What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-10 compared with 2023-05-11 · 556 added, 525 removed, 867 unchanged (55% of the section changed)

46 unchanged sentences

Consolidated Statements of Income (unaudited)

($ in thousands, except per share data)

($ in thousands,

except per share data)

Interest Income

Other interest income

Total interest income

interest income

Interest Expense

Repurchase agreements & other

Federal Home Loan Bank advance expense

Trust preferred securities expense

Subordinated debt expense

Total interest expense

Net Interest Income

agreements & other

Home Loan Bank advance expense

preferred securities expense

interest expense

for credit losses - loans

for unfunded commitments

provision for credit losses

Net interest income after provision for credit losses

interest income after provision for credit losses

management fees

on sale of mortgage loans & OMSR

loan servicing fees, net

on sale of non-mortgage loans

insurance income

noninterest income

Wealth management fees

Customer service fees

Gain on sale of mortgage loans & OMSR

Mortgage loan servicing fees, net

Gain on sale of non-mortgage loans

Title insurance income

Total noninterest income

and employee benefits

Net occupancy

processing fees

and communications

and delivery expense

local and other taxes

noninterest expense

Salaries and employee benefits

Net occupancy expense

Equipment expense

Data processing fees

Professional fees

Marketing expense

Telephone and communications

Postage and delivery expense

State, local and other taxes

Employee expense

Other expense

Total noninterest expense

Income before income tax

Provision for income taxes

Basic earnings per common share

Diluted earnings per common share

for income taxes

Basic earnings per common

Diluted earnings per common

Average common shares outstanding

(in thousands):

See notes to condensed consolidated

financial statements (unaudited)

SB Financial Group, Inc.

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

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Other comprehensive gain (loss)

Investment securities available for sale Available for sale investment securities:

Gross unrealized holding gain (loss) arising in the period

Investment securities available for sale Available for

sale investment securities:

Gross unrealized holding loss arising in the period

Related tax benefit

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See notes to condensed consolidated financial statements (unaudited)

SB Financial Group, Inc.

Consolidated Statements of Shareholders’ Equity (unaudited)

Other Comprehensive

Accumulated Other Comprehensive

($ in thousands, except per share data)

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March 31, 2023

Other Comprehensive

Other comprehensive loss

Dividends on common, $ 0.13 per share

Repurchased stock ( 91,260 shares)

Stock based compensation expense

Balance, June 30, 2023

Accumulated Other Comprehensive

($ in thousands, except per share data)

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March 31, 2022

Other comprehensive loss

Dividends on common, $ 0.12 per share

Repurchased stock ( 94,211 shares)

Stock based compensation expense

Balance, June 30, 2022

See notes to condensed consolidated financial statements (unaudited)

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Flows (unaudited)

Six Months Ended

($ in thousands)

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Amortization of originated mortgage servicing rights

Impairment (recovery) of mortgage servicing rights

Recovery of mortgage servicing rights

Proceeds from sale of loans held for sale

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Interest payable & other liabilities

Net cash used in operating activities

Net cash provided by (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

3 unchanged sentences

Financing Activities

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

Net decrease in demand deposits, money market, interest checking & savings

Net increase (decrease) in time deposits

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Dividends on common shares

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Decrease in cash and cash equivalents

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Supplemental non-cash disclosure

Transfer of loans to foreclosed assets

Stock dividends declared and paid

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the accounts of the Company, State Bank, RFCBC, RDSI, RMC, SBFG Title, SB Captive and SBI.

All significant intercompany accounts and transactions

have been eliminated in consolidation.

All significant intercompany accounts and

transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated

financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial

information and with the instructions for Form 10-Q.

Accordingly, they do not include all of the information and footnotes required by

GAAP for complete financial statements.

The financial statements reflect all adjustments that are, in the opinion of management, necessary

to fairly present the financial position, results of operations and cash flows of the Company.

Those adjustments consist only of normal

recurring adjustments.

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

the complete year.

financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim

financial information and with the instructions for Form 10-Q.

Accordingly, they do not include all of the information and footnotes

required by GAAP for complete financial statements.

The financial statements reflect all adjustments that are, in the opinion of management,

necessary to fairly present the financial position, results of operations and cash flows of the Company.

Those adjustments consist only

of normal recurring adjustments.

Results of operations for the three and six months ended June 30, 2023, are not necessarily indicative

of results for the complete year.

The condensed consolidated balance sheet of the

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- 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.

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 held-to-maturity (“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

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 ASC 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.

periods beginning on or 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

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ACL on off-balance sheet commitments

Allowance for Credit Losses - Securities Available

Allowance for Credit Losses - Securities Available-for-Sale

For available-for-sale debt securities, management

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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,

may consider various factors including the extent to which fair value is less than amortized cost, performance of 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

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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.

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

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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.

debt securities totaled $ 0.7 million at June 30, 2023 and was excluded from the estimate of credit losses.

Allowance for Credit Losses - Loans

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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.

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 factors.

Accrued interest receivable related to loans

totaled $ 2.5 million at June 30, 2023 and is excluded from the estimate of credit losses.

The Company measures expected credit losses for

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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.

& 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

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.

● 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.

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.

The primary 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.

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.

● 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.

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

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.

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.

method to estimate the quantitative portion of the ACL 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 cash flows.

utilized the Company’s own Federal Financial Institutions Examination Council’s (“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

Company’s own loan-level loss data from January 2016 through June 30, 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

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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.

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

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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.

The qualitative

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

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 adjusted for selling costs as

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.

calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to

be funded over their estimated lives.

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

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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.

or particular industry conditions which may materially impact asset quality and the adequacy of the ACL and thus the resulting provision

for credit losses.

Financial Instruments –

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

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

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 Company’s consolidated

financial statements aside from additional and revised financial statement disclosures (See Note 4 to the consolidated financial statements).

NOTE 2 - EARNINGS PER SHARE

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Diluted earnings per common share

Six Months Ended

($ 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

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the closing price of the Company’s common shares on the record date of $ 19.89 .

Had the 5 percent common stock dividend been included

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 months ended March 31, 2022, would have decreased by $ 0 .03per share.

In connection with the 5 percent common stock

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financial statements.

Note 3 – AVAILABLE

FOR SALE Securities

Note 3 – AVAILABLE-FOR-SALE

The amortized cost and appropriate fair values,

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

together with gross unrealized gains and losses, of securities at June 30, 2023 and December 31, 2022 were as follows:

($ in thousands)

March 31, 2023

Government agencies

June 30, 2023

Treasury and Government agencies

Mortgage-backed securities

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December 31, 2022

Government agencies

Treasury and Government agencies

Mortgage-backed securities

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The amortized cost and fair value of securities

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

available-for-sale at June 30, 2023, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities

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The fair value of securities pledged as collateral,

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.

to secure public deposits and for other purposes, was $ 76.6 million at June 30, 2023 and $ 53.9 million at December 31, 2022.

value of securities delivered for repurchase agreements was $ 22.5 million at June 30, 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 months ended March 31, 2023 or March 31, 2022.

of available-for-sale securities for the three and six months ended June 30, 2023 or June 30, 2022.

Certain investments in debt securities are reported

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Total fair value of these investments was $ 226.2

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

million at June 30, 2023, and $ 235.5 million at December 31, 2022, which consisted of 155 securities, or 100 percent, and 155 securities,

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

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Securities with unrealized losses, aggregated

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

by investment class and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2023

and December 31, 2022, are as follows:

Less than 12 Months

than 12 Months

Months or Longer

in thousands)

March 31, 2023

Unrealized Losses

Government agencies

Mortgage-backed securities

State and political subdivisions

Other corporate securities

June 30, 2023

Treasury and Government agencies

Mortgage-backed

and political subdivisions

corporate securities

Less than 12 Months

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Unrealized Losses

Government agencies

Treasury and Government agencies

Mortgage-backed securities

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The total unrealized loss in the securities portfolio

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

was $ 41.6 million as of June 30, 2023 compared to a $ 40.7 million unrealized loss at December 31, 2022.

Management evaluates if any security

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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.

totaled $ 0.41 million and $ 0.31 million at June 30, 2023 and December 31, 2022, respectively.

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

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and spread over a large number of borrowers.

Allowance for Credit Losses

Allowance for Credit Losses (ACL)

The ACL is an estimate of the expected credit

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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.

related to the ACL for the three and six months ended June 30, 2023 under the CECL methodology.

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 contain disclosures

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

($ in thousands)

For the three months ended

March 31, 2023

June 30, 2023

Provision for Credit Losses

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

($ in thousands)

For the six months ended

June 30, 2023

Balance, beginning of period

Impact of Adopting ASC 326

Impact of Adopting

Provision for Credit Losses

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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

For the three months ended

June 30, 2022

Balance, beginning of period

Provision for Credit Losses

Commercial & industrial

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($ in thousands)

For the three months ended

March 31, 2022

For the six months ended

June 30, 2022

Balance, beginning of period

Provision for Credit Losses

Balance, end of period

Commercial & industrial

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Residential real estate

($ in thousands)

For the twelve months ended

December 31, 2022

Balance at Beginning of Period

Provision for Credit Losses

Balance at End

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Collateral dependent loans are loans for which

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These loans do not share common risk characteristics and are not

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

included within the collectively evaluated loans for determining the ACL.

The following table presents an analysis of collateral-dependent

loans of the Company as of March 31, 2023.

loans of the Company as of June 30, 2023.

in thousands)

Collateral Type

March 31, 2023

Commercial & industrial

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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.

Company has adopted the practical expedient to measure the ACL based on the fair value of collateral.

The ACL 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.

and June 30, 2022.

December 31, 2022

8 unchanged sentences

Collectively evaluated for impairment

March 31, 2022

June 30, 2022

Commercial & industrial

19 unchanged sentences

Pass (grades 1 – 4) :

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

Loans 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) :

7 unchanged sentences

Substandard (6) :

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.

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

11 unchanged sentences

The following table presents loan balances by credit quality

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

($ in thousands)

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)

indicators by year of origination as of June 30, 2023.

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)

Loans by Year of Origination

Loans Converted

real estate - owner occupied

real estate - nonowner occupied

equity line of credit (HELOC)

The following table presents loan balances by

9 unchanged sentences

The following tables present the Company’s

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

loan portfolio aging analysis as of June 30, 2023 and December 31, 2022.

($ in thousands)

March 31, 2023

June 30, 2023

90 Days Past Due

Commercial & industrial

3 unchanged sentences

December 31, 2022

90 Days Past Due

Commercial & industrial

3 unchanged sentences

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

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

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.

The categories of nonaccrual loans as of June 30, 2023 and December 31, 2022 are presented in the following table.

($ in thousands)

Nonaccrual loans with no allowance

Nonaccrual loans with an allowance

Total nonaccrual loans

loans with no

loans with an

Commercial & industrial

3 unchanged sentences

Home equity line of credit (HELOC)

Impaired Loans (Prior to the Adoption of ASC 326)

Impaired Loans (Prior to the Adoption of

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

14 unchanged sentences

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.

for impairment measurements, unless such loans were 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.

3 unchanged sentences

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:

as of and for the three and six months ended June 30, 2022 and for the twelve months ended December 31, 2022:

($ in thousands)

Twelve Months Ended

Unpaid Principal

Average Recorded

Interest Income

December 31, 2022

14 unchanged sentences

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Average Recorded

Interest Income

Average Recorded

Interest Income

($ in thousands)

13 unchanged sentences

Residential real estate

Modifications made to Borrowers Experiencing Financial

Modifications made to Borrowers Experiencing Financial Difficulty

In the normal course of business, the Company

9 unchanged sentences

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.

For the six months ended June 30, 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.

experiencing financial difficulty for which the Company has modified an existing loan as of June 30, 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 six-month

period ended June 30, 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

8 unchanged sentences

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.

estimated life, which are the same loss rates that are used in computing the ACL for loans.

The allowance for credit losses for unfunded

loan commitments of $ 0.9 million at June 30, 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 the ACL for unfunded loan commitments for the three and six months ended June 30, 2023.

Three Months Ended

Six Months Ended

($ in thousands)

Allowance for Credit Losses - Unfunded Commitments

Balance, beginning of period

5 unchanged sentences

Three Months Ended

Six 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 March 31, 2023 and December 31, 2022, the

As of June 30, 2023 and December 31, 2022, the

carrying amount of goodwill was $ 23.2 million.

14 unchanged sentences

The unpaid principal balance of mortgage loans serviced for others approximated $ 1.35

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.

billion at June 30, 2023 and December 31, 2022.

Contractually specified servicing fees of $ 0.8 million and $ 1.7 million were included

in mortgage loan servicing fees in the consolidated income statement for the three and six months ended June 30, 2023, respectively.

fees of $ 0.9 million and $ 1.7 million were included for the three and six months ended June 30, 2022, respectively.

The following table summarizes mortgage servicing

1 unchanged sentence

Three Months Ended

Six Months Ended

($ in thousands)

Carrying amount, beginning of year

Mortgage servicing rights capitalized during the year

Mortgage servicing rights amortization during the year

Balance at beginning of period

Mortgage servicing rights capitalized during the period

Mortgage servicing rights amortization during the period

Net change in valuation allowance

Carrying amount, end of year

Balance at end of period

Valuation allowance:

Beginning of year

Increase (reduction)

Balance at beginning of period

Increase (decrease)

Balance at end of period

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 March 31, 2023 and December 31, 2022.

March 31, 2023

December 31, 2022

fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of June 30, 2023 and December 31, 2022.

($ in thousands)

12 unchanged sentences

Fair values of IRLCs

and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the

balance sheet date.

and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC or forward

contract and the balance sheet date.

The following table presents the amounts included

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

in the consolidated statements of income for non-hedging derivative financial instruments for the three and six months ended June 30,

2023 and 2022.

Three Months Ended

Six Months Ended

($ in thousands)

5 unchanged sentences

The following table shows the offsetting of financial assets and derivative

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

assets at June 30, 2023 and December 31, 2022.

amounts not offset in the

consolidated balance sheet

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

1 unchanged sentence

balance sheet

Cash collateral

March 31, 2023

Interest rate swaps

December 31, 2022

Interest rate swaps

The following table shows the offsetting of financial liabilities and

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

($ in thousands)

derivative liabilities at June 30, 2023 and December 31, 2022.

Gross amounts

Gross amounts offset in the

Net amounts of liabilities presented in the

Gross amounts not offset in the consolidated balance sheet

amounts not offset in the

consolidated balance sheet

($ in thousands)

of recognized

1 unchanged sentence

balance sheet

Cash collateral

March 31, 2023

Interest rate swaps

June 30, 2023

December 31, 2022

Interest rate swaps

NOTE 8 – DEPOSITS

Major classification of deposits at March 31,

2023 and at December 31, 2022 were as follows:

Major classification

of deposits at June 30, 2023 and at December 31, 2022 were as follows:

($ in thousands)

4 unchanged sentences

Total Deposits

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

Included in time

deposits at June 30, 2023 and December 31, 2022 were $ 62.8 million and $ 58.0 million, respectively, of deposits which were obtained through

the Certificate of Deposit Account Registry Service (CDARS).

SHORT-TERM BORROWINGS

($ in thousands)

Securities sold under repurchase agreements

The Company has retail repurchase agreements (“REPO”)

to facilitate cash management transactions with commercial customers.

These obligations are secured by agency and mortgage-backed securities

and such collateral is held by the Federal Home Loan Bank (“FHLB”).

These securities have various maturity dates from 2023

through 2061.

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

The REPO agreements mature

within one month.

The Company has borrowing capabilities at the

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 $ 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.

The Company has

retail repurchase (“REPO”) agreements to facilitate cash management transactions with commercial customers.

These obligations

are secured by agency and mortgage-backed securities and such collateral is held by the Federal Home Loan Bank (“FHLB”).

These securities have various maturity dates from 2025 through 2061.

As of June 30, 2023, these REPO agreements were secured by securities

with a fair value totaling $ 22.5 million.

The REPO agreements mature within one month.

The Company has

borrowing capabilities at the Federal Reserve Discount Window (“Discount Window”) and the Bank Term Funding Program (“BTFP”)

by pledging either securities or loans as collateral.

As of June 30, 2023, there was no collateral pledged or borrowings drawn through

either facility.

At June 30, 2023

and December 31, 2022, the Company had $ 41.0 million in federal funds lines, of which none was drawn.

FEDERAL HOME LOAN BANK ADVANCES

The Company’s

FHLB advances were secured by $ 249.5 million in mortgage loans at June 30, 2023.

Advances consisted of fixed and variable interest rates

from 3.53 to 5.15 percent.

Fixed rate advances are subject to restrictions or penalties in the event of prepayment.

Aggregate annual maturities of FHLB advances

at March 31, 2023 were:

Aggregate annual

maturities of FHLB advances at June 30, 2023 were:

($ in thousands)

NOTE 11 – TRUST PREFERRED SECURITIES

On September 15, 2005, RST II, a wholly-owned

subsidiary of the Company, closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $1,000 per security.

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 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

On May 27, 2021, the Company entered into Subordinated

Note Purchase Agreements (collectively, the “Purchase Agreements’’) with qualified institutional buyers and accredited investors

(collectively, the “Purchasers”) pursuant to which the Company issued and sold $ 20.0 million in aggregate principal amount of

its 3.65 % Fixed to Floating Rate Subordinated Notes due 2031 (the “Notes”).

The Notes were sold by the Company in a private

placement exempt from the registration requirements under the Securities Act of 1933, as amended.

The Notes mature on June 1, 2031 and bear interest

at a fixed rate of 3.65% through May 31, 2026.

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

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

OF ASSETS AND LIABILITIES

Fair value is the price that would be received

to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

value measurement must maximize the use of observable inputs and minimize the use of unobservable inputs.

There is a hierarchy of three

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

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;

TRUST PREFERRED SECURITIES

On September 15,

2005, RST II, a wholly-owned subsidiary of the Company, closed a pooled private offering of 10,000 Capital Securities with a liquidation

amount of $ 1,000 per security.

The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures

with terms similar to the Capital Securities.

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.

The balance of the Capital Securities as of June 30, 2023 and December 31, 2022 was $ 10.3 million, with a maturity date

of September 15, 2035 .

SUBORDINATED DEBT

On May 27, 2021,

the Company entered into Subordinated Note Purchase Agreements (collectively, the “Purchase Agreements”) with qualified institutional

buyers and accredited investors (collectively, the “Purchasers”) pursuant to which the Company issued and sold $ 20.0 million

in aggregate principal amount of its 3.65 % Fixed to Floating Rate Subordinated Notes due 2031 (the “Notes”).

The Notes were

sold by the Company in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended.

The Notes mature

on June 1, 2031 and bear interest at a fixed rate of 3.65 % through May 31, 2026.

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

of the Notes, the interest 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

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.

DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at

the measurement date.

A fair value measurement must maximize the use of observable inputs and minimize the use of unobservable inputs.

There is a hierarchy of three levels of inputs that may be used to measure fair value:

prices in active markets for identical assets or liabilities

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

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

and inputs used for assets measured at fair value on a recurring basis, recognized in the accompanying consolidated balance sheets, as

well as the general classifications of such assets pursuant to the valuation hierarchy.

Available-for-Sale Securities

The fair values of available-for-sale securities

are determined by various valuation methodologies.

or other inputs that are observable or can

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

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 and inputs used for assets measured at fair value on a recurring basis, recognized in the

accompanying consolidated balance sheets, as well as the general classifications of such assets pursuant to the valuation hierarchy.

Available-for-Sale

The fair values

of available-for-sale securities are determined by various valuation methodologies.

Level 1 securities include money market mutual funds.

Level 1 inputs include quoted

prices in an active market.

Level 1 inputs include quoted prices in an active market.

Level 2 securities include U.S.

treasury and government agencies, mortgage-backed securities, and obligations

of political and state subdivisions.

Level 2 inputs do not include quoted prices for individual securities in active markets;

they do include inputs that are either directly or indirectly observable for the individual security being valued.

Such observable inputs

include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates.

Also included are inputs derived principally from or corroborated by observable market data by correlation or other means.

Interest Rate Contracts

The fair values of interest rate contracts are

based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlying

interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties.

treasury and government agencies, mortgage-backed

securities, and obligations of political and state subdivisions.

Level 2 inputs do not include quoted prices for individual securities

in active markets;

however, they do include inputs that are either directly or indirectly observable for the individual security being

Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds,

credit risks and default rates.

Also included are inputs derived principally from or corroborated by observable market data by correlation

or other means.

Interest Rate

The fair values

of interest rate contracts are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements,

taking into account underlying interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate,

the creditworthiness of the counterparties.

Forward contracts

The fair values of forward contracts on to-be-announced

securities are determined using quoted prices in active markets, or benchmarked thereto (Level 1).

Interest Rate Lock Commitments (IRLCs)

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

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 March 31, 2023 and December 31, 2022.

The fair values

of forward contracts on to-be-announced securities are determined using quoted prices in active markets, or benchmarked thereto (Level

Interest Rate

Lock Commitments (IRLCs)

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).

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 June 30, 2023 and December 31, 2022.

($ in thousands)

9 unchanged sentences

Fair value at

December 31, 2022

Treasury and Government Agencies

5 unchanged sentences

Forward contracts

Level 1 - quoted prices in active markets for identical assets

Level 2 - significant other observable inputs

Level 3 - significant unobservable inputs

The following table reconciles the beginning and

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

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

Three Months Ended

1 - quoted prices in active markets for identical assets

2 - significant other observable inputs

3 - significant unobservable inputs

following table reconciles the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated

balance sheets using significant unobservable (Level 3) inputs for the three and six months ended June 30, 2023 and 2022.

for the Three Months Ended

for the Six Months Ended

($ in thousands)

1 unchanged sentence

Balance at beginning of period

Total realized gains (losses)

Change in fair value

Balance at end of period

The following is a description of the valuation

methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated

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

Collateral-dependent Individually evaluated

Loans, Net of ACL

The estimated fair value of collateral-dependent

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.

The following is

a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized

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

Collateral-dependent

Individually evaluated Loans, Net of ACL

The estimated fair

value of collateral-dependent 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

Mortgage servicing rights do not trade in an active,

open market with readily observable prices.

Accordingly, fair value is estimated using discounted cash flow models associated with the

servicing rights and discounting the cash flows using discount market rates, prepayment speeds and default rates.

The servicing portfolio

has been valued using all relevant positive and negative cash flows including servicing fees;

miscellaneous income and float;

costs of servicing;

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 June 30, 2023 and December 31, 2022.

Mortgage Servicing

Mortgage servicing

rights do not trade in an active, open market with readily observable prices.

Accordingly, fair value is estimated using discounted cash

flow models associated with the servicing rights and discounting the cash flows using discount market rates, prepayment speeds and default

The servicing portfolio has been valued using all relevant positive and negative cash flows including servicing fees;

miscellaneous

income and float;

marginal costs of servicing;

the cost of carry of advances;

and foreclosure losses;

and applying certain prevailing assumptions used in the marketplace.

Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

These mortgage servicing

rights are tested for impairment on a quarterly basis.

and applying certain prevailing

assumptions used in the marketplace.

Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level

3 of the hierarchy.

These mortgage servicing rights are tested for impairment on a quarterly basis.

($ in thousands)

Fair value at

Collateral-dependent

Individually evaluated loans

1 unchanged sentence

($ in thousands)

Fair value at December 31,

Fair value at

Collateral-dependent

impaired loans

Mortgage servicing rights

1 - quoted prices in active markets for identical assets

2 - significant other observable inputs

3 - significant unobservable inputs

Unobservable (Level 3) Inputs

The following table presents quantitative information

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

Fair value at

Range (weighted-

Level 1 - quoted prices

in active markets for identical assets

Level 2 - significant other observable

Level 3 - significant unobservable inputs

Unobservable (Level

The following table

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

($ in thousands)

Collateral-dependent individually evaluated loans

Collateral-dependent

individually evaluated loans

Market comparable properties

Comparability adjustments (%)

1 - 31% (9 )%

Mortgage servicing rights

7 unchanged sentences

Loan closing rates

Fair value at

Range (weighted-

($ in thousands)

Collateral-dependent impaired loans

Collateral-dependent

impaired loans

Market comparable properties

10 unchanged sentences

Loan closing rates

There were no changes in the inputs or methodologies

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

The following methods were used to estimate the

fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.

Cash and Due From Banks, Federal Reserve and

Federal Home Loan Bank Stock and Accrued Interest Receivable and Payable

The carrying amount approximates the fair value.

Loans Held for Sale

The fair value of loans held for sale is based

upon quoted market prices, where available, or is determined by discounting estimated cash flows using interest rates approximating the

Company’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.

The estimated fair value of loans follows the

guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments.

The fair value calculation at that date discounted estimated future cash flows using rates that incorporated discounts for credit, liquidity,

and marketability factors.

Deposits, Short-Term Borrowings, and FHLB Advances

Deposits include demand deposits, savings accounts,

and certain money market deposits.

There were no changes

in the inputs or methodologies used to determine fair value at June 30, 2023 as compared to December 31, 2022.

The following methods

were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at

amounts other than fair value.

From Banks, Federal Reserve and Federal Home Loan Bank Stock and Accrued Interest Receivable and Payable

The carrying amount approximates the

Loans Held for

The fair value

of loans held for sale is based upon quoted market prices, where available, or is determined by discounting estimated cash flows using

interest rates approximating the Company’s current origination rates for similar loans and adjusted to reflect the inherent credit

The estimated fair

value of loans follows the guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing

fair value of financial instruments.

The fair value calculation at that date discounted estimated future cash flows using rates that

incorporated discounts for credit, liquidity, and marketability factors.

Deposits, Short-Term

Borrowings, and FHLB Advances

Deposits include

demand deposits, savings accounts, and certain money market deposits.

Short-term borrowings include federal funds borrowed and REPO agreements.

The carrying amount of these

instruments approximates the fair value.

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 March 31, 2023 and December 31, 2022.

The carrying amount of these instruments approximates the fair value.

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 June 30,

2023 and December 31, 2022.

Loan Commitments

The fair value of commitments is estimated using

the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present

creditworthiness of the counterparties.

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

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

Trust Preferred Securities

The fair value for Trust Preferred Securities

is estimated by discounting the cash flows using an appropriate discount rate.

Subordinated Debt

The fair value for subordinated debt is estimated

by discounting the cash flows using a discount rate equal to the rate currently offered on similar borrowings.

The following table presents estimated fair values

of the Company’s other financial instruments carried at other than fair value.

The fair values of certain of these instruments were

calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties.

Fair value is the

estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than

in a forced or liquidation sale.

Because no market exists for certain of these financial instruments, and because management does not

intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the

respective financial instruments could be sold individually or in the aggregate.

The fair value

of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms

of the agreements and the present creditworthiness of the counterparties.

The estimated fair values for other financial instruments and

off-balance-sheet loan commitments approximate cost at June 30, 2023 and December 31, 2022 and are not considered significant to this

presentation.

Trust Preferred

The fair value

for Trust Preferred Securities is estimated by discounting the cash flows using an appropriate discount rate.

The fair value

for subordinated debt is estimated by discounting the cash flows using a discount rate equal to the rate currently offered on similar

The following table

presents estimated fair values of the Company’s other financial instruments carried at other than fair value.

The fair values of

certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and

uncertainties.

Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction

between willing parties, other than in a forced or liquidation sale.

Because no market exists for certain of these financial instruments,

and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below

represent values at which the respective financial instruments could be sold individually or in the aggregate .

($ in thousands)

Fair value measurements using

March 31, 2023

June 30, 2023

Financial assets

36 unchanged sentences

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

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

under the 2017 Plan, of which 145,376 shares had been granted under the plan as of June 30, 2023.

The 2017 Plan is intended to advance the interests

9 unchanged sentences

valuation model.

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

As of June 30, 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 three months of 2023.

No stock options were granted in the first six 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 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

against income for awards under the LTI Plan for the three and six months ended June 30, 2023 was $ 0.2 million and $ 0.4 million, respectively,

and for the three and six months ended June 30, 2022 was $ 0.2 million and $ 0.4 million, respectively.

As of June 30, 2023, there was $ 0.8 million of

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

3 unchanged sentences

The table below is a summary of restricted stock

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

activity under the Company’s 2017 Plan for the six months ended June 30, 2023.

Average Value

Nonvested, January 1, 2023

Nonvested, March 31, 2023

Nonvested, June 30, 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 March 31, 2023, will not have a material adverse effect on the consolidated financial position, results of operations and cash flow

at June 30, 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