Note 3

LOANS HELD FOR INVESTMENT AND ALLOWANCEFOR CREDIT LOSSES

Loan Portfolio Composition

.The composition of the HFI loan portfolio at December 31 was as follows:

Net deferred costs, which include premiums on purchased loans, includedin loans were $

8.3

million at December 31, 2024 and

$

7.8

million at December 31, 2023.

Accrued interest receivable on loans which is excluded from amortizedcost totaled $

10.3

million at December 31, 2024 and

$

10.1

million at December 31, 2023, and is reported separately in Other Assets.

The Company has pledged a floating lien on certain 1-4 family residentialmortgage loans, commercial real estate mortgage loans,

and home equity loans to support available borrowing capacity at the FHLB andhas pledged a blanket floating lien on all

consumer loans, commercial loans, and construction loans to support availableborrowing capacity at the Federal Reserve Bank of

Atlanta.

Loan Purchases and Sales

.The Company will purchase newly originated 1-4 family real estate securedadjustable-rate loans

from CCHL. These loan purchases totaled $

158.2

million and $

364.8

million for the years ended December 31, 2024 and 2023,

respectively, and werenot credit impaired.

Allowance for Credit Losses

.The methodology for estimating the amount of credit losses reported inthe allowance for credit

losses (“ACL”) has two basic components: first, an asset-specific componentinvolving loans that do not share risk characteristics

and the measurement of expected credit losses for such individual loans;and second, a pooled component for expected credit

losses for pools of loans that share similar risk characteristics.This methodology is discussed further in Note 1 – Significant

Accounting Policies.

The following table details the activity in the allowance for credit losses by portfoliosegment for the years ended December 31.

Allocation of a portion of the allowance to one category of loans does not precludeits availability to absorb losses in other

categories.

Commercial

,

Real Estate

Financial,

Real Estate

Commercial

Real Estate

Real Estate

(Dollars in Thousands)

Agricultural

Construction

Mortgage

Residential

Home Equity

Consumer

Total

2024

Beginning Balance

$

1,482

$

2,502

$

5,782

$

15,056

$

1,818

$

3,301

$

29,941

Provision for Credit Losses

1,165

(74)

(173)

(603)

129

4,531

4,975

Charge-Offs

(1,512)

(47)

(3)

(61)

(132)

(7,627)

(9,382)

Recoveries

379

3

261

176

137

2,761

3,717

Net (Charge-Offs) Recoveries

(1,133)

(44)

258

115

5

(4,866)

(5,665)

Ending Balance

$

1,514

$

2,384

$

5,867

$

14,568

$

1,952

$

2,966

$

29,251

2023

Beginning Balance

$

1,506

$

2,654

$

4,815

$

10,741

$

1,864

$

3,488

$

25,068

Provision for Credit Losses

210

(154)

1,035

4,141

(233)

4,596

9,595

Charge-Offs

(511)

-

(120)

(79)

(39)

(8,543)

(9,292)

Recoveries

277

2

52

253

226

3,760

4,570

Net (Charge-Offs) Recoveries

(234)

2

(68)

174

187

(4,783)

(4,722)

Ending Balance

$

1,482

$

2,502

$

5,782

$

15,056

$

1,818

$

3,301

$

29,941

2022

Beginning Balance

$

2,191

$

3,302

$

5,810

$

4,129

$

2,296

$

3,878

$

21,606

Provision for Credit Losses

316

(658)

(746)

6,328

(422)

2,579

7,397

Charge-Offs

(1,308)

-

(355)

-

(193)

(6,050)

(7,906)

Recoveries

307

10

106

284

183

3,081

3,971

Net (Charge-Offs) Recoveries

(1,001)

10

(249)

284

(10)

(2,969)

(3,935)

Ending Balance

$

1,506

$

2,654

$

4,815

$

10,741

$

1,864

$

3,488

$

25,068

The $

0.7

million decrease in the allowance for credit losses in 2024 reflected a credit loss provisionof $

5.0

million and net loan

charge-offs of $

5.7

million.The $

4.9

million increase in the allowance in 2023 reflected a credit loss provision of$

9.6

million

and net loan charge-offs of $

4.7

million.The decrease in the allowance in 2024 was primarily due to lower new loan volume and

loan balances and favorable loan grade migration.The increase in the allowance for 2023 was primarily attributable to

incremental allowance related to loan growth, primarily residential realestate, and slower prepayment speeds (due to higher

interest rates). Four unemployment rate forecast scenarios continueto be utilized to estimate probability of default and are

weighted based on management’sestimate of probability.See Note 1 – Significant accounting policies for more on the

calculation of the provision for credit losses.See Note 21 – Commitments and Contingencies for information onthe provision for

credit losses related to off-balance sheet commitments.

Loan Portfolio Aging.

A loan is defined as a past due loan when one full payment is past due or a contractual maturityis over 30

days past due (“DPD”).

The following table presents the aging of the amortized cost basis in accruingpast due loans by class of loans at December 31,

30-59

60-89

90 +

Total

Total

Nonaccrual

Total

(Dollars in Thousands)

DPD

DPD

DPD

Past Due

Current

Loans

Loans

2024

Commercial, Financial and Agricultural

$

340

$

50

$

-

$

390

$

188,781

$

37

$

189,208

Real Estate – Construction

-

-

-

-

219,994

-

219,994

Real Estate – Commercial Mortgage

719

100

-

819

777,710

566

779,095

Real Estate – Residential

185

498

-

683

1,038,694

3,127

1,042,504

Real Estate – Home Equity

122

-

-

122

218,160

1,782

220,064

Consumer

2,154

143

-

2,297

197,598

790

200,685

Total

$

3,520

$

791

$

-

$

4,311

$

2,640,937

$

6,302

$

2,651,550

2023

Commercial, Financial and Agricultural

$

311

$

105

$

-

$

416

$

224,463

$

311

$

225,190

Real Estate – Construction

206

-

-

206

195,563

322

196,091

Real Estate – Commercial Mortgage

794

-

-

794

823,753

909

825,456

Real Estate – Residential

670

34

-

704

1,000,525

2,990

1,004,219

Real Estate – Home Equity

268

-

-

268

209,653

999

210,920

Consumer

3,693

774

-

4,467

266,864

711

272,042

Total

$

5,942

$

913

$

-

$

6,855

$

2,720,821

$

6,242

$

2,733,918

Nonaccrual Loans

.Loans are generally placed on nonaccrual status if principal or interest paymentsbecome 90 days past due

and/or management deems the collectability of the principal and/orinterest to be doubtful.Loans are returned to accrual status

when the principal and interest amounts contractually due are broughtcurrent or when future payments are reasonably assured.

The Company did not recognize a significant amount of interest incomeon nonaccrual loans for the years ended December 31,

2024and 2023.

The following table presents the amortized cost basis of loans in nonaccrualstatus and loans past due over 90 days and still on

accrual by class of loans.

Collateral Dependent Loans

.The following table presents the amortized cost basis of collateral dependent loansat December 31:

2024

2023

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Secured

Secured

Secured

Commercial, Financial and Agricultural

$

-

$

39

$

-

$

30

Real Estate – Construction

-

-

275

-

Real Estate – Commercial Mortgage

427

-

1,296

-

Real Estate – Residential

2,476

-

1,706

-

Real Estate – Home Equity

651

-

-

-

Consumer

-

55

-

-

Total

$

3,554

$

94

$

3,277

$

30

A loan is collateral dependent when the borrower is experiencing financialdifficulty and repayment of the loan is dependent on

the sale or operation of the underlying collateral.

The Bank’s collateral dependentloan portfolio is comprised primarily of real estate secured loans, collateralizedby either

residential or commercial collateral types.The loans are carried at fair value based on current values determined by either

independent appraisals or internal evaluations, adjusted for selling costs orother amounts to be deducted when estimating

expected net sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

.At December 31, 2024 and 2023, the Company had $

0.5

million in 1-4

family residential real estate loans for which formal foreclosure proceedingswere in process.

Modifications to Borrowers ExperiencingFinancial Difficulty

.Occasionally, the Companymay modify loans to borrowers who

are experiencing financial difficulty.Loan modifications to borrowers in financial difficulty are loansin which the Company has

granted an economic concession to the borrower that it would not otherwise consider.In these instances, as part of a work-out

alternative, the Company will make concessions including the extensionof the loan term, a principal moratorium, a reduction in

the interest rate, or a combination thereof.The impact of the modifications and defaults are factored into the allowance for credit

losses on a loan-by-loan basis.Thus, specific reserves are established based upon the results of either a discountedcash flow

analysis or the underlying collateral value, if the loan is deemed to be collateraldependent.A modified loan classification can be

removed if the borrower’s financial condition improvessuch that the borrower is no longer in financial difficulty,the loan has not

had any forgiveness of principal or interest, and the loanis subsequently refinanced or restructured at market terms and qualifies

as a new loan.

The financial effects of the loan modifications made to borrowers duringthe 12 months ended December 31, 2024 were not

significant. At December 31, 2024, the Company maintained

one

commercial mortgage loan due to the borrower experiencing

financial difficulty.The balance of the loan at December 31, 2024 was $

0.3

million. The loan is on non-accrual status at

December 31, 2024 and did not have a payment delay as of December 31, 2024.The Company reduced the interest rate on the

loan by

1

% in addition to extending the term of the loan from

5

to

20

years.

Credit Risk Management

.The Company has adopted comprehensive lending policies, underwriting standardsand loan review

procedures designed to maximize loan income within an acceptablelevel of risk.Management and the Board of Directors of the

Company review and approve these policies and procedures ona regular basis (at least annually).

Reporting systems are used to monitor loan originations, loan quality,concentrations of credit, loan delinquencies and

nonperforming loans and potential problem loans.Management and the Credit Risk Oversight Committee periodically review

our lines of business to monitor asset quality trends and the appropriatenessof credit policies.In addition, total borrower

exposure limits are established and concentration risk is monitored.As part of this process, the overall composition of the loan

portfolio is reviewed to gauge diversification of risk, client concentrations,industry group, loan type, geographic area, or other

relevant classifications of loans.Specific segments of the loan portfolio are monitored and reported tothe Board on a quarterly

basis and have strategic plans in place to supplement board-approvedcredit policies governing exposure limits and underwriting

standards.Detailed below are the types of loans within the Company’sloan portfolio and risk characteristics unique to each.

Commercial, Financial, and Agricultural – Loans in this categoryare primarily made based on identified cash flows of the

borrower with consideration given to underlying collateral andpersonal or other guarantees.Lending policy establishes debt

service coverage ratio limits that require a borrower’s cash flow tobe sufficient to cover principal and interest payments on all

new and existing debt.The majority of these loans are secured by the assets being financed or otherbusiness assets such as

accounts receivable, inventory,or equipment.Collateral values are determined based upon third-party appraisals and evaluations.

Loan to value ratios at origination are governed by established policy guidelines.

Real Estate Construction – Loans in this category consist of short-termconstruction loans, revolving and non-revolving credit

lines and construction/permanent loans made to individuals and investorsto finance the acquisition, development, construction or

rehabilitation of real property.These loans are primarily made based on identified cash flows of theborrower or project and

generally secured by the property being financed, including 1-4family residential properties and commercial properties that are

either owner-occupied or investment in nature.These properties may include either vacant or improved property.Construction

loans are generally based upon estimates of costs and value associated withthe completed project.Collateral values are

determined based upon third-party appraisals and evaluations.Loan to value ratios at origination are governed by established

policy guidelines.The disbursement of funds for construction loans is made in relation to the progressof the project and as such

these loans are closely monitored by on-site inspections.

Real Estate Commercial Mortgage – Loans in this category consist of commercialmortgage loans secured by property that is

either owner-occupied or investment in nature.These loans are primarily made based on identified cash flows of the borroweror

project with consideration given to underlying real estate collateral andpersonal guarantees.Lending policy establishes debt

service coverage ratios and loan to value ratios specific to the property type.Collateral values are determined based upon third-

party appraisals and evaluations.

Real Estate Residential – Residential mortgage loans held in the Company’sloan portfolio are made to borrowers that

demonstrate the ability to make scheduled payments with full considerationto underwriting factors such as current income,

employment status, current assets, other financial resources, credit history,and the value of the collateral.Collateral consists of

mortgage liens on 1-4 family residential properties.Collateral values are determined based upon third party appraisals and

evaluations.The Company does not originate sub-prime loans.

Real Estate Home Equity – Home equity loans and lines are made to qualifiedindividuals for legitimate purposes generally

secured by senior or junior mortgage liens on owner-occupied1-4 family homes or vacation homes.Borrower qualifications

include favorable credit history combined with supportive income and debtratio requirements and combined loan to value ratios

within established policy guidelines.Collateral values are determined based upon third-party appraisals and evaluations.

Consumer Loans – This loan category includes personal installment loans,direct and indirect automobile financing, and overdraft

lines of credit.The majority of the consumer loan category consists of indirect and direct automobileloans.Lending policy

establishes maximum debt to income ratios, minimum credit scores, andincludes guidelines for verification of applicants’ income

and receipt of credit reports.

Credit Quality Indicators

.As part of the ongoing monitoring of the Company’sloan portfolio quality, managementcategorizes

loans into risk categories based on relevant information about theability of borrowers to service their debt such as: current

financial information, historical payment performance, credit documentation,and current economic and market trends, among

other factors.Risk ratings are assigned to each loan and revised as needed through established monitoringprocedures for

individual loan relationships over a predetermined amountand review of smaller balance homogenous loan pools.The Company

uses the definitions noted below for categorizing and managing its criticizedloans.Loans categorized as “Pass” do not meet the

criteria set forth below and are not considered criticized.

Special Mention – Loans in this category are presently protected from loss, butweaknesses are apparent which, if not corrected,

could cause future problems.Loans in this category may not meet required underwriting criteria andhave no mitigating

factors.More than the ordinary amount of attention is warranted for these loans.

Substandard – Loans in this category exhibit well-defined weaknesses that wouldtypically bring normal repayment into jeopardy.

These loans are no longer adequately protected due to well-definedweaknesses that affect the repayment capacity of the

borrower.The possibility of loss is much more evident and above average supervision is requiredfor these loans.

Doubtful – Loans in this category have all the weaknesses inherent in a loan categorizedas Substandard, with the characteristic

that the weaknesses make collection or liquidation in full, on the basis of currentlyexisting facts, conditions, and values, highly

questionable and improbable.

Performing/Nonperforming – Loans within certain homogenousloan pools (home equity and consumer) are not individually

reviewed, but are monitored for credit quality via the aging status of the loanand by payment activity.The performing or

nonperforming status is updated on an on-going basis dependent uponimprovement and deterioration in credit quality.

The following tables summarize gross loans held for investment at December31, 2024and December 31, 2023 and current period

gross write-offs for each of the 12 month periods endedDecember 31, 2024 and December 31 2023 by years of origination and

internally assigned credit risk ratings (refer to Credit Risk Management sectionfor detail on risk rating system).

(Dollars in Thousands)

Term Loans by Origination Year

Revolving

As of December 31, 2024

2024

2023

2022

2021

2020

Prior

Loans

Total

Commercial, Financial,

Agricultural:

Pass

$

35,596

$

36,435

$

37,506

$

18,433

$

4,610

$

9,743

$

41,720

$

184,043

Special Mention

435

3,979

261

9

-

-

76

4,760

Substandard

-

-

193

12

58

71

71

405

Total

$

36,031

$

40,414

$

37,960

$

18,454

$

4,668

$

9,814

$

41,867

$

189,208

Current-Period Gross

Writeoffs

$

9

$

548

$

500

$

111

$

160

$

1

$

183

$

1,512

Real Estate - Construction:

Pass

$

105,148

$

73,615

$

29,821

$

53

$

-

$

185

$

8,288

$

217,110

Special Mention

1,555

-

1,329

-

-

-

-

2,884

Total

$

106,703

$

73,615

$

31,150

$

53

$

-

$

185

$

8,288

$

219,994

Current-Period Gross

Writeoffs

$

-

$

-

$

47

$

-

$

-

$

-

$

-

$

47

Real Estate - Commercial

Mortgage:

Pass

$

77,561

$

110,183

$

207,574

$

109,863

$

87,369

$

122,272

$

26,324

$

741,146

Special Mention

171

2,913

17,031

-

2,253

4,402

530

27,300

Substandard

-

2,463

3,403

869

2,508

1,305

101

10,649

Total

$

77,732

$

115,559

$

228,008

$

110,732

$

92,130

$

127,979

$

26,955

$

779,095

Current-Period Gross

Writeoffs

$

-

$

-

$

-

$

-

$

-

$

-

$

3

$

3

Real Estate - Residential:

Pass

$

165,050

$

316,521

$

358,851

$

71,423

$

31,169

$

76,921

$

11,872

$

1,031,807

Special Mention

-

265

-

1,104

468

534

521

2,892

Substandard

-

528

1,450

1,446

1,295

2,918

168

7,805

Total

$

165,050

$

317,314

$

360,301

$

73,973

$

32,932

$

80,373

$

12,561

$

1,042,504

Current-Period Gross

Writeoffs

$

-

$

13

$

-

$

-

$

-

$

48

$

-

$

61

Real Estate - Home

Equity:

Performing

$

801

$

521

$

30

$

119

$

9

$

821

$

215,981

$

218,282

Nonperforming

-

-

-

-

-

-

1,782

1,782

Total

$

801

521

30

119

9

821

217,763

220,064

Current-Period Gross

Writeoffs

$

-

$

-

$

-

$

-

$

-

$

-

$

132

$

132

Consumer:

Performing

$

32,293

$

44,995

$

55,942

$

42,002

$

10,899

$

4,116

$

9,648

$

199,895

Nonperforming

10

174

321

156

58

71

-

790

Total

$

32,303

$

45,169

$

56,263

$

42,158

$

10,957

$

4,187

$

9,648

$

200,685

Current-Period Gross

Writeoffs

$

2,562

$

1,605

$

2,088

$

897

$

237

$

76

$

162

$

7,627