SB FINANCIAL GROUP, INC. 10-Q

Item 1. Financial Statements SB Financial Group, Inc. Condensed Consolidated Balance Sheets ($ in thousands) March 2025 (unaudited) December 2024 Assets Cash and due from banks $ 105,145 $ 25,928 Interest bearing time deposits 1,565 1,565 Available-for-sale securities 199,721 201,587 Loans held for sale 4,286 6,770 Loans, net of unearned income 1,088,274 1,046,735 Allowance for credit losses ( 15,391 ) ( 15,096 ) Premises and equipment, net 21,875 20,456 Federal Reserve and Federal Home Loan Bank Stock, at cost 5,340 5,223 Foreclosed assets and other assets held for sale, net 73 - Interest receivable 5,072 4,908 Goodwill 27,158 23,239 Cash value of life insurance 30,871 30,685 Mortgage servicing rights 14,965 14,868 Other assets 12,048 12,649 Total assets $ 1,501,002 $ 1,379,517 Liabilities and shareholders’ equity Liabilities Deposits Non interest bearing demand $ 240,446 $ 232,155 Interest bearing demand 208,583 201,085 Savings 285,902 237,987 Money market 257,013 222,161 Time deposits 279,276 259,217 Total deposits 1,271,220 1,152,605 Repurchase agreements 11,058 10,585 Federal Home Loan Bank advances 35,000 35,000 Trust preferred securities 10,310 10,310 Subordinated debt net of issuance costs 19,702 19,690 Interest payable 2,634 2,351 Other liabilities 19,552 21,468 Total liabilities 1,369,476 1,252,009 Commitments & Contingent Liabilities Shareholders’ Equity Preferred stock, no par value; authorized 200,000 shares; 2025 - 0 shares outstanding, 2024 - 0 shares outstanding - - Common stock, no par value;2025 - 10,500,000 shares authorized, 8,525,375 shares issued; 2024 - 10,500,000 shares authorized, 8,525,375 shares issued 61,319 61,319 Additional paid-in capital 14,955 15,194 Retained earnings 117,397 116,186 Accumulated other comprehensive loss ( 26,872 ) ( 30,234 ) Treasury stock, at cost;(2025 - 1,994,729 common shares; 2024 - 1,977,538 common shares) ( 35,273 ) ( 34,957 ) Total shareholders’ equity 131,526 127,508 Total liabilities and shareholders’ equity $ 1,501,002 $ 1,379,517 See notes to condensed consolidated financial statements (unaudited) 1 SB Financial Group, Inc. Condensed Consolidated Statements of Income (unaudited) ($ in thousands, except per share data) Three Months Ended March 31, 2025 2024 Interest Income Loans Taxable $ 15,244 $ 13,547 Tax exempt 115 123 Securities Taxable 1,169 1,274 Tax exempt 38 37 Other interest income 806 319 Total interest income 17,372 15,300 Interest Expense Deposits 5,352 5,090 Repurchase agreements & other 24 34 Federal Home Loan Bank advance expense 362 613 Trust preferred securities expense 160 188 Subordinated debt expense 195 195 Total interest expense 6,093 6,120 Net Interest Income 11,279 9,180 Provision for credit losses - loans 374 ( 86 ) Provision for unfunded commitments 13 86 Total provision for credit losses 387 - Net interest income after provision for credit losses 10,892 9,180 Noninterest Income Wealth management fees 864 865 Customer service fees 879 880 Gain on sale of mortgage loans & OMSR 849 781 Mortgage loan servicing fees, net 611 763 Gain on sale of non-mortgage loans 15 10 Title insurance income 397 266 Other income 492 386 Total noninterest income 4,107 3,951 Noninterest Expense Salaries and employee benefits 6,237 5,352 Net occupancy expense 893 769 Equipment expense 1,072 1,077 Data processing fees 1,439 769 Professional fees 1,034 758 Marketing expense 165 197 Telephone and communications 139 105 Postage and delivery expense 137 97 State, local and other taxes 224 245 Employee expense 174 178 Other expense 896 735 Total noninterest expense 12,410 10,282 Income before income tax 2,589 2,849 Provision for income taxes 431 481 Net Income $ 2,158 $ 2,368 Basic earnings per common share $ 0.33 $ 0.35 Diluted earnings per common share $ 0.33 $ 0.35 Average common shares outstanding (in thousands): Basic: 6,481 6,715 Diluted: 6,502 6,723 See notes to condensed consolidated financial statements (unaudited) 2 SB Financial Group, Inc. Condensed Consolidated Statements of Comprehensive Income (unaudited) Three Months Ended March 31, ($ in thousands) 2025 2024 Net income $ 2,158 $ 2,368 Other comprehensive income (loss) Available for sale investment securities: Gross unrealized holding gains (losses) arising in the period 4,256 ( 2,172 ) Related tax (expense) benefit ( 894 ) 456 Net effect on other comprehensive income (loss) 3,362 ( 1,716 ) Total comprehensive income $ 5,520 $ 652 See notes to condensed consolidated financial statements (unaudited) 3 SB Financial Group, Inc. Condensed Consolidated Statements of Shareholders’ Equity (unaudited) Common Additional Paid-in Retained Accumulated Other Comprehensive Treasury ($ in thousands, except per share data) Stock Capital Earnings Loss Stock Total Balance, January 1, 2025 $ 61,319 $ 15,194 $ 116,186 $ ( 30,234 ) $ ( 34,957 ) $ 127,508 Net income 2,158 2,158 Other comprehensive income 3,362 3,362 Cash dividends on common, $ 0.145 per share ( 947 ) ( 947 ) Restricted stock vesting ( 396 ) 396 - Repurchased stock ( 33,478 shares) ( 712 ) ( 712 ) Stock based compensation expense 157 157 Balance, March 31, 2025 $ 61,319 $ 14,955 $ 117,397 $ ( 26,872 ) $ ( 35,273 ) $ 131,526 Common Additional Paid-in Retained Accumulated Other Comprehensive Treasury ($ in thousands, except per share data) Stock Capital Earnings Loss Stock Total Balance, January 1, 2024 $ 61,319 $ 15,124 $ 108,486 $ ( 29,831 ) $ ( 30,756 ) $ 124,342 Net income 2,368 2,368 Other comprehensive loss ( 1,716 ) ( 1,716 ) Cash dividends on common, $ 0.135 per share ( 917 ) ( 917 ) Restricted stock vesting ( 313 ) 313 - Repurchased stock ( 30,048 shares) ( 521 ) ( 521 ) Stock based compensation expense 167 167 Balance, March 31, 2024 $ 61,319 $ 14,978 $ 109,937 $ ( 31,547 ) $ ( 30,964 ) $ 123,723 See notes to condensed consolidated financial statements (unaudited) 4 SB Financial Group, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) ($ in thousands) Three Months Ended March 31, 2025 2024 Operating Activities Net Income $ 2,158 $ 2,368 Items not requiring (providing) cash Depreciation and amortization 544 552 Provision for credit losses 387 - Expense of share-based compensation plan 157 167 Amortization of premiums and discounts on securities 106 126 Amortization of intangible assets 101 17 Amortization of originated mortgage servicing rights 293 273 Recovery of mortgage servicing rights ( 10 ) ( 181 ) Proceeds from sale of loans held for sale 39,279 36,623 Originations of loans held for sale ( 36,311 ) ( 38,414 ) Gain from sale of loans ( 864 ) ( 791 ) Changes in Interest receivable ( 164 ) 73 Other assets 2,173 ( 723 ) Interest payable & other liabilities ( 1,146 ) 218 Net cash provided by operating activities 6,703 308 Investing Activities Purchases of available-for-sale securities ( 100 ) - Proceeds from maturities of interest bearing time deposits - ( 882 ) Proceeds from maturities of available-for-sale securities 6,117 4,171 Proceeds from sales of available-for-sale securities 30,123 - Net change in loans ( 23,030 ) 8,603 Purchase of premises, equipment ( 923 ) ( 159 ) Purchase of bank owned life insurance - ( 800 ) Purchase of Federal Reserve and Federal Home Loan Bank Stock - ( 275 ) Proceeds from sale of Federal Home Loan Bank Stock - 1,042 Proceeds from sale of foreclosed assets - 1 Acquisition, net of cash acquired (paid) ( 3,014 ) - Net cash provided by investing activities 9,173 11,701 Financing Activities Net increase in demand deposits, money market, interest checking & savings accounts 45,468 44,885 Net (decrease) increase in time deposits 20,059 ( 2,748 ) Net increase (decrease) in securities sold under agreements to repurchase 473 ( 471 ) Proceeds from Federal Home Loan Bank advances - 110,500 Repayment of Federal Home Loan Bank advances ( 1,000 ) ( 159,100 ) Stock repurchase plan ( 712 ) ( 521 ) Cash dividends on common shares ( 947 ) ( 917 ) Net cash provided (used in) by financing activities 63,341 ( 8,372 ) Increase in cash and cash equivalents 79,217 3,637 Cash and cash equivalents, beginning of period 25,928 22,965 Cash and cash equivalents, end of period $ 105,145 $ 26,602 Supplemental cash flow information Interest paid $ 6,257 $ 5,791 Income taxes paid $ - $ - Supplemental non-cash disclosure Transfer of loans to foreclosed assets $ 73 $ - In conjunction with the Marblehead acquisition, liabilities assumed were: Fair value of assets acquired $ 59,161 $ - Cash paid in acquisition ( 5,009 ) - Liabilities assumed $ 54,152 $ - See notes to condensed consolidated financial statements (unaudited) 5 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”), and SB Captive, Inc. (“SB Captive”). State Bank owns all of the outstanding stock of State Bank Insurance, LLC (“SBI”). In December 2024, SBFG completed the dissolution of four of its inactive subsidiaries – RFCBC, Inc., Rurbanc Data Services, Inc., Rurban Mortgage Company and SBFG Mortgage, LLC. The consolidated financial statements include the accounts of SBFG, State Bank, 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-months ended March 31, 2025, are not necessarily indicative of results for the complete year. The condensed consolidated balance sheet of the Company as of December 31, 2024, 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, 2024. Adoption of New Accounting Standards: Accounting Standards Update (“ASU”) No. 2020-04: 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. The guidance was initially 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 extended the implementation through 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. ASU No. 2023-07: Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures This ASU expands operating segment disclosures and requires all segment disclosures to be reported in both annual and interim periods. The new standard requires disclosure of the following: significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) for reportable segments; the title and position of the CODM as well as how the CODM uses the reported measure(s) of profit and loss to assess segment performance; and “other segment items” by reportable segment and a description of its composition. The Company adopted the standard on January 1, 2024, and its adoption did not have a material effect on our financial statements. 6 Accounting Standards not yet adopted: ASU No. 2023-09: Income Taxes (Topic 740): Improvements to Income Tax Disclosures In December 2023, the Financial Accounting Standards Bord (“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 annual periods beginning after December 15, 2024, and are to be applied on a prospective basis. Adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements. NOTE 2 - EARNINGS PER SHARE 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 2025 or 2024. Participating securities in the table reflect nonvested restricted shares that participate in dividends declared and paid by the Company on its common shares prior to vesting of the restricted shares. Three Months Ended March 31, ($ and outstanding shares in thousands - except per share data) 2025 2024 Distributed earnings allocated to common shares $ 947 $ 917 Undistributed earnings allocated to common shares 1,204 1,443 Net earnings allocated to common shares 2,151 2,360 Net earnings allocated to participating securities 7 8 Net Income allocated to common shares and participating securities $ 2,158 $ 2,368 Weighted average shares outstanding for basic earnings per share 6,481 6,715 Dilutive effect of stock compensation 21 8 Weighted average shares outstanding for diluted earnings per share 6,502 6,723 Basic earnings per common share $ 0.33 $ 0.35 Diluted earnings per common share $ 0.33 $ 0.35 NOTE 3 – BUSINESS COMBINATION Effective January 17, 2025, the Company acquired all of the outstanding common shares of Marblehead Bancorp and its subsidiary The Marblehead Bank of Marblehead, Ohio (collectively, “Marblehead”). Marblehead was headquartered in Marblehead, Ohio and had two retail offices. At closing, Marblehead Bancorp was merged with and into SBFG, with SBFG surviving, and immediately thereafter, The Marblehead Bank was merged with and into State Bank, with State Bank surviving. Under the terms of the merger agreement, shareholders of Marblehead received fixed consideration of $ 196.31 in cash for each share of Marblehead common stock for total consideration of $ 5.0 million. The Company accounted for the transaction under the acquisition method of accounting, which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition. In accordance with ASC 805, the Company expensed approximately $ 0.7 million of direct acquisition costs during the three months ended March 31, 2025. The $ 0.7 million in merger expense is split between data processing and professional fees expense. As a result of the acquisition, the Company recorded $ 3.9 million of goodwill and $ 1.7 million of intangible assets in the first quarter of 2025. Loans acquired with deteriorated credit quality (“PCD loans”) since origination were not material. The acquisition of Marblehead enabled the Company to increase both its deposit and loan base and acquire new households in a new market. It is expected that this transaction will result in business synergies and economies of scale. The acquisition was consistent with the Company’s strategy to expand its presence in Northwest Ohio and to increase profitability by introducing existing products and services to the acquired customer base. The intangible assets are related to core deposits, which are being amortized over 10 years on a straight-line basis. For tax purposes, goodwill is non-deductible but will be evaluated annually for impairment. 7 The following table summarizes the fair value of the total consideration transferred as part of the acquisition as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction based on assumptions that are subject to change as management continues to evaluate as relevant information becomes available. If, prior to the end of the one-year measurement period for finalizing the purchase price allocation, relevant information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be recorded in the reporting period in which the adjustment amounts are determined. Potential adjustments, if any, will be related to assets that have may have changes to valuation amounts that were not readily determinable at acquisition date. ($ in thousands) January 17, 2025 Fair value of assets acquired Cash and cash equivalents $ 1,995 Investment securities 30,123 Federal Reserve and Federal Home Loan Bank stock 117 Loans held for investment 18,661 Premises and equipment 1,036 Goodwill 3,919 Core deposit intangible 1,710 Other assets 1,600 Total assets acquired $ 59,161 Fair value of liabilities assumed Deposits $ 53,088 Other liabilities 1,064 Total liabilities assumed 54,152 Total purchase price (cash) $ 5,009 Pro Forma Financial Information The results of operations of Marblehead have been included in the Company’s consolidated financial statements since the acquisition date of January 17, 2025. The following schedule includes the pro forma results for the three months ended March 31, 2025, and 2024, as if the Marblehead acquisition had occurred as of the beginning of the reporting periods presented. The acquisition added less than $ 0.3 million in revenue to the Company for the three months ended March 31, 2025. 8 Three Months Ended Summary of Operations ($ in thousands) Mar. 2025 Mar. 2024 Net interest income $ 11,339 $ 9,529 Provision for loan losses 387 - Net interest income after provision $ 10,952 $ 9,529 Non interest income 4,111 3,971 Non interest expense 12,669 10,728 Income before income taxes $ 2,394 $ 2,772 Income tax expense* 431 481 Net income to common shareholders $ 1,963 $ 2,291 Basic earnings per share $ 0.30 $ 0.34 Diluted earnngs per share $ 0.30 $ 0.34 * Income tax expense for Marblehead calculated using a 21 % statuatory rate Note 4 – AVAILABLE-FOR-SALE Securities The amortized cost and appropriate fair values, together with gross unrealized gains and losses, of securities at March 31, 2025, and December 31, 2024, were as follows: Gross Gross ($ in thousands) Amortized Unrealized Unrealized Cost Gains Losses Fair Value March 31, 2025 U.S. Treasury and Government agencies $ 6,918 $ 2 $ ( 602 ) $ 6,318 Mortgage-backed securities 198,737 4 ( 30,120 ) 168,621 State and political subdivisions 10,879 - ( 1,450 ) 9,429 Other corporate securities 17,200 - ( 1,847 ) 15,353 Totals $ 233,734 $ 6 $ ( 34,019 ) $ 199,721 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value December 31, 2024 U.S. Treasury and Government agencies $ 8,120 $ - $ ( 731 ) $ 7,389 Mortgage-backed securities 203,646 4 ( 34,030 ) 169,620 State and political subdivisions 10,893 - ( 1,486 ) 9,407 Other corporate securities 17,200 - ( 2,029 ) 15,171 Totals $ 239,859 $ 4 $ ( 38,276 ) $ 201,587 The amortized cost and fair value of securities available-for-sale at March 31, 2025, 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. 9 Amortized Fair ($ in thousands) Cost Value Within one year $ 1,039 $ 1,039 Due after one year through five years 1,132 1,117 Due after five years through ten years 25,913 23,274 Due after ten years 6,913 5,670 34,997 31,100 Mortgage-backed securities 198,737 168,621 Totals $ 233,734 $ 199,721 The fair value of securities pledged as collateral, to secure public deposits and for other purposes, was $ 134.1 million at March 31, 2025, and $ 115.5 million at December 31, 2024. The fair value of securities delivered for repurchase agreements was $ 13.7 million at March 31, 2025, and $ 17.3 million at December 31, 2024. There were no realized gains or losses from sales of available-for-sale securities for the three months ended March 31, 2025, or March 31, 2024. 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 $ 199.1 million at March 31, 2025, and $ 201.3 million at December 31, 2024, which consisted of 134 securities, or approximately 93 percent, and 138 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 March 31, 2025, and December 31, 2024, are as follows: ($ in thousands) Less than 12 Months 12 Months or Longer Total March 31, 2025 Number of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury and Government agencies 8 $ 789 $ - $ 5,177 $ ( 602 ) $ 5,966 $ ( 602 ) Mortgage-backed securities 91 - - 168,346 ( 30,120 ) 168,346 ( 30,120 ) State and political subdivisions 21 701 ( 12 ) 8,729 ( 1,438 ) 9,430 ( 1,450 ) Other corporate securities 14 - - 15,353 ( 1,847 ) 15,353 ( 1,847 ) Totals 134 $ 1,490 $ ( 12 ) $ 197,605 $ ( 34,007 ) $ 199,095 $ ( 34,019 ) Less than 12 Months 12 Months or Longer Total December 31, 2024 Number of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury and Government agencies 11 $ 1,929 $ - $ 5,460 $ ( 731 ) $ 7,389 $ ( 731 ) Mortgage-backed securities 92 - $ - 169,286 ( 34,030 ) 169,286 ( 34,030 ) State and political subdivisions 21 1,319 $ ( 21 ) 8,088 ( 1,465 ) 9,407 ( 1,486 ) Other corporate securities 14 385 $ ( 115 ) 14,786 ( 1,914 ) 15,171 ( 2,029 ) Totals 138 $ 3,633 $ ( 136 ) $ 197,620 $ ( 38,140 ) $ 201,253 $ ( 38,276 ) 10 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 allowance for credit losses (the “ACL”). Changes in the ACL are recorded as provision for (or reversal of) credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met. At March 31, 2025, and December 31, 2024, no ACL on available-for-sale securities was recorded. Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Accrued interest receivable on available-for-sale debt securities totaled $ 0.6 million at March 31, 2025 and $ 0.6 million at December 31, 2024. Should the decline in fair value be the result of credit losses or other factors, the security would be moved to nonaccrual status and all accrued interest reversed. NOTE 5 – 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: Total Loans ($ in thousands) March 31, 2025 December 31, 2024 Commercial & industrial $ 125,878 $ 124,764 Commercial real estate - owner occupied 140,019 134,431 Commercial real estate - nonowner occupied 369,499 345,142 Agricultural 61,443 64,680 Residential real estate 319,307 308,378 Home equity line of credit (HELOC) 55,443 53,811 Consumer 16,685 15,529 Total loans 1,088,274 1,046,735 Allowance for credit losses ( 15,391 ) ( 15,096 ) Loans, net $ 1,072,883 $ 1,031,639 11 The totals shown above are net of accretable discounts on acquired loans and deferred loan fees and costs, which totaled $ 0.67 million in net fees at March 31, 2025, and $ 0.15 million in net costs at December 31, 2024. 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 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 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. 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. 12 Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. Accrued interest receivable related to loans totaled $ 3.4 million at March 31, 2025, and $ 3.3 million at December 31, 2024, and is excluded from the estimate of credit losses. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments: ● Commercial & Industrial - Commercial & industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial & industrial loans and lease financing agreements is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease. ● Commercial Real Estate - Owner Occupied - Owner occupied commercial real estate loans consist of loans to purchase, construct, or refinance 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. ● Commercial Real Estate – Nonowner Occupied - Nonowner occupied commercial real estate loans consist of loans to purchase, construct, or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as multifamily properties. The primary risk associated with nonowner occupied commercial real estate loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation as the commercial real estate collateral may be more adversely affected by conditions in the real estate markets or in the general economy. ● Agricultural - Agricultural loans consist of loans or lines of credit to finance farmland, equipment, and general business needs or other assets. The primary risk associated with agricultural loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan. ● Residential Real Estate – Residential real estate mortgage loans consist of loans to purchase, construct, or refinance the borrower’s primary dwelling, second residence or vacation home and are often secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral. ● Home Equity Line of Credit (HELOCs) - Home equity loans consist of HELOCs and other lines of credit secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by junior liens as a substantial decline in value could render the junior lien position effectively unsecured. 13 ● Consumer - Consumer loans consist of loans to finance unsecured home improvements, personal assets, such as automobiles or recreational vehicles, and revolving lines of credit that can be secured or unsecured. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral. The Company 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. 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. The Company’s own loan-level loss data from January 2016 through March 31, 2025, 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. 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. 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. 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 estimate. 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. 14 The Company is also required to consider expected credit losses associated with loan commitments over the contractual period in which it is exposed to credit risk on the underlying commitments. Any allowance for off-balance sheet credit exposures is reported in Other liabilities on the Company’s consolidated balance sheet and is increased or decreased through a provision for credit loss expense on the Company’s consolidated statement of income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same methodology, inputs and assumptions as the funded portion of loans at the segment level applied to the amount of commitments expected to be funded. While the Company’s policies and procedures used to estimate the ACL, as well as the resultant provision for credit losses charged to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. 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. During the first quarter of 2025, the Company completed the acquisition of Marblehead, in Marblehead, Ohio. The Company performed an analysis of the acquired non-PCD loan portfolio as part of the acquisition process and recorded a provision for credit losses of $ 0.23 million subsequent to the date of acquisition. The following tables summarize the activity related to the ACL for the three months ended March 31, 2025, and March 31, 2024, and for the twelve months ended December 31, 2024. ($ in thousands) For the three months ended March 31, 2025 Balance, beginning of period Chargeoffs Recoveries Provision for Credit Losses Balance, end of period Commercial & industrial $ 2,666 $ ( 61 ) $ - $ ( 166 ) $ 2,439 Commercial real estate - owner occupied 1,806 - - 58 1,864 Commercial real estate - nonowner occupied 5,721 - - 333 6,054 Agricultural 884 - - ( 22 ) 862 Residential real estate 3,330 - - 128 3,458 HELOC 520 ( 4 ) - 23 539 Consumer 169 ( 21 ) 2 25 175 Total $ 15,096 $ ( 86 ) $ 2 $ 379 $ 15,391 ($ in thousands) For the three months ended March 31, 2024 Balance, beginning of period Chargeoffs Recoveries Provision for Credit Losses Balance, end of period Commercial & industrial $ 2,003 $ ( 42 ) $ 6 $ 626 $ 2,593 Commercial real estate - owner occupied 1,952 - - 57 2,009 Commercial real estate - nonowner occupied 5,718 - - ( 240 ) 5,478 Agricultural 440 - - 528 968 Residential real estate 4,936 - - ( 1,075 ) 3,861 HELOC 510 - - 14 524 Consumer 227 ( 24 ) 3 4 210 Total $ 15,786 $ ( 66 ) $ 9 $ ( 86 ) $ 15,643 ($ in thousands) For the twelve months ended December 31, 2024 Balance, beginning of period Chargeoffs Recoveries Provision for Credit Losses Balance, end of period Commercial & industrial $ 2,003 $ ( 233 ) $ 5 $ 891 $ 2,666 Commercial real estate - owner occupied 1,952 - - ( 146 ) 1,806 Commercial real estate - nonowner occupied 5,718 - - 3 5,721 Agricultural 440 - - 444 884 Residential real estate 4,936 ( 3 ) - ( 1,603 ) 3,330 HELOC 510 - - 10 520 Consumer 227 ( 53 ) 34 ( 39 ) 169 Total $ 15,786 $ ( 289 ) $ 39 $ ( 440 ) $ 15,096 15 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 March 31, 2025, and December 31, 2024. ($ in thousands) Collateral Type Allocated March 31, 2025 Real Estate Other Total Allowance Commercial & industrial $ 2,518 $ 1,244 $ 3,762 $ 65 Commercial real estate - owner occupied 429 - 429 13 Commercial real estate - nonowner occupied 151 - 151 - Agricultural - - - - Residential real estate 1,099 - 1,099 24 HELOC - - - - Consumer - - - - Total $ 4,197 $ 1,244 $ 5,441 $ 102 ($ in thousands) Collateral Type Allocated December 31, 2024 Real Estate Other Total Allowance Commercial & industrial $ 2,252 $ 625 $ 2,877 $ 380 Commercial real estate - owner occupied 429 - 429 13 Commercial real estate - nonowner occupied 370 - 370 - Agricultural - - - - Residential real estate 801 - 801 26 HELOC - - - - Consumer - - - - Total $ 3,852 $ 625 $ 4,477 $ 419 Under the current expected credit loss (“CECL”) model, 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. 16 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. The Company uses the following definitions for risk ratings: Pass (grades 1 – 4): Loans which management has determined to be performing as expected and in agreement with the terms established at the time of loan origination. Special Mention (5): 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 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. Loss (8): 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 March 31, 2025. 17 ($ in thousands) Term Loans by Year of Origination Revolving Revolving Loans Converted March 31, 2025 2025 2024 2023 2022 2021 Prior Loans to Term Total Commercial & industrial Pass (1 - 4) $ 5,496 $ 23,228 $ 11,182 $ 12,283 $ 13,800 $ 18,175 $ 34,712 $ 3,015 $ 121,891 Special Mention (5) - 36 - - 238 129 25 - 428 Substandard (6) - 120 350 152 - 177 1,247 213 2,259 Doubtful (7) - - 153 433 204 481 - 29 1,300 Loss (8) - - - - - - - - - Total $ 5,496 $ 23,384 $ 11,685 $ 12,868 $ 14,242 $ 18,962 $ 35,984 $ 3,257 $ 125,878 Current period gross chargeoffs $ - $ - $ - $ - $ - $ 33 $ 28 $ - $ 61 Commercial real estate - owner occupied Pass (1 - 4) $ 6,650 $ 21,014 $ 25,413 $ 19,745 $ 23,921 $ 41,638 $ 1,158 $ 46 $ 139,585 Special Mention (5) - - - - - 430 - - 430 Substandard (6) - - - - - - - - - Doubtful (7) - - - - 3 1 - - 4 Loss (8) - - - - - - - - - Total $ 6,650 $ 21,014 $ 25,413 $ 19,745 $ 23,924 $ 42,069 $ 1,158 $ 46 $ 140,019 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ - Commercial real estate - nonowner occupied Pass (1 - 4) $ 27,498 $ 97,732 $ 45,886 $ 50,648 $ 38,345 $ 108,593 $ 130 $ - $ 368,832 Special Mention (5) - 397 - - - - - - 397 Substandard (6) - - - 151 - 119 - - 270 Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ 27,498 $ 98,129 $ 45,886 $ 50,799 $ 38,345 $ 108,712 $ 130 $ - $ 369,499 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ - Agricultural Pass (1 - 4) $ 3,017 $ 6,867 $ 7,866 $ 13,657 $ 10,599 $ 10,412 $ 9,025 $ - $ 61,443 Special Mention (5) - - - - - - - - - Substandard (6) - - - - - - - - - Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ 3,017 $ 6,867 $ 7,866 $ 13,657 $ 10,599 $ 10,412 $ 9,025 $ - $ 61,443 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ - Residential real estate Pass (1 - 4) $ 3,852 $ 32,776 $ 43,065 $ 101,738 $ 76,528 $ 59,728 $ - $ - $ 317,687 Special Mention (5) - - - - - - - - - Substandard (6) - - 275 - 251 1,094 - - 1,620 Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ 3,852 $ 32,776 $ 43,340 $ 101,738 $ 76,779 $ 60,822 $ - $ - $ 319,307 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ - Home equity line of credit (HELOC) Pass (1 - 4) $ - $ - $ - $ - $ 11 $ 101 $ 48,525 $ 6,589 $ 55,226 Special Mention (5) - - - - - - - - - Substandard (6) - - - - - 44 136 37 217 Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ - $ - $ - $ - $ 11 $ 145 $ 48,661 $ 6,626 $ 55,443 Current period gross chargeoffs $ - $ - $ - $ - $ - $ 4 $ - $ - $ 4 Consumer Pass (1 - 4) $ 525 $ 1,735 $ 2,089 $ 3,356 $ 1,045 $ 1,231 $ 6,700 $ - $ 16,681 Special Mention (5) - - - - - - - - - Substandard (6) - - - 4 - - - - 4 Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ 525 $ 1,735 $ 2,089 $ 3,360 $ 1,045 $ 1,231 $ 6,700 $ - $ 16,685 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ 21 $ - $ 21 Total Loans Pass (1 - 4) $ 47,038 $ 183,352 $ 135,501 $ 201,427 $ 164,249 $ 239,878 $ 100,250 $ 9,650 $ 1,081,345 Special Mention (5) - 433 - - 238 559 25 - 1,255 Substandard (6) - 120 625 307 251 1,434 1,383 250 4,370 Doubtful (7) - - 153 433 207 482 - 29 1,304 Loss (8) - - - - - - - - - Total Loans $ 47,038 $ 183,905 $ 136,279 $ 202,167 $ 164,945 $ 242,353 $ 101,658 $ 9,929 $ 1,088,274 Current period gross chargeoffs $ - $ - $ - $ - $ - $ 37 $ 49 $ - $ 86 18 The following table presents loan balances by credit quality indicators and gross chargeoffs by loan category and year of origination as of December 31, 2024. ($ in thousands) Term Loans by Year of Origination Revolving Revolving Loans Converted December 31, 2024 2024 2023 2022 2021 2020 Prior Loans to Term Total Commercial & industrial Pass (1 - 4) $ 22,688 $ 12,927 $ 12,813 $ 14,207 $ 9,101 $ 10,022 $ 36,363 $ 3,204 $ 121,325 Special Mention (5) - 355 - - 133 - 25 - 513 Substandard (6) - - 585 - - 673 1,147 88 2,493 Doubtful (7) - 153 - 204 - 48 - 28 433 Loss (8) - - - - - - - - - Total $ 22,688 $ 13,435 $ 13,398 $ 14,411 $ 9,234 $ 10,743 $ 37,535 $ 3,320 $ 124,764 Current period gross chargeoffs $ - $ 42 $ 25 $ 23 $ 143 $ - $ - $ - $ 233 Commercial real estate - owner occupied Pass (1 - 4) $ 15,070 $ 30,372 $ 20,002 $ 24,406 $ 13,491 $ 30,140 $ 463 $ 49 $ 133,993 Special Mention (5) - - - - - - - - - Substandard (6) - - - - 430 - - - 430 Doubtful (7) - - - 7 - 1 - - 8 Loss (8) - - - - - - - - - Total $ 15,070 $ 30,372 $ 20,002 $ 24,413 $ 13,921 $ 30,141 $ 463 $ 49 $ 134,431 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ - Commercial real estate - nonowner occupied Pass (1 - 4) $ 94,098 $ 47,026 $ 50,942 $ 40,584 $ 39,093 $ 72,609 $ 118 $ - $ 344,470 Special Mention (5) 398 - - - - - - - 398 Substandard (6) - - 154 - - 120 - - 274 Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ 94,496 $ 47,026 $ 51,096 $ 40,584 $ 39,093 $ 72,729 $ 118 $ - $ 345,142 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ - Agricultural Pass (1 - 4) $ 8,100 $ 8,295 $ 14,482 $ 10,748 $ 2,618 $ 8,967 $ 11,470 $ - $ 64,680 Special Mention (5) - - - - - - - - - Substandard (6) - - - - - - - - - Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ 8,100 $ 8,295 $ 14,482 $ 10,748 $ 2,618 $ 8,967 $ 11,470 $ - $ 64,680 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ - Residential real estate Pass (1 - 4) $ 31,291 $ 41,982 $ 100,375 $ 76,146 $ 28,237 $ 28,797 $ - $ - $ 306,828 Special Mention (5) - - - - - - - - - Substandard (6) - 279 - 256 50 965 - - 1,550 Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ 31,291 $ 42,261 $ 100,375 $ 76,402 $ 28,287 $ 29,762 $ - $ - $ 308,378 Current period gross chargeoffs $ - $ - $ - $ 3 $ - $ - $ - $ - $ 3 Home equity line of credit (HELOC) Pass (1 - 4) $ - $ - $ - $ 12 $ 18 $ 51 $ 46,908 $ 6,591 $ 53,580 Special Mention (5) - - - - - - - - - Substandard (6) - - - - - 48 139 44 231 Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ - $ - $ - $ 12 $ 18 $ 99 $ 47,047 $ 6,635 $ 53,811 Current period gross chargeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ - Consumer Pass (1 - 4) $ 1,909 $ 1,993 $ 3,247 $ 725 $ 319 $ 94 $ 7,229 $ - $ 15,516 Special Mention (5) - - - - - - - - - Substandard (6) - - 13 - - - - - 13 Doubtful (7) - - - - - - - - - Loss (8) - - - - - - - - - Total $ 1,909 $ 1,993 $ 3,260 $ 725 $ 319 $ 94 $ 7,229 $ - $ 15,529 Current period gross chargeoffs $ - $ - $ - $ 5 $ 2 $ - $ 46 $ - $ 53 Total Loans Pass (1 - 4) $ 173,156 $ 142,595 $ 201,861 $ 166,828 $ 92,877 $ 150,680 $ 102,551 $ 9,844 $ 1,040,392 Special Mention (5) 398 355 - - 133 - 25 - 911 Substandard (6) - 279 752 256 480 1,806 1,286 132 4,991 Doubtful (7) - 153 - 211 - 49 - 28 441 Loss (8) - - - - - - - - - Total Loans $ 173,554 $ 143,382 $ 202,613 $ 167,295 $ 93,490 $ 152,535 $ 103,862 $ 10,004 $ 1,046,735 Current period gross chargeoffs $ - $ 42 $ 25 $ 31 $ 145 $ - $ 46 $ - $ 289 19 The following tables present the Company’s loan portfolio aging analysis as of March 31, 2025, and December 31, 2024. ($ in thousands) 30-59 Days 60-89 Days Greater Than 90 Days Total Past March 31, 2025 Past Due Past Due Past Due Due Current Total Loans Commercial & industrial $ 16 $ - $ 3,418 $ 3,434 $ 122,444 $ 125,878 Commercial real estate - owner occupied - - 429 429 139,590 140,019 Commercial real estate - nonowner occupied - - 366 366 369,133 369,499 Agricultural - 4 - 4 61,439 61,443 Residential real estate 387 54 836 1,277 318,030 319,307 HELOC 128 24 96 248 55,195 55,443 Consumer 151 33 - 184 16,501 16,685 Total Loans $ 682 $ 115 $ 5,145 $ 5,942 $ 1,082,332 $ 1,088,274 30-59 Days 60-89 Days Greater Than 90 Days Total Past December 31, 2024 Past Due Past Due Past Due Due Current Total Loans Commercial & industrial $ 776 $ 127 $ 770 $ 1,673 $ 118,343 $ 120,016 Commercial real estate - owner occupied - - - - 131,313 131,313 Commercial real estate - nonowner occupied 27 - 28 55 297,994 298,049 Agricultural - - - - 62,365 62,365 Residential real estate - 427 294 721 313,947 314,668 HELOC 117 100 65 282 47,780 48,062 Consumer 1 5 - 6 17,073 17,079 Total Loans $ 921 $ 659 $ 1,157 $ 2,737 $ 988,815 $ 991,552 All loans past due 90 days are systematically placed on nonaccrual status. 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 March 31, 2025, and December 31, 2024, are presented in the following tables. 20 March 31, 2025 ($ in thousands) Nonaccrual loans with no allowance Nonaccrual loans with an allowance Total nonaccrual loans Commercial & industrial $ 3,356 $ 62 $ 3,418 Commercial real estate - owner occupied 3 429 432 Commercial real estate - nonowner occupied 366 - 366 Agricultural - - - Residential real estate 1,498 110 1,608 Home equity line of credit (HELOC) 216 - 216 Consumer 11 - 11 Total loans $ 5,450 $ 601 $ 6,051 December 31, 2024 ($ in thousands) Nonaccrual loans with no allowance Nonaccrual loans with an allowance Total nonaccrual loans Commercial & industrial $ 2,301 $ 626 $ 2,927 Commercial real estate - owner occupied 7 430 437 Commercial real estate - nonowner occupied 370 - 370 Agricultural - - - Residential real estate 1,428 111 1,539 Home equity line of credit (HELOC) 231 - 231 Consumer 12 - 12 Total loans $ 4,349 $ 1,167 $ 5,516 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 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 three months ended March 31, 2025, and March 31, 2024, the Company did not modify any loans made to borrowers experiencing financial difficulty. The Company had no commitments to lend to borrowers experiencing financial difficulty for which the Company had modified an existing loan as of March 31, 2025, and March 31, 2024. The Company monitors loan payments on an ongoing basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and its ability to generate positive cash flows during the loan term. For the three months ended March 31, 2025, and March 31, 2024, the Company had no loan modifications made to borrowers experiencing financial difficulty for which there was a payment default within the 12 months following the modification date. 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. 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 $ 1.4 million at March 31, 2025, is classified on the balance sheet within Other liabilities. 21 The following table presents the balance and activity in the ACL for unfunded loan commitments for the three months ended March 31, 2025, and March 31, 2024. Three Months Ended March 31, ($ in thousands) 2025 2024 Balance, beginning of period $ 1,340 $ 776 Adjustment for acquired loans 3 - Provision for unfunded commitments 10 86 Balance, end of period $ 1,353 $ 862 NOTE 6 – GOODWILL Three Months Ended March 31, ($ in thousands) 2025 2024 Beginning balance $ 23,239 $ 23,239 Acquired goodwill 3,919 - Ending balance $ 27,158 $ 23,239 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 exist. As of March 31, 2025, and December 31, 2024, the carrying amount of goodwill was $ 27.2 and $ 23.2 million respectively. The acquisition of Marblehead Bank on January 17, 2025 resulted in the acquisition of approximately $ 3.9 million in goodwill. 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 March 31,2025. 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 March 31, 2025, impairment test were noted that would indicate it was more likely than not a goodwill impairment exists. NOTE 7 – 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 $ 1.43 billion at March 31, 2025, and December 31, 2024. Contractually specified servicing fees of $ 0.9 million were included in mortgage loan servicing fees in the consolidated income statement for the three months ended March 31, 2025, and 2024. 22 The following table summarizes mortgage servicing rights capitalized and related amortization, along with activity in the related valuation allowance: Three Months Ended March 31, ($ in thousands) 2025 2024 Balance at beginning of period $ 14,868 $ 13,906 Mortgage servicing rights capitalized during the period 380 377 Mortgage servicing rights amortization during the period ( 293 ) ( 273 ) Net change in valuation allowance 10 181 Balance at end of period $ 14,965 $ 14,191 Valuation allowance: Balance at beginning of period $ 186 $ 227 Increase (decrease) ( 10 ) ( 181 ) Balance at end of period $ 176 $ 46 Fair value, beginning of period $ 17,782 $ 17,125 Fair value, end of period $ 18,212 $ 18,141 NOTE 8 – 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 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 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 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 market. The forward contracts that are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected 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. The table below presents the notional amount and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of March 31, 2025, and December 31, 2024. 23 March 31, 2025 December 31, 2024 ($ in thousands) Notional Fair Notional Fair Amount Value Amount Value Asset Derivatives Derivatives not designated as hedging instruments Interest rate swaps associated with loans $ 86,247 $ 2,756 $ 79,235 $ 4,029 Forward contracts 18,767 25 11,000 69 Total contracts $ 105,014 $ 2,781 $ 90,235 $ 4,098 Liability Derivatives Derivatives not designated as hedging instruments Interest rate swaps associated with loans $ 86,247 $ ( 2,756 ) $ 79,235 $ ( 4,029 ) IRLCs 21,500 ( 3 ) 7,412 ( 21 ) Total contracts $ 107,747 $ ( 2,759 ) $ 86,647 $ ( 4,050 ) The fair value of interest rate swaps was estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC or forward contract and the balance sheet date. The following table presents the amounts included in the consolidated statements of income for non-hedging derivative financial instruments for the three months ended March 31, 2025, and 2024. Three Months Ended March 31, ($ in thousands) Statement of income classification 2025 2024 Interest rate swap contracts Other income $ 107 $ - IRLCs Gain on sale of mortgage loans & OMSR 18 9 Forward contracts Gain on sale of mortgage loans & OMSR ( 44 ) 8 24 The following table shows the offsetting of financial assets and derivative assets at March 31, 2025, and at December 31, 2024. Gross amounts Net amounts of assets Gross amounts not offset in the consolidated balance sheet ($ in thousands) Gross amounts of recognized assets offset in the consolidated balance sheet presented in the consolidated balance sheet Financial instruments Cash collateral received Net amount   March 31, 2025 Interest rate swaps $                 3,323 $           567 $ 2,756 $                    - $ 2,710 $    46 December 31, 2024 Interest rate swaps $ 4,172 $ 143 $ 4,029 $ - $ 3,130 $ 899 The following table shows the offsetting of financial liabilities and derivative liabilities at March 31, 2025, and at December 31, 2024. Gross amounts Net amounts of liabilities Gross amounts not offset in the consolidated balance sheet ($ in thousands) Gross amounts of recognized liabilities offset in the consolidated balance sheet presented in the consolidated balance sheet Financial instruments Cash collateral pledged Net amount March 31, 2025 Interest rate swaps $ 3,323 $ 567 $ 2,756 $ - $ - $ 2,756 December 31, 2024 Interest rate swaps $ 4,172 $ 143 $ 4,029 $ - $ - $ 4,029 NOTE 9 – DEPOSITS Major classification of deposits at March 31, 2025, and at December 31, 2024, were as follows: ($ in thousands) March 31, 2025 December 31, 2024 Non interest bearing demand $ 240,446 $ 232,155 Interest bearing demand 208,583 201,085 Savings 285,902 237,987 Money market 257,013 222,161 Time deposits $250,000 or less 224,421 208,273 Time deposits greater than $250,000 54,855 50,944 Total Deposits $ 1,271,220 $ 1,152,605 Included in time deposits at March 31, 2025, and at December 31, 2024, were $ 56.9 million and $ 58.2 million, respectively, of deposits which were obtained through the Certificate of Deposit Account Registry Service (CDARS). NOTE 10 – SHORT-TERM BORROWINGS ($ in thousands) March 31, 2025 December 31, 2024 Securities sold under repurchase agreements $ 11,058 $ 10,585 The Company has retail repurchase (“REPO”) agreements to facilitate cash management transactions with commercial customers. These obligations are secured by agency and mortgage-backed securities and such collateral is held by the Federal Home Loan Bank (“FHLB”). These securities have various maturity dates from 2025 through 2051. As of March 31, 2025, these REPO agreements were secured by securities with a fair value totaling $ 13.7 million. The REPO agreements mature within one month. The Company has borrowing capabilities at the Federal Reserve Discount Window (“Discount Window”) by pledging either securities or loans as collateral. As of March 31, 2025, there were no borrowings drawn or securities pledged at the Discount Window. At both March 31, 2025, and December 31, 2024, the Company had $ 41.0 million in federal funds lines, of which none was drawn. 25 NOTE 11 – FEDERAL HOME LOAN BANK (FHLB) ADVANCES The Company’s FHLB advances were secured by $ 323.0 million in mortgage loans at March 31, 2025. Advances consisted of fixed interest rates from 3.75 to 4.61 percent. Fixed rate advances are subject to restrictions or penalties in the event of prepayment. Aggregate annual maturities of FHLB advances at March 31, 2025, were: ($ in thousands) Debt 2026 $ 12,500 2027 5,000 2028 17,500 Total $ 35,000 NOTE 12 – TRUST PREFERRED SECURITIES On September 15, 2005, RST II, a wholly owned subsidiary of the Company, closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $ 1,000 per security. The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures with terms similar to the Capital Securities. Distributions on the Capital Securities are payable quarterly at a variable rate that is currently based upon the 3-month CME Term Secured Overnight Financing Rate (“SOFR”) as adjusted by the relevant spread adjustment plus 1.80 percent and are included in interest expense in the consolidated financial statements. These securities may be included in Tier 1 capital and may be prepaid at any time without penalty (with certain limitations applicable) under current regulatory guidelines and interpretations. The balance of the Capital Securities as of both March 31, 2025, and December 31, 2024, was $ 10.3 million, with a maturity date of September 15, 2035 . NOTE 13 – SUBORDINATED DEBT On May 27, 2021, the Company entered into Subordinated Note Purchase Agreements with qualified institutional buyers and accredited investors pursuant to which the Company issued and sold $ 20.0 million in aggregate principal amount of its 3.65 % Fixed to Floating Rate Subordinated Notes due 2031 (the “Notes”). The Notes were sold by the Company in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended. The Notes mature on June 1, 2031 , and bear interest at a fixed rate of 3.65 % through May 31, 2026. From June 1, 2026, to the maturity date or earlier redemption of the Notes, the interest rate will reset quarterly to an interest rate per annum, equal to the then-current-three-month SOFR provided by the Federal Reserve Bank of New York plus 296 basis points. The Company may redeem the Notes at any time after May 31, 2026, and at any time in whole, but not in part, upon the occurrence of certain events. Any redemption of the Notes will be subject to prior regulatory approval. The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately $ 0.5 million, which are being amortized over the life of the Notes. NOTE 14 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities 26 Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities The following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis, recognized in the accompanying consolidated balance sheets, as well as the general classifications of such assets pursuant to the valuation hierarchy. Available-for-Sale Securities The fair values of available-for-sale securities are determined by various valuation methodologies. Level 2 securities include obligations of the U.S. Treasury and government agencies, mortgage-backed securities, obligations of political and state subdivisions, and other corporate securities. Level 2 inputs do not include quoted prices for individual securities in active markets; however, they do include inputs that are either directly or indirectly observable for the individual security being valued. Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates. Also included are inputs derived principally from or corroborated by observable market data by correlation or other means. Interest Rate Contracts The fair values of interest rate contracts are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlying interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties (Level 2). Forward contracts The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets or benchmarked thereto (Level 1). Interest Rate Lock Commitments (IRLCs) The fair value of IRLCs are determined using the projected sale price of individual loans based on changes in the market interest rates, projected “pull-through” rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3). The following tables present the fair value measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at March 31, 2025, and at December 31, 2024. 27 ($ in thousands) Fair value at March 31, 2025 (Level 1) (Level 2) (Level 3) U.S. Treasury and Government Agencies $ 6,318 $ - $ 6,318 $ - Mortgage-backed securities 168,621 - 168,621 - State and political subdivisions 9,429 - 9,429 - Other corporate securities 15,353 - 15,353 - Interest rate contracts - assets 2,756 - 2,756 - Interest rate contracts - liabilities ( 2,756 ) - ( 2,756 ) - Forward contracts 25 25 - - IRLCs ( 3 ) - - ( 3 ) ($ in thousands) Fair value at December 31, 2024 (Level 1) (Level 2) (Level 3) U.S. Treasury and Government Agencies $ 7,389 $ - $ 7,389 $ - Mortgage-backed securities 169,620 - 169,620 - State and political subdivisions 9,407 - 9,407 - Other corporate securities 15,171 - 15,171 - Interest rate contracts - assets 4,029 - 4,029 - Interest rate contracts - liabilities ( 4,029 ) - ( 4,029 ) - Forward contracts 69 69 - - IRLCs ( 21 ) - - ( 21 ) Level 1 - quoted prices in active markets for identical assets Level 2 - significant other observable inputs Level 3 - significant unobservable inputs The following table reconciles the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs for the three months ended March 31, 2025, and 2024. for the Three Months Ended March 31, ($ in thousands) 2025 2024 Interest rate lock commitments Balance at beginning of period $ ( 21 ) $ 45 Total realized gains (losses) Change in fair value 18 9 Balance at end of period $ ( 3 ) $ 54 The following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. 28 Collateral-dependent Individually evaluated Loans, Net of ACL The estimated fair value of collateral-dependent individually evaluated loans is based on the appraised value of the collateral, less estimated cost to sell. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. This method requires obtaining an independent appraisal of the collateral, which is reviewed for accuracy and consistency by management. Appraisers are selected from an approved list which is maintained by management. The appraised values are reduced by applying a discount factor to the value based on the Company’s loan review policy. All individually evaluated loans held by the Company were collateral dependent at March 31, 2025, and at December 31, 2024. Mortgage Servicing Rights Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models associated with the servicing rights and discounting the cash flows using discount market rates, prepayment speeds and default rates. The servicing portfolio has been valued using all relevant positive and negative cash flows including servicing fees; miscellaneous income and float; marginal costs of servicing; the cost of carry of advances; and foreclosure losses; and applying certain prevailing assumptions used in the marketplace. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy. These mortgage servicing rights are tested for impairment on a quarterly basis. ($ in thousands) Fair value at March 31, 2025 (Level 1) (Level 2) (Level 3) Collateral-dependent Individually evaluated loans $ 849 $ - $ - $ 849 Mortgage servicing rights 4,242 - - 4,242 ($ in thousands) Fair value at December 31, 2024 (Level 1) (Level 2) (Level 3) Collateral-dependent impaired loans $ 1,167 $ - $ - $ 1,167 Mortgage servicing rights 1,814 - - 1,814 Level 1 - quoted prices in active markets for identical assets Level 2 - significant other observable inputs Level 3 - significant unobservable inputs 29 Unobservable (Level 3) Inputs The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements. Fair value at ($ in thousands) March 31, 2025 Valuation technique Unobservable inputs Range (weighted- average) Collateral-dependent individually evaluated loans $ 849 Market comparable properties Comparability adjustments (%) 1 - 28% (14)% Mortgage servicing rights 4,242 Discounted cash flow Discount rate 11.01% Constant prepayment rate 6.50% P&I earnings credit 4.22% T&I earnings credit 4.33% Inflation for cost of servicing 3.50% IRLCs ( 3 ) Discounted cash flow Loan closing rates 48% - 99% Fair value at ($ in thousands) December 31, 2024 Valuation technique Unobservable inputs Range (weighted- average) Collateral-dependent impaired loans $ 1,167 Market comparable properties Comparability adjustments (%) 24 - 404% (84)% Mortgage servicing rights 1,814 Discounted cash flow Discount rate 11.13% Constant prepayment rate 7.30% P&I earnings credit 4.44% T&I earnings credit 4.49% Inflation for cost of servicing 3.50% IRLCs ( 21 ) Discounted cash flow Loan closing rates 64% - 99% There were no changes in the inputs or methodologies used to determine fair value at March 31, 2025, as compared to December 31, 2024. The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value. Cash and Due From Banks, Interest Bearing Time Deposits, Federal Reserve and Federal Home Loan Bank Stock, and Accrued Interest Receivable and Payable The carrying amount approximates the fair value. Loans Held for Sale The fair value of loans held for sale is based upon quoted market prices, where available, or is determined by discounting estimated cash flows using interest rates approximating the Company’s current origination rates for similar loans and adjusted to reflect the inherent credit risk. Loans The estimated fair value of loans follows the guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments. The “exit price” is determined based on discounted estimated future cash flows using rates that incorporate discounts for credit, liquidity, and marketability factors. 30 Deposits, Short-Term Borrowings, and FHLB Advances Deposits include demand deposits, savings accounts, and certain money market deposits. Short-term borrowings include federal funds borrowed and REPO agreements. The carrying amount of these instruments approximates the fair value. The estimated fair value for fixed-maturity time deposits and FHLB advances are based on estimates of the rate State Bank could pay on similar instruments with similar terms and maturities at March 31, 2025, and at December 31, 2024. Loan Commitments The fair value of loan commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The estimated fair values for other financial instruments and off-balance-sheet loan commitments approximate cost at March 31, 2025, and at December 31, 2024, and are not considered significant to this presentation. Trust Preferred Securities The fair value for Trust Preferred Securities is estimated by discounting the cash flows using an appropriate discount rate. Subordinated Debt The fair value for subordinated debt is estimated by discounting the cash flows using a discount rate equal to the rate currently offered on similar borrowings. The following table presents estimated fair values of the Company’s other financial instruments carried at other than fair value. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments, and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate. 31 ($ in thousands) Carrying Fair Fair value measurements using March 31, 2025 amount value (Level 1) (Level 2) (Level 3) Financial assets Cash and due from banks $ 105,145 $ 105,145 $ 105,145 $ - $ - Interest bearing time deposits 1,565 1,565 - 1,565 - Loans held for sale 4,286 4,372 - 4,372 - Loans, net of allowance for credit losses 1,072,883 1,068,405 - - 1,068,405 Federal Reserve and FHLB Bank stock, at cost 5,340 5,340 - 5,340 - Interest receivable 5,072 5,072 - 5,072 - Financial liabilities Deposits $ 1,271,220 $ 1,271,345 $ 991,944 $ 279,401 $ - Short-term borrowings 11,058 11,058 - 11,058 - FHLB advances 35,000 35,047 - 35,047 - Trust preferred securities 10,310 9,302 - 9,302 - Subordinated debt, net of issuance costs 19,702 18,863 - 18,863 - Interest payable 2,634 2,634 - 2,634 - ($ in thousands) Carrying Fair Fair value measurements using December 31, 2024 amount value (Level 1) (Level 2) (Level 3) Financial assets Cash and due from banks $ 25,928 $ 25,928 $ 25,928 $ - $ - Interest bearing time deposits 1,565 1,565 - 1,565 - Loans held for sale 6,770 6,861 - 6,861 - Loans, net of allowance for credit losses 1,031,639 1,033,064 - - 1,033,064 Federal Reserve and FHLB Bank stock, at cost 5,223 5,223 - 5,223 - Interest receivable 4,908 4,908 - 4,908 - Financial liabilities Deposits $ 1,152,605 $ 1,155,747 $ 893,388 $ 262,359 $ - Short-term borrowings 10,585 10,585 - 10,585 - FHLB advances 35,000 34,782 - 34,782 - Trust preferred securities 10,310 9,495 - 9,495 - Subordinated debt, net of issuance costs 19,690 19,155 - 19,155 - Interest payable 2,351 2,351 - 2,351 - NOTE 15 – SHARE BASED COMPENSATION In April 2017, the Company’s shareholders approved a new share-based incentive compensation plan, the SB Financial Group, Inc. 2017 Stock Incentive Plan (the “2017 Plan”), which replaced the Company’s 2008 Stock Incentive Plan. The 2017 Plan permits the Company to grant or award incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock, and restricted stock units to employees and non-employee directors and advisory board members of the Company and its subsidiaries. A total of 500,000 common shares of the Company are available for grants or awards under the 2017 Plan, of which 205,743 shares had been granted under the plan as of March 31, 2025. The 2017 Plan is intended to advance the interests of the Company and its shareholders by offering employees, directors and advisory board members of the Company and its subsidiaries an opportunity to acquire or increase their ownership interest in the Company through grants of equity-based awards. The 2017 Plan permits equity-based awards to be used to attract, motivate, reward and retain highly competent individuals upon whose judgment, initiative, leadership and efforts are key to the success of the Company by encouraging those individuals to become shareholders of the Company. Stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant and those option awards vest based on five years of continuous service and have 10 -year contractual terms. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model. As of March 31, 2025, there were no stock options outstanding, and no unrecognized compensation cost related to stock option awards. No stock options were granted in the first three months of 2025. 32 On February 5, 2013, the Company adopted a Long Term Incentive Plan (the “LTI Plan”), which provides for awards of restricted stock in the Company to certain key executives. These restricted stock awards vest over a four-year period and are intended to assist the Company in retention of key executives. The compensation cost charged against income for awards under the LTI Plan for the three months ended March 31, 2025 and March 31, 2024 was $ 0.2 million and $ 0.2 million, respectively. As of March 31, 2025, 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 1.9 years. The table below is a summary of restricted stock activity under the Company’s 2017 Plan for the three months ended March 31, 2025. Shares Weighted- Average Value per Share Nonvested, January 1, 2025 54,311 $ 17.15 Granted 21,003 23.43 Vested ( 23,234 ) 17.67 Forfeited ( 4,716 ) 17.65 Nonvested, March 31, 2025 47,364 $ 19.63 NOTE 16 – OPERATING SEGMENTS The Company provides a range of community banking services, including commercial and consumer lending, personal and business banking, treasury management and merchant services, personal wealth management and brokerage services, and other financial services primarily to individuals, businesses, and municipalities. All of the Company’s business activities are dependent and assessed based on the manner in which it supports the other activities of the Company. The chief operating decision maker (“CODM”) of the Company is the Chief Executive Officer, who along with others in the Company’s executive management, evaluates performance and allocates resources based upon analysis of the Company as one operating segment. The activities of the Company comprise one reportable segment, “Banking.” All the consolidated assets are attributable to the Banking segment. The accounting policies of the Banking segment are the same as those described in Note 1 “Basis of Presentation.” The CODM is provided with the Company’s consolidated statements of financial condition and operations and evaluates the Company’s operating results based on consolidated net interest income, non-interest income, non-interest expense, and net income, which can be seen on the consolidated statement of operations. These results are used to benchmark the Company against its competitors. Other significant non-cash items assessed by the CODM are depreciation, amortization and provision for credit losses consistent with the reporting on the consolidated statements of cash flows. Expenditures for long-lived assets are also evaluated and are consistent with the reporting on the consolidated statements of cashflows. Strategic plans and budget to actual monitoring are evaluated as one reportable segment. The actual results are used in assessing performance of the segment, determining the allocation of resources, and in establishing management’s compensation. Information reported internally for performance assessment by the chief operating decision maker is identical to that which is shown in the Consolidated Statements of Income. All revenues were derived from banking operations for the three months ended March 31, 2025, and March 31, 2024, and there was no customer that accounted for more than 10% of the Company’s consolidated revenue. NOTE 17 – GENERAL LITIGATION The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. Additionally, the Company is subject to periodic examinations by various regulatory agencies. It is the opinion of management that the disposition or ultimate resolution of any such claims, lawsuits and examinations pending at March 31, 2025, will not have a material adverse effect on the consolidated financial position, results of operations and cash flow of the Company. 33