NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCEFOR CREDIT LOSSES

Loan Portfolio Composition

.The composition of the held for investment (“HFI”) loan portfolio was as follows:

(Dollars in Thousands)

March 31, 2025

December 31, 2024

Commercial, Financial and Agricultural

$

184,393

$

189,208

Real Estate – Construction

192,282

219,994

Real Estate – Commercial Mortgage

806,942

779,095

Real Estate – Residential

(1)

1,043,821

1,042,504

Real Estate – Home Equity

225,987

220,064

Consumer

(2)

207,345

200,685

Loans Held For Investment, Net of Unearned Income

$

2,660,770

$

2,651,550

Net deferred loan costs, which include premiums on purchased loans,included in loans were $

8.4

million at March 31, 2025 and $

8.3

million at December 31, 2024.

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

10.4

million at March 31, 2025 and $

10.3

million

at December 31, 2024, and is reported separately in Other Assets.

The Company has pledged a blanket floating lien on all 1-4 family residential mortgageloans, commercial real estate mortgage loans,

and home equity loans to support available borrowing capacity at the FHLB ofAtlanta and has 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.

Allowance for Credit Losses

.The methodology for estimating the amount of credit losses reported in theallowance 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 allowance methodology is discussed further in Note 1 – SignificantAccounting

Policies in the Company’s 2024 Form10-K.

The following table details the activity in the allowance for credit losses byportfolio segment.Allocation of a portion of the

allowance to one category of loans does not preclude its availability toabsorb losses in other categories.

For the three months ended March 31, 2025, the allowance for loansHFI increased by $

0.5

million and reflected a provision expense

of $

1.1

million and net loan charge-offs of $

0.6

million.The increase was primarily due to higher loan balances and higher loan loss

rates.For the three months ended March 31, 2024, the allowance for loans HFI decreasedby $

0.6

million and reflected a provision

expense of $

0.9

million and net loan charge-offs of $

1.5

million.The decrease was attributable to favorable loan grade migration,

lower loss rates, and a combination of lower loan balances and shift in mix withinthe portfolio.Four unemployment forecast

scenarios were utilized to estimate probability of default and are weightedbased on management’s estimate ofprobability.See Note 8

– Commitments and Contingencies for information on the allowance for off-balancesheet credit 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.

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/or interest tobe doubtful.Loans are returned to accrual status when the

principal and interest amounts contractually due are brought currentor when future payments are reasonably assured.

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-dependentloans.

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

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 byeither independent appraisals

or internal evaluations, adjusted for selling costs or other amounts to be deductedwhen estimating expected net sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

.At March 31, 2025, the Company had

no

1-4 family residential real estate

loans for which formal foreclosure proceedings were in process, comparedto $

0.5

million at December 31, 2024.

Modifications to Borrowers ExperiencingFinancial Difficulty.

Occasionally, the Company maymodify loans to borrowers who are

experiencing financial difficulty.Loan modifications to borrowers in financial difficulty are loans inwhich 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 extension of the loanterm, 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 creditlosses on a loan-by-loan

basis.Thus, specific reserves are established based upon the results of either adiscounted cash flow analysis or the underlying

collateral value, if the loan is deemed to be collateral dependent.A modified loan classification can be removed if the borrower’s

financial condition improves such that the borrower is no longer in financial difficulty,the loan has not had any forgiveness of

principal or interest, and the loan is subsequently refinanced or restructuredat market terms and qualifies as a new loan.

At March 31, 2025 and December 31, 2024, the Company maintained

one

modified commercial mortgage loan due to a borrower

experiencing financial difficulty.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.The balance of the nonaccrual loan at March 31, 2025 and December 31, 2024 was $

0.3

million and did not

have a payment delay.

No

new modifications to borrowers experiencing financial difficultywere made during the three months ended

March 31, 2025 and 2024.

Credit Risk Management

.The Company has adopted comprehensive lending policies, underwriting standards andloan review

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

approve these policies and procedures on a 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 periodicallyreview the Company’s lines

of business to monitor asset quality trends and the appropriateness of 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 portfolio is reviewed to gauge

diversification of risk, client concentrations, industry group, loantype, geographic area, or other relevant classifications of loans.

Specific segments of the loan portfolio are monitored and reportedto the Board on a quarterly basis and have strategic plans in place

to supplement Board approved credit policies governing exposurelimits 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 and personal orother guarantees.Lending policy establishes debt service coverage

ratio limits that require a borrower’s cash flow to be sufficientto cover principal and interest payments on all new and existing debt.

The majority of these loans are secured by the assets being financed or other businessassets 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 investors tofinance the acquisition, development, construction or

rehabilitation of real property.These loans are primarily made based on identified cash flows of the borroweror project and generally

secured by the property being financed, including 1-4 family residentialproperties 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 with the completedproject.Collateral values are determined based upon third

party appraisals and evaluations.Loan to value ratios at origination are governed by established policyguidelines.The disbursement

of funds for construction loans is made in relation to the progress of the projectand as such these loans are closely monitored by on-

site inspections.

Real Estate Commercial Mortgage – Loans in this category consists 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 borrower orproject

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 consideration to underwritingfactors such as current income, employment status, current

assets, and 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 debt ratiorequirements 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 portfolio includes personal installment loans,direct and indirect automobile financing, and overdraft

lines of credit.The majority of the consumer loan category consists of direct and indirect 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 the ability of borrowersto 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 amount and review of smaller balance homogenousloan pools.The Company uses the definitions

noted below for categorizing and managing its criticized loans.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 ofcurrently existing 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 loan and by paymentactivity.The performing or nonperforming status

is updated on an on-going basis dependent upon improvementand deterioration in credit quality.

The following tables summarize gross loans held for investment at March31, 2025 and December 31, 2024 and current period gross

write-offs for the three months ended March 31, 2025and 12 months ended December 31, 2024 by years of origination and internally

assigned credit risk ratings (refer to Credit Risk Management section for detailon risk rating system).

(Dollars in Thousands)

TermLoans by Origination Year

Revolving

As of March 31, 2025

2025

2024

2023

2022

2021

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

$

11,393

$

32,913

$

32,235

$

32,129

$

16,688

$

12,860

$

40,665

$

178,883

Special Mention

-

406

3,321

142

-

-

75

3,944

Substandard

-

-

117

64

-

110

1,275

1,566

Total

$

11,393

$

33,319

$

35,673

$

32,335

$

16,688

$

12,970

$

42,015

$

184,393

Current-Period Gross

Writeoffs

$

-

$

-

$

10

$

146

$

12

$

-

$

-

$

168

Real Estate - Construction:

Pass

$

9,257

$

110,350

$

37,419

$

19,453

$

53

$

-

$

11,276

$

187,808

Special Mention

-

1,735

1,698

1,041

-

-

-

4,474

Total

$

9,257

$

112,085

$

39,117

$

20,494

$

53

$

-

$

11,276

$

192,282

Real Estate - Commercial

Mortgage:

Pass

$

9,874

$

93,831

$

116,893

$

206,672

$

105,667

$

202,456

$

31,364

$

766,757

Special Mention

3,264

168

2,878

18,479

1,129

5,401

-

31,319

Substandard

402

-

240

3,693

863

3,099

569

8,866

Total

$

13,540

$

93,999

$

120,011

$

228,844

$

107,659

$

210,956

$

31,933

$

806,942

Real Estate - Residential:

Pass

$

47,248

$

147,708

$

308,378

$

349,357

$

66,735

$

104,458

$

10,623

$

1,034,507

Special Mention

-

-

292

-

1,084

324

479

2,179

Substandard

-

-

420

1,936

1,606

3,004

169

7,135

Total

$

47,248

$

147,708

$

309,090

$

351,293

$

69,425

$

107,786

$

11,271

$

1,043,821

Current-Period Gross

Writeoffs

$

-

$

-

$

-

$

-

$

-

$

8

$

-

$

8

Real Estate - Home Equity:

Performing

$

1,103

$

11

$

508

$

29

$

119

$

632

$

222,035

$

224,437

Nonperforming

-

-

-

-

-

-

1,550

1,550

Total

$

1,103

$

11

$

508

$

29

$

119

$

632

$

223,585

$

225,987

Consumer:

Performing

$

29,040

$

31,122

$

40,601

$

48,672

$

36,122

$

11,677

$

9,418

$

206,652

Nonperforming

-

36

211

271

128

47

-

693

Total

$

29,040

$

31,158

$

40,812

$

48,943

$

36,250

$

11,724

$

9,418

$

207,345

Current-Period Gross

Writeoffs

$

570

$

11

$

281

$

413

$

121

$

23

$

16

$

1,435