AUBURN NATIONAL BANCORPORATION, INC 10-K

ITEM 1. BUSINESS Auburn National Bancorporation, Inc. (the “Company”) is a bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Company was incorporated in Delaware in 1990, and in 1994 it succeeded its Alabama predecessor as the bank holding company controlling AuburnBank, an Alabama state member bank with its principal office in Auburn, Alabama (the “Bank”). The Company and its predecessor have controlled the Bank since 1984. As a bank holding company, the Company may diversify into a broader range of financial services and other business activities than currently are permitted to the Bank under applicable laws and regulations. The holding company structure also provides greater 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 Lee County and surrounding areas. The Bank has been a member of the Federal Reserve Bank of Atlanta (the “Federal Reserve Bank”) since April 1995. The Bank’s primary regulators are the Federal Reserve and the Alabama Superintendent of Banks (the “Alabama Superintendent”). The Bank has been a member of the Federal Home Loan Bank of Atlanta (the “FHLB-Atlanta”) since 1991. Table of Contents 5 General The Company’s business is conducted primarily through the Bank and its subsidiaries. Although it has no immediate plans to conduct any other business, the Company may engage directly or indirectly in a number of activities closely related to banking permitted by the Federal Reserve. The Company’s principal executive offices are located at 100 N. Gay Street, Auburn, Alabama 36830, and its telephone number at such address is (334) 821-9200. The Company maintains an Internet website at www.auburnbank.com . The Company’s website and the information appearing on the website are not included or incorporated in, and are not part of, this report. The Company files annual, quarterly and current reports, proxy statements, and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference rooms. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy, and other information, where SEC filings are available to the public free of charge. Services The Bank operates its main office and 7 branches in Auburn, Opelika, Notasulga, and Valley, Alabama and a loan production office in Phenix City, Alabama. We evaluate the utilization of our existing facilities and customer preferences for online and mobile banking. In addition to opening our new main office in 2022, we closed one branch office in Auburn at the end of 2024, whose customers could be served conveniently and more efficiently by another existing Bank branch. The Bank offers checking, savings, transaction deposit accounts and certificates of deposit, and is an active residential mortgage lender in its primary service area. The Bank’s primary service area includes the cities of Auburn and Opelika, Alabama and nearby surrounding areas in East Alabama, primarily in Lee County. The Bank also offers commercial, financial, agricultural, real estate construction and consumer loan products, and other financial services. The Bank operates ATM machines in 8 locations in its primary service area. The Bank offers Visa ® Checkcards, which are debit cards with the Visa logo that work like checks and can be used anywhere Visa is accepted, including ATMs. The Bank’s Visa Checkcards can be used internationally through the Plus ® network. The Bank offers online banking, bill payment, online consumer account opening, and other electronic banking services through its Internet website, www.auburnbank.com . Our online banking services, bill payment and electronic services are subject to certain cybersecurity risks. See “Risk Factors – Our information systems may experience interruptions and security breaches.” The Bank has not offered any services related to any Bitcoin or other digital or crypto instruments, stablecoins or businesses. Competition The Bank operates in a highly competitive market for loans, deposits and other financial services in East Alabama, including Lee County. Based on FDIC deposit market share data as of June 30, 2025, the Bank held the largest share of deposits in Lee County. The Bank competes with 20 national, regional and community banks with offices in Lee County, which operate offices in the local market and many have substantially greater financial, technological and marketing resources. The Bank also competes with credit unions, mortgage lenders, insurance companies, investment firms and other financial service providers. In addition, financial services are increasingly offered through digital and online platforms by institutions that may not maintain a physical presence in our market. Many larger financial institutions have advantages over the Bank, including broader product offerings, higher lending limits, greater access to capital markets, more extensive advertising and marketing capabilities, and the ability to operate across larger geographic markets. The Bank also faces significant competition for deposits and other financial services from investment companies, mutual funds, insurance companies and other financial institutions offering alternative savings and investment products. Some of these competitors may not be subject to the same regulatory requirements as banks. The Bank seeks to compete by emphasizing customer relationships, community presence, local decision-making and responsive service. Table of Contents 6 Selected Economic Data The Company’s primary market area is Lee County, Alabama, including the cities of Auburn and Opelika and surrounding communities in East Alabama. Lee County is part of the Auburn-Opelika metropolitan statistical area. The local economy is influenced by higher education, healthcare services, public education, distribution and logistics operations, retail and service businesses, and automobile manufacturing and related suppliers located in the region. Major employers in the area include Auburn University, regional healthcare providers, public school systems, manufacturing facilities, and distribution operations. The presence of large automobile manufacturing plants and related suppliers along the Interstate 85 corridor in eastern Alabama and western Georgia also contributes significantly to economic activity in the region and supports local employment, business development, and population growth. As of year-end 2025, Lee County’s unemployment rate was 2.1% compared to 2.7% for the State of Alabama. Economic conditions in our market area, including employment levels, housing activity, business investment, inflation and interest rates, influence loan demand, credit quality, deposit growth, and other aspects of our operations. Changes in these conditions could affect our results of operations and financial condition. The Auburn-Opelika metropolitan area has experienced population and economic growth in recent years, supported by expansion in education, healthcare, manufacturing and related industries. Continued growth in these sectors may influence future economic conditions in our market area. Loans and Loan Concentrations The Bank makes loans for commercial, financial and agricultural purposes, as well as for real estate mortgages, real estate acquisition, construction and development and consumer purposes. While there are certain risks unique to each type of lending, management believes that there is more risk associated with commercial, real estate acquisition, construction and development, agricultural and consumer lending than with residential real estate mortgage loans. To help manage these risks, the Bank has established underwriting standards used in evaluating each extension of credit on an individual basis, which are substantially similar for each type of loan. These standards include a review of the economic conditions affecting the borrower, the borrower’s financial strength and capacity to repay the debt, the underlying collateral and the borrower’s past credit performance. We apply these standards at the time a loan is made and monitor them periodically throughout the life of the loan. See “Lending Practices” for a discussion of regulatory guidance on commercial real estate lending. Our commercial real estate (“CRE”) loans, including $59.6 million of loans on owner occupied property, as of December 31, 2025 totaled $325.5 million (58% of total loans). Our regulators’ CRE Guidance excludes loans on owner occupied property from CRE. Excluding our owner-occupied loans, our CRE loans were $290.2 million (51% of total loans) at year end 2024. See “Lending Practices – CRE. ” 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. For example, the auto manufacturing business and its suppliers have positively affected our local economy, but automobile sales manufacturing is cyclical and adversely affected by increases in interest rates. Decreases in automobile sales, including adverse changes due to interest rate increases and inflation, tariffs, supply chain disruptions (including changes resulting from the effects of tariffs and related changes in countries and producers in the supply chains) and a tight labor market, could adversely affect nearby Kia and Hyundai automotive plants and their suppliers' local spending and employment, and could adversely affect economic conditions in the markets we serve. However, management believes that due to the diversified mix of industries located within our markets, adverse changes in one industry may not necessarily affect other area industries to the same degree or within the same time frame. The Bank’s primary service area also is subject to both local and national economic conditions and fluctuations. While most loans are made within our primary service area, some residential mor tgage loans are originated outside the primary service area, and the Bank from time to time has purchased loan participations from outside its primary service area. We also may make loans to other borrowers outside these areas, especially where we have a relationship with the borrower, or its business or owners. Table of Contents 7 Human Capital At December 31, 2025, the Company and its subsidiaries had 145 full-time equivalent employees, including 37 officers. Our employees have been with us an average of approximately 12 years. We successfully implemented plans to protect our employees’ health consistent with CDC and State of Alabama guidelines during the COVID-19 pandemic, while maintaining critical banking services to our communities and experiencing little employee turnover. In addition, we developed our remote and electronic banking services, and established remote work access to help employees stay at home where their job duties permitted. This promoted employee retention, and these efforts will provide us proven experience and flexibility to meet other disruptive events and conditions, and still provide our customers and communities continuity of service. We have a talented group of employees, many of whom, have a college or associate degree. We believe the Auburn- Opelika MSA is a desirable place to live and work with excellent schools and quality of life. Our MSA was the second fastest growing MSA in Alabama from 2010 to 2022. Auburn University is a major employer that attracts talented students and employee families. We had a successful management transition in 2022 where our CEO became Chairman, and was succeeded by our CFO, whose role was then filled by our Chief Accounting Officer. At the time of transition, our Chairman had served the Bank 39 years, 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 offer competitive compensation and benefits. We provide employer matches for employee contributions to our 401(k) retirement plan. In 2024, our shareholders approved our 2024 Equity and Incentive Compensation Plan (the “2024 Incentive Plan”). The Plan provides for a variety of equity and equity-based awards, including stock options, performance shares, performance units, stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”) and cash incentive awards. We believe that the 2024 Incentive Plan provides the flexibility to structure appropriate incentives to attract and retain talented people in a competitive market where many of our competitors are public companies who offer stock-based incentives. We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Career development is advanced through ongoing performance and development conversations with employees, internally developed training programs and other training and development opportunities. Our employees are encouraged to be active in our communities as part of our commitment to these communities and our employees. Statistical Information Certain statistical information is included in responses to Items 6, 7, 7A and 8 of this Annual Report on Form 10-K. Table of Contents 8 SUPERVISION AND REGULATION The Company and the Bank are extensively regulated under federal and state laws applicable to bank holding companies and banks. The supervision, regulation and examination of the Company and the Bank and their respective subsidiaries by the bank regulatory agencies are primarily intended to maintain the safety and soundness of depository institutions and the federal deposit insurance system, as well as the protection of depositors, rather than holders of Company capital stock and other securities. Various changes in legislation and regulatory rules and practices occur regularly. Any change in applicable law or regulation may have a material effect 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, rules and regulatory proposals referred to below. Bank Holding Company Regulation The Company, as a bank holding company, is subject to supervision, regulation and examination by the Federal Reserve under the BHC Act. Bank holding companies generally are limited to the business of banking, managing or controlling banks, and certain related activities. The Company is required to file periodic reports and other information with the Federal Reserve. The Federal Reserve examines the Company and its subsidiaries. The State of Alabama currently does not regulate bank holding companies. The BHC Act requires prior Federal Reserve approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares or substantially all the assets of any bank, or for a merger or consolidation of a bank holding company with another bank holding company. The BHC Act generally prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company may, however, engage in or acquire an interest in a company that engages in activities that the Federal Reserve has determined by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Changes in control of bank holding companies are subject to prior notice to, and nonobjection by the Federal Reserve under the federal Change in Bank Control Act (the “Control Act”), and in the case of bank holding companies controlling Alabama state banks, by the Alabama Superintendent of Banks (the “Alabama Superintendent”) under the Alabama Banking Code. Bank holding companies that are and remain “well-capitalized” and “well-managed,” as defined in Federal Reserve Regulation Y, and whose insured depository institution subsidiaries maintain “satisfactory” or better ratings under the Community Reinvestment Act of 1977 (the “CRA”), may elect to become “financial holding companies.” Financial holding companies and their subsidiaries are permitted to acquire or engage in activities such as insurance underwriting, securities underwriting, travel agency activities, broad insurance agency activities, merchant banking and other activities that the Federal Reserve determines to be financial in nature or complementary thereto. In addition, under the BHC Act’s merchant banking authority and Federal Reserve regulations, financial holding companies are authorized to invest in companies that engage in activities that are not Changes in control of bank holding companies are subject to prior notice to, and nonobjection by the Federal Reserve under the federal Change in Bank Control Act (the “Control Act”), and in the case of bank holding companies controlling Alabama state banks, by the Alabama Superintendent of Banks (the “Alabama Superintendent”) under the Alabama Banking Code. Table of Contents 9 Bank holding companies that are and remain “well-capitalized” and “well-managed,” as defined in Federal Reserve Regulation Y, and whose insured depository institution subsidiaries maintain “satisfactory” or better ratings under the Community Reinvestment Act of 1977 (the “CRA”), may elect to become “financial holding companies.” Financial holding companies and their subsidiaries are permitted to acquire or engage in activities such as insurance underwriting, securities underwriting, travel agency activities, broad insurance agency activities, merchant banking and other activities that the Federal Reserve determines to be financial in nature or complementary thereto. In addition, under the BHC Act’s merchant banking authority and Federal Reserve regulations, financial holding companies are authorized to invest in companies that engage in activities that are not financial in nature, as long as the financial holding company makes its investment, subject to limitations, including a limited investment term, no day-to-day management, and no cross-marketing with any depositary institutions controlled by the financial holding company. The Company has not elected to become a financial holding company, but it may elect to do so in the future. Financial holding companies continue to be subject to Federal Reserve supervision, regulation and examination. The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) applies the concept of functional regulation to subsidiary activities. For example, insurance activities are subject to supervision and regulation by state insurance authorities and securities broker-dealer and investment advisory activities are regulated by the SEC. The BHC Act permits acquisitions of banks by bank holding companies, subject to various restrictions, including that the acquirer is “well capitalized” and “well managed”. 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, the Alabama Superintendent may approve an Alabama bank’s acquisition and operation of banks in other states. Also, Alabama banks may enter be acquired by an out- of-state bank, and the resulting out-of-state bank may continue to operate the acquired branches in Alabama. Banks, including Alabama banks, may branch anywhere in the United States and out of state banks may branch into Alabama. See “Bank Regulation”. The Company is a legal entity separate and distinct from the Bank. Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Company. The Company and the Bank are subject to Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W thereunder. Section 23A defines “covered transactions,” which include extensions of credit and other transactions with affiliates, and limits a bank’s covered transactions with any affiliate to 10% of such bank’s capital and surplus. All covered and exempt transactions between a bank and its affiliates must be on terms and conditions consistent with safe and sound banking practices, and banks and their subsidiaries are prohibited from purchasing low-quality assets from the bank’s affiliates. Section 23A requires that all of a bank’s extensions of credit to its affiliates be appropriately secured by permissible collateral, generally United States government or agency securities. Section 23B of the Federal Reserve Act generally requires covered and other transactions among affiliates 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 subsidiary as those prevailing at the time for similar transactions with unaffiliated companies. Federal Reserve policy and the Federal Deposit Insurance 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 otherwise be warranted. In the event an FDIC-insured subsidiary becomes subject to a regulatory capital restoration plan, the parent bank holding company is required to guarantee the 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 company. 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 fails. As a result, a bank holding company may be required to loan money to a bank subsidiary in the form of subordinated 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 “- Federal Reserve Capital Rules” and “Prompt Corrective Action.” The Federal Reserve’s Small Bank Holding Company Policy Statement (the “Small BHC Policy”) covers qualifying bank and thrift holding companies with up to $3 billion of consolidated assets. The Federal Reserve treats the Company as a small banking holding company under the Small BHC Policy. As a result, unless and until the Company fails to qualify under the Small BHC Policy, the Company’s capital adequacy will continue to be evaluated on a bank only basis. See “Capital.” Table of Contents 10 Bank Regulation The Bank is an Alabama state bank that is a member of the Federal Reserve. It is subject to supervision, regulation and examination by the Alabama Superintendent and the Federal Reserve, which monitor all areas of the Bank’s operations, including loans, reserves, mortgages, capital adequacy, liquidity, funding sources and concentrations, issuances and redemption of capital securities, payment of dividends, establishment of branches, and compliance with laws. The Bank’s deposits are insured by the FDIC to the maximum extent provided by law, and the Bank is subject to various FDIC regulations applicable to FDIC-insured banks. See “-FDIC Insurance Assessments.” Alabama law permits statewide branching by banks. The Alabama Banking Code has provisions designed to provide Alabama banks competitive equality with national banks. The Bank’s deposits are insured by the FDIC to the maximum extent provided by law, and the Bank is subject to various FDIC regulations applicable to FDIC-insured banks. See “-FDIC Insurance Assessments.” Under the Federal Financial Institutions Examination Council’s (“FFIEC”) Uniform Financial Institutions Rating System (“UFIRS”), the Federal Reserve assigns state member banks a confidential composite “CAMELS” rating based on an evaluation and rating of six essential components of an institution’s financial condition and operations: C apital Adequacy, A sset Quality, M anagement, E arnings, L iquidity and S ensitivity to market risk, as well as the quality of risk management practices. Each component and the overall rating are rated on a scale of 1 to 5, with one being the best. For most institutions, the FFIEC has indicated that market risk primarily reflects exposures to changes in interest rates. Regulators’ evaluations of this component, consider management’s ability to identify, measure, monitor and control market risk; the institution’s size; the nature and complexity of its activities and its risk profile; and the adequacy of its capital and earnings in relation to its level of market risk exposure. Assessments may be made of the sensitivity of the financial institution’s earnings or the economic value of its capital to adverse changes in interest rates, foreign exchange rates, commodity prices or equity prices; management’s ability to identify, measure, monitor and control exposure to market risk; and the nature and complexity of interest rate risk exposure arising from non -trading positions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market and Liquidity Risk Management.” Composite CAMELS ratings are based on evaluations of an institution’s managerial, operational, financial and compliance performance. The composite CAMELS rating is not an arithmetical formula or a rigid weighting of numerical component ratings. Elements of subjectivity and examiner judgment, especially as these relate to qualitative assessments, are important elements in assigning ratings. In stressful economic times, the Federal Reserve has a heightened focus on bank funding pressures based on risk profiles and management’s ability to manage their liquidity positions. In addition, and separate from the UFIRS, the Federal Reserve assigns a risk-management rating to all state member banks and bank holding companies. In February 2021 the Federal Reserve expanded its Guidance for Assessing Risk Management to institutions with under $100 billion in assets. This guidance states that principles of sound management should apply to all risk confronting a banking organization, including credit, market, liquidity, operational, compliance, and legal risks. For a small community banking organization (“CBO”) engaged solely in traditional banking activities and whose senior management is actively involved in the details of day-to-day operations, relatively basic risk management systems may be adequate. In accordance with the Interagency Guidelines Establishing Standards for Safety and Soundness, a CBO is expected, at a minimum, to have internal controls, information systems, and internal audit that are appropriate for the size of the institution and the nature, scope, and risk of its activities. Each assessment category and the overall rating is ranked on a scale of 1to 5 with 1 being the best rating and requiring the least supervisory attention. Bank mergers, which generally accompany holding company mergers, are also subject to the approval of the resulting bank’s primary federal regulator. The Federal Reserve and the Alabama Superintendent must approve mergers and acquisitions by the Bank. The FDIC and the Office of the Comptroller of the Currency (“OCC”) may comment on mergers involving the Company or the Bank. Table of Contents 11 Bank and bank holding company mergers require evaluation by the federal bank regulators, among other factors, of the effects of the transaction on competition under the Bank Merger Act and the BHC Act. Applications under these Acts also are subject to United States Department of Justice (“DoJ”) antitrust review and possible litigation challenges. The DoJ and the Federal Trade Commission (“FTC”) adopted new non-binding merger guidelines in 2023. The DoJ revoked the 1995 Bank Merger Guidelines that were adopted with the federal bank regulators and adopted a 2024 Banking Addendum to its 2023 merger guidelines. The Federal bank regulators continue to apply the 1995 Bank Merger guidelines in considering the competitive effects of mergers. The DoJ has an important advisory role in bank and BHC mergers, but the bank regulators are the primary decision makers. The bank regulators may consider the Antitrust Division’s competitive factors report as part of their respective review processes, and use their own methods for screening and evaluating bank mergers. The GLB Act and related regulations require banks and their affiliated companies to adopt and disclose privacy policies, including policies regarding the sharing of personal information with third parties. The GLB Act also permits bank subsidiaries to engage in financial activities, which are similar to those permitted to financial holding companies. 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 protect the privacy of information of state residents and require adequate security of such data, and certain state laws may, in some circumstances, require us to notify affected individuals of security breaches of computer databases that contain their personal information. These laws may also require us to notify law enforcement, regulators or consumer reporting agencies in the event of a data breach, as well as businesses and governmental agencies that own data. “Open banking” rules were adopted by the Consumer Financial Protection Bureau (“CFPB”) in 2024 that require covered financial institutions to provide consumers and authorized third parties access to consumer financial data through secure interfaces, has been the subject of litigation. This would make it easier for customers to move their accounts and assets held in them. The CFPB Open banking rules have been the subject of litigation, and although the CFPB has requested comments on changes to the regulations, the status of the proposed revised rules is uncertain. Consumer Laws and the CFPB The CFPB has a broad mandate that requires it to regulate consumer financial products and services offered by banks and nonbanks. The CFPB is authorized to adopt regulations and enforce various laws, including the fair lending laws, the Truth in Lending Act, the Electronic Funds Transfer Act, mortgage lending rules, the Truth in Savings Act, the Fair Credit Reporting Act and Privacy of Consumer Financial Information rules. Although the CFPB does not examine or supervise banks with less than $10 billion in assets, the CFPB’s regulations, and the precedents set in CFPB enforcement actions and interpretations apply to all banks. The CFPB limited its funding requests in 2025 and the 2025 One Big Beautiful tax act reduced its funding cap from the Federal Reserve from 12% in 2024 to 6.9%. The CFPB Acting Director has sought to reduce CFPB staff from approximately 1,700 persons to 200, but litigation is challenging this. Community Reinvestment Act (“CRA”) and Fair Lending Laws The Bank is subject to the provisions of the CRA and the Federal Reserve’s CRA regulations. The CRA imposes continuing, affirmative obligations on all FDIC-insured institutions, consistent with their safe and sound operation, to help meet the credit needs for their entire communities, including low- and moderate-income (“LMI”) neighborhoods. The CRA requires a depository institution’s primary federal regulator to periodically assess the institution’s record of assessing and meeting the credit needs of the communities served by that institution, including low- and moderate-income neighborhoods. The bank regulatory agencies’ CRA assessments are publicly available. Consideration of CRA performance is required for expansion of bank activities under the Bank Merger Act and BHC Act, and for branching and financial holding company activities. A less than satisfactory CRA rating will slow, if not preclude such expansion activities. The federal CRA regulations require that evidence of discriminatory, illegal or abusive lending practices be considered in the CRA evaluation. Table of Contents 12 CRA agreements with private parties must be disclosed and annual CRA reports must be made to a bank’s primary federal regulator. Community benefit plans have become common in banking mergers, especially larger bank combinations. The National Community Reinvestment Coalition reported that as of January 2026, it had executed 22 community benefit plans with banking organizations for an aggregate of $606 billion for mortgage, small business and community development lending, investments and philanthropy in LMI and under-resourced communities. The Capital One Financial acquisition of Discover Financial Services in 2025 included a community benefit plan with another community organization valued at $265 billion, which is the largest ever. The Bank had a “satisfactory” CRA rating in its latest CRA public evaluation dated March 3, 2025, with satisfactory ratings on both its lending and community development tests. The Federal Reserve considers the effects of a bank acquisition proposal on the convenience and needs of the markets served by the combining organizations, as well as CRA performance in evaluating merger and acquisition applications under the Bank Merger Act and the BHC Act and branching applications. 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 and the target in meeting the needs of their entire communities, including LMI neighborhoods. Inadequate performance records may be the basis for denying an application. New CRA Rules were adopted by the federal bank regulators in 2023. On July 16, 2025, prior to the new rules, effective date, the Federal Reserve, the FDIC, and the OCC jointly issued a proposal to rescind the 2023 rule and replace these with the 1995 CRA regulations, with certain technical amendments. The bank regulators continue to apply the 1995 CRA regulations. The Bank is also subject to, among other things, the Equal Credit Opportunity Act (the “ECOA”) and the Fair Housing Act and other fair lending laws, which prohibit discrimination based on race or color, religion, national origin, sex and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. The DoJ’s and the federal bank regulatory agencies’ Interagency Policy Statement on Discrimination in Lending provides guidance to financial institutions. The DOJ has prosecuted what it regards as violations of the fair lending laws, generally. Overdrafts The federal bank regulators have updated their guidance several times on overdrafts, including overdrafts incurred at ATMs and point of sale terminals. The CFPB began refocusing on overdrafts in 2021. Among other things, the federal regulators require banks to monitor accounts and to limit the use of overdrafts by customers as a form of short-term, high-cost credit, including, for example, giving customers who overdraw their accounts on more than six occasions where a fee is charged in a rolling 12-month period, a reasonable opportunity to choose a less costly alternative and decide whether to continue with fee-based overdraft coverage. Banks are encouraged to place appropriate daily limits on overdraft fees, and have been asked to consider eliminating overdraft fees for transactions that overdraw an account by de minimis amounts. Overdraft policies, processes, fees and disclosures have been the subject of various litigation against banks in various jurisdictions. The federal bank regulators continue to consider responsible small dollar lending, including overdrafts and related fee issues, and issued principles for offering small-dollar loans in a responsible manner on May 20, 2020. CFPB Consumer Financial Protection Circular 2022-06 (Oct. 26, 2022) concluded that overdraft fee practices must comply with Regulation Z, Regulation E, and the prohibition against unfair, deceptive, and abusive acts or practices in Section 1036 of the Consumer Financial Protection Act. Further, overdraft fees assessed by financial institutions on transactions that a consumer would not reasonably anticipate are likely unfair even if these comply with these other consumer laws and regulations. A CFPB Rule adopted in December 2024 to limit banks with over $10 billion in assets from charging more than $5 for an overdraft was rescinded pursuant to the Congressional Review Act in May 2025. Table of Contents 13 Residential Mortgages CFPB regulations require that lenders determine whether a consumer has the ability to repay a mortgage loan. These 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.” Generally, these CFPB regulations apply to all consumer, closed-end loans secured by a dwelling including home-purchase loans, refinancing and home equity loans—whether first or subordinate lien. Qualified mortgages must generally satisfy detailed requirements related to product features, underwriting standards, and requirements where the total points and fees on a mortgage loan cannot exceed specified amounts or percentages of the total loan amount. Qualified mortgages also must have: (1) a term not exceeding 30 years; (2) regular periodic payments that do not result in negative amortization, deferral of principal repayment, or a balloon payment; (3) and be supported with documentation of the borrower and its credit. On December 10, 2020, the CFPB issued final rules related to “qualified mortgage” loans. Lenders are required under the law to determine that consumers have the ability to repay mortgage loans before lenders make those loans. Loans that meet standards for QM loans are presumed to be loans for which consumers have the ability to repay. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “2018 Growth Act”) provides that certain residential mortgages held in portfolio by banks with less than $10 billion in consolidated assets automatically are deemed “qualified mortgages”, provided: ● the mortgage is documented; ● does not include interest only or negative amortizations terms; ● any prepayment penalties are within the Truth in Lening act limits; and ● fees are less than 10% of the loan value. This relieves smaller banks from many of the “qualified mortgage” requirements. The Bank generally services the loans it originates, including those it sells. The CFPB’s mortgage servicing standards include requirements regarding force-placed insurance, certain notices prior to rate adjustments on adjustable-rate mortgages, and periodic disclosures to borrowers. Servicers are prohibited from processing foreclosures when a loan modification is pending, and must wait until a loan is more than 120 days delinquent before initiating a foreclosure action. Servicers must provide borrowers with direct and ongoing access to its personnel, and provide prompt review of any loss mitigation application. Servicers must maintain accurate and accessible mortgage records for the life of a loan and until one year after the loan is paid off or transferred. These standards increase the cost and compliance risks of servicing mortgage loans, and the mandatory delays in foreclosures could result in loss of value on collateral or the proceeds we may realize from the sale of foreclosed property. We focus our residential mortgage origination on qualified mortgages and those that meet our investors’ requirements, but we may make loans that do not meet the safe harbor requirements for “qualified mortgages.” The Bank’s mortgage lending is subject to the CFPB’s integrated disclosure rules under the Truth in Lending Act and the Real Estate Settlement Procedures Act, referred to as “TRID”, for credit transactions secured by real property. The Federal Housing Finance Authority (“FHFA”) regulates the Federal National Mortgage Association (“Fannie Mae’s”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (individually and collectively, “GSE”). Among these, are repurchase rules applicable to sales of mortgages to the GSEs. These rules include the types of loan defects that could lead the GSEs to request a mortgage loan repurchase or seek other remedies against the mortgage loan originator or seller. The Bank sells mortgage loans to Fannie Mae and services these on an actual/actual basis. As a result, the Bank is not obligated to make any advances to Fannie Mae on principal and interest on such mortgage loans where the borrower is entitled to forbearance. Anti-Money Laundering, Countering the Financing of Terrorism and Sanctions Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT 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 in their dealings with foreign financial institutions and foreign customers. Table of Contents 14 The USA PATRIOT Act requires financial institutions to establish anti-money laundering programs, and sets forth minimum standards, or “pillars” for these programs, including: ● the development of internal policies, procedures, and controls; ● the designation of a compliance officer; ● an ongoing employee training program; ● an independent audit function to test the programs; and ● ongoing customer due diligence and monitoring. The International Money Laundering Abatement and Anti-Terrorism Funding Act of 2001 specifies “know your customer” requirements that obligate financial institutions to take actions to verify the identity of the account holders in connection with opening an account at any U.S. financial institution. 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 Bank Merger Act, and sanctions for violations of this Act can be imposed in an amount equal to twice the sum involved in the violating transaction, up to $1 million. Federal Financial Crimes Enforcement Network (“FinCEN”) rules require banks to know the beneficial owners of customers that are not natural persons, update customer information in order to develop a customer risk profile, and generally monitor such matters. The Federal Reserve, the depository institution regulators and FinCEN issued a Joint Statement on Risk-Focused Bank Secrecy Act/Anti-Money Laundering Supervision (July 22, 2019). Under this Join Statement, institutions that operate in compliance with applicable law, properly manage customer relationships and effectively mitigate risks by implementing controls commensurate with the type and level of their risks are neither prohibited nor discouraged from providing banking services. Examiners review risk management practices to evaluate and assess whether a bank has developed and implemented effective processes to identify, measure, monitor, and control risks. On August 13, 2020, the federal bank regulators issued a joint statement on their anti-money laundering, Bank Secrecy Act and countering the financing of terrorism (“AML/CFT”) enforcement, which clarified that isolated or technical violations or deficiencies generally are not considered the kinds of problems that would result in an enforcement action. The statement addresses how the agencies evaluate violations of individual pillars of the AML/CFT compliance program. It describes how the agencies incorporate the customer due diligence regulations and recordkeeping requirements issued by the United States Department of the Treasury (the “Treasury”) as part of the internal controls pillar of a bank’s AML/BSA compliance program. On January 1, 2021, Congress enacted the Anti-Money Laundering Act of 2020 and the Corporate Transparency Act (collectively, the “Corporate Transparency Act” or the “CTA”), to strengthen anti-money laundering and countering terrorism financing programs. FinCEN regulation 31 C.F.R. 101.380 implements the CTA effective on January 1, 2024. These regulations require entities to report information about their beneficial owners and the individuals who created the entity (together, “beneficial ownership information” or “BOI”). The new rules expand financial institutions’ obligations under the Customer Due Diligence Rule (“CDD Rule”) to collect information and verify the beneficial ownership of legal entities. Although the Company and the Bank are exempt from the CTA’s requirements to report their own respective beneficial owners, the new laws may increase the Bank’s anti-money laundering diligence activities and costs. Following litigation and nationwide injunctions, the Treasury Department suspended enforcement of the CTA on March 2, 2025 with respect to U.S. citizens or domestic reporting companies or their beneficial owners. This Alert confirmed that reporting companies are not currently required to file beneficial ownership information and are not subject to liability if they fail to do so while the suspension continues. FinCEN published an interim final rule on March 26, 2025, that revised the definition of “reporting company” in its regulations implementing the CTA to include only entities formed under the law of a foreign country that have registered to do business in any U.S. State or tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also formally exempted entities previously known as “domestic reporting companies” from the CTA’s reporting requirements. Table of Contents 15 Bills have been introduced in Congress to repeal the CTA, and it is unknown whether these will pass or if the Administration will continue to defend the litigation challenging the CTA. The United States has imposed various sanctions upon foreign countries, including China, Iran, North Korea, Russia and Venezuela, and certain of their government officials and persons. Banks are required to comply with these sanctions, which require additional customer screening and transaction monitoring. Russia’s February 2022 invasion of Ukraine has generated a significant number of new sanctions on Russia, Russian persons and suppliers of military or dual-purpose products to Russia. The Federal bank regulators have issued alerts that Russia and others may step up cyber-attacks and data intrusions following the invasion. Other Laws and Regulations The Company is required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as related rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board and Nasdaq. In particular, the Company is required to report annually on internal controls as part of its annual report pursuant to Section 404 of the Sarbanes-Oxley Act. The Company has evaluated its controls, including compliance with the SEC and FDIC rules on internal controls, and expects to continue to spend significant amounts of time and money on compliance with these rules. If the Company fails to comply with these internal control rules in the future, it may adversely affect its reputation, its ability to obtain the necessary certifications to its financial statements, its relations with its regulators and other financial institutions with which it deals, and its ability to access the capital markets and offer and sell Company securities on terms and conditions acceptable to the Company. The Company’s assessment of its financial reporting controls as of December 31, 2025 is included in this report with no material weaknesses reported. Capital The Federal Reserve has risk-based capital guidelines for bank holding companies and state member banks, respectively. These guidelines require a minimum ratio of capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) and capital conservation buffer, totaling 10.5%. Tier 1 capital includes common equity and related retained earnings and a limited amount of qualifying preferred stock, less goodwill and certain core deposit intangibles. Voting common equity must be the predominant form of capital. Tier 2 capital consists of non–qualifying preferred stock, qualifying subordinated, perpetual, and/or mandatory convertible debt, term subordinated debt and intermediate term preferred stock, up to 45% of pretax unrealized holding gains on available for sale equity securities with readily determinable market values that are prudently valued, and a limited amount of general loan loss allowance. Tier 1 and Tier 2 capital equals total capital. The Federal Reserve also has minimum leverage ratio guidelines for bank holding companies not subject to the Small BHC Policy, and state member banks, which provide for a minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets (“leverage ratio”) equal to 4%. However, bank regulators expect banks and bank holding companies to operate with a higher leverage ratio. Lastly, the Federal Reserve indicates that it will continue to consider a “tangible Tier 1 leverage ratio” (deducting all intangibles) in evaluating proposals for expansion or new activities. The level of Tier 1 capital to risk-adjusted assets is becoming more widely used by the bank regulators to measure capital adequacy. Under Federal Reserve policies, bank holding companies are generally expected to operate with capital positions well above the minimum ratios. The guidelines also provide that institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Higher capital may be required in individual cases, depending upon a bank’s or bank holding company’s risk profile, and the level and nature of their risks, including the volume and severity of their problem loans. The Federal Reserve believes the risk-based ratios do not fully take into account the quality of capital and interest rate, liquidity, market and operational risks. Accordingly, supervisory assessments of capital adequacy may differ significantly from conclusions based solely on the level of an organization’s risk-based capital ratio. Table of Contents 16 The Federal Reserve has not advised the Company or the Bank of any specific minimum leverage ratio or tangible Tier 1 leverage ratio applicable to them. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal banking agencies to take “prompt corrective action” regarding depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors established by regulation. See “Prompt Corrective Action Rules.” Federal Reserve Capital Rules General The Federal Reserve and the other federal bank regulators adopted in June 2013 final capital rules for bank holding companies and banks implementing the Basel Committee on Banking Supervision’s “Basel III: A Global Regulatory Framework for more Resilient Banks and Banking Systems.” These “Basel III Capital Rules” in Federal Reserve Regulation Q were fully phased-in, generally, on January 1, 2019. The Bank has elected not to have its capital structure evaluated under the community bank leverage framework permitted by the 2018 Growth Act. Regulation Q generally limits Tier 1 capital to common stock and noncumulative perpetual preferred stock. Regulation Q defines “Common Equity Tier I Capital” or “CET1” to include common stock and related surplus, retained earnings, and subject to certain adjustments, minority common equity interests in subsidiaries. CET1 is reduced by deductions for: ● Goodwill and other intangibles, other than mortgage servicing assets (“MSRs”), which are treated separately, net of associated deferred tax liabilities (“DTLs”); ● Deferred tax assets (“DTAs”) arising from operating losses and tax credit carryforwards net of allowances and DTLs; ● Gains on sale from any securitization exposure; and ● Defined benefit pension fund net assets (i.e., excess plan assets), net of associated DTLs. The Company’s CET1 is not adjusted for certain accumulated other comprehensive income (“AOCI”). Additional “threshold deductions” of each of the following that are individually greater than 25% of CET1 (after the first deductions above): ● MSRs, net of associated DTLs; ● DTAs arising from temporary differences that could not be realized through net operating loss carrybacks, net of any valuation allowances and DTLs; and ● Significant common stock investments in unconsolidated financial institutions, net of associated DTLs. Noncumulative perpetual preferred stock and Tier 1 minority interest not included in CET1, subject to limits, will qualify as additional Tier I capital. All other qualifying preferred stock, subordinated debt and qualifying minority interests will be included in Tier 2 capital. Table of Contents 17 Minimum Capital Requirements The various minimum capital requirements under Federal Reserve Regulation Q are: Minimum CET1 4.50% CET1 Conservation Buffer 2.50% Total CET1 7.00% Deductions from CET1 100% Minimum Tier 1 Capital 6.00% Minimum Tier 1 Capital plus conservation buffer 8.50% Minimum Total Capital 8.00% Minimum Total Capital plus conservation buffer 10.50% Certain Risk-Weightings Among other things, Regulation Q as changed by the Basel III Capital Rules Q changed some of the risk weightings used to determine risk-weighted capital adequacy. Among other things, Regulation Q: ● Assigns a 250% risk weight to MSRs or 10% or greater investments in other financial institutions; ● Assigns up to a 1,250% risk weight to structured securities, including private label mortgage securities, trust preferred CDOs and asset backed securities; ● Retains existing risk weights for residential mortgages, but assign a 100% risk weight to most commercial real estate loans and a 150% risk-weight for HVCRE; ● Assigns a 150% risk weight to past due exposures (other than sovereign exposures and residential mortgages); ● Assigns a 250% risk weight to DTAs, to the extent not deducted from capital (subject to certain maximums); ● Retains the existing 100% risk weight for corporate and retail loans; and • Increases the risk weight for exposures to qualifying securities firms from 20% to 100%. HVCRE Risk Weight A “high volatility commercial real estate” loan (“HVCRE,”) which has a 150% risk weight generally is a credit facility secured by land or improved real property made after 2014 that: ● primarily finances or refinances the acquisition, development, or construction of real property; ● has the purpose of providing financing to acquire, develop, or improve such real property into income producing property; and ● the repayment of the loan is dependent upon the future income or sales proceeds from, or refinancing of, such real property. Exceptions are made for various things, including loans for (i) the acquisition, development and construction of 1 to 4 family residences, and investments in community development or agricultural land, and (ii) commercial real properties where the loan-to-value ratio is not more than the maximum supervisory level determined by the Federal Reserve or the borrower has contributed capital in a form specified by the rule equal to at least 15% of the real property’s “as completed” value. Capital Conservation Buffer The capital conservation buffer is equal to the lowest of the following, calculated as of the last day of the previous calendar quarter: (A) The institution's CET 1 capital ratio minus the institution's minimum CET1 ratio; (B) The institution's tier 1 capital ratio minus the institution's minimum tier 1 capital ratio requirement; and (C) The institution's total capital ratio minus the institution's minimum total capital ratio requirement. Table of Contents 18 The capital conservation buffer limits permissible dividends, stock repurchases and discretionary bonuses to the following percentages based on the capital conservation buffer subject to any further regulatory limitations, including those based on risk assessments and enforcement actions: Capital Conservation Buffer % Buffer % Limit More than 2.50% None > 1.875% - 2.50% 60.0% > 1.250% - 1.875% 40.0% > 0.625% - 1.250% 20.0% ≤ 0.625 - 0 - Reg. Q amended the definition of “eligible retained income” in 2020 to allow banking organizations to more freely use their capital buffers to promote lending and other financial intermediation activities, by making the limitations on capital distributions more gradual. “Eligible retained income, as used in Federal Reserve Regulation Q, is the greater of (i) net income for the four preceding quarters, net of distributions and associated tax effects not reflected in net income; and (ii) the average of all net income over the preceding four quarters. Banking organizations were encouraged to make prudent capital distribution decisions. Regulatory Capital Changes Prompt Corrective Action Rules All of the federal bank regulatory agencies’ regulations establish risk-adjusted measures and relevant capital levels that implement the “prompt corrective action” standards for depository institutions. The relevant capital measures are the total risk-based capital ratio, Tier 1 risk-based capital ratio, Common equity tier 1 capital ratio, as well as the leverage capital ratio. Under the regulations, a state member bank will be: ● “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a Common equity tier 1 capital ratio of 6.5% or greater, a leverage capital ratio of 5% or greater and is not subject to any written agreement, order, capital directive or prompt corrective action directive by a federal bank regulatory agency to maintain a specific capital level for any capital measure; ● “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a Common Equity Tier 1 capital ratio of 4.5% or greater, and generally has a leverage capital ratio of 4.0% or greater; ● “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a Common Equity Tier 1 capital ratio of less than 4.5% or generally has a leverage capital ratio of less than 4.0%; ● “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a Common Equity Tier 1 capital ratio of less than 3%, or a leverage capital ratio of less than 3.0%; or ● “critically undercapitalized” if its tangible equity is equal to or less than 2.0% to total assets. The federal bank regulatory agencies have authority to require additional capital where they determine it is necessary, including where a bank is unsafe or unsound condition or where the bank is determined to have less than a satisfactory rating on any of its CAMELS ratings. The regulators have confirmed that higher capital levels may be required in light of market conditions and risk. Depository institutions that are “adequately capitalized” for bank regulatory purposes must receive a waiver from the FDIC prior to accepting or renewing brokered deposits, and cannot pay interest rates or brokered deposits that exceeds market rates by more than 75 basis points. Less than “adequately capitalized” banks cannot accept or renew brokered deposits. FDICIA generally prohibits a depository institution from making any capital distribution, including paying dividends or any management fee to its holding company, if the depository institution thereafter would be “undercapitalized”. Institutions that are “undercapitalized” are subject to growth limitations and are required to submit a capital restoration plan for approval. Table of Contents 19 A depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) 5% of the depository institution’s total assets at the time it became undercapitalized and (ii) the amount necessary to bring the institution into compliance with applicable capital standards. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized”. If the controlling holding company fails to fulfill its obligations under FDICIA and files (or has filed against it) a petition under the federal Bankruptcy Code, the claim against the holding company’s capital restoration obligation would be entitled to a priority in such bankruptcy proceeding over third-party creditors of the bank holding company. “Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to: (i) sell sufficient voting stock to become “adequately capitalized”; (ii) Reduce total assets; and (iii) Cease receipt of deposits from correspondent banks. “Critically undercapitalized” depository institutions are subject to the appointment of a receiver or conservator. The Company’s management believes that the prompt corrective action provisions of FDICIA have not had and are not expected to have any material effect on the Bank or the Company or their respective operations. Dividends and Distributions The Company is a legal entity separate and distinct from the Bank. 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). The Company’s primary source of cash is dividends from the Bank. “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; or ● the average net income over the preceding four quarters. 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, 2025. As of December 31, 2025, the Bank is “well capitalized” for bank regulatory purposes. Management has not received any notification from the Bank's regulators, which 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 net profits for the year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. During 2025, the Bank paid total cash dividends of approximately $3.8 million to the Company. At December 31, 2025, the Bank had net profits for the year and retained net profits for the preceding two calendar years, less any required transfers to surplus, of $6.5 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 minimums. The appropriate federal and state regulatory authorities are authorized to determine when the payment of dividends would be an unsafe or unsound 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 also has indicated that banks depository institutions and their holding companies should generally pay dividends only out of current year’s operating earnings. See “Regulatory Capital Changes” and Note 16 to the Company’s consolidated financial statements. Table of Contents 20 Federal Reserve Supervisory Letter SR-09-4 (February 24, 2009), as revised December 21, 2015, applies to dividend payments, stock redemptions and stock repurchases. Prior consultation with the Federal Reserve supervisory staff is required before: ● redemptions or repurchases of capital instruments when the bank holding company is experiencing financial weakness; and ● redemptions and purchases of common or perpetual preferred stock which would reduce Tier 1 capital at end of the period compared to the beginning of the period. Bank holding company directors must consider various factors tis setting a dividend level that is prudent to maintaining a strong financial position, and is not based on overly optimistic earnings scenarios, such as potential events that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal 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 dividends if: ● its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; ● its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or ● It will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Capital Rule Changes The Federal Reserve, the FDIC and the OCC have been working on proposed changes to their capital rules, which the FDIC Board is scheduled to discuss on March 19, 2026. Michelle Bowman, the Federal Reserve Vice Chair for Supervision outlined the proposals in broad terms in a March 12, 2026 speech, which continued a theme to “right-size” capital to match actual risk. Although many of the pending proposals focus on large banks, Ms. Bowman stated “smaller banks, which are more focused on traditional lending activities, will see slightly larger reductions in capital requirements.” The proposals have not been published for comment, and we cannot predict the effects of these proposals on us. FDICIA FDICIA directs that each federal bank regulatory agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth composition, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares, safety and soundness, and such other standards as the federal bank regulatory agencies deem appropriate. Enforcement Policies and Actions The Federal Reserve and the Alabama Superintendent examine and regulate our compliance with laws and regulations, including the CFPB’s regulations. The Federal Reserve and the Alabama Superintendent examine and regulate our compliance with laws and regulations, including the CFPB’s regulations. The CFPB issues regulations, interpretations and enforcement actions under the laws applicable to consumer financial products and services. Violations of laws and regulations, including those administered by the CFPB, or other unsafe and unsound practices, may result in the Federal Reserve and the Alabama Superintendent imposing fines, penalties and/or restitution, cease and desist orders, or taking other formal or informal enforcement actions. Under certain circumstances, these agencies may enforce these remedies directly against officers, directors, employees and others participating in the affairs of a bank or bank holding company, in the form of fines, penalties, or the recovery, or claw-back, of compensation. Table of Contents 21 Fiscal and Monetary Policies Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the major portion of a bank’s earnings. The earnings and growth of the Company and the Bank, as well as the values of, and earnings on, its assets and the costs of its deposits and other liabilities are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including setting target federal funds rates, open market dealings in United States government securities, the setting of the discount rate at which banks 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 2008. The payment of interest on excess reserve balances was expected to give the Federal Reserve greater scope to use its lending programs to address conditions in credit markets while also maintaining the federal funds rate close to the target rate established by the Federal Open Market Committee (“FOMC). The Federal Reserve has indicated that it may use this authority to implement a mandatory policy to reduce excess liquidity, in the event of inflation or the threat of inflation. In April 2010, the Federal Reserve Board amended Regulation D (Reserve Requirements of Depository Institutions) authorizing the Reserve Banks to offer term deposits to certain institutions. Term deposits are one of several tools that the Federal Reserve could employ to drain reserves when policymakers judge that it is appropriate to begin moving to a less accommodative stance of monetary policy. In light of disruptions in economic conditions caused by COVID-19 and the stress in U.S. financial markets, the Federal Reserve, Congress and the Department of the Treasury took a host of fiscal and monetary measures. In March 2020, the FOMC reduced the federal funds rate target twice to 0-0.25%. The Federal Reserve established various liquidity facilities pursuant to section 13(3) of the Federal Reserve Act to help stabilize the financial system and purchased large amounts of government and government agency securities and agency mortgage -backed securities (“MBS”). 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 from accommodative to restrictive. The Federal Reserve raised the target federal funds rate eight times in 2022 for a total 4.25%. During 2023, the Federal Reserve four announced additional target rate increases of 25 basis points each. The federal funds target rate range was 5.25-5.50% from May 4, 2023 until September 19, 2024, when it was reduced to 4.75% -5.00%. Two reductions in November and December 2024 resulted in a target range of 4.25%-4.50% at the end of 2024. In 2025, the FOMC reduced its target federal funds rates three times to target rate of 3.50%-3.75%, where it remains as of March 2, 2026. In January 2026, the FOMC reaffirmed its long-term goals originally adopted in 2012 that seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run based on the annual change in the price index for personal consumption expenditures. The Federal Reserve’s securities holdings in its System Open Market Account (“SOMA”) increased from $3.9 trillion in early March 2020 to $9.0 trillion at April 11, 2021, largely as a result of securities purchases as the Federal Reserve injected liquidity as a result of the COVID-19 pandemic. On May 4, 2022, the Federal Reserve announced its plan to reduce its securities holdings in an effort to reduce inflation: ● Reinvestments of principal of maturing Treasury securities would be reduced by $30 billion per month for three months and thereafter would be $60 billion per month. ● Reinvestments of principal of maturing agency debt and agency mortgage -backed securities would be reduced by $17.5 billion per month for three months and thereafter would be $35 billion per month. ● These declines would slow and then stop when the Federal Reserve’s balance sheet was somewhat above the balance it deemed ample. Starting in June 2024, the FOMC reduced the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee maintained the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion, reinvested any remaining principal amounts of maturing securities in Treasury securities. Table of Contents 22 In April 2025, the FOMC further slowed the reduction its SOMA holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion, while maintaining the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion. The FOMC announced on October 29, 2025 that it would conclude the reduction of its aggregate SOMA securities holdings on December 1, 2025. At its December 2025 meeting, the FOMC determined to initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves on an ongoing basis. Most recently, on January 31, 2026 the FOMC announced that beginning February 1, 2026, it would, subject to modest deviations for operational reasons: ● Roll over amount of principal payments from the Federal Reserve's SOMA holdings of Treasury securities maturing in each calendar month that exceeds $60 billion per month. Treasury coupon securities would be redeemed up to this monthly cap and Treasury bills would be redeemed to the extent that coupon principal payments are less than the monthly cap. ● Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from SOMA holdings of agency debt and agency mortgage-backed securities (“MBS”) received in each calendar month that exceeds a cap of $35 billion per month. SOMA holdings as of March 4, 2026, 2026 were $6.23 trillion, including approximately $2 trillion of agency securities and agency MBS. FDIC Insurance Assessments The Bank’s deposits are insured by the FDIC’s DIF, and the Bank is subject to FDIC assessments for its deposit insurance. Since 2011, the FDIC has been calculating assessments based on an institution’s average consolidated total assets less its average tangible equity (the “FDIC Assessment Base”). A bank's assessment base and assessment rate are determined each quarter. Generally, established “small banks” with less than $10 billion in assets are assigned an individual rate based on a formula using financial data and CAMELS (the “financial ratios method”). The better the CAMELS rating and other financial ratios, the lower the assessment rate. The FDIC assessment schedule for Small Banks, such as the Bank, for the first assessment period provides a total annual assessment rate of 2 to 32 basis points: As a result of the decision to insure all deposits in Silicon Valley Bank and Signature Bank upon their failures in March 2023, the FDIC made a special assessment of 3.36 points for a projected eight quarters on banks with more than $5 billion of uninsured deposits. These special assessments did not apply to the Bank. The FDIC’s minimum 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 (the “FDI 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. The FDI Act provides for dividends from the fund when the reserve ratio exceeds 1.5%, but grants the Board sole discretion in determining whether to suspend or limit the declaration or payment of dividends to DIF members. The DIF reserve ratio was 1.42% at December 31, 2025, 14 basis points higher than at the end of 2024, and above the minimum. The Company recorded FDIC insurance premiums expenses of $0.5 million for each of 2025 and 2024. Table of Contents 23 CRE and Leveraged Loans CRE The federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending” (2006) (the “CRE Guidance”). The CRE Guidance defines CRE loans as exposures secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (that is, loans for which 50% or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of this property. Loans to REITs and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the CRE Guidance. Loans on owner occupied CRE are generally excluded. The CRE Guidance requires that banks have appropriate processes be in place to identify, monitor and control risks associated with real estate lending concentrations. This could include enhanced strategic planning, CRE underwriting policies, risk management, internal controls, portfolio stress testing and risk exposure limits as well as appropriately designed compensation and incentive programs. Higher allowances for loan losses and capital levels may also be required. The CRE Guidance is triggered when either: ● Total reported loans for construction, land development, and other land of 100% or more of a bank’s total capital; or ● Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land are 300% or more of a bank’s total risk-based capital. This CRE Guidance was supplemented by the Interagency Statement on Prudent Risk Management for Commercial Real Estate Lending (December 18, 2015). The CRE Guidance also applies when a bank has a sharp increase in CRE loans or has significant concentrations of CRE secured by a particular property type. See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Balance Sheet Analysis” for concentrations of the various types of CRE loans. At December 31, 2025, the Bank had outstanding $56.6 million in construction and land development loans and $325.8 million in total CRE loans (excluding owner occupied properties), which represent approximately 48% and 277%, respectively, of the Bank’s total risk-based capital at December 31, 2025. 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 customers. The Company believes its long-term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place, as well as its loan and credit monitoring and administration procedures, are generally appropriate to manage its concentrations as required under the Guidance. The federal bank regulators, including the Federal Reserve issued a Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts (June 30, 2023), which updated existing guidance. 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. It 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. In addition, 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. The Policy Statement also describes the classifications of CRE loan accommodations and workouts and addresses regulatory accounting and reporting in such situations, including CECL. Leveraged Loans The Federal Reserve and other banking regulators issued their “Interagency Guidance on Leveraged Lending” (2006) highlighting standards for originating leveraged transactions and managing leveraged portfolios, as well as requiring banks to identify their highly leveraged transactions, or HLTs. The Bank did not have any leveraged loans at year-end 2025, 2024 or 2023 subject to the Interagency Guidance on Leveraged Lending or that were shared national credits. Table of Contents 24 Certain Dodd-Frank Act Provisions No Hedging of Equity Incentive Compensation The Dodd-Frank Act, Section 955, requires the SEC establish rules requiring that companies disclose in their annual meeting proxy materials whether an employee or board member is permitted to purchase financial instruments designed to hedge or offset decreases in the market value of equity securities granted as compensation or otherwise held by the employee or board member. SEC Reg. S-K Item 407(i) implements this Section. The Company’s Insider Trading Policy 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 engaging in speculative transactions or short-term trading in Company Securities at any time. Short-selling Company securities or engaging in transactions involving “Derivative Securities” on Company securities are prohibited. Further, hedging instruments or strategies, including Derivative Securities may not be used to increase the value or reduce the risks of any awards under the 2024 Incentive Plan. The Company’s Insider Trading Policy is included as an exhibit to its annual report on SEC Form 10-K. No Incentives Encouraging Inappropriate Risk-Taking Section 956 of the Dodd-Frank Act requires the appropriate federal regulators to issue regulations or guidelines that prohibits incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions, are deemed to be excessive, or that may lead to material losses to the covered financial institution. In June 2010, the federal bank regulators adopted Guidance on Sound Incentive Compensation Policies, which, although targeted to larger, more complex organizations than the Company, includes principles that have been applied to smaller organizations similar to the Company. 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 material amounts of risk.” Incentive compensation should: ● Provide employees incentives that appropriately balance risk and reward; ● Be compatible with effective controls and risk-management; and ● Be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. The federal bank regulators have stated that this Guidance is expected to generally have less effect on smaller banking organizations, which typically are less complex and make less use of incentive compensation arrangements than larger banking organizations. The Company’s Compensation Committee Charter provides that the Committee shall identify and limit features of compensation plans that it reasonably believes would lead to unnecessary and excessive risk-taking, and establish a compensation strategy to provide balanced risk-taking incentives in alignment with the Company’s risk appetite and compliance with the various laws and regulations governing executive officer and director compensation. The federal bank regulators, the SEC and other regulators first proposed regulations implementing Section 956 in April 2011, which would have been applicable to, among others, depository institutions and their holding companies with $1 billion or more in assets. These rules have not been adopted. Debit Card Interchange Fees The “Durbin Amendment” to the Dodd-Frank Act and Federal Reserve Regulation II provide that interchange transaction fees for electronic debit transactions be “reasonable” and proportional to certain costs associated with processing the transactions. The Durbin Amendment and the Federal Reserve rules thereunder are not applicable to banks with assets less than $10 billion. Such smaller banks, however, compete with banks that are subject to the Durbin Amendment, and therefore may have to limit their interchange fees, also. Legislation has been proposed which would regulate credit card interchange fees. Table of Contents 25 Other Legislative and Regulatory Changes Various legislative and regulatory proposals, including substantial changes in banking, and the regulation of banks, thrifts and other financial institutions, compensation, and the regulation of financial markets and their participants, and financial instruments and securities, and the regulators of all of these, as well as the taxation of these entities, are being considered by the executive branch of the federal government, Congress and various state governments, including Alabama. The 2018 Growth Act 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 regulatory relief. The following provisions of the 2018 Growth Act may be particularly helpful to banks of our size, and we have benefited from the Growth Act’s changes to the deposit rules: ● Increased the asset size under the Federal Reserve's Small BHC Policy from $1 billion to $3 billion; ● “qualifying community banks,” defined as institutions with total consolidated assets of less than $10 billion, which meet a “community bank leverage ratio, which is currently 9.0%, may be deemed to have satisfied applicable risk- based capital requirements as well as the capital ratio requirements; ● section 13(h) of the BHC Act, or the “Volcker Rule,” is amended to exempt from the Volcker Rule, banks with total consolidated assets valued at less than $10 billion (“community banking organizations”), and trading assets and liabilities comprising not more than 5.00% of total assets; and ● “reciprocal deposits” held by banks that are well capitalized and well rated will not be considered “brokered deposits” for FDIC purposes, The FDIC issued comprehensive changes to its brokered deposit rules effective April 1, 2021. The revised rules establish new standards for determining whether an entity meets the statutory definition of “deposit broker,” and identifies a number of businesses that automatically meet the “primary purpose exception” from a “deposit broker.” The revisions also provide an application process for entities that seek a “primary purpose exception,” but do not meet one of the designated exceptions.” The new rules provide us greater flexibility. Reciprocal deposits have expanded our funding and liquidity sources without being subjected to FDIC limitations on depositor FDIC insurance coverage and potential federal deposit insurance assessment increases for brokered deposits. The applicable agencies also issued final rules simplifying the Volcker Rule’s 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. New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of the nation’s financial institutions. Recent Developments Executive Order 14192 seeks to “significantly reduce the private expenditures required to comply with Federal regulations.” For the current fiscal year 2025, for each new regulation, at least 10 existing regulations shall be identified for repeal. Agencies are directed to ensure that the total incremental cost of all new regulations, including repealed regulations, being finalized this year, shall be significantly less than zero, as determined by the OMB Director. The OMB Director shall provide agencies with guidance on implementation, including measuring regulatory costs. No regulation shall be added to or removed from the Unified Regulatory Agenda without the approval of the OMB Director. Regulations and rules are broadly defined to include: …agency statements of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the practice requirements of an agency, including, without limitation, regulations, rules, memoranda, administrative orders, guidance documents, policy statements, and interagency agreements. Table of Contents 26 The current Acting CFPB Director on February 8, 2025 ordered all CFPB employees to suspend substantially all activities, including all supervision, examination and stakeholder engagement activities, and closed the agency's headquarters for the week of February 10, 2025. The Acting CFPB Director also said the CFPB had excessive funding on hand and would not take the next scheduled drawdown of funds from the Federal Reserve. Executive Order 14178 states the Administration’s policy “to support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy.” “Digital assets” include “any digital representation of value that is recorded on a distributed ledger, including cryptocurrencies, digital tokens, and stablecoins.” This order revoked Executive Order 14067 “Ensuring Responsible Development of Digital Assets” (March 9, 2022) and directed the Secretary of the Treasury is directed to immediately revoke the Department of the Treasury's “Framework for International Engagement on Digital Assets,” (July 7, 2022). These new policies include the following that are applicable to banks: ● protecting and promoting fair and open access to banking services for all law-abiding individual citizens and private-sector entities alike; and ● providing regulatory clarity and certainty built on technology-neutral regulations, frameworks that account for emerging technologies, transparent decision making, and well-defined jurisdictional regulatory boundaries, all of which are essential to supporting a vibrant and inclusive digital economy and innovation in digital assets, permissionless blockchains, and distributed ledger technologies The Executive Order “Restoring Democracy and Accountability in Government” (Feb. 11, 2025) requires all agencies to submit draft regulations for White House review with no carveout for so-called independent agencies, except for the monetary policy functions of the Federal Reserve; and consult with the White House on their priorities and strategic plans. The White House will set their performance standards. The Office of Management and Budget will adjust so-called independent agencies’ apportionments of funds. The President and the Attorney General (subject to the President’s supervision and control) will interpret the law for the executive branch, instead of having separate agencies adopt conflicting interpretations. Changes in the Federal Bank Regulators and the SEC A new Comptroller of the Currency, and new FDIC and SEC Chairs, and a new Vice Chair for Supervision at the Federal Reserve were appointed in 2025 and have taken different approaches from their immediate predecessors. The Federal Reserve’s new Vice Chair for Supervision stated her goals in February 2026: ● Community banks are and should be subject to less stringent standards than large banks, and there is significant opportunity to tailor regulations and supervision to the unique needs and circumstances of these banks. ● Increase static and outdated statutory thresholds, including asset thresholds, which may push banks into different regulatory restrictions, and supervisory and reporting categories more suited to larger institutions. ● Tailor the merger and acquisition and de novo chartering application processes for community banks, including accurately considering competition among small banks. ● Changes in Basel III capital rules to support market liquidity, affordable homeownership, and safety and soundness. In particular, the capital treatment of mortgage loans and mortgage servicing assets under the U.S. standardized approach has resulted in banks reducing their participation in this important lending activity, limiting access to mortgage credit. ● Change bank supervision to focus on the core material risks to banks’ operations and the stability of the broader financial system. Core material risks include non-financial risks where these pose threats to safety and soundness. Strong risk management, whether in credit, liquidity, cybersecurity, or operations, remains essential, and will be part of bank examinations. ● Supervision must also be tailored, matching oversight to each institution's size, complexity, and risk profile. ● Supervision must also be tailored, matching oversight to each institution's size, complexity, and risk profile. ● Review the CAMELS bank ratings framework, and establish clear metrics and parameters for all of the components to provide transparent and objective supervisory assessments to reflect overall safety and soundness, n ot just isolated deficiencies in a single CAMELS component. Table of Contents 27 ● Adopt a proposed regulation to avoid bank supervisors encouraging, influencing, or compelling banks to debank or refuse to bank a customer due to their constitutionally protected political or religious beliefs, associations, speech, or conduct. At the same time, banks must remain free to make their own risk-based decisions to serve individuals and lawful businesses. The Office of the Comptroller of the Currency (“OCC”) and the FDIC have stated similar goals. De novo bank and bank merger applications are being approved faster by all the Federal bank regulators, and the FDIC has approved the deposit insurance for several industrial bank applications. The OCC and the FDIC are encouraging innovation and digital asset activities, and implementing the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). The regulators have rescinded prior policies (i) limiting digital activities and (ii) requiring prior regulatory notice and review of novel activities, including digital activities. The regulators have clarified that banking organizations may engage in permissible crypto-asset activities, and provide products and services to persons engaged in crypto-asset related activities, subject to safety and soundness and applicable laws and regulations. The SEC Chair and the SEC are reevaluating the disclosures required of public company under Regulation S-K, including the executive compensation disclosures. The SEC Chair’s goals are to promote a more favorable environment for public companies by: ● anchoring disclosures in financial materiality so that investment decisions can turn on economic signals rather than on regulatory noise; ● scale disclosure requirements with a company’s size and maturity; ● de-politicizing shareholder meetings by restoring their focus to significant corporate matters; and ● allowing public companies to have litigation alternatives so that innovators shielded from the frivolous and investors from the fraudulent.