What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-03 compared with 2024-03-05 · 545 added, 597 removed, 389 unchanged (75% of the section changed)

13 unchanged sentences

At December 31, 2024, we had total assets of $4.09

billion, a 9.9% increase from total assets of $3.69 billion at December 31, 2022.

billion, a slight increase from total assets of $4.06 billion at December 31, 2023.

The largest components of our total assets are loans

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and $1.66 for the years ended December 31, 2024 and 2023, respectively.

The decrease in net income resulted primarily from a decrease

in net interest income and an increase in noninterest expenses, partially offset by a decrease in the provision for credit losses.

addition, our net income available to shareholders was $46.7 million, or EPS of $5.85 for the year ended December 31, 2021.

The increase in net income resulted primarily from an increase

in net interest income and an increase in noninterest income, partially offset by an increase in noninterest expenses and a decrease in

the provision for credit losses.

In addition, our net income available to shareholders was $29.1 million, or EPS of $3.61 for the year

ended December 31, 2022.

SELECTED FINANCIAL DATA

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Annual Report on Form 10-K.

Years Ended December 31,

(dollars in thousands, except per share data)

BALANCE SHEET DATA

Investment securities

Allowance for credit losses

FHLB advances and other borrowings

Subordinated debentures

Ended December 31,

in thousands, except per share data)

BALANCE SHEET

for credit losses

FHLB advances

and other borrowings

Shareholders’

RESULTS OF OPERATIONS DATA

for credit losses

income after provision for credit losses

before income tax expense

income available to common shareholders

average number of common shares outstanding:

FINANCIAL RATIOS

on average assets

on average equity

on average common equity

margin, tax equivalent (2)

Asset Quality

Nonperforming

assets to total loans (1)

Nonperforming

assets to total assets

Net charge-offs

to average total loans

for credit losses to nonperforming loans

for credit losses to total loans

Holding Company

Capital Ratios:

Total risk-based

capital ratio

risk-based capital ratio

equity tier 1 ratio (4)

common equity (5)

Preferred stock

Shareholders’ equity

SELECTED RESULTS OF OPERATIONS DATA

Interest income

Interest expense

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Noninterest income

Noninterest expenses

Income before income tax expense

Income tax expense

Preferred stock dividends

Net income available to common shareholders

PER COMMON SHARE DATA

Weighted average number of common shares outstanding:

Basic, in thousands

Diluted, in thousands

SELECTED FINANCIAL RATIOS

Performance Ratios:

Return on average assets

Return on average equity

Return on average common equity

Net interest margin, tax equivalent (2)

Efficiency ratio (3)

Asset Quality Ratios:

Nonperforming assets to total loans (1)

Nonperforming assets to total assets

Net charge-offs to average total loans

Allowance for credit losses to nonperforming loans

Allowance for credit losses to total loans

Holding Company Capital Ratios:

Total risk-based capital ratio

Tier 1 risk-based capital ratio

Leverage ratio

Common equity tier 1 ratio (4)

Tangible common equity (5)

Growth Ratios:

Change in assets

Change in loans

Change in deposits

Change in net income to common shareholders

Change in earnings per common share - diluted

in net income to common shareholders

in earnings per common share - diluted

Footnotes to table:

Excludes loans held for sale.

The tax-equivalent adjustment to net interest income adjusts the yield for

assets earning tax-exempt income to a comparable yield on a taxable basis.

Noninterest expense divided by the sum of net interest income and noninterest

The common equity tier 1 ratio is calculated as the sum of common equity divided

by risk-weighted assets.

The common equity ratio is calculated as total equity less preferred stock divided

by total assets.

The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis.

Noninterest expense divided by the sum of net interest income and noninterest income.

The common equity tier 1 ratio is calculated as the sum of common equity divided by risk-weighted assets.

The common equity ratio is calculated as total equity less preferred stock divided by total assets.

CRITICAL ACCOUNTING ESTIMATES

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Assets and liabilities that are measured at fair value using quoted prices in active markets (Level 1) do not require significant judgment

while the valuation of assets and liabilities

when quoted market prices are not available (Levels 2 and 3) may require significant

judgment to assess whether observable or unobservable

inputs for those assets and liabilities provide reasonable determination of fair value.

See Note 12 to the Consolidated Financial Statements

for additional information regarding the fair values measured at each level of the fair value hierarchy, additional discussion regarding

fair value measurements, and a brief description of how fair value is determined for categories that have unobservable inputs.

while the valuation of assets and liabilities when quoted market prices are not available (Levels 2 and 3) may require significant

judgment to assess whether

observable or unobservable inputs for those assets and liabilities provide reasonable determination of fair value.

See Note 12 to the

Consolidated Financial Statements for additional information regarding the fair values measured at each level of the fair value hierarchy,

additional discussion regarding fair value measurements, and a brief description of how fair value is determined for categories that have

unobservable inputs.

The financial statements have been prepared on the

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interest income was $81.2 million, $77.7 million, and $97.6 million, respectively.

The $20.0 million, or 20.5%, decrease in net interest

income during 2023, compared to 2022, was driven by a $79.9 million increase in interest expense, primarily related to our interest-bearing

deposits, partially offset by a $59.9 million increase in interest income.

During 2022, our net interest income increased $9.9 million,

or 11.3%, compared to 2021, while average interest-earning assets increased $525.0 million and average interest-bearing liabilities increased

$401.0 million.

The $3.6 million, or 4.6%, increase in net interest

income during 2024, compared to 2023, was driven by a $23.6 million increase in interest income, partially offset by a $20.0 million increase

in interest expense.

During 2023, our net interest income decreased $20.0 million, or 20.5%, compared to 2022.

This decrease in net interest

income was driven by a $79.9 million increase in interest expense, primarily related to our interest-bearing deposits, partially offset

by a $59.9 million increase in interest income during the 2023 period.

Interest income for the years ended December 31, 2024,

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Also, included in interest income on loans was $1.6 million related to the net amortization of loan fees and capitalized loan origination

costs for the year ended December 31, 2023, compared to $1.7 million and $1.4 million for the years ended December 31, 2022 and 2021,

respectively.

The increase in interest income during 2023 was driven by an increase in average interest-earning assets, combined with

higher yields on those assets.

costs for the year ended December 31, 2024, compared to $1.7 million for the years ended December 31, 2023 and 2022, respectively.

increase in interest income during 2024 was driven by an increase in average interest-earning assets, combined with higher yields on those

Interest expense was $120.0 million, $99.9 million,

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The increase in interest expense on deposits during

2023 resulted primarily from an increase in the rate paid on deposit balances which relates to the Federal Reserve’s 525 basis point

increase in the federal funds rate over the past two years.

the 2024 and 2023 periods was driven by the increase in the rate paid on deposit balances which relates to the Federal Reserve’s

525 basis point increase in the federal funds rate beginning in March 2022 and continuing through July 2023.

We have included a number of tables to assist in our

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of capitalized loan costs and fees are amortized into interest income on loans.

Average Balances, Income and Expenses, Yields and

For the Year Ended December 31,

Average Balances, Income and Expenses, Yields and Rates

(dollars in thousands)

Interest-earning assets

Federal funds sold and interest-bearing deposits with banks

Federal funds sold and

interest-bearing deposits with banks

Investment securities, taxable

Investment securities, nontaxable (1)

securities, nontaxable (1)

Total interest-earning assets

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tax-equivalent adjustment (1)

Net interest income

The tax-equivalent adjustment to net interest income adjusts the yield for assets earning

tax-exempt income to a comparable yield on a taxable basis.

interest income

(1) The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income

to a comparable yield on a taxable basis.

(2) Includes loans held for sale and nonaccrual loans.

Our net interest margin,

on a tax-equivalent basis (TE), was 2.07%, 3.19% and 3.45% for the years ended December 31, 2023, 2022 and 2021, respectively.

interest margin (TE) decreased 112 basis points in 2023, compared to 2022, driven by higher costs on our interest-bearing liabilities,

partially offset by an increase in yield on our interest-earning assets.

During 2022, our net interest margin decreased 26 basis points,

compared to 2021, due to higher costs on our interest-bearing liabilities, partially offset by an increase in yield on our interest-earning

Our net interest margin, on

a tax-equivalent basis (TE), was 2.06%, 2.07% and 3.19% for the years ended December 31, 2024, 2023 and 2022, respectively.

Our net interest

margin (TE) was relatively stable in 2024, compared to 2023 as both our yield on interest earning assets and rate of interest bearing

liabilities increased similarly during the year.

During 2023, our net interest margin decreased 112 basis points, compared to 2022, driven

primarily by higher costs on our interest-bearing liabilities.

Our average interest-earning assets increased by $175.0

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In addition, the increase in yield on our interest

earning assets was driven by a 357 basis point increase in the yield on our federal funds sold and other interest-bearing deposits which

repriced as the Federal Reserve increased the federal funds rate by 100 basis points during 2023.

Our average interest-bearing liabilities increased

by $749.3 million during 2023 while the cost of our interest-bearing liabilities increased by 255 basis points.

The increase in average

interest-bearing liabilities was driven primarily by a $598.8 million increase in average interest-bearing deposits at an average rate

During 2022, our average interest-bearing liabilities increased by $401.0 million, compared to 2021, while the cost of our interest-bearing

liabilities increased by 64 basis points.

earning assets was driven by a 40 basis point increase in the yield on our loan portfolio.

During the year ended December 31, 2023, our average

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The increase in average interest-earning assets was driven primarily by a $626.9 million increase in average loan balances

combined with an $35.3 million decrease in federal funds sold and interest-bearing deposits with banks.

combined with a $46.4 million increase in federal funds sold and interest-bearing deposits with banks.

In addition, the increase in yield

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deposits which repriced as the Federal Reserve increased the federal funds rate by 100 basis points during 2023.

Our average interest-bearing liabilities increased

by $193.2 million during 2024 while the cost of our interest-bearing liabilities increased by 44 basis points.

The increase in average

interest-bearing liabilities was driven primarily by a $268.7 million increase in average time deposits at an average rate of 4.94% and

an increase of $70.4 million in FHLB advances and other borrowings.

During 2023, our average interest-bearing liabilities increased by

$749.3 million, compared to 2022, while the cost of our interest-bearing liabilities increased by 255 basis points.

Our net interest spread was

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is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities.

255 basis point increase in the cost of our interest-

bearing liabilities, partially

offset by an 88 basis point increase in yield on our interest-earning assets resulted in a 167 basis point decrease in our net interest

44 basis point increase in the cost of our interest-bearing liabilities, partially offset by a 39 basis point increase in yield on our

interest-earning assets resulted in a 5 basis point

decrease in our net interest

spread for the 2024 period.

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assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented.

December 31, 2023 vs.

December 31, 2022 vs.

Increase (Decrease) Due to Change in

(dollars in thousands)

(Decrease) Due to Change in

in thousands)

interest income

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interest income

Net interest income, the largest component of our

income, was $77.7 million for the year ended December 31, 2023, a $20.0 million decrease from net interest income of $97.6 million for

the year ended December 31, 2022.

The decrease in net interest income was driven by a $79.9 million increase in interest expense, partially

offset by a $59.9 million increase in interest income.

The 257 basis point increase in deposit costs drove the increase in interest expense

while the $626.9 million increase in average loan balances combined with the 77 basis point increase in loan yield drove the increase

in interest income.

Net interest income, the largest component of our income,

was $81.2 million for the year ended December 31, 2024, a $3.6 million increase from net interest income of $77.7 million for the year

ended December 31, 2023.

The increase in net interest income was driven by a $23.6 million increase in interest income, partially offset

by a $20.0 million increase in interest expense.

The 40 basis point increase in loan yield combined with the $131.9 million increase in

average loan balances drove the increase in interest income while the 47 basis point increase in deposit costs drove the increase in interest

Net interest income was $77.7 million for the year

ended December 31, 2022, a $9.9 million increase from net interest income of $87.7 million for the year ended December 31, 2021.

in net interest income was driven by a $24.5 million increase in interest income, partially offset by a $14.6 million increase in interest

The $556.5 million increase in average loan balances was the primary driver of the increase in interest income, while the 65

basis point increase in deposit costs drove the increase in interest expense.

ended December 31, 2023, a $20.0 million decrease from net interest income of $97.6 million for the year ended December 31, 2022.

decrease in net interest income was driven by a $79.9 million increase in interest expense, partially offset by a $59.9 million increase

in interest income.

The 257 basis point increase in deposit costs drove the increase in interest expense while the $626.9 million increase

in average loan balances combined with the 77 basis point increase in loan yield drove the increase in interest income.

Provision for Credit Losses

The provision for credit losses, which includes a

provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses and reserve for unfunded

commitments at levels consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date.

On January 1, 2022, we adopted the Current Expected Credit Loss (CECL) methodology for estimating credit losses, which resulted in an

increase of $1.5 million in our allowance for credit losses and an increase of $2.0 million in our reserve for unfunded commitments.

tax-effected impact of these two items amounted to $2.8 million and was recorded as an adjustment to our retained earnings as of January

We review the adequacy of the allowance for credit losses on a quarterly basis.

Please see the discussion below under “Results

of Operations – Allowance for Credit Losses” for a description of the factors we consider in determining the amount of the

provision we expense each period to maintain this allowance.

There was a $1.3 million provision for credit losses

for the year ended December 31, 2023, compared to a provision of $6.2 million and a reversal of $12.4 million for the years ended December

31, 2022 and 2021, respectively.

The $1.3 million provision during 2023 included a $2.2 million provision for credit losses and a reversal

of $949,000 for unfunded commitments.

The $2.2 million provision was driven primarily by $329.3 million in loan growth during the year,

while the $949,000 reversal was driven by a $153.7 million decrease in unfunded commitments.

The $6.2 million provision during 2022, which

included a $780,000 provision for unfunded commitments, was driven primarily by $783.5 million in loan growth during the year, combined

with a $259.6 million increase in unfunded commitments.

In addition, to loan growth,

the provision for credit losses was impacted by slightly

lower expected loss rates due to historically low charge-offs during the 12 months ended December 31, 2022 while minor adjustments to

two internal qualitative factors increased the qualitative component of the allowance and related provision expense.

The provision for credit losses, which includes a provision

for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses and reserve for unfunded commitments

at levels consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date.

the adequacy of the allowance for credit losses on a quarterly basis.

Please see the discussion below under “Results of Operations

– Allowance for Credit Losses” for a description of the factors we consider in determining the amount of the provision we

expense each period to maintain this allowance.

There was a $125,000 provision for credit losses for

the year ended December 31, 2024, compared to a provision of $1.3 million and $6.2 million for the years ended December 31, 2023 and 2022,

respectively.

The $125,000 provision during 2024 included a provision of $500,000 for credit losses and a reversal of $375,000 for unfunded

The $500,000 provision was driven primarily by $29.1 million in loan growth during the year combined with slightly lower

expected loss rates due to historically low charge-offs, while the $375,000 reversal was driven by a $5.5 million decrease in unfunded

commitments combined with lower historical loss rates.

The $1.3 million provision during 2023 included a $2.2 million provision for credit

losses and a reversal of $949,000 for unfunded commitments.

The $2.2 million provision was driven primarily by $329.3 million in loan

growth during the year, while the $949,000 reversal was driven by a $153.7 million decrease in unfunded commitments.

The $6.2 million

reversal of provision during 2021 related to a reduction in qualitative adjustment factors driven by the overall improvement in economic

conditions as well as improvement in the credit quality of our portfolio following the pandemic.

provision during 2022, which included a $780,000 provision for unfunded commitments, was driven primarily by $783.5 million in loan growth

during the year, combined with a $259.6 million increase in unfunded commitments.

In addition, to loan growth, the provision for credit

losses was impacted by

slightly lower expected loss rates due to historically

low charge-offs during the 12 months ended December 31, 2022 while minor adjustments to two internal qualitative factors increased the

qualitative component of the allowance and related provision expense.

Following is a summary of the activity in the allowance

for credit losses.

(dollars in thousands)

beginning of period

for (reversal of) credit losses

in thousands)

Balance, beginning of period

Adjustment for CECL

Provision for credit losses

Loan charge-offs

Loan recoveries

loan (charge-offs) recoveries

end of period

As of December 31, 2023, the allowance for credit

losses totaled $40.7 million, or 1.13% of gross loans.

As of December 31, 2024, the allowance for credit losses

totaled $39.9 million, or 1.10% of gross loans.

In comparison, the allowance for credit losses totaled $40.7 million as of December 31,

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During the year ended December 31, 2024, we had net

charge-offs of $166,000, consisting of $761,000 of loans charged-off in the current year, partially offset by $595,000 of recoveries on

loans previously charged-off.

charge-offs of $1.3 million, consisting of $1.7 million of loans charged-off in the current year, partially offset by $466,000 of recoveries

on loans previously charged-off.

Net charge-offs were 0.04% of the average outstanding loan portfolio for 2024.

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assets increased to 0.27% of total assets while our level of classified assets decreased to 4.25% at December 31, 2024.

We reported net recoveries of $1.4 million and net

charge-offs of $1.3 million for the years ended December 31, 2022 and 2021, respectively, including charge-offs of $485,000 and recoveries

of $825,000 in 2022 and 2021, respectively.

The net recoveries of $1.4 million and charge-offs of $1.3 million during 2022 and 2021, respectively,

represented 0.05% and 0.06% of the average outstanding loan portfolios for 2022 and 2021, respectively.

In addition, nonperforming assets

were 0.07% and 0.17% of total assets for 2022 and 2021, respectively, and classified assets were 4.72% and 12.61% at December 31, 2022

and 2021, respectively.

We reported net charge-offs of $166,000 and net recoveries

of $1.4 million for the years ended December 31, 2023 and 2022, respectively, including charge-offs of $761,000 and $485,000 in 2023 and

2022, respectively.

The net charge-offs of $166,000 and net recoveries of $1.4 million during 2023 and 2022, respectively, represented

0.0.% and 0.05% of the average outstanding loan portfolios for 2023 and 2022, respectively.

In addition, nonperforming assets were 0.10%

and 0.07% of total assets for 2023 and 2022, respectively, and classified assets were 4.25% and 4.72% at December 31, 2023 and 2022, respectively.

Noninterest Income

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(dollars in thousands)

banking income

fees on deposit accounts

debit card income

bank owned life insurance

fees on PPP loan sale

on disposal of fixed assets

sale of securities

Mortgage banking income

Service fees on deposit accounts

ATM and debit card income

Income from bank owned life insurance

Gain (loss) on disposal of fixed assets

noninterest income

Noninterest income was $12.1 million for the year ended

December 31, 2024, a $2.3 million, or 23.1%, increase compared to noninterest income of $9.9 million for the year ended December 31, 2023.

The increase in noninterest income during 2024, compared to 2023, resulted primarily from an increase in mortgage banking income, service

fees on deposit accounts and income from bank owned life insurance.

Mortgage banking income increased by $1.5 million, or 37.8%, due to

higher mortgage volume during the year.

Service fees on deposit accounts increased by $382,000, or 27.6%, due to transaction volume and

increased use of the commercial credit cards offered to our clients.

Noninterest income was $9.9 million for the year ended

December 31, 2023, a $280,000, or 2.9%, increase compared to noninterest income of $9.6 million for the year ended December 31, 2022.

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due to a decrease in loan fee income during 2023 as compared to 2022 due to fewer loan originations.

Noninterest income was $9.6 million for the year ended

December 31, 2022, a $7.5 million, or 44.0%, decrease compared to noninterest income of $17.1 million for the year ended December 31,

The decrease in noninterest income during 2022, compared to 2021, resulted primarily from the following:

Mortgage banking income decreased $7.2 million, or 63.1%, driven by low inventory in

the housing market, lower refinance volumes, and a decrease in margin on loan sales.

During 2022, purchase transactions accounted

for approximately 84% of our mortgage volume compared to 40% in 2021 as refinance transactions diminished due to the higher

mortgage rates in 2022.

Offsetting these decreases in noninterest income were

increases in service fees on deposit accounts and ATM and debit card income due to growth in our client base and transaction volume.

Noninterest Expenses

1 unchanged sentence

to our noninterest expenses.

Years ended December 31,

Ended December 31,

(dollars in thousands)

estate owned expenses, net

service and data processing costs

Compensation and benefits

Outside service and data processing costs

Professional fees

noninterest expenses

3 unchanged sentences

compared to 2023, resulted primarily from the following:

Compensation and benefits expense increased $1.5 million, or 3.8%, during 2023 relating

primarily to an increase in salaries and incentive compensation.

Occupancy expenses increased $1.2 million, or 12.6%, driven by increased depreciation, insurance,

property taxes and maintenance expenses primarily related to our new headquarters building.

Outside service and data processing costs increased $966,000, or 15.8%, primarily due to increased

electronic banking, software licensing costs and debit card related expenses.

Insurance expenses increased $2.1 million, or 123.4%, related to higher FDIC insurance premiums.

Marketing expenses increased $141,000, or 11.6%, driven by an increase in community sponsorships

and business development.

Other noninterest expenses increased $211,000, or 6.2%, due primarily to an increase in telephone

expense and deposit account and fraud losses.

Partially offsetting the above increases was a decrease

in professional of $139,000, or 5.3% due to less legal fees and consulting expenses.

· Compensation and benefits expense

increased $3.3 million, or 8.1%, during 2024 relating primarily to an increase in group insurance and other benefits expenses as well

as increases in salaries and incentive compensation.

· Outside service and data processing

costs increased $663,000, or 9.4%, primarily due to increased electronic banking, software licensing costs and debit card related expenses.

· Insurance expenses increased

$256,000, or 6.8%, related to higher FDIC insurance premiums.

· Other noninterest expenses increased

$310,000, or 8.6%, due primarily to an increase in debit card losses, collection expense, and other staff related expenses.

Noninterest expenses were $68.8 million for the year

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compared to 2022, resulted primarily from the following:

Compensation and benefits expense increased $2.7 million, or 7.4%, during 2022 relating

primarily to a $5.2 million increase in salaries and incentive compensation, partially offset by a $2.4 million decrease in mortgage

commissions paid on sales activity.

During 2022, we grew by 15 employees who were hired primarily to grow our footprint in each of

our South Carolina, North Carolina, and Georgia markets.

Occupancy expenses increased $2.1 million, or 30.9%, driven by increased depreciation, insurance,

property taxes and maintenance expenses primarily related to our new headquarters building.

Outside service and data processing costs increased $644,000, or 11.8%, primarily due to increased

electronic banking, software licensing costs and ATM card related expenses.

Insurance expenses increased $537,000, or 46.7%, related to higher FDIC insurance premiums.

Marketing expenses increased $311,000, or 34.4%, driven by an increase in community sponsorships

and business development.

Other noninterest expenses increased $514,000, or 17.9%, due primarily to an increase in travel expenses

between our eight markets, deposit account losses, and staff related expenses.

· Compensation and benefits expense

increased $1.5 million, or 3.8%, during 2023 relating primarily to an increase in salaries and incentive compensation.

· Occupancy expenses increased

$1.2 million, or 12.6%, driven by increased depreciation, insurance, property taxes and maintenance expenses primarily related to our

new headquarters building.

· Outside service and data processing

costs increased $966,000, or 15.8%, primarily due to increased electronic banking, software licensing costs and debit card related expenses.

· Insurance expenses increased

$2.1 million, or 123.4%, related to higher FDIC insurance premiums.

· Marketing expenses increased

$141,000, or 11.6%, driven by an increase in community sponsorships and business development.

· Other noninterest expenses increased

$211,000, or 6.2%, due primarily to an increase in telephone expense and deposit account and fraud losses.

Partially offsetting the above increases was a decrease

in other real estate owned expenses of $385,000 due to the sale of one commercial property in 2021.

Our efficiency ratio was 78.7% for 2023 compared to

58.7% for 2022.

The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar

of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income.

The increase during

the 2023 period relates primarily to the decrease in net interest income compared to the prior year.

Income tax expense was $4.0 million, $9.0 million

and $14.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Our effective tax rate was 23.0% for the year ended

December 31, 2023, compared to 23.6% for 2022, and 23.2% for 2021.

The fluctuation in the effective rate for each of the periods is driven

by to the impact of tax-exempt income and equity compensation transactions that occurred during the respective periods in relation to

pre-tax income.

in professional fees of $139,000, or 5.3% due to less legal fees and consulting expenses during 2023.

Our efficiency ratio was 78.5% for 2024 and 78.7% for

The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue

and is computed by dividing noninterest expense by the sum of net interest income and noninterest income.

Our efficiency ratio was elevated

for the twelve months ended December 31, 2024 due to the comparatively smaller increase in net interest income and noninterest income,

as compared to the increase in noninterest expenses during the year.

Income tax expense was $4.4 million, $4.0 million and

$9.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Our effective tax rate was 22.0% for the year ended December

31, 2024, compared to 23.0% for 2023, and 23.6% for 2022.

The fluctuation in the effective rate for each of the periods is driven by the

effect of equity compensation transactions and return to provision differences on our actual tax rate during the year compared to what

was estimated during the year.

Investment Securities

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(dollars in thousands)

Available for Sale

Corporate bonds

1 unchanged sentence

US government agencies

SBA securities

State and political subdivisions

Asset-backed securities

Mortgage-backed

Mortgage-backed securities

Contractual maturities and yields on our investments

2 unchanged sentences

or prepay obligations with or without call or prepayment penalties.

December 31, 2023

Less Than One Year

One to Five Years

Five to Ten Years

Over Ten Years

Than One Year

to Five Years

(dollars in thousands)

Available for Sale

Corporate bonds

US treasuries

US government

political subdivisions

Mortgage-backed

US government agencies

State and political subdivisions

Asset-backed securities

Mortgage-backed securities

Other investments are comprised of the following and

1 unchanged sentence

(dollars in thousands)

Home Loan Bank stock

Federal Home Loan Bank stock

Other investments

in Trust Preferred subsidiaries

Investment in Trust Preferred subsidiaries

Since loans typically provide higher interest yields

3 unchanged sentences

total loans outstanding at December 31, 2024 and 2023 were $3.63 billion and $3.60 billion, respectively.

The principal component of our loan portfolio is loans

secured by real estate mortgages.

As of December 31, 2023, our loan portfolio included $3.05 billion, or 84.8%, of real estate loans,

compared to $2.78 billion, or 84.8%, as of December 31, 2022.

Most of our real estate loans are secured by residential or commercial property.

We obtain a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the

ultimate repayment of the loan.

Generally, we limit the loan-to-value ratio on loans to coincide with the appropriate regulatory guidelines.

We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral

and business types.

In addition to traditional residential mortgage loans, we issue second mortgage residential real estate loans and

home equity lines of credit.

Home equity lines of credit totaled $183.0 million as of December 31, 2023, of which approximately 46% were

in a first lien position, while the remaining balance was second liens, compared to $179.3 million as of December 31, 2022, of which approximately

48% were in first lien positions and the remaining balance was in second liens.

The average home equity loan had a balance of approximately

$85,000 and a loan to value of approximately 73% as of December 31, 2023, compared to an average loan balance of $84,000 and a loan to

value of approximately 73% as of December 31, 2022.

Further, 0.8% and 0.6% of our total home equity lines of credit were over 30 days

past due as of December 31, 2023 and 2022, respectively.

The principal component of our loan portfolio

is loans secured by real estate mortgages.

As of December 31, 2024, our loan portfolio included $3.03 billion, or 83.5%, of real estate

loans, compared to $3.05 billion, or 84.8%, as of December

Most of our real estate loans are

secured by residential or commercial property.

We obtain a security interest in real estate, in addition to any other available collateral,

in order to increase the likelihood of the ultimate repayment of the loan.

Generally, we limit the loan-to-value ratio on loans to coincide

with the appropriate regulatory guidelines.

We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent

in concentration in certain types of collateral and business types.

In addition to traditional residential mortgage loans, we issue second

mortgage residential real estate loans and home equity lines of credit.

Home equity lines of credit totaled $204.9 million as of December

31, 2024, of which approximately 46% were in a first lien position, while the remaining balance was second liens, compared to $183.0 million

as of December 31, 2023, of which approximately 46% were in first lien positions and the remaining balance was in second liens.

home equity loan had a balance of approximately $92,000 and a loan to value of approximately 74% as of December 31, 2024, compared to

an average loan balance of $85,000 and a loan to value of approximately 73% as of December 31, 2023.

Further, 0.12% and 0.8% of our total

home equity lines of credit were over 30 days past due as of December 31, 2024 and 2023, respectively.

Following is a summary of our loan composition for

2 unchanged sentences

related loans, while $18.9 million of growth was in consumer related loans, specifically consumer real estate mortgages which grew by

$151.2 million during 2023.

The increase in consumer real estate loans is related to our focus to continue to originate high quality 1-4

family consumer real estate loans.

Our average consumer real estate loan currently has a principal balance of $469,000, a term of 23 years,

and an average rate of 4.10%.

$46.2 million and home equity lines of credit which grew by $21.9 million during 2024.

Offsetting the growth in consumer real estate loans

and home equity lines of credit was a $42.5 million decrease in consumer construction loans.

The increase in consumer real estate loans

is related to our focus to continue to originate high quality 1-4 family consumer real estate loans.

Our average consumer real estate

loan currently has a principal balance of $468,000, a term of 23 years, and an average rate of 4.36%.

(dollars in thousands)

commercial loans

Owner occupied RE

Non-owner occupied RE

Total commercial

consumer loans

gross loans, net of deferred fees

– allowance for credit losses

Maturities and Sensitivity of Loans to Changes in

Interest Rates

Total gross loans, net of deferred fees

Less – allowance for credit losses

Total loans, net

We have included the table below to provide additional

clarity on our commercial real estate exposure.

We have not identified any geographic concentrations within these collateral types.

level of non-owner occupied commercial real estate loans represents 247.2% of the Bank’s total risk-based capital at December 31,

December 31, 2024

(dollars in thousands)

Weighted Average

Maturities and Sensitivity of Loans to Changes in Interest

The information in the following table is based on

5 unchanged sentences

maturities of the loan portfolio.

December 31, 2023

(dollars in thousands)

in thousands)

fifteen years

Owner occupied RE

commercial loans

5 unchanged sentences

(dollars in thousands)

commercial loans

consumer loans

gross loan, net of deferred fees

Owner occupied RE

Non-owner occupied RE

Total commercial loans

Total consumer loans

Total gross loan, net of deferred fees

Nonperforming Assets

Nonperforming assets include real estate acquired

through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status.

The following table shows the nonperforming assets

and the related percentage of nonperforming assets to total assets and gross loans for the five years ended December 31, 2023.

Nonperforming assets include real estate acquired through

foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status.

The following table shows the nonperforming assets and

the related percentage of nonperforming assets to total assets and gross loans for the three years ended December 31, 2024.

a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering

6 unchanged sentences

into the future prior to restoration of accrual status.

in thousands)

(dollars in thousands)

troubled debt restructurings (TDRs)

1 unchanged sentence

nonperforming assets

Quality Ratios:

Asset Quality

Nonperforming

1 unchanged sentence

loans/gross loans

loans over 90 days past due (1)

over 90 days past due (1)

over 90 days past due and still accruing

troubled debt restructurings

Loans over 90 days are included in nonaccrual loans

(1) Loans over

90 days are included in nonaccrual loans

At December 31, 2024, nonperforming assets were $10.9

1 unchanged sentence

at December 31, 2023.

Nonaccrual loans increased $1.3 million to $4.0 million at December 31, 2023 from $2.6 million at December 31, 2022.

During 2023, we added eight new loans totaling $2.0 million to nonaccrual, two loans totaling $283,000 were returned to accruing status,

one loan totaling $30,000 was charged off, while paydowns on nonaccrual loans totaled $388,000.

The amount of foregone interest income

on the nonaccrual loans as of December 31, 2023 and 2022 was approximately $73,000 and $28,000, respectively, for the twelve-month periods.

Nonaccrual loans increased $6.9 million during the twelve months ending December 31, 2024 due primarily to one commercial

relationship related to the assisted living industry.

The amount of foregone interest income on the nonaccrual loans as of December 31,

2024 and 2023 was approximately $200,000 and $73,000, respectively, for the twelve-month periods.

A significant portion, or 94.9%, of nonaccrual loans

32 unchanged sentences

At December 31, 2024, individually evaluated loans

totaled approximately $4.8 million for which $3.7 million of these loans have a reserve of approximately $688,000 allocated in the allowance.

At December 31, 2022, individually evaluated loans totaled approximately $7.1 million for which $6.8 million of these loans had a reserve

of approximately $1.3 million allocated in the allowance.

totaled approximately $12.2 million for which $4.5 million of these loans have a reserve of approximately $1.9 million allocated in the

At December 31, 2023, individually evaluated loans totaled approximately $4.8 million for which $3.7 million of these loans

had a reserve of approximately $688,000 allocated in the allowance.

We adopted Accounting Standards Update (“ASU”)

2 unchanged sentences

The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and

enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

During the 12 months ended December 31, 2023,

we had two commercial business loans that were modified due to the borrowers experiencing financial difficulty.

The amortized cost basis

of the two loans was $319,000 at December 31, 2023.

Prior to adopting ASU 2022-02,

we considered a loan to be a TDR when the debtor experienced financial difficulty and we provided concessions such that we would not collect

all principal and interest in accordance with the original terms of the loan agreement.

Concessions related to the contractual interest

rate, maturity date, or payment structure of the note.

As part of our workout plan for individual loan relationships, we restructured

loan terms to assist borrowers facing challenges in the economic environment.

As of December 31, 2022, we had $6.3 million in loans that

we considered TDRs.

As permitted by the CARES Act, we did not consider loan modifications to borrowers affected by COVID-19 to be TDRs

unless the borrower was 30 days or more past due as of December 31, 2019, (ii) the modifications were related to COVID-19, and (iii) the

modification occurred between March 1, 2020 and January 1, 2022.

See Notes 1 and 4 to the Consolidated Financial Statements for additional

information on loan modifications and TDRs.

Allowance for Credit Losses

At December 31, 2023 and December 31, 2022, the allowance

for credit losses was $40.7 million and $38.6 million, respectively, or 1.13% and 1.18% of outstanding loans, respectively.

The allowance

for credit losses as a percentage of our outstanding loan portfolio decreased from the prior year primarily due to historically low loan

charge-offs which factors into the expected loss rate on our current loan portfolio.

In addition, our nonperforming assets increased to

0.10% compared to 0.07%, as a percentage of total assets, at December 31, 2023 and 2022, respectively.

Our classified assets decreased

to 4.25% of capital as of December 31, 2023, compared to 4.72% of capital as of December 31, 2022.

See Note 4 to the Consolidated Financial

Statements for more information on our allowance for credit losses.

The following table summarizes the net charge-off

detail as a percentage of average loans by loan composition for the three years ended December 31, 2023.

Year ended December 31,

enhanced disclosures for loan

modifications

to borrowers experiencing financial difficulty.

Loan modifications to borrowers experiencing financial difficulty were not material for

the twelve months ended December 31, 2024 and December 31, 2023.

for Credit Losses

December 31, 2024 and December 31, 2023, the allowance for credit losses was $39.9 million and $40.7 million, respectively, or 1.10%

and 1.13% of outstanding loans, respectively.

The allowance for credit losses as a percentage of our outstanding loan portfolio decreased

from the prior year primarily due to historically low loan charge-offs which factors into the expected loss rate on our current loan

In addition, our nonperforming assets increased to 0.27% as a percentage of total assets at December 31, 2024 from 0.10%,

as a percentage of total assets, at December 31, 2023, while our classified assets were 4.25% of capital as of December 31, 2024 and

December 31, 2023.

See Note 4 to the Consolidated Financial Statements for more information on our allowance for credit losses.

following table summarizes the net charge-off detail as a percentage of average loans by loan composition for the three years ended December

ended December 31,

(dollars in thousands)

Net charge-offs:

Non-owner occupied

Total commercial

loan (charge-offs) recoveries

loan (charge-offs) recoveries as a % of average loans

The following

table summarizes the allocation of the allowance for credit losses among the various loan categories.

Year ended December 31,

(dollars in thousands)

following table summarizes the allocation of the allowance for credit losses among the various loan categories.

ended December 31,

allowance for credit losses

(1) Percentage

of loans in each category to total loans

Deposits and Other Interest-Bearing Liabilities

Our primary source of funds for loans and investments

is our deposits and advances from the FHLB.

In the past, we have chosen to obtain a portion of our certificates of deposits from areas

outside of our market in order to obtain longer term deposits than are readily available in our local market.

Our internal guidelines

regarding the use of brokered CDs limit our brokered CDs to 30% of total deposits.

These guidelines allow us to take advantage of the

attractive terms that wholesale funding can offer while mitigating the related inherent risk.

Our retail deposits represented $3.00 billion, or

88.8% of total deposits at December 31, 2023.

At December 31, 2022, retail deposits represented $2.90 billion, or 92.5% of our total deposits.

Brokered deposits were $379.4 million, representing 11.2% of our total deposits at December 31, 2023 and are included in time deposits

greater than $250,000 in the following table.

Our loan-to-deposit ratio was 107%, 104%, and 97% at December 31, 2023, 2022, and 2021,

respectively.

The following table shows the average balance amounts

and the average rates paid on deposits held by us.

and Other Interest-Bearing Liabilities

primary source of funds for loans and investments is our deposits and advances from the FHLB.

In the past, we have chosen to obtain a

portion of our certificates of deposits from areas outside of our market in order to obtain longer term deposits than are readily available

in our local market.

Our internal guidelines regarding the use of brokered CDs limit our brokered CDs to 30% of total deposits.

guidelines allow us to take advantage of the attractive terms that wholesale funding can offer while mitigating the related inherent

retail deposits represented $2.89 billion, or 84.0% of total deposits, at December 31, 2024 and $3.00 billion, or 88.8% of total deposits,

at December 31, 2023.

Brokered deposits were $550.3 million, representing 16.0% of our total deposits at December 31, 2024, and $379.4

million, or 12.6%, at December 31, 2023 and are included in time deposits greater than $250,000 in the following table.

Our loan-to-deposit

ratio was 106%, 107%, and 104% at December 31, 2024, 2023, and 2022, respectively.

following table shows the average balance amounts and the average rates paid on deposits held by us.

(dollars in thousands)

bearing demand deposits

Time deposits

less than $250,000

deposits greater than $250,000

During the 12 months ended December 31, 2023, our

average transaction account balances increased by $197.0 million, or 7.8%, while our average time deposit balances increased by $330.1

million, or 109.4%.

Core deposits exclude out-of-market deposits and time deposits of $250,000 or more and provide a relatively stable

funding source for our loan portfolio and other earning assets.

Our core deposits were $2.81 billion, $2.76 billion, and $2.48 billion

at December 31, 2023, 2022 and 2021, respectively.

All of our time deposits are certificates of deposits.

Noninterest bearing demand deposits

Interest bearing demand deposits

Money market accounts

Savings accounts

Time deposits less than $250,000

Time deposits greater than $250,000

Total deposits

the 12 months ended December 31, 2024, our average transaction account balances decreased by $183.7 million, or 6.7%, while our average

time deposit balances increased by $268.8 million, or 42.5%.

Core deposits exclude out-of-market deposits and time deposits of $250,000

or more and provide a relatively stable funding source for our loan portfolio and other earning assets.

Our core deposits were $2.66

billion, $2.81 billion, and $2.76 billion at December 31, 2024, 2023 and 2022, respectively.

of our time deposits are certificates of deposits.

The maturity distribution of our time deposits of $250,000 or more is as follows:

(dollars in thousands)

months or less

through six months

through twelve months

twelve months

Time deposits that meet or exceed the FDIC insurance

limit of $250,000 at December 31, 2023 and December 31, 2022 were $568.1 million and $374.8 million, respectively, including wholesale

At December 31, 2023 and

2022, the Company estimates that it has approximately $1.3 billion and $1.4 billion, respectively, in uninsured deposits including related

Three months or less

Over three through six months

Over six through twelve months

Over twelve months

deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2024 and December 31, 2023 were $774.0 million and

$568.1 million, respectively, including wholesale deposits.

December 31, 2024 and 2023, we estimate that we have approximately $1.3 billion, respectively, in uninsured deposits including related

interest accrued and unpaid.

Since it is not reasonably practicable to provide a precise measure of uninsured deposits, the amounts above

are estimates and are based on the same methodologies and assumptions used for the bank’s regulatory reporting requirements by the

FDIC for the Call Report.

Liquidity and Capital Resources

Liquidity is our ability to fund operations, to meet

depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments.

Our liquidity

principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits

and borrowings, and our ability to borrow funds.

The bank failures in the first five months of 2023 exemplify the potential serious results

of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including

how quickly such requests can accelerate once uninsured depositors lose confidence in an institutions ability to satisfy its obligations

to depositors.

We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management.

Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing

Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management

For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control

at the time investment decisions are made.

However, net deposit inflows and outflows are far less predictable and are not subject to the

same degree of control.

At December 31, 2023 and 2022, our cash and cash equivalents

amounted to $156.2 million and $170.9 million, or 3.9% and 4.6% of total assets, respectively.

Our investment securities at December 31,

2023 and 2022 amounted to $154.6 million and $104.2 million, or 3.8% and 2.8% of total assets, respectively.

Investment securities traditionally

provide a secondary source of liquidity since they can be converted into cash in a timely manner.

Our ability to maintain and expand our deposit base

and borrowing capabilities serves as our primary source of liquidity.

We plan to meet our future cash needs through the liquidation of

temporary investments, the generation of deposits, and from additional borrowings.

In addition, we will receive cash upon the maturity

and sale of loans and the maturity of investment securities.

We maintain five federal funds purchased lines of credit with correspondent

banks totaling $108.5 million to meet short-term liquidity needs.

There were no borrowings against the lines at December 31, 2023.Further,

in July 2023, we enrolled in the Federal Reserve’s Bank Term Funding Program which offers loans of up to one year in length if we

pledge collateral eligible for purchase by the Federal Reserve Banks in open market operations, such as U.S.

Treasuries, U.S.

agency securities,

agency mortgage-backed securities.

At December 31, 2023, we had $13.0 million of marketable investment securities pledged in

the Federal Reserve’s Bank Term Funding Program.

At December 31, 2023, we had $227.1 million pledged and available with the Federal

Reserve Discount Window.

We are also a member of the FHLB of Atlanta, from

which applications for borrowings can be made.

The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned

by the Bank be pledged to secure any advances from the FHLB.

The unused borrowing capacity currently available from the FHLB at December

31, 2023 was $542.8 million, based on the Bank’s $16.1 million investment in FHLB stock, as well as qualifying mortgages available

to secure any future borrowings.

However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing

In addition, at December 31, 2023 we had $388.3 million of letters of credit outstanding with the FHLB to secure client deposits.

We have a relationship with IntraFi Promontory Network,

allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000.

This gives us the ability,

as and when needed, to attract and retain large deposits from insurance conscious customers.

With IntraFi, we have the option to keep

deposits on balance sheet or sell them to other members of the network.

Additionally, subject to certain limits, the Bank can use IntraFi

to purchase cost-effective funding without collateralization and in lieu of generating funds through traditional brokered CDs or the FHLB.

are estimates and are based on the same methodologies and assumptions used for the Bank’s regulatory reporting requirements by

the FDIC for the Call Report.

and Capital Resources

is our ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing

obligations and existing commitments.

Our liquidity principally depends on our cash flows from operating activities, investment in and

maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds.

The several large bank failures

across the United States in the first five months of 2023 exemplify the potential serious results of the unexpected inability of insured

depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate

once uninsured depositors lose confidence in an institutions ability to satisfy its obligations to depositors.

We seek to ensure our

funding needs are met by maintaining a level of liquidity through asset and liability management.

Liquidity management involves monitoring

our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits.

Liquidity management is

made more complicated because different balance sheet components are subject to varying degrees of management control.

For example, the

timing of maturities of our investment portfolio is fairly predictable and subject to a high degree

of control at the time investment

decisions are made.

However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

December 31, 2024 and 2023, our cash and cash equivalents amounted to $162.9 million and $156.2 million, or 4.0% and 3.9% of total assets,

respectively.

Our investment securities at December 31, 2024 and 2023 amounted to $151.6 million and $154.6 million, or 3.7% and 3.8%

of total assets, respectively.

Investment securities traditionally provide a secondary source of liquidity since they can be converted

into cash in a timely manner.

ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity.

We plan to meet

our future cash needs through the liquidation of temporary investments, the generation of deposits, and from additional borrowings.

addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities.

We maintain six federal

funds purchased lines of credit with correspondent banks totaling $128.5 million to meet short-term liquidity needs.

There were no borrowings

against the lines at December 31, 2024.

At December 31, 2024, we had $210.8 million pledged and available with the Federal Reserve Discount

are also a member of the FHLB of Atlanta, from which applications for borrowings can be made.

The FHLB requires that securities, qualifying

mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB.

The unused borrowing capacity

currently available from the FHLB at December 31, 2024 was $807.5 million, based on the Bank’s $14.5 million investment in FHLB

stock, as well as qualifying mortgages available to secure any future borrowings.

However, we are able to pledge additional securities

to the FHLB in order to increase our available borrowing capacity.

In addition, at December 31, 2024 we had $205.4 million of letters

of credit outstanding with the FHLB to secure client deposits.

have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance

in amounts exceeding $250,000.

This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious

With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network.

Additionally,

subject to certain limits, the Bank can use IntraFi to purchase cost-effective funding without collateralization and in lieu of generating

funds through traditional brokered CDs or the FHLB.

In this manner, IntraFi can provide us with another funding option.

Thus, it serves as a deposit-gathering tool and an additional liquidity

management tool.

Under the Economic Growth, Regulatory Relief, and Consumer Protection Act, a well capitalized bank with a CAMELS rating

of 1 or 2 may hold reciprocal deposits up to the lesser of 20% of its total liabilities or $5 billion without those deposits being treated

as brokered deposits.

We also have a line of credit with another financial

institution for $15.0 million, which was unused at December 31, 2023.

The line of credit was issued on December 28, 2023 at an interest

rate of the U.S.

Thus, it serves

as a deposit-gathering tool and an additional liquidity management tool.

Under the Economic Growth, Regulatory Relief, and Consumer Protection

Act, a well capitalized bank with a CAMELS rating of 1 or 2 may hold reciprocal deposits up to the lesser of 20% of its total liabilities

or $5 billion without those deposits being treated as brokered deposits.

also have a line of credit with another financial institution for $15.0 million, which was unused at December 31, 2024.

The line of credit

was issued on December 28, 2024 at an interest rate of the U.S.

Prime Rate plus 0.25% and a maturity date of February 28, 2025.

We believe that our existing stable base of core deposits,

federal funds purchased lines of credit with correspondent banks, availability with the Federal Reserve’s Bank Term Funding Program

and Discount Window, and borrowings from the FHLB will enable us to successfully meet our long-term liquidity needs.

However, as short-term

liquidity needs arise, we have the ability to sell a portion of our investment securities portfolio should we be required to meet those

Total shareholders’ equity was $312.5 million

at December 31, 2023 and $294.5 million at December 31, 2022.

The $18.0 million increase during 2023 is due primarily to net income to

common shareholders of $13.4 million, stock option exercises and expenses of $2.5 million and $2.1 million gain in other comprehensive

The following table shows the return on average assets

(net income divided by average total assets), return on average equity (net income divided by average equity), equity to assets ratio

(average equity divided by average assets), and tangible common equity ratio (total equity less preferred stock divided by total assets)

for the three years ended December 31, 2023.

Since our inception, we have not paid cash dividends.

was renewed under the same terms with a new maturity date of March 5, 2026.

believe that our existing stable base of core deposits, federal funds purchased lines of credit with correspondent banks, availability

with the Federal Reserve’s Discount Window, and borrowings from the FHLB will enable us to successfully meet our long-term liquidity

However, as short-term liquidity needs arise, we have the ability to sell a portion of our investment securities portfolio should

we be required to meet those needs.

shareholders’ equity was $330.4 million at December 31, 2024 and $312.5 million at December 31, 2023.

The $18.0 million increase

during 2024 is due primarily to net income to common shareholders of $15.5 million, stock option exercises and expenses of $2.6 million

combined with a $130,000 loss in other comprehensive income.

following table shows the return on average assets (net income divided by average total assets), return on average equity (net income

divided by average equity), equity to assets ratio (average equity divided by average assets), and tangible common equity ratio (total

equity less preferred stock divided by total assets) for the three years ended December 31, 2024.

Since our inception, we have not paid

cash dividends.

(dollars in thousands)

on average assets

average equity

average common equity

equity to average assets ratio

common equity to assets ratio

Under the capital adequacy guidelines, regulatory

capital is classified into two tiers.

These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital

to risk-weighted assets.

Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain or loss on securities

available for sale, minus certain intangible assets.

In determining the amount of risk-weighted assets, all assets, including certain

off-balance sheet assets, are multiplied

by a risk-weight factor of 0% to 100% based on the

risks believed to be inherent in the type of asset.

Tier 2 capital consists of Tier 1 capital plus the general reserve for credit losses,

subject to certain limitations.

We are also required to maintain capital at a minimum level based on total average assets, which is known

as the Tier 1 leverage ratio.

Regulatory capital rules, which we refer to as Basel

III, impose minimum capital requirements for bank holding companies and banks.

The Basel III rules apply to all national and state banks

and savings associations regardless of size and bank holding companies and savings and loan holding companies other than “small

bank holding companies,” generally holding companies with consolidated assets of less than $3 billion.

In order to avoid restrictions

on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a “capital

conservation buffer” on top of our minimum risk-based capital requirements.

This buffer must consist solely of common equity Tier

1, but the buffer applies to all three measurements (common equity Tier 1, Tier 1 capital and total capital).

The capital conservation

buffer consists of an additional amount of CET1 equal to 2.5% of risk-weighted assets.

To be considered “well-capitalized” for

purposes of certain rules and prompt corrective action requirements, the Bank must maintain a minimum total risked-based capital ratio

of at least 10%, a total Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of at least 6.5%, and a leverage ratio

of at least 5%.

As of December 31, 2023, our capital ratios exceed these ratios and we remain “well capitalized.”

The following table summarizes the capital amounts and

ratios of the Bank and the regulatory minimum requirements.

See Note 21 to the Consolidated Financial Statements for ratios of the Company.

Return on average assets

Return on average equity

Return on average common equity

Average equity to average assets ratio

Tangible common equity to assets ratio

the capital adequacy guidelines, regulatory capital is classified into two tiers.

These guidelines require an institution to maintain

a certain level of Tier 1 and Tier 2 capital to risk-weighted assets.

Tier 1 capital consists of common shareholders’ equity, excluding

the unrealized gain or loss on securities available for sale, minus certain intangible assets.

In determining the amount of risk-weighted

assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks

believed to be inherent in the type of asset.

Tier 2 capital consists of Tier 1 capital plus the general reserve for credit losses, subject

to certain limitations.

We are also required to maintain capital at a minimum level based on total average assets, which is known as

the Tier 1 leverage ratio.

capital rules, which we refer to as Basel III, impose minimum capital requirements for bank holding companies and banks.

The Basel III

rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan

holding companies other than “small bank holding companies,” generally holding companies with consolidated assets of less

than $3 billion.

In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking

organization must maintain a “capital conservation buffer” on top of our minimum risk-based capital requirements.

must consist solely of common equity Tier 1, but the buffer applies to all three measurements (common equity Tier 1, Tier 1 capital and

total capital).

The capital conservation buffer consists of an additional amount of CET1 equal to 2.5% of risk-weighted assets.

be considered “well-capitalized” for purposes of certain rules and prompt corrective action requirements, the Bank must maintain

a minimum total risked-based capital ratio of at least 10%, a total Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital

ratio of at least 6.5%, and a leverage ratio of at least 5%.

As of December 31, 2024, our capital ratios exceed these ratios and we remain

“well capitalized.”

following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements.

See Note 21 to the Consolidated

Financial Statements for ratios of the Company.

adequacy purposes

To be well capitalized

be well capitalized

action provisions

15 unchanged sentences

Tier 1 Capital (to average assets)

Ratios do not include the capital conservation buffer of 2.5%.

On September 30, 2019, the Company sold and issued $23.0

million in aggregate principal amount of its 4.75% Fixed-to-Floating Rate Subordinated Notes due 2029 to eligible purchasers in a

private offering.

The Company used the proceeds from the offering, which were approximately $22.5 million, for general corporate

purposes, including providing capital to the Bank and supporting organic growth.

The Notes rank junior in right to payment to the

Company’s current and future senior indebtedness.

The Notes are intended to qualify as Tier 2 capital for regulatory capital

purposes for the Company and are subject to certain limitations.

See Note 9 to the Consolidated Financial Statements for more information on

our subordinated debentures.

The ability of the

Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Bank.

The dividends that may be paid

by the Bank to the Company are subject to legal limitations and regulatory capital requirements.

Effect of Inflation and Changing Prices

The effect of relative purchasing power over time

due to inflation has not been taken into account in our consolidated financial statements.

Rather, our financial statements have been

prepared on an historical cost basis in accordance with generally accepted accounting principles.

Unlike most industrial companies, our assets and liabilities

are primarily monetary in nature.

Therefore, the effect of changes in interest rates will have a more significant impact on our performance

than will the effect of changing prices and inflation in general.

In addition, interest rates may generally increase as the rate of inflation

increases, although not necessarily in the same magnitude.

As discussed previously, we seek to manage the relationships between interest

sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.

Off-Balance Sheet Risk

Commitments to extend credit are agreements to lend

to a client as long as the client has not violated any material condition established in the contract.

Commitments generally have fixed

expiration dates or other termination clauses and may require the payment of a fee.

At December 31, 2023, unfunded commitments to extend

credit were approximately $724.6 million, of which $145.6 million were at fixed rates and $579.0 million were at variable rates.

31, 2022, unfunded commitments to extend credit were $878.3 million, of which approximately $318.9 million were at fixed rates and $559.4

do not include the capital conservation buffer of 2.5%.

September 30, 2019, we sold and issued $23.0 million in aggregate principal amount of 4.75% Fixed-to-Floating Rate Subordinated Notes

due 2029 to eligible purchasers in a private offering.

We used the proceeds from the offering, which were approximately $22.5 million,

for general corporate purposes, including providing capital to the Bank and supporting organic growth.

The Notes rank junior in right

to payment to the Company’s current and future senior indebtedness.

The Notes are intended to qualify as Tier 2 capital for regulatory

capital purposes for the Company and are subject to certain limitations.

On September 30, 2024, in conjunction with the semi-annual interest

payment, we redeemed $11.5 million of our outstanding subordinated debt.

Beginning September 30, 2024, the interest rate on the subordinated

debt reset to an interest rate per annum equal to the Three-Month Term SOFR plus 340.8 basis points (8.00% at December 31, 2024), payable

quarterly in arrears.

See Note 9 to the Consolidated Financial Statements for more information on our subordinated debentures.

ability of the Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Bank.

The dividends that

may be paid by the Bank to the Company are subject to legal limitations and regulatory capital requirements.

of Inflation and Changing Prices

effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements.

Rather, our financial statements have been prepared on an historical cost basis in accordance with generally accepted accounting principles.

most industrial companies, our assets and liabilities are primarily monetary in nature.

Therefore, the effect of changes in interest

rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general.

interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude.

previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide rate

fluctuations, including those resulting from inflation.

to extend credit are agreements to lend to a client as long as the client has not violated any material condition established in the

Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee.

31, 2024, unfunded commitments to extend credit were approximately $719.1 million, of which $57.5 million were at fixed rates and $661.6

million were at variable rates.

A majority of the unfunded commitments related to commercial business lines of credit and home equity

lines of credit.

Based on historical experience, we anticipate that a significant portion of these lines of credit will not be funded.

At December 31, 2023, unfunded commitments to extend credit were $724.6 million, of which approximately

$145.6 million were at fixed rates and $579.0 million were at variable rates.

A majority of the unfunded commitments related to commercial

business lines of credit and home equity lines of credit.

Based on historical experience, we anticipate that a significant portion of

these lines of credit will not be funded.

We evaluate each client’s credit worthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by us

upon extension of credit, is based on our credit evaluation of the borrower.

The type of collateral varies but may include accounts receivable,

inventory, property, plant and equipment, and commercial and residential real estate.

At December 31, 2023 and 2022, there were $16.1 million

and $14.3 million of commitments under letters of credit, respectively.

The credit risk and collateral involved in issuing letters of

credit is essentially the same as that involved in extending loan facilities to clients.

Since most of the letters of credit are expected

to expire without being drawn upon, they do not necessarily represent future cash requirements.

Except as disclosed in this Annual Report, we are

not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements

or transactions that could result in liquidity needs or other commitments that significantly impact earnings.

Market Risk and Interest Rate Sensitivity

Market risk is the risk of loss from adverse changes

in market prices and rates, which principally arises from interest rate risk inherent in our lending, investing, deposit gathering, and

borrowing activities.

Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally

arise in the normal course of our business.

We actively monitor and manage our interest rate risk

exposure to seek to control the mix and maturities of our assets and liabilities utilizing a process we call asset/liability management.

The essential purposes of asset/liability management are to seek to ensure adequate liquidity and to maintain an appropriate balance between

interest sensitive assets and liabilities in order to minimize potentially adverse impacts on earnings from changes in market interest

Our asset/liability management committee (“ALCO”) monitors and considers methods of managing exposure to interest rate

We have both an internal ALCO consisting of senior management that meets no less than quarterly and a board risk committee that

meets quarterly.

These committees are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets

and liabilities within board-approved limits.

As of December 31, 2023, the following table summarizes

the forecasted impact on net interest income using a base case scenario given upward and downward movements in interest rates of 100,

200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing

Estimates are based on current economic conditions, historical interest rate cycles and other factors deemed to be relevant.

underlying assumptions may be impacted in future periods which were not known to management at the time of the issuance of the Consolidated

Financial Statements.

Therefore, management’s assumptions may or may not prove valid.

No assurance can be given that changing economic

conditions and other relevant factors impacting our net interest income will not cause actual occurrences to differ from underlying assumptions.

In addition, this analysis does not consider any strategic changes to our balance sheet which management may consider as a result of changes

in market conditions.

rate scenario

in net interest

The amount of collateral

obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower.

The type of collateral

varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

December 31, 2024 and 2023, there were $16.2 million and $16.1 million of commitments under letters of credit, respectively.

risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients.

Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.

as disclosed in this Annual Report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities

that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly

impact earnings.

Risk and Interest Rate Sensitivity

risk is the risk of loss from adverse changes in market prices and rates, which principally arises from interest rate risk inherent in

our lending, investing, deposit gathering, and borrowing activities.

Other types of market risks, such as foreign currency exchange rate

risk and commodity price risk, do not generally arise in the normal course of our business.

actively monitor and manage our interest rate risk exposure to seek to control the mix and maturities of our assets and liabilities utilizing

a process we call asset/liability management.

The essential purposes of asset/liability management are to seek to ensure adequate liquidity

and to maintain an appropriate balance between interest sensitive assets and liabilities in order to minimize potentially adverse impacts

on earnings from changes in market interest rates.

asset/liability management committee (“ALCO”) monitors and considers

methods of managing exposure to interest rate risk by repricing assets or liabilities, selling securities available for sale, replacing

an asset or liability at maturity, by adjusting the interest rate during the life of an asset or liability, or by the use of derivatives

such as interest rate swaps and other hedging instruments.

Managing the amount of assets and liabilities repricing in the same time interval

helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates.

We have both an internal

ALCO consisting of senior management that meets no less than quarterly and a board risk committee that meets quarterly, and both committees

are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved

of December 31, 2024, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward

and downward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal

interest rates and loan and deposit repricing rates.

Estimates are based on current economic conditions, historical interest rate cycles

and other factors deemed to be relevant.

However, underlying assumptions may be impacted in future periods which were not known to management

at the time of the issuance of the Consolidated Financial Statements.

Therefore, management’s assumptions may or may not prove

No assurance can be given that changing economic conditions and other relevant factors impacting our net interest income will

not cause actual occurrences to differ from underlying assumptions.

In addition, this analysis does not consider any strategic changes

to our balance sheet which management may consider as a result of changes in market conditions.

Interest rate scenario

Change in net interest

income from base

5 unchanged sentences

Down 300 basis points

Contractual Obligations

We have commitments with various investment partners

under the Small Business Investment Company (“SBIC”) and the Rural Business Investment Company (“RBIC”) programs

for which we have committed to make capital contributions from time to time.

As of December 31, 2023, $1.4 million remained outstanding

under these commitments.

We utilize a variety of short-term and long-term borrowings

to supplement our supply of lendable funds, to assist in meeting deposit withdrawal requirements, and to fund growth of interest-earning

assets in excess of traditional deposit growth.

Certificates of deposit, structured repurchase agreements, FHLB advances, and subordinated

debentures serve as our primary sources of such funds.

Obligations under noncancelable operating lease agreements

are payable over several years with the longest obligation expiring in 2032.

We do not feel that any existing noncancelable operating

lease agreements are likely to materially impact our financial condition or results of operations in an adverse way.

Contractual obligations

relative to these agreements are noted in the table below.

Option periods that we have not yet exercised are not included in this analysis

as they do not represent contractual obligations until exercised.

The following table provides payments due by period

for obligations under long-term borrowings and operating lease obligations as of December 31, 2023.

have commitments with various investment partners under the Small Business Investment Company (“SBIC”) and the Rural Business

Investment Company (“RBIC”) programs for which we have committed to make capital contributions from time to time.

As of December

31, 2024, $1.2 million remained outstanding under these commitments.

utilize a variety of short-term and long-term borrowings to supplement our supply of lendable funds, to assist in meeting deposit withdrawal

requirements, and to fund growth of interest-earning assets in excess of traditional deposit growth.

Certificates of deposit, structured

repurchase agreements, FHLB advances, and subordinated debentures serve as our primary sources of such funds.

under noncancelable operating lease agreements are payable over several years with the longest obligation expiring in 2032.

feel that any existing noncancelable operating lease agreements are likely to materially impact our financial condition or results of

operations in an adverse way.

Contractual obligations relative to these agreements are noted in the table below.

Option periods that

we have not yet exercised are not included in this analysis as they do not represent contractual obligations until exercised.

following table provides payments due by period for obligations under long-term borrowings and operating lease obligations as of December

Due by Period

in thousands)

(dollars in thousands)

Certificates of deposit

1 unchanged sentence

Operating lease obligations

Accounting, Reporting, and Regulatory Matters

See Note 1 – Summary of Significant Accounting

Policies and Activities in our “Notes to Consolidated Financial Statements” for a discussion on the effects of recently issued

accounting pronouncements.

Quantitative and Qualitative Disclosures

about Market Risk

Management’s Discussion and Analysis

of Financial Condition and Results of Operations – Market Risk and Interest Rate Sensitivity and – Liquidity and Capital Resources.

Reporting, and Regulatory Matters

Note 1 – Summary of Significant Accounting Policies and Activities in our “Notes to Consolidated Financial Statements”

for a discussion on the effects of recently issued accounting pronouncements.

Quantitative and Qualitative Disclosures about Market Risk

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk and Interest

Rate Sensitivity and – Liquidity and Capital Resources.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis