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Item 1. Business

2023-03-17 compared with 2022-03-08 · 1305 added, 808 removed, 1023 unchanged (67% of the section changed)

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with the Board of Governors

of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding

Company Act of 1956, as amended (the

of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company

Act of 1956, as amended (the

The Company was incorporated in Delaware in 1990, and in 1994 it succeeded

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Lee County and surrounding areas.

The Bank has been a member of the Federal Reserve System since April 1995.

Bank’s primary regulators are the Federal

Reserve and the Alabama Superintendent of Banks (the “Alabama

Superintendent”).

The Bank has been a member of the Federal Home Loan Bank of Atlanta (the “FHLB”)

The Company’s business is conducted

primarily through the Bank and its subsidiaries.

The Bank has been a member of the Federal Reserve Bank of Atlanta (the

Reserve Bank”) since April 1995.

The Bank’s primary regulators are

the Federal Reserve and the Alabama Superintendent

of Banks (the “Alabama Superintendent”).

The Bank has been a member of the Federal Home Loan Bank of Atlanta (the

“FHLB”) since 1991.

The Company’s business is conducted primarily

through the Bank and its subsidiaries.

Although it has no immediate plans

to conduct any other business, the Company may engage directly or indirectly in a number

of activities that the Federal

Reserve has determined to be so closely related to banking or managing or controlling banks

as to be a proper incident

of activities closely related to

banking permitted by the Federal Reserve.

The Company’s principal executive offices

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Company’s website and the information

appearing on the website are not included or incorporated in, and are not part

appearing on the website are not included or incorporated in, and are not part of,

The Company files annual, quarterly and current reports, proxy statements, and

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mortgage lender in its primary service area.

The Bank’s primary service area includes the

cities of Auburn and Opelika,

Alabama and nearby surrounding areas in East Alabama, primarily in

The Bank’s primary service area includes

the cities of Auburn and Opelika,

Alabama and nearby surrounding areas in East Alabama, primarily in Lee County.

The Bank also offers commercial,

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The Bank is one of

the largest providers of automated teller services in East Alabama and

machines in 13 locations in its

primary service area.

the largest providers of automated teller machine (“ATM”)

services in East Alabama and operates ATM

machines in 13

locations in its primary service area.

The Bank offers Visa

Checkcards, which are debit cards with the Visa

logo that work like checks

but can be used anywhere Visa is accepted,

including ATM

logo that work

like checks and can be used anywhere Visa

is accepted, including ATMs.

The Bank’s Visa

Checkcards can be used internationally

through the Plus

The Bank offers online banking, bill payment and other electronic

services through its Internet

Checkcards can be used

internationally through the Plus

The Bank offers online banking, bill payment and other electronic banking

services through its Internet website,

www.auburnbank.com

Our online banking services, bill payment and electronic services are subject

cybersecurity risks.

See “Risk Factors – Our information systems may experience interruptions

and security breaches.”

Our online banking services, bill payment and electronic

services are subject to certain cybersecurity risks.

See “Risk Factors – Our information systems may experience

interruptions and security breaches.”

The Bank does not offer any services related to any Bitcoin or other digital or crypto instruments

or stablecoins or

The banking business in East Alabama, including Lee County,

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operating over wide geographic areas.

Bank competes for deposits, loans and other business with these banks, as

well as with credit unions, mortgage companies,

Bank competes for deposits, loans and other business with these banks, as well as with credit

unions, mortgage companies,

insurance companies, and other local and nonlocal financial institutions, including

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As more and different kinds of businesses enter the market for financial

competition from nonbank financial institutions may be expected to

intensify further.

Among the advantages that larger financial institutions have

over the Bank are their ability to finance extensive advertising

competition from nonbank financial institutions may be expected to intensify

Among the advantages that larger financial institutions have over

the Bank are their ability to finance extensive advertising

campaigns, to diversify their funding sources, and to allocate and diversify their assets among

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highest yield in locations with the greatest demand.

Many of the major commercial banks or their affiliates operating in

Many of the major commercial banks or their affiliates operating

Bank’s service area offer services

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funds, insurance companies and other

investment companies and from money center banks’ offerings

of high-yield investments and deposits.

Certain of these

competitors are not subject to the same regulatory restrictions as the Bank.

investment companies and from money center banks’ offerings of

high-yield investments and deposits, including CDs and

savings accounts.

Certain of these competitors are not subject to the same regulatory restrictions as the Bank.

Selected Economic Data

The Auburn-Opelika Metropolitan Statistical Area is Lee County,

Alabama, including Auburn, Opelika and part of Phenix

City, Alabama.

Census Bureau estimates Lee County’s

population was 174,241 in 2020, and has increased approximately 24.2%

from 2010 to 2020.

population was 181,881 in 2022, and has increased

approximately 29.7% from 2010 to 2022.

The largest employers in the area are Auburn University,

East Alabama Medical Center, a Wal

Distribution Center, Mando America Corporation,

and Briggs & Stratton.

Auto manufacturing and related suppliers are

increasingly important along Interstate Highway 85 to the east and west of

East Alabama Medical

Center, Lee County School System, Wal

-Mart Distribution Center, Baxter Healthcare, Thermo

Fisher Scientific, Mando

America Corporation (automobile brakes and steering), and Briggs & Stratton.

Auto manufacturing and related suppliers

are increasingly important along Interstate Highway 85 to the east and west of Auburn.

Kia Motors has a large automobile

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factory in Montgomery,

Between 2010 and 2022, the Auburn-Opelika MSA grew an estimated 23.9%,

the second fastest growing MSA in

The Auburn-Opelika MSA population is estimated to grow 6.73% from 2022

During the same time,

household income is estimated to increase 13.34%, to $67,593.

suppliers to the automotive industry have facilities in Lee County.

The unemployment rate in Lee County was

2.0% at year end 2022 according to the U.S.

Bureau of Labor Statistics.

Between 2010 and 2022, the Auburn-Opelika MSA was the second fastest

growing MSA in Alabama.

Opelika MSA population is estimated to grow 6.6% from 2023 to 2028.

During the same time, household income is

estimated to increase 14.25%, to $69,213.

Loans and Loan Concentrations

The Bank makes loans for commercial, financial and agricultural purposes, as

well as for real estate mortgages, real estate

The Bank makes loans for commercial, financial and agricultural purposes, as well as for

real estate mortgages, real estate

acquisition, construction and development and consumer purposes.

While there are certain risks unique to each type of

lending, management believes that there is more risk associated

with commercial, real estate acquisition, construction and

lending, management believes that there is more risk associated with commercial, real

estate acquisition, construction and

development, agricultural and consumer lending than with residential real estate

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To help manage these

risks, the Bank has established underwriting standards used in evaluating

each extension of credit on an individual basis,

risks, the Bank has established underwriting standards used in evaluating each extension

of credit on an individual basis,

which are substantially similar for each type of loan.

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throughout the life of the loan.

See “Lending Practices” for a discussion of regulatory guidance on commercial real

See “Lending Practices” for a discussion of regulatory guidance on commercial real estate

The Bank has loans outstanding to borrowers in all industries within our primary

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Any adverse economic or

other conditions affecting these industries would also likely

have an adverse effect on the local workforce, other local

other conditions affecting these industries would also likely have an adverse

effect on the local workforce, other local

businesses, and individuals in the community that have entered

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our local economy, but automobile

manufacturing is

sales manufacturing is

cyclical and adversely affected by increases in interest rates.

Decreases in automobile sales, including adverse changes due

to interest rate increases, and the economic effects of the impact

of COVID-19, including continuing supply chain

disruptions, could adversely affect nearby Kia and Hyundai automotive plants and their suppliers'

local spending and

employment, and could adversely affect economic conditions

in the markets we serve.

management believes that

due to the diversified mix of industries located within the Bank’s

primary service area, adverse changes in one industry may

not necessarily affect other area industries to the same degree or

within the same time frame.

The Bank’s primary service

area also is subject to both local and national economic conditions and fluctuations.

While most loans are made within our

primary service area, some residential mortgage loans are originated outside the

primary service area, and the Bank from

time to time has purchased loan participations from outside its primary

service area.

in automobile sales, including adverse changes due

to interest rate increases, and the remaining economic effects of the

COVID-19 pandemic, including continuing supply

chain disruptions and a tight labor market,

could adversely affect nearby Kia and Hyundai automotive plants

suppliers' local spending and employment, and could adversely affect economic

conditions in the markets we serve.

However, management believes that due to the diversified

mix of industries located within our markets, adverse changes in

one industry may not necessarily affect other area industries

to the same degree or within the same time frame.

primary service area also is subject to both local and national economic conditions and

fluctuations.

While most loans are

made within our primary service area, some residential mortgage loans are originated

outside the primary service area, and

the Bank from time to time has purchased loan participations from outside its primary service

We also may make

loans to other borrowers outside these areas, especially where we have a relationship

with the borrower, or its business or

Human Capital

At December 31, 2021, the Company and its subsidiaries had 152

full-time equivalent employees, including 39 officers.

response to the COVID-19 pandemic, our business continuity plan worked to provide

essential banking services to our

communities and customers, while protecting our employees’ health.

As part of our efforts to exercise social distancing in

accordance with the guidelines of the Centers for Disease Control and the Governor

of the State of Alabama, starting March

23, 2020, we limited branch lobby service to appointment only while continuing to operate

our branch drive-thru facilities

We continue to provide

services through our online and other electronic channels.

we established

remote work access to help employees stay at home where job duties permit.

We experienced

little turnover as a result of the COVID-19 pandemic.

strong employee retention

historically.

At December 31, 2022, the Company and its subsidiaries had 150 full-time equivalent employees,

including 37 officers.

Our average term of service is approximately 10 years.

We successfully implemented

plans to protect our employees’

health consistent with CDC and State of Alabama guidelines during the COVID-19 pandemic,

while maintaining critical

banking services to our communities.

In addition, we developed our remote and electronic banking services, and

established remote work access to help employees stay at home where job

duties permitted.

This promoted employee

retention, and these efforts will provide us proven experience and flexibility

to meet other disruptive events and conditions,

and still provide our customers and communities continuity of service.

We experienced

little turnover as a result of the COVID-19 pandemic and made no staff

As a result, we

received a federal employee retention tax credit of approximately $1.6

million in 2022.

We have a talented group

of employees,

many of which, have a college or associate degree.

We believe the Auburn-

Opelika MSA is a desirable place to live and work with excellent schools and quality of life.

Our MSA was the second

fastest growing MSA in Alabama from 2010 to 2022.

Auburn University is a major employer that attracts talented students

and employee families.

employees have a family member that is employed by or is attending the University.

were an active PPP lender in our communities during 2020-2021, which required our employees to quickly

apply a new SBA loan program with frequent overnight changes.

All our PPP loans were forgiven by the SBA, except one

where the borrower is repaying its PPP loan without government assistance.

We had a successful

management transition in 2022 where our CEO became Chairman, and

was succeeded by our CFO,

whose role was then filled by our Chief Accounting Officer.

Our Chairman has served the Bank his entire 39-year career,

our President and CEO has been with us 16 years and our Chief Accounting Officer

has been with us for 7 years.

President and CFO had careers with major national and regional accounting

firms and focused on financial services before

joining the Bank.

We seek to provide

competitive compensation and benefits.

We encourage and support

the growth and development of our

employees and, wherever possible, seek to fill positions by promotion and transfer

from within the organization.

development is advanced through ongoing performance and development conversations

with employees, internally

developed training programs and other training and development opportunities.

Our employees are encouraged to be active

in our communities as part of our commitment to these communities and our employees.

employer matches for employee contributions to

our 401(k) retirement plan.

We encourage and

support the growth and development of our employees and, wherever

possible, seek to fill positions by promotion and transfer from within the organization.

Career development is advanced

through ongoing performance and development conversations with employees,

internally developed training programs and

other training and development opportunities.

Our employees are encouraged to be active in our communities as part of our commitment

to these communities and our

Our Chairman is the current President Pro Tempore

of the Auburn University Board of Trustees.

Statistical Information

Certain statistical information is included in response to Item 7 of this

Certain statistical information is included in responses to Items 6, 7, 7A and 8 of this

Annual Report on Form 10-K.

Certain statistical

information is also included in response to Item 6, Item 7A and Item 8 of this Annual Report

on Form 10-K.

SUPERVISION AND REGULATION

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their respective subsidiaries by

the bank regulatory

agencies are primarily intended to maintain the safety and soundness

of depository institutions and the

the bank regulatory agencies are primarily intended to maintain the safety and

soundness of depository institutions and the

federal deposit insurance system, as well as the protection of depositors,

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among other things, the acquisition by a bank holding company

of direct or indirect ownership or control of more than 5% of the voting shares or

substantially all the assets of any bank, or

for a merger or consolidation of a bank holding company

with another bank holding company.

of direct or indirect ownership or control of more than 5% of the voting shares or substantially

all the assets of any bank, or

for a merger or consolidation of a bank holding company with another

bank holding company.

The BHC Act generally

prohibits a bank holding company from acquiring direct or indirect ownership

or control of voting shares of any company

prohibits a bank holding company from acquiring direct or indirect ownership or

control of voting shares of any company

that is not a bank or bank holding company and from engaging directly or indirectly in any

activity other than banking or

managing or controlling banks or performing services for its authorized

managing or controlling banks or performing services for its authorized subsidiar

A bank holding company may,

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as defined in Federal Reserve

and whose insured depository institution subsidiaries maintain

“satisfactory” or better ratings under the

Community Reinvestment Act of 1977 (the “CRA”), may elect to

become “financial holding companies.” Financial holding

Regulation Y,

and whose insured depository institution subsidiaries maintain “satisfactory”

or better ratings under the

Community Reinvestment Act of 1977 (the “CRA”), may elect to become

“financial holding companies.” Financial holding

companies and their subsidiaries are permitted to acquire or engage in activities

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are authorized to invest in companies that

engage in activities that are not financial in nature, as long as the financial

holding company makes its investment, subject

to limitations, including a limited investment term, no day-to-day

management, and no cross-marketing with any depositary

engage in activities that are not financial in nature, as long as the financial holding

company makes its investment, subject

to limitations, including a limited investment term, no day-to-day management,

and no cross-marketing with any depositary

institutions controlled by the financial holding company.

The Federal Reserve recommended repeal of the merchant

banking powers in its September 16, 2016 study pursuant to Section 620 of the Dodd

-Frank Wall Street Reform and

banking powers in its September 16, 2016 study pursuant to Section 620 of the Dodd-Frank Wall

Street Reform and

Consumer Protection Act of 2010 (the “Dodd-Frank Act”), but has taken no action.

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but it may elect to do so in the future.

Financial holding companies continue to be subject to Federal Reserve supervision,

regulation and examination, but the

Gramm-Leach-Bliley Act of 1999 the “GLB Act”) applies the concept

of functional regulation to subsidiary activities.

example, insurance activities would be subject to supervision and regulation

by state insurance authorities.

Financial holding companies continue to be subject to Federal Reserve supervision, regulation

and examination, but the

Gramm-Leach-Bliley Act of 1999 the “GLB Act”) applies the concept of functional

regulation to subsidiary activities.

example, insurance activities would be subject to supervision and regulation by state insurance

The BHC Act permits acquisitions of banks by bank holding companies, subject

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acquirer is “well capitalized” and “well managed”.

Under the Alabama Banking Code, with the prior approval of the

Alabama Superintendent, an Alabama bank may acquire and operate

one or more banks in other states pursuant to a

transaction in which the Alabama bank is the surviving bank.

In addition, one or more Alabama banks may enter into a

merger transaction with one or more out-of-state banks,

and an out-of-state bank resulting from such transaction may

continue to operate the acquired branches in Alabama.

The Dodd-Frank Act permits banks, including Alabama banks, to

branch anywhere in the United States.

Bank mergers are also subject to the approval of the acquiring bank’s

primary federal regulator and the Bank Merger Act.

The BHC Act and the Bank Merger Act provide various generally

similar statutory factors.

Under the Alabama Banking Code, with the prior approval of the Alabama

Superintendent, an

Alabama bank may acquire and operate one or more banks in other states pursuant to

a transaction in which the Alabama

bank is the surviving bank.

In addition, one or more Alabama banks may enter into a merger

transaction with one or more

out-of-state banks, and an out-of-state bank resulting from such transaction

may continue to operate the acquired branches

The Dodd-Frank Act permits banks, including Alabama banks, to branch anywhere

in the United States.

Bank mergers are also subject to the approval of the acquiring bank’s

primary federal regulator.

On March 19, 2022, the

FDIC published a “Request for Information and Comment on Rules, Regulations,

Guidance, and Statements of Policy

Regarding Bank Merger Transactions” (the

“FDIC Notice”).

The FDIC solicited comments from interested parties

regarding the application of the laws, practices, rules, regulations, guidance, and statements

of policy (together, regulatory

framework) that apply to merger transactions involving one

or more insured depository institution, including the merger

between an insured depository institution and a noninsured institution.

The FDIC is interested

in receiving comments

regarding the effectiveness of the existing framework in

meeting the requirements of the Bank Merger Act.

The Request described the consolidation of the banking industry,

the increase in the number of large and systemically

important banking organizations and the need to evaluate large

mergers’ financial stability and resolution of failing bank

risks consistent with the Dodd-Frank Act changes to the BHC Act and the Bank Merger

Act, and the effects of banking

mergers on competition.

The FDIC Notice also stated that Executive Order Promoting Competition in the

Economy (July 9, 2021) (the “Executive Order”), among other things, “instructs U.S.

agencies to consider the impact that

consolidation may have on maintaining a fair, open,

and competitive marketplace, and on the welfare of workers, farmers,

small businesses, startups, and consumers.”

The FDIC requested comment on all aspects of the bank regulatory

framework, including qualitative and quantitative support for such responses.

The other Federal bank regulators as well as

Department of Justice are also considering the framework for

mergers involving banking organizations, including

the competitive effects of such combinations.

The federal bank regulators have not announced any conclusions, but these

reviews could result in changes to the frameworks used to evaluate banking combinations

which could make such

combinations more difficult, time consuming and expensive.

The Company is a legal entity separate and distinct from the Bank.

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The Company and the Bank are subject to Sections 23A and 23B of the

Federal Reserve Act and Federal Reserve Regulation W thereunder.

Federal Reserve Act

and Federal Reserve Regulation W thereunder.

Section 23A defines “covered transactions,” which

include extensions of credit, and limits a bank’s

covered transactions with any affiliate to 10% of such bank’s

All covered and exempt transactions between a bank and its affiliates

must be on terms and conditions consistent

include extensions of credit, and limits a bank’s covered

transactions with any affiliate to 10% of such bank’s

All covered and exempt transactions between a bank and its affiliates must be

on terms and conditions consistent

with safe and sound banking practices, and banks and their subsidiaries are prohibited

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to be on terms and under

circumstances, including credit standards, that are substantially the same as or at

least as favorable to the bank or its

circumstances, including credit standards, that are substantially the same as or at least as

favorable to the bank or its

subsidiary as those prevailing at the time for similar transactions with unaffiliated

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subsidiaries and to take measures to

preserve and protect such bank subsidiaries in situations where additional

investments in a bank subsidiary may not

preserve and protect such bank subsidiaries in situations where additional investments

in a bank subsidiary may not

otherwise be warranted.

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plan with its

regulators, the parent bank holding company is required to guarantee performance

of such plan up to 5% of the bank’s

regulators, the parent bank holding company is required to guarantee performance of

such plan up to 5% of the bank’s

assets, and such guarantee is given priority in bankruptcy of the bank holding company.

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However, any loans from the holding

company to such subsidiary banks likely will be unsecured and subordinated

to such bank’s depositors and to other

company to such subsidiary banks likely will be unsecured and subordinated to

such bank’s depositors and to other

creditors of the bank.

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Holding Company Policy

Statement (the “Small BHC Policy”) to expand it to include thrift holding companies and

increase the size of “small” for

Statement (the “Small BHC Policy”) to expand it to include thrift holding companies and increase

the size of “small” for

qualifying bank and thrift holding companies from $500 million to up to $3

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It is subject to supervision, regulation and examination

by the Federal Reserve and the Alabama Superintendent, which monitor

all areas of the Bank’s operations, including

by the Federal Reserve and the Alabama Superintendent, which monitor all areas

of the Bank’s operations, including loans,

reserves, mortgages, issuances and redemption of capital securities, payment of dividends,

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the FDIC to the maximum extent provided by law,

and is subject to various FDIC regulations.

See “FDIC Insurance

Assessments.”

and the Bank is subject to various FDIC regulations applicable to FDIC-

insured banks.

See “FDIC Insurance Assessments.”

Alabama law permits statewide branching by banks.

The powers granted to Alabama-chartered banks by state law include

certain provisions designed to provide such banks competitive equality with

national banks.

The Federal Reserve has adopted the Federal Financial Institutions Examination

Council’s (“FFIEC”) rating system,

assigns each financial institution a confidential composite “CAMELS” rating based

on an evaluation and rating of six

essential components of an institution’s

certain provisions designed to provide such banks competitive equality with national

The Federal Reserve has adopted the Federal Financial Institutions Examination Council’s

(“FFIEC”) Uniform Financial

Institutions Rating System (“UFIRS”), which assigns each financial institution a

confidential composite “CAMELS” rating

based on an evaluation and rating of six essential components of an institution’s

financial condition and operations:

Capital Adequacy,

Asset Quality, Management,

Earnings, Liquidity and Sensitivity to market risk, as well as the quality of risk

sset Quality,

ensitivity to market risk, as well as the quality of risk

management practices.

institutions, the FFIEC has indicated that market risk primarily reflects exposures

to changes in interest rates.

regulators evaluate this component, consideration is expected to

management’s ability to identify,

For most institutions, the FFIEC has indicated that market risk primarily reflects

changes in interest rates.

When regulators evaluate this component, consideration is expected

to be given to:

ability to identify, measure,

monitor and control market risk;

the institution’s

the nature and complexity of its activities and its risk profile;

adequacy of its capital and earnings in relation to its level of market risk exposure.

Market risk is rated based upon, but not

limited to, an assessment of the sensitivity of the financial institution’s

earnings or the economic value of its capital to

adverse changes in interest rates, foreign exchange rates, commodity prices or

equity prices;

management’s ability to

identify, measure,

monitor and control exposure to market risk;

and the nature and complexity of interest

rate risk exposure

arising from non-trading positions.

Composite ratings are based on evaluations of an institution’s

managerial, operational,

financial and compliance performance.

The composite CAMELS rating is not an

arithmetical formula or rigid weighting of

numerical component ratings.

Elements of subjectivity and examiner judgment,

especially as these relate to qualitative

assessments, are important elements in assigning ratings.

The federal bank regulatory agencies are reviewing the CAMELS

rating system and their consistency.

The GLB Act and related regulations require banks and their affiliated

companies to adopt and disclose privacy policies,

the nature and complexity of its activities

and its risk profile;

and the adequacy of its capital and earnings in relation to its level of market risk exposure.

is rated based upon, but not limited to, an assessment of the sensitivity of the financial institution’s

earnings or the

economic value of its capital to adverse changes in interest rates, foreign exchange rates,

commodity prices or equity prices;

management’s ability to identify,

measure, monitor and control exposure to market risk;

and the nature and

complexity of

interest rate risk exposure arising from non-trading positions.

ratings are based on evaluations of an institution’s

managerial, operational, financial and compliance performance.

composite CAMELS rating is not an arithmetical

formula or rigid weighting of numerical component ratings.

subjectivity and examiner judgment, especially as

these relate to qualitative assessments, are important elements in assigning ratings.

The federal bank regulatory agencies

are reviewing the CAMELS rating system and their consistency.

In addition, and separate from the interagency UFIRS, the Federal Reserve assigns a risk

-management rating to all state

member banks.

or composite, rating, as well as each of the assessment areas, including risk management,

delineated on a numerical scale of 1 to 5, with 1 being the highest or best possible rating.

a bank with a composite

rating of 1 requires the lowest level of supervisory attention while a 5-rated bank has the

most critically deficient level of

performance and therefore requires the highest degree of supervisory attention.

The GLB Act and related regulations require banks and their affiliated companies

to adopt and disclose privacy policies,

including policies regarding the sharing of personal information with third parties.

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announced that it had finalized conforming

amendments to its implementing regulation, Regulation

A variety of federal and state privacy laws govern the collection, safeguarding, sharing

and use of customer information,

amendments to its implementing regulation, Regulation P.

A variety of federal and state privacy laws govern the collection, safeguarding, sharing and

use of customer information,

and require that financial institutions have policies regarding information privacy

and security.

state laws also protect

the privacy of information of state residents and require adequate security of

such data, and certain state laws may,

Some state laws also

the privacy of information of state residents and require adequate security of such data,

and certain state laws may, in

circumstances, require us to notify affected individuals of security breaches

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in the event of a data breach, as well as businesses and governmental agencies that own data.

1165, The Data Privacy Act of 2023,

was introduced in Congress on February 24, 2023 by Rep.

Chairman of the House Financial Services Committee, to which the Bill was referred.

It amends various sections of the

GLB Act and preempts certain state privacy laws.

Its preemption provisions have triggered opposition by the minority in

the House of Representatives.

Community Reinvestment Act and Consumer Laws

The Bank is subject to the provisions of the CRA and the Federal Reserve’s

regulations thereunder.

Under the CRA, all

FDIC-insured institutions have a continuing and affirmative obligation,

consistent with their safe and sound operation, to

help meet the credit needs for their entire communities, including low-

and moderate-income neighborhoods.

The Bank is subject to the provisions

of the CRA and the Federal Reserve’s CRA

Under the CRA, all FDIC-

insured institutions have a continuing and affirmative obligation,

consistent with their safe and sound operation, to help

meet the credit needs for their entire communities, including low-

and moderate-income (“LMI”) neighborhoods.

requires a depository institution’s primary

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or (v) merge or

consolidate with, or acquire the assets or assume the liabilities of, an FDIC-insured

financial institution.

consolidate with, or acquire the assets or assume the liabilities of, an FDIC-insured financial

In the case of bank

holding company applications to acquire a bank or other bank holding company,

the Federal Reserve will assess the records

of each subsidiary depository institution of the applicant bank holding company,

the Federal Reserve will assess and

emphasize CRA records of each subsidiary depository institution of the applicant bank

holding company and the target

bank in meeting the needs of their entire communities, including LMI neighborhoods,

and such records may be the basis for

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if not preclude, acquisitions, and new branches and

other expansion activities and may prevent a company from becoming a

financial holding company.

other expansion activities and may prevent a company from becoming a financial

holding company.

The Federal Reserve

also considers the effect of a bank acquisition proposal on the convenience

and need of the markets served by the

combining organizations.

CRA agreements with private parties must be disclosed and annual

CRA reports must be made to a bank’s primary

Community benefit plans have become common in banking mergers, especially

larger bank combinations.

National Community Resolution Coalition reported in February 2023

that it had executed more than 20 community benefit

plans with banking organizations.

A financial holding company election, and such election and financial holding company

activities are permitted

to be continued, only if any affiliated bank has not received less than a

“satisfactory” CRA rating.

The federal CRA

regulations require that evidence of discriminatory,

illegal or abusive lending practices be considered in the CRA

activities are permitted to be continued, only if any affiliated

bank has not received less than a “satisfactory” CRA rating.

The federal CRA regulations require that evidence of discriminatory,

illegal or abusive lending practices be considered in

the CRA evaluation.

On December 13, 2019, the FDIC and OCC issued a joint notice of proposed rulemaking

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October 1, 2020, which were repealed

The Federal bank regulators are cooperating and working on new CRA regulations,

which are expected to be

proposed around the end of March 2022.

The Federal bank regulators are cooperating and working on new joint CRA regulations,

which were proposed in

The Bank is also subject to, among other things, the Equal Credit Opportunity Act (the

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The Department of Justice

(the “DOJ”), and the federal bank regulatory agencies have issued an Interagency

Policy Statement on Discrimination in

(the “DOJ”), and the federal bank regulatory agencies have issued an Interagency Policy

Statement on Discrimination in

Lending to provide guidance to financial institutions in determining whether discrimination

exists, how the agencies will

respond to lending discrimination, and what steps lenders might take to prevent

discriminatory lending practices.

has prosecuted what it regards as violations of the ECOA, the Fair Housing Act,

and the fair lending laws, generally.

respond to lending discrimination, and what steps lenders might take to prevent discriminatory

lending practices.

has prosecuted what it regards as violations of the ECOA, the Fair Housing Act, and

the fair lending laws, generally.

The Bank had a “satisfactory” CRA rating in its latest CRA public evaluation dated February 28,

2022, with satisfactory

ratings on both its lending and community development tests.

On December 13, 2019, the FDIC and OCC issued a joint notice of proposed rulemaking

seeking comment on modernizing

the agencies’ CRA regulations.

The OCC issued final revised CRA Rules effective

October 1, 2020, which were repealed

The Federal bank regulators are cooperating and working on new joint CRA regulations,

which were proposed by

the Federal Reserve, the FDIC and the Comptroller of the Currency in May and June 2022.

Proposed Revision of CRA Regulations

The federal banking regulators jointly proposed (the “CRA Proposal”)

revised CRA regulations on June 3, 2022.

currently anticipated that these revised regulations may be adopted in the first half of 2023.

The objectives of the proposed CRA regulations included:

Update CRA regulations to strengthen the achievement of the core purpose of the statute;

Adapt to changes in the banking industry,

including the expanded role of mobile and online banking;

Provide greater clarity and consistency in the application of the regulations;

Tailor performance standards

to account for differences in bank size and business models

and local conditions;

Tailor data collection

and reporting requirements and use existing data whenever possible;

Promote transparency and public engagement;

Confirm that CRA and fair lending

responsibilities are mutually reinforcing;

Create a consistent regulatory approach that applies to banks regulated by all three agencies.

The proposed regulations create a new framework for evaluating CRA performance.

The new framework would establish

the following four tests for large banks:

Retail Lending Test;

Retail Services and Products Test;

Community Development

Financing Test;

and Community

Development Services Test.

Intermediate banks would be evaluated under the Retail

Lending Test and the

community development test, unless they choose to opt into the Community Development

Financing Test.

would be evaluated under the

small bank lending test, unless they choose to opt into

the Retail Lending Test.

and limited purpose banks would be evaluated under a tailored version of the

Community Development Financing Test.

The bank is currently an “intermediate small bank”.

As currently proposed, the Bank would be an “intermediate bank”

until it reached $2.0 billion or more in assets at the date(s) of determination.

Intermediate banks would be evaluated

generally under the new Retail Lending Test

for intermediate banks and a community development test.

proposing the new rules states that the proposed Retail Lending Test

represents a significant change from the lending test

applicable to intermediate small banks in the agencies' current regulations, but intermediate

banks would not need to

collect, maintain, or report data to facilitate the application of this test.

Instead, as under the current CRA regulations,

examiners would continue to use information gathered from individual loan

files or maintained on an intermediate bank's

internal operating systems for purposes of the Retail Lending Test.

The proposed intermediate bank Community

Development Test evaluates all

community development activities, including community development loans,

investments, and community development services.

The Retail Lending and Community Development tests will be

weighted equally in determining intermediate banks’ CRA evaluations.

The proposed Retail Lending Test

“is intended to make a bank's retail lending evaluation more transparent and predictable

by specifying quantitative standards for lending consistent with achieving,

for example, a “Low Satisfactory” or

“Outstanding” conclusion in an assessment area.

The proposed rule would limit the evaluation

of an intermediate bank's

retail lending performance to areas outside of its facility-based assessment areas only if it

does more than 50 percent of its

lending outside of its facility-based assessment areas.”

Under the Retail Lending test, an intermediate bank’s

would be based on its major product lines in each assessment area.

A major product line would be one or more of the six

retail loan product types:

closed-end home mortgage loans;

open-end home

mortgage loans;

multifamily mortgage loans;

small business loans;

small farm loans;

or automobile loans.

The CRA Proposal states that “the agencies believe retail lending remains a core

part of a bank's affirmative obligation

under the CRA to meet the credit needs of their entire communities.

At the same time, the

agencies recognize that,

compared to large banks, intermediate banks might not offer

as wide a range of retail products and services, have a more

limited capacity to conduct community development activities, and

may focus on the local communities where their

branches are located.”

The CRA Proposal reflects “the agencies’ views that banks of this size should have

capacity to conduct community development financing, as they do under

the current approach.”

The CRA Proposal states

that the community development criteria for intermediate banks is unchanged

from the current intermediate small bank

community development test.

Intermediate banks would generally be exempt from the data collection,

maintenance, and reporting requirements

applicable to large banks under the

CRA Proposal.

Banks are currently required to delineate their CRA “assessment areas.”

The Bank currently designates two assessment

areas – the Auburn-Opelika MSA (lee County) and the Chambers-Macon-Tallapoosa

assessment area – comprised of

Chambers, Macon, and Tallapoosa

The Bank operates two branches in the Chambers, Macon and Tallapoosa

The CRA Proposal seeks to recognize electronic and remote delivery services.

Intermediate banks’ must

designate one or more facilities based CRA assessment areas.

The facilities based CRA assessment area under the CRA Proposal

would include a bank’s main office, branches,

deposit-taking ATMs.

An intermediate bank could continue to adjust the boundaries of a facilities based

assessment area to

include whole census tracts of a county or statistically equivalent entity that the bank could

reasonably be expected to serve.

Facilities based assessment areas could not extend across a state or metropolitan

statistical area (MSA) boundary,

facilities were located in a multistate MSA or combined statistical area.

Retail lending activities outside an intermediate

bank’s Facilities based assessment area

would be considered in aggregate at the bank level if such outside retail lending was

more than 50% of the bank’s total retail lending.

Otherwise, outside retail lending would not be considered.

activities outside an intermediate bank’s

facilities based assessment area generally would not be considered.

The federal bank regulators have updated their guidance several times on overdrafts, including overdrafts

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Overdrafts also have been a CFPB concern, and in 2021 began

refocusing on this issue with a view to “insure that banks continue to evolve their

businesses to reduce reliance on overdraft

refocusing on this issue with a view to “insure that banks continue to evolve their businesses

to reduce reliance on overdraft

and not sufficient funds fees.”

Among other things, the federal regulators require banks to monitor accounts and

the use of overdrafts by customers as a form of short-term, high-cost credit,

including, for example, giving customers who

the use of overdrafts by customers as a form of short-term, high-cost credit, including,

for example, giving customers who

overdraw their accounts on more than six occasions where a fee is charged

in a rolling 12 month period a reasonable

opportunity to choose a less costly alternative and decide whether to continue

with fee-based overdraft coverage.

opportunity to choose a less costly alternative and decide whether to continue with fee-based

overdraft coverage.

encourages placing appropriate daily limits on overdraft fees, and asks banks to

consider eliminating overdraft fees for

transactions that overdraw an account by a

policies, processes, fees and disclosures are

transactions that overdraw an account by a de minimis amount.

Overdraft policies, processes, fees and disclosures are

frequently the subject of litigation against banks in various jurisdictions.

federal bank regulators continue to consider

responsible small dollar lending, including overdrafts and related fee issues and

issued principals for offering small-dollar

responsible small dollar lending, including overdrafts and related fee issues and issued principals

for offering small-dollar

loans in a responsible manner on May 20, 2020.

The CFPB proposed on February 6, 2019 to rescind its mandatory

underwriting standards for loans covered by its 2017 Payday,

CFPB Consumer Financial Protection Circular 2022-06 (Oct.

concluded that overdraft fee practices must comply

with Regulation Z, Regulation E, and the prohibition against unfair,

deceptive, and abusive acts or practices in Section 1036

of the Consumer Financial Protection Act.

overdraft fees assessed by financial institutions on transactions that a

consumer would not reasonably anticipate are likely unfair even if these comply

with these other consumer laws and

The CFPB proposed on February 6, 2019 to rescind its mandatory underwriting

standards for loans covered by

its 2017 Payday, Vehicle

Title and Certain High-Cost Installment Loans rule,

and has separately proposed delaying the effectiveness of such 2017

The CFPB has a broad mandate to regulate consumer financial products and

services, whether or not offered by banks or

and has separately proposed delaying the

effectiveness of such 2017 rule.

The CFPB has a broad mandate to regulate consumer financial products and services,

whether or not offered by banks or

their affiliates.

The CFPB has the authority to adopt regulations and enforce various laws,

including fair lending laws, the

The CFPB has the authority to adopt regulations and enforce various laws, including

fair lending laws, the

Truth in Lending Act, the Electronic Funds Transfer

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Although the CFPB does not examine or supervise

banks with less than $10 billion in assets,

banks of all sizes are affected by the CFPB’s

banks with less than $10 billion in assets, banks of all sizes are affected by the CFPB’s

regulations, and the precedents set

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when making ability to repay determinations, and provide

certain safe harbors from liability for mortgages that are "qualified mortgages"

and are not “higher-priced.”

these CFPB regulations apply to all consumer,

closed-end loans secured by a dwelling including home-purchase loans,

certain safe harbors from liability for mortgages that are "qualified

mortgages" and are not “higher-priced.”

these CFPB regulations apply to all consumer, closed-end

loans secured by a dwelling including home-purchase loans,

refinancing and home equity loans—whether first or subordinate lien.

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(1) a term not exceeding 30 years;

(2) regular periodic payments that do not result in

negative amortization, deferral of

(2) regular periodic payments that do not result in negative

amortization, deferral of

principal repayment, or a balloon payment;

(3) and be supported with documentation of

the borrower and its credit.

(3) and be supported with documentation of the

borrower and its credit.

December 10, 2020, the CFPB issued final rules related to “qualified mortgage” loans.

Lenders are required under the law

to determine that consumers have the ability to repay mortgage loans before

lenders make those loans.

are required under the law

to determine that consumers have the ability to repay mortgage loans before lenders

make those loans.

Loans that meet

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mortgage origination on qualified mortgages and those that meet our investors’ requirements,

we may make loans that do not meet the safe harbor requirements for

“qualified mortgages.”

we may make loans that do not meet the safe harbor requirements for “qualified

The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018

(the “2018 Growth Act”) provides that

certain residential mortgages held in portfolio by banks with less than $10 billion

in consolidated assets automatically are

certain residential mortgages held in portfolio by banks with less than $10 billion in consolidated

assets automatically are

deemed “qualified mortgages.” This relieves smaller institutions from

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mortgage” safe harbor may not have negative

amortization, must follow prepayment penalty limitations included

in the Truth in Lending Act, and may not have

amortization, must follow prepayment penalty limitations included in the Truth

in Lending Act, and may not have fees

greater than 3% of the total value of the loan.

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risks of servicing mortgage

loans, and the mandatory delays in foreclosures could result in loss of value on collateral

or the proceeds we may realize

loans, and the mandatory delays in foreclosures could result in loss of value on collateral or

the proceeds we may realize

from a sale of foreclosed property.

The Federal Housing Finance Authority (“FHFA”)

updated, effective January 1, 2016, The Federal National

updated, effective January 1, 2016, The Federal National Mortgage

Association’s (“Fannie Mae’s”)

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These rules became effective January 1, 2016.

has updated these GSEs’ representations and warranties framework and

provided an independent dispute resolution

has updated these GSEs’ representations and warranties framework and provided

an independent dispute resolution

(“IDR”) process to allow a neutral third party to resolve demands after the GSEs’ quality

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been exhausted.

The Bank is subject to the CFPB’s

integrated disclosure rules under the Truth in Lending

Act and the Real Estate

The Bank is subject to the CFPB’s integrated

disclosure rules under the Truth in Lending Act and the

Settlement Procedures Act, referred to as “TRID”, for credit transactions secured

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in practice, and

may also change due to any restructuring of Fannie Mae and Freddie Mac

as part of the resolution of their conservatorships.

The 2018 Growth Act reduced the scope of TRID rules by eliminating the wait time

for a mortgage, if an additional creditor

may also change due to any restructuring of Fannie Mae and Freddie Mac as part of the resolution

of their conservatorships.

The 2018 Growth Act reduced the scope of TRID rules by eliminating the wait time for

a mortgage, if an additional creditor

offers a consumer a second offer with a lower annual percentage

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On August 31, 2018, the CFPB issued an interpretive and procedural rule to

implement and clarify these requirements under the 2018 Growth

implement and clarify these requirements under the 2018 Growth Act.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

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how accounting rules under ASC 310-40,

“Troubled Debt Restructurings by Creditors,”

apply to covered modifications.

“Troubled Debt Restructurings by Creditors,” apply to covered

modifications.

The Interagency Statement on COVID-19

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mortgage loans sold to Fannie Mae to

request forbearance to the servicer after affirming that such borrower

is experiencing financial hardships during the

request forbearance to the servicer after affirming that such borrower is experiencing

financial hardships during the

COVID-19 emergency.

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or related evictions or sales until December 31, 2020.

On February 9.

the forbearance period was extended to March

31, 2021 after being extended to February 28, 2021.

who are on a COVID-19 forbearance plan as of February

28, 2021 may apply for an additional forbearance extension of up to three additional

The Bank sells mortgage

loans to Fannie Mae and services these on an actual/actual basis.

As a result, the Bank is

not obligated to make any

advances to Fannie Mae on principal and interest on such mortgage loans

where the borrower is entitled to forbearance.

The forbearance period

was extended to February 28, 2021 and then

again to March 31, 2021 after being extended earlier to February 28, 2021.

Borrowers who are on a COVID-19 forbearance

plan as of February 28, 2021 may apply for an additional forbearance extension of up to

three additional months.

sells mortgage loans to Fannie Mae and services these on an actual/actual basis.

result, the Bank is not obligated to

make any advances to Fannie Mae on principal and interest on such mortgage loans where

the borrower is entitled to

FinCEN published a request for information and comment on December 15, 2021

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Anti-Money Laundering and Sanctions

The International Money Laundering Abatement and Anti-Terr

orism Funding Act of 2001 specifies “know your customer”

requirements that obligate financial institutions to take actions to verify the

identity of the account holders in connection

The International Money Laundering Abatement and Anti-Terrorism

Funding Act of 2001 specifies “know your customer”

requirements that obligate financial institutions to take actions to verify the identity of the

account holders in connection

with opening an account at any U.S.

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Act”), financial institutions are subject to prohibitions against specified

financial transactions and account relationships as well as to enhanced due diligence

and “know your customer” standards

financial transactions and account relationships as well as to enhanced due diligence and

“know your customer” standards

in their dealings with foreign financial institutions and foreign customers.

The USA PATRIOT

Act requires financial institutions to establish anti-money laundering programs,

and sets forth

Act requires financial institutions to establish anti-money laundering

programs, and sets forth

minimum standards, or “pillars” for these programs, including:

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May 2018 require banks to know the beneficial

owners of customers that are not natural persons, update customer information

in order to develop a customer risk profile,

owners of customers that are not natural persons, update customer information in order

to develop a customer risk profile,

and generally monitor such matters.

On August 13, 2020, the federal bank regulators issued a joint statement clarifying that

isolated or technical violations or

deficiencies are generally not considered the kinds of problems that

would result in an enforcement action.

On August 13, 2020, the federal bank regulators issued a joint statement clarifying that isolated

or technical violations or

deficiencies are generally not considered the kinds of problems that would

result in an enforcement action.

The statement

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range of potential regulatory amendments under the Bank Secrecy Act.

proposal seeks comment on incorporating an

seeks comment on incorporating an

“effective and reasonably designed” AML/BSA program component

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more effectively.

This component also would seek to implement a common understanding

between supervisory

This component also would seek to implement a common understanding between

supervisory agencies

and financial institutions regarding the necessary AML/BSA program elements,

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threshold from $3,000 to

$250 for international transactions and apply these to transactions using

convertible virtual currencies and digital assets

$250 for international transactions and apply these to transactions using convertible

virtual currencies and digital assets

with legal tender status.

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specifies uniform disclosure of beneficial ownership information for all U.S.

foreign entities conducting business

increases potential fines and penalties for BSA violations and improves

whistleblower incentives;

foreign entities conducting

business in the U.S.;

increases potential fines and penalties for BSA violations and improves whistleblower

codifies the risk-based approach to AML compliance;

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emphasizes coordination and information-sharing among financial institutions, U.S.

financial regulators and foreign

financial regulators.

financial regulators and

foreign financial regulators.

The Corporate Transparency Act (the”CTA”)

was adopted as Title LXIV of the William

(Mac) Thornberry National

Defense Authorization Act for Fiscal Year

FinCEN adopted a final regulation as 31 C.F.R.

101.380 on September

30, 2022, which is effective on January 1, 2024 to implement the CTA.

These regulations require entities to report

information about their beneficial owners and the individuals who created the entity (together,

beneficial ownership

information or BOI).

FinCEN explained that the proposed rule would help protect the U.S.

financial system from illicit

by making it more difficult for bad actors to conceal their financial activities

through entities with opaque ownership

FinCEN also explained that the proposed reporting obligations would provide

essential information to law

enforcement and others to help prevent corrupt actors, terrorists, and proliferators from hiding

money or other property in

the United States.”

The new rules expand financial institutions’ obligations under the Customer

Due Diligence Rule

(“CDD Rule”) to collect information and verify the beneficial ownership of legal entities.

The United States has imposed various sanctions upon various foreign countries,

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Banks are required to comply with these sanctions,

which require additional customer screening and transaction monitoring.

which require additional

customer screening and transaction monitoring.

Russia’s February 2022 invasion

of Ukraine has generated a significant number of new sanctions on Russia, Russian

persons and suppliers of military or dual-purpose products to Russia,

The Federal bank regulators have issued alerts that

Russia and others may step up cyber attacks and data intrusions following the invasion.

FinCen has issued four alerts on

potential Russian illicit financial activity since February 2022.

On January 25, 2023 FinCEN issued an alert to financial

institutions on potential investments in the U.S.

commercial real estate sector by sanctioned

Russian elites, oligarchs, their

family members, and the entities through which they act.

The alert listed

potential red flags and typologies involving

attempted sanctions evasion in the commercial real estate sector,

and reminds financial institutions of their Bank Secrecy

Act (BSA) reporting obligations.

1164, the OFAC

Outreach and Engagement Capabilities and Enhancement

Act, was introduced in Congress on

February 24, 2023.

It would set up a review of and improve OFAC

outreach and communications to assist financial

institutions to better understand and comply with OFAC

Other Laws and Regulations

The Company is also required to comply with various corporate governance and

financial reporting requirements under the

The Company is also required to comply with various corporate governance and financial

reporting requirements under the

Sarbanes-Oxley Act of 2002, as well as related rules and regulations adopted

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Oversight Board and Nasdaq.

In particular,

the Company is required to report annually on internal controls as part of its

In particular, the Company

is required to report annually on internal controls as part of its

annual report pursuant to Section 404 of the Sarbanes-Oxley Act.

The Company has evaluated its controls, including compliance

with the SEC rules on internal controls, and expects to

continue to spend significant amounts of time and money on compliance with these rules.

If the Company fails to comply

with these internal control rules in the future, it may materially adversely affect

its reputation, its ability to obtain the

necessary certifications to its financial statements, its relations

with its regulators and other financial institutions with which

it deals, and its ability to access the capital markets and offer

and sell Company securities on terms and conditions

with the SEC and FDIC rules on internal controls, and

expects to continue to spend significant amounts of time and money on compliance

with these rules.

If the Company fails to

comply with these internal control rules in the future, it may materially adversely

affect its reputation, its ability to obtain

the necessary certifications to its financial statements, its relations with its regulators

and other financial institutions with

which it deals, and its ability to access the capital markets and offer and sell Company

securities on terms and conditions

acceptable to the Company.

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included in this report with no material weaknesses reported.

Payment of Dividends and Repurchases of Capital

Payment of Dividends and Repurchases of Capital Instruments

The Company is a legal entity separate and distinct from the Bank.

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by a state member bank (such as

the Bank) in any calendar year will

exceed the sum of such bank’s

the Bank) in any calendar year will exceed the sum of such bank’s

net profits for the year and its retained net profits for the

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dividends of approximately $13.9 million without prior regulatory approval.

In addition, the Company and the Bank are subject to various general regulatory policies

and requirements relating to the

In addition, the Company and the Bank are subject to various general regulatory policies and

requirements relating to the

payment of dividends, including requirements to maintain capital above regulatory

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dividends that deplete a state

member bank’s capital base to an inadequate

level would be an unsafe and unsound banking practice.

Federal Reserve

has indicated that depository institutions and their holding companies should

generally pay dividends only out of current

member bank’s capital base to an inadequate level

would be an unsafe and unsound banking practice.

The Federal Reserve

has indicated that depository institutions and their holding companies should generally pay

dividends only out of current

year’s operating earnings.

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holding company is experiencing financial

redemptions and purchases of common or perpetual preferred stock

which would reduce such Tier 1 capital at

end of the period compared to the beginning of the period.

Bank holding company directors must consider different factors

to ensure that its dividend level is prudent relative to

redemptions and purchases of common or perpetual preferred stock which

would reduce such Tier 1 capital at end

of the period compared to the beginning of the period.

Bank holding company directors must consider different factors to

ensure that its dividend level is prudent relative to

maintaining a strong financial position, and is not based on overly optimistic earnings

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its prospective rate of earnings retention is not consistent with its capital needs and overall

prospective financial condition;

It will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy

current and prospective

financial condition;

It will not meet, or is in danger of not meeting, its minimum regulatory capital

adequacy ratios.

The Basel III Capital Rules further limit permissible dividends, stock repurchases and discretionary

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Company and the Bank, respectively,

unless the Company and the Bank meet capital conservation buffer

effective January 1, 2019.

unless the Company and the Bank meet the capital conservation buffer

See "Basel III Capital Rules."

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within its buffer

requirements, the maximum amount of capital distributions it can

make is based on its eligible retained income.

requirements, the maximum amount of capital distributions it can make is based

on its eligible retained income.

retained income equals the greater of:

net income for the four preceding calendar quarters, net of any distributions and associated

tax effects not

already reflected in net income;

tax effects not already

reflected in net income;

the average net income over the preceding four quarters.

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DTAs, MSAs and investments

unconsolidated were decreased to those amounts that individually exceed 25%

Institutions can elect to deduct investments in unconsolidated subsidiaries or subject

them to capital requirements;

unconsolidated subsidiaries were decreased to those amounts that individually exceed

Institutions can elect to deduct investments in unconsolidated subsidiaries or subject them

to capital requirements;

Minority interests would be includable up to 10% of (i) CET1 capital, (ii) Tier

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volatility commercial real estate,” or “HVCRE” changes in Section 214 of the 2018

The new rules define

HVCRE loans as loans secured by land or improved real property that:

finance or refinance the acquisition, development, or construction of real property;

Any HVCRE exposure

excludes loans made before January 1, 2015.

The rules define HVCRE loans as loans secured by land or improved real

property that:

primarily finance or refinance the acquisition, development, or construction of real property;

the purpose of such loans must be to acquire, develop, or improve such real property into

income producing

the repayment of the loan must depend on the future income or sales proceeds

from, or refinancing of, such real

the repayment of the loan must depend on the future income or sales proceeds from, or refinancing

of, such real

exclusions from HVCRE are specified.

Banking institutions and their holding companies are required to assign

150% risk weight to HVCRE loans.

Community Capital Rule

On October 29, 2019, the federal banking regulators adopted, effective January

1, 2020, an optional community banking

leverage ratio framework applicable to depository institutions and their

holding companies intended to reduce regulatory

burdens for qualifying community banking organizations that do

not use advanced approaches capital measures, and that

less than $10 billion of assets;

a leverage ratio greater than 9%;

off-balance sheet exposures of 25% or less of total consolidated

trading assets plus trading liabilities of less than 5% of total consolidated assets.

The leverage ratio would be Tier 1 capital

divided by average total consolidated assets, taking into account the capital

simplification discussed above and the CECL related capital transitions.

The community bank leverage ratio will be the sole capital measure, and electing institutions

will not have to calculate or

use any other capital measure.

It is estimated that 85% of depository institutions will be eligible to use this rule.

Company expects it would be eligible to make such election, if the Company determined

it desirable.

After preliminary

consideration, the Company believes that it would still need to calculate the regulatory

capital ratios, which investors would

find helpful in comparing the Company to others.

The Federal Reserve has risk-based capital guidelines for bank holding companies

and state member banks, respectively.

These guidelines required at year end 2019 a minimum ratio of capital to risk-weighted

assets (including certain off-balance

sheet activities, such as standby letters of credit) and capital conservation buffer

Tier 1 capital includes common

equity and related retained earnings and a limited amount of qualifying preferred

stock, less goodwill and certain core

deposit intangibles.

The full value of any borrower contributed land (net of any liens on the

land securing HVCRE exposure) count toward the 15% capital contribution to

the appraised as completed value, which is

one of the criteria for exemption form the heightened risk weight.

Banking institutions and their holding companies are

required to assign 150% risk weight to HVCRE loans.

The Federal Reserve has risk-based capital guidelines for bank holding companies and

state member banks, respectively.

These guidelines required, beginning December 31, 2019, a minimum ratio of capital to

risk-weighted assets (including

certain off-balance sheet activities, such as standby letters of credit)

and capital conservation buffer, totaling 10.5%.

capital includes common equity and related retained earnings and a limited amount

of qualifying preferred stock, less

goodwill and certain core deposit intangibles.

common equity must be the predominant form of capital.

Tier 2 capital consists of non–

qualifying preferred stock, qualifying subordinated, perpetual, and/or mandatory convertible

debt, term subordinated debt

and intermediate term preferred stock, up to 45% of pretax unrealized holding

gains on available for sale equity securities

with readily determinable market values that are prudently valued,

and a limited amount of general loan loss allowance.

capital consists of non–qualifying preferred stock, qualifying subordinated,

perpetual, and/or mandatory convertible debt,

term subordinated debt and intermediate term preferred stock, up to 45% of pretax unrealized

holding gains on available for

sale equity securities with readily determinable market values that are prudently

valued, and a limited amount of general

loan loss allowance.

Tier 1 and Tier

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The guidelines also provide that institutions experiencing internal

growth or making acquisitions will be expected to maintain strong capital positions

substantially above the minimum

growth or making acquisitions will be expected to maintain strong capital positions substantially

above the minimum

supervisory levels without significant reliance on intangible assets.

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their problem loans.

Federal Reserve’s guidelines indicate

that the Federal Reserve will continue to consider a “tangible Tier

1 leverage ratio”

(deducting all intangibles) in evaluating proposals for expansion or new activity.

The level of Tier 1 capital to risk-adjusted

assets is becoming more widely used by the bank regulators to measure capital adequacy.

The Federal Reserve has not

advised the Company or the Bank of any specific minimum leverage ratio or

tangible Tier 1 leverage ratio applicable to

Under Federal Reserve policies, bank holding companies are generally expected

to operate with capital positions well

above the minimum ratios.

The Federal Reserve believes the risk-based

ratios do not fully take into account the quality of

capital and interest rate, liquidity,

Lastly, the Federal Reserve’s

guidelines indicate that the Federal Reserve will continue to consider a “tangible

leverage ratio” (deducting all intangibles) in evaluating proposals for expansion or

new activities.

The level of Tier 1

capital to risk-adjusted assets is becoming more widely used by the bank regulators to

measure capital adequacy.

Federal Reserve has not advised the Company or the Bank of any specific minimum leverage

ratio or tangible Tier 1

leverage ratio applicable to them.

Under Federal Reserve policies, bank holding companies

are generally expected to

operate with capital positions well above the minimum ratios.

Reserve believes the risk-based ratios do not

fully take into account the quality of capital and interest rate, liquidity,

market and operational risks.

supervisory assessments of capital adequacy

may differ significantly from conclusions based solely on the

level of an organization’s risk

-based capital ratio.

The Federal Deposit Insurance Corporation Improvement Act of 1991

(“FDICIA”), among other things, requires the federal

banking agencies to take “prompt corrective action” regarding depository

institutions that do not meet minimum capital

supervisory assessments of capital adequacy may differ significantly

from conclusions based solely on the level of an

organization’s risk-based

capital ratio.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among

other things, requires the federal

banking agencies to take “prompt corrective action” regarding depository institutions that

do not meet minimum capital

requirements.

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“significantly undercapitalized” and “critically undercapitalized.”

A depository institution’s capital tier

will depend upon

how its capital levels compare to various relevant capital measures and certain

other factors, as established by regulation.

A depository institution’s capital tier will depend upon

how its capital levels compare to various relevant capital measures and certain other

factors, as established by regulation.

“Prompt Corrective Action Rules.”

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These new U.S.

capital rules are called the “Basel III Capital Rules,” and generally

capital rules are called the “Basel III Capital Rules,” and

were fully phased-in on January 1, 2019.

The Basel III Capital Rules limit Tier 1 capital

to common stock and noncumulative perpetual preferred stock, as well as

The Basel III Capital Rules limit Tier 1 capital to

common stock and noncumulative perpetual preferred stock, as well as

certain qualifying trust preferred securities and cumulative perpetual preferred

stock issued before May 19, 2010, each of

which were grandfathered in Tier 1 capital

for bank holding companies with less than $15 billion in assets.

which were grandfathered in Tier 1 capital for bank holding

companies with less than $15 billion in assets.

had no qualifying trust preferred securities or cumulative preferred stock outstanding at December

The Basel III

Capital Rules also introduced a new capital measure, “Common Equity Tier

I Capital” or “CET1.”

CET1 includes common

stock and related surplus, retained earnings and, subject to certain adjustments,

minority common equity interests in

subsidiaries.

31, 2021 or 2022.

Basel III Capital Rules also introduced a new capital measure, “Common Equity

Tier I Capital” or “CET1.”

CET1 includes

common stock and related surplus, retained earnings and, subject to certain adjustments,

minority common equity interests

in subsidiaries.

CET1 is reduced by deductions for:

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Defined benefit pension fund net assets (i.e., excess plan assets), net of associated DTLs.

The Company made a one-time election in 2015 and, as a result, CET1

will not be adjusted for certain accumulated other

comprehensive income (“AOCI”).

Additional “threshold deductions” of the following that are individually

greater than 10% of CET1 or collectively greater

The Company made a one-time election in 2015 and, as a result, the Company’s

CET1 is not adjusted for certain

accumulated other comprehensive income (“AOCI”).

Additional “threshold deductions” of the following that are individually greater

than 10% of CET1 or collectively greater

than 15% of CET1 (after the above deductions are also made):

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As discussed below, recent regulations

change these items to simplify and improve their capital treatment.

change these items to simplify and improve their capital treatment for regulatory

capital purposes.

Noncumulative perpetual preferred stock and Tier

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Full compliance with the capital conservation buffer was required

by January 1, 2019.

At such time, permissible dividends,

stock repurchases and discretionary bonuses will be limited to the following percentages

based on the capital conservation

buffer as calculated above, subject to any further regulatory

limitations, including those based on risk assessments and

enforcement actions:

beginning January 1, 2019.

Thereafter, permissible

dividends, stock repurchases and discretionary bonuses will be limited to the following

percentages based on the capital

conservation buffer as calculated above, subject to any further regulatory limitations,

including those based on risk

assessments and enforcement actions:

Buffer % Limit

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> 0.625% - 1.250%

Effective March 20, 2020, the Federal Reserve and the other

federal banking regulators adopted an interim final rule that

amended the capital conservation buffer in light of the disruptive

effects of the COVID-19 pandemic.

The interim final rule

was adopted as a final rule on August 26, 2020.

The new rule revises the definition of

“eligible retained income” for

purposes of the maximum payout ratio to allow banking organizations

to more freely use their capital buffers to promote

lending and other financial intermediation activities, by making the limitations on

capital distributions more gradual.

eligible retained income is now the greater of (i) net income for the four preceding quarters,

net of distributions and

associated tax effects not reflected in net income;

and (ii) the average

of all net income over the preceding four quarters.

The interim final rule only affects the capital buffers, and banking

organizations were encouraged to make prudent capital

distribution decisions.

On March 20, 2020, the Federal Reserve and the other federal banking regulators adopted

an interim final rule that

amended the capital conservation buffer in light of the disruptive effects

of the COVID-19 pandemic.

This clarifying rule

revises the definition of “eligible retained income” for purposes of the maximum payout

ratio to allow banking

organizations to more freely use their capital buffers to promote

lending and other financial intermediation activities, by

making the limitations on capital distributions more gradual.

eligible retained income, as used in the Federal Reserve’s

Regulation Q capital rule, as corrected on January 13, 2021, is the greater of (i) net income

for the four preceding quarters,

net of distributions and associated tax effects not reflected in net income;

the average of all net income over the

preceding four quarters.

Banking organizations were encouraged to

make prudent capital distribution decisions.

The various capital elements and total capital under the Basel III Capital Rules, as fully phased

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to MSRs, DTAs that

realized through net operating loss carry-backs and significant (greater

than 10%) investments in other financial

institutions.

A 150% risk-weighted category applies to “high volatility commercial real estate

loans,” or “HVCRE,” which

are credit facilities for the acquisition, construction or development of real property,

excluding one-to-four family

residential properties or commercial real estate projects where:

(i) the loan-to-value ratio

is not in excess of interagency real

estate lending standards;

and (ii) the borrower has contributed capital

equal to not less than 15% of the real estate’s

realized through net operating loss carrybacks and significant (greater than 10%)

investments in other financial institutions.

A 150% risk-weighted category applies to “high volatility commercial real estate loans,”

or “HVCRE,” which are credit

facilities for the acquisition, construction or development of real

property, excluding one-to-four family residential

properties or commercial real estate projects where:

(i) the loan-to-value ratio is

not in excess of interagency real estate

lending standards;

and (ii) the borrower has contributed capital equal to not less than

15% of the real estate’s “as

completed” value before the loan was made.

The Basel III Capital Rules also changed some of the risk weightings used to determine

risk-weighted capital adequacy.

The Basel III Capital Rules also changed some of the risk weightings used to determine risk-weighted

capital adequacy.

Among other things, the Basel III Capital Rules:

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Increased the risk weight for exposures to qualifying securities firms from 20% to 100%.

HVCRE loans currently have a risk weight of 150%.

Section 214 of the 2018

Growth Act, restricts the federal bank

regulators from applying this risk weight except to certain ADC loans.

bank regulators issued a notice of a

proposed rule on September 18, 2018 to implement Section 214

of the 2018 Growth Act, by revising the definition

If this proposal is adopted, it is expected that this proposal could

reduce the Company’s risk weighted assets

thereby may increase the Company’s

risk-weighted capital.

In December 2019 the federal bank regulators revised their definition of HVCRE and related

capital requirements

consistent with Section 214 of the 2018 Growth Act.

The Financial Accounting Standards Board’s

(the “FASB”) Accounting Standards

Update (“ASU”) No.

(“FASB”) Accounting

Standards Update (“ASU”) No.

2016-13 “Financial

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in place of the incurred loss method.

The Federal Reserve and the other federal banking agencies adopted

rules effective on April 1, 2019 that allows banking

The Federal Reserve and the other federal banking agencies adopted rules effective

on April 1, 2019 that allows banking

organizations to phase in the regulatory capital effect of a reduction

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three-year period.

On May 8, 2020, the agencies issued a statement describing the measurement of expected

credit losses

On May 8, 2020, the agencies issued a statement describing the measurement of expected credit

using the CECL methodology,

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remain applicable.

CECL is effective for the Company beginning January 1, 2023

and has not been adopted early.

effects upon the

Company have not yet been determined.

CECL became effective for the Company beginning January 1,

The Company is currently finalizing controls, processes, policies and disclosures and

has completed full end-to-end parallel

Based on the Company’s portfolio composition

as of December 31, 2022, and current expectations of future

economic conditions, the reserve for credit losses is expected to increase from 1.14%

as a percentage of total loans at

December 31, 2022 to a range between 1.32% and 1.36% of total loans.

These effects result from changing from the

incurred loss model to CECL’s

expected loss model, which provides for expected credit losses over the life of the loan

The Company does not expect to record an allowance for available-for-sale

securities as the investment portfolio

consists primarily of debt securities explicitly or implicitly backed by the U.S.

for which credit risk is deemed

ASU 2016-13 is not expected to have a material impact on the allowance for unfunded

estimates described herein regarding CECL’s

effects are subject to change as key assumptions are refined.

These effects in

2023 and later will depend on the future composition, characteristics, and credit

quality of the loan and securities portfolios

as well as the economic conditions at future reporting periods that are included in our

Federal Reserve Capital Review

The Federal Reserve’s Vice

Chair for Supervision is considering a holistic review of regulatory capital requirements,

are expected to focus on banking organizations larger

than the Company.

Recently a Federal Reserve.

Prompt Corrective Action Rules

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greater, a Common equity tier 1 capital ratio

of 6.5% or greater, a leverage capital ratio of 5% or

greater and is not

of 6.5% or greater, a leverage capital ratio of 5% or greater

subject to any written agreement, order,

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“adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater,

a Tier 1 risk-based capital ratio of

6% or greater, a Common Equity Tier

1 capital ratio of 4.5% or greater, and generally has a leverage capital

of 4% or greater;

a Tier 1 risk-based capital ratio

of 6.0% or greater, a Common Equity Tier

1 capital ratio of 4.5% or greater, and generally has a leverage

ratio of 4.0% or greater;

“undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier

1 risk-based capital ratio of less

than 6%, a Common Equity Tier 1 capital ratio of less than 4.5%

or generally has a leverage capital ratio of less

“significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%, a

Tier 1 risk-based capital

ratio of less than 4%, a Common Equity Tier 1 capital ratio

of less than 3%, or a leverage capital ratio of less than

than 6.0%, a Common Equity Tier 1 capital

ratio of less than 4.5% or generally has a leverage capital ratio of less

“significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier

capital ratio of less than 6.0%, a Common Equity Tier 1

capital ratio of less than 3%, or a leverage capital ratio of

less than 3.0%;

“critically undercapitalized” if its tangible equity is equal to or less than 2.0% to total assets.

The federal bank regulatory agencies have authority to require additional capital

and have indicated that higher capital

levels may be required in light of market conditions and risk.

where they determine it is necessary,

including where a bank is unsafe or unsound condition or where the bank is determined

to have less than a satisfactory

rating on any of its CAMELS ratings.

The regulators have confirmed that higher capital levels

may be required in light of

market conditions and risk.

Depository institutions that are “adequately capitalized” for bank regulatory purposes

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including paying

dividends) or paying any management fee to its holding company,

dividends or any management fee to its holding company,

if the depository institution thereafter would be

“undercapitalized”.

Institutions that are “undercapitalized” are subject to growth limitations and are

required to submit a

Institutions that are “undercapitalized” are subject to growth limitations and are required

capital restoration plan for approval.

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the holding company’s capital

restoration obligation would be entitled to a priority in such bankruptcy proceeding

over third party creditors of the bank

restoration obligation would be entitled to a priority in such bankruptcy proceeding over

third-party creditors of the bank

holding company.

Significantly undercapitalized

depository institutions may be subject to a number of requirements and restrictions,

including orders to sell sufficient voting stock to become “adequately

capitalized”, requirements to reduce total assets, and

Significantly undercapitalized depository institutions may be subject

to a number of requirements and restrictions,

including orders to sell sufficient voting stock to become “adequately capitalized”,

requirements to reduce total assets, and

cessation of receipt of deposits from correspondent banks.

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Because the Company and the Bank exceed applicable capital requirements,

Company and Bank management do not believe that the provisions

of FDICIA have had or are expected to have any

material effect on the Company and the Bank or their respective operations.

Company and Bank management do not believe that the prompt corrective action provisions

of FDICIA have had or are

expected to have any material effect on the Company and the Bank or

their respective operations.

Community Bank Leverage Ratio Framework

Section 201 of the 2018 Growth Act provides that banks and bank holding companies

with consolidated assets of less than

$10 billion that meet a “community bank leverage ratio,” established by the federal

bank regulators between 8% and 10%,

are deemed to satisfy applicable risk-based capital requirements necessary to

be considered “well capitalized.” The federal

banking agencies have the discretion to determine that an institution does not qualify

for such treatment due to its risk

An institution’s risk profile

may be assessed by its off-balance sheet exposure, trading of assets and liabilities,

notional derivatives’ exposure, and other methods.

The federal bank regulators implemented a CARES Act provision by replacing

interim final rules adopted in March 2020,

temporarily reducing the community bank leverage ratio threshold.

The threshold is 8% through

the end of 2020, 8.5% for

2021, and 9% beginning January 1, 2022.

quarter grace periods are allowed to permit banks that temporarily fall

below these thresholds to remain well-capitalized for regulatory purposes.

$10 billion that meet a “community bank leverage ratio,” established by the federal bank

regulators as part of the

community bank leverage ratio framework (“CBLR”).

The federal banking agencies have the discretion to determine that

an institution does not qualify for such treatment due to its risk profile.

An institution’s

risk profile may be assessed by

its off-balance sheet exposure, trading of assets and liabilities, notional derivatives’

exposure, and other methods.

The CBLR framework which became effective January 1,

2020, allows qualifying CBOs to adopt a simple leverage ratio to

measure capital adequacy.

The CBLR may be elected by depository institutions and their holding companies

intended to reduce regulatory burdens for qualifying community banking organizations

that do not use advanced

approaches capital measures, and otherwise qualify.

Eligible institutions

less than $10 billion of assets;

a leverage ratio greater than 9%;

off-balance sheet exposures of 25% or less of total consolidated assets;

trading assets plus trading liabilities of less than 5% of total consolidated assets.

The CBLR leverage ratio is Tier 1 capital divided

by average total consolidated asset for the latest quarter, taking into

account the capital simplification discussed above and the CECL related capital transitions.

A CBLR banking organization with a ratio above the requirement

will not be subject to other capital and leverage

requirements.

If elected by a banking organization, The CBLR leverage ratio

will be the sole capital measure, and electing

institutions will not have to calculate or use any other capital measure for regulatory purposes.

The Company has not

adopted the CBLR, although it believes it is eligible to make such election.

Management believes that current risk-based

capital measures are useful and reflect the risks of the Company’s

earning assets in a manner most comparable to other

banking organizations and which may be useful to investors.

It may consider the CBLR in the future.

FDICIA directs that each federal bank regulatory agency prescribe standards for depository

institutions and depository

institution holding companies relating to internal controls, information systems,

internal audit systems, loan documentation,

credit underwriting, interest rate exposure, asset growth composition,

a maximum ratio of classified assets to capital,

institution holding companies relating to internal controls, information systems, internal

audit systems, loan documentation,

credit underwriting, interest rate exposure, asset growth composition, a

maximum ratio of classified assets to capital,

minimum earnings sufficient to absorb losses, a minimum ratio

of market value to book value for publicly traded shares,

safety and soundness, and such other standards as the federal bank regulatory agencies

deem appropriate.

safety and soundness, and such other standards as the federal bank regulatory agencies deem

Enforcement Policies and Actions

The Federal Reserve and the Alabama Superintendent monitor compliance

The Federal Reserve and the Alabama Superintendent examine and regulate our compliance

with laws and regulations,

The CFPB monitors

compliance with laws and regulations applicable to consumer financial products

and services.

Violations of laws and

regulations, or other unsafe and unsound practices, may result in these agencies imposing

fines, penalties and/or restitution,

cease and desist orders, or taking other formal or informal enforcement actions.

Under certain circumstances, these

agencies may enforce these remedies directly against officers,

directors, employees and others participating in the affairs

a bank or bank holding company, in the

form of fines, penalties, or the recovery,

or claw-back, of compensation.

federal prudential banking regulators have been bringing more

enforcement actions recently.

Fiscal and Monetary Policy

including the CFPB’s regulations.

The CFPB issues regulations, interpretations and enforcement actions under

applicable to consumer financial products and services.

Violations of laws and regulations,

including those administered by

the CFPB, or other unsafe and unsound practices, may result in the Federal Reserve and the

Alabama Superintendent

imposing fines, penalties and/or restitution, cease and desist orders,

or taking other formal or informal enforcement actions.

Under certain circumstances, these agencies may enforce these remedies directly against

officers, directors, employees and

others participating in the affairs of a bank or bank holding company,

in the form of fines, penalties, or the recovery,

claw-back, of compensation.

Fiscal and Monetary Policies

Banking is a business that depends on interest rate differentials.

In general, the difference between the interest paid by a

bank on its deposits and its other borrowings, and the interest received by a bank on its loans and

securities holdings,

bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities

constitutes the major portion of a bank’s earnings.

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The Federal Reserve regulates the supply of money through various

means, including open market dealings in United States government securities,

the setting of discount rate at which banks

means, including open market dealings in United States government securities, the setting

of discount rate at which banks

may borrow from the Federal Reserve, and the reserve requirements on deposits.

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implement a mandatory policy to reduce excess liquidity,

event of inflation or the threat of inflation.

In April 2010, the Federal Reserve Board amended Regulation D (Reserve

Requirements of Depository Institutions)

in the event of inflation or the threat of inflation.

In April 2010, the Federal Reserve Board amended Regulation D (Reserve Requirements

of Depository Institutions)

authorizing the Reserve Banks to offer term deposits to certain institutions.

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one of several tools that

the Federal Reserve could employ to drain reserves when policymakers judge that

it is appropriate to begin moving to a less

the Federal Reserve could employ to drain reserves when policymakers judge that it is appropriate

to begin moving to a less

accommodative stance of monetary policy.

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Q to permit banks to pay interest on demand deposits.

On March 3, 2020, the Federal Reserve reduced the Federal Funds rate target by 50

basis points to 1.00-1.25%.

Reserve further reduced the Federal Funds Rate target by an additional

100 basis points to 0-0.25% on March 16, 2020.

Federal Reserve established various liquidity facilities pursuant to section 13(3)

of the Federal Reserve Act to help stabilize

the financial system.

As a result of inflation, the decline in serious COVID-19 cases, and the strengthening of

following the March 2020 outbreak of the COVID-19 pandemic, the Federal

Reserve is considering increasing the discount

rate and reducing its holdings of securities.

In light of disruptions in economic conditions caused by the outbreak of COVID-19 and the

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financial markets,

the Federal Reserve, Congress and the Department of the Treasury

took a host of fiscal and monetary measures to minimize

the Federal Reserve, Congress and the Department of the Treasury took

a host of fiscal and monetary measures to minimize

the economic effect of COVID-19.

The CARES Act provided a $2 trillion stimulus package and various

measures to provide relief from the COVID-19

On March 3, 2020,

the Federal Reserve reduced the Federal Funds rate target by 50

basis points to 1.00-1.25%.

The Federal Reserve further reduced the Federal Funds Rate target

by an additional 100 basis

points to 0-0.25% on March 16, 2020.

The Federal Reserve established various liquidity

facilities pursuant to section 13(3)

of the Federal Reserve Act to help stabilize the financial system and purchased large

amounts of government and

mortgaged backed securities.

The CARES Act provided a $2 trillion stimulus package and various measures to

provide relief from the COVID-19

pandemic, including:

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Act”) was signed into law.

Economic Aid Act provides a second $900 billion stimulus package, including

in additional PPP loans, changed the eligibility rules to focus more on smaller business,

further enhances other Small

Economic Aid Act provided a second $900 billion stimulus package, including

in additional PPP loans, changed the eligibility rules to focus more on smaller business, further

enhances other Small

Business Association programs.

The nature and timing of any changes in monetary policies and their effect

on the Company and the Bank cannot be

The turnover of a majority of the Federal Reserve Board and

the members of its FOMC and the appointment of a

new Federal Reserve Chairman may result in changes in policy and the timing and amount

of monetary policy

normalization.

During early 2022, the Federal Reserve described inflation as “transitory,”

but as inflation continued at increasing rates the

Federal Reserve’s policy changed.

The Federal Reserve increased the target federal funds range by 25

basis points on

March 17, 2022, the first change since March 2020 when the target

was set to 0-0.25%.

Further increases were made:

basis points on May 5, 75 basis points on each of June 16, July 28, September 22, and November

22, and 50 basis points on

December 15, 2022.

The target rate was increased 25 basis points on February 2, 2023,

and further increases in the target

federal funds rate appear likely if inflation remains elevated.

The target fed funds ranges was 4.50-4.75% on March 17,

The Federal Reserve’s securities holdings in

its System Open Market Account (“SOMA”) increased from $4.1

December 30, 2019 to $9.0 trillion at April 11, 2021,

largely as a result of securities purchases as the Federal Reserve

injected liquidity as a result of the COVID-19 pandemic.

On May 4, 2022, the Federal Reserve announced its plan to

reduce its securities holdings in an effort to reduce inflation:

Reinvestments of principal of maturing Treasury securities

would be reduced by $30 billion per month for three

months and thereafter would be $80 billion per month.

Reinvestments of principal of maturing agency debt and mortgage-backed securities

would be reduced by $17.5

billion per month for three months and thereafter would be $35 billion per month.

These declines would slow and then stop when the Federal Reserve’s

balance sheet was somewhat above the

balance it deemed ample.

The Federal Reserve’s SOMA

was $8.4 trillion on February 13, 2023.

The Federal Reserve seeks to target longer term inflation of 2% based

on annual changes in the personal consumption

expenditures.

The Federal Reserve stated on February 1, 2023 that its Federal Open Market Committee is highly attentive

to inflation risks and the war in Ukraine is contributing to elevated global uncertainty.

Inflation remained above that rate

through February 2023.

The Chairman of the Federal Reserve’s testimony

to the Senate Banking Committee on March 7,

2023 that inflation remains well above the target, gross domestic product

in 2022 was 0.9%, below the trend.

have adversely affected the housing sector and combined with slower output

growth, “appear to be weighing on business

fixed investment.”

The labor market is “extremely tight.”

The Chairman concluded:

“We continue to anticipate

that ongoing increases in the target range for the federal funds rate

will be appropriate in order

to attain a stance of monetary policy that is sufficiently restrictive to return inflation

to 2% over time.

In addition, we are

continuing the process of significantly reducing the size of our balance sheet.

Although inflation has been moderating in

recent months, the process of getting inflation back down to 2% has a long

way to go and is likely to be bumpy.

mentioned, the latest economic data have come in stronger than expected,

which suggests that the ultimate level of interest

rates is likely to be higher than previously anticipated.

If the totality of the data

were to indicate that faster tightening is

warranted, we would be prepared to increase the pace of rate hikes.

Restoring price

stability will likely require that we

maintain a restrictive stance of monetary policy for some time.”

The nature and timing of these ongoing changes in monetary policies and their effects

on the Company and the Bank cannot

be predicted.

On March 12, 2023, as a result of unrealized securities losses resulting from increased

market rates, liquidity issues at two

banks with over $100 billion of assets each being closed on March 10 and 12, 2023,

the Federal Reserve established a new

Bank Term Funding Program

The BTFP offers loans of up to one year to banks, savings associations,

unions, and other eligible depository institutions pledging U.S.

agency debt and mortgage-backed securities,

and other qualifying assets as collateral.

These assets will be valued at par.

The BTFP will be an additional source of

liquidity against high-quality securities, eliminating an institution's need

to quickly sell those securities in times of stress.

Further, the Federal Reserve on March 12, 2023 stated

that depository institutions also may obtain liquidity against a wide

range of collateral through the Federal Reserve’s

discount window,

which remains open and available.

In addition, the

discount window will apply the same margins used for the securities

eligible for the BTFP,

further increasing lendable

value at the window.

FDIC Insurance Assessments

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and the Bank is subject to FDIC assessments for its deposit insurance.

Assessments by the FDIC to pay interest on Financing Corporation (“FICO”)

bonds ended in September 2019.

Since 2011, and as discussed above under “Recent Regulatory

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based on an institution’s average consolidated

total assets less its average tangible equity (the

“FDIC Assessment Base”) in

total assets less its average tangible equity (the “FDIC Assessment Base”) in

accordance with changes mandated by the Dodd-Frank Act.

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and now uses “financial

ratios method” based on CAMELS composite ratings to determine assessment

rates for small established institutions with

ratios method” based on CAMELS composite ratings to determine assessment rates

for small established institutions with

less than $10 billion in assets (“Small Banks”).

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All basis points are annual amounts.

The following table shows the FDIC assessment schedule for 2020

applicable to Small Banks, such as the Bank.

The following table shows the FDIC assessment schedule for Small Banks, such as the

Bank, for the first assessment period

of 2023 to be billed in June 2023:

Established Small Institution

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Unsecured Debt Adjustment.

Cannot exceed the lesser of 5

basis points or 50% of the

bank’s initial FDIC

assessment rate

-5 to 0 basis points

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-5 to 0 basis points

Brokered Deposit

Total Base Assessment

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11 to 30 basis points

These assessments are then adjusted based on the bank’s

CAMELS rating.

For example, Small Banks, with CAMELS

ratings of 1 or 2, have a current total assessment of 2.5 to 15 basis points for the period to

be billed in June 2023.

On March 15, 2016 the FDIC implemented Dodd-Frank Act provisions by raising the DIF’s

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1.15% to 1.35%.

The FDIC imposed a 4.5 basis point annual surcharge on insured depository

institutions with total

The FDIC imposed a 4.5 basis point annual surcharge on insured depository institutions

consolidated assets of $10 billion or more (“Large Banks”).

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As a result, deposit

insurance surcharges on Large Banks ceased, and smaller

banks will receive credits against their deposit assessments from

the FDIC for their portion of assessments that contributed to the growth in the reserve ratio

insurance surcharges on Large Banks ceased, and smaller banks

received credits against their deposit assessments from the

FDIC for their portion of assessments that contributed to the growth in the reserve ratio

from 1.15% to 1.35%.

Bank’s credit was $0.2 million, and

was received and applied against the Bank’s deposit

insurance assessments during 2019

Given the extraordinary growth in deposits in the first six months of 2020 due

to the pandemic and government

stimulus, the reserve ratio declined below 1.35% to 1.30%.

The FDIC issued a restoration

plan on September 15, 2020

credit was $0.2 million, and was received and applied against the Bank’s

deposit insurance assessments during 2019 and

Because of the extraordinary growth in deposits in the first six months of 2020 due to the pandemic and

stimulus, the DIF’s reserve ratio declined

below 1.35% to 1.30%.

The FDIC issued a restoration plan on September 15,

2020 designed to restore the reserve ratio to at least the statutory minimum of 1.35%

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Although the FDIC

maintained current assessment rates, the FDIC may increase deposit assessment rates

by up to two basis points without

notice, or more following notice and a comment period, to meet the required reserve

maintained current assessment rates, the FDIC may increase deposit assessment rates by

up to two basis points without

notice, or more following notice and a comment period, to meet the required reserve ratio.

On June 22, 2020, the FDIC issued a final rule designed to mitigate the deposit insurance

assessment effect of the PPP and

the related liquidity programs established by the Federal Reserve.

the rule removes the effects of participating

in PPP and liquidity facilities from the various risk measures used to calculate

assessment rates and provides an offset to

assessments for the increase in assessment base rates attributed to participation

in the PPP and liquidity facilities.

Prior to June 30, 2016, when the new assessment system became effective,

the Bank’s overall rate for assessment

calculations was 9 basis points or less, which was within the range of assessment

rates for the lowest “risk category” under

the former FDIC assessment rules.

The Company recorded FDIC insurance premiums expenses of $0.3

and $0.1 million in

2021 and 2020, respectively.

the related liquidity programs (the “PPPLF”) established by the Federal Reserve.

Specifically, the rule

removes the effects

of participating in PPP and liquidity facilities from the various risk measures used

to calculate assessment rates and

provides an offset to assessments for the increase in assessment base rates attributed

to participation in the PPP and

liquidity facilities.

This had a limited effect on the Bank since it had only one PPP

loan of approximately $0.1 million

outstanding on December 31, 2022, and because the Bank never participated in the PPPLF.

The Company recorded FDIC insurance premiums expenses of $0.3 million in both 2022

Lending Practices

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on “Concentrations in Commercial Real Estate Lending”

(the “Guidance”).

The Guidance defines CRE loans as exposures secured by raw land, land development

and construction

(including 1-4 family residential construction), multi-family property,

and non-farm nonresidential property where the

primary or a significant source of repayment is derived from rental income associated

with the property (that is, loans for

which 50% or more of the source of repayment comes from third party,

non-affiliated, rental income) or the proceeds of the

sale, refinancing, or permanent financing of this property.

Loans to REITs and unsecured

loans to developers that closely

correlate to the inherent risks in CRE markets would also be considered

CRE loans under the Guidance.

Loans on owner

occupied CRE are generally excluded.

In December 2015, the Federal Reserve and other bank regulators issued an

interagency statement to highlight prudent risk management practices

from existing guidance that regulated financial

institutions and made recommendations regarding maintaining capital levels

commensurate with the level and nature of

their CRE concentration risk.

The Guidance requires that appropriate processes be in place to identify,

monitor and control risks associated with real

estate lending concentrations.

This could include enhanced strategic planning, CRE underwriting policies, risk

management, internal controls, portfolio stress testing and risk exposure limits as

well as appropriately designed

compensation and incentive programs.

(the “CRE Guidance”).

The CRE Guidance defines CRE loans as exposures secured by raw land,

land development and

construction (including 1-4 family residential construction), multi-family property,

and non-farm nonresidential property

where the primary or a significant source of repayment is derived from rental income associated

with the property (that is,

loans for which 50% or more of the source of repayment comes from third party,

non-affiliated, rental income) or the

proceeds of the sale, refinancing, or permanent financing of this property.

Loans to REITs and

unsecured loans to

developers that closely correlate to the inherent risks in CRE markets would also be

considered CRE loans under the CRE

Loans on owner occupied CRE are generally excluded.

In December 2015, the Federal Reserve and other bank

regulators issued an interagency statement to highlight prudent risk management practices

from existing guidance that

regulated financial institutions and made recommendations regarding

maintaining capital levels commensurate with the

level and nature of their CRE concentration risk.

The CRE Guidance requires that banks have appropriate processes be in place to identify,

monitor and control risks

associated with real estate lending concentrations.

This could include enhanced strategic planning, CRE underwriting

policies, risk management, internal controls, portfolio stress testing and risk exposure

limits as well as appropriately

designed compensation and incentive programs.

Higher allowances for loan losses and capital levels may also be required.

Guidance is triggered when either:

The CRE Guidance is triggered when either:

Total reported

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Total reported

loans secured by multifamily and nonfarm nonresidential properties and

loans for construction, land

loans secured by multifamily and nonfarm nonresidential properties and loans

for construction, land

development, and other land are 300% or more of a bank’s

total risk-based capital.

This Guidance was supplemented by the Interagency Statement on Prudent

Risk Management for Commercial Real Estate

Lending (December 18, 2015).

The Guidance also applies when a bank has a sharp increase in CRE loans or

has significant

concentrations of CRE secured by a particular property type.

The Guidance did not apply to the Bank’s

This CRE Guidance was supplemented by the Interagency Statement on Prudent Risk

Management for Commercial Real

Estate Lending (December 18, 2015).

The CRE Guidance also applies when a bank has a sharp increase in CRE loans or

has significant concentrations of CRE secured by a particular property type.

The CRE Guidance did not apply to the Bank’s

CRE lending activities during 2021 or 2022.

At December 31, 2021, the Bank

had outstanding $32.4 million in construction and land development loans and $229.8

million in total CRE loans (excluding

owner occupied), which represent approximately 30.8% and 218.5%,

At December 31, 2022, the

Bank had outstanding $66.5 million in construction and land development loans and

$203.9 million in total CRE loans

(excluding owner occupied), which represent approximately 58.9% and 182.3%,

respectively, of the Bank’s

total risk-based capital at

December 31, 2021.

The Company has always had significant exposures to loans secured

by commercial real estate due to

the nature of its markets and the loan needs of both its retail and commercial customers.

The Company believes its long

term experience in CRE lending, underwriting policies, internal controls, and other policies

currently in place, as well as its

loan and credit monitoring and administration procedures, are generally appropriate

to manage its concentrations as

required under the Guidance.

total risk-based

capital at December 31, 2022.

The Company has always had significant exposures to loans secured by commercial

estate due to the nature of its markets and the loan needs of both its retail and commercial

believes its long-term experience in CRE lending, underwriting policies,

internal controls, and other policies currently in

place, as well as its loan and credit monitoring and administration procedures, are

generally appropriate to manage its

concentrations as required under the Guidance.

The Federal Reserve joined the other depository institution regulators in issuing a Proposed

Policy Statement on Prudent

Commercial Real Estate Loan Accommodations and Workouts

on September 15, 2022.

The proposed statement would

build on existing guidance on the need for financial institutions to

work prudently and constructively with creditworthy

borrowers during times of financial stress, update existing interagency guidance on commercial

real estate loan workouts,

and adds a new section on short-term loan accommodations.

statement would also address recent accounting

changes on estimating loan losses and provide updated examples of how to classify and account

for loans subject to loan

accommodations or loan workout activity.

The proposed statement reaffirms two key principles from the 2009

(1) financial institutions that implement prudent CRE loan accommodation and

workout arrangements after performing a

comprehensive review of a borrower's financial condition will not be subject to

criticism for engaging in these efforts, even

if these arrangements result in modified loans that have weaknesses that result in adverse

credit classification;

modified loans to borrowers who have the ability to repay their debts according to reasonable

terms will not be subject to

adverse classification solely because the value of the underlying collateral has declined to

an amount that is less than the

loan balance.

This proposal had not been adopted as of March 1, 2023.

Leveraged Lending

In 2013, the Federal Reserve and other banking regulators issued their “Interagency Guidance

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to identify their highly leveraged transactions, or HLTs.

The Government Accountability Office issued a statement

The Government Accountability Office issued a statement on

October 23, 2017 that this guidance constituted a “rule” for purposes of the Congressional

Review Act, which provides

Congress with the right to review the guidance and issue a joint resolution for

signature by the President disapproving it.

Congress with the right to review the guidance and issue a joint resolution for signature

by the President disapproving it.

No such action was taken, and instead, the federal bank regulators issued a September

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Role of Supervisory Guidance.”

This Statement indicated that guidance does not have the force or effect

of law or provide

This Statement indicated that guidance does not have the force or effect of law or

the basis for enforcement actions, but this guidance can outline supervisory agencies’

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shared national credits.

The Bank did not have any

loans at year-end 2021 or 2020 that were leveraged loans

subject to the Interagency Guidance

The Bank did not have any loans at year-end 2022 or 2021

that were leveraged loans subject to the Interagency Guidance

on Leveraged Lending or that were shared national credits.

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Dodd-Frank Act we believe may affect us are set forth below.

Executive Compensation

Executive Compensation, etc.

The Dodd-Frank Act provides shareholders of all public companies with a say on executive

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The Dodd-Frank Act also adds disclosure and voting

requirements for golden parachute compensation that is payable to

named executive officers in connection with sale

requirements for golden parachute compensation that is payable to named executive

officers in connection with sale

transactions.

The SEC is required under the Dodd-Frank Act to issue rules obligating companies to disclose

in proxy materials for annual

shareholders meetings, information that shows the relationship between executive

compensation actually paid to their

named executive officers and their financial performance,

taking into account any change in the value of the shares of a

The SEC is required under the Dodd-Frank Act to issue rules obligating companies to disclose in proxy

materials for annual

shareholders meetings, information that shows the relationship between executive compensation

actually paid to their

named executive officers and their financial performance, taking into

account any change in the value of the shares of a

company’s stock and dividends or

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with a financial reporting

requirement under the federal securities laws, the company will recover

from any current or former executive officer any

incentive-based compensation (including stock options) received

during the three year period preceding the date of the

restatement, which is in excess of what would have been paid based

on the restated financial statements.

requirement under the federal securities laws, the company will recover from any current

or former executive officer any

incentive-based compensation (including stock options) received during

the three year period preceding the date of the

restatement, which is in excess of what would have been paid based on the restated

financial statements.

requirement of wrongdoing by the executive, and the claw-back is

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to misconduct.

Unlike section 304, under which only the SEC may seek recoupment, the Dodd

-Frank Act requires the

Unlike section 304, under which only the SEC may seek recoupment, the

Dodd-Frank Act requires the

Company to seek the return of compensation.

The SEC adopted rules in September 2013 to implement pay ratios pursuant to Section 953

of the Dodd-Frank Act, which

apply to fiscal year 2017 annual reports and proxy statements.

The SEC proposed Rule 10D-1 under Section 954 on July

1, 2015 which would direct Nasdaq and the other national securities exchanges to adopt

listing standards requiring

companies to adopt policies requiring executive officers to pay back erroneously

awarded incentive-based compensation.

In February 2017, the acting SEC Chairman indicated interest in reconsidering

the pay ratio rule.

On October 2022, the SEC adopted final Rule 10D-14 instructing national securities exchanges

to establish specific listing

standards that require each issuer to adopt and comply with a written executive compensation

recovery policy.

10D-1, listed companies must recover from current and former executive officers’

incentive-based compensation received

during the three fiscal years preceding the date on which the issuer is required to

prepare an accounting restatement to

correct a material error.

On February 23, 2023, Nasdaq proposed to adopt Listing Rule 5608 (the “Nasdaq Rule”).The

recovery of erroneously

awarded compensation is required on a “no fault” basis, without regard to

whether any misconduct occurred or an executive

officer’s responsibility for the erroneous financial statements.

A restatement due to material noncompliance with any

financial reporting requirement under the securities laws triggers application of the recovery

The determination

regarding materiality of an error should be based on facts and circumstances and existing judicial and

administrative

interpretations.

The proposed Nasdaq Rule requires recovery for restatements that

correct errors that are material to

previously issued financial statements (commonly referred to

as “Big R” restatements), as well as for restatements that

correct errors that are not material to previously issued financial statements but

would result in a material misstatement if

the errors were left uncorrected in the current report or the error correction

was recognized in the current period (commonly

referred to as “little r” restatement).

Under the proposed Nasdaq Rule, Nasdaq-listed companies, such as the Company,

will be required to recover the amount

of incentive-based compensation received by an executive officer that exceeds

the amount the executive officer would have

received had the incentive-based compensation been determined based on the accounting

Nasdaq proposes to

define “incentive-based compensation” as any compensation that is granted, earned

or vested based wholly or in part upon

the attainment of any financial reporting measure.

Incentive-based compensation is deemed received in the fiscal period

during which the financial reporting measure specified in the incentive-based

compensation award is attained, even if the

grant or payment of the incentive-based compensation occurs after the end of that period.

The SEC adopted rules in August 2013 to implement pay ratios pursuant to Section 953

of the Dodd-Frank Act comparing

their CEO’s total compensation to the median compensation

of all other employees.

These rules applied beginning to fiscal

year 2017 annual reports and proxy statements.

Smaller reporting companies, such as the Company,

are exempted from

The Dodd-Frank Act, Section 955, requires the SEC, by rule, to require that each company

disclose in the proxy

for its annual meetings whether an employee or board member is permitted to

purchase financial instruments designed to

disclose in the proxy materials

for its annual meetings whether an employee or board member is permitted to purchase

financial instruments designed to

hedge or offset decreases in the market value of equity securities granted

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employee or board member.

The SEC proposed implementing rules in February 2015, though the rules

have not been

implemented to date.

The SEC adopted changes to its Reg.

S-K Item 407(i) implementing this Section.

The Company’s has had no equity-based compensation

plans or arrangements.

The Company’s insider trading policy,

which applies to all Company and Bank directors, officers, employees and

certain independent contractors and specified

related persons (collectively,

“Covered Persons”).

This Policy prohibits Covered Persons, from short-selling Company

securities or engaging in transactions involving Company “Derivative Securities.”

This prohibition includes, without

limitation, trading in Company-based put option contracts, including straddles,

and the like.

Derivative Securities include

options, warrants, restricted stock units, stock appreciation rights or similar rights

whose value is derived from the value of

an equity or other security, including Company

Section 956 of the Dodd-Frank Act prohibits incentive-based compensation arrangements

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of directors.

The federal bank regulators stated that this Guidance is expected to generally have

less effect on smaller banking

organizations, which typically are less complex and

make less use of incentive compensation arrangements than larger

banking organizations.

The federal bank regulators, the SEC and other regulators proposed regulations implementing

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Debit Card Interchange

The “Durbin Amendment” to the Dodd-Frank Act and implementing Federal Reserve

regulations provide that interchanged

The “Durbin Amendment” to the Dodd-Frank Act and implementing Federal Reserve regulations

provide that interchanged

transaction fees for electronic debit transactions be “reasonable” and proportional

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processing the transactions.

The Durbin Amendment and the Federal Reserve rules thereunder are not

applicable to banks

The Durbin Amendment and the Federal Reserve rules thereunder are not applicable

with assets less than $10 billion.

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and the regulation of banks, thrifts

and other financial institutions, compensation, and the regulation of financial

markets and their participants and financial

instruments, and the regulators of all of these, as well as the taxation of these entities, are being considered

by the executive

branch of the federal government, Congress and various state governments, including

and other financial institutions, compensation, and the regulation of financial markets and their

participants, and financial

instruments and securities, and the regulators of all of these, as well as the taxation of these

entities, are being considered by

the executive branch of the federal government, Congress and various state governments,

including Alabama.

President Biden has frozen new rulemaking generally,

and has rescinded various of his predecessor’s executive orders,

including the February 3, 2017 executive order containing “Core Principles

for Regulating the United States Financial

including the February 3, 2017 executive order containing “Core Principles for

Regulating the United States Financial

System” (“Core Principles”).

The Core Principles directed the Secretary of the Treasury

to consult with the heads of

The Core Principles directed the Secretary of the Treasury to

consult with the heads of

Financial Stability Oversight Council’s

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financial services regulation.

The President has also issued an Executive Order 14036 on Promoting Competition

The President has also issued an Executive Order 14036 on Promoting Competition in

American Economy (July 9, 2021), which may affect the federal

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assets of less than $10 billion, which

meet a “community bank leverage ratio” of 8.00% to 10.00%, may be deemed to

have satisfied applicable risk

meet a “community bank leverage ratio, which is currently 9.0%, may be deemed

to have satisfied applicable risk-

based capital requirements as well as the capital ratio requirements;

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and liabilities comprising not more than 5.00% of total assets;

“reciprocal deposits” will not be considered “brokered deposits” for

FDIC purposes, provided such deposits

exceed the lesser of $5 billion or 20% of the bank’s total

Rule change may enable us to invest in certain collateralized loan obligations that are treated

funds” prohibited to banking entities by the Volcker

Reciprocal deposits, such as CDARs, may expand our funding

sources without being subjected to FDIC limitations and potential insurance assessments

increases for brokered deposits.

On July 9, 2019, the federal banking agencies, together with the SEC and the

Commodities Futures Trading Commission

“reciprocal deposits” will not be considered “brokered deposits” for FDIC purposes,

provided such deposits do not

exceed the lesser of $5 billion or 20% of the bank’s total liabilities

On July 9, 2019, the federal banking agencies, together with the SEC and the Commodities

Futures Trading Commission

(“CFTC”), issued a final rule excluding qualifying community banking organizations

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treated as “covered funds” and other investments prohibited to banking entities by the Volcker

Reciprocal deposits, such as CDARs, may expand our funding sources

without being subjected to FDIC limitations and

potential insurance assessments increases for brokered deposits.

The applicable agencies also issued final rules simplifying the Volcker

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January 1, 2020.

On June 25, 2020, the agencies adopted a final rule simplifying

On June 25, 2020, the agencies adopted a final rule simplifying the Volcker

Rule’s covered fund

provisions effective October 1, 2020.

The FDIC announced on December 19, 2018 a final rule allows reciprocal deposits to be

excluded from “brokered

The FDIC announced on December 19, 2018 a final rule allows reciprocal deposits to be excluded

from “brokered

deposits” up to the lesser of $5 billion or 20% of their total liabilities.

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April 1, 2021.

The revised rules establishes

The revised rules establish

new standards for determining whether an entity meets the statutory definition of

“deposit broker,” and identifies a number

of business that automatically meet the “primary purpose exception” from a

“deposit broker.”

of business that automatically meet the “primary purpose exception” from a “deposit

The revisions also provide

an application process for entities that seek a “primary purpose exception,” but do

not meet one of the designated

an application process for entities that seek a “primary purpose exception,” but do not

meet one of the designated

The new rules may provide us greater future flexibility,

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2021 or 2022, and historically have not relied on brokered deposits.

On November 20, 2020, the Federal Reserve and the other federal bank regulators

issued temporary relief for community

banks with less than $10 billion in total assets as of December 31, 2019

related to certain regulations and reporting

On November 20, 2020, the Federal Reserve and the other federal bank regulators issued temporary

relief for community

banks with less than $10 billion in total assets as of December 31, 2019 related

to certain regulations and reporting

requirements that largely result from growth due to the various relief and stimulus

actions in response to the COVID-19

In particular, the interim final rule permits these

institutions to use asset data as of December 31, 2019, to

In particular, the interim final rule permits these institutions

to use asset data as of December 31, 2019, to

determine the applicability of various regulatory asset thresholds during calendar

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requirements for reports due in calendar years 2020 or 2021.

This temporary relief expired December 31, 2021.

On November 30, 2020, the bank regulators issued a statement urging banks

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for its funding and customer needs.

Alabama passed the LIBOR Discontinuance and Replacement Act of 2021

to deal with the LIBOR transition.

Congress is also considering LIBOR transition legislation.

Certain of these new rules, and proposals, if adopted, these proposals could significantly

change the regulation or

The Alabama legislature passed the “LIBOR Discontinuance and Replacement

Act of 2021” which became effective on

April 29, 2021.

On March 15, 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act (the “LIBOR

part of the Consolidated Appropriations Act, 2022.

One purpose of the LIBOR Act was to establish a clear and uniform

process, on a nationwide basis, for replacing LIBOR in existing contracts the terms of which

do not provide for the use of a

clearly defined or practicable replacement benchmark rate, without affecting

the ability of parties to use any appropriate

benchmark rate in new contracts.

The LIBOR Act directed the Federal Reserve to issue regulations implementing

The Federal Reserve adopted final Regulation ZZ on January 26, 2023.

These together with Internal Revenue

Service regulation facilitate the conversion of existing LIBOR-based loans

when most popular LIBOR rates cease to be

quoted on June 30, 2023.

The Bank generally prices its variable rate loans based on the prime rate or the five-year Treasury

note rate and had no loans bearing LIBOR or other IBOR-based rates

at December 31, 2022.

Certain of these new rules, and proposals, if adopted, these proposals could significantly change

the regulation or

operations of banks and the financial services industry.

New regulations and statutes are regularly proposed

wide-ranging proposals for altering the structures, regulations and competitive

relationships of the nation’s financial

wide-ranging proposals for altering the structures, regulations and competitive relationships

of the nation’s financial

institutions.

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-K

Item 1. Business