What changed in this filing

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Item 1. Business

2024-03-14 compared with 2023-03-17 · 829 added, 761 removed, 1567 unchanged (50% 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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financial and operating flexibility than is presently permitted to the Bank.

The Bank has operated continuously since 1907 and currently conducts its business

primarily in East Alabama, including

The Bank has operated continuously since 1907 and currently conducts its business primarily

in East Alabama, including

Lee County and surrounding areas.

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

“FHLB”) since 1991.

“FHLB-Atlanta”) since 1991.

The Company’s business is conducted primarily

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Company’s website and the information

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

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

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,

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,

financial, agricultural, real estate construction and consumer loan products

and other financial services.

financial, agricultural, real estate construction and consumer loan products and other

financial services.

The Bank is one of

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or stablecoins or

The banking business in East Alabama, including Lee County,

is highly competitive with respect to loans, deposits, and

other financial services.

The area is dominated by a number of regional and national banks and bank

holding companies

that have substantially greater resources, and numerous offices and affiliates

operating over wide geographic areas.

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

institutions offering services through the

mail, by telephone and over the Internet.

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

competition from nonbank financial institutions may be expected to intensify

The Bank had the largest share of the Auburn-Opelika MSA’s

deposits (20.1%) at June 30, 2023.

The banking business in

East Alabama, including Lee County,

is highly competitive with respect to loans, deposits, and other financial

The area is served by 19 banks, 11 of which are headquartered

outside of Alabama and have 26 offices in our market.

Larger national and regional competitors that have offices

in our market include J.P.

Morgan Chase, Wells

Fargo, Truist,

PNC, Regions, Valley

National and SouthState.

The regional and national banks and bank holding companies that we

compete with have substantially greater resources, and numerous offices

and affiliates operating over wide geographic

The 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 institutions offering services

through the mail, by telephone and over the Internet.

As more and different kinds of businesses enter the market for

financial services, competition from nonbank financial institutions

may be expected to intensify further.

Among the advantages that larger financial institutions have over

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Bank’s service area offer services

which are not presently offered directly by the Bank and they typically have substantially

higher lending limits than the Bank.

which are not presently offered directly by the Bank,

and these other banks typically have

substantially higher lending limits than the Bank.

Banks also have experienced significant competition for deposits from mutual

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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

factory in nearby West Point,

Georgia, and Hyundai Motors has a large automobile

factory in Montgomery,

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.

Center, Lee County School System, Auburn City Schools,

Wal-Mart Distribution

Center, Aptar CSP Technologies,

Pharmavite, LLC, HL Mando America Corporation (automobile brakes and steering),

Golden State Foods and Briggs &

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 factory in nearby West

Point, Georgia, and Hyundai Motors has a large

automobile factory near Montgomery,

suppliers to the automotive industry have facilities in Lee

The unemployment rate in Lee County was 2.4% at

year end 2023

according to the U.S.

Bureau of Labor

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

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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

service area.

Our commercial real estate (“CRE”) loans, including $66.8 million of loans on owner occupied

property, as of December

31, 2023 totaled $287.3 million (52% of total loans).

Our regulators’ CRE Guidance excludes loans on owner occupied

property from CRE.

Excluding our owner occupied loans, our CRE loans were $220.5 million (40% of total

loans) at year

See “Lending Practices –

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

Any adverse economic or

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

into loans with the Bank.

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 into loans

with the Bank.

For example, the auto

manufacturing business and its suppliers have positively affected

our local economy, but automobile

sales manufacturing is

our local economy, but automobile sales

manufacturing is

cyclical and adversely affected by increases in interest rates.

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banking services to our communities.

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

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

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

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of employees,

many of which, have a college or associate degree.

many of whom,

have a college or associate degree.

We believe the Auburn-

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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

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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.

At the time of transition, our Chairman had served the Bank

his entire 39-year career, our President and CEO had been

with us 16 years and our Chief Accounting Officer had been

with us for 7 years.

Our new 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

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to these communities and our

Our Chairman is the current President Pro Tempore

of the Auburn University Board of Trustees.

Statistical Information

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Any change in applicable law or regulation may have a material effect

on the Company’s business.

following discussion is qualified in its entirety by reference to the particular laws and

rules referred to below.

on the Company’s business, and

our results of operations and financial condition.

The following discussion is qualified in its entirety by reference to the

particular laws and rules referred to below.

Bank Holding Company Regulation

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“financial holding companies.” Financial holding

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

such as insurance underwriting, securities

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

underwriting, securities

underwriting, travel agency activities, broad insurance agency 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

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,

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

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.

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

primary federal regulator pursuant to 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.

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.

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.

See “Bank Regulation”.

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

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

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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

Federal Reserve policy and the Federal Deposit Insurance Act, as amended

by the Dodd-Frank Act, require a bank holding

Federal Reserve policy and the Federal Deposit

Insurance Act, as amended by the Dodd-Frank Act, require a bank holding

company to act as a source of financial and managerial strength to its FDIC-insured

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

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

In addition, where a bank holding

company has more than one bank or thrift subsidiary,

each of the bank holding company’s

subsidiary depository institutions

may be responsible for any losses to the FDIC’s

Deposit Insurance Fund (“DIF”), if an affiliated depository institution

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 a bankruptcy of the bank holding

In addition, where a bank

holding company has more than one bank or thrift subsidiary,

each of the bank holding company’s subsidiary

institutions may be responsible for any losses to the FDIC’s

Deposit Insurance Fund (“DIF”), if an affiliated depository

institution fails.

As a result, a bank holding company may be required to loan money to a bank subsidiary in the

form of subordinate capital

notes or other instruments which qualify as capital under bank regulatory rules.

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

creditors of the bank.

subordinate capital notes or other instruments which qualify as capital under bank regulatory rules.

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 creditors of the bank.

See “Capital.”

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(“FFIEC”) Uniform Financial

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

confidential composite “CAMELS” rating

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

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When regulators evaluate this component, consideration is expected

to be given to:

to be given to management’s

ability to identify, measure,

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performance and therefore requires the highest degree of supervisory attention.

Bank mergers, which generally accompany holding company

mergers, are also subject to the approval of the resulting

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”).

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

more insured depository institution, including the merger between

an insured depository institution and a noninsured

The FDIC is interested in receiving comments regarding the effectiveness

of the existing framework in meeting

the requirements of the Bank Merger Act.

On January 29, 2024, the Office of the Comptroller of the Currency (“OCC”)

issue a notice of proposed rulemaking to change its standards for reviewing business combination

applications and issue a

policy statement of principles used by the OCC in its merger reviews.

The FDIC Notice 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 the resolution of failing

bank risks consistent with the

Dodd-Frank Act changes to the BHC Act and the Bank Merger Act, and the effects

banking mergers on competition.

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

American 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 comments on all aspects of the bank

regulatory framework, including qualitative and quantitative support for such responses.

The other Federal bank regulators

as well as the United States Department of Justice (“DoJ”), 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.

Federal Reserve

Governor Bowman, in a March 7, 2024 speech, stated that “regulatory reforms in this area

should prioritize speed and

Stakeholders who are concerned about current bank M&A procedures

and policies should consider direct

engagement with regulators.”

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

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The GLB Act also permits bank

subsidiaries to engage in “financial activities” similar to those permitted to financial

holding companies.

In December 2015,

Congress amended the GLB Act as part of the Fixing America’s

subsidiaries to engage in financial activities, which are similar to those permitted

to financial holding companies.

December 2015, Congress amended the GLB Act as part of the Fixing America’s

Surface Transportation Act.

This amendment

financial institutions that meet certain conditions an exemption to the requirement to deliver

an annual privacy notice.

August 10, 2018, the federal Consumer Financial Protection Bureau (“CFPB”)

announced that it had finalized conforming

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.

Some state laws also

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

and certain state laws may, in

amendment provided financial institutions, which meet certain conditions,

an exemption from the requirement to deliver an

annual privacy notice.

On August 10, 2018, the federal Consumer Financial

Protection Bureau (“CFPB”) 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,

and require that financial institutions have policies regarding information privacy and

Some state laws also protect

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

such data, and certain state laws may,

circumstances, require us to notify affected individuals of security breaches

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Community Reinvestment Act and Consumer Laws

The Bank is subject to the provisions

of the CRA and the Federal Reserve’s CRA

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

CRA regulations.

Under the CRA, all FDIC-

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CRA assessment is publicly available.

Further, consideration of the CRA is required of any

Further, consideration of the CRA is required

FDIC-insured institution that has applied to:

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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 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

denying the application.

A less than satisfactory CRA rating will slow,

if not preclude, acquisitions, and new branches and

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.

satisfactory CRA rating will slow,

if not preclude, acquisitions, and new branches and other expansion activities and

prevent a company from becoming a financial holding company.

The federal CRA regulations require that evidence of

discriminatory, illegal or abusive

practices be considered in the CRA evaluation.

CRA agreements with private parties must be disclosed and annual

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larger bank combinations.

National Community Resolution Coalition reported in February 2023

that it had executed more than 20 community benefit

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.

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,

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the CRA evaluation.

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 in

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.

The federal CRA regulations require that evidence of discriminatory,

illegal or abusive lending practices be considered in

the CRA evaluation.

A financial holding company election, and the continuation of such election and financial

holding company activities are

permitted, if any affiliated bank has not received less than a “satisfactory”

The Federal Reserve considers the effect of a bank acquisition proposal

on the convenience and needs of the markets served

by the combining organizations.

In the case of bank holding company applications to acquire a bank, 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

and moderate-income (“LMI”)

neighborhoods, and such records may be the basis for denying the application.

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 Reinvestment Coalition reported in January 2024

that it had executed more than 21 community

benefit plans with banking organizations, with an estimated value of $580

billion to LMI and under-resourced communities.

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

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status in any aspect of a consumer or commercial credit or residential real estate transaction.

The Department of Justice

(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.

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 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.

The DOJ has prosecuted what it regards as

violations of the ECOA, the Fair Housing Act, and the fair lending laws, generally.

New 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:

joint CRA regulations were adopted by the Federal Reserve, the OCC and the FDIC on October

24, 2023, and were

finalized and published in the Federal Register on February 1, 2024.

the new rules’ requirements become effective

January 1, 2026, and other requirements, including required data reporting become effective

January 1, 2027.

CRA regulations confirm that the CRA and fair lending responsibilities and compliance

are mutually reinforcing and that

these regimes recognize the importance of ensuring that the credit markets are inclusive.

The agencies are also retaining

the provision in the CRA regulations that allows downgrading a bank for discriminatory

or other illegal credit practices.

The objectives of the new CRA regulations include:

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

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Promote transparency and public engagement;

Confirm that CRA and fair lending

responsibilities are mutually reinforcing;

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 new CRA regulations like the old rules, is based on bank size and business model create

a new framework for

evaluating CRA performance.

Banks are classified as either “small”, “intermediate”, “large”,

or “limited purpose” banks.

The asset size thresholds would be adjusted annually for inflation and have been increased

relative to the bank asset size

thresholds in the old CRA rule.

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

but will become an “intermediate

bank” under the new CRA regulations because it has assets of $600 million to $2.0

billion in both of the two prior years.

The new performance evaluation framework establishes two tests for intermediate

the Retail Lending Test;

the Intermediate Bank Community Development Test,

or if elected by the Bank, the Community Development

Financing Test.

Intermediate banks would be evaluated and assigned conclusions of reflecting their

performance under these tests in their

facility based assessment area of “Outstanding”;

“High Satisfactory”;

“Low Satisfactory”;

“Needs to Improve”;

“Substantial Noncompliance.”

These conclusions applied to each test would be weighted and combined to form a rating

“Outstanding,” “Satisfactory,”

“Needs to Improve,” or “Substantial Noncompliance.”

A “facility based assessment area” is an area that encompasses or is adjacent

to deposit-taking facilities, including main

offices, branches, and deposit-taking remote service facilities.

Intermediate banks could delineate facility-based areas of

part of a county.

The banking agencies will evaluate retail lending in a bank’s

“outside retail lending area” for large banks,

as well as for intermediate banks, if the majority of their retail lending is outside their

facility-based assessment areas.

A retail lending volume screen would be used to

measure the volume of a bank’s lending relative to its deposit

facility-based assessment area and would compare that ratio to the aggregate ratio for all reporting

banks with at least one

branch in the same facility-based assessment area.

Second, the agencies would evaluate the geographic distribution and

borrower distribution of a bank’s

major product lines in the bank’s Retail

Lending Test Areas (i.e.,

the bank’s facility-based

assessment areas, and, as applicable, retail lending assessment areas and outside retail

lending area).

using a series of

metrics and benchmarks.

After the agency determines a recommended conclusion for Retail Lending Test

Area, the agency

would consider a list of additional factors that are intended to account for circumstances in

which the retail lending

distribution metrics and benchmarks may not accurately or fully reflect a bank’s

retail lending performance, or in which the

benchmarks may not appropriately represent the credit needs and opportunities in an area.

Banks will receive consideration for any qualified community development loans,

investments, or services, regardless of

The extent of an agency's consideration of community development loans, community development

and community development services outside of the bank's facility-based

assessment areas will depend on the adequacy of

the bank's responsiveness to community development needs and opportunities

within the bank's facility-based assessment

areas and applicable performance context information.

The new CRA rules codify agency interpretations under the former

CRA regulations, and provide 11 community development

The agencies will evaluate the extent to which a

bank’s community development loans,

investments, and services are impactful and responsive in meeting community

development needs.

An intermediate bank's community development test performance is evaluated pursuant

following criteria:

the number and dollar amount of community development loans;

the number and dollar amount of community development investments;

the extent to which the bank provides community development services;

the bank's responsiveness through community development loans, community development

investments, and

community development services to community development needs.

The banking agency's evaluation of the responsiveness of the bank's activities is informed

by information provided by the

bank, and may be informed by the impact and responsiveness review factors described

in the new regulations.

The release proposing these new CRA rules stated 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

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 proposal reflected “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 new rule exempts small and intermediate banks from certain new data requirements

that apply to banks with assets of

at least $2 billion and limits certain new data requirements to large banks

with assets greater than $10 billion.

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.”

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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

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.

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

consider eliminating overdraft fees for

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

eliminating overdraft fees for

transactions that overdraw an account by a de minimis amount.

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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

bank regulators continue to consider

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.

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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

regulations, and the precedents set

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

CFPB’s regulations, and the precedents

in CFPB enforcement actions and interpretations.

Residential Mortgages

CFPB regulations require that lenders determine whether a consumer

has the ability to repay a mortgage loan.

CFPB regulations require that lenders determine whether a consumer has the ability to repay

a mortgage loan.

regulations establish certain minimum requirements for creditors

when making ability to repay determinations, and provide

certain safe harbors from liability for mortgages that are "qualified

mortgages" and are not “higher-priced.”

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

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the proceeds we may realize

from a sale of foreclosed property.

from the sale of foreclosed property.

The Federal Housing Finance Authority (“FHFA”)

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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.

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

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The Interagency Statement on COVID-19

Loan Modifications was supplemented on June 23, 2020 by the Interagency Examiner

Guidance for Assessing Safety and

Loan Modifications was supplemented on June 23, 2020 by the Interagency

Examiner Guidance for Assessing Safety and

Soundness Considering the Effect of the COVID-19 Pandemic on Institutions.

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elect to account for the loan under section 4013 of the CARES Act.

If a loan modification is not eligible

under section

If a loan modification

is not eligible under section

4013, or if the bank elects not to account for the loan modification under section 4013,

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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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if all contractual payments were fully and timely

Except for vacant or abandoned properties, Fannie Mae servicers

may not initiate foreclosures on similar procedures

Except for vacant or abandoned properties, Fannie Mae servicers may

not initiate foreclosures on similar procedures

or related evictions or sales until December 31, 2020.

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

Borrowers who are on a COVID-19 forbearance

who are on a COVID-19 forbearance

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

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

result, the Bank is not obligated to

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

seeking ways to streamline, modernize

the United States AML and countering the financing of terrorists.

Anti-Money Laundering and Sanctions

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Bank regulators are required to consider compliance with anti-

money laundering laws in acting upon merger and acquisition and

other expansion proposals under the BHC Act and the

money laundering laws in acting upon merger and acquisition and other

expansion proposals under the BHC Act and the

Bank Merger Act, and sanctions for violations of this Act can be imposed

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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.

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range of potential regulatory amendments under the Bank Secrecy Act.

seeks comment on incorporating an

seeks comments 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 agencies

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

and would seek to impose minimal

This component also would seek to implement a common understanding

between supervisory agencies

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

would seek to impose minimal

additional obligations on AML programs that already comply under the existing supervisory

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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

with legal tender status.

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

virtual currencies and digital

assets with legal tender status.

On January 1, 2021, Congress enacted the Anti-Money Laundering

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101.380 on September

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

30, 2022 to implement the CTA.

This became effective on January 1, 2024.

These regulations require entities to report

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financial system from illicit

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

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

through entities with opaque ownership

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

Although the Company and the

Bank are exempt from the CTA’s

requirements to report their respective beneficial owners, the new laws are likely to

increase the Bank’s anti-money laundering

diligence activities and costs.

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

seeking ways to streamline, modernize

the United States AML and countering the financing of terrorists.

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

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The Federal bank regulators have issued alerts that

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

Russia and others may step up cyber-attacks and data

intrusions following the invasion.

FinCen has issued four alerts on

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family members, and the entities through which they act.

The alert listed

potential red flags and typologies involving

The alert listed potential

red flags and typologies involving

attempted sanctions evasion in the commercial real estate sector,

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included in this report with no material weaknesses reported.

Payment of Dividends and Repurchases of Capital Instruments

Bank Dividends

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

The Company’s

primary source of cash is dividends

from the Bank.

Prior regulatory approval is required if the total of all dividends declared

by a state member bank (such as

Federal Reserve Regulation Q limits “distributions,”

including discretionary bonus payments from eligible retained income” by state

member banks, such as the Bank, unless its

capital conservation buffer of common equity Tier

1 capital (“CET1”) exceeds 2.5%.

“Distributions” include dividends

declared or paid on common stock, discretionary bonuses and stock repurchases,

redemptions or repurchases of Tier 2

capital instruments (unless replaced by a capital instrument in the same quarter).

“Eligible retained income” for the Bank

and other Federal Reserve regulated institutions is 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;

the average net income over the preceding four quarters.

The Company’s primary source

of cash is dividends from the Bank.

The Bank’s Call Report are used for

its calculation of

“eligible retained income.”

The Bank’s capital conservation buffer

exceeded 2.5% at December 31, 2023.

As of December 31, 2023, the Bank is “well capitalized” under the regulatory framework

for prompt corrective action.

be categorized as “well capitalized,” the Bank must maintain minimum common equity Tier

1, total risk-based, Tier

based, and Tier 1 leverage ratios as set forth in the following

Management has not received any notification from the

Bank's regulators that changes the Bank’s regulatory

capital status.

Prior regulatory approval also is required by statute if the total of all dividends declared by

a state member bank (such as

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

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preceding two calendar years, less any required transfers to surplus.

the Bank paid total cash dividends of

During 2023, the Bank paid total cash dividends of

approximately $3.8 million to the Company.

At December 31, 2022, the Bank could have declared and paid additional

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

At December 31, 2023, the Bank had net profits for the year and its retained

net profits for the preceding two calendar years, less any required transfers to surplus, of

$8.2 million.

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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practice, and may prohibit such dividends.

The Federal Reserve has indicated that paying

dividends that deplete a state

member bank’s capital base to an inadequate level

would be an unsafe and unsound banking practice.

The Federal Reserve

The Federal Reserve has indicated that paying 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

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year’s operating earnings.

See “Regulatory Capital Changes” and Note 16 to the Company’s

consolidated financial

Federal Reserve Supervisory Letter SR-09-4 (February 24, 2009),

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As a general matter,

Reserve has indicated that the board of directors of a bank holding company

should consult with the Federal Reserve and

Reserve has indicated that the board of directors of a bank holding company should

consult with the Federal Reserve and

eliminate, defer or significantly reduce the bank holding company’s

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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

bonuses by the

Company and the Bank, respectively,

unless the Company and the Bank meet the capital conservation buffer

See "Basel III Capital Rules."

Under a new provision of the capital rules, effective January 1,

2021, if a bank’s capital ratios are

within its buffer

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;

the average net income over the preceding four quarters.

Regulatory Capital Changes

Simplification

The federal bank regulators issued final rules on July 22, 2019 simplifying their capital rules.

The last of these changes

become effective on April 1, 2020.

The principal changes for standardized approaches institutions, such the

the Bank are:

Deductions from capital for certain items, such as temporary difference

DTAs, MSAs and investments

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

1 capital and (iii) total capital.

In December 2019, the federal banking regulators published a final rule, effective

April 1, 2020, to implement the “high

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

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

exclusions from HVCRE are specified.

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.

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

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

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)

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All bank holding companies and banks are expected to hold capital

commensurate with the level and nature of their risks including the volume and severity of

their problem loans.

with the level and nature of their risks including the volume and severity of their problem loans.

Lastly, the Federal Reserve’s

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

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

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Resilient Banks and Banking Systems.”

These new U.S.

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

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

were fully phased-in on January 1, 2019.

These are included in Federal Reserve Regulation Q.

The Basel III Capital Rules limit Tier 1 capital to

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31, 2021 or 2022.

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

Tier I Capital” or “CET1.”

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

common stock and related surplus, retained earnings,

and subject to certain adjustments, minority common equity interests

in subsidiaries.

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net of associated DTLs.

As discussed below, recent regulations

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

capital purposes.

Noncumulative perpetual preferred stock and Tier

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included in Tier 2 capital.

In addition to the minimum risk-based capital requirements, a new “capital

conservation buffer” of CET1 capital of at least

2.5% of total risk weighted assets, will be required.

Regulatory Capital Changes

Simplification

The federal bank regulators issued final rules on July 22, 2019 simplifying their capital rules.

The last of these changes

become effective on April 1, 2020.

The principal changes for standardized approaches institutions, such the

the Bank are:

Deductions from capital for certain items, such as temporary difference

DTAs, MSAs and investments

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

1 capital and (iii) total capital.

In December 2019, the federal banking regulators published a final rule, effective

April 1, 2020, to implement the “high

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

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

exclusions from HVCRE are specified.

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.

Capital Conservation Buffer

In addition to the minimum risk-based capital requirements, a “capital conservation

buffer” of CET1 capital of at least

2.5%, is required.

The capital conservation buffer will be calculated as the

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total risk-based capital ratio minus 8.0%.

Full compliance with the capital conservation buffer was required

beginning January 1, 2019.

Full compliance with the capital conservation buffer

was required beginning January 1, 2019.

Thereafter, permissible

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percentages based on the capital

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

including those based on risk

conservation buffer as calculated above, subject to any further

regulatory limitations, including those based on risk

assessments and enforcement actions:

Capital Conservation

Buffer % Limit

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

the average of all net income over the

and (ii) the average of all net income over the

preceding four quarters.

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make prudent capital distribution decisions.

Basel III Capital

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 carrybacks and significant (greater than 10%)

investments in other financial institutions.

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

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

excluding one-to-four family residential

properties or commercial real estate projects where:

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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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using the CECL methodology,

and updated concepts and practices in existing supervisory guidance that

remain applicable.

and updated concepts and practices in existing supervisory guidance that remain

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

Chair for Supervision has indicated he is considering a holistic review of regulatory capital

requirements, which are expected to focus on banking organizations larger

than the Company.

Recently a Federal Reserve.

Prompt Corrective Action Rules

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a leverage ratio greater than 9%;

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

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

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

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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.

adopted the CBLR, although it believes it is eligible to elect to use the CBLR framework.

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.

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institutions and depository

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

audit systems, loan documentation,

institution holding companies relating to internal controls, information systems,

internal audit systems, loan documentation,

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

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including the CFPB’s regulations.

The CFPB issues regulations, interpretations and enforcement actions under

The CFPB issues regulations, interpretations and enforcement actions

under the laws

applicable to consumer financial products and services.

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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

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

securities holdings,

constitutes the major portion of a bank’s earnings.

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

The Federal Reserve has been paying interest on depository institutions’ required and

excess reserve balances since October

The Federal Reserve has been paying interest on depository institutions’ required and excess

reserve balances since October

The payment of interest on excess reserve balances was expected to give the Federal

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Act”) was signed into law.

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

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

including $325 billion

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

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Business Association programs.

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,

During 2021 and at the beginning of 2022, the Federal Reserve described inflation as “transitory,”

but as inflation

continued at increasing rates the Federal Reserve’s

policy changed.

The Federal Reserve announced a 25 basis point

increase in the target federal funds range on March 17, 2022, the first change

since March 2020 when the target was set to

Further increases were announced in 2022:

50 basis points on May 4, 75 basis points on each of June 15,

September 21, and November 2, and 50 basis points on December 14, 2022.

During 2023, the Federal Reserve announced

additional target rate increases of 25 basis points on each of February 1,

2023, March 2022, May 3 and July 26, 2023.

federal funds target rate range remains at 5.25-5.50% at March 12, 2024.

The Federal Reserve’s securities holdings in

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

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

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

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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

was $7.0 trillion on February 28, 2024 compared to $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.

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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.

Although the Federal Reserve Chairman continues to maintain the 2% long term target

inflation, he has indicated that the

Federal Reserve

is “data dependent” and that it could cut rates depending on the data and

whether recent declines in

inflation appear sustained, and alternatively,

raise rates if appropriate in pursuit of its long term target inflation.

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

on the Company and the Bank cannot be

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.

banks with over $100 billion of assets which failed, the Federal Reserve established

a new Bank Term Funding Program

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

unions, and other eligible

depository institutions pledging U.S.

Treasuries, agency debt

and mortgage-backed securities, and other qualifying assets as

These assets were valued at par and the margin was 100%

The BTFP expires March 11,

2024, except for

loans outstanding prior to its expiration.

The Company did not participate in the BTFP in 2023.

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 was available

with the same collateral margins as the

but which offers loans of up to 90 days.

Collateral is valued under the discount window is based on fair market

collateral margins subsequently have been reduced to less than 100%

of collateral fair market value, with the

amount of discount depending on the type of collateral.

FDIC Insurance Assessments

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The FDIC changed its assessment rates which shifted part of

the burden of deposit insurance premiums toward depository institutions relying on

funding sources other than deposits.

the burden of deposit insurance premiums toward depository institutions relying on funding

sources other than deposits.

In 2016, the FDIC again changed its deposit insurance pricing and eliminated all risk categories

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Bank, for the first assessment period

of 2023 to be billed in June 2023:

of 2023 to be billed in June 2023, which is the latest available:

Established Small Institution

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13 to 32 basis points

These assessments are then adjusted based on the bank’s

As shown above.

these assessments are 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

minimum Reserve Ratio from

1.15% to 1.35%.

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

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

The new rules grant credits to smaller banks for the portion of

their regular assessments that contribute to increasing the reserve ratio from 1.15%

The FDIC’s reserve ratio reached 1.36%

on September 30, 2018, exceeding the minimum requirement.

As a result, deposit

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%.

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

For example, Small Banks, with

CAMELS ratings of 1 or 2, have a current total assessment rate of 2.5 to 18 basis points for

the period to be billed in June

The FDIC issued a special assessment of 3.36 basis points for a projected eight quarters on large

banks with more than $5

billion of uninsured deposits as a result of the systemic risk determination to insure all depositors

in connection with the

March 2023 failures of Silicon Valley

Bank and Signature Bank.

These special assessments do not apply to the Bank.

The minimum FDIC’s DIF reserve ratio

is 1.35%, which was set by the Dodd-Frank Act.

The FDIC Board of directors is

required by the Federal Deposit Insurance Act to designate a reserve ratio before

the beginning of each calendar year.

There is no upper limit on the reserve ratio and thus, no statutory limit on the size of the fund.

FDI Act provides for

dividends from the fund when the reserve ratio exceeds 1.5 percent, but grants the Board

sole discretion in determining

whether to suspend or limit the declaration or payment of dividends.

The reserve ratio reached 1.36% on September 30,

2018, exceeding the minimum requirement.

As a result, deposit insurance surcharges on Large Banks ceased,

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%.

The Bank’s credit was $0.2

million, and was received and applied

against the Bank’s deposit insurance assessments

during 2019 and 2020.

Because of the extraordinary growth in deposits in the first six months of 2020

due to the pandemic and government

stimulus, the DIF’s reserve ratio declined

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within 8 years.

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 ratio.

Although the FDIC, at

maintained its then 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.

The designated

reserve ratio has been 2% since 2010, and was set at this same level for 2024.

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 (the “PPPLF”) established by the Federal Reserve.

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

Specifically, the rule

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outstanding on December 31, 2023, and because the Bank never participated in the PPPLF.

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

The Company recorded FDIC insurance premiums expenses of $0.5 and $0.3

million in 2023 and 2022, respectively, which

reflects the FDIC’s amended restoration

plan increases in the initial base deposit insurance assessment rate schedules

uniformly by 2 basis points, beginning with the first quarterly assessment period of 2023.

Lending Practices

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(the “CRE Guidance”).

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

land development and

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

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

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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 to REITs and unsecured

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

regulators issued an interagency statement to highlight prudent risk management

practices from existing guidance that

regulated financial institutions and made recommendations regarding

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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, 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%,

See “Management’s

Discussion and Analysis

of Financial Condition and Results of Operations - Balance Sheet Analysis” for

concentrations of the various types of CRE

At December 31, 2023, the Bank had outstanding $68.3 million in construction and land

development loans and $293.0

million in total CRE loans (excluding owner occupied properties), which represent approximately

62% and 264%,

respectively, of the Bank’s

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.

total risk-based capital at December 31, 2023.

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

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 Policy Statement

on Prudent Commercial

Real Estate Loan Accommodations and Workouts

on June 30, 2023.

This Policy Statement builds on and updates existing

guidance to enable financial institutions to work prudently and constructively

with creditworthy borrowers during times of

financial stress.

The Policy Statement provides a broad set of risk management principles relevant

to CRE short term loan

accommodations and longer term workouts in all business cycles, particularly in challenging

economic environments.

states that the regulatory agencies expect their examiners to take a balanced approach

in assessing the adequacy of a

financial institution's risk management practices for loan accommodation and

workout activities.

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 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

outstanding loan balance.

Policy Statement also describes the classifications of CRE loan accommodations and

workouts and addresses regulatory

accounting and reporting in such situations, including CECL.

Leveraged Lending

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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.

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 SEC adopted, effective January 27, 2023, Commission Rule 10D-1 under the Exchange

Act, which requires each

national securities exchange to adopt listing standards for the recovery of erroneously

awarded executive compensation.

The Commission approved Nasdaq Listing Rule 5608 (“Rule 5608”) on June 9,

Under Rule 10D-1, listed companies

must recover from current and former executive officers’ incentive-based

compensation received during the three

completed fiscal years preceding the date on which the issuer is required to prepare

an accounting restatement.

Under these SEC and Nasdaq rules, 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

A restatement due to material noncompliance with any financial

reporting requirement under the securities laws

triggers application of the recovery policy.

The determination regarding materiality of an error should be based on facts and

circumstances and existing judicial and administrative interpretations.

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).

Nasdaq-listed companies, such as the Company,

are 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 restatement, computed

without regard to any taxes paid.

defines “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

Incentive-based compensation is deemed received on or after October

2, 2023 and 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 Company adopted an Erroneously Awarded

Executive Incentive Based Compensation Policy effective December

2023 to comply with these rules.

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

of the Dodd-Frank Act comparing

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employee or board member.

The SEC adopted changes to its Reg.

The SEC adopted

changes to its Reg.

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

Company expects to adopt appropriate policies upon shareholder

approval an equity incentive plan at the Annual

Stockholders’ meeting in 2024.

The Company’s has had no equity-based compensation

plans or arrangements.

plans or arrangements, but expects to seek stockholder approval of

an equity incentive plan at the Annual Stockholders’ meeting in 2024.

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,

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

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 Securities.

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

8 unchanged sentences

to the Company.

This Guidance applies to incentive compensation to executives as well as employees,

who, “individually

This Guidance applies to incentive compensation to executives as well

as employees, who, “individually

or a part of a group, have the ability to expose the relevant banking organization to

19 unchanged sentences

services regulators in May 2016, but these rules have not been adopted.

Following the failures of Silicon Valley

Bank and Signature Bank in early March 2023, Senator Elizabeth Warren

sponsors, filed S.1045 “Failed Bank Executives Clawback Act.”

This bill provides that when a bank is placed into FDIC

receivership, all or part of the compensation paid the previous five

years to an institution-affiliated party responsible for the

condition of the institution must be paid to FDIC to prevent unjust enrichment and to assure

that the party bears losses

consistent with their responsibility.

Compensation includes salary,

bonuses, awards, and profits from buying or selling

The bill also expands the FDIC’s authority to

claw back compensation of parties responsible for financial losses

incurred by a financial company regardless of the process by which FDIC is appointed receiver.

Debit Card Interchange

5 unchanged sentences

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

with assets less than $10 billion.

with assets less than $10 billion, however such banks compete with banks that are subject

to the Durbin Amendment, and

therefore may have to limit their interchange fees, also.

Other Legislative and Regulatory Changes

7 unchanged sentences

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

System” (“Core Principles”).

The Core Principles directed the Secretary of the Treasury to

consult with the heads of

Financial Stability Oversight Council’s

members and report to the President periodically thereafter on how laws and

government policies promote the Core Principles and to identify laws, regulations,

guidance and reporting that inhibit

financial services regulation.

President Biden froze new rulemaking generally when he became President in January 2021,

and rescinded various of his

predecessor’s executive orders, 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

consult with the heads of Financial Stability Oversight Council’s

members and report to the President periodically

thereafter on how laws and government policies promote the Core Principles

and to identify laws, regulations, guidance and

reporting that inhibit financial services regulation.

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

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

bank regulators’ reviews of bank and bank holding

company mergers.

The OCC, the FDIC and the CFPB have made proposals to further scrutinize

mergers, especially where

the confirming institutions have assets greater than $100 million.

the American Economy (July 9,

2021), which may affect the federal bank regulators’ reviews of bank and

bank holding company mergers.

FDIC and the CFPB have made proposals to further scrutinize mergers, especially

where the confirming institutions have

assets greater than $100 million.

The President’s Working

Group and various agencies

have also been working on the regulation of crypto assets, including stable coin, and access

to the payments system.

The 2018 Growth Act, which, was enacted on May 24, 2018, amends the Dodd

-Frank Act, the BHC Act, the Federal

Group and various agencies have also been working on the

regulation of crypto assets, including stable coins, and access to the payments

The DoJ’s Antitrust Division of the United

States and the Federal Trade

Commission issued revised Merger Guidelines on

December 18, 2023.

The DoJ, the Federal Reserve and the OCC have confirmed that these new Guidelines

did not modify

the 1995 Bank Merger Guidelines, however.

Representatives of the Federal Reserve have indicated that updated Bank

Merger Guidelines are being considered.

The 2018 Growth Act, which, was enacted on May 24, 2018, amended the Dodd-Frank

Act, the BHC Act, the Federal

Deposit Insurance Act and other federal banking and securities laws to provide

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The following provisions of the 2018 Growth Act

may be especially helpful to banks of our size as regulations adopted in 2019

became effective:

may be especially helpful to banks of our size after regulations were adopted in 2019:

“qualifying community banks,” defined as institutions with total consolidated

19 unchanged sentences

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

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

Rule proprietary trading restrictions effective

January 1, 2020.

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

Rule’s covered fund

provisions effective October 1, 2020.

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

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

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“deposit broker,” and identifies a number

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

of businesses that automatically meet the “primary purpose exception”

from a “deposit broker.”

The revisions also provide

4 unchanged sentences

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

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

determine the applicability of various regulatory asset thresholds during calendar

years 2020 and 2021.

reasons, the Federal Reserve temporarily revised the instructions to a number of its regulatory

reports to provide that

community banking organizations may use asset data as of December

31, 2019, in order to determine reporting

requirements for reports due in calendar years 2020 or 2021.

This temporary relief expired December 31, 2021.

Reciprocal deposits have expanded our funding and liquidity sources without being

subjected to FDIC limitations and

potential federal deposit insurance assessment increases for brokered

The applicable agencies also issued final rules simplifying the Volcker

Rule’s proprietary trading restrictions

January 1, 2020.

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

Rule’s covered fund

provisions effective October 1, 2020.

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

14 unchanged sentences

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

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

1 unchanged sentence

benchmark rate in new contracts.

The LIBOR Act directed the Federal Reserve to issue regulations implementing

The LIBOR Act directed the Federal Reserve to issue regulations implementing the

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

4 unchanged sentences

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

institutions.

note rate and had no

loans bearing LIBOR or other IBOR-based rates at December 31, 2022.

Therefore, the transition from LIBOR did not

affect the Bank’s loan portfolio.

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

or operations of banks and

the financial services industry.

New regulations and statutes are regularly proposed that contain wide-ranging proposals

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