What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 527 added, 484 removed, 939 unchanged (52% of the section changed)

43 unchanged sentences

Total liabilities and shareholders’ equity

See notes to condensed consolidated financial statements (unaudited)

notes to condensed consolidated financial statements (unaudited)

SB Financial Group, Inc.

Consolidated Statements of Income (unaudited)

($ in thousands,

except per share data)

Interest Income

in thousands, except per share data)

interest income

Interest Expense

agreements & other

2 unchanged sentences

interest expense

Interest Income

for credit losses - loans

9 unchanged sentences

and employee benefits

Net occupancy

occupancy expense

processing fees

3 unchanged sentences

noninterest expense

Income before income tax

before income tax

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.

earnings per common share

common shares outstanding (in thousands):

notes to condensed consolidated financial statements (unaudited)

Financial Group, Inc.

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

Other comprehensive gain (loss)

Investment securities available for sale Available for

sale investment securities:

Available for sale investment securities:

Gross unrealized holding loss arising in the period

Related tax benefit

Net effect on other comprehensive income (loss)

Net effect on other comprehensive loss

Total comprehensive income (loss)

See notes to condensed consolidated financial statements (unaudited)

SB Financial Group, Inc.

See notes to condensed

consolidated financial statements (unaudited)

Financial Group, Inc.

Consolidated Statements of Shareholders’ Equity (unaudited)

1 unchanged sentence

($ in thousands, except per share data)

January 1, 2023

Balance, January 1, 2023

Other comprehensive income

4 unchanged sentences

Stock based compensation expense

March 31, 2023

Balance, March 31, 2023

Other comprehensive loss

Dividends on common, $ 0.13 per share

Cash dividends on common, $ 0.13 per share

Repurchased stock ( 91,260 shares)

1 unchanged sentence

Balance, June 30, 2023

Other comprehensive loss

Cash dividends on common, $ 0.13 per share

Restricted stock vesting

Repurchased stock ( 43,814 shares)

Stock based compensation expense

Balance, September 30, 2023

Accumulated Other Comprehensive

in thousands, except per share data)

January 1, 2022

Balance, January 1, 2022

Other comprehensive loss

4 unchanged sentences

Stock based compensation expense

March 31, 2022

Balance, March 31, 2022

Other comprehensive loss

Dividends on common, $ 0.12 per share

Cash dividends on common, $ 0.12 per share

Repurchased stock ( 94,211 shares)

1 unchanged sentence

Balance, June 30, 2022

See notes to condensed consolidated financial statements (unaudited)

Other comprehensive loss

Cash dividends on common, $ 0.12 per share

Restricted stock vesting

Repurchased stock ( 77,326 shares)

Stock based compensation expense

Balance, September 30, 2022

See notes to condensed

consolidated financial statements (unaudited)

SB Financial Group, Inc.

1 unchanged sentence

Flows (unaudited)

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

7 unchanged sentences

Amortization of originated mortgage servicing rights

Recovery of mortgage servicing rights

Impairment (recovery) of mortgage servicing rights

Proceeds from sale of loans held for sale

3 unchanged sentences

Interest payable & other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Investing Activities

4 unchanged sentences

Purchase of premises, equipment

Proceeds from bank owned life insurance

Purchase of bank owned life insurance

4 unchanged sentences

Financing Activities

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

Net increase (decrease) in time deposits

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

Net increase in time deposits

Net increase in securities sold under agreements to repurchase

2 unchanged sentences

Stock repurchase plan

Dividends on common shares

Net cash provided by (used in) financing activities

Cash dividends on common shares

Net cash used in financing activities

Decrease in cash and cash equivalents

6 unchanged sentences

Stock dividends declared and paid

See notes to condensed consolidated financial statements (unaudited)

notes to condensed consolidated financial statements (unaudited)

SB FINANCIAL GROUP, INC.

2 unchanged sentences

SB Financial Group, Inc., an Ohio corporation

(the “Company”), is a financial holding company whose principal activity is the ownership and management of its wholly-owned

subsidiaries, including The State Bank and Trust Company (“State Bank”), SBFG Title, LLC (“SBFG Title”), SB Captive,

(“SB Captive”), RFCBC, Inc.

(“SBFG”), is a financial holding company whose principal activity is the ownership and management of its wholly-owned subsidiaries,

including The State Bank and Trust Company (“State Bank”), SBFG Title, LLC (“SBFG Title”), SB Captive, Inc.

Captive”), RFCBC, Inc.

(“RFCBC”), Rurbanc Data Services, Inc.

dba RDSI Banking Systems (“RDSI”),

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

dba RDSI Banking Systems (“RDSI”), and Rurban

Statutory Trust II (“RST II”).

RDSI is presently inactive and has had no material operations or employees since 2017.

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

State Bank Insurance, LLC (“SBI”).

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

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.

the accounts of SBFG, State Bank, RFCBC, RDSI, RMC, SBFG Title, SB Captive and SBI (collectively, the “Company”).

All significant

intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated

7 unchanged sentences

of normal recurring adjustments.

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

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

of results for the complete year.

13 unchanged sentences

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.

The Company has implemented

a replacement for the reference rate and has determined that the changes did not have a material impact on the Company’s consolidated

financial statements.

Financial Instruments - Credit

17 unchanged sentences

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.

write-down on available-for-sale debt securities if management determines that the Company does not intend to sell and it is more likely

than not, that the Company will not be required to sell the securities.

The Company adopted ASC 326 using the modified

5 unchanged sentences

(“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

decrease to retained earnings, and $ 0.5 million of income tax provision being recorded as part of the deferred tax asset in the Company’s

consolidated balance sheet.

15 unchanged sentences

ACL on off-balance sheet commitments

Allowance for Credit Losses - Securities Available-for-Sale

Allowance for Credit

Losses - Securities Available-for-Sale

For available-for-sale debt securities, management

20 unchanged sentences

Accrued interest receivable on available-for-sale

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

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

Allowance for Credit Losses - Loans

13 unchanged sentences

Accrued interest receivable related to loans

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

totaled $ 3.7 million at September 30, 2023 and is excluded from the estimate of credit losses.

The Company measures expected credit losses for

5 unchanged sentences

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.

& industrial loans and lease financing agreements 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

7 unchanged sentences

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.

will not fully satisfy the obligation as the commercial real estate collateral may be more

adversely affected by conditions in the real estate markets or in the general economy.

Real Estate – Nonowner Occupied - Nonowner occupied commercial real estate loans

2 unchanged sentences

as well as multifamily properties.

The primary risk associated with income producing commercial

The primary risk associated with nonowner occupied commercial

real estate loans is the ability of the income-producing property that collateralizes the

2 unchanged sentences

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.

will not fully satisfy the obligation as the commercial real estate collateral may be more

adversely affected by conditions in the real estate markets or in the general economy.

● Agricultural

5 unchanged sentences

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.

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.

Real Estate – Residential real estate mortgage loans 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

3 unchanged sentences

This risk is elevated

for loans secured by junior lines as a substantial decline in value could render the junior

for loans secured by junior liens as a substantial decline in value could render the junior

lien position effectively unsecured.

15 unchanged sentences

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 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

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

Company’s own loan-level loss data from January 2016 through September 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 the forecasted loss drivers to result in a statistically sound calculation.

Key inputs into the DCF model include loan-level

52 unchanged sentences

– 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 Company’s consolidated

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

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 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

NOTE 2 - EARNINGS PER SHARE

5 unchanged sentences

shares in 2023 or 2022.

Participating securities in the tables reflect dividends on nonvested restricted shares.

Participating securities in the tables reflect nonvested restricted shares that participate in dividends declared

and paid by the Company on its common shares prior to vesting of the restricted shares.

Three Months Ended

September 30,

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

9 unchanged sentences

Diluted earnings per common share

Six Months Ended

Nine Months Ended

September 30,

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

9 unchanged sentences

Diluted earnings per common share

On January 10, 2022, the Company announced that

its Board of Directors had declared a 5 percent common stock dividend payable on February 4, 2022, to shareholders of record as of January

Holders of the Company’s common shares as of the record date received one additional common share for every 20 common

shares held on the record date.

No fractional shares were issued, and shareholders received cash for such fractional interests based on

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

On January 10, 2022, the

Company announced that its Board of Directors had declared a 5 percent common stock dividend payable on February 4, 2022, to shareholders

of record as of January 21, 2022.

Holders of the Company’s common shares as of the record date received one additional common share

for every 20 common shares held on the record date.

No fractional shares were issued, and shareholders received cash for such fractional

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

In connection with the 5 percent common stock

6 unchanged sentences

The amortized cost and appropriate fair values,

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

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

in thousands)

June 30, 2023

September 30, 2023

Treasury and Government agencies

8 unchanged sentences

The amortized cost and fair value of securities

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

Expected maturities will differ from contractual maturities

because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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

Expected maturities will differ from contractual

maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

in thousands)

4 unchanged sentences

Mortgage-backed securities

The fair value of securities pledged as collateral,

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.

The fair value of securities

pledged as collateral, to secure public deposits and for other purposes, was $ 101.5 million at September 30, 2023 and $ 53.9 million at

December 31, 2022.

The fair value of securities delivered for repurchase agreements was $ 21.5 million at September 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 and six months ended June 30, 2023 or June 30, 2022.

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

Certain investments in debt securities are reported

1 unchanged sentence

Total fair value of these investments was $ 211.7

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

million at September 30, 2023, and $ 235.5 million at December 31, 2022, which consisted of 148 securities, or 100 percent, and 155 securities,

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

3 unchanged sentences

Securities with unrealized losses, aggregated

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

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

2023 and December 31, 2022, are as follows:

than 12 Months

Months or Longer

in thousands)

June 30, 2023

Less than 12 Months

12 Months or Longer

Unrealized Losses

Treasury and Government agencies

Mortgage-backed

and political subdivisions

corporate securities

Mortgage-backed securities

State and political subdivisions

Other corporate securities

Less than 12 Months

12 Months or Longer

December 31, 2022

Unrealized Losses

6 unchanged sentences

The total unrealized loss in the securities portfolio

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

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.

was $ 50.0 million as of September 30, 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

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

13 unchanged sentences

in thousands)

September 30,

Commercial & industrial

4 unchanged sentences

Allowance for credit losses

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

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

The totals shown above are

net of deferred loan fees and costs, which totaled $ 0.44 million and $ 0.31 million at September 30, 2023 and December 31, 2022, respectively.

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

Commercial & Industrial and Agricultural

Commercial & industrial and agricultural loans

are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.

The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value.

Most commercial

loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal

Commercial & industrial and agricultural

loans are primarily underwritten based on the identified cash flows of the borrower and secondarily on the underlying collateral provided

by the borrower.

The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in

Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory,

and may include a personal guarantee.

Short-term loans may be made on an unsecured basis.

In the case of loans secured by accounts receivable, the availability of

funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

In the case of loans secured by accounts receivable,

the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts

due from its customers.

Commercial Real Estate (Owner and Nonowner Occupied)

2 unchanged sentences

Commercial real estate lending typically involves higher loan principal

amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business

conducted on the property securing the loan.

Commercial real estate loans may be more adversely affected by conditions in the real estate

markets or in the general economy.

The characteristics of properties securing the Company’s commercial real estate portfolio are

diverse, but with geographic location almost entirely in the Company’s market area.

Management monitors and evaluates commercial

real estate loans based on collateral, geography and risk grade criteria.

In general, the Company avoids financing single purpose projects

unless other underwriting factors are present to help mitigate risk.

In addition, management tracks the level of owner-occupied versus

non-owner-occupied commercial real estate loans.

amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the

business conducted on the property securing the loan.

Commercial real estate loans may be more adversely affected by conditions in the

real estate markets or in the general economy.

The characteristics of properties securing the Company’s commercial real estate

portfolio are diverse, but with geographic location almost entirely in the Company’s market area.

Management monitors and evaluates

commercial real estate loans based on collateral, geography and risk grade criteria.

In general, the Company avoids financing single

purpose projects unless other underwriting factors are present to help mitigate risk.

In addition, management tracks the level of owner-occupied

versus non-owner-occupied commercial real estate loans.

Construction loans are underwritten utilizing

1 unchanged sentence

Construction loans are

generally based on estimates of costs and value associated with the completed project.

generally underwritten based on estimates of costs and value associated with the completed project.

These estimates may be inaccurate.

loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project.

Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed

property or an interim loan commitment from the Company until permanent financing is obtained.

These loans are closely monitored by on-site

inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest

rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate

Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of

developed property or an interim loan commitment from the Company until permanent financing is obtained.

These loans are closely monitored

by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive

to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential Real Estate, HELOC and Consumer

19 unchanged sentences

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.

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 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.

The following tables summarize the

activity related to the ACL for the three and nine months ended September 30, 2023 under the CECL methodology.

in thousands)

For the three months ended

June 30, 2023

September 30, 2023

Balance, beginning of period

Impact of Adopting ASC 326

Provision for Credit Losses

Balance, end of period

Commercial & industrial

3 unchanged sentences

in thousands)

For the six months ended

June 30, 2023

For the nine months ended

September 30, 2023

Balance, beginning of period

Impact of Adopting

Impact of Adopting ASC 326

Provision for Credit Losses

4 unchanged sentences

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 tables contain disclosures

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

($ in thousands)

For the three months ended

June 30, 2022

September 30, 2022

Balance, beginning of period

Provision for Credit Losses

Balance, end of period

Commercial & industrial

3 unchanged sentences

($ in thousands)

For the six months ended

June 30, 2022

For the nine months ended

September 30, 2022

Balance, beginning of period

9 unchanged sentences

Provision for Credit Losses

Balance at End

End of Period

Commercial & industrial

10 unchanged sentences

The following table presents an analysis of collateral-dependent

loans of the Company as of June 30, 2023.

loans of the Company as of September 30, 2023.

($ in thousands)

Collateral Type

September 30, 2023

Commercial & industrial

2 unchanged sentences

Residential real estate

Under CECL, for collateral dependent loans, the

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

Under CECL, for collateral

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

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

The following tables disaggregate the allowance

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

and June 30, 2022.

and September 30, 2022.

December 31, 2022

8 unchanged sentences

Collectively evaluated for impairment

June 30, 2022

September 30, 2022

Commercial & industrial

17 unchanged sentences

This analysis is performed on a quarterly basis.

uses the following definitions for risk ratings:

Company uses the following definitions for risk ratings:

Pass (grades 1 – 4):

25 unchanged sentences

The following table presents loan balances by credit quality

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

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

in thousands)

14 unchanged sentences

Substandard (6)

The following tables present the Company’s

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

The following tables present

the Company’s loan portfolio aging analysis as of September 30, 2023 and December 31, 2022.

($ in thousands)

June 30, 2023

90 Days Past Due

September 30, 2023

Commercial & industrial

3 unchanged sentences

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

All loans past due 90 days

are systematically placed on nonaccrual status.

When a loan is moved to nonaccrual status, total

3 unchanged sentences

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.

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

interest payments.

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 September 30, 2023 and December 31, 2022 are presented in the following

September 30, 2023

December 31, 2022

($ in thousands)

loans with no

loans with an

Nonaccrual loans with no allowance

Nonaccrual loans with an allowance

Total nonaccrual loans

Commercial & industrial

3 unchanged sentences

Home equity line of credit (HELOC)

Impaired Loans (Prior to the Adoption of

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

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

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.

4 unchanged sentences

were collectively evaluated for impairment.

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

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

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

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

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.

These loans were evaluated based on delinquency

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

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

($ in thousands)

19 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

Average Recorded

29 unchanged sentences

for Credit Losses section of this note.

For the six months ended June 30, 2023, the Company

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

For the nine months ended September 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 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.

experiencing financial difficulty for which the Company had modified an existing loan as of September 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 its ability to generate positive cash flows during the loan term.

For the nine-month period ended September 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

7 unchanged sentences

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 ACL for loans.

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 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 ACL for unfunded loan commitments for the three and six months ended June 30, 2023.

loan commitments of $ 0.9 million at September 30, 2023 is classified on the balance sheet within Other liabilities.

The following table presents the balance and

activity in the ACL for unfunded loan commitments for the three and nine months ended September 30, 2023.

Three Months Ended

Six Months Ended

Nine Months Ended

($ in thousands)

September 30,

Balance, beginning of period

5 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

($ 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 June 30, 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.

As of September 30, 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 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

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

Goodwill was assessed for impairment using a

quantitative test performed as of August 31, 2023.

The estimated fair value of the reporting unit exceeded the net carrying value, and

therefore no goodwill impairment existed as of that date.

No events or circumstances since the August 31, 2023 impairment test were noted

that would indicate it was more likely than not a goodwill impairment exists.

NOTE 6 – MORTGAGE SERVICING RIGHTS

2 unchanged sentences

The unpaid principal balance of mortgage loans serviced for others approximated $ 1.37

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.

billion at September 30, 2023 and $ 1.35 billion at December 31, 2022.

Contractually specified servicing fees of $ 0.9 million and $ 2.5

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

30, 2023, respectively.

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 and nine months ended September 30, 2022, respectively.

The following table summarizes mortgage servicing

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

($ in thousands)

21 unchanged sentences

activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest

The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s

known or expected cash payments principally related to certain variable-rate assets.

The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the

Company’s known or expected cash payments principally related to certain variable-rate assets.

Non-designated Hedges

2 unchanged sentences

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.

Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such

that the Company minimizes its net risk exposure resulting from such transactions.

As the interest rate swaps associated with this program

do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are

recognized directly in earnings.

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management

Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third

party, such that the Company minimizes its net risk exposure resulting from such transactions.

As the interest rate swaps associated

with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the

offsetting swaps are recognized directly in earnings.

Additionally, the Company enters into forward

1 unchanged sentence

with potential borrowers to fund specific mortgage loans that will be sold into the secondary market.

The forward contracts that are entered

into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.

IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected

The forward contracts that are

entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.

The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected

in noninterest income on the consolidated statements of income.

2 unchanged sentences

are reported in accrued expenses and other liabilities in the consolidated balance sheets.

The table below presents the notional amount and

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

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, 2023 and December

September 30, 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 six months ended June 30,

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

30, 2023 and 2022.

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

($ in thousands)

5 unchanged sentences

The following table shows the offsetting of financial assets and derivative

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

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

amounts not offset in the

1 unchanged sentence

in thousands)

of recognized

balance sheet

December 31, 2022

The following table shows the offsetting of financial liabilities and

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

Gross amounts

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

of liabilities

amounts not offset in the

1 unchanged sentence

in thousands)

of recognized

balance sheet

June 30, 2023

December 31, 2022

Major classification

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

NOTE 8 – DEPOSITS

Major classification of deposits at September

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

($ in thousands)

September 30,

Non interest bearing demand

3 unchanged sentences

Total Deposits

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

Included in time deposits at September 30, 2023

and December 31, 2022 were $ 55.9 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)

September 30,

Securities sold under repurchase agreements

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 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 September 30, 2023, these REPO agreements were secured by securities with a fair value totaling $ 21.5 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.

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 September 30, 2023, there was $ 9.2 million pledged to the Federal Reserve Discount Window.

At September 30, 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 (FHLB)

The Company’s FHLB advances were secured

by $ 258.4 million in mortgage loans at September 30, 2023.

Advances consisted of fixed and variable interest rates from 3.75 to 5.43 percent.

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

Aggregate annual

maturities of FHLB advances at June 30, 2023 were:

Aggregate annual maturities of FHLB advances

at September 30, 2023 were:

($ in thousands)

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;

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

CME Term SOFR as adjusted by the relevant spread adjustment plus 1.80 percent and are included in interest expense in the consolidated

financial statements.

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, 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;

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

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 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;

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.

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

The 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.

Level 2 securities include obligations of the U.S.

treasury and government agencies,

mortgage-backed securities, obligations of political and state subdivisions, and other corporate securities.

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 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

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

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.

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 tables present 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, 2023 and December 31, 2022.

($ in thousands)

Fair value at

September 30,

Treasury and Government Agencies

14 unchanged sentences

Forward contracts

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.

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 and nine months ended September 30, 2023 and 2022.

for the Three Months Ended

for the Six Months Ended

September 30,

for the Nine Months Ended

September 30,

($ in thousands)

3 unchanged sentences

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 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 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 September 30, 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 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

September 30, 2023

Collateral-dependent Individually evaluated loans

Mortgage servicing rights

1 unchanged sentence

Fair value at

Collateral-dependent

impaired loans

December 31, 2022

Collateral-dependent impaired loans

Mortgage servicing rights

Level 1 - quoted prices

in active markets for identical assets

Level 2 - significant other observable

Level 1 - quoted prices in active markets for identical assets

Level 2 - significant other observable inputs

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.

Unobservable (Level 3) Inputs

The following tables present quantitative information

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

Fair value at

($ in thousands)

Collateral-dependent

individually evaluated loans

September 30, 2023

Unobservable inputs

Collateral-dependent individually evaluated loans

Market comparable properties

Comparability adjustments (%)

1 - 100% (17%)

Mortgage servicing rights

7 unchanged sentences

Loan closing rates

Fair value at

($ in thousands)

December 31, 2022

Valuation technique

Unobservable inputs

Collateral-dependent

12 unchanged sentences

Loan closing rates

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.

There were no changes in the inputs or methodologies

used to determine fair value at September 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.

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 “exit price” is determined based on discounted estimated future cash flows using rates that incorporate 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 June 30,

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 September 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 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 .

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 September 30, 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.

($ in thousands)

Fair value measurements using

June 30, 2023

September 30, 2023

Financial assets

34 unchanged sentences

nonqualified stock options, stock appreciation rights (“SARs”), restricted stock, and restricted stock units to employees

and directors of the Company and its subsidiaries.

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

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

and non-employee directors and advisory board members of the Company and its subsidiaries.

A total of 500,000 common shares of the Company

are available for grants or awards under the 2017 Plan, of which 145,376 shares had been granted under the plan as of September 30, 2023.

The 2017 Plan is intended to advance the interests

5 unchanged sentences

Stock option awards are granted with an exercise

price equal to the market price of the Company’s stock at the date of grant and those option awards vest based on 5 years of continuous

service and have 10 -year contractual terms.

The fair value of each option award is estimated on the date of grant using the Black-Scholes

valuation model.

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 six months of 2023.

price equal to the market price of the Company’s stock at the date of grant and those option awards vest based on five years of

continuous service and have 10 -year contractual terms.

The fair value of each option award is estimated on the date of grant using the

Black-Scholes valuation model.

As of September 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 nine 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 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

against income for awards under the LTI Plan for the three and nine months ended September 30, 2023 was $ 0.1 million and $ 0.5 million,

respectively, and for the three and nine months ended September 30, 2022 was $ 0.1 million and $ 0.5 million, respectively.

As of September 30, 2023, there was $ 0.7 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 six months ended June 30, 2023.

Average Value

activity under the Company’s 2017 Plan for the nine months ended September 30, 2023.

Nonvested, January 1, 2023

Nonvested, June 30, 2023

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

of the Company.

at September 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