# SOUTHERN FIRST BANCSHARES INC (SFST) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from SOUTHERN FIRST BANCSHARES INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1090009/000120677425000099/sfst4401651-10k.htm
Accession: 0001206774-25-000099
Filing date: 2025-03-03
Report date: 2024-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/SFST/
All MD&A years: /company/SFST/mda/
Previous year: /company/SFST/mda/fy2023/ (FY 2023)
Next year: /company/SFST/mda/fy2025/ (FY 2025)

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, 2024, we had total assets of $4.09
billion, a slight increase from total assets of $4.06 billion at December 31, 2023. The largest components of our total assets are loans
which were $3.63 billion and $3.60 billion at December 31, 2024 and 2023, respectively. Our liabilities and shareholders’ equity
at December 31, 2024 totaled $3.76 billion and $330.4 million, respectively, compared to liabilities of $3.74 billion and shareholders’
equity of $312.5 million at December 31, 2023. The principal component of our liabilities is deposits which were $3.44 billion and $3.38
billion at December 31, 2024 and 2023, 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, 2024 and 2023 was $15.5 million and $13.4 million, or diluted earnings per share (“EPS”) of $1.91
and $1.66 for the years ended December 31, 2024 and 2023, respectively. The increase in net income resulted primarily from an increase
in net interest income and an increase in noninterest income, partially offset by an increase in noninterest expenses and a decrease in
the provision for credit losses. In addition, our net income available to shareholders was $29.1 million, or EPS of $3.61 for the year
ended December 31, 2022.

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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, 2024, 2023, and 2022 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.

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(dollars in thousands, except per share data)","","2024","","","2023","","","2022"],["BALANCE SHEET DATA"],["Total assets","","$","4,087,593","","","","4,055,789","","","","3,691,981"],["Investment securities","","","151,617","","","","154,641","","","","104,180"],["Loans (1)","","","3,631,767","","","","3,602,627","","","","3,273,363"],["Allowance for credit losses","","","39,914","","","","40,682","","","","38,639"],["Deposits","","","3,435,765","","","","3,379,564","","","","3,133,864"],["FHLB advances and other borrowings","","","240,000","","","","275,000","","","","175,000"],["Subordinated debentures","","","24,903","","","","36,322","","","","36,214"],["Common equity","","","330,444","","","","312,467","","","","294,512"],["Preferred stock","","","-","","","","-","","","","-"],["Shareholders\u2019 equity","","","330,444","","","","312,467","","","","294,512"],["SELECTED RESULTS OF OPERATIONS DATA"],["Interest income","","$","201,212","","","","177,598","","","","117,662"],["Interest expense","","","119,990","","","","99,944","","","","20,041"],["Net interest income","","","81,222","","","","77,654","","","","97,621"],["Provision for credit losses","","","125","","","","1,260","","","","6,155"],["Net interest income after provision for credit losses","","","81,097","","","","76,394","","","","91,466"],["Noninterest income","","","12,141","","","","9,860","","","","9,580"],["Noninterest expenses","","","73,326","","","","68,827","","","","62,933"],["Income before income tax expense","","","19,912","","","","17,427","","","","38,113"],["Income tax expense","","","4,382","","","","4,001","","","","8,998"],["Net income available to common shareholders","","$","15,530","","","","13,426","","","","29,115"],["PER COMMON SHARE DATA"],["Basic","","$","1.92","","","","1.67","","","","3.66"],["Diluted","","","1.91","","","","1.66","","","","3.61"],["Book value","","","40.47","","","","38.63","","","","36.76"],["Weighted average number of common shares outstanding:"],["Basic, in thousands","","","8,081","","","","8,047","","","","7,958"],["Diluted, in thousands","","","8,117","","","","8,078","","","","8,072"],["SELECTED FINANCIAL RATIOS"],["Performance Ratios:"],["Return on average assets","","","0.38","%","","","0.34","%","","","0.90","%"],["Return on average equity","","","4.84","%","","","4.44","%","","","10.20","%"],["Return on average common equity","","","4.84","%","","","4.44","%","","","10.20","%"],["Net interest margin, tax equivalent(2)","","","2.06","%","","","2.07","%","","","3.19","%"],["Efficiency ratio (3)","","","78.54","%","","","78.65","%","","","58.71","%"],["Asset Quality Ratios:"],["Nonperforming assets to total loans (1)","","","0.30","%","","","0.11","%","","","0.08","%"],["Nonperforming assets to total assets","","","0.27","%","","","0.10","%","","","0.07","%"],["Net charge-offs to average total loans","","","0.04","%","","","0.00","%","","","(0.05","%)"],["Allowance for credit losses to nonperforming loans","","","366.94","%","","","1,026.58","%","","","1,470.74","%"],["Allowance for credit losses to total loans","","","1.10","%","","","1.13","%","","","1.18","%"],["Holding Company Capital Ratios:"],["Total risk-based capital ratio","","","12.70","%","","","12.57","%","","","12.91","%"],["Tier 1 risk-based capital ratio","","","11.16","%","","","10.60","%","","","10.88","%"],["Leverage ratio","","","8.55","%","","","8.14","%","","","9.17","%"],["Common equity tier 1 ratio(4)","","","10.75","%","","","10.19","%","","","10.44","%"],["Tangible common equity(5)","","","8.08","%","","","7.70","%","","","7.98","%"],["Growth Ratios:"],["Change in assets","","","0.78","%","","","9.85","%","","","26.20","%"],["Change in loans","","","0.81","%","","","10.06","%","","","31.47","%"],["Change in deposits","","","1.66","%","","","7.84","%","","","22.23","%"],["Change in net income to common shareholders","","","15.67","%","","","-53.89","%","","","-37.67","%"],["Change in earnings per common share - diluted","","","15.06","%","","","-54.02","%","","","-38.29","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["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."]]
[[/GREPCENT_TABLE]]

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, 2024.

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 accounting policies. 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 potentially result in credit losses, the process includes subjective
elements and is susceptible to significant change. 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.

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.

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

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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.

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, 2024, 2023, and 2022, our net
interest income was $81.2 million, $77.7 million, and $97.6 million, respectively. The $3.6 million, or 4.6%, increase in net interest
income during 2024, compared to 2023, was driven by a $23.6 million increase in interest income, partially offset by a $20.0 million increase
in interest expense. During 2023, our net interest income decreased $20.0 million, or 20.5%, compared to 2022. This decrease in net interest
income was driven by a $79.9 million increase in interest expense, primarily related to our interest-bearing deposits, partially offset
by a $59.9 million increase in interest income during the 2023 period.

Interest income for the years ended December 31, 2024,
2023, and 2022 was $201.2 million, $177.6 million, and $117.7 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, 92.9% of our interest income related to interest on loans during 2024, compared to 93.5% during 2023 and 97.1% during 2022.
Also, included in interest income on loans was $1.6 million related to the net amortization of loan fees and capitalized loan origination
costs for the year ended December 31, 2024, compared to $1.7 million for the years ended December 31, 2023 and 2022, respectively. The
increase in interest income during 2024 was driven by an increase in average interest-earning assets, combined with higher yields on those
assets.

Interest expense was $120.0 million, $99.9 million,
and $20.0 million for the years ended December 31, 2024, 2023, and 2022, respectively. Interest expense on deposits for 2024 represented
90.7% of total interest expense, compared to 91.4% for 2023, and 90.3% for 2022, while interest expense on borrowings represented 9.3%
of total interest expense for 2024, compared to 8.6% for 2023, and 9.7% for 2022. The increase in interest expense on deposits during
the 2024 and 2023 periods was driven by the increase in the rate paid on deposit balances which relates to the Federal Reserve’s
525 basis point increase in the federal funds rate beginning in March 2022 and continuing through July 2023.

We have included a number of tables to assist in our
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 2024, 2023, and 2022. 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 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 at December 31, 2024, 2023 and 2022. 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 owned 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.

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Average Balances, Income and Expenses, Yields and Rates

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023","","","2022"],["(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","","$","160,683","","","$","8,537","","","","5.31","%","","$","134,495","","","$","6,998","","","","5.20","%","","$","88,077","","","$","1,439","","","","1.63","%"],["Investment securities, taxable","","","138,494","","","","5,645","","","","4.08","%","","","121,739","","","","4,296","","","","3.53","%","","","97,328","","","","1,793","","","","1.84","%"],["Investment securities, nontaxable (1)","","","8,012","","","","217","","","","2.71","%","","","7,941","","","","217","","","","2.73","%","","","10,604","","","","256","","","","2.41","%"],["Loans (2)","","","3,629,570","","","","186,863","","","","5.15","%","","","3,497,623","","","","166,137","","","","4.75","%","","","2,870,733","","","","114,233","","","","3.98","%"],["Total interest-earning assets","","","3,936,759","","","","201,262","","","","5.11","%","","","3,761,798","","","","177,648","","","","4.72","%","","","3,066,742","","","","117,721","","","","3.84","%"],["Noninterest-earning assets","","","159,441","","","","","","","","","","","","162,771","","","","","","","","","","","","157,380"],["Total assets","","$","4,096,200","","","","","","","","","","","$","3,924,569","","","","","","","","","","","$","3,224,122"],["Interest-bearing liabilities"],["NOW accounts","","$","303,580","","","","2,810","","","","0.93","%","","$","299,703","","","","2,254","","","","0.75","%","","$","374,956","","","","816","","","","0.22","%"],["Savings & money market","","","1,561,925","","","","61,455","","","","3.93","%","","","1,708,874","","","","61,241","","","","3.58","%","","","1,364,961","","","","13,138","","","","0.96","%"],["Time deposits","","","900,628","","","","44,509","","","","4.94","%","","","631,967","","","","27,878","","","","4.41","%","","","301,793","","","","4,148","","","","1.37","%"],["Total interest-bearing deposits","","","2,766,133","","","","108,774","","","","3.93","%","","","2,640,544","","","","91,373","","","","3.46","%","","","2,041,710","","","","18,102","","","","0.89","%"],["FHLB advances and other borrowings","","","240,344","","","","9,066","","","","3.77","%","","","169,963","","","","6,382","","","","3.75","%","","","19,614","","","","209","","","","1.07","%"],["Subordinated debt","","","33,448","","","","2,150","","","","6.43","%","","","36,265","","","","2,189","","","","6.04","%","","","36,156","","","","1,730","","","","4.78","%"],["Total interest-bearing liabilities","","","3,039,925","","","","119,990","","","","3.95","%","","","2,846,772","","","","99,944","","","","3.51","%","","","2,097,480","","","","20,041","","","","0.96","%"],["Noninterest-bearing liabilities","","","735,363","","","","","","","","","","","","775,116","","","","","","","","","","","","841,233"],["Shareholders\u2019 equity","","","320,912","","","","","","","","","","","","302,681","","","","","","","","","","","","285,409"],["Total liabilities and shareholders\u2019 equity","","$","4,096,200","","","","","","","","","","","$","3,924,569","","","","","","","","","","","$","3,224,122"],["Net interest spread","","","","","","","","","","","1.16","%","","","","","","","","","","","1.21","%","","","","","","","","","","","2.88","%"],["Net interest income(tax equivalent)/margin","","","","","","$","81,272","","","","2.06","%","","","","","","$","77,704","","","","2.07","%","","","","","","$","97,680","","","","3.19","%"],["Less: tax-equivalent adjustment (1)","","","","","","","(50",")","","","","","","","","","","","(50",")","","","","","","","","","","","(59",")"],["Net interest income","","","","","","$","81,222","","","","","","","","","","","$","77,654","","","","","","","","","","","$","97,621"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Includes loans held for sale and nonaccrual loans."]]
[[/GREPCENT_TABLE]]

Our net interest margin, on
a tax-equivalent basis (TE), was 2.06%, 2.07% and 3.19% for the years ended December 31, 2024, 2023 and 2022, respectively. Our net interest
margin (TE) was relatively stable in 2024, compared to 2023 as both our yield on interest earning assets and rate of interest bearing
liabilities increased similarly during the year. During 2023, our net interest margin decreased 112 basis points, compared to 2022, driven
primarily by higher costs on our interest-bearing liabilities.

Our average interest-earning assets increased by $175.0
million during the year ended December 31, 2024, compared to 2023, while the related yield on our interest-earning assets increased by
39 basis points. The increase in average interest-earning assets was driven by a $131.9 million increase in average loan balances and
a $26.2 million increase in federal funds sold and interest-bearing deposits with banks. In addition, the increase in yield on our interest
earning assets was driven by a 40 basis point increase in the yield on our loan portfolio.

During the year ended December 31, 2023, our average
interest-earning assets increased by $695.1 million, compared to 2022, while the yield on our interest-earning assets increased by 88
basis points. The increase in average interest-earning assets was driven primarily by a $626.9 million increase in average loan balances
combined with a $46.4 million increase in federal funds sold and interest-bearing deposits with banks. In addition, the increase in yield
on our interest earning assets was driven by a 357 basis point increase in the yield on our federal funds sold and other interest-bearing
deposits which repriced as the Federal Reserve increased the federal funds rate by 100 basis points during 2023.

Our average interest-bearing liabilities increased
by $193.2 million during 2024 while the cost of our interest-bearing liabilities increased by 44 basis points. The increase in average
interest-bearing liabilities was driven primarily by a $268.7 million increase in average time deposits at an average rate of 4.94% and
an increase of $70.4 million in FHLB advances and other borrowings. During 2023, our average interest-bearing liabilities increased by
$749.3 million, compared to 2022, while the cost of our interest-bearing liabilities increased by 255 basis points.

Our net interest spread was
1.16% for the year ended December 31, 2024, compared to 1.21% for the same period in 2023 and 2.88% for 2022. 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
44 basis point increase in the cost of our interest-bearing liabilities, partially offset by a 39 basis point increase in yield on our
interest-earning assets resulted in a 5 basis point

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decrease in our net interest
spread for the 2024 period. We anticipate continued pressure on our net interest spread and net interest margin in future periods
as our deposits continue to reprice immediately with increases in the fed funds rate, compared to our loan portfolio which reprices as
loans are originated or renewed.

Rate/Volume Analysis

Net interest income can be analyzed in terms of the
impact of changing interest rates and changing volume. The following tables set 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.

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","December 31, 2024 vs. 2023","","","December 31, 2023 vs. 2022"],["","","","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","","$","6,267","","","","13,933","","","","526","","","","20,726","","","$","24,945","","","","22,127","","","","4,832","","","","51,904"],["Investment securities","","","579","","","","682","","","","88","","","","1,349","","","","401","","","","1,725","","","","347","","","","2,473"],["Federal funds sold","","","1,363","","","","147","","","","29","","","","1,539","","","","758","","","","3,144","","","","1,657","","","","5,559"],["Total interest income","","","8,209","","","","14,762","","","","643","","","","23,614","","","","26,104","","","","26,996","","","","6,836","","","","59,936"],["Interest expense"],["Deposits","","","2,316","","","","14,712","","","","373","","","","17,401","","","","3,371","","","","58,928","","","","10,972","","","","73,271"],["FHLB advances and other borrowings","","","2,644","","","","29","","","","12","","","","2,685","","","","1,602","","","","528","","","","4,044","","","","6,174"],["Subordinated debt","","","4","","","","(44",")","","","-","","","","(40",")","","","5","","","","452","","","","1","","","","458"],["Total interest expense","","","4,964","","","","14,697","","","","385","","","","20,046","","","","4,978","","","","59,908","","","","15,017","","","","79,903"],["Net interest income","","$","3,245","","","","65","","","","258","","","","3,568","","","$","21,126","","","","(32,912",")","","","(8,181",")","","","(19,967",")"]]
[[/GREPCENT_TABLE]]

Net interest income, the largest component of our income,
was $81.2 million for the year ended December 31, 2024, a $3.6 million increase from net interest income of $77.7 million for the year
ended December 31, 2023. The increase in net interest income was driven by a $23.6 million increase in interest income, partially offset
by a $20.0 million increase in interest expense. The 40 basis point increase in loan yield combined with the $131.9 million increase in
average loan balances drove the increase in interest income while the 47 basis point increase in deposit costs drove the increase in interest
expense.

Net interest income was $77.7 million for the year
ended December 31, 2023, a $20.0 million decrease from net interest income of $97.6 million for the year ended December 31, 2022. The
decrease in net interest income was driven by a $79.9 million increase in interest expense, partially offset by a $59.9 million increase
in interest income. The 257 basis point increase in deposit costs drove the increase in interest expense while the $626.9 million increase
in average loan balances combined with the 77 basis point increase in loan yield drove the increase in interest income.

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 for credit losses on a quarterly basis. Please see the discussion below under “Results of Operations
– Allowance for Credit Losses” for a description of the factors we consider in determining the amount of the provision we
expense each period to maintain this allowance.

There was a $125,000 provision for credit losses for
the year ended December 31, 2024, compared to a provision of $1.3 million and $6.2 million for the years ended December 31, 2023 and 2022,
respectively. The $125,000 provision during 2024 included a provision of $500,000 for credit losses and a reversal of $375,000 for unfunded
commitments. The $500,000 provision was driven primarily by $29.1 million in loan growth during the year combined with slightly lower
expected loss rates due to historically low charge-offs, while the $375,000 reversal was driven by a $5.5 million decrease in unfunded
commitments combined with lower historical loss rates. The $1.3 million provision during 2023 included a $2.2 million provision for credit
losses and a reversal of $949,000 for unfunded commitments. The $2.2 million provision was driven primarily by $329.3 million in loan
growth during the year, while the $949,000 reversal was driven by a $153.7 million decrease in unfunded commitments. The $6.2 million
provision during 2022, which included a $780,000 provision for unfunded commitments, was driven primarily by $783.5 million in loan growth
during the year, combined with a $259.6 million increase in unfunded commitments. In addition, to loan growth, the provision for credit
losses was impacted by

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slightly lower expected loss rates due to historically
low charge-offs during the 12 months ended December 31, 2022 while minor adjustments to two internal qualitative factors increased the
qualitative component of the allowance and related provision expense.

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

[[GREPCENT_TABLE]]
[["","","December 31,"],["(dollars in thousands)","","2024","","","2023","","","2022"],["Balance, beginning of period","","$","40,682","","","","38,639","","","","30,408"],["Adjustment for CECL","","","-","","","","-","","","","1,500"],["Provision for credit losses","","","500","","","","2,209","","","","5,375"],["Loan charge-offs","","","(1,734",")","","","(761",")","","","(485",")"],["Loan recoveries","","","466","","","","595","","","","1,841"],["Net loan (charge-offs) recoveries","","","(1,268",")","","","(166",")","","","1,356"],["Balance, end of period","","$","39,914","","","","40,682","","","","38,639"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, the allowance for credit losses
totaled $39.9 million, or 1.10% of gross loans. In comparison, the allowance for credit losses totaled $40.7 million as of December 31,
2023, or 1.13% of gross loans, and $38.6 million as of December 31, 2022, or 1.18% of gross loans.

During the year ended December 31, 2024, we had net
charge-offs of $1.3 million, consisting of $1.7 million of loans charged-off in the current year, partially offset by $466,000 of recoveries
on loans previously charged-off. Net charge-offs were 0.04% of the average outstanding loan portfolio for 2024. In addition, nonperforming
assets increased to 0.27% of total assets while our level of classified assets decreased to 4.25% at December 31, 2024.

We reported net charge-offs of $166,000 and net recoveries
of $1.4 million for the years ended December 31, 2023 and 2022, respectively, including charge-offs of $761,000 and $485,000 in 2023 and
2022, respectively. The net charge-offs of $166,000 and net recoveries of $1.4 million during 2023 and 2022, respectively, represented
0.0.% and 0.05% of the average outstanding loan portfolios for 2023 and 2022, respectively. In addition, nonperforming assets were 0.10%
and 0.07% of total assets for 2023 and 2022, respectively, and classified assets were 4.25% and 4.72% at December 31, 2023 and 2022, respectively.

Noninterest Income

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(dollars in thousands)","","2024","","","2023","","","2022"],["Mortgage banking income","","$","5,560","","","","4,036","","","","4,198"],["Service fees on deposit accounts","","","1,764","","","","1,382","","","","1,265"],["ATM and debit card income","","","2,337","","","","2,245","","","","2,163"],["Income from bank owned life insurance","","","1,569","","","","1,379","","","","1,289"],["Gain (loss) on disposal of fixed assets","","","28","","","","-","","","","(394",")"],["Other income","","","883","","","","818","","","","1,059"],["Total noninterest income","","$","12,141","","","","9,860","","","","9,580"]]
[[/GREPCENT_TABLE]]

Noninterest income was $12.1 million for the year ended
December 31, 2024, a $2.3 million, or 23.1%, increase compared to noninterest income of $9.9 million for the year ended December 31, 2023.
The increase in noninterest income during 2024, compared to 2023, resulted primarily from an increase in mortgage banking income, service
fees on deposit accounts and income from bank owned life insurance. Mortgage banking income increased by $1.5 million, or 37.8%, due to
higher mortgage volume during the year. Service fees on deposit accounts increased by $382,000, or 27.6%, due to transaction volume and
increased use of the commercial credit cards offered to our clients.

Noninterest income was $9.9 million for the year ended
December 31, 2023, a $280,000, or 2.9%, increase compared to noninterest income of $9.6 million for the year ended December 31, 2022.
The increase in noninterest income during 2023, compared to 2022, resulted primarily from a loss on disposal of assets during the prior
year. Offsetting the increases in noninterest income were decreases in mortgage banking income and other income. Other income decreased
due to a decrease in loan fee income during 2023 as compared to 2022 due to fewer loan originations.

 53

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Noninterest Expenses

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(dollars in thousands)","","2024","","","2023","","","2022"],["Compensation and benefits","","$","43,546","","","","40,275","","","","38,790"],["Occupancy","","","10,291","","","","10,255","","","","9,105"],["Outside service and data processing costs","","","7,741","","","","7,078","","","","6,112"],["Insurance","","","4,022","","","","3,766","","","","1,686"],["Professional fees","","","2,404","","","","2,496","","","","2,635"],["Marketing","","","1,412","","","","1,357","","","","1,216"],["Other","","","3,910","","","","3,600","","","","3,389"],["Total noninterest expenses","","$","73,326","","","","68,827","","","","62,933"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","\u00b7","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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00b7","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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00b7","Insurance expenses increased $256,000, or 6.8%, related to higher FDIC insurance premiums."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00b7","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."]]
[[/GREPCENT_TABLE]]

Noninterest expenses were $68.8 million for the year
ended December 31, 2023, a $5.9 million, or 9.4%, increase from noninterest expense of $62.9 million for 2022.

The increase in total noninterest expenses during 2023,
compared to 2022, resulted primarily from the following:

[[GREPCENT_TABLE]]
[["","\u00b7","Compensation and benefits expense increased $1.5 million, or 3.8%, during 2023 relating primarily to an increase in salaries and incentive compensation."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00b7","Occupancy expenses increased $1.2 million, or 12.6%, driven by increased depreciation, insurance, property taxes and maintenance expenses primarily related to our new headquarters building."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00b7","Outside service and data processing costs increased $966,000, or 15.8%, primarily due to increased electronic banking, software licensing costs and debit card related expenses."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00b7","Insurance expenses increased $2.1 million, or 123.4%, related to higher FDIC insurance premiums."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00b7","Marketing expenses increased $141,000, or 11.6%, driven by an increase in community sponsorships and business development."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00b7","Other noninterest expenses increased $211,000, or 6.2%, due primarily to an increase in telephone expense and deposit account and fraud losses."]]
[[/GREPCENT_TABLE]]

Partially offsetting the above increases was a decrease
in professional fees of $139,000, or 5.3% due to less legal fees and consulting expenses during 2023.

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

Income Taxes

Income tax expense was $4.4 million, $4.0 million and
$9.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. Our effective tax rate was 22.0% for the year ended December
31, 2024, compared to 23.0% for 2023, and 23.6% for 2022. The fluctuation in the effective rate for each of the periods is driven by the
effect of equity compensation transactions and return to provision differences on our actual tax rate during the year compared to what
was estimated during the year.

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Investment Securities

At December 31, 2024 and 2023, our investment securities
portfolio was $151.6 million and $154.6 million, respectively, and represented approximately 3.7% and 3.8% 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 $132.1 million and amortized cost of $146.6
million for an unrealized loss of $14.5 million at December 31, 2024 compared to a fair value of $134.7 million and amortized cost of
$149.1 million for an unrealized loss of $14.4 million at December 31, 2023.

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

[[GREPCENT_TABLE]]
[["","","","","","","","","December 31,"],["","","2024","","","2023","","","2022"],["","","Amortized","","","Fair","","","Amortized","","","Fair","","","Amortized","","","Fair"],["(dollars in thousands)","","Cost","","","Value","","","Cost","","","Value","","","Cost","","","Value"],["Available for Sale"],["Corporate bonds","","$","2,121","","","","1,927","","","","2,147","","","","1,910","","","","2,172","","","","1,883"],["US treasuries","","","999","","","","908","","","","9,495","","","","9,394","","","","999","","","","871"],["US government agencies","","","17,540","","","","15,795","","","","20,594","","","","18,656","","","","13,007","","","","10,617"],["State and political subdivisions","","","22,387","","","","19,322","","","","22,642","","","","19,741","","","","22,910","","","","18,906"],["Asset-backed securities","","","36,613","","","","36,538","","","","33,450","","","","33,236","","","","6,435","","","","6,229"],["Mortgage-backed securities","","","66,988","","","","57,637","","","","60,730","","","","51,765","","","","64,800","","","","54,841"],["Total","","$","146,648","","","","132,127","","","","149,058","","","","134,702","","","","110,323","","","","93,347"]]
[[/GREPCENT_TABLE]]

Contractual maturities and yields on 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.

[[GREPCENT_TABLE]]
[["","","","","","December 31, 2024"],["","","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","","$","-","","","","-","","","$","1,927","","","","2.02","%","","$","-","","","","-","","","$","-","","","","-","","","$","1,927","","","","2.02","%"],["US treasuries","","","-","","","","-","","","","908","","","","1.27","%","","","-","","","","-","","","","-","","","","-","","","","908","","","","1.27","%"],["US government agencies","","","-","","","","-","","","","5,021","","","","1.10","%","","","10,774","","","","4.51","%","","","-","","","","-","","","","15,795","","","","3.43","%"],["State and political subdivisions","","","461","","","","2.13","%","","","1,726","","","","1.61","%","","","5,049","","","","2.10","%","","","12,086","","","","2.13","%","","","19,322","","","","2.08","%"],["Asset-backed securities","","","-","","","","-","","","","23","","","","6.14","%","","","3,420","","","","5.25","%","","","33,095","","","","5.87","%","","","36,538","","","","5.81","%"],["Mortgage-backed securities","","","-","","","","-","","","","6,549","","","","1.28","%","","","7,548","","","","3.00","%","","","43,540","","","","2.45","%","","","57,637","","","","2.39","%"],["Total","","$","461","","","","2.13","%","","$","16,154","","","","1.35","%","","$","26,791","","","","3.73","%","","$","88,721","","","","3.68","%","","$","132,127","","","","3.40","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","December 31,"],["(dollars in thousands)","","2024","","","2023"],["Federal Home Loan Bank stock","","$","14,516","","","","16,063"],["Other investments","","","4,571","","","","3,473"],["Investment in Trust Preferred subsidiaries","","","403","","","","403"],["Total","","$","19,490","","","","19,939"]]
[[/GREPCENT_TABLE]]

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, 2024 and 2023 were $3.63 billion and $3.50 billion, respectively. Before allowance for credit losses,
total loans outstanding at December 31, 2024 and 2023 were $3.63 billion and $3.60 billion, respectively.

The principal component of our loan portfolio
is loans secured by real estate mortgages. As of December 31, 2024, our loan portfolio included $3.03 billion, or 83.5%, of real estate
loans, compared to $3.05 billion, or 84.8%, as of December

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31, 2023. Most of our real estate loans are
secured by residential or commercial property. We obtain a security interest in real estate, in addition to any other available collateral,
in order to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans to coincide
with the appropriate regulatory guidelines. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent
in concentration in certain types of collateral and business types. In addition to traditional residential mortgage loans, we issue second
mortgage residential real estate loans and home equity lines of credit. Home equity lines of credit totaled $204.9 million as of December
31, 2024, of which approximately 46% were in a first lien position, while the remaining balance was second liens, compared to $183.0 million
as of December 31, 2023, of which approximately 46% were in first lien positions and the remaining balance was in second liens. The average
home equity loan had a balance of approximately $92,000 and a loan to value of approximately 74% as of December 31, 2024, compared to
an average loan balance of $85,000 and a loan to value of approximately 73% as of December 31, 2023. Further, 0.12% and 0.8% of our total
home equity lines of credit were over 30 days past due as of December 31, 2024 and 2023, respectively.

Following is a summary of our loan composition for
each of the last three years ended December 31, 2024. Of the $29.1 million in loan growth in 2024, $10.3 million of growth was in commercial
related loans, while $18.9 million of growth was in consumer related loans, specifically consumer real estate mortgages which grew by
$46.2 million and home equity lines of credit which grew by $21.9 million during 2024. Offsetting the growth in consumer real estate loans
and home equity lines of credit was a $42.5 million decrease in consumer construction loans. The increase in consumer real estate loans
is related to our focus to continue to originate high quality 1-4 family consumer real estate loans. Our average consumer real estate
loan currently has a principal balance of $468,000, a term of 23 years, and an average rate of 4.36%.

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2024","","","2023","","","2022"],["","","","","","% of","","","","","","% of","","","","","","% of"],["(dollars in thousands)","","Amount","","","Total","","","Amount","","","Total","","","Amount","","","Total"],["Commercial"],["Owner occupied RE","","$","651,597","","","","17.9","%","","$","631,657","","","","17.5","%","","$","612,901","","","","18.7","%"],["Non-owner occupied RE","","","924,367","","","","25.5","%","","","942,529","","","","26.2","%","","","862,579","","","","26.3","%"],["Construction","","","103,204","","","","2.8","%","","","150,680","","","","4.2","%","","","109,726","","","","3.4","%"],["Business","","","556,117","","","","15.3","%","","","500,161","","","","13.9","%","","","468,112","","","","14.3","%"],["Total commercial loans","","","2,235,285","","","","61.5","%","","","2,225,027","","","","61.8","%","","","2,053,318","","","","62.7","%"],["Consumer"],["Real estate","","","1,128,629","","","","31.1","%","","","1,082,429","","","","30.0","%","","","931,278","","","","28.4","%"],["Home equity","","","204,897","","","","5.6","%","","","183,004","","","","5.1","%","","","179,300","","","","5.5","%"],["Construction","","","20,874","","","","0.6","%","","","63,348","","","","1.7","%","","","80,415","","","","2.5","%"],["Other","","","42,082","","","","1.2","%","","","48,819","","","","1.4","%","","","29,052","","","","0.9","%"],["Total consumer loans","","","1,396,482","","","","38.5","%","","","1,377,600","","","","38.2","%","","","1,220,045","","","","37.3","%"],["Total gross loans, net of deferred fees","","","3,631,767","","","","100.0","%","","","3,602,627","","","","100.0","%","","","3,273,363","","","","100.0","%"],["Less \u2013 allowance for credit losses","","","(39,914",")","","","","","","","(40,682",")","","","","","","","(38,639",")"],["Total loans, net","","$","3,591,853","","","","","","","$","3,561,945","","","","","","","$","3,234,724"]]
[[/GREPCENT_TABLE]]

We have included the table below to provide additional
clarity on our commercial real estate exposure. We have not identified any geographic concentrations within these collateral types. Our
level of non-owner occupied commercial real estate loans represents 247.2% of the Bank’s total risk-based capital at December 31,
2024.

[[GREPCENT_TABLE]]
[["","","","","","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","%"]]
[[/GREPCENT_TABLE]]

 56

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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.

[[GREPCENT_TABLE]]
[["","","","","","December 31, 2024"],["(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","","$","21,235","","","","220,648","","","","369,748","","","","39,966","","","","651,597"],["Non-owner occupied RE","","","129,269","","","","547,864","","","","227,987","","","","19,247","","","","924,367"],["Construction","","","6,479","","","","77,636","","","","19,089","","","","-","","","","103,204"],["Business","","","129,978","","","","277,830","","","","144,056","","","","4,253","","","","556,117"],["Total commercial loans","","","286,961","","","","1,123,978","","","","760,880","","","","63,466","","","","2,235,285"],["Consumer"],["Real estate","","","20,982","","","","82,896","","","","281,091","","","","743,660","","","","1,128,629"],["Home equity","","","3,454","","","","36,722","","","","160,380","","","","4,341","","","","204,897"],["Construction","","","5,849","","","","2,133","","","","10,427","","","","2,465","","","","20,874"],["Other","","","7,660","","","","30,633","","","","3,040","","","","749","","","","42,082"],["Total consumer loans","","","37,945","","","","152,384","","","","454,938","","","","751,215","","","","1,396,482"],["Total gross loan, net of deferred fees","","$","324,906","","","","1,276,362","","","","1,215,818","","","","814,681","","","","3,631,767"]]
[[/GREPCENT_TABLE]]

The following table summarizes the loans due after one
year by category.

[[GREPCENT_TABLE]]
[["","","","Interest Rate"],["(dollars in thousands)","","","Fixed","","","","Floating or Adjustable"],["Commercial"],["Owner occupied RE","","$","599,179","","","","31,183"],["Non-owner occupied RE","","","701,297","","","","93,801"],["Construction","","","63,019","","","","33,706"],["Business","","","281,316","","","","144,823"],["Total commercial loans","","","1,644,811","","","","303,513"],["Consumer"],["Real estate","","","1,107,647","","","","-"],["Home equity","","","9,899","","","","191,544"],["Construction","","","15,025","","","","-"],["Other","","","8,038","","","","26,384"],["Total consumer loans","","","1,140,609","","","","217,928"],["Total gross loan, net of deferred fees","","$","2,785,420","","","","521,441"]]
[[/GREPCENT_TABLE]]

Nonperforming Assets

Nonperforming assets include real estate acquired through
foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. The following table shows the nonperforming assets and
the related percentage of nonperforming assets to total assets and gross loans for the three years ended December 31, 2024. 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.

 57

Table of Contents 

[[GREPCENT_TABLE]]
[["","","December 31,"],["(dollars in thousands)","","2024","","","2023","","","2022"],["Commercial"],["Non-owner occupied RE","","$","7,641","","","","1,423","","","","247"],["Business","","","1,016","","","","319","","","","182"],["Consumer"],["Real estate","","","1,908","","","","985","","","","207"],["Home equity","","","312","","","","1,236","","","","195"],["Nonaccruing troubled debt restructurings (TDRs)","","","-","","","","-","","","","1,796"],["Total nonaccrual loans, including nonaccruing TDRs","","","10,877","","","","3,963","","","","2,627"],["Total nonperforming assets","","$","10,877","","","","3,963","","","","2,627"],["Asset Quality Ratios:"],["Nonperforming assets/total assets","","","0.27","%","","","0.10","%","","","0.07","%"],["Nonaccrual loans/gross loans","","","0.30","%","","","0.11","%","","","0.08","%"],["Total loans over 90 days past due (1)","","$","2,641","","","","1,300","","","","402"],["Loans over 90 days past due and still accruing","","","-","","","","-","","","","-"],["Accruing troubled debt restructurings","","","-","","","","-","","","","4,503"],["(1) Loans over 90 days are included in nonaccrual loans"]]
[[/GREPCENT_TABLE]]

At December 31, 2024, nonperforming assets were $10.9
million, or 0.27% of total assets and 0.30% of gross loans, compared to $4.0 million, or 0.10% of total assets and 0.11% of gross loans
at December 31, 2023. Nonaccrual loans increased $6.9 million during the twelve months ending December 31, 2024 due primarily to one commercial
relationship related to the assisted living industry. The amount of foregone interest income on the nonaccrual loans as of December 31,
2024 and 2023 was approximately $200,000 and $73,000, respectively, for the twelve-month periods.

A significant portion, or 94.9%, of nonaccrual loans
at December 31, 2024 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 $39.9 million for the year ended December 31, 2024 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 84% of our loans are collateralized
by real estate and approximately 95% 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, 2024, 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, 2024, individually evaluated loans
totaled approximately $12.2 million for which $4.5 million of these loans have a reserve of approximately $1.9 million allocated in the
allowance. At December 31, 2023, individually evaluated loans totaled approximately $4.8 million for which $3.7 million of these loans
had a reserve of approximately $688,000 allocated in the allowance.

We adopted Accounting Standards Update (“ASU”)
2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”)
effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and
enhanced disclosures for loan

 58

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modifications
to borrowers experiencing financial difficulty. Loan modifications to borrowers experiencing financial difficulty were not material for
the twelve months ended December 31, 2024 and December 31, 2023.

Allowance
for Credit Losses

At
December 31, 2024 and December 31, 2023, the allowance for credit losses was $39.9 million and $40.7 million, respectively, or 1.10%
and 1.13% of outstanding loans, respectively. The allowance for credit losses as a percentage of our outstanding loan portfolio decreased
from the prior year primarily due to historically low loan charge-offs which factors into the expected loss rate on our current loan
portfolio. In addition, our nonperforming assets increased to 0.27% as a percentage of total assets at December 31, 2024 from 0.10%,
as a percentage of total assets, at December 31, 2023, while our classified assets were 4.25% of capital as of December 31, 2024 and
December 31, 2023. See Note 4 to the Consolidated Financial Statements for more information on our allowance for credit losses.

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, 2024.

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2024","","","2023","","","2022"],["(dollars in thousands)","","Amount","","","%","","","Amount","","","%","","","Amount","","","%"],["Net charge-offs:"],["Commercial"],["Non-owner occupied RE","","$","(1,029",")","","","(0.03",")%","","$","(57",")","","","0.00","%","","$","1,540","","","","0.05","%"],["Business","","","(468",")","","","(0.01",")%","","","279","","","","0.01","%","","","153","","","","0.01","%"],["Total commercial","","","(1,497",")","","","(0.04",")%","","","222","","","","0.01","%","","","1,693","","","","0.06","%"],["Consumer"],["Home equity","","","210","","","","0.01","%","","","(373",")","","","(0.01",")%","","","(247",")","","","0.01","%"],["Other","","","19","","","","0.00","%","","","(15",")","","","0.00","%","","","(90",")","","","0.00","%"],["Total consumer","","","229","","","","0.01","%","","","(388",")","","","(0.01",")%","","","(337",")","","","0.00","%"],["Net loan (charge-offs) recoveries","","$","(1,268",")","","","","","","$","(166",")","","","","","","$","1,356"],["Net loan (charge-offs) recoveries as a % of average loans","","","","","","","(0.04",")%","","","","","","","0.00","%","","","","","","","(0.05",")%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2024","","","2023"],["(dollars in thousands)","","","Amount","","","","%(1)","","","","Amount","","","","%(1)"],["Commercial"],["Owner occupied RE","","$","5,482","","","","17.9","%","","$","6,118","","","","17.5","%"],["Non-owner occupied RE","","","10,219","","","","25.2","%","","","11,167","","","","26.2","%"],["Construction","","","940","","","","2.8","%","","","1,594","","","","4.2","%"],["Business","","","7,745","","","","15.3","%","","","7,385","","","","13.9","%"],["Total commercial","","","24,386","","","","61.5","%","","","26,264","","","","61.8","%"],["Consumer"],["Real estate","","","12,359","","","","31.1","%","","","10,647","","","","30.0","%"],["Home equity","","","2,655","","","","5.6","%","","","2,600","","","","5.1","%"],["Construction","","","115","","","","0.6","%","","","677","","","","1.7","%"],["Other","","","399","","","","1.2","%","","","494","","","","1.4","%"],["Total consumer","","","15,528","","","","38.5","%","","","14,418","","","","38.2","%"],["Total allowance for credit losses","","$","39,914","","","","100.0","%","","$","40,682","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Percentage of loans in each category to total loans"]]
[[/GREPCENT_TABLE]]

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.

 59

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Our
retail deposits represented $2.89 billion, or 84.0% of total deposits, at December 31, 2024 and $3.00 billion, or 88.8% of total deposits,
at December 31, 2023. Brokered deposits were $550.3 million, representing 16.0% of our total deposits at December 31, 2024, and $379.4
million, or 12.6%, at December 31, 2023 and are included in time deposits greater than $250,000 in the following table. Our loan-to-deposit
ratio was 106%, 107%, and 104% at December 31, 2024, 2023, and 2022, respectively.

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

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2024","","","2023","","","2022"],["(dollars in thousands)","","Amount","","","Rate","","","Amount","","","Rate","","","Amount","","","Rate"],["Noninterest bearing demand deposits","","$","676,792","","","","-","%","","$","717,275","","","","-","%","","$","788,960","","","","-","%"],["Interest bearing demand deposits","","","303,580","","","","0.93","%","","","299,703","","","","0.75","%","","","374,956","","","","0.22","%"],["Money market accounts","","","1,531,994","","","","4.00","%","","","1,672,550","","","","3.66","%","","","1,323,487","","","","0.99","%"],["Savings accounts","","","29,931","","","","0.25","%","","","36,324","","","","0.11","%","","","41,474","","","","0.05","%"],["Time deposits less than $250,000","","","211,494","","","","4.59","%","","","106,169","","","","5.04","%","","","81,664","","","","1.17","%"],["Time deposits greater than $250,000","","","689,134","","","","5.03","%","","","525,798","","","","4.30","%","","","220,192","","","","1.45","%"],["Total deposits","","$","3,442,925","","","","3.15","%","","$","3,357,819","","","","2.72","%","","$","2,830,733","","","","0.64","%"]]
[[/GREPCENT_TABLE]]

During
the 12 months ended December 31, 2024, our average transaction account balances decreased by $183.7 million, or 6.7%, while our average
time deposit balances increased by $268.8 million, or 42.5%. Core deposits exclude out-of-market deposits and time deposits of $250,000
or more and provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $2.66
billion, $2.81 billion, and $2.76 billion at December 31, 2024, 2023 and 2022, respectively.

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

[[GREPCENT_TABLE]]
[["","","December 31,"],["(dollars in thousands)","","2024","","","2023"],["Three months or less","","$","233,514","","","","169,419"],["Over three through six months","","","187,478","","","","86,342"],["Over six through twelve months","","","130,568","","","","58,293"],["Over twelve months","","","222,468","","","","254,011"],["Total","","$","774,028","","","","568,065"]]
[[/GREPCENT_TABLE]]

Time
deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2024 and December 31, 2023 were $774.0 million and
$568.1 million, respectively, including wholesale deposits.

At
December 31, 2024 and 2023, we estimate that we have approximately $1.3 billion, respectively, in uninsured deposits including related
interest accrued and unpaid. Since it is not reasonably practicable to provide a precise measure of uninsured deposits, the amounts above
are estimates and are based on the same methodologies and assumptions used for the Bank’s regulatory reporting requirements by
the FDIC for the Call Report.

Liquidity
and Capital Resources

Liquidity
is our ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing
obligations and existing commitments. Our liquidity principally depends on our cash flows from operating activities, investment in and
maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. The several large bank failures
across the United States in the first five months of 2023 exemplify the potential serious results of the unexpected inability of insured
depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate
once uninsured depositors lose confidence in an institutions ability to satisfy its obligations to depositors. We seek to ensure our
funding needs are met by maintaining a level of liquidity through asset and liability management. Liquidity management involves monitoring
our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is
made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the
timing of maturities of our investment portfolio is fairly predictable and subject to a high degree

 60

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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, 2024 and 2023, our cash and cash equivalents amounted to $162.9 million and $156.2 million, or 4.0% and 3.9% of total assets,
respectively. Our investment securities at December 31, 2024 and 2023 amounted to $151.6 million and $154.6 million, or 3.7% and 3.8%
of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted
into cash in a timely manner.

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, 2024. At December 31, 2024, we had $210.8 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, 2024 was $807.5 million, based on the Bank’s $14.5 million investment in FHLB
stock, as well as qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities
to the FHLB in order to increase our available borrowing capacity. In addition, at December 31, 2024 we had $205.4 million of letters
of credit outstanding with the FHLB to secure client deposits.

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, 2024. The line of credit
was issued on December 28, 2024 at an interest rate of the U.S. Prime Rate plus 0.25% and a maturity date of February 28, 2025. 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 $330.4 million at December 31, 2024 and $312.5 million at December 31, 2023. The $18.0 million increase
during 2024 is due primarily to net income to common shareholders of $15.5 million, stock option exercises and expenses of $2.6 million
combined with a $130,000 loss in other comprehensive income.

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, 2024. Since our inception, we have not paid
cash dividends.

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[[GREPCENT_TABLE]]
[["","","December 31,"],["(dollars in thousands)","","2024","","","2023","","","2022"],["Return on average assets","","","0.38","%","","","0.34","%","","","0.90","%"],["Return on average equity","","","4.84","%","","","4.44","%","","","10.20","%"],["Return on average common equity","","","4.84","%","","","4.44","%","","","10.20","%"],["Average equity to average assets ratio","","","7.83","%","","","7.71","%","","","8.85","%"],["Tangible common equity to assets ratio","","","8.08","%","","","7.70","%","","","7.98","%"]]
[[/GREPCENT_TABLE]]

Under
the capital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines require an institution to maintain
a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders’ equity, excluding
the unrealized gain or loss on securities available for sale, minus certain intangible assets. In determining the amount of risk-weighted
assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks
believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for credit losses, subject
to certain limitations. We are also required to maintain capital at a minimum level based on total average assets, which is known as
the Tier 1 leverage ratio.

Regulatory
capital rules, which we refer to as Basel III, impose minimum capital requirements for bank holding companies and banks. The Basel III
rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan
holding companies other than “small bank holding companies,” generally holding companies with consolidated assets of less
than $3 billion. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking
organization must maintain a “capital conservation buffer” on top of our minimum risk-based capital requirements. This buffer
must consist solely of common equity Tier 1, but the buffer applies to all three measurements (common equity Tier 1, Tier 1 capital and
total capital). The capital conservation buffer consists of an additional amount of CET1 equal to 2.5% of risk-weighted assets.

To
be considered “well-capitalized” for purposes of certain rules and prompt corrective action requirements, the Bank must maintain
a minimum total risked-based capital ratio of at least 10%, a total Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital
ratio of at least 6.5%, and a leverage ratio of at least 5%. As of December 31, 2024, 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.

[[GREPCENT_TABLE]]
[["","","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, 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","%"],["As of December 31, 2022"],["Total Capital (to risk weighted assets)","","$","366,988","","","","12.45","%","","$","235,892","","","","8.00","%","","$","294,865","","","","10.00","%"],["Tier 1 Capital (to risk weighted assets)","","","330,108","","","","11.20","%","","","176,919","","","","6.00","%","","","235,892","","","","8.00","%"],["Common Equity Tier 1 (to risk weighted assets)","","","330,108","","","","11.20","%","","","132,689","","","","4.50","%","","","191,662","","","","6.50","%"],["Tier 1 Capital (to average assets)","","","330,108","","","","9.43","%","","","140,040","","","","4.00","%","","","175,050","","","","5.00","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Ratios do not include the capital conservation buffer of 2.5%."]]
[[/GREPCENT_TABLE]]

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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 (8.00% at December 31, 2024), payable
quarterly in arrears. See Note 9 to the Consolidated Financial Statements for more information on our subordinated debentures.

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, 2024, unfunded commitments to extend credit were approximately $719.1 million, of which $57.5 million were at fixed rates and $661.6
million were at variable rates. At December 31, 2023, unfunded commitments to extend credit were $724.6 million, of which approximately
$145.6 million were at fixed rates and $579.0 million were at variable rates. A majority of the unfunded commitments related to commercial
business lines of credit and home equity lines of credit. Based on historical experience, we anticipate that a significant portion of
these lines of credit will not be funded. We evaluate each client’s credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral
varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

At
December 31, 2024 and 2023, there were $16.2 million and $16.1 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, 2024, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward
and downward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal
interest rates and loan and deposit repricing rates. Estimates are based on current economic conditions, historical interest rate cycles
and other factors deemed to be relevant. However, underlying assumptions may be impacted in future periods which were not known to management
at the time of the issuance of the Consolidated Financial Statements. Therefore, management’s assumptions may or may not prove
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.

[[GREPCENT_TABLE]]
[["Interest rate scenario","","Change in net interest income from base"],["Up 300 basis points","","","(12.50",")%"],["Up 200 basis points","","","(7.54",")%"],["Up 100 basis points","","","(3.31",")%"],["Base","","","-"],["Down 100 basis points","","","5.86","%"],["Down 200 basis points","","","15.62","%"],["Down 300 basis points","","","29.42","%"]]
[[/GREPCENT_TABLE]]

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

We
utilize a variety of short-term and long-term borrowings to supplement our supply of lendable funds, to assist in meeting deposit withdrawal
requirements, and to fund growth of interest-earning assets in excess of traditional deposit growth. Certificates of deposit, structured
repurchase agreements, FHLB advances, and subordinated debentures serve as our primary sources of such funds.

Obligations
under noncancelable operating lease agreements are payable over several years with the longest obligation expiring in 2032. We do not
feel that any existing noncancelable operating lease agreements are likely to materially impact our financial condition or results of
operations in an adverse way. Contractual obligations relative to these agreements are noted in the table below. Option periods that
we have not yet exercised are not included in this analysis as they do not represent contractual obligations until exercised.

The
following table provides payments due by period for obligations under long-term borrowings and operating lease obligations as of December
31, 2024.

[[GREPCENT_TABLE]]
[["","","December 31, 2024"],["","","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","","$","741,679","","","","113,327","","","","29,416","","","","81,005","","","","2,163","","","","967,590"],["Subordinated debentures","","","-","","","","-","","","","-","","","","-","","","","24,903","","","","24,903"],["Operating lease obligations","","","2,157","","","","2,210","","","","2,267","","","","2,015","","","","20,187","","","","28,836"],["Total","","$","743,836","","","","115,537","","","","31,683","","","","83,020","","","","47,253","","","","1,021,329"]]
[[/GREPCENT_TABLE]]

 64

Table of Contents 

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.