What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-08 · 755 added, 796 removed, 567 unchanged (73% of the section changed)

Financial Statements

SB Financial Group, Inc.

Condensed Consolidated Balance Sheets

Financial Group, Inc.

Consolidated Balance Sheets

($ in thousands)

Cash and due from banks

Interest bearing time deposits

Available-for-sale securities

Loans held for sale

Loans, net of unearned income

Allowance for credit losses

Premises and equipment, net

Federal Reserve and Federal Home Loan Bank Stock, at cost

Foreclosed assets and other assets held for sale, net

Interest receivable

Cash value of life insurance

Mortgage servicing rights

Liabilities and shareholders’ equity

Non interest bearing demand

and due from banks

bearing time deposits

Available-for-sale

held for sale

net of unearned income

for credit losses

and equipment, net

Reserve and Federal Home Loan Bank Stock, at cost

assets and other assets held for sale, net

value of life insurance

servicing rights

and shareholders’ equity

interest bearing demand

Time deposits

Total deposits

Repurchase agreements

Federal Home Loan Bank advances

Trust preferred securities

Subordinated debt net of issuance costs

Interest payable

Other liabilities

Total liabilities

Commitments & Contingent Liabilities

Shareholders’ Equity

bearing demand

Home Loan Bank advances

preferred securities

debt net of issuance costs

& Contingent Liabilities

Shareholders’

Preferred stock, no par value;

authorized 200,000 shares;

2024 - 0 shares outstanding, 2023 - 0 shares outstanding

2024 - 0 shares outstanding,

2023 - 0 shares outstanding

Common stock, no par value;

1 unchanged sentence

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

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

paid-in capital

other comprehensive loss

Treasury stock, at cost;

1 unchanged sentence

2023 - 1,756,733 common shares)

Total shareholders’ equity

Total liabilities and shareholders’ equity

See notes to condensed consolidated financial statements (unaudited)

SB Financial Group, Inc.

shareholders’ equity

liabilities and shareholders’ equity

notes to condensed consolidated financial statements (unaudited)

Financial Group, Inc.

Consolidated Statements of Income (unaudited)

($ in thousands, except per share data)

Three Months Ended

Six Months Ended

($ in thousands,

except per share data)

September 30,

interest income

Other interest income

Total interest income

interest income

agreements & other

Home Loan Bank advance expense

preferred securities expense

interest expense

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

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

on sale of assets

noninterest income

Wealth management fees

Customer service fees

Gain on sale of mortgage loans & OMSR

Mortgage loan servicing fees, net

Gain on sale of non-mortgage loans

Title insurance income

Total noninterest income

and employee benefits

occupancy expense

processing fees

and communications

and delivery expense

local and other taxes

noninterest expense

Salaries and employee benefits

Net occupancy expense

Equipment expense

Data processing fees

Professional fees

Marketing expense

Telephone and communications

Postage and delivery expense

State, local and other taxes

Employee expense

Other expense

Total noninterest expense

Income before income tax

Provision for income taxes

Basic earnings per common share

Diluted earnings per common share

Average common shares outstanding (in thousands):

See notes to condensed consolidated

financial statements (unaudited)

Consolidated Statements of Comprehensive Income (unaudited)

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)

September 30,

in thousands)

Three Months Ended

Six Months Ended

Other comprehensive loss

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)

comprehensive income (loss)

for sale investment securities:

unrealized holding gains (losses) arising in the period

tax (expense) benefit

effect on other comprehensive income (loss)

comprehensive income (loss)

notes to condensed consolidated financial statements (unaudited)

Financial Group, Inc.

Consolidated Statements of Shareholders’ Equity (unaudited)

Accumulated Other Comprehensive

in thousands, except per share data)

Balance, January 1, 2024

Paid-in Capital

Other Comprehensive Loss

January 1, 2024

comprehensive loss

Cash dividends on common, $ 0.135 per share

Restricted stock vesting

stock vesting

Repurchased stock ( 30,048 shares)

Stock based compensation expense

Balance, March 31, 2024

Other comprehensive loss

based compensation expense

March 31, 2024

comprehensive loss

Cash dividends on common, $ 0.14 per share

Repurchased stock ( 26,791 shares)

Stock based compensation expense

Balance, June 30, 2024

Accumulated Other Comprehensive

($ in thousands, except per share data)

January 1, 2023

Other comprehensive income

Adoption of ASU 2016-13

based compensation expense

June 30, 2024

comprehensive income

Cash dividends on common, $ 0.14 per share

Restricted stock vesting

stock vesting

Repurchased stock ( 66,513 shares)

Stock based compensation expense

March 31, 2023

based compensation expense

September 30, 2024

in thousands, except per share data)

Paid-in Capital

Other Comprehensive Loss

comprehensive income

of ASU 2016-13

Cash dividends on common, $ 0.125 per share

stock vesting

Repurchased stock ( 55,800 shares)

based compensation expense

comprehensive loss

Dividends on common, $ 0.13 per share

Repurchased stock ( 91,260 shares)

Stock based compensation expense

Balance, June 30, 2023

See notes to condensed consolidated financial statements (unaudited)

SB Financial Group, Inc.

Condensed Consolidated Statements of Cash

Flows (unaudited)

based compensation expense

June 30, 2023

comprehensive loss

Cash dividends on common, $ 0.13 per share

stock vesting

Repurchased stock ( 43,814 shares)

based compensation expense

September 30, 2023

notes to condensed consolidated financial statements (unaudited)

Financial Group, Inc.

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended

September 30,

($ in thousands)

Ended June 30,

Operating Activities

10 unchanged sentences

Gain from sale of loans

Gain on sales of assets

Interest receivable

Interest payable & other liabilities

Net cash used in operating activities

Net cash provided by operating activities

Investing Activities

Purchases of available-for-sale securities

Purchases of interest bearing time deposits

Proceeds from maturities of interest bearing time deposits

Net increase (decrease) in interest bearing time deposits

Proceeds from maturities of available-for-sale securities

1 unchanged sentence

Purchase of premises, equipment

Proceeds from bank owned life insurance

Purchase of bank owned life insurance

2 unchanged sentences

Proceeds from sale of foreclosed assets

Net cash provided by (used in) investing activities

Net cash used in investing activities

Financing Activities

7 unchanged sentences

Net cash (used in) provided by financing activities

Decrease in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

4 unchanged sentences

Transfer of loans to foreclosed assets

See notes to condensed consolidated financial statements (unaudited)

SB FINANCIAL GROUP, INC.

notes to condensed consolidated financial statements (unaudited)

NOTE 1 – BASIS OF PRESENTATION

SB Financial Group, Inc., an Ohio corporation

(“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.

FINANCIAL GROUP, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1 – BASIS OF PRESENTATION

Financial Group, Inc., an Ohio corporation (“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.

(“SB Captive”), RFCBC, Inc.

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

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.

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

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

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

information and with the instructions for Form 10-Q.

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

GAAP for complete financial statements.

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

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

Those adjustments consist only of normal

recurring adjustments.

Results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of results

for the complete year.

The condensed consolidated balance sheet of the

Company as of December 31, 2023, has been derived from the audited consolidated balance sheet of the Company as of that date.

For further information, refer to the consolidated

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

Adoption of New Accounting Standards:

Reference Rate Reform –

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)

This guidance provides temporary options to ease

the potential burden in accounting for reference rate reform.

It is intended to help stakeholders during the global market-wide reference

rate transition period.

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”).

On August 14, 2024, SB Financial Group, Inc.

Marblehead Bancorp (“Marblehead”), parent company of The Marblehead Bank (“Marblehead Bank”), jointly announced

entry into a definitive agreement pursuant to which Marblehead will be combined with SB Financial and Marblehead Bank will merge with

and into State Bank.

The merger agreement was unanimously approved by the Boards of Directors of both bank holding companies and their

subsidiary banks.

Under the terms of the merger agreement, shareholders

of Marblehead Bancorp will receive $ 196.31 in cash in exchange for each share of Marblehead Bancorp common stock for a transaction valued

in aggregate at approximately $ 5.0 million.

When finalized, the merger will add two full-service

branches and one limited-service branch to State Bank’s branch footprint, strengthening State Bank’s position in the Northwest

Ohio region and expanding State Bank’s presence into the Marblehead, Ohio and Ottawa County, Ohio communities.

consolidated financial statements include 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.

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

Those adjustments consist only of normal recurring adjustments.

Results of operations for the three and nine months ended September

30, 2024, are not necessarily indicative of results for the complete year.

condensed consolidated balance sheet of the Company as of December 31, 2023, has been derived from the audited consolidated balance sheet

of the Company as of that date.

further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form

10-K for the year ended December 31, 2023.

of New Accounting Standards:

Standards Update (“ASU”) No.

Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform

on Financial Reporting (Topic 848)

guidance provides temporary options to ease the potential burden in accounting for reference rate reform.

It is intended to help stakeholders

during the global market-wide reference rate transition period.

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

However, a deferral of the implementation

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

The Company 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

Losses (Topic 326):

However, a deferral of the implementation of the Reference Rate Reform was issued in December of 2022, which extends the implementation

to December 31, 2024.

The Company 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 Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

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

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

Financial Instruments - Credit Losses (Topic 326):

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

326”) as amended.

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

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

The CECL methodology is applicable to the measurement

of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity (“HTM”) debt

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 that are noncancellable), and net investments in leases recognized by a lessor.

The CECL methodology requires an entity to estimate credit losses over the life of an asset or off-balance sheet credit exposure.

In addition, CECL made changes to the accounting

for available-for-sale debt securities.

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

on available-for-sale debt securities if management 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

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

Results for reporting

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

with previously applicable GAAP.

The transition adjustment of the CECL adoption included an increase in the allowance for credit losses

(“ACL”) of $ 1.4 million and an increase of $ 1.1 million to establish a reserve for unfunded commitments, with a $ 2.0 million

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

consolidated balance sheet.

The following table details the impact of the

adoption of ASC 326:

January 1, 2023

Measurement of Credit Losses on

Financial Instruments (“ASU 2016-13”) (“ASC 326”) as amended.

The new accounting guidance in this ASU replaces the

incurred loss methodology with an expected loss methodology, which is referred to as the current expected credit loss (“CECL”)

The CECL methodology is applicable to the measurement of credit losses on financial assets measured at amortized cost, including

loan receivables and held-to-maturity (“HTM”) debt securities.

It also applies to off-balance sheet credit exposures not

accounted for as insurance (including loan commitments, standby letters of credit, financial guarantees, and other similar instruments

that are noncancellable), 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.

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.

Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet

credit exposures.

Results for reporting periods beginning on or after January 1, 2023, are presented under ASC 326 while prior period

amounts continue to be reported in accordance with previously applicable GAAP.

The transition adjustment of the CECL adoption included

an increase in the allowance for credit losses (“ACL”) of $ 1.4 million and an increase of $ 1.1 million to establish a reserve

for unfunded commitments, with a $ 2.0 million decrease to retained earnings, and $ 0.5 million of deferred tax being recorded as part

of the deferred tax asset in the Company’s consolidated balance sheet.

following table details the impact of the adoption of ASC 326:

in thousands)

Allowance for credit loss on loans

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Home equity line of credit (HELOC)

Total ACL on loans

ACL on off-balance sheet commitments

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 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 method 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:

Effect on Retained Earnings

Allowance for credit

loss on loans

real estate - owner occupied

real estate - nonowner occupied

equity line of credit (HELOC)

on off-balance sheet commitments

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

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

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)

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 method 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.

Standards not yet adopted:

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

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

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.

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

NOTE 2 – EARNINGS PER SHARE

Earnings per share (“EPS”) have been

computed based on the weighted average number of common shares outstanding during the periods presented.

The average number of common

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.

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.

2 – EARNINGS PER SHARE

per share (“EPS”) have been computed based on the weighted average number of common shares outstanding during the periods

The average number of common shares used in the computation of basic and diluted earnings per share are set forth in the table

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.

Months Ended Sep.

and outstanding shares in thousands - except per share data)

Three Months Ended

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

earnings allocated to common shares

Undistributed

earnings allocated to common shares

earnings allocated to participating securities

Income allocated to common shares and participating securities

Weighted average

shares outstanding for basic earnings per share

effect of stock compensation

average shares outstanding for diluted earnings per share

Basic earnings per

Diluted earnings

per common share

Nine Months Ended Sep.

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

Six Months Ended

Distributed earnings allocated to common shares

9 unchanged sentences

3 – AVAILABLE-FOR-SALE Securities

The amortized cost and appropriate fair values,

together with gross unrealized gains and losses, of securities at June 30, 2024, and December 31, 2023, were as follows:

amortized cost and appropriate fair values, together with gross unrealized gains and losses, of securities at September 30, 2024, and

December 31, 2023, were as follows:

in thousands)

June 30, 2024

Treasury and Government agencies

Mortgage-backed securities

State and political subdivisions

Other corporate securities

Unrealized Gains

Unrealized Losses

September 30, 2024

Treasury and Government

Mortgage-backed

and political subdivisions

corporate securities

Unrealized Gains

Unrealized Losses

December 31, 2023

Treasury and Government agencies

Mortgage-backed securities

State and political subdivisions

Other corporate securities

The amortized cost and fair value of securities

available-for-sale at June 30, 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.

Treasury and Government

Mortgage-backed

and political subdivisions

corporate securities

amortized cost and fair value of securities available-for-sale at September 30, 2024, by contractual maturity, are shown below.

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)

Within one year

Due after one year through five years

Due after five years through ten years

Due after ten years

Mortgage-backed securities

The fair value of securities pledged as collateral,

to secure public deposits and for other purposes, was $ 145.4 million at June 30, 2024, and $ 89.7 million at December 31, 2023.

value of securities delivered for repurchase agreements was $ 18.4 million at June 30, 2024, and $ 19.7 million at December 31, 2023.

There were no realized gains or losses from sales

of available-for-sale securities for the three and six months ended June 30, 2024, or June 30, 2023.

Certain investments in debt securities are reported

in the consolidated financial statements at an amount less than their historical cost.

Total fair value of these investments was $ 207.5

million at June 30, 2024, and $ 217.0 million at December 31, 2023, which consisted of 138 securities, or approximately 99 percent, and

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

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

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

Securities with unrealized losses, aggregated

by investment class and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2024,

and December 31, 2023, are as follows:

after one year through five years

after five years through ten years

after ten years

Mortgage-backed

fair value of securities pledged as collateral, to secure public deposits and for other purposes, was $ 147.4 million at September 30,

2024, and $ 89.7 million at December 31, 2023.

The fair value of securities delivered for repurchase agreements was $ 18.4 million at September

30, 2024, and $ 19.7 million at December 31, 2023.

were no realized gains or losses from sales of available-for-sale securities for the three and nine months ended September 30, 2024,

or September 30, 2023.

investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost.

fair value of these investments was $ 210.3 million at September 30, 2024, and $ 217.0 million at December 31, 2023, which consisted of

135 securities, or approximately 99 percent, and 139 securities, or approximately 99 percent, respectively, of the Company’s available-for-sale

investment portfolio at such dates.

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

rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities

are temporary.

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, 2024, and December 31, 2023, are as follows:

($ in thousands)

Less than 12 Months

than 12 Months

Months or Longer

June 30, 2024

Unrealized Losses

September 30, 2024

Treasury and Government agencies

Mortgage-backed securities

State and political subdivisions

Other corporate securities

Less than 12 Months

Mortgage-backed

and political subdivisions

corporate securities

than 12 Months

Months or Longer

December 31, 2023

Unrealized Losses

Treasury and Government agencies

Mortgage-backed securities

State and political subdivisions

Other corporate securities

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 June 30, 2024, and December 31, 2023, no ACL on available-for-sale securities was recorded.

Mortgage-backed

and political subdivisions

corporate securities

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.

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 September 30, 2024, and December 31, 2023, no ACL on available-for-sale securities

was recorded.

Management has made the accounting policy election

1 unchanged sentence

Accrued interest receivable

on available-for-sale debt securities totaled $ 0.7 million at June 30, 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 LOSSES

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 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

against interest income.

The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for

return to accrual.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current

and future payments are reasonably assured.

The following table summarizes the composition of the loan portfolio:

on available-for-sale debt securities totaled $ 0.6 million at September 30, 2024 and $ 0.7 million at December 31, 2023.

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

– LOANS AND ALLOWANCE FOR CREDIT LOSSES

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 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 against interest income.

The interest on these loans is accounted for on the cash-basis

or cost-recovery method, until qualifying for return to accrual.

Loans are returned to accrual status when all the principal and interest

amounts contractually due are brought current and future payments are reasonably assured.

The following

table summarizes the composition of the loan portfolio:

in thousands)

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Home equity line of credit (HELOC)

Allowance for credit losses

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

totaled $ 0.27 million and $ 0.44 million at June 30, 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

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.

September 30,

real estate - owner occupied

real estate - nonowner occupied

equity line of credit (HELOC)

for credit losses

shown above are net of deferred loan fees and costs, which totaled $ 0.60 million and $ 0.44 million at September 30, 2024, and December

31, 2023, respectively.

characteristics of each loan portfolio segment are as follows:

& Industrial and Agricultural

& industrial loans 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 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 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.

Commercial Real Estate (Owner and Nonowner Occupied)

Commercial real estate loans are viewed primarily

as cash flow loans and secondarily as loans secured by real estate.

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.

Construction loans are underwritten utilizing

feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners.

Construction loans are

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

These estimates may be inaccurate.

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

Residential and consumer loans consist of two

segments – residential mortgage loans and personal loans.

Residential mortgage loans are secured by 1-4 family residences and are

generally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance

if that ratio is exceeded.

HELOCs are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans

are secured by consumer personal assets, such as automobiles or recreational vehicles.

Some consumer personal loans are unsecured, such

as small installment loans and certain lines of credit.

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, such as unemployment levels.

Repayment can also be impacted

by changes in property values on residential properties.

Risk is mitigated by the fact that these loans are of smaller individual amounts

and spread over a large number of borrowers.

Allowance for Credit Losses (ACL)

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

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.

Real Estate (Owner and Nonowner Occupied)

real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.

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

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

the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk.

management tracks the level of owner-occupied versus non-owner-occupied commercial real estate loans.

loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property

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

estimates may be inaccurate.

Construction 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.

Real Estate, HELOC and Consumer

and consumer loans consist of two segments – residential mortgage loans and personal loans.

Residential mortgage loans are secured

by 1-4 family residences and are generally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires

private mortgage insurance if that ratio is exceeded.

HELOCs are typically secured by a subordinate interest in 1-4 family residences,

and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles.

Some consumer personal

loans are unsecured, such as small installment loans and certain lines of credit.

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, such as unemployment levels.

Repayment can also be impacted by changes in property values on residential properties.

Risk is mitigated by the fact that these loans

are of smaller individual amounts and spread over a large number of borrowers.

for Credit Losses (ACL)

ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on

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.

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

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

$ 3.5 million at June 30, 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:

& 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.

$ 3.3 million at September 30, 2024 and $ 3.2 million at December 31, 2023, and is excluded from the estimate of credit losses.

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.

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

38 unchanged sentences

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 June 30, 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 date adjusted for selling costs as appropriate.

The Company is also required to consider expected

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

Any allowance for off-balance sheet credit exposures is reported in Other liabilities on the Company’s consolidated balance sheet

and is increased or decreased through a provision for credit loss expense on the Company’s consolidated statement of income.

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 six months ended June 30, 2024, and June 30, 2023, and the twelve months ended December 31, 2023.

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 flows.

The LDA utilized the Company’s own Federal Financial

Institutions Examination Council’s (“FFIEC”) Call Report data, as well as peer institution data.

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.

The Company’s own loan-level loss data from January 2016 through September 30, 2024,

contained within the model was 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.

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.

The Company 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.

key assumptions in the DCF model include the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment

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 estimate.

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

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

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.

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

date adjusted for selling costs as appropriate.

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.

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.

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.

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 Jan uary 1, 2023.

The following tables summarize the activity related to the ACL for the three and nine months ended September 30, 2024, and September 30, 2023, and the twelve months ended December 31, 2023.

in thousands)

For the three months ended

June 30, 2024

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

September 30, 2024

beginning of period

of Adopting ASC 326

for Credit Losses

end of period

real estate - owner occupied

real estate - nonowner occupied

in thousands)

For the six months ended

June 30, 2024

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

For the nine months ended

September 30, 2024

beginning of period

of Adopting ASC 326

for Credit Losses

end of period

real estate - owner occupied

real estate - nonowner occupied

in thousands)

For the three months ended

June 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

September 30, 2023

beginning of period

of Adopting ASC 326

for Credit Losses

end of period

real estate - owner occupied

real estate - nonowner occupied

in thousands)

For the six months ended

June 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

For the nine months ended

September 30, 2023

beginning of period

of Adopting ASC 326

for Credit Losses

end of period

real estate - owner occupied

real estate - nonowner occupied

in thousands)

1 unchanged sentence

December 31, 2023

Balance, beginning of period

Impact of Adopting ASC 326

Provision for Credit Losses

Balance, end of period

Commercial & industrial

Commercial real estate - owner occupied

Commercial real estate - nonowner occupied

Residential real estate

Collateral dependent loans are loans for which

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

financial difficulty.

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

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

These loans do not share common risk characteristics and are not

included within the collectively evaluated loans for determining the ACL.

The following table presents an analysis of collateral-dependent

loans of the Company as of June 30, 2024, and December 31, 2023.

beginning of period

of Adopting ASC 326

for Credit Losses

end of period

real estate - owner occupied

real estate - nonowner occupied

dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral

and the borrower is experiencing financial difficulty.

The Company reviews individually evaluated loans for designation as collateral

dependent loans, as well as other loans that management of the Company designates as having higher risk.

These loans do not share common

risk characteristics and are not included within the collectively evaluated loans for determining the ACL.

following table presents an analysis of collateral-dependent loans of the Company as of September 30, 2024, and December 31, 2023.

($ in thousands)

Collateral Type

June 30, 2024

September 30, 2024

Commercial & industrial

9 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.

Credit Risk Profile

The Company categorizes loans into risk categories

based on relevant information about the ability of borrowers to service their debt such as:

current financial information, historical

payment experience, credit documentation, public information and current economic trends, among other factors.

The Company analyzes loans

individually by classifying the loans as to credit risk.

This analysis includes loans with an outstanding balance greater than $ 100,000

and non-homogeneous loans, such as commercial and commercial real estate loans.

This analysis is performed on a quarterly basis.

uses the following definitions for risk ratings:

Pass (grades 1 – 4):

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

Special Mention (5):

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):

Loans are inadequately

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

Loans so classified must

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

They are characterized by the distinct possibility

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

Doubtful (7):

Loans classified

as doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make

collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.

Loans are considered

uncollectable and of such little value that continuing to carry them as assets on the Company’s financial statement is not warranted.

Loans will be classified as Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically

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

The Company evaluates the loan risk grading system

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

The following table presents loan balances by credit quality

indicators and gross chargeoffs by loan category and year of origination as of June 30, 2024.

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

Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such

current financial information, historical payment experience, credit documentation, public information and current economic trends,

among other factors.

The Company analyzes loans individually by classifying the loans as to credit risk.

This analysis includes loans

with an outstanding balance greater than $ 100,000 and non-homogeneous loans, such as commercial and commercial real estate loans.

analysis is performed on a quarterly basis.

The Company uses the following definitions for risk ratings:

(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.

Loans 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 loan or in the Company’s credit position at some future

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.

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

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

They are characterized

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

Loans classified as doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic

that the weaknesses make collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable

and improbable.

Loans are considered uncollectable and of such little value that continuing to carry them as assets on the Company’s financial

statement is not warranted.

Loans will be classified as Loss when it is neither practical nor desirable to defer writing off or reserving

all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis.

The following

table presents loan balances by credit quality indicators and gross chargeoffs by loan category and year of origination as of September

($ in thousands)

Term Loans by Year of Origination

Revolving Loans Converted

June 30, 2024

September 30, 2024

Commercial & industrial

27 unchanged sentences

Current period gross chargeoffs

The following table presents loan balances by

credit quality indicators and gross chargeoffs by loan category and year of origination as of December 31, 2023.

following table presents loan balances by credit quality indicators and gross chargeoffs by loan category and year of origination as

of December 31, 2023.

($ in thousands)

Term Loans by Year of Origination

Revolving Loans Converted

December 31, 2023

3 unchanged sentences

Current period gross chargeoffs

Commercial real estate - owner occupied

real estate - owner occupied

Special Mention (5)

1 unchanged sentence

Current period gross chargeoffs

Commercial real estate - nonowner occupied

real estate - nonowner occupied

Special Mention (5)

4 unchanged sentences

Current period gross chargeoffs

Residential real estate

Special Mention (5)

1 unchanged sentence

Current period gross chargeoffs

Home equity line of credit (HELOC)

line of credit (HELOC)

Special Mention (5)

7 unchanged sentences

Current period gross chargeoffs

The following tables present the Company’s

loan portfolio aging analysis as of June 30, 2024, and December 31, 2023.

following tables present the Company’s loan portfolio aging analysis as of September 30, 2024, and December 31, 2023.

($ in thousands)

June 30, 2024

September 30, 2024

Commercial & industrial

3 unchanged sentences

December 31, 2023

90 Days Past Due

Commercial & industrial

2 unchanged sentences

Residential real estate

All loans past due 90 days are systematically placed on nonaccrual

When a loan is moved to nonaccrual status, total

unpaid interest accrued to date is reversed from income.

Subsequent payments are applied to the outstanding principal balance with the

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

Interest received on nonaccrual loans may be realized

once all contractual principal amounts are received.

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 June 30, 2024, and December 31, 2023, are presented in the following table.

June 30, 2024

past due 90 days are systematically placed on nonaccrual status.

a loan is moved to nonaccrual status, total unpaid interest accrued to date is reversed from income.

Subsequent payments are applied

to the outstanding principal balance with the interest portion of the payment recorded on the balance sheet as a contra-loan.

received on nonaccrual loans may be realized 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 September 30, 2024, and December 31, 2023, are presented in the following

September 30, 2024

($ in thousands)

Nonaccrual loans with no allowance

Nonaccrual loans with an allowance

Total nonaccrual loans

loans with no

loans with an

Commercial & industrial

5 unchanged sentences

($ 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)

Modifications made to Borrowers Experiencing Financial Difficulty

In the normal course of business, the Company

may execute loan modifications with borrowers.

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

long term and made to a borrower experiencing financial difficulty.

The Company’s modifications generally include interest rate

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

These modifications allow the borrower short-term cash

relief to allow them to improve their financial condition.

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

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

for Credit Losses section of this note.

For the six months ended June 30, 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 June 30, 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 six-month

period ended June 30, 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.

Unfunded Loan Commitments

The Company maintains an allowance for off-balance

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

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

cancellable (i.e.

Modifications

made to Borrowers Experiencing Financial Difficulty

the normal course of business, the Company may execute loan modifications with borrowers.

These modifications are analyzed to determine

whether the modification is considered concessionary, long term and made to a borrower experiencing financial difficulty.

The Company’s

modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions.

modifications allow the borrowers short-term cash relief to allow them to improve their financial condition.

If a loan modification is

determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral dependent and evaluated as part

of the ACL as described above in the Allowance for Credit Losses section of this note.

For the nine months ended September 30, 2024,

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

Company had no commitments to lend to borrowers experiencing financial difficulty for which the Company had modified an existing loan

as of September 30, 2024.

The Company monitors loan payments on an ongoing basis to determine if a loan is considered to have a payment

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, 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

Loan Commitments

Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments

to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit

and when the extension of credit is not unconditionally cancellable (i.e.

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 June 30, 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 and six months ended June 30, 2024, and June 30, 2023.

($ in thousands)

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 $ 1.4 million at September 30, 2024, is classified

on the balance sheet within Other liabilities.

following table presents the balance and activity in the ACL for unfunded loan commitments for the three and nine months ended September

30, 2024, and September 30, 2023.

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

($ in thousands)

Balance, beginning of period

2 unchanged sentences

Balance, end of period

NOTE 5 – GOODWILL

A summary of the activity in goodwill is presented

($ in thousands)

of September 30, 2024, and December 31, 2023, the carrying amount of goodwill was $ 23.2 million.

Goodwill is not amortized, but is evaluated

for impairment annually as of December 31, or more frequently if events occur or circumstances change that indicate an impairment may

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.

was assessed for impairment using a quantitative test performed as of September 30, 2024.

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, 2024, impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

6 – MORTGAGE SERVICING RIGHTS

loans serviced for others are not included in the accompanying consolidated balance sheets.

The unpaid principal balance of mortgage

loans serviced for others approximated $ 1.41 billion at September 30, 2024, and $ 1.37 billion at December 31, 2023.

Contractually specified

servicing fees of $ 0.9 million and $ 2.6 million were included in mortgage loan servicing fees in the consolidated income statement for

the three and nine months ended September 30, 2024, respectively.

Servicing fees of $ 0.9 million and $ 2.5 million were included for the

three and nine months ended September 30, 2023, respectively.

following table summarizes mortgage servicing rights capitalized and related amortization, along with activity in the related valuation

Three Months Ended

Six Months Ended

Beginning balance

Measurement period adjustments

Ending balance

Goodwill is not amortized but is evaluated for

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

As of June 30, 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 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

Mortgage loans serviced for others are not included

in the accompanying consolidated balance sheets.

The unpaid principal balance of mortgage loans serviced for others approximated $ 1.39

billion at June 30, 2024, and $ 1.37 billion at December 31, 2023.

Contractually specified servicing fees of $ 0.9 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, 2024, respectively.

Servicing fees of $ 0.8 million and $ 1.7 million were included for the three and six months ended June 30, 2023, respectively.

The following table summarizes mortgage servicing

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

September 30,

Nine Months Ended

September 30,

($ in thousands)

Three Months Ended

Six Months Ended

Balance at beginning of period

9 unchanged sentences

Fair value, end of period

NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising

from both its business operations and economic conditions.

The Company manages its exposures to a wide variety of business and operational

risks primarily through management of its core business activities.

The Company manages economic risks, including interest rate, liquidity

and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative

financial instruments.

Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business

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.

Non-designated Hedges

The Company does not use derivatives for trading

or speculative purposes.

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.

Additionally, the Company enters into forward

contracts for the future delivery of mortgage loans to third-party investors and enters into Interest Rate Lock Commitments (“IRLCs”)

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

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 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.

7 – DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management

Objective of Using Derivatives

Company is exposed to certain risks arising from both its business operations and economic conditions.

The Company manages its exposures

to a wide variety of business and operational risks primarily through management of its core business activities.

The Company manages

economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets

and liabilities and through the use of derivative financial instruments.

Specifically, the Company enters into derivative financial instruments

to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts,

the value of which are determined by interest rates.

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

Non-designated

Company does not use derivatives for trading or speculative purposes.

Derivatives not designated as hedges are not speculative and result

from a service the Company provides to certain customers.

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 contracts for the future delivery of mortgage loans to third-party investors and enters into Interest

Rate Lock Commitments (“IRLCs”) with potential borrowers to fund specific mortgage loans that will be sold into the secondary

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.

The fair value of derivative instruments

with a positive fair value are 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

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, 2024, and December 31, 2023.

June 30, 2024

as of September 30, 2024, and December 31, 2023.

September 30, 2024

December 31, 2023

15 unchanged sentences

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, 2024, and 2023.

for the three and nine months ended September 30, 2024, and 2023.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

($ in thousands) Statement of income classification 2024 2023 2024 2023

2 unchanged sentences

Forward contracts Gain on sale of mortgage loans & OMSR 25 37 102 59

following table shows the offsetting of financial assets and derivative assets at June 30, 2024, and December 31, 2023.

($ in thousands)

The following

table shows the offsetting of financial assets and derivative assets at September 30, 2024, and at December 31, 2023.

Gross amounts

4 unchanged sentences

consolidated balance sheet

($ in thousands)

of recognized

balance sheet

2 unchanged sentences

Cash collateral

June 30, 2024

September 30, 2024

Interest rate swaps

1 unchanged sentence

Interest rate swaps

following table shows the offsetting of financial liabilities and derivative liabilities at June 30, 2024, and December 31, 2023.

The following

table shows the offsetting of financial liabilities and derivative liabilities at September 30, 2024, and at December 31, 2023.

Gross amounts

offset in the

of liabilities

Gross amounts not offset in the consolidated balance sheet

Net amounts of liabilities

Gross amounts not offset in the

consolidated balance sheet

($ in thousands)

balance sheet

the consolidated

balance sheet

Cash collateral

June 30, 2024

of recognized liabilities

consolidated balance sheet

the consolidated balance sheet

Financial instruments

Cash collateral pledged

September 30, 2024

Interest rate swaps

1 unchanged sentence

Interest rate swaps

classification of deposits at June 30, 2024, and at December 31, 2023, were as follows:

classification of deposits at September 30, 2024, and at December 31, 2023, were as follows:

($ in thousands)

September 30,

Non interest bearing demand

Interest bearing demand

Time deposits less than $250,000

Time deposits $250,000 or greater

Time deposits $250,000 or less

Time deposits greater than $250,000

Total Deposits

in time deposits at June 30, 2024, and December 31, 2023, were $ 52.5 million and $ 56.5 million, respectively, of deposits which were

obtained through the Certificate of Deposit Account Registry Service (CDARS).

in time deposits at September 30, 2024, and at December 31, 2023, were $ 56.8 million and $ 56.5 million, respectively, of deposits which

were obtained through the Certificate of Deposit Account Registry Service (CDARS).

9 – SHORT-TERM BORROWINGS

($ in thousands)

September 30,

Securities sold under repurchase agreements

2 unchanged sentences

These securities have various maturity dates from 2025 through 2051.

As of June 30, 2024, these REPO agreements were secured by securities

with a fair value totaling $ 18.4 million.

As of September 30, 2024, these REPO agreements were secured by

securities with a fair value totaling $ 18.4 million.

The REPO agreements mature within one month.

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, 2024, there was $ 19.9 million pledged to the

Discount Window.

June 30, 2024, and December 31, 2023, the Company had $ 41.0 million in federal funds lines, of which none was drawn.

Company has borrowing capabilities at the Federal Reserve Discount Window (“Discount Window”) by pledging either securities

or loans as collateral.

As of September 30, 2024, there was $ 5.6 million pledged to the Discount Window.

both September 30, 2024, and December 31, 2023, the Company had $ 41.0 million in federal funds lines, of which none was drawn.

10 – FEDERAL HOME LOAN BANK (FHLB) ADVANCES

Company’s FHLB advances were secured by $ 288.7 million in mortgage loans at June 30, 2024.

Company’s FHLB advances were secured by $ 298.3 million in mortgage loans at September 30, 2024.

Advances consisted of fixed interest

2 unchanged sentences

Aggregate annual

maturities of FHLB advances at June 30, 2024, were:

maturities of FHLB advances at September 30, 2024, were:

($ in thousands)

10 unchanged sentences

The balance of

the Capital Securities as of June 30, 2024, and December 31, 2023, was $ 10.3 million, with a maturity date of September 15, 2035 .

the Capital Securities as of both September 30, 2024, and December 31, 2023, was $ 10.3 million, with a maturity date of September 15,

12 – SUBORDINATED DEBT

19 unchanged sentences

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

Quoted prices in active

markets for identical assets or liabilities

Observable inputs other than Level 1 prices,

such as quoted prices for similar assets or liabilities;

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

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

following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis, recognized

23 unchanged sentences

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 June 30, 2024, and December 31, 2023.

value hierarchy in which the fair value measurements fell at September 30, 2024, and at December 31, 2023.

($ in thousands)

Fair value at

September 30,

Treasury and Government Agencies

18 unchanged sentences

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, 2024, and 2023.

balance sheets using significant unobservable (Level 3) inputs for the three and nine months ended September 30, 2024, and 2023.

for the Three Months Ended

for the Six Months Ended

September 30,

for the Nine Months Ended

September 30,

($ in thousands)

16 unchanged sentences

All individually evaluated loans held by the Company were collateral dependent

at June 30, 2024, and December 31, 2023.

at September 30, 2024, and at December 31, 2023.

Servicing Rights

15 unchanged sentences

Fair value at

September 30,

Collateral-dependent Individually evaluated loans

9 unchanged sentences

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

($ in thousands) Fair value at

Fair value at

September 30,

2024 Valuation

technique Unobservable inputs Range (weighted-

technique Unobservable inputs Range

(weighted-average)

($ in thousands)

Collateral-dependent individually evaluated loans $ 2,047 Market comparable properties Comparability adjustments (%) 1 - 100% (21%)

5 unchanged sentences

IRLCs ( 23 ) Discounted cash flow Loan closing rates 55% - 99 %

($ in thousands) Fair value at

Fair value at

2023 Valuation

technique Unobservable inputs Range (weighted-

technique Unobservable inputs Range

(weighted-average)

($ in thousands)

Collateral-dependent impaired loans $ 864 Market comparable properties Comparability adjustments (%) 2 - 100% (25%)

5 unchanged sentences

IRLCs 45 Discounted cash flow Loan closing rates 27% - 91 %

were no changes in the inputs or methodologies used to determine fair value at June 30, 2024, as compared to December 31, 2023.

were no changes in the inputs or methodologies used to determine fair value at September 30, 2024, as compared to December 31, 2023.

following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated

17 unchanged sentences

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, 2024, and December 31, 2023.

at September 30, 2024, and at December 31, 2023.

fair value of loan commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the

1 unchanged sentence

The estimated fair values for other financial

instruments and off-balance-sheet loan commitments approximate cost at June 30, 2024, and December 31, 2023, and are not considered significant

to this presentation.

instruments and off-balance-sheet loan commitments approximate cost at September 30, 2024, and at December 31, 2023, and are not considered

significant to this presentation.

Preferred Securities

12 unchanged sentences

Fair value measurements using

June 30, 2024

September 30, 2024

Financial assets

34 unchanged sentences

A total of 500,000 common shares of the Company are available for grants or awards under the 2017 Plan, of which 189,456 shares had been

granted under the plan as of June 30, 2024.

granted under the plan as of September 30, 2024.

2017 Plan is intended to advance the interests of the Company and its shareholders by offering employees, directors and advisory board

8 unchanged sentences

is estimated on the date of grant using the Black-Scholes valuation model.

As of June 30, 2024, there were no stock options outstanding,

As of September 30, 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 six months of 2024.

No stock options were granted in the first nine months of 2024.

February 5, 2013, the Company adopted a Long Term Incentive Plan (the “LTI Plan”), which provides for awards of restricted

3 unchanged sentences

The compensation cost charged against income for awards under the LTI Plan for the three

and six months ended June 30, 2024, was $ 0.2 million and $ 0.4 million, respectively, and for the three and six months ended June 30,

and nine months ended September 30, 2024, was $ 0.1 million and $ 0.5 million, respectively, and for the three and nine months ended September

30, 2023, was $ 0.1 million and $ 0.5 million, respectively.

of June 30, 2024, there was $ 0.8 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.

That cost is expected

to be recognized over a weighted-average period of 2.1 years.

table below is a summary of restricted stock activity under the Company’s 2017 Plan for the six months ended June 30, 2024.

of September 30, 2024, 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.

is expected to be recognized over a weighted-average period of 2.4 years.

table below is a summary of restricted stock activity under the Company’s 2017 Plan for the nine months ended September 30, 2024.

Average Value

Nonvested, January 1, 2024

Nonvested, June 30, 2024

Nonvested, September 30, 2024

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, 2024, will not have a material adverse effect on the consolidated financial

position, results of operations and cash flow of the Company.

of any such claims, lawsuits and examinations pending at September 30, 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