What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-07 compared with 2025-11-06 · 215 added, 258 removed, 252 unchanged (65% of the section changed)

20 unchanged sentences

“expects”, “projects”, “estimates”, “should”, “may”, “would be”,

“will allow”, “will likely result”, “will continue”, “will remain”, or other similar expressions

are intended to identify forward-looking statements, but are not the exclusive means of identifying those statements.

“will allow”, “will likely result”, “will continue”, “will remain”, or other similar

expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying those statements.

Forward-looking

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which we do business, including conditions such as inflation, recession, unemployment, changes

in interest rates, fiscal and monetary policy, the current and/or possible future U.S.

shutdowns, an increasing federal government budget deficit, the failure of the federal government

to raise the federal debt ceiling, slowing gross domestic product, tariffs, a U.S.

from or significant renegotiation of trade agreements, trade wars, and other factors beyond

our control, any of which may result in adverse impacts on our deposit levels and composition,

the quality of investment securities available for purchase, demand for loans, the ability

of our borrowers to repay their loans, and the value of the collateral securing loans made

in interest rates, fiscal and monetary policy, U.S.

government shutdowns, an increasing federal

government budget deficit, the failure of the federal government to raise the federal debt

ceiling, slowing gross domestic product, energy price volatility, potential or imposed tariffs,

withdrawal from or significant renegotiation of trade agreements, trade wars and other

change in trade regulation, and other factors beyond our control, any of which may result

in adverse impacts on our deposit levels and composition, the quality of investment securities

available for purchase, demand for loans, the ability of our borrowers to repay their loans,

and the value of the collateral securing loans made by us;

and future bank failures may reduce customer confidence, affect sources of funding and liquidity,

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cybersecurity attacks, system failures, civil unrest, military or terrorist activities or

international conflicts;

international conflicts, including Russia’s ongoing war in Ukraine and the conflict

in Iran (and the resulting disruptions to oil and other commodity markets and supply chains),

which can affect our earnings and capital as well as the ability of our customers to repay

risks identified from time to time in the Company’s other filings with the Securities

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Reserve Board”).

SB Financial’s wholly owned subsidiary, The State Bank and Trust Company (“State Bank”), is an

Ohio-chartered bank engaged in commercial banking.

SB Financial’s wholly owned subsidiary, The State Bank and Trust Company (“State Bank”), is

an Ohio-chartered bank engaged in commercial banking.

Rurban Statutory Trust II (“RST II”)

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Critical Accounting Policies

Note 1 to the consolidated financial statements

included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, describes the significant accounting

policies used in the development and presentation of the Company’s financial statements.

The accounting and reporting policies of

the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within

the banking industry.

The preparation of financial statements in conformity with generally accepted accounting principles requires management

to make estimates and assumptions.

The Company’s financial position and results of operations can be affected by these estimates

and assumptions and are integral to the understanding of reported results.

Critical accounting policies are those policies that management

believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to

make estimates that are difficult, subjective, and/or complex.

Note 1 to the condensed consolidated financial

statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, describes the significant

accounting policies used in the development and presentation of the Company’s financial statements.

The accounting and reporting

policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices

within the banking industry.

The preparation of financial statements in conformity with generally accepted accounting principles requires

management to make estimates and assumptions.

The Company’s financial position and results of operations can be affected by these

estimates and assumptions and are integral to the understanding of reported results.

Critical accounting policies are those policies

that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require

management to make estimates that are difficult, subjective, and/or complex.

Allowance for Credit Losses – The

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All of these factors may be susceptible to significant change.

To the extent that actual results differ

from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.

To the extent that actual results

differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future

Goodwill and Other Intangibles - The

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Other intangible assets are amortized over their estimated

useful lives using straight-line or accelerated methods and are subject to impairment if events or circumstances indicate a possible inability

to realize the carrying amount.

The initial goodwill and other intangibles recorded and subsequent impairment analysis requires management

to make subjective judgments concerning estimates of how the acquired asset will perform in the future.

Events and factors that may significantly

affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes

in competition.

A decrease in earnings resulting from these or other factors could lead to an impairment of goodwill that could adversely

impact earnings in future periods.

Three Months Ended September 30,

2025, compared to Three Months Ended September 30, 2024

for the third quarter of 2025 was $4.0 million compared to net income of $2.4 million for the third quarter of 2024, an increase of $1.6

million or 71.9 percent.

Diluted earnings per share (“DEPS”) of $0.64 for the third quarter of 2025 were higher compared to

the DEPS of $0.35 for the third quarter of 2024.

Net income for the third quarter of 2025 was positively impacted by higher interest income

on loans, including a recapture of nonaccrual interest, partially offset by higher interest expense on deposits and wholesale borrowings.

The quarter included an impairment on Mortgage Servicing Rights (“OMSR”) of $0.3 million.

Total noninterest income increased

slightly compared to the prior year to $4.2 million.

Mortgage loan volume was down slightly as compared to the prior year, however sales

of originated mortgages were up 8.4 percent for the same period.

useful lives using straight-line or accelerated methods and are subject to impairment if events or circumstances indicate a possible

inability to realize the carrying amount.

The initial goodwill and other intangibles recorded and subsequent impairment analysis requires

management to make subjective judgments concerning estimates of how the acquired asset will perform in the future.

Events and factors

that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry

conditions and changes in competition.

A decrease in earnings resulting from these or other factors could lead to an impairment of goodwill

that could adversely impact earnings in future periods.

Three Months Ended March 31, 2026, compared

to Three Months Ended March 31, 2025

Net income for the

first quarter of 2026 was $4.3 million compared to net income of $2.2 million for the first quarter of 2025, an increase of $2.1 million,

or 99.1 percent.

Diluted earnings per share (“DEPS”) of $0.69 for the first quarter of 2026 were higher compared to the DEPS

of $0.33 for the first quarter of 2025.

Net income for the first quarter of 2026 was positively impacted by higher interest income on

loans, partially offset by higher interest expense on deposits and wholesale borrowings.

The quarter included a recapture on Mortgage

Servicing Rights (“OMSR”) of $0.45 million.

Total noninterest income increased slightly compared to the prior year to $4.7

Mortgage loan volume was higher as compared to the prior year, with sales of originated mortgages for the first quarter of 2026

up 36 percent as compared to the same period in 2025.

Provision for Credit Losses:

third quarter provision for credit losses was $124,000 as compared to a $200,000 provision for the prior year third quarter.

had net chargeoffs of $2,000 for the third quarter of 2025 compared to net chargeoffs of $27,000 for the year-ago quarter.

first quarter provision for credit losses was $214,000 as compared to a $387,000 provision for the prior year first quarter.

had net chargeoffs of $26,000 for the first quarter of 2026 compared to net chargeoffs of $84,000 for the year-ago quarter.

The provision

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loans ended the quarter at $3.3 million, or 0.28 percent of total loans.

Quality Review – For the Period Ended

Asset Quality Review – For the Period Ended

($ in thousands)

September 30,

Net chargeoffs – QTD/YTD

Net chargeoffs – QTD

Nonaccruing loans

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Consolidated Revenue:

revenue, consisting of net interest income (“NII”) and noninterest income, was $16.6 million for the third quarter of 2025,

an increase of $2.3 million, or 15.9 percent, from the $14.3 million generated during the third quarter of 2024.

NII for the third quarter of 2025 was $12.3 million,

which was up $2.1 million from the prior year third quarter’s $10.2 million.

Comparing the third quarter of 2025 to the prior year

third quarter, the Company’s earning assets increased $120.0 million, and the average yield on earning assets increased by 18 basis

The net interest margin for the third quarter of 2025 was 3.48 percent compared to 3.16 percent for the third quarter of 2024.

Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing liabilities for the third quarter

of 2025 were 2.33 percent compared to 2.52 percent for the prior year third quarter.

revenue, consisting of net interest income (“NII”) and noninterest income, was $17.4 million for the first quarter of 2026,

an increase of $2.0 million, or 13.3 percent, from the $15.4 million generated during the first quarter of 2025.

NII for the first quarter of 2026 was $12.7 million,

which was up $1.4 million from the prior year first quarter’s $11.3 million.

Comparing the first quarter of 2026 to the prior year

first quarter, the Company’s earning assets increased $133.3 million, and the average yield on earning assets increased by 6 basis

The net interest margin for the first quarter of 2026 was 3.48 percent compared to 3.40 percent for the first quarter of 2025.

Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing liabilities for the first quarter

of 2026 were 2.31 percent compared to 2.32 percent for the prior year first quarter.

Total noninterest income was $4.7 million for

the third quarter of 2025, which increased compared to $4.1 million for the prior year third quarter.

the first quarter of 2026, which increased compared to $4.1 million for the prior year first quarter.

Mortgage revenue increased during

the third quarter of 2025, as detailed below, while wealth management revenue was up slightly compared to the prior year.

Impairment of

mortgage servicing rights decreased noninterest income by $0.3 million in the quarter, compared to an impairment of $0.46 million in the

prior year third quarter.

SBFG Title contributed revenue of $0.54 million in the third quarter of 2025, up $0.06 million from the prior

Noninterest income as a percentage of average assets for the third quarter of 2025 was 1.12 percent compared to 1.19 percent for

the prior year third quarter.

State Bank originated $67.6 million of mortgage

loans during the third quarter of 2025 and sold $66.4 million, with $1.2 million of loans held for investment.

This compares to $70.7

million originated for the third quarter of 2024, of which $61.3 million were sold with the remainder of loans held for investment.

third quarter 2025 originations and subsequent sales resulted in $1.3 million of gains, in line with the gains for the third quarter of

Net mortgage banking revenue was $1.49 million for the third quarter of 2025 compared to $1.35 million for the third quarter of

Consolidated Noninterest Expense:

Total noninterest expense for the third quarter of 2025 was $11.5 million, which was up $0.5 million compared to $11.0 million in the

prior-year third quarter.

The quarter included higher expenses related to increased mortgage activity and one-time professional fees that

drove expenses higher.

Income Taxes:

for the third quarter of 2025 were $0.91 million (18.4 percent) compared to $0.75 million (24.2 percent) for the third quarter of 2024.

Nine Months Ended September 30,

2025, compared to Nine Months Ended September 30, 2024

for the first nine months of 2025 was $10.1 million compared to net income of $7.8 million for the first nine months of 2024, an increase

of $2.2 million, or 28.3 percent.

DEPS of $1.56 for the first nine months of 2025 were 33.7 percent higher compared to DEPS of $1.17 for

the first nine months of 2024.

Net income for the first nine months of 2025 was positively impacted by higher interest income on loans,

which was partially offset by higher interest expense on deposits and wholesale borrowings.

Total noninterest income continues to improve

and was up $0.9 million, or 7.5 percent, compared to the prior year first nine months.

Mortgage loan volume was up $16.6 million, or 8.8

percent, compared to the prior year’s first nine months.

Included in the 2025 nine months results were $0.7 million of merger related

expenses and nearly a full year’s activity from the Marblehead acquisition.

Provision for Credit Losses:

provision for credit losses for the first nine months of 2025 was $1.1 million as compared to $0.2 million for the prior year first nine

The Company had net chargeoffs of $132,000 for the first nine months of 2025 compared to net chargeoffs of $68,000 for the year-ago

first nine months.

The provision expense for the first nine months of 2025 included $134,000 for unfunded commitments, $224,000 due to

the Marblehead acquisition and $750,000 of growth-related provision.

Consolidated Revenue:

revenue, consisting of NII and noninterest income, was $49.1 million for the first nine months of 2025, an increase of $7.7 million, or

18.5 percent, from the $41.5 million generated during the first nine months of 2024.

NII for the first nine months of 2025 was $35.7

million, which was up $6.7 million from NII of $29.0 million for the prior year first nine months.

Comparing the first nine months of

2025 to the prior year’s first nine months, the Company’s earning assets increased $130.4 million, and the average yield on

earning assets increased by 22 basis points.

The net interest margin for the first nine months of 2025 was 3.44 percent compared to 3.08

percent for the first nine months of 2024.

Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing

liabilities for the first nine months of 2025 were 2.33 percent compared to 2.52 percent for the prior year first nine months.

Total noninterest income was $13.4 million for

the first nine months of 2025, which increased by $0.9 million compared to $12.5 million for the prior year first nine months.

revenue increased for the first nine months of 2025, as detailed below, while wealth management revenue was flat compared to the prior

Impairment of mortgage servicing rights decreased noninterest income by $0.13 million in the first nine months, compared to an impairment

of $0.25 million in the prior year first nine months.

SBFG Title contributed revenue of $1.52 million in the first nine months of 2025,

up $0.37 million from the prior year.

Noninterest income as a percentage of average assets was 1.20 percent for the first nine months

ended September 30, 2025, compared to 1.23 percent for the prior year first nine months.

the first quarter of 2026, as detailed below, with wealth management revenue also up compared to the prior year.

Impairment of mortgage

servicing rights increased noninterest income by $0.45 million in the quarter, compared to a recapture of $0.01 million in the prior

year first quarter.

SBFG Title contributed revenue of $0.49 million in the first quarter of 2026, up $0.09 million from the prior year.

Noninterest income as a percentage of average assets for the first quarter of 2026 was 1.21 percent compared to 1.14 percent for the

prior year first quarter.

State Bank originated $65.8 million of mortgage

loans during the first nine months of 2025 and sold $180.0 million, with $25.3 million of loans held for investment.

loans during the first quarter of 2026 and sold $53.4 million, with $12.3 million of loans held for investment.

This compares to $39.8

$188.7 million originated for the first nine months of 2024, of which $153.7 million were sold with the remainder of loans held for investment.

The first nine months 2025 originations and subsequent sales resulted in $3.7 million of gains, up $0.37 million from the gains for the

first nine months of 2024.

Net mortgage banking revenue was $5.11 million for the first nine months of 2025 compared to $4.76 million

for the first nine months of 2024.

million originated for the first quarter of 2025, of which $39.3 million were sold with the remainder of loans held for investment.

first quarter 2026 originations and subsequent sales resulted in $0.98 million of gains, slightly higher than the gains for the first

quarter of 2025.

Net mortgage banking revenue was $1.89 million for the first quarter of 2026 compared to $1.46 million for the first

quarter of 2025.

Consolidated Noninterest Expense:

Total noninterest expense for the first nine months of 2025 was $35.8 million, which was up $3.8 million compared to $32.0 million in

the prior-year first nine months.

The 2025 first nine months included over $0.7 million in one-time merger-related expenses in addition

to continued operational expenses related to Marblehead.

Total noninterest expense for the first quarter of 2026 was $11.9 million, which was down $0.5 million compared to $12.4 million in the

prior-year first quarter.

The quarter included higher expenses related to increased mortgage activity and various expenses related to

pending conversions of our technology systems.

The prior year quarter included $0.73 million in one-time costs related to the merger

of Marblehead into the Company.

Income Taxes:

for the first nine months of 2025 were $2.22 million (18.1 percent) compared to $1.49 million (16.0 percent) for the first nine months

Income taxes for

the first quarter of 2026 were $0.99 million (18.7 percent) compared to $0.43 million (16.6 percent) for the first quarter of 2025.

Changes in Financial Condition

Total assets at September 30, 2025, were $1.50

billion, up $116.7 million, or 8.5 percent, since December 31, 2024.

Total loans, net of unearned income, were $1.11 billion as of September

Total assets at March 31, 2026, were $1.60 billion,

up $59.2 million, or 3.8 percent, since December 31, 2025.

Total loans, net of unearned income, were $1.18 billion as of March 31, 2026,

up $0.5 million, or 0.01 percent, from year-end.

Total deposits at September 30, 2025, were $1.26 billion, an increase of $109.9

million, or 9.5 percent, since 2024 year end.

Total deposits at March 31, 2026, were $1.37 billion, an increase of $64.6 million,

or 4.9 percent, since 2025 year end.

Borrowed funds (consisting of FHLB advances, repurchase

(“REPO”) agreements, trust preferred securities and subordinated debt) totaled $76.0 million at September 30, 2025.

up slightly from year-end 2024 when borrowed funds totaled $75.6 million.

(“REPO”) agreements, trust preferred securities and subordinated debt) totaled $67.0 million at March 31, 2026.

This was down

slightly from year-end 2025 when borrowed funds totaled $77.3 million.

Total shareholders’ equity for the Company of $143.7 million

now stands at 9.15 percent of total assets compared to the December 31, 2024, level of $127.5 million, or 9.24 percent of total assets.

now stands at 8.95 percent of total assets compared to the level at December 31, 2025, of $141.2 million, or 9.14 percent of total assets.

Adjusting for the temporary impairment of Accumulated other comprehensive loss, total equity would increase to $165.5 million, or 10.31

percent of total assets.

The allowance for credit losses of $15.9 million is up $0.85 million from the December 2024 year-end level.

The allowance for credit losses of $16.4 million is up $0.27 million, or 1.70 percent from the December 2025

year-end level.

Capital Resources

As of September 30, 2025, based on the

computations for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve Board, State

Bank was classified as “well capitalized” under the regulatory framework for prompt corrective action.

To be categorized as

well capitalized, State Bank must maintain capital ratios as set forth in the table below.

There are no conditions or events since September

30, 2025, that management believes have changed State Bank’s capital classification.

State Bank’s actual capital levels

and ratios as of September 30, 2025, and December 31, 2024, are presented in the following table.

Capital levels are presented for State

Bank only as the Company is exempt from quarterly reporting on capital levels at the holding company level:

As of March 31, 2026, based on the computations

for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve Board, State Bank was classified

as “well capitalized” under the regulatory framework for prompt corrective action.

To be categorized as well capitalized,

State Bank must maintain capital ratios as set forth in the table below.

There are no conditions or events since March 31, 2026, that

management believes have changed State Bank’s capital classification.

State Bank’s actual capital levels and

ratios as of March 31, 2026, and December 31, 2025, are presented in the following table.

Capital levels are presented for State Bank

only as the Company is exempt from quarterly reporting on capital levels at the holding company level:

To Be Well Capitalized Under

For Capital Adequacy

To Be Well Capitalized Under Prompt Corrective Action

Prompt Corrective Action

($ in thousands)

As of September 30, 2025

As of March 31, 2026

Tier I Capital to average assets

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Total Risk-based capital to risk-weighted assets

Regulatory capital requirements commonly

referred to as “Basel III” were fully phased in as of January 1, 2019, and are reflected in the capital table above.

opted out of the accumulated other comprehensive income treatment under the new requirements and, as such, unrealized gains and losses

from available-for-sale securities will continue to be excluded from State Bank’s regulatory capital.

Regulatory capital requirements commonly referred

to as “Basel III” were fully phased in as of January 1, 2019, and are reflected in the capital table above.

Management opted

out of the accumulated other comprehensive income treatment under the new requirements and, as such, unrealized gains and losses from

available-for-sale securities will continue to be excluded from State Bank’s regulatory capital.

Liquidity relates primarily to the Company’s

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Liquid assets totaled

million at September 30, 2025, compared to $235.9 million at December 31, 2024.

Liquidity risk arises from the possibility

that the Company may not be able to meet the Company’s financial obligations and operating cash needs or may become overly reliant

upon external funding sources.

In order to manage this risk, the Board of Directors of the Company has established a Liquidity Policy

that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity

$319.1 million at March 31, 2026, compared to $263.1 million at December 31, 2025.

Liquidity risk arises from the possibility that

the Company may not be able to meet the Company’s financial obligations and operating cash needs or may become overly reliant upon

external funding sources.

In order to manage this risk, the Board of Directors of the Company has established a Liquidity Policy that

identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity

requirements.

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Liquidity is centrally managed on a daily basis by the Company’s Chief Financial Officer and Asset Liability Manager.

The Company’s commercial real

estate, first mortgage residential, agricultural and multi-family mortgage portfolio of $909.6 million at September 30, 2025, and $852.6

million at December 31, 2024, which can and has been used to collateralize borrowings, is an additional source of liquidity.

believes the Company’s current liquidity level, without these borrowings, is sufficient to meet its liquidity needs.

30, 2025, all eligible commercial real estate, first mortgage residential, agricultural and multi-family mortgage loans were pledged under

an FHLB blanket lien.

The cash flow statements for the periods

presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company

to maintain an adequate level of liquidity.

A discussion of the cash flow statements for the nine months ended September 30, 2025, and

September 30, 2024, follows.

The Company experienced positive cash

flows from operating activities for the nine months ended September 30, 2025, and September 30, 2024.

Net cash provided by operating activities

was $15.8 million for the nine months ended September 30, 2025, and $3.5 million for the nine months ended September 30, 2024.

for the current year include $180.0 million in proceeds from the sale of loans, which is up $26.3 million from the prior year.

of loans held for sale was a use of cash of $175.9 million, which is up $17.6 million from the prior year .

For the nine months ended

September 30, 2025, there was a gain on sale of loans of $3.8 million, and depreciation and amortization on premises and equipment of

$1.6 million.

The Company experienced negative cash

flows from investing activities for the nine months ended September 30, 2025, and September 30, 2024.

Net cash used by investing activities

was $5.0 million for the nine months ended September 30, 2025, and $14.9 million for the nine months ended September 30, 2024.

for the current year include an increase of $45.6 million in loans, which is up $15.8 million from the prior year nine-month period, and

$3.0 million paid for the Marblehead acquisition, net of cash acquired.

These cash payments were offset by $16.8 million in proceeds from

maturing securities, and $30.1 million in proceeds from the sale of securities which were acquired from Marblehead.

The Company experienced positive cash

flows from financing activities for the nine months ended September 30, 2025, and September 30, 2024.

Net cash provided by financing activities

was $48.3 million for the nine months ended September 30, 2025, and $37.8 million for the nine months ended September 30, 2024.

for the current period include a $46.7 million increase in transaction deposits and a $11.1 million increase in time deposits for the

nine months ended September 30, 2025.

This reflects a $33.0 million decrease in transaction deposits from the prior year nine-month period.

Net repayments of Federal Home Loan Bank advances for the nine months ended September 30, 2025, were $1.0 million, compared to $48.6 million

for the prior year nine-month period.

The Company’s commercial real estate, first

mortgage residential, agricultural and multi-family mortgage portfolio of $979.9 million at March 31, 2026, and $978.2 million at December

31, 2025, which can and has been used to collateralize borrowings, is an additional source of liquidity.

Management believes the Company’s

current liquidity level, without these borrowings, is sufficient to meet its liquidity needs.

At March 31, 2026, all eligible commercial

real estate, first mortgage residential, agricultural and multi-family mortgage loans were pledged under an FHLB blanket lien.

The cash flow statements for the periods presented

provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain

an adequate level of liquidity.

A discussion of the cash flow statements for the three months ended March 31, 2026, and March 31, 2025,

The Company experienced negative cash flows from

operating activities for the three months ended March 31, 2026, and positive cash flows from operating activities for the three months

ended March 31, 2025.

Net cash used by operating activities was $3.0 million for the three months ended March 31, 2026, and net cash

provided by operating activities was $6.7 million for the three months ended March 31, 2025.

Highlights for the current year include

$54.7 million in proceeds from the sale of loans, which is up $15.4 million from the prior year.

Originations of loans held for sale

was a use of cash of $59.5 million, which is up $23.2 million from the prior year .

For the three months ended March 31, 2026, there

was a gain on sale of loans of $1.1 million, and depreciation and amortization on premises and equipment of $0.6 million.

The Company experienced positive cash flows from

investing activities for the three months ended March 31, 2026, and March 31, 2025.

Net cash provided by investing activities was $2.1

million for the three months ended March 31, 2026, and $9.2 million for the three months ended March 31, 2025.

Highlights for the current

year include $4.4 million in proceeds from maturing securities, partially offset by a $1.4 million decrease in loans.

The prior year

activities include a $23.0 million decrease in loans and $3.0 million paid for the Marblehead acquisition, net of cash acquired, offset

by $6.1 million in proceeds from maturing securities, and $30.1 million in proceeds from the sale of securities which were acquired from

The Company experienced positive cash flows from

financing activities for the three months ended March 31, 2026, and March 31, 2025.

Net cash provided by financing activities was $55.6

million for the three months ended March 31, 2026, and $63.3 million for the three months ended March 31, 2025.

Highlights for the current

period include a $65.6 million increase in transaction deposits compared to a $45.5 million increase for the three months ended March

Repayments of Federal Home Loan Bank advances for the three months ended March 31, 2026, were $7.5 million, compared to $1.0

million for the prior year three-month period.

Off-Balance-Sheet Borrowing Arrangements:

Significant additional off-balance-sheet

liquidity is available in the form of FHLB advances and unused federal funds lines from correspondent banks.

Management expects the risk

of changes in off-balance-sheet arrangements to be immaterial to earnings.

The Company’s

commercial real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of $909.6 million

were pledged to meet FHLB collateralization requirements as of September 30, 2025.

Based on the current collateralization requirements

of the FHLB, the Company had approximately $162.8 million of additional borrowing capacity at September 30, 2025.

The Company also had

$44.2 million in unpledged securities available to pledge for additional borrowings.

Significant additional off-balance-sheet liquidity

is available in the form of FHLB advances and unused federal funds lines from correspondent banks.

Management expects the risk of changes

in off-balance-sheet arrangements to be immaterial to earnings.

The Company’s commercial

real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of $979.9 million were

pledged to meet FHLB collateralization requirements as of March 31, 2026.

Based on the current collateralization requirements of the

FHLB, the Company had approximately $171.8 million of additional borrowing capacity at March 31, 2026.

The Company also had $26.7 million

in unpledged securities available to pledge for additional borrowings.

The Company has contractual obligations consisting

of long-term debt obligations and operating lease obligations.

In addition, as of September 30, 2025, the Company had commitments to sell

In addition, as of March 31, 2026, the Company had commitments to sell

mortgage loans totaling $20.4 million.

10 unchanged sentences

for sale) which are primarily funded by interest-bearing liabilities (deposits and borrowings).

With the exception of specific loans which

are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes.

All of the Company’s

transactions are denominated in U.S.

With the exception of specific loans

which are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes.

Company’s transactions are denominated in U.S.

dollars with no specific foreign exchange exposure.

In addition, the Company has limited exposure

to commodity prices related to agricultural loans.

The impact of changes in foreign exchange rates and commodity prices on interest rates

are assumed to be insignificant.

The Company’s financial instruments have varying levels of sensitivity to changes in market interest

rates resulting in market risk.

In addition, the Company has

limited exposure to commodity prices related to agricultural loans.

The impact of changes in foreign exchange rates and commodity prices

on interest rates are assumed to be insignificant.

The Company’s financial instruments have varying levels of sensitivity to changes

in market interest rates resulting in market risk.

Interest rate risk is the Company’s primary market risk exposure;

to a lesser extent, liquidity

risk also impacts market risk exposure.

Interest rate risk is the exposure of a

banking institution’s financial condition to adverse movements in interest rates.

extent, liquidity risk also impacts market risk exposure.

Interest rate risk is the exposure of

a banking institution’s financial condition to adverse movements in interest rates.

Accepting this risk can be an important source

8 unchanged sentences

When assessing the interest rate risk management process, the Company

seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest

rate risks at prudent levels of consistency and continuity.

Evaluating the quantitative level of interest rate risk exposure requires

the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition,

seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain

interest rate risks at prudent levels of consistency and continuity.

Evaluating the quantitative level of interest rate risk exposure

requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition,

including capital adequacy, earnings, liquidity and asset quality (when appropriate).

4 unchanged sentences

interest rate risk, which will form the basis for ongoing evaluation of the adequacy of interest rate risk management at supervised institutions.

The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve Board guidance

and discusses the importance of these elements in the context of managing interest rate risk.

Specifically, the guidance emphasizes the

need for active board of director and senior management oversight and a comprehensive risk management process that effectively identifies,

The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve Board

guidance and discusses the importance of these elements in the context of managing interest rate risk.

Specifically, the guidance emphasizes

the need for active board of director and senior management oversight and a comprehensive risk management process that effectively identifies,

measures and controls interest rate risk.

14 unchanged sentences

liabilities in a declining rate environment.

There are several ways an institution can

manage interest rate risk including:

1) matching repricing periods for new assets and liabilities, for example, by shortening or lengthening

terms of new loans, investments, or liabilities;

There are several ways an institution

can manage interest rate risk including:

1) matching repricing periods for new assets and liabilities, for example, by shortening or

lengthening terms of new loans, investments, or liabilities;

2) selling existing assets or repaying certain liabilities;

and 3) hedging existing assets,

liabilities, or anticipated transactions.

An institution might also invest in more complex financial instruments intended to hedge or

otherwise change interest rate risk.

Interest rate swaps, futures contracts, options on futures contracts, and other such derivative financial

instruments can be used for this purpose.

Because these instruments are sensitive to interest rate changes, they require management’s

expertise to be effective.

The Company does not currently utilize any derivative financial instruments to manage interest rate risk.

market conditions warrant, the Company may implement various interest rate risk management strategies, including the use of derivative

financial instruments.

and 3) hedging

existing assets, liabilities, or anticipated transactions.

An institution might also invest in more complex financial instruments intended

to hedge or otherwise change interest rate risk.

Interest rate swaps, futures contracts, options on futures contracts, and other such

derivative financial instruments can be used for this purpose.

Because these instruments are sensitive to interest rate changes, they

require management’s expertise to be effective.

The Company does not currently utilize any derivative financial instruments to

manage interest rate risk.

As market conditions warrant, the Company may implement various interest rate risk management strategies,

including the use of derivative financial instruments.

Quantitative and Qualitative Disclosures About Market Risk

Management believes there has been no

material change in the Company’s market risk from the information contained in the Company’s Annual Report on Form 10-K filed

with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2024.

Management believes there has been no material

change in the Company’s market risk from the information contained in the Company’s Annual Report on Form 10-K filed with

the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2025.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis