What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 535 added, 688 removed, 778 unchanged (61% of the section changed)

43 unchanged sentences

Total liabilities and shareholders’ equity

notes to condensed consolidated financial statements (unaudited)

See notes to condensed consolidated financial

statements (unaudited)

SB Financial Group, Inc.

1 unchanged sentence

($ in thousands, except per share data)

interest income

Three Months Ended

Interest Income

agreements & other

Home Loan Bank advance expense

preferred securities expense

Other interest income

Total interest income

Interest Expense

Interest Income

for credit losses - loans

for unfunded commitments

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

Repurchase agreements & other

Federal Home Loan Bank advance expense

Trust preferred securities expense

Subordinated debt expense

Total interest expense

Net Interest Income

Provision for credit losses - loans

Provision for unfunded commitments

Total provision for credit losses

Net interest income after provision for credit losses

Noninterest Income

and employee benefits

occupancy expense

processing fees

and communications

and delivery expense

local and other taxes

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

Noninterest Expense

before income tax

for income taxes

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)

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

Average common shares outstanding (in thousands):

to condensed consolidated financial statements (unaudited)

Consolidated Statements of Comprehensive Income (unaudited)

Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

1 unchanged sentence

Available for sale investment securities:

Gross unrealized holding loss arising in the period

Related tax benefit

Net effect on other comprehensive loss

Total comprehensive income (loss)

See notes to condensed

consolidated financial statements (unaudited)

Financial Group, Inc.

Gross unrealized holding (loss) gain arising in the period

Related tax benefit (provision)

Net effect on other comprehensive (loss) gain

Total comprehensive income

See notes to condensed consolidated financial

statements (unaudited)

Consolidated Statements of Shareholders’ Equity (unaudited)

Accumulated Other Comprehensive

Comprehensive

($ in thousands, except per share data)

1 unchanged sentence

Other comprehensive income

Adoption of ASU 2016-13

Cash dividends on common, $ 0.135 per share

3 unchanged sentences

Balance, March 31, 2024

Other comprehensive loss

Cash dividends on common, $ 0.13 per share

Repurchased stock ( 91,260 shares)

Stock based compensation expense

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

Comprehensive

($ in thousands, except per share data)

Balance, January 1, 2023

Other comprehensive loss

Stock dividends on common - 344,663 shares

Other comprehensive income

Adoption of ASU 2016-13

Cash dividends on common, $ 0.125 per share

3 unchanged sentences

Balance, March 31, 2023

Other comprehensive loss

Cash dividends on common, $ 0.12 per share

Repurchased stock ( 94,211 shares)

Stock based compensation expense

Balance, June 30, 2022

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)

See notes to condensed consolidated financial

statements (unaudited)

SB Financial Group, Inc.

1 unchanged sentence

Flows (unaudited)

Nine Months Ended

September 30,

($ in thousands)

Three Months Ended

Operating Activities

6 unchanged sentences

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

3 unchanged sentences

Interest payable & other liabilities

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Investing Activities

9 unchanged sentences

Proceeds from sale of foreclosed assets

Net cash used in investing activities

Net cash provided by (used in) investing activities

Financing Activities

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

Net increase in time deposits

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

Net (decrease) increase in time deposits

Net increase in securities sold under agreements to repurchase

3 unchanged sentences

Cash dividends on common shares

Net cash used in financing activities

Decrease in cash and cash equivalents

Net cash (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

2 unchanged sentences

Interest paid

Supplemental non-cash disclosure

Transfer of loans to foreclosed assets

Stock dividends declared and paid

notes to condensed consolidated financial statements (unaudited)

See notes to condensed consolidated financial

statements (unaudited)

SB FINANCIAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—BASIS OF PRESENTATION

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

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

Insurance, LLC (“SBI”).

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

The consolidated financial statements include

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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 and nine months ended September 30, 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 months ended March 31, 2024, are not necessarily indicative of results for

the complete year.

The condensed consolidated balance sheet of the

2 unchanged sentences

financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

New and applicable accounting pronouncements:

Adoption of New Accounting Standards:

Reference Rate Reform –

23 unchanged sentences

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.

of credit, financial guarantees, and other similar instruments that are noncancellable), and net investments in leases recognized by a

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 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.

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 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 provision being recorded as part of the deferred tax asset in the Company’s

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

consolidated balance sheet.

3 unchanged sentences

($ in thousands)

Pre-ASC 326 adoption

Impact of ASC 326 adoption

As reported under ASC 326

Cummulative Effect on Retained Earnings

Allowance for credit loss on loans

6 unchanged sentences

ACL on off-balance sheet commitments

Allowance for Credit

Losses - Securities Available-for-Sale

For available-for-sale debt securities, management

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

warrant such evaluation.

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

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

If either of the above criteria is not met, the

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

In making the assessment, the Company

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

and adverse conditions specifically related to the security.

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

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

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

Any amount of unrealized loss that

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

Changes in the ACL under CECL are recorded as

provision for (or reversal of) credit loss expense.

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

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

30, 2023, there was no allowance for credit losses related to the available-for-sale debt securities portfolio.

Accrued interest receivable on available-for-sale

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

Allowance for Credit Losses - Loans

The ACL is a valuation account that is deducted

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

Loans are charged off against the

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

Expected recoveries do not exceed the aggregate

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

Management estimates the ACL using relevant available

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

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

Adjustments to historical loss information

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

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

other relevant factors.

Accrued interest receivable related to loans

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

The Company measures expected credit losses for

loans on a pooled basis when similar risk characteristics exist.

The Company has identified the following portfolio segments:

& Industrial - Commercial & industrial loans consist of loans or lines of credit

to finance accounts receivable, inventory or other general business needs, and lease financing

agreements for equipment, vehicles, or other assets.

The primary risk associated with commercial

& 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

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 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

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 nonowner occupied 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 the commercial real estate collateral 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.

● Residential

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

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 liens 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 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 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

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

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

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

Additional key assumptions in the DCF model include

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

When possible,

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

When it is not possible to use the Company’s

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

In all cases, the LDA is then utilized to determine

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

When possible, the Company utilizes its own LGDs for the

reasonable and supportable forecast period.

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

referred to as Frye Jacobs.

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

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

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

reversion period and long-term historical average.

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

Management also considers further adjustments

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

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

in the quantitative analyses.

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

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

considerations.

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

The qualitative

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

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

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

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

and imprecise.

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

or particular industry conditions, which may materially impact asset quality and the adequacy of the 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 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

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 statements).

Accounting for Investments

in Tax Credit Structures Using the Proportional Amortization Method (ASU 2023-02).

This ASU permits reporting entities to elect to

account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the

proportional amortization if certain conditions are met.

A reporting entity makes an accounting policy election to apply the proportional

amortization method on a tax-credit-by-tax-credit-program basis rather than electing to apply the proportional amortization method at

the reporting entity level or to individual investments.

The Company adopted the standard on January 1, 2024.

The adoption of this standard

did not have a material effect on the Company’s consolidated financial statements.

Accounting Standards not yet adopted:

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09,

“Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” The amendments in this ASU address investor requests for

more transparency about income tax information through improvements to income tax disclosures, primarily related to effective tax rate

reconciliation and information related to income taxes paid, among certain other amendments to improve the effectiveness of such disclosures.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2024 and are to be applied on a prospective basis.

Adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 2 - EARNINGS PER SHARE

2 unchanged sentences

The average number of common

shares used in the computation of basic and diluted earnings per share are set forth in the tables below.

There were no anti-dilutive

shares in 2023 or 2022.

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.

shares used in the computation of basic and diluted earnings per share are set forth in the table below.

There were no anti-dilutive shares

in 2024 or 2023.

Participating securities in the table 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

Nine Months Ended

September 30,

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

Distributed earnings allocated to common shares

Undistributed earnings allocated to common shares

Net earnings allocated to common shares

Net earnings allocated to participating securities

Net Income allocated to common shares and participating securities

Weighted average shares outstanding for basic earnings per share

Dilutive effect of stock compensation

Weighted average shares outstanding for diluted earnings per share

Basic earnings per common share

Diluted earnings per common share

On January 10, 2022, the

Company announced that 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

dividend, the Company filed a Certificate of Amendment with the Ohio Secretary of State on January 25, 2022 to amend Article FIRST of

its Amended Articles of Incorporation to proportionately increase the authorized number of common shares, without par value, of the Company

from 10,000,000 to 10,500,000 .

The addition of these authorized shares did not have a material impact on the Company’s consolidated

financial statements.

Note 3 – AVAILABLE-FOR-SALE

3 – AVAILABLE-FOR-SALE Securities

The amortized cost and appropriate fair values,

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

together with gross unrealized gains and losses, of securities at March 31, 2024, and December 31, 2023, were as follows:

($ in thousands)

September 30, 2023

March 31, 2024

Treasury and Government agencies

8 unchanged sentences

The amortized cost and fair value of securities

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.

available-for-sale at March 31, 2024, 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 $ 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.

The fair value of securities pledged as collateral,

to secure public deposits and for other purposes, was $ 111.9 million at March 31, 2024 and $ 53.9 million at December 31, 2023.

value of securities delivered for repurchase agreements was $ 18.9 million at March 31, 2024, and $ 17.8 million at December 31, 2023.

There were no realized gains or losses from sales

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

of available-for-sale securities for the three months ended March 31, 2024, or March 31, 2023.

Certain investments in debt securities are reported

1 unchanged sentence

Total fair value of these investments was $ 212.2

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

million at March 31, 2024, and $ 217.0 million at December 31, 2023, which consisted of 142 securities, or 99 percent, and 139 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 September 30,

by investment class and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024,

and December 31, 2023, are as follows:

2 unchanged sentences

12 Months or Longer

Unrealized Losses

March 31, 2024

Treasury and Government agencies

4 unchanged sentences

12 Months or Longer

Unrealized Losses

December 31, 2023

Treasury and Government agencies

2 unchanged sentences

Other corporate securities

The total unrealized loss in the securities portfolio

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

Based on evaluation of available evidence, including

recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes

the declines in fair value for these securities are temporary.

Management reviews these securities on a quarterly basis and evaluates

if any security has a fair value less than its amortized cost.

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.

Changes in the ACL are recorded as provision for

(or reversal of) credit losses.

Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance,

written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or

requirement to sell is met.

At March 31, 2024 and December 31, 2023, no ACL on available-for-sale securities was recorded.

Management has made the accounting policy election

to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses.

Accrued interest receivable

on available-for-sale debt securities totaled $ 0.7 million at March 31, 2024.

Should the decline in fair value be the result of credit

losses or other factors, the security would be moved to nonaccrual status and all accrued interest reversed.

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT

Loans that management has the intent and ability

to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for any

charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan

Generally, all loan classes are placed on nonaccrual status not later than 90 days past due, unless the loan is well-secured and

in the process of collection.

charge-offs, the allowance for credit losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on

purchased loans.

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over

the loan term.

Generally, all loan classes are placed on nonaccrual status not later than 90 days past due, unless the loan is well-secured

and in the process of collection.

All interest accrued, but not collected, for loans that are placed on nonaccrual or charged-off is reversed

4 unchanged sentences

and future payments are reasonably assured.

The following table summarizes the composition of the loan portfolio:

The following table summarizes the composition

of the loan portfolio:

($ 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 $ 0.44 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

The totals shown above are net of deferred loan

fees and costs, which totaled $ 0.34 million and $ 0.44 million at March 31, 2024, and December 31, 2023, respectively.

The risk characteristics of each loan portfolio

segment are as follows:

Commercial & Industrial and Agricultural

Commercial & industrial loans and agricultural

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

7 unchanged sentences

due from its customers.

Commercial Real Estate (Owner and Nonowner Occupied)

Commercial Real Estate (Owner and Nonowner

Commercial real estate loans are viewed primarily

5 unchanged sentences

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.

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

26 unchanged sentences

Allowance for Credit Losses (ACL)

The ACL is an estimate of the expected credit

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

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

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

A provision for credit

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

The ACL is a valuation account that is deducted

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

Loans are charged off against

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

Expected recoveries do not exceed the

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

Management estimates the ACL using relevant available

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

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

Adjustments to historical loss information

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

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

Accrued interest receivable related to loans totaled

$ 3.2 million at March 31, 2024, and is excluded from the estimate of credit losses.

The Company measures expected credit losses for

loans on a pooled basis when similar risk characteristics exist.

The Company has identified the following portfolio segments:

● Commercial & 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 & 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.

● Commercial Real Estate - Owner Occupied

- Owner occupied commercial real estate loans consist of loans to purchase or re-finance owner occupied nonresidential properties.

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

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

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 nonowner occupied 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 the commercial real estate collateral 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.

● Residential

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 HELOCs and other lines

of credit secured by first or second liens on the borrower’s primary residence.

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 liens 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 utilizes a Discounted Cash Flow (“DCF”)

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 and consumer loan portfolios, which were 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

The LDA 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, 2024 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 sound calculation.

Key inputs into the DCF model include loan-level

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

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

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

Additional key assumptions in the DCF model include

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

When possible,

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

When it is not possible to use the Company’s

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

When possible, the Company utilizes its own LGDs

for the reasonable and supportable forecast period.

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

a method referred to as Frye Jacobs.

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

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

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

during the reversion period and long-term historical average.

The Company utilizes its own prepayment and curtailment rates in the ACL

In pools where observations are not sufficient, the Company utilizes the model’s most relevant benchmark rate.

Management also considers further adjustments

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

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

in the quantitative analyses.

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

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

considerations.

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

The qualitative analysis

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

During each reporting

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

from those experienced in the historical loss periods.

Loans that do not share risk characteristics

are evaluated on an individual basis.

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

difficulty, the expected credit losses are based on the fair value of collateral at the reporting dated 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.

The 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

used to estimate the ACL, as well as the resultant provision for credit losses charged to income, are considered adequate by management

and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise.

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 ACL and thus the resulting provision for credit losses.

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 tables summarize the

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

The following tables summarize the activity

related to the ACL for the three months ended March 31, 2024 and March 31, 2023.

($ in thousands)

For the three months ended

September 30, 2023

Balance, beginning of period

Impact of Adopting ASC 326

Provision for Credit Losses

Balance, end of period

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

in thousands)

For the nine months ended

September 30, 2023

Balance, beginning of period

Impact of Adopting ASC 326

Provision for Credit Losses

Balance, end of period

March 31, 2024

Provision for

Credit Losses

Commercial & industrial

2 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

September 30, 2022

Balance, beginning of period

Provision for Credit Losses

Balance, end of period

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

($ in thousands)

For the nine months ended

September 30, 2022

Balance, beginning of period

Provision for Credit Losses

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

($ in thousands)

For the twelve months ended

December 31, 2022

Balance at Beginning of Period

Provision for Credit Losses

End of Period

March 31, 2023

Provision for

Credit Losses

Commercial & industrial

10 unchanged sentences

The following table presents an analysis of collateral-dependent

loans of the Company as of September 30, 2023.

loans of the Company as of March 31, 2024 and December 31, 2023.

($ in thousands)

Collateral Type

September 30, 2023

March 31, 2024

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.

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 September 30, 2022.

($ in thousands)

Collateral Type

December 31, 2023

Commercial & industrial

Commercial real estate

Residential real estate

Allowance for credit losses:

Ending allowance attributable to loans:

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated for impairment

Collectively evaluated for impairment

September 30, 2022

Commercial & industrial

Commercial real estate

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Allowance for credit losses:

Ending allowance attributable to loans:

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated for impairment

Collectively evaluated for impairment

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.

Credit Risk Profile

8 unchanged sentences

This analysis is performed on a quarterly basis.

Company uses the following definitions for risk ratings:

uses the following definitions for risk ratings:

Pass (grades 1 – 4):

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

Special Mention (5):

have potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may result

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

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

Special Mention (5):

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

Ordinarily, special

mention credits have characteristics which corrective management action would remedy.

potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may result in deterioration

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

Special mention loans are not adversely

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

Ordinarily, special mention credits have

characteristics which corrective management action would remedy.

Substandard (6):

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.

Loans are inadequately

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

Loans so classified must

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

They are characterized by the distinct possibility

9 unchanged sentences

The Company evaluates the loan risk grading system

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

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

The following table presents loan balances by credit quality

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

indicators by year of origination as of March 31, 2024.

in thousands)

Loans by Year of Origination

Loans Converted

period gross chargeoffs

real estate - owner occupied

period gross chargeoffs

real estate - nonowner occupied

period gross chargeoffs

equity line of credit (HELOC)

period gross chargeoffs

The following table presents loan balances by

1 unchanged sentence

($ in thousands)

Term Loans by Year of Origination

December 31, 2023

Commercial & industrial

Special Mention (5)

Substandard (6)

Current period gross chargeoffs

Commercial real estate - owner occupied

Special Mention (5)

Substandard (6)

Current period gross chargeoffs

Commercial real estate - nonowner occupied

Special Mention (5)

Substandard (6)

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

Current period gross chargeoffs

Residential real estate

1 unchanged sentence

Substandard (6)

The following tables present

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

Current period gross chargeoffs

Home equity line of credit (HELOC)

Special Mention (5)

Substandard (6)

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

Current period gross chargeoffs

Special Mention (5)

Substandard (6)

Current period gross chargeoffs

The following tables present the Company’s

loan portfolio aging analysis as of March 31, 2024, and December 31, 2023.

($ in thousands)

September 30, 2023

March 31, 2024

Commercial & industrial

7 unchanged sentences

Residential real estate

All loans past due 90 days

are systematically placed on nonaccrual status.

All loans past due 90 days are systematically placed on nonaccrual

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 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

once all contractual principal amounts are received.

It is at the discretion of management to determine when a loan is placed back on

accrual status once a borrower establishes a history of six consecutive timely principal and interest payments.

The categories of nonaccrual

loans as of March 31, 2024, and December 31, 2023, are presented in the following table.

March 31, 2024

($ 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)

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.

Impairment was measured on a loan-by-loan

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

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

Large groups of smaller balance homogenous loans

were collectively evaluated for impairment.

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

loans for impairment measurements, unless such loans 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

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

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

($ in thousands)

Twelve Months Ended

Unpaid Principal

Average Recorded

Interest Income

December 31, 2023

With no related allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

With a specific allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Three Months Ended

Nine Months Ended

September 30, 2022

Average Recorded

Interest Income

Average Recorded

Interest Income

($ in thousands)

With no related allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

With a specific allowance recorded:

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

loans with no

loans with an

Commercial & industrial

2 unchanged sentences

Residential real estate

Home equity line of credit (HELOC)

Modifications made to Borrowers Experiencing Financial Difficulty

10 unchanged sentences

for Credit Losses section of this note.

For the nine months ended September 30, 2023,

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

For the three months ended March 31, 2024, 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 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.

experiencing financial difficulty for which the Company had modified an existing loan as of March 31, 2024.

The Company monitors loan

payments on an ongoing 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

the three-month period ended March 31, 2024, 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.

2 unchanged sentences

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

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

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

cancellable (i.e.

commitment cannot be canceled at any time).

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

for credit loss expense.

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

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

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

The allowance for credit losses for unfunded

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

Nine Months Ended

the commitment cannot be canceled at any time).

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

a provision for credit loss expense.

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

a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be

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

The allowance for credit losses

for unfunded loan commitments of $ 0.9 million at March 31, 2024, 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 months ended March 31, 2024, and March 31, 2023.

($ in thousands)

September 30,

Three Months Ended

Balance, beginning of period

4 unchanged sentences

A summary of the activity in goodwill is presented

Three Months Ended

September 30,

Nine Months Ended

September 30,

($ in thousands)

Three Months Ended

Beginning balance

3 unchanged sentences

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

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.

As of March 31, 2024, and December 31, 2023, the

carrying amount of goodwill was $ 23.2 million.

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

occur or circumstances change that indicate an impairment may exist.

When assessing goodwill for impairment, first, a qualitative assessment

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

carrying value.

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

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

Goodwill was assessed for impairment using a

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.

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 September 30, 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 September 30, 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 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.

billion at March 31, 2024, and December 31, 2023.

Contractually specified servicing fees of $ 0.8 million were included in mortgage loan

servicing fees in the consolidated income statement for the three months ended March 31, 2024 and 2023.

The following table summarizes mortgage servicing

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

($ in thousands)

Balance at beginning of period

Mortgage servicing rights capitalized during the period

Mortgage servicing rights amortization during the period

Carrying amount, beginning of year

Mortgage servicing rights capitalized during the year

Mortgage servicing rights amortization during the year

Net change in valuation allowance

Balance at end of period

Carrying amount, end of year

Valuation allowance:

Balance at beginning of period

Increase (decrease)

Balance at end of period

Beginning of year

Increase (reduction)

Fair value, beginning of period

11 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

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 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.

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.

The 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.

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.

The fair value of derivative instruments with a positive fair value are

reported in accrued income and other assets in the consolidated balance sheets, while derivative instruments with a negative fair value

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 September 30, 2023 and December

September 30, 2023

reported in accrued income and included in Other assets in the consolidated balance sheets, while derivative instruments with a negative

fair value are reported in accrued expenses and included in 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 March 31, 2024, and December 31, 2023.

March 31, 2024

December 31, 2023

3 unchanged sentences

Interest rate swaps associated with loans

Forward contracts

Total contracts

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Total contracts

The fair value of interest rate swaps were estimated

The fair value of interest rate swaps was estimated

using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date.

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The following table presents the amounts included

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

30, 2023 and 2022.

in the consolidated statements of income for non-hedging derivative financial instruments for the three months ended March 31, 2024, and

Three Months Ended

September 30,

Nine Months Ended

September 30,

($ in thousands)

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The following table shows the offsetting of financial assets and derivative

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

amounts not offset in the

consolidated balance sheet

assets at March 31, 2024, and December 31, 2023.

amounts offset

Gross amounts not offset in the consolidated balance sheet

($ in thousands)

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balance sheet

Cash collateral

March 31, 2024

Interest rate swaps

December 31, 2023

Interest rate swaps

The following table shows the offsetting of financial liabilities and

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

derivative liabilities at March 31, 2024, and December 31, 2023.

of liabilities

amounts not offset in the

amounts offset

Gross amounts not offset in the

consolidated balance sheet

Cash collateral

($ in thousands)

1 unchanged sentence

balance sheet

March 31, 2024

Interest rate swaps

December 31, 2023

Interest rate swaps

NOTE 8 – DEPOSITS

Major classification of deposits at September

Major classification of deposits at March 31,

2024, and at December 31, 2023, were as follows:

($ in thousands)

September 30,

Non interest bearing demand

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Total Deposits

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

Included in time deposits at March 31, 2024, and

December 31, 2023, were $ 53.2 million and $ 56.5 million, respectively, of deposits which were obtained through the Certificate of Deposit

Account Registry Service (CDARS).

1 unchanged sentence

($ in thousands)

September 30,

Securities sold under repurchase agreements

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from 2025 through 2051.

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

As of March 31, 2024, these REPO agreements were secured by securities with a fair value totaling $ 18.9 million.

The REPO agreements mature within one month.

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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

As of March 31, 2024, there was $ 20.3 million pledged to the Federal Reserve Discount Window.

At March 31, 2024, and December 31, 2023, the

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

1 unchanged sentence

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 September 30, 2023 were:

by $ 281.3 million in mortgage loans at March 31, 2024.

Advances consisted of fixed interest rates from 3.75 to 5.61 percent.

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

Aggregate annual maturities of FHLB advances at March 31,

($ in thousands)

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limitations applicable) under current regulatory guidelines and interpretations.

The balance of the Capital Securities as of September

The balance of the Capital Securities as of March 31,

2024, and December 31, 2023, was $ 10.3 million, with a maturity date of September 15, 2035 .

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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 active markets for

identical assets or liabilities

Observable inputs other than Level 1 prices,

such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be

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

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

or other inputs that are observable

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

Unobservable inputs that are supported by little

or no market activity and that are significant to the fair value of the assets or liabilities

The following is a description of the valuation methodologies

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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.

fell at March 31, 2024, and December 31, 2023.

($ in thousands)

Fair value at

September 30,

Treasury and Government Agencies

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

(Level 3) inputs for the three and nine months ended September 30, 2023 and 2022.

(Level 3) inputs for the three months ended March 31, 2024, and 2023.

for the Three Months Ended

September 30,

for the Nine Months Ended

September 30,

($ in thousands)

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Balance at beginning of period

Total realized gains (losses)

Change in fair value

6 unchanged sentences

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 September 30, 2023 and December 31, 2022.

individually evaluated loans 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, 2024 and December 31, 2023.

Mortgage Servicing Rights

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Fair value at

September 30, 2023

Collateral-dependent Individually evaluated loans

2 unchanged sentences

Fair value at

December 31, 2022

Collateral-dependent impaired loans

7 unchanged sentences

Fair value at

Range (weighted-

($ in thousands)

September 30, 2023

Valuation technique

Unobservable inputs

Collateral-dependent individually evaluated loans

Collateral-dependent individually evaluated

Market comparable properties

11 unchanged sentences

Fair value at

Range (weighted-

($ in thousands)

December 31, 2022

Valuation technique

Unobservable inputs

Collateral-dependent

impaired loans

Collateral-dependent impaired loans

Market comparable properties

11 unchanged sentences

There were no changes in the inputs or methodologies

used to determine fair value at September 30, 2023 as compared to December 31, 2022.

used to determine fair value at March 31, 2024, as compared to December 31, 2023.

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

Cash and Due From Banks, Interest Bearing Time

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

The carrying amount approximates the fair value.

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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.

of the rate State Bank could pay on similar instruments with similar terms and maturities at March 31, 2024, and December 31, 2023.

Loan Commitments

3 unchanged sentences

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.

approximate cost at March 31, 2024, and December 31, 2023, and are not considered significant to this presentation.

Trust Preferred Securities

16 unchanged sentences

Fair value measurements using

September 30, 2023

March 31, 2024

Financial assets

2 unchanged sentences

Loans held for sale

Loans, net of allowance for loan losses

Loans, net of allowance for credit losses

Federal Reserve and FHLB Bank stock, at cost

13 unchanged sentences

Loans held for sale

Loans, net of allowance for loan losses

Loans, net of allowance for credit losses

Federal Reserve and FHLB Bank stock, at cost

15 unchanged sentences

A total of 500,000 common shares of the Company

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

are available for grants or awards under the 2017 Plan, of which 186,456 shares had been granted under the plan as of March 31, 2024.

The 2017 Plan is intended to advance the interests

9 unchanged sentences

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.

As of March 31, 2024, 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 2024.

On February 5, 2013, the Company adopted a Long

Term Incentive (LTI) Plan, which provides for awards of restricted stock in the Company to certain key executives.

These restricted stock

awards vest over a four-year period and are intended to assist the Company in retention of key executives.

The compensation cost charged

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

Term Incentive Plan (the “LTI Plan”), which provides for awards of restricted stock in the Company to certain key executives.

These restricted stock awards vest over a four-year period and are intended to assist the Company in retention of key executives.

compensation cost charged against income for awards under the LTI Plan for the three months ended March 31, 2024 and March 31, 2023 was

$ 0.2 million and $ 0.2 million, respectively.

As of March 31, 2024, there was $ 1.0 million of

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

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

2 unchanged sentences

The table below is a summary of restricted stock

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

activity under the Company’s 2017 Plan for the three months ended March 31, 2024.

Weighted-Average

Value per Share

Nonvested, January 1, 2024

Nonvested, September 30, 2023

Nonvested, March 31, 2024

NOTE 15 – GENERAL LITIGATION

3 unchanged sentences

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

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

flow of the Company.

at March 31, 2024, 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