoption of ASU 2016-13, a loan was

considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled

payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management

in determining impairment included payment status, collateral value and the probability of collecting scheduled principal and interest

payments when due.

Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired.

Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration each

of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s

prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment was measured on a loan-by-loan

basis for commercial, agricultural, and construction loans by either the present value of expected future cash flows discounted at the

loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral

Large groups of smaller balance homogenous loans

were collectively evaluated for impairment.

Accordingly, the Company did not separately identify individual consumer and residential loans

for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Impaired loans less than $ 100,000 were included in groups of homogenous loans.

These loans were evaluated based on delinquency status.

Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured,

in which case interest was recognized on a cash basis.

The following table presents loans individually evaluated for impairment

as of and for the three and twelve months ended March 31, 2022 and December 31, 2022:

($ in thousands)

Twelve Months Ended

Unpaid Principal

Average Recorded

Interest Income

December 31, 2022

13 unchanged sentences

Residential real estate

Nine Months Ended

Three Months Ended

September 30, 2021

Average Recorded

Interest Income

Average Recorded

Interest Income

March 31, 2022

($ in thousands)

13 unchanged sentences

Residential real estate

Impaired loans less than $ 100,000 are included in groups of homogenous

These loans are evaluated based on delinquency status.

Interest income recognized on a cash basis does

not materially differ from interest income recognized on an accrual basis.

Troubled Debt Restructured (TDR) Loans

TDRs are modified loans where a concession was

provided to a borrower experiencing financial difficulties.

Loan modifications are considered TDRs when the concessions provided are not

available to the borrower through either normal channels or other sources.

However, not all loan modifications are TDRs.

TDR Concession Types

The Company’s standards relating to loan

modifications consider, among other factors, minimum verified income requirements, cash flow analysis, and collateral valuations.

potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower’s specific circumstances

at a point in time.

All loan modifications, including those classified as TDRs, are reviewed and approved by management.

concessions provided to borrowers include:

● Interest rate reduction:

A reduction of the stated

interest rate to a nonmarket rate for the remaining original life of the loan.

The Company also may grant interest rate concessions for

a limited timeframe on a case by case basis.

● Amortization

or maturity date change:

A change in the amortization or maturity date beyond what the collateral supports, including a concession that

does any of the following:

(1) Lengthens the amortization period of the amortized principal

beyond market terms.

This concession reduces the minimum monthly payment and increases the amount of the balloon payment at the end of

the term of the loan.

Principal is generally not forgiven.

(2) Reduces the amount of loan principal to be amortized.

concession also reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan.

Principal is generally not forgiven.

(3) Extends the maturity date or dates of the debt beyond what

the collateral supports.

This concession generally applies to loans without a balloon payment at the end of the term of the loan.

addition, there may be instances where renewing loans potentially require non-market terms and would then be reclassified as TDRs.

A concession that is not categorized as

one of the concessions described above.

These concessions include, but are not limited to:

principal forgiveness, collateral concessions,

covenant concessions, and reduction of accrued interest.

Principal forgiveness may result from any TDR modification of any concession

The Company had no new TDR activity in the three

and nine months ended September 30, 2022, and September 30, 2021, respectively.

The Company had one TDR, a residential loan with a recorded

balance of $ 62,000 , that during the past twelve months defaulted on its modified contractual agreement.

On March 22, 2020, a statement was issued by the

Company’s bank regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions

Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encouraged financial institutions

to work prudently with borrowers unable to meet the contractual payment obligations due to the effects of COVID-19.

Additionally, Section

4013 of the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”) further provided that

a qualified loan modification is exempt by law from classification as a troubled debt restructure as defined by GAAP, from the period

beginning March 1, 2020 until the earlier of December 31, 2021 or the date that is 60 days after the date on which the national emergency

concerning the COVID-19 outbreak under the National Emergencies Act (50 U.S.C.

1601 et seq.) terminates.

As of September 30, 2022, all

loans previously modified under Section 4013 of the CARES Act had returned to normal payment terms.

Modifications made to Borrowers Experiencing Financial

In the normal course of business, the Company

may execute loan modifications with borrowers.

These modifications are analyzed to determine whether the modification is considered concessionary,

long term and made to a borrower experiencing financial difficulty.

The Company’s modifications generally include interest rate

adjustments, principal reductions, and amortization and maturity date extensions.

These modifications allow the borrower short-term cash

relief to allow them to improve their financial condition.

If a loan modification is determined to be made to a borrower experiencing

financial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowance

for Credit Losses section of this note.

For the three months ended March 31, 2023, the

Company did not modify any loans made to borrowers experiencing financial difficulty.

The Company had no commitments to lend to borrowers

experiencing financial difficulty for which the Company has modified an existing loan as of March 31, 2023.

The Company monitors loan

payments on an on-going basis to determine if a loan is considered to have a payment default.

Determination of payment default involves

analyzing the economic conditions that exist for each customer and their ability to generate positive cash flows during the loan term.

For the three-month period ended March 31, 2023, the Company had no loan modifications made to borrowers experiencing financial difficulty

for which there was a payment default within the 12 months following the modification date.

Unfunded Loan Commitments

The Company maintains an allowance for off-balance

sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby

and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally

cancellable (i.e.

commitment cannot be canceled at any time).

The allowance for off-balance sheet credit exposures is adjusted as a provision

for credit loss expense.

The estimate includes consideration of the likelihood that funding will occur, which is based on a historical

funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its

estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans.

The allowance for credit

losses for unfunded loan commitments of $ 1.1 million at March 31, 2023 is classified on the balance sheet within Other liabilities.

The following table presents the balance and activity

in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2023.

($ in thousands)

Allowance for Credit Losses - Unfunded Commitments

Balance, beginning of period

Adjustment for adoption of ASU 2016-13

Provision for unfunded commitments

Balance, end of period

NOTE 5 – GOODWILL

A summary of the activity in goodwill is presented

September 30,

Three Months Ended

($ in thousands)

4 unchanged sentences

impairment annually, and on an interim basis if events or circumstances change that indicate an impairment may exist.

As of September 30, 2022 and December 31, 2021,

the carrying amount of goodwill was $ 23.2 million.

Goodwill is assessed for impairment annually as of December 31, or more frequently

if events occur or circumstances change that indicate an impairment may exist.

When assessing goodwill for impairment, first, a qualitative

assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than

its estimated carrying value.

As of March 31, 2023 and December 31, 2022, the

carrying amount of goodwill was $ 23.2 million.

Goodwill is assessed for impairment annually as of December 31, or more frequently if events

occur or circumstances change that indicate an impairment may exist.

When assessing goodwill for impairment, first, a qualitative assessment

can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated

carrying value.

If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed.

Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

Goodwill was assessed for impairment using a qualitative

test performed as of December 31, 2021.

The results of the test indicated no goodwill impairment existed as of that date.

Alternatively,

a quantitative goodwill test can be performed without performing a qualitative assessment.

Goodwill was evaluated for impairment using a

qualitative assessment performed as of December 31, 2022.

The results of the assessment indicated no goodwill impairment existed as of

NOTE 6 – MORTGAGE SERVICING RIGHTS

2 unchanged sentences

The unpaid principal balance of mortgage loans serviced for others approximated $ 1.34

billion at September 30, 2022 and $ 1.36 billion at December 31, 2021.

Contractually specified servicing fees of $ 0.9 million and $ 2.6

million were included in mortgage loan servicing fees in the consolidated income statement for the three months and nine months ended

September 30, 2022, respectively.

Servicing fees of $ 0.9 million and $ 2.5 million were included in mortgage loan servicing fees for the

three and nine months ended September 30, 2021, respectively.

billion at March 31, 2023 and $ 1.35 billion at December 31, 2022.

Contractually specified servicing fees of $ 0.8 million and $ 0.9 million

were included in mortgage loan servicing fees in the consolidated income statement for the three months ended March 31, 2023 and 2022,

respectively.

The following table summarizes mortgage servicing

rights capitalized and related amortization, along with activity in the related valuation allowance:

September 30,

Three Months Ended

($ in thousands)

Balance at beginning of period

Mortgage servicing rights capitalized during the period

Mortgage servicing rights amortization during the period

Carrying amount, beginning of year

Mortgage servicing rights capitalized during the year

Mortgage servicing rights amortization during the year

Net change in valuation allowance

Balance at end of period

Carrying amount, end of year

Valuation allowance:

Balance at beginning of period

Increase (decrease)

Balance at end of period

Beginning of year

Increase (reduction)

Fair value, beginning of period

34 unchanged sentences

The table below presents the notional amount and

fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of September 30, 2022 and December 31,

fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of March 31, 2023 and December 31, 2022.

March 31, 2023

December 31, 2022

($ in thousands)

15 unchanged sentences

The following table presents the amounts included

in the consolidated statements of income for non-hedging derivative financial instruments for the three and nine months ended September

30, 2022 and 2021.

September 30,

in the consolidated statements of income for non-hedging derivative financial instruments for the three months ended March 31, 2023 and

Three Months Ended

($ in thousands)

of income classification

Statement of income classification

Interest rate swap contracts

3 unchanged sentences

The following table shows the offsetting of financial assets and derivative

assets at September 30, 2022 and December 31, 2021.

Gross amounts

not offset in the

consolidated balance sheet

assets at March 31, 2023 and December 31, 2022.

($ in thousands)

Gross amounts

Gross amounts offset in the

Net amounts of assets presented in the

Gross amounts not offset in the consolidated balance sheet

of recognized

offset in the

balance sheet

the consolidated

balance sheet

Cash collateral

September 30, 2022

March 31, 2023

Interest rate swaps

2 unchanged sentences

The following table shows the offsetting of financial liabilities and

derivative liabilities at September 30, 2022 and December 31, 2021.

Gross amounts

not offset in the

consolidated balance sheet

derivative liabilities at March 31, 2023 and December 31, 2022.

($ in thousands)

Gross amounts

Gross amounts offset in the

Net amounts of liabilities presented in the

Gross amounts not offset in the consolidated balance sheet

of recognized

offset in the

balance sheet

the consolidated

balance sheet

Cash collateral

September 30, 2022

March 31, 2023

Interest rate swaps

2 unchanged sentences

NOTE 8 – DEPOSITS

Major classification of deposits at September

Major classification of deposits at March 31,

2023 and at December 31, 2022 were as follows:

5 unchanged sentences

Total Deposits

Included in time deposits at September 30, 2022

and December 31, 2021 were $ 52.5 million and $ 55.6 million, respectively, of deposits which were obtained through the Certificate of Deposit

Included in time deposits at March 31, 2023 and

December 31, 2022 were $ 56.8 million and $ 58.0 million, respectively, of deposits which were obtained through the Certificate of Deposit

Account Registry Service (CDARS).

NOTE 9 – SHORT-TERM BORROWINGS

($ in thousands)

Securities sold under repurchase agreements

5 unchanged sentences

through 2061.

As of September 30, 2022, these REPO agreements were secured by securities totaling $ 24.6 million.

As of March 31, 2023, these REPO agreements were secured by securities totaling $ 23.8 million.

The REPO agreements mature

1 unchanged sentence

The Company has borrowing capabilities at the

Federal Reserve Discount Window (“Discount Window”) by pledging either securities or loans as collateral.

As of September

30, 2022, there was no collateral pledged or borrowings drawn at the Discount Window.

At September 30, 2022 and December 31, 2021, the

Company had $ 41.0 million in federal funds lines, of which none was drawn.

Federal Reserve Discount Window (“Discount Window”) and the Bank Term Funding Program (“BTFP”) by pledging either

securities or loans as collateral.

As of March 31, 2023, there was no collateral pledged or borrowings drawn through either facility.

At March 31, 2023 and December 31, 2022, the Company

had $ 41.0 million in federal funds lines, of which none was drawn.

NOTE 10 – FEDERAL HOME LOAN BANK ADVANCES

The Company’s FHLB advances were secured

by $ 188.3 million in mortgage loans at September 30, 2022.

by $ 233.1 million in mortgage loans at March 31, 2023.

Advances consisted of fixed and variable interest rates from 3.53 to 4.92 percent.

1 unchanged sentence

Aggregate annual maturities of FHLB advances

at September 30, 2022 were:

at March 31, 2023 were:

($ in thousands)

3 unchanged sentences

The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures with terms similar to the Capital

Distributions on the Capital Securities are payable quarterly at a variable rate that is based upon the 3-month LIBOR plus

1.80 percent and are included in interest expense in the consolidated financial statements.

The issuers of these securities have not yet

determined the replacement rate index for LIBOR.

These securities may be included in Tier 1 capital and may be prepaid at any time without

penalty (with certain limitations applicable) under current regulatory guidelines and interpretations.

The balance of the Capital Securities

as of September 30, 2022 and December 31, 2021 was $ 10.3 million, with a maturity date of September 15, 2035 .

Distributions on the Capital Securities are payable quarterly at a variable rate that is currently based upon the 3-month

LIBOR plus 1.80 percent and are included in interest expense in the consolidated financial statements.

The issuers of these securities

have proposed Secured Overnight Financing Rate (“SOFR”) as a replacement rate for the LIBOR-based interest rate and will amend

the documents governing the securities prior to LIBOR cessation.

These securities may be included in Tier 1 capital and may be prepaid

at any time without penalty (with certain limitations applicable) under current regulatory guidelines and interpretations.

of the Capital Securities as of March 31, 2023 and December 31, 2022 was $ 10.3 million, with a maturity date of September 15, 2035 .

NOTE 12 – SUBORDINATED DEBT

8 unchanged sentences

From June 1, 2026 to the maturity date or earlier redemption of the Notes, the interest

rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month Secured Overnight Financing Rate (“SOFR”)

provided by the Federal Reserve Bank of New York plus 296 basis points.

The Company may redeem the Notes at any time after May 31, 2026,

and at any time in whole, but not in part, upon the occurrence of certain events.

Any redemption of the Notes will be subject to prior

regulatory approval.

The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately

$ 0.5 million, which are being amortized over the life of the Notes.

rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month SOFR provided by the Federal Reserve Bank

of New York plus 296 basis points.

The Company may redeem the Notes at any time after May 31, 2026, and at any time in whole, but not

in part, upon the occurrence of certain events.

Any redemption of the Notes will be subject to prior regulatory approval.

incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately $ 0.5 million, which are being

amortized over the life of the Notes.

NOTE 13 – DISCLOSURES ABOUT FAIR VALUE

5 unchanged sentences

levels of inputs that may be used to measure fair value:

Quoted prices in active markets for identical assets or liabilities

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted

prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

or other inputs that are observable or can be

corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market

activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation methodologies

24 unchanged sentences

The fair value of IRLCs are determined using the

projected sale price of individual loans based on changes in the market interest rates, projected pull-through rates (the probability

that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage

of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3).

projected sale price of individual loans based on changes in the market interest rates, projected “pull-through” rates (the

probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due

to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level

The following table presents the fair value measurements

of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements

fell at September 30, 2022 and December 31, 2021.

fell at March 31, 2023 and December 31, 2022.

($ in thousands)

Fair value at

September 30,

Treasury and Government Agencies

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Fair value at

December 31, 2022

Treasury and Government Agencies

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ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable

(Level 3) inputs for the three and nine months ended September 30, 2022 and 2021.

(Level 3) inputs for the three months ended March 31, 2023 and 2022.

Three Months Ended

September 30,

Nine Months Ended

September 30,

($ in thousands)

1 unchanged sentence

Balance at beginning of period

Total realized gains (losses)

Change in fair value

Balance at end of period

Level 1 - quoted prices in active markets for identical assets

Level 2 - significant other observable inputs

Level 3 - significant unobservable inputs

The following is a description of the valuation

1 unchanged sentence

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

Collateral-dependent Impaired Loans, Net of

Loans for which it is probable the Company will

not collect all principal and interest due according to contractual terms are measured for impairment.

Collateral-dependent Individually evaluated

Loans, Net of ACL

The estimated fair value of collateral-dependent

impaired loans is based on the appraised value of the collateral, less estimated cost to sell.

Collateral-dependent impaired loans are

classified within Level 3 of the fair value hierarchy.

This method requires obtaining an independent appraisal of the collateral, which

is reviewed for accuracy and consistency by Credit Administration.

These appraisers are selected from the list of approved appraisers

maintained by management.

The appraised values are reduced by applying a discount factor to the value based on the Company’s loan

review policy.

All impaired loans held by the Company were collateral dependent at September 30, 2022 and December 31, 2021.

individually evaluated loans (or impaired loans prior to the adoption of ASC 326) is based on the appraised value of the collateral, less

estimated cost to sell.

Collateral- dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy.

This method requires obtaining an independent appraisal of the collateral, which is reviewed for accuracy and consistency by management.

Appraisers are selected from an approved list which is maintained by management.

The appraised values are reduced by applying a discount

factor to the value based on the Company’s loan review policy.

All individually evaluated loans held by the Company were collateral

dependent at March 31, 2023 and December 31, 2022.

Mortgage Servicing Rights

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Fair value at

September 30,

Impaired loans

Individually evaluated loans

Mortgage servicing rights

($ in thousands)

Fair value at

Fair value at December 31,

Impaired loans

Mortgage servicing rights

Level 1 - quoted prices in active markets for identical assets

Level 2 - significant other observable inputs

Level 3 - significant unobservable inputs

1 - quoted prices in active markets for identical assets

2 - significant other observable inputs

3 - significant unobservable inputs

Unobservable (Level 3) Inputs

1 unchanged sentence

about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

($ in thousands)

Fair value at

September 30,

Unobservable inputs

(weighted-average)

Collateral-dependent impaired loans

Range (weighted-

($ in thousands)

Collateral-dependent individually evaluated loans

Market comparable properties

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Loan closing rates

($ in thousands)

Fair value at

Unobservable inputs

(weighted-average)

Range (weighted-

($ in thousands)

Collateral-dependent impaired loans

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There were no changes in the inputs or methodologies

used to determine fair value at September 30, 2022 as compared to December 31, 2021.

used to determine fair value at March 31, 2023 as compared to December 31, 2022.

The following methods were used to estimate the

18 unchanged sentences

The estimated fair value for fixed-maturity time deposits and FHLB advances are based on estimates

of the rate State Bank could pay on similar instruments with similar terms and maturities at September 30, 2022 and December 31, 2021.

of the rate State Bank could pay on similar instruments with similar terms and maturities at March 31, 2023 and December 31, 2022.

Loan Commitments

3 unchanged sentences

The estimated fair values for other financial instruments and off-balance-sheet loan commitments

approximate cost at September 30, 2022 and December 31, 2021 and are not considered significant to this presentation.

approximate cost at March 31, 2023 and December 31, 2022 and are not considered significant to this presentation.

Trust Preferred Securities

16 unchanged sentences

Fair value measurements using

September 30, 2022

March 31, 2023

Financial assets

5 unchanged sentences

Interest receivable

Mortgage servicing rights

Financial liabilities

14 unchanged sentences

Interest receivable

Mortgage servicing rights

Financial liabilities

13 unchanged sentences

A total of 500,000 common shares of the Company are available for grants or awards

under the 2017 Plan, of which 122,823 shares had been granted under the plan as of September 30, 2022.

under the 2017 Plan, of which 145,528 shares had been granted under the plan as of March 31, 2023.

The 2017 Plan is intended to advance the interests

9 unchanged sentences

valuation model.

As of September 30, 2022, there were no stock options outstanding, and no unrecognized compensation cost related to stock

As of March 31, 2023, there were no stock options outstanding, and no unrecognized compensation cost related to stock

option awards.

No stock options were granted in the first nine months of 2022.

No stock options were granted in the first three months of 2023.

On February 5, 2013, the Company adopted a Long

3 unchanged sentences

The compensation cost charged

against income for awards under the LTI Plan for the three and nine months ended September 30, 2022 was $ 0.1 million and $ 0.5 million,

respectively, and for the three and nine months ended September 30, 2021, was $ 0.1 million and $ 0.4 million, respectively.

As of September 30, 2022, there was $ 0.8 million

of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to the restricted stock awards

against income for awards under the LTI Plan for the three months ended March 31, 2023 and March 31, 2022 was $ 0.2 million and $ 0.2 million,

respectively.

As of March 31, 2022, there was $ 1.0 million of

total unrecognized compensation cost related to non-vested share-based compensation arrangements related to the restricted stock awards

under the 2017 Plan which were granted in accordance with the LTI plan.

2 unchanged sentences

The table below is a summary of restricted stock

activity under the Company’s 2017 Plan for the nine months ended September 30, 2022.

Weighted-Average

Value per Share

activity under the Company’s 2017 Plan for the three months ended March 31, 2023.

Average Value

Nonvested, January 1, 2023

Nonvested, September 30, 2022

Nonvested, March 31, 2023

NOTE 15 – GENERAL LITIGATION

3 unchanged sentences

It is the opinion of management that the disposition or ultimate resolution of any such claims, lawsuits and examinations pending

at September 30, 2022, will not have a material adverse effect on the consolidated financial position, results of operations and cash

flow of the Company.

at March 31, 2023, will not have a material adverse effect on the consolidated financial position, results of operations and cash flow

of the Company.

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 1. Financial Statements