SOUTHERN FIRST BANCSHARES INC (SFST)

CIK: 0001090009. SIC: 6021 National Commercial Banks. Latest 10-K as of: 2026-02-24.

SIC breadcrumb: Finance, Insurance, And Real Estate > Depository Institutions > SIC 6021 National Commercial Banks

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1090009. Latest filing source: 0001206774-26-000084.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-24. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001090009.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-01. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001090009.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001206774-26-000259.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Confidence: high. Filing date: 2026-05-01. Report date: 2026-03-31.

Item 2. MANAGEMENT’S
DISCUSSION AND Analysis of Financial Condition and Results of Operations.

The following discussion reviews our results
of operations for the three-month period ended March 31, 2026 as compared to the three-month period ended March 31, 2025 and assesses
our financial condition as of March 31, 2026 as compared to December 31, 2025. You should read the following discussion and analysis in
conjunction with the accompanying consolidated financial statements and the related notes and the consolidated financial statements and
the related notes for the year ended December 31, 2025 included in our Annual Report on Form 10-K for that period. Results for the three-month
period ended March 31, 2026 are not necessarily indicative of the results for the year ending December 31, 2026 or any future period.

Unless the context requires otherwise, references
to the “Company,” “we,” “us,” “our,” or similar references mean Southern First Bancshares,
Inc. and its consolidated subsidiary. References to the “Bank” refer to Southern First Bank.

Cautionary Warning Regarding
forward-looking statements

This report contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934 (the “Exchange Act”). Forward-looking statements may relate to our financial condition, results of operations,
plans, objectives, or future performance. These statements are based on many assumptions and estimates and are not guarantees of future
performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on
many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,”
“could,” “should,” “will,” “seek to,” “strive,” “focus,” “expect,”
“anticipate,” “predict,” “project,” “potential,” “believe,” “continue,”
“assume,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant
to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those
anticipated in any forward-looking statements include, but are not limited to:

·

Restrictions or conditions imposed by our regulators
on our operations;

·

Increases in competitive pressure in the banking
and financial services industries;

·

Changes in access to funding or increased regulatory
requirements with regard to funding, which could impair our liquidity;

·

Changes in deposit flows, which may be negatively
affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns
available to clients on alternative investments and general economic or industry conditions;

·

Credit losses as a result of declining real estate
values, increasing interest rates, increasing unemployment, changes in payment behavior or other factors;

·

Credit losses due to loan concentration;

·

Changes in the amount of our loan portfolio collateralized
by real estate and weaknesses in the real estate market;

·

Our ability to successfully execute our business
strategy;

·

Our ability to attract and retain key personnel;

·

The success and costs of our expansion into potential
new markets;

·

Risks with respect to future mergers or acquisitions,
including our ability to successfully expand and integrate the businesses and operations that we acquire and realize the anticipated benefits
of the mergers or acquisitions;

·

Changes in the interest rate environment which
could reduce anticipated or actual margins;

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·

Changes in political, economic, legislative, or
regulatory conditions, including new governmental initiatives affecting the financial services industry and potential disruptions resulting
from U.S. federal government funding lapses, shutdowns, or related fiscal policy uncertainty;

·

Changes in economic conditions resulting in, among
other things, a deterioration in credit quality;

·

Changes occurring in business conditions and inflation;

·

Increased cybersecurity risk, including potential
business disruptions or financial losses;

·

Changes in technology;

·

The adequacy of the level of our allowance for
credit losses and the amount of loan loss provisions required in future periods;

·

Examinations by our regulatory authorities, including
the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses or write-down
assets;

·

Changes in U.S. monetary policy, the level and
volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the
value of our assets and liabilities;

·

Any increase in FDIC assessments which will increase
our cost of doing business;

·

Risks associated with complex and changing regulatory
environments, including, among others, with respect to data privacy, artificial intelligence (“AI”), information security,
climate change or other environmental, social and governance matters, and labor matters, relating to our operations;

·

The rate of delinquencies and amounts of loans
charged-off;

·

The rate of loan growth in recent years and the
lack of seasoning of a portion of our loan portfolio;

·

Our ability to maintain appropriate levels of
capital and to comply with our capital ratio requirements;

·

Adverse changes in asset quality and resulting
credit risk-related losses and expenses;

·

Changes in accounting standards, rules and interpretations
and the related impact on our financial statements;

·

Risks associated with actual or potential litigation
or investigations by customers, regulatory agencies or others;

·

Adverse effects of failures by our vendors to
provide agreed upon services in the manner and at the cost agreed;

·

The potential effects of events beyond our control
that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics; war, terrorism, or other geopolitical
conflicts or instability, including the war in Ukraine, conflicts in the Middle East, instability or sanctions affecting Venezuela, and
tensions between China and Taiwan; disruptions in our customers’ supply chains or transportation networks; essential utility outages;
trade disputes and related tariffs; and disruptions caused by widespread cybersecurity incidents; and

·

Other risks and uncertainties detailed in Part
I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025, in Part II, Item 1A, “Risk
Factors” of our Quarterly Reports on Form 10-Q, and in our other filings with the SEC.

If any of these risks or uncertainties materialize,
or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from
those expressed in, implied or projected by, such forward-looking statements. We urge investors to consider all of these factors carefully
in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. We make these forward-looking statements
as of the date of this document and we do not intend, and assume no obligation, to update the forward-looking statements or to update
the reasons why actual results could differ from those expressed in, or implied or projected by, the forward-looking statements, except
as required by law.

OVERVIEW

Our business model continues to be client-focused,
utilizing relationship teams to provide our clients with a specific banker contact and support team responsible for all of their banking
needs. The purpose of this structure is to

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provide a consistent and superior level of professional service, and we believe it provides
us with a distinct competitive advantage. We consider exceptional client service to be a critical part of our culture, which we refer
to as "ClientFIRST."

At March 31, 2026, we had total assets of $4.58
billion, a 4.0% increase from total assets of $4.40 billion at December 31, 2025. The largest component of our total assets is loans which
were $3.94 billion and $3.85 billion at March 31, 2026, and December 31, 2025, respectively. Our liabilities and shareholders’ equity
at March 31, 2026 totaled $4.20 billion and $379.4 million, respectively, compared to liabilities of $4.03 billion and shareholders’
equity of $368.7 million at December 31, 2025. The principal component of our liabilities is deposits which were $3.87 billion and $3.72
billion at March 31, 2026 and December 31, 2025, respectively.

Like most community banks, we derive the majority
of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments
is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income,
or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing
liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets
and the rate we pay on our interest-bearing liabilities, which is called our net interest spread. In addition to earning interest on our
loans and investments, we earn income through fees and other charges to our clients.

Our net income to common shareholders was $9.9
million and $5.3 million for the three months ended March 31, 2026, and 2025, respectively. Diluted earnings per share (“EPS”)
was $1.19 for the first quarter of 2026 as compared to $0.65 for the same period in 2025. The increase in net income was primarily driven
by an increase in net interest income.

results
of operations

Net Interest Income and Margin

Our level of net interest income is determined
by the level of earning assets and the management of our net interest margin. Our net interest income was $30.3 million for the first
quarter of 2026, a 29.4% increase over net interest income of $23.4 million for the first quarter of 2025, driven primarily by a $5.0
million increase in interest income on our interest-earning assets combined with a $1.9 million decrease in interest expense on our interest-bearing
liabilities. In addition, our net interest margin, on a tax-equivalent (TE) basis, was 2.88% for the first quarter of 2026 compared to
2.41% for the same period in 2025.

We have included a number of tables to assist in
our description of various measures of our financial performance. For example, the “Average Balances, Income and Expenses, Yields
and Rates” table reflects the average balance of each category of our assets and liabilities as well as the yield we earned or the
rate we paid with respect to each category during the three-month periods ended March 31, 2026 and 2025. A review of this table shows
that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial
percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” tables demonstrate the effect
of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. We also
track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to
illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts.

The following tables entitled “Average Balances,
Income and Expenses, Yield and Rates” set forth information related to our average balance sheets, average yields on assets, and
average costs of liabilities. We derived these yields by dividing income or expense by the average balance of the corresponding assets
or liabilities. We derived ave

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high. Filing date: 2026-02-24. Report date: 2025-12-31.

Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations

The following discussion and analysis identifies significant
factors that have affected our financial position and operating results during the periods included in the accompanying financial statements.
We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other
statistical information also included in this Annual Report on Form 10-K.

OVERVIEW

Our business model continues
to be client-focused, utilizing relationship teams to provide our clients with a specific banker contact and support team responsible
for all of their banking needs. The purpose of this structure is to provide a consistent and superior level of professional service, and
we believe it provides us with a distinct competitive advantage. We consider exceptional client service to be a critical part of our culture,
which we refer to as “ClientFIRST.”

At December 31, 2025, we had total assets of $4.40
billion, an increase from total assets of $4.09 billion at December 31, 2024. The largest components of our total assets are loans, which
were $3.85 billion and $3.63 billion at December 31, 2025 and 2024, respectively. Our liabilities and shareholders’ equity at December
31, 2025 totaled $4.03 billion and $368.7 million, respectively, compared to liabilities of $3.76 billion and shareholders’ equity
of $330.4 million at December 31, 2024. The principal component of our liabilities is deposits which were $3.72 billion and $3.44 billion
at December 31, 2025 and 2024, respectively.

Like most community banks, we derive the majority
of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments
is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income,
or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing
liabilities, such as deposits and borrowings. Another key measure is the difference between the yield we earn on these interest-earning
assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread. In addition to earning interest
on our loans and investments, we earn income through fees and other charges to our clients.

Our net income available to common shareholders for
the years ended December 31, 2025 and 2024 was $30.4 million and $15.5 million, or diluted earnings per share (“EPS”) of $3.72
and $1.91 for the years ended December 31, 2025 and 2024, respectively. The increase in net income resulted primarily from an increase
in net interest income. In addition, our net income available to common shareholders was $13.4 million, or EPS of $1.66 for the year ended
December 31, 2023.

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SELECTED FINANCIAL DATA

The following table
sets forth our selected historical consolidated financial information for the periods and as of the dates indicated. We derived our balance
sheet and income statement data for the years ended December 31, 2025, 2024, and 2023 from our audited consolidated financial statements.
You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our audited consolidated financial statements and the related notes thereto, which are included elsewhere in this
Annual Report on Form 10-K.

Years
Ended December 31,

(dollars in thousands, except per share
data)

2025

2024

2023

BALANCE SHEET DATA

Total assets

$

4,403,494

4,087,593

4,055,789

Investment securities

147,793

151,617

154,641

Loans
(1)

3,845,124

3,631,767

3,602,627

Allowance for credit losses

42,280

39,914

40,682

Deposits

3,716,803

3,435,765

3,379,564

FHLB advances and other borrowings

240,000

240,000

275,000

Subordinated debentures

24,903

24,903

36,322

Common equity

368,657

330,444

312,467

Preferred stock

-

-

-

Shareholders’
equity

368,657

330,444

312,467

SELECTED RESULTS OF OPERATIONS DATA

Interest income

$

211,481

201,212

177,598

Interest
expense

106,530

119,990

99,944

Net interest income

104,951

81,222

77,654

Provision
for credit losses

2,950

125

1,260

Net interest income after provision
for credit losses

102,001

81,097

76,394

Noninterest income

13,138

12,141

9,860

Noninterest
expenses

75,534

73,326

68,827

Income before income tax expense

39,605

19,912

17,427

Income
tax expense

9,239

4,382

4,001

Net
income available to common shareholders

$

30,366

15,530

13,426

PER COMMON SHARE DATA

Basic

$

3.75

1.92

1.67

Diluted

3.72

1.91

1.66

Book value

44.89

40.47

38.63

Weighted average number of common
shares outstanding:

Basic, in thousands

8,091

8,081

8,047

Diluted,
in thousands

8,160

8,117

8,078

SELECTED FINANCIAL RATIOS

Performance Ratios:

Return on average assets

0.72

%

0.38

%

0.34

%

Return on average equity

8.73

%

4.84

%

4.44

%

Return on average common equity

8.73

%

4.84

%

4.44

%

Net
interest margin, tax equivalent(2)

2.57

%

2.06

%

2.07

%

Efficiency
ratio (3)

63.96

%

78.54

%

78.65

%

Asset Quality Ratios:

Nonperforming
assets to total loans (1)

0.37

%

0.30

%

0.11

%

Nonperforming assets to total assets

0.32

%

0.27

%

0.10

%

Net charge-offs to average total loans

0.00

%

0.04

%

0.00

%

Allowance for credit losses to nonperforming
loans

305.65

%

366.94

%

1,026.58

%

Allowance for credit losses to total
loans

1.10

%

1.10

%

1.13

%

Holding Company Capital Ratios:

Total risk-based capital ratio

12.89

%

12.70

%

12.57

%

Tier 1 risk-based capital ratio

11.44

%

11.16

%

10.60

%

Leverage ratio

8.93

%

8.55

%

8.14

%

Common
equity tier 1 ratio(4)

11.06

%

10.75

%

10.19

%

Tangible
common equity(5)

8.37

%

8.08

%

7.70

%

Growth Ratios(6):

Change in assets

7.73

%

0.78

%

9.85

%

Change in loans

5.87

%

0.81

%

10.06

%

Change in deposits

8.18

%

1.66

%

7.84

%

Change in net income to common shareholders

95.53

%

15.67

%

-53.89

%

Change
in earnings per common share - diluted

94.76

%

15.06

%

-54.02

%

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Footnotes to table:

(1)

Excludes loans held for sale.

(2)

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.

(3)

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

(4)

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

(5)

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

(6)

The percentage change for 2023 reflects the change compared to 2022, which is not presented in the table above. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for the finanical information for that year.

CRITICAL ACCOUNTING ESTIMATES

We have adopted various accounting policies that govern
the application of accounting principles generally accepted in the U.S. and with general practices within the banking industry in the
preparation of our financial statements. Our significant accounting policies are described in Note 1 to our Consolidated Financial Statements
as of December 31, 2025.

Certain accounting policies inherently involve a greater
reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be
materially different than originally reported, which could have a material impact on the carrying values of our assets and liabilities
and our results of operations. We consider these accounting policies and estimates to be critical. We have identified the determination
of the allowance for credit losses, the fair valuation of financial instruments and income taxes to be the accounting areas that require
the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available
or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, management has reviewed
and approved these critical accounting policies and estimates and has discussed these policies with the Company’s Audit Committee.

Allowance for Credit Losses

The allowance for credit
losses (“ACL”) is management’s current estimate of expected credit losses that will result from the inability of our
borrowers to make required loan payments, with particular applicability on our balance sheet to loans and unfunded loan commitments. Estimating
the amount of the ACL requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable
and supportable forecasts, and the value of collateral on collateral-dependent loans. Credit losses are charged against the allowance,
while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations
based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

There are many factors affecting the ACL; some are
quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately
considers all the potential factors that could result in credit losses, the process includes subjective elements and is susceptible to
significant change. Changes in economic conditions, portfolio composition, collateral values, and forecast assumptions could materially
affect the ACL. To the extent actual outcomes are worse than management estimates, additional provision for credit losses could be required
that could adversely affect our earnings or financial position in future periods. During 2025, we transitioned to the discounted cash
flow “DCF” methodology for calculating the ACL, and management analyzed the risk level associated with factors such as changes
in lending policies; international, national, regional, and local conditions; volume and terms of loans; experience and depth of management;
volume and severity of past due loans; concentrations of credit; and loan review results in the consideration of the qualitative portion
of the ACL.

See Note 1 – Summary
of Significant Accounting Policies and Activities for further detailed descriptions of our estimation process and methodology related
to the ACL. See also Note 4 – Loans and Allowance for Credit Losses and “Provision for Credit Losses” in this MD&A.

Fair Valuation of Financial Instruments

Certain assets and liabilities are measured at fair
value on a recurring basis, including securities and derivative instruments. Assets and liabilities carried at fair value inherently include
subjectivity and may require the use of significant assumptions, adjustments and judgment including, among others, discount rates, rates
of return on assets, cash flows, default rates, loss rates, terminal values and liquidation values. A significant change in assumptions
may result in a significant change in fair value, which in turn, may result in a higher degree of financial statement volatility and could
result in significant impact on our results of operations, financial condition or disclosures of fair value information.

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The fair value hierarchy
requires use of observable inputs first and subsequently unobservable inputs when observable inputs are not available. Our fair value
measurements involve various valuation techniques and models, which involve inputs that are observable (Level 1 or Level 2 in fair value
hierarchy), when available. The level of judgment required to determine fair value is dependent on the methods or techniques used in the
process. 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.

Income Taxes

The financial statements have been prepared on the
accrual basis. When income and expenses are recognized in different periods for financial reporting purposes versus for the purposes of
computing income taxes currently payable, deferred taxes are provided on such temporary differences. Deferred tax assets and liabilities
are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or
tax returns. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be realized or settled.

The realization of deferred tax assets depends on
generating sufficient future taxable income within the applicable carryforward periods. We evaluate the need for a valuation allowance
by assessing the available evidence, including expectations of future taxable income, the timing of reversal of temporary differences
and available tax planning strategies. We also evaluate uncertain tax positions and recognize and measure a tax benefit only when it is
more likely than not that the position will be sustained upon examination; if applicable, we record related interest and penalties in
income tax expense.

RESULTS OF OPERATIONS

Net Interest Income and Margin

Our level of net interest income is determined by
the level of earning assets and the management of our net interest margin. For the years ended December 31, 2025, 2024, and 2023, our
net interest income was $105.0 million, $81.2 million, and $77.7 million, respectively. The $23.7 million, or 29.2%, increase in net interest
income during 2025, compared to 2024, was driven by a $13.5 million decrease in interest expense and a $10.3 million increase in interest
income. During 2024, our net interest income increased $3.6 million, or 4.6%, compared to 2023. This 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 during the 2024
period.

Interest income for the years ended December 31, 2025,
2024, and 2023 was $211.5 million, $201.2 million, and $177.6 million, respectively. A significant portion of our interest income relates
to our strategy to maintain a large portion of our assets in higher earning loans compared to lower yielding investments and federal funds
sold. As such, 93.7% of our interest income related to interest on loans during 2025, compared to 92.9% during 2024 and 93.5% during 2023.
Also, included in interest income on loans was $1.7 million related to the net amortization of loan fees and capitalized loan origination
costs for the year ended December 31, 2025, compared to $1.6 million and $1.7 million for the years ended December 31, 2024 and 2023,
respectively. The increase in interest income during 2025 was driven by an increase in average loan balances, combined with an increase
in loan yield.

Interest expense was $106.5 million, $120.0 million,
and $99.9 million for the years ended December 31, 2025, 2024, and 2023, respectively. Interest expense on deposits for 2025 represented
89.8% of total interest expense, compared to 90.7% for 2024, and 91.4% for 2023, while interest expense on borrowings represented the
remaining portion of total interest expense. The decrease in interest expense on deposits during 2025 was driven primarily by repricing
of our deposit portfolio in response to declining market interest rates, including reductions in the Federal Reserve’s target range
for the federal funds rate during 2024 and 2025.

We have included a number of tables to assist in our
description of various measures of our financial performance. For example, the “Average Balances, Income and Expenses, Yields and
Rates” table shows the average balance of each category of our assets and liabilities as well as the yield we earned or the rate
we paid with respect to each category during 2025, 2024, and 2023. Similarly, the “Rate/Volume Analysis” table demonstrates
the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown.
We also track the

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sensitivity of our various categories of assets and
liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning
and interest-bearing accounts.

The following table sets forth information related
to our average balance sheet, average yields on assets, and average costs of liabilities for the years ended December 31, 2025, 2024 and
2023. We derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities.
We derived average balances from the daily balances throughout the periods indicated. During the same periods, we had no securities purchased
with agreements to resell. All investments were purchased at an original maturity of over one year. Nonaccrual loans are included in earning
assets in the following tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status.
The net of capitalized loan costs and fees are amortized into interest income on loans.

Average Balances, Income and Expenses, Yields and
Rates

Year
Ended December 31,

2025

2024

2023

(dollars
in thousands)

Average

Balance

Income/

Expense

Yield/

Rate

Average

Balance

Income/

Expense

Yield/

Rate

Average

Balance

Income/

Expense

Yield/

Rate

Interest-earning
assets

Federal
funds sold and interest-bearing deposits with banks

$

186,387

$

7,966

4.27

%

$

160,683

$

8,537

5.31

%

$

134,495

$

6,998

5.20

%

Investment
securities, taxable

141,304

5,206

3.68

%

138,494

5,645

4.08

%

121,739

4,296

3.53

%

Investment
securities, nontaxable (1)

7,774

213

2.74

%

8,012

217

2.71

%

7,941

217

2.73

%

Loans
(2)

3,753,665

198,145

5.28

%

3,629,570

186,863

5.15

%

3,497,623

166,137

4.75

%

Total
interest-earning assets

4,089,130

211,530

5.17

%

3,936,759

201,262

5.11

%

3,761,798

177,648

4.72

%

Noninterest-earning
assets

153,269

159,441

162,771

Total
assets

$

4,242,399

$

4,096,200

$

3,924,569

Interest-bearing
liabilities

NOW accounts

$

332,222

2,930

0.88

%

$

303,580

2,810

0.93

%

$

299,703

2,254

0.75

%

Savings
& money market

1,575,613

52,188

3.31

%

1,561,925

61,455

3.93

%

1,708,874

61,241

3.58

%

Time
deposits

948,815

40,506

4.27

%

900,628

44,509

4.94

%

631,967

27,878

4.41

%

Total
interest-bearing deposits

2,856,650

95,624

3.35

%

2,766,133

108,774

3.93

%

2,640,544

91,373

3.46

%

FHLB
advances and other borrowings

240,022

9,104

3.79

%

240,344

9,066

3.77

%

169,963

6,382

3.75

%

Subordinated
debt

24,903

1,802

7.24

%

33,448

2,150

6.43

%

36,265

2,189

6.04

%

Total
interest-bearing liabilities

3,121,575

106,530

3.41

%

3,039,925

119,990

3.95

%

2,846,772

99,944

3.51

%

Noninterest-bearing
liabilities

772,806

735,363

775,116

Shareholders’
equity

348,018

320,912

302,681

Total
liabilities and shareholders’ equity

$

4,242,399

$

4,096,200

$

3,924,569

Net interest spread

1.76

%

1.16

%

1.21

%

Net
interest income(tax equivalent)/margin

$

105,000

2.57

%

$

81,272

2.06

%

$

77,704

2.07

%

Less:
tax-equivalent adjustment (1)

49

50

50

Net
interest income

$

104,951

$

81,222

$

77,654

(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 2.57%, 2.06% and 2.07% for the years ended December 31, 2025, 2024 and 2023, respectively. During
2025, our net interest margin increased 51 basis points, compared to 2024, driven primarily by a decrease in rates paid on our interest-bearing
liabilities, combined with an increase in our average interest-earning assets. During 2024, our net interest margin was relatively stable,
compared to 2023 as both our interest earning assets and interest-bearing liabilities increased similarly in volume and rates during the
year.

Our average interest-earning
assets increased by $152.4 million during the year ended December 31, 2025, compared to 2024, while the related yield on our interest-earning
assets increased by six basis points. The increase in average interest-earning assets was driven by a $124.1 million increase in average
loan balances, while the increase in yield on our interest earning assets was driven by a 13 basis point increase in the yield on our
loan portfolio.

Our average interest-bearing liabilities increased
by $81.7 million during 2025 while the cost of our interest-bearing liabilities decreased by 54 basis points. The increase in average
interest-bearing liabilities was driven primarily by a $90.5 million increase in average interest-bearing deposits. The decrease in cost
of our interest-bearing liabilities was primarily driven by a 58 basis point decrease in the cost of our interest-bearing deposits.

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During the year ended December 31, 2024, our average
interest-earning assets increased by $175.0 million, compared to 2023, while the yield on our interest-earning assets increased by 39
basis points. The increase in average interest-earning assets was driven primarily by a $131.9 million increase in average loan balances,
while the yield on our interest earning assets was driven by a 40 basis point increase in the yield on our loan portfolio. During 2024,
our average interest-bearing liabilities increased by $193.2 million, compared to 2023, while the cost of our interest-bearing liabilities
increased by 44 basis points.

Our net interest spread was
1.76% for the year ended December 31, 2025, compared to 1.16% for the same period in 2024 and 1.21% for 2023. The net interest spread
is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. The
six basis point increase in our interest-earning assets, combined with the 54 basis point decrease in the cost of our interest-bearing
liabilities, resulted in a 60 basis point increase in our net interest spread for the 2025 period. We seek to fund increased loan volumes
by growing our core deposits, but, subject to internal policy limits on the amount of wholesale funding we may maintain, will utilize
wholesale funding to fund shortfalls, if any, or provide additional liquidity. To the extent that our dependence on wholesale funding
sources increases, our net interest margin would likely be negatively impacted as we may not be able to reduce the rates we pay on these
deposits as quickly as we can on core deposits as rates have and may continue to decline. We continue to deploy various asset liability
management strategies to manage our risk to interest rate fluctuations.

Rate/Volume Analysis

Net interest income can be analyzed in terms of the
impact of changing interest rates and changing volume. The following table sets forth the effect which the varying levels of interest-earning
assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented.
The rate/volume variance has been allocated between the rate and volume variances based on the relative magnitude of the change in each,
with the remaining interaction reflected in the rate/volume column.

Year Ended

December 31, 2025 vs. 2024

December 31, 2024 vs. 2023

Increase (Decrease) Due to Change in

Increase (Decrease) Due to Change in

(dollars in thousands)

Volume

Rate

Rate/

Volume

Total

Volume

Rate

Rate/

Volume

Total

Interest
income

Loans

$

6,389

4,731

162

11,282

$

6,267

13,933

526

20,726

Investment
securities

102

(535

)

(9

)

(442

)

579

682

88

1,349

Federal
funds sold and interest-bearing deposits with banks

1,366

(1,670

)

(267

)

(571

)

1,363

147

29

1,539

Total
interest income

7,857

2,526

(114

)

10,269

8,209

14,762

643

23,614

Interest
expense

Deposits

4,089

(16,614

)

(625

)

(13,150

)

2,316

14,712

373

17,401

FHLB advances
and other borrowings

(12

)

49

-

37

2,644

29

12

2,685

Subordinated
debt

(675

)

479

(151

)

(347

)

4

(44

)

-

(40

)

Total
interest expense

3,402

(16,086

)

(776

)

(13,460

)

4,964

14,697

385

20,046

Net
interest income

$

4,455

18,612

662

23,729

$

3,245

65

258

3,568

Net interest income, the largest component of our
income, was $105.0 million for the year ended December 31, 2025, a $23.7 million increase from net interest income of $81.2 million for
the year ended December 31, 2024. The increase in net interest income was driven by a $13.5 million decrease in interest expense, combined
with a $10.3 million increase in interest income. The $124.1 million increase in average loan balances drove the increase in interest
income while the 58 basis point decrease in deposit costs drove the decrease in interest expense.

Net interest 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 expense.

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.
We review the adequacy of the allowance

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for credit losses on a quarterly basis. The provision
for credit losses is determined based on management’s assessment of expected credit losses in the loan portfolio and unfunded commitments,
as discussed below.

There was a $3.0 million provision for credit losses
for the year ended December 31, 2025, compared to a provision of $125,000 and $1.3 million for the years ended December 31, 2024, and
2023, respectively. The $3.0 million provision during 2025 included a provision of $2.5 million for credit losses and a $500,000 provision
for unfunded commitments. The $2.5 million provision was driven primarily by $213.4 million in loan growth during the year combined with
slightly lower expected loss rates due to historically low charge-offs, while the $500,000 provision for unfunded commitments was driven
by a $124.5 million increase in unfunded commitments combined with lower historical loss rates. The $125,000 provision during 2024 included
a $500,000 provision for credit losses and a reversal of $375,000 in the provision for unfunded commitments. The $500,000 provision for
credit losses 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.

During the
first quarter of 2025, the Company refined its methodology for estimating the allowance for credit losses on loans by transitioning from
a lifetime probability of default and loss given default model to a DCF approach. The Company transitioned to the DCF method as it allows
for a better estimation of credit losses through customization among the various inputs by loan segmentation. The DCF model uses regression
techniques that relate one or more economic factors to the default rate of various portfolios to build reasonable and supportable forecasts
to estimate future losses. The Company determined that the national gross domestic product and unemployment rate were the two economic
factors which had the greatest correlation to historical performance to use in the forecasted portion of the model. In addition, the transition
to the DCF model allowed the Company to reduce its reliance on qualitative factors and to analyze them on a more granular level, such
as by segment. The refinement represents a change in accounting estimate under ASC Topic 250, Accounting Changes and Error Corrections,
with prospective application beginning in the period of change. This change in accounting estimate did not have a material effect on the
Company’s financial statements. During the quarter ended September 30, 2025, the risk weightings associated with certain qualitative
factors were revised based on new information reflecting the current economic and market environment. The result of these changes was
immaterial as it relates to the allowance for credit losses balance.

Under the
DCF methodology, expected loss rates are evaluated at the individual loan level using contractual cash flows, prepayment assumptions,
reasonable and supportable economic forecasts, and other model inputs. Internal risk ratings continue to inform credit risk monitoring,
segmentation, and qualitative adjustments, as applicable. The incorporation of the weighted average life of loan into the calculation
was a key driver of the change in allocation between our commercial portfolio and our consumer portfolio as the weighted average life
of our consumer loans is generally longer than that of our commercial loans, thus driving the changes in the expected loss rate to correlate
to the expected life of the loan. As a result, the allocation of the ACL shifted among loan categories, reducing the ACL allotted to the
commercial portfolio and increasing the ACL allotted to the consumer portfolio.

Following is a summary of the activity in the allowance
for credit losses.

December
31,

(dollars in thousands)

2025

2024

2023

Balance, beginning of period

$

39,914

40,682

38,639

Provision for credit losses

2,450

500

2,209

Loan charge-offs

(351

)

(1,734

)

(761

)

Loan recoveries

267

466

595

Net
loan charge-offs

(84

)

(1,268

)

(166

)

Balance,
end of period

$

42,280

39,914

40,682

As of December 31, 2025, the allowance for credit
losses totaled $42.3 million, or 1.10% of gross loans. In comparison, the allowance for credit losses totaled $39.9 million as of December
31, 2024, or 1.10% of gross loans, and $40.7 million as of December 31, 2023, or 1.13% of gross loans.

During the year ended December 31, 2025, we had net
charge-offs of $84,000, consisting of $351,000 of loans charged-off in the current year, partially offset by $267,000 of recoveries on
loans previously charged-off. Net charge-offs were

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0.00% of the average outstanding loan portfolio for
2025. In addition, nonperforming assets represented 0.32% of total assets while our level of classified assets to total capital (risk
based) decreased to 4.22% at December 31, 2025.

We reported net charge-offs of $1.3 million and $166,000
for the years ended December 31, 2024, and 2023, respectively, including charge-offs of $1.7 million and $761,000 in 2024 and 2023, respectively.
The net charge-offs of $1.3 million and $166,000 during 2024 and 2023, respectively, represented 0.04% and 0.00% of the average outstanding
loan portfolios for 2024 and 2023, respectively. In addition, nonperforming assets were 0.27% and 0.10% of total assets for 2024 and 2023,
respectively, and classified assets were 4.25% at December 31, 2024 and 2023.

Noninterest Income

The following table sets forth information related
to our noninterest income.

Year Ended December 31,

(dollars in thousands)

2025

2024

2023

Mortgage banking income

$

6,282

5,560

4,036

Service fees on deposit accounts

2,365

1,764

1,382

ATM and debit card income

2,377

2,337

2,245

Income from bank owned life insurance

1,705

1,569

1,379

Loss on sale of investment securities

(515

)

-

-

Other income

924

911

818

Total noninterest income

$

13,138

12,141

9,860

Noninterest income was $13.1 million for the year
ended December 31, 2025, a $997,000, or 8.2%, increase compared to noninterest income of $12.1 million for the year ended December 31,
2024. The increase in noninterest income during 2025, compared to 2024, resulted primarily from an increase in mortgage banking income
and service fees on deposit accounts. Mortgage banking income increased by $722,000, or 13.0%, due to higher mortgage volume during the
year. Service fees on deposit accounts increased by $601,000, or 34.1%, driven primarily by higher transaction volume, wire transfer fees
and growth in our commercial credit card services. Partially offsetting these increases was a $515,000 decrease from the loss on sale
of investment securities.

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 while 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 Expenses

The following table sets forth information related
to our noninterest expenses.

Year Ended December 31,

(dollars in thousands)

2025

2024

2023

Compensation and benefits

$

44,806

43,546

40,275

Occupancy

9,983

10,291

10,255

Outside service and data processing costs

8,528

7,741

7,078

Insurance

3,875

4,022

3,766

Professional fees

2,455

2,404

2,496

Marketing

1,529

1,412

1,357

Other

4,358

3,910

3,600

Total noninterest expenses

$

75,534

73,326

68,827

Noninterest expenses were $75.5 million for the year
ended December 31, 2025, a $2.2 million, or 3.0%, increase from noninterest expenses of $73.3 million for 2024.

The increase in total noninterest expenses during
2025, compared to 2024, resulted primarily from the following:

·

Compensation and benefits expense increased $1.3 million, or 2.9%, during 2025 relating primarily to increases in salaries, commissions, and other employee benefits expenses.

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Table of Contents 

·

Outside service and data processing costs increased $787,000, or 10.2%, primarily due to increases in software licensing and maintenance costs, electronic banking, and other services we provide our clients.

·

Other noninterest expenses increased $448,000, or 11.5%, due primarily to an increase in employee travel and other expenses associated with recognition of the Company’s 25th anniversary.

Partially offsetting the above increases was a decrease
in occupancy of $308,000, or 3.0%, due to lower depreciation expense as several larger items were fully depreciated during 2025.

Noninterest expenses were $73.3 million for the year
ended December 31, 2024, a $4.5 million, or 6.5%, increase from noninterest expense of $68.8 million for 2023.

The increase in total noninterest expenses during
2024, compared to 2023, resulted primarily from the following:

·

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.

Our efficiency ratio was 64.0% for 2025, 78.5% for
2024 and 78.7% for 2023. 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 decreased for the twelve months ended December 31, 2025 due to the comparatively larger increase in net interest income and noninterest
income, as compared to the increase in noninterest expenses during the year.

Income Taxes

Income tax expense was $9.2 million, $4.4 million
and $4.0 million for the years ended December 31, 2025, 2024 and 2023, respectively. Our effective tax rate was 23.3% for the year ended
December 31, 2025, compared to 22.0% for 2024, and 23.0% for 2023. 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

At December 31, 2025 and 2024, our investment securities
portfolio (including available-for-sale securities and other investments) was $147.8 million and $151.6 million, respectively, and represented
approximately 3.4% and 3.7% of our total assets, respectively. Our available for sale investment portfolio included corporate bonds, US
treasuries, US agency securities, SBA securities, state and political subdivisions, asset-backed securities, and mortgage-backed securities
with a fair value of $127.7 million and amortized cost of $137.2 million for an unrealized loss of $9.4 million at December 31, 2025 compared
to a fair value of $132.1 million and amortized cost of $146.6 million for an unrealized loss of $14.5 million at December 31, 2024. The
net unrealized losses primarily reflect the impact of market interest rate movements on the fair value of our fixed-rate securities portfolio.

The amortized costs and the fair value of our investments
are as follows.

December 31,

2025

2024

2023

Amortized

Fair

Amortized

Fair

Amortized

Fair

(dollars in thousands)

Cost

Value

Cost

Value

Cost

Value

Available for Sale

Corporate bonds

$

1,703

1,600

2,121

1,927

2,147

1,910

US treasuries

-

-

999

908

9,495

9,394

US government agencies

13,225

12,278

17,540

15,795

20,594

18,656

State and political subdivisions

19,934

17,870

22,387

19,322

22,642

19,741

Asset-backed securities

16,505

16,419

36,613

36,538

33,450

33,236

Mortgage-backed securities

85,798

79,563

66,988

57,637

60,730

51,765

Total

$

137,165

127,730

146,648

132,127

149,058

134,702

57 

Table of Contents 

Contractual maturities and yields on a tax-equivalent
basis for our investments are shown in the following table. Expected maturities may differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or prepayment penalties.

December 31, 2025

Less Than One Year

One to Five Years

Five to Ten Years

Over Ten Years

Total

(dollars in thousands)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Available for Sale

Corporate bonds

$

-

-

$

1,600

2.04

%

$

-

-

$

-

-

$

1,600

2.04

%

US government agencies

-

-

4,871

1.37

%

7,407

4.39

%

-

-

12,278

3.20

%

State and political subdivisions

-

-

2,561

1.62

%

5,565

2.21

%

9,744

2.41

%

17,870

2.23

%

Asset-backed securities

-

-

-

-

3,486

5.19

%

12,933

5.12

%

16,419

5.14

%

Mortgage-backed securities

19

2.37

%

2,229

1.70

%

9,272

2.74

%

68,043

4.17

%

79,563

3.93

%

Total

$

19

2.37

%

$

11,261

1.59

%

$

25,730

3.43

%

$

90,720

4.12

%

$

127,730

3.76

%

Other investments are comprised of the following and
are recorded at cost which approximates fair value.

December 31,

(dollars in thousands)

2025

2024

Federal Home Loan Bank stock

$

14,540

14,516

Other investments

5,120

4,571

Investment in Trust Preferred subsidiaries

403

403

Total

$

20,063

19,490

Loans

Since loans typically provide higher interest yields
than other types of interest-earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average
loans for the years ended December 31, 2025 and 2024 were $3.75 billion and $3.63 billion, respectively. Before allowance for credit losses,
total loans outstanding at December 31, 2025 and 2024 were $3.85 billion and $3.63 billion, respectively.

The principal component of our loan portfolio is loans
secured by real estate mortgages. As of December 31, 2025, our loan portfolio included $3.18 billion, or 82.8%, of loans secured by real
estate, compared to $3.03 billion, or 83.5%, as of December 31, 2024. 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 categories. 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 $248.7 million as of December 31, 2025, of which
approximately 47% were in a first lien position, while the remaining balance was second liens, compared to $204.9 million as of December
31, 2024, of which approximately 46% were in first lien positions and the remaining balance was in second liens. The average home equity
loan had a balance of approximately $108,000 and a loan to value of approximately 73% as of December 31, 2025, compared to an average
loan balance of $92,000 and a loan to value of approximately 74% as of December 31, 2024. Further, 0.38% and 0.12% of our total home equity
lines of credit were over 30 days past due as of December 31, 2025 and 2024, respectively.

Following is a summary of our loan composition for
each of the last three years ended December 31, 2025. Of the $213.4 million in loan growth in 2025, $141.8 million of growth was in commercial
related loans, specifically commercial owner occupied which grew by $85.4 million and commercial business which grew by $63.6 million,
partially offset by declines in other commercial categories (including construction and non-owner occupied real estate loans), while $71.5
million of growth was in consumer related loans. Consumer real estate loans represent the largest category in our consumer portfolio and
currently have an average principal balance of $472,000, a term of 24 years, and an average rate of 4.55%.

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December
31,

2025

2024

2023

%of

%of

%of

(dollars
in thousands)

Amount

Total

Amount

Total

Amount

Total

Commercial

Owner occupied RE

$

736,979

19.2

%

$

651,597

17.9

%

$

631,657

17.5

%

Non-owner occupied RE

956,812

24.9

%

924,367

25.5

%

942,529

26.2

%

Construction

63,666

1.7

%

103,204

2.8

%

150,680

4.2

%

Business

619,667

16.0

%

556,117

15.3

%

500,161

13.9

%

Total commercial loans

2,377,124

61.8

%

2,235,285

61.5

%

2,225,027

61.8

%

Consumer

Real estate

1,153,285

30.0

%

1,128,629

31.1

%

1,082,429

30.0

%

Home equity

248,685

6.5

%

204,897

5.6

%

183,004

5.1

%

Construction

24,997

0.6

%

20,874

0.6

%

63,348

1.7

%

Other

41,033

1.1

%

42,082

1.2

%

48,819

1.4

%

Total consumer loans

1,468,000

38.2

%

1,396,482

38.5

%

1,377,600

38.2

%

Total gross loans, net of deferred fees

3,845,124

100.0

%

3,631,767

100.0

%

3,602,627

100.0

%

Less – allowance for credit losses

(42,280

)

(39,914

)

(40,682

)

Total loans, net

$

3,802,844

$

3,591,853

$

3,561,945

We have included the tables below to provide additional
clarity on our commercial real estate exposure. We have not identified any material geographic concentrations within these collateral
types. The table below presents the majority of our commercial real estate exposure by collateral type which are included in the commercial
business, construction, and non-owner occupied segments.

December 31, 2025

(dollars in thousands)

Outstanding

% of Loan

Portfolio

Average Loan

Size

Weighted Average

LTV

Collateral

Office

$

221,425

5.76

%

$

1,377

53

%

Retail

186,692

4.86

%

1,611

50

%

Hotel

144,155

3.75

%

7,651

48

%

Multifamily

101,703

2.64

%

2,462

43

%

December 31, 2024

(dollars in thousands)

Outstanding

% of Loan

Portfolio

Average Loan

Size

Weighted Average

LTV

Collateral

Office

$

214,048

5.89

%

$

1,364

57

%

Retail

170,601

4.70

%

1,543

52

%

Hotel

125,557

3.46

%

7,250

48

%

Multifamily

96,735

2.66

%

2,385

45

%

Our level of non-owner occupied commercial real estate
loans represented 236.5% of the Bank’s total risk-based capital at December 31, 2025.

Maturities and Sensitivity of Loans to Changes in
Interest Rates

The information in the following table is based on
the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal
of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may
differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties.

The following table summarizes the composition and
maturities of the loan portfolio.

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December 31, 2025

(dollars in thousands)

One year

or less

After one

but within

five years

After five

but within

fifteen years

After

fifteen

years

Total

Commercial

Owner occupied RE

$

49,286

294,424

374,220

19,049

736,979

Non-owner occupied RE

160,526

588,542

190,475

17,269

956,812

Construction

17,357

27,808

18,501

-

63,666

Business

139,003

349,904

127,474

3,286

619,667

Total commercial loans

366,172

1,260,678

710,670

39,604

2,377,124

Consumer

Real estate

26,591

115,347

218,489

792,858

1,153,285

Home equity

6,073

36,692

201,872

4,048

248,685

Construction

19,053

1,379

4,565

-

24,997

Other

5,548

30,433

4,406

646

41,033

Total consumer loans

57,265

183,851

429,332

797,552

1,468,000

Total gross loan, net of deferred fees

$

423,437

1,444,529

1,140,002

837,156

3,845,124

The following table summarizes loans due after one year
(i.e., excluding loans due one year or less), by category and by interest rate type.

Interest Rate

(dollars in thousands)

Fixed

Floating or

Adjustable

Commercial

Owner occupied RE

$

630,228

57,465

Non-owner occupied RE

682,360

113,926

Construction

11,455

34,854

Business

285,215

195,449

Total commercial loans

1,609,258

401,694

Consumer

Real estate

963,817

162,877

Home equity

8,789

233,823

Construction

5,944

-

Other

9,100

26,385

Total consumer loans

987,650

423,085

Total gross loan, net of deferred fees

$

2,596,908

824,779

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 as of December 31, 2025. Generally, 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 economic and
business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful.
A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with
respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before
that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior
to restoration of accrual status.

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Table of Contents 

December
31,

(dollars in thousands)

2025

2024

2023

Commercial

Owner occupied RE

$

259

-

-

Non-owner occupied RE

6,917

7,641

1,423

Business

189

1,016

319

Consumer

Real estate

5,763

1,908

985

Home equity

705

312

1,236

Total nonaccrual loans

13,833

10,877

3,963

Other real estate owned

275

-

-

Total nonperforming assets

$

14,108

10,877

3,963

Asset Quality Ratios:

Nonperforming assets/total assets

0.32

%

0.27

%

0.10

%

Nonaccrual loans/gross loans

0.36

%

0.30

%

0.11

%

Total loans over 90 days past due (1)

$

4,499

2,641

1,300

Loans over 90 days past due and still accruing

-

-

-

(1) 

Loans
over 90 days are included in nonaccrual loans

At December 31, 2025, nonperforming assets were $14.1 million,
or 0.32% of total assets, compared to $10.9 million, or 0.27% of total assets at December 31, 2024. In addition, nonaccrual loans were
0.36% of gross loans at December 31, 2025 and 0.30% of gross loans at December 31, 2024. Nonaccrual loans increased $3.0 million during
the twelve months ended December 31, 2025 due to loans moving within the consumer real estate portfolio. The amount of foregone interest
income on the nonaccrual loans as of December 31, 2025 and 2024 was approximately $308,000 and $200,000, respectively, for the years ended
December 31, 2025 and 2024.

A significant portion, or 98.0%, of nonaccrual loans at December
31, 2025 were secured by real estate. We have evaluated the underlying collateral on these loans and believe that the collateral on these
loans is sufficient to minimize future losses. As a result of this level of coverage on nonaccrual loans, we believe the allowance for
credit losses of $42.3 million as of December 31, 2025 is adequate.

As a general practice, most of our commercial loans and a
portion of our consumer loans are originated with relatively short maturities of less than ten years. As a result, when a loan reaches
its maturity, we frequently renew the loan and thus extend its maturity using similar credit standards as those used when the loan was
first originated. Due to these loan practices, we may, at times, renew loans which are classified as nonaccrual after evaluating the loan’s
collateral value and financial strength of its guarantors. Nonaccrual loans are renewed at terms generally consistent with the ultimate
source of repayment and rarely at reduced rates. In these cases, we will generally seek additional credit enhancements, such as additional
collateral or additional guarantees to further protect the loan. When a loan is no longer performing in accordance with its stated terms,
we will typically seek performance under the guarantee.

In addition, approximately 83% of our loans are collateralized
by real estate and approximately 98% of our individually evaluated loans are secured by real estate. Individual loan evaluations are generally
performed for individually evaluated loans, which includes nonaccrual loans and certain loans not meeting the risk characteristics of
the pool, whether on accrual or nonaccrual status. We use third party appraisers to determine the fair value of collateral dependent loans.
Our current loan and appraisal policies require us to review individually evaluated loans at least annually and determine whether it is
necessary to obtain an updated appraisal, either through a new external appraisal or an internal appraisal evaluation. We review each
of our individually evaluated loans on a quarterly basis to determine the level of impairment. As of December 31, 2025, we do not have
any individually evaluated loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific
reserve for individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan
agreement.

At December 31, 2025, individually evaluated loans totaled
approximately $15.1 million for which $5.2 million of these loans had a reserve of approximately $1.5 million allocated in the allowance.
At December 31, 2024, individually evaluated loans totaled approximately $12.2 million for which $4.5 million of these loans had a reserve
of approximately $1.9 million allocated in the allowance.

During the 12 months ended December 31, 2025, we had two commercial
non-owner occupied loans that were modified due to the borrowers experiencing financial difficulty. The amortized cost basis of the two
loans was $6.9 million at

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December 31, 2025. Loan modifications to borrowers experiencing financial difficulty were not material for the
twelve months ended December 31, 2024.

Allowance for Credit Losses

At December 31, 2025 and December 31, 2024, the allowance
for credit losses was $42.3 million and $39.9 million, respectively, or 1.10% of outstanding loans, respectively. In addition, our nonperforming
assets increased to 0.32% as a percentage of total assets at December 31, 2025 from 0.27%, as a percentage of total assets, at December
31, 2024, while our classified assets were 4.22% and 4.25% of total capital (risk based) as of December 31, 2025 and December 31, 2024,
respectively. 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, 2025.

Year ended December 31,

2025

2024

2023

(dollars in thousands)

Amount

%

Amount

%

Amount

%

Net charge-offs:

Commercial

Non-owner occupied RE

$

-

-

$

(1,029

)

(0.03

)%

$

(57

)

0.00

%

Business

(166

)

(0.00

)%

(468

)

(0.01

)%

279

0.01

%

Total commercial

(166

)

(0.00

)%

(1,497

)

(0.04

)%

222

0.01

%

Consumer

Real Estate

36

0.00

%

-

-

-

-

Home equity

42

0.00

%

210

0.01

%

(373

)

(0.01

)%

Other

4

0.00

%

19

0.00

%

(15

)

0.00

%

Total consumer

82

0.00

%

229

0.01

%

(388

)

(0.01

)%

Net loan charge-offs

$

(84

)

$

(1,268

)

$

(166

)

Net loan charge-offs as a % of average loans

(0.00

)%

(0.04

)%

0.00

%

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

Year ended December 31,

2025

2024

(dollars in thousands)

Amount

%(1)

Amount

%(1)

Commercial

Owner occupied RE

$

3,911

19.2

%

$

5,482

17.9

%

Non-owner occupied RE

6,773

24.9

%

10,219

25.5

%

Construction

611

1.7

%

940

2.8

%

Business

12,148

16.0

%

7,745

15.3

%

Total commercial

23,443

61.8

%

24,386

61.5

%

Consumer

Real estate

15,866

30.0

%

12,359

31.1

%

Home equity

1,827

6.5

%

2,655

5.6

%

Construction

569

0.6

%

115

0.6

%

Other

575

1.1

%

399

1.2

%

Total consumer

18,837

38.2

%

15,528

38.5

%

Total allowance for credit losses

$

42,280

100.0

%

$

39,914

100.0

%

(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.

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Our retail deposits represented $3.16 billion, or 85.1% of
total deposits, at December 31, 2025 and $2.89 billion, or 84.0% of total deposits, at December 31, 2024. Brokered deposits were $552.9
million, representing 14.9% of our total deposits at December 31, 2025, and $550.3 million, or 16.0%, at December 31, 2024 and are included
in time deposits greater than $250,000 in the following table. Our loan-to-deposit ratio was 103%, 106%, and 107% at December 31, 2025,
2024, and 2023, respectively.

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

December 31,

2025

2024

2023

(dollars in thousands)

Amount

Rate

Amount

Rate

Amount

Rate

Noninterest bearing demand deposits

$

715,699

-

%

$

676,792

-

%

$

717,275

-

%

Interest bearing demand deposits

332,222

0.88

%

303,580

0.93

%

299,703

0.75

%

Money market accounts

1,544,612

3.37

%

1,531,994

4.00

%

1,672,550

3.66

%

Savings accounts

31,001

0.33

%

29,931

0.25

%

36,324

0.11

%

Time deposits less than $250,000

190,292

3.74

%

211,494

4.59

%

106,169

5.04

%

Time deposits greater than $250,000

758,523

4.40

%

689,134

5.03

%

525,798

4.30

%

Total deposits

$

3,572,349

2.68

%

$

3,442,925

3.15

%

$

3,357,819

2.72

%

During the 12 months ended December 31, 2025, our average
transaction account balances increased by $81.2 million, or 3.2%, while our average time deposit balances increased by $48.2 million,
or 5.4%. 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 $2.88 billion, $2.66 billion, and $2.81 billion at December 31,
2025, 2024 and 2023, respectively.

All of our time deposits are certificates of deposit. The
maturity distribution of our time deposits of $250,000 or more is as follows:

December 31,

(dollars in thousands)

2025

2024

Three months or less

$

215,650

233,514

Over three through six months

180,050

187,478

Over six through twelve months

271,920

130,568

Over twelve months

110,334

222,468

Total

$

777,954

774,028

Time deposits that meet or exceed the FDIC insurance limit
of $250,000 at December 31, 2025 and December 31, 2024 were $778.0 million and $774.0 million, respectively, including wholesale deposits.

At December 31, 2025 and 2024, we
estimate that we have approximately $1.5 billion and $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 beginning in March 2023, and continuing with additional failures in 2024, 2025 and
January 2026, 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 institution’s 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

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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, 2025 and 2024, our cash and cash equivalents
amounted to $269.6 million and $162.9 million, or 6.1% and 4.0% of total assets, respectively. Our investment securities at December 31,
2025 and 2024 amounted to $147.8 million and $151.6 million, or 3.4% and 3.7% 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 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, 2025. At December 31, 2025, we
had $181.2 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, 2025 was $836.5
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, 2025 we had $231.9 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. 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, 2025. The line of credit was issued on December 28, 2024 at an interest rate of the
U.S. Prime Rate plus 0.25% and an original maturity date of February 28, 2025. The line was renewed under the same terms with a new maturity
date of March 5, 2026.

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 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 needs.

Total shareholders’ equity was $368.7 million at December
31, 2025 and $330.4 million at December 31, 2024. The $38.3 million increase during 2025 is due primarily to net income to common shareholders
of $30.4 million, equity compensation transactions of $3.8 million combined with a $4.0 million increase in other comprehensive income.

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, 2025. Since our inception, we have not paid cash dividends.

December 31,

(dollars in thousands)

2025

2024

2023

Return on average assets

0.72

%

0.38

%

0.34

%

Return on average equity

8.73

%

4.84

%

4.44

%

Return on average common equity

8.73

%

4.84

%

4.44

%

Average equity to average assets ratio

8.20

%

7.83

%

7.71

%

Tangible common equity to assets ratio

8.37

%

8.08

%

7.70

%

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Table of Contents 

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 risk-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, 2025, 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.

Actual

For
capital

adequacy purposes

minimum (1)

To be well capitalized

under prompt

corrective

action provisions

minimum

(dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of December 31, 2025

Total Capital (to risk weighted assets)

$

437,207

12.85

%

$

272,120

8.00

%

$

340,150

10.00

%

Tier 1 Capital (to risk weighted assets)

394,927

11.61

%

204,090

6.00

%

272,120

8.00

%

Common Equity Tier 1 (to risk weighted assets)

394,927

11.61

%

153,068

4.50

%

221,098

6.50

%

Tier 1 Capital (to average assets)

394,927

9.06

%

174,276

4.00

%

217,845

5.00

%

As of December 31, 2024

Total Capital (to risk weighted assets)

$

402,629

12.66

%

$

254,412

8.00

%

$

318,015

10.00

%

Tier 1 Capital (to risk weighted assets)

362,875

11.41

%

190,809

6.00

%

254,412

8.00

%

Common Equity Tier 1 (to risk weighted assets)

362,875

11.41

%

143,107

4.50

%

206,709

6.50

%

Tier 1 Capital (to average assets)

362,875

8.75

%

165,941

4.00

%

207,426

5.00

%

As of December 31, 2023

Total Capital (to risk weighted assets)

$

390,197

12.28

%

$

254,278

8.00

%

$

317,847

10.00

%

Tier 1 Capital (to risk weighted assets)

350,455

11.03

%

190,708

6.00

%

254,278

8.00

%

Common Equity Tier 1 (to risk weighted assets)

350,455

11.03

%

143,031

4.50

%

206,601

6.50

%

Tier 1 Capital (to average assets)

350,455

8.47

%

165,414

4.00

%

206,767

5.00

%

(1) 

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

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On 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 (7.34% at December 31, 2025), payable quarterly in arrears.
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, 2025, unfunded commitments to extend credit were
approximately $843.6 million, of which $81.4 million were at fixed rates and $762.2 million were at variable rates. At December 31, 2024,
unfunded commitments to extend credit were $719.1 million, of which approximately $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. 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, 2025 and 2024, there were $20.4 million and
$16.2 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 rates. Our

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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 limits.

As of December 31, 2025, 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 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.

Interest rate scenario

Change in net interest

income from base

Up 300 basis points

(11.87

)%

Up 200 basis points

(7.16

)%

Up 100 basis points

(3.28

)%

Base

-

Down 100 basis points

2.67

%

Down 200 basis points

6.87

%

Down 300 basis points

11.52

%

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, 2025, $769,000 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, 2025.

December 31, 2025

Payments Due by Period

(dollars in thousands)

Within

One Year

Over One

to Two

Years

Over Two

to Three

Years

Over Three

to Four

Years

After

Five

Years

Total

Certificates of deposit

$

846,094

30,643

81,522

62

416

958,737

Subordinated debentures

-

-

-

24,903

-

24,903

Operating lease obligations

2,210

2,267

2,015

1,501

18,686

26,679

Total

$

848,304

32,910

83,537

26,466

19,102

1,010,319

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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.