NOTE 3 – LOANS HELDFOR INVESTMENTAND ALLOWANCEFOR CREDIT LOSSES

Loan PortfolioComposition

.The compositionof the held forinvestment(“HFI”) loan portfoliowas as follows:

(Dollars in Thousands)

September 30, 2026

December 31, 2025

Commercial, Financialand Agricultural

$

168,144

$

180,341

Real Estate– Construction

149,335

146,920

Real Estate– CommercialMortgage

736,380

768,731

Real Estate– Residential

(1)

1,004,438

1,025,690

Real Estate– Home Equity

246,120

240,897

Consumer

(2)

185,307

183,539

Loans Held For Investment,Net of UnearnedIncome

$

2,489,724

$

2,546,118

Net deferred loancosts, which include premiumson purchasedloans, included in loanswere $

8.8

million at September30, 2026 and

$

8.6

million at December31, 2025.

Accrued interest receivableon loans which isexcluded fromamortizedcost, totaled$

9.4

million at September30, 2026 and$

9.8

million at December31, 2025, andis reported separatelyin Other Assets.

The Companyhas pledged ablanket floatinglien on all 1-4 family residentialmortgage loans,commercial real estatemortgage loans,

and homeequity loans tosupport availableborrowing capacityat the FHLBof Atlantaand haspledged a blanketfloating lien on all

consumer loans,commercial loans,and constructionloans to supportavailableborrowing capacityat the FederalReserve Bank

of

Atlanta.

Loan Purchases.

The Companywill periodically purchase commercialreal estate loansfor its portfolio.Commercial loanpurchases

totaled $

6.7

million for the three andnine monthsended September30, 2026, andwere not credit impaired.

No

ne were purchased

during the comparable2025 periods.

Allowance for Credit Losses

.The methodologyfor estimating theamountof credit losses reported in theallowance for creditlosses

(“ACL”) hastwo basic components:first, an asset-specific componentinvolving loans thatdo not sharerisk characteristics andthe

measurementof expectedcredit losses for such individual loans;and second,a pooled componentfor expectedcredit losses for pools

of loans thatshare similar risk characteristics.This allowancemethodologyis discussed further in Note 1 – SignificantAccounting

Policies in the Company’s2025Form 10-K.

The following tabledetails the activityin the allowancefor credit losses by portfolio segment.Allocation ofa portion ofthe

allowance toone categoryof loans doesnot preclude its availabilityto absorblosses in other categories.

At September 30, 2026,the allowancefor credit losses for loansHFI totaled $

30.4

million comparedto $

31.0

million

at

December 31,

2025 and$

30.2

million

at

September 30,2025. Activity within the allowancefor the nine monthperiod ended September30, 2026,

reflected a provisionexpense of $

1.4

million and netloan charge-

offs

of $

2.0

million. The September30, 2026 allowance reflectedthe

utilization of alower forecastedunemploymentrate in forecastingloan loss rates andlower loan balances,

as

comparedto the

December 31, 2025allowance. At September30, 2025, theallowance forloans HFI totaled$

30.2

million, a $

1.0

million increase over

December 31, 2024. Activitywithin the allowance forthe nine-month periodended September 30, 2025,reflected a provisionexpense

of $

3.4

million and netloan charge-

offs

of $

2.4

million. The net increase in the allowancewas primarily attributableto qualitative

factor adjustmentsthat were partiallyoffset bylower loan balances.Four unemploymentforecast scenarioswere utilized to estimate

probability of defaultand are weighted basedon management’sestimate of probabilit

y.

See Note 8 – Commitmentsand Contingencies

for informationon the allowancefor off-balancesheet credit commitments.

Loan PortfolioAging.

A loan is defined as apast due loan whenone full paymentis past due or a contractualmaturityis over 30 days

past due(“DPD”).

The following tablepresents the aging ofthe amortizedcost basis in accruing pastdue loans byclass of loans.

Nonaccrual Loans

.Loans are generally placedon nonaccrual statusif principal or interest paymentsbecome 90days pastdue and/or

managementdeemsthe collectability ofthe principal and/orinterest to be doubtful.Loans arereturned to accrualstatus whenthe

principal andinterest amountscontractuallydue are broughtcurrent or when futurepaymentsare reasonablyassured.

The following tablepresents the amortizedcost basis of loansin nonaccrualstatus and loans pastdue over 90 daysand still on accrual

by class of loans.

CollateralDependent Loans.

The following table presents theamortizedcost basis of collateral-dependentloans.

A loan is collateraldependentwhen the borrower is experiencing financialdifficulty andrepaymentof the loanis dependent onthe

sale or operationof the underlying collateral.

The Bank’scollateral dependentloan portfolio is comprisedprimarily of real estatesecured loans, collateralizedby either residential

or commercial collateraltypes.The loans are carried atfair value based oncurrent values determinedby either independentappraisals

or internal evaluations,adjustedfor selling costs or other amountsto be deductedwhen estimating expectednet sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

.At September 30, 2026,the Companyhad $

0.4

million of 1-4 family

residential real estateloans for which formalforeclosure proceedings werein process, comparedto $

0.2

million at December 31,

2025.

Modifications to Borrowers Experiencing Financial Difficulty.

Occasionally, theCompanymay modifyloans to borrowers who are

experiencing financialdifficulty.Loan modificationsto borrowers in financial difficultyare loans in which theCompanyhas granted

an economicconcession to theborrower that it would nototherwise consider.In these instances,as part ofa work-out alternative,the

Companywill make concessions including the extensionof the loanterm, a principal moratorium,a reduction in theinterest rate, or a

combinationthereof.The impact ofthe modificationsand defaultsare factoredinto the allowancefor credit losses on a loan-by-loan

basis.Thus, specific reservesare establishedbased uponthe results of either adiscounted cashflow analysis or the underlying

collateral value,if the loan is deemedto be collateral dependent.A modified loan classificationcan be removedif the borrower’s

financial conditionimproves such thatthe borrower is no longer in financialdifficulty, theloan hasnot hadany forgivenessof

principal or interest,and theloan is subsequentlyrefinancedor restructured atmarket termsand qualifiesas a new loan.

During the nine monthsended September30, 2026, theCompanydid

no

t modify anyloans to borrowers experiencing financial

difficulty.During the nine monthsended September30, 2025,

one

commercial mortgageloan for $

2.5

million was provided a

6

-

month interestonly extension in exchangefor additionalcollateral.

The Companyclosely monitors the performanceof loans modifiedfor borrowers experiencing financialdifficulty to evaluatethe

effectivenessof its modificationstrategies. At September 30,2026, there were

no

outstandingbalancesof loans modifiedduring the

preceding twelve months.At September 30, 2025, the amortizedcost basis of loansmodified during the precedingtwelve monthswas

$

2.8

million, of which $

2.5

million were current and$

0.3

million were 30 -59 dayspast due.

Credit Risk Management

.The Companyhas adoptedcomprehensivelending policies, underwriting standards andloan review

procedures designedto maximize loan incomewithin

an

acceptablelevel of risk.Managementand theBoard ofDirectors review and

approvethese policies and procedureson a regular basis (atleast annually).

Reporting systems areused to monitor loanoriginations, loan quality,concentrationsof credit, loan delinquenciesand nonperforming

loans andpotential problemloans.Managementand theCredit Risk Oversight Committeeperiodically review the Company’slines

of business to monitorasset qualitytrends andthe appropriatenessof credit policies.In addition,total borrower exposurelimits are

established andconcentrationrisk is monitored.As part of this process, theoverall compositionof the portfoliois reviewed to gauge

diversification ofrisk, client concentrations,industry group, loantype, geographic area,or other relevantclassifications ofloans.

Specific segments of theloan portfolioare monitoredand reportedto the Boardon a quarterlybasis andhave strategicplans in place

to supplementBoard approvedcredit policies governing exposure limits andunderwriting standards.Detailed below are the typesof

loans within theCompany’sloan portfolioand risk characteristicsunique to each.

Commercial, Financial,and Agricultural – Loansin this category are primarilymadebased onidentified cashflows of the borrower

with considerationgiven to underlying collateraland personalor other guarantees.Lending policy establishes debtservice coverage

ratio limits thatrequire a borrower’s cashflow to be sufficientto cover principal andinterest paymentson all new andexisting debt.

The majority of theseloans are secured bythe assets being financedor other business assets such

as

accountsreceivable, inventory,or

equipment.Collateral valuesare determined basedupon third party appraisalsand evaluations.Loan to value ratios

at

origination are

governed by establishedpolicy guidelines.

Real EstateConstruction– Loans in this categoryconsistsof short-term constructionloans, revolving andnon-revolving credit lines

and construction/permanentloans madeto individuals andinvestors to financethe acquisition, development,construction or

rehabilitation of realproperty.These loans areprimarily madebased on identified cashflows of the borrower orproject andgenerally

secured by theproperty being financed,including 1-4 family residentialproperties andcommercial propertiesthat areeither owner-

occupied or investmentin nature.These properties

may

include either vacantor improved property.Constructionloans are generally

based uponestimates ofcosts andvalue associatedwith the completedproject.Collateral valuesare determinedbased uponthird

party appraisalsand evaluations.Loan tovalue ratios

at

origination are governedby establishedpolicy guidelines.The disbursement

of fundsfor constructionloans is madein relation to the progress ofthe project and

as

such these loansare closely monitoredby on-

site inspections.

Real EstateCommercial Mortgage– Loans in this categoryconsists of commercialmortgage loanssecured by propertythat is either

owner-occupied orinvestmentin nature.These loans areprimarily madebased onidentified cashflows of the borrower or project

with considerationgiven to underlying real estatecollateral andpersonal guarantees.Lending policy establishes debtservice

coverage ratiosand loanto value ratiosspecific to the propertytype.Collateral valuesare determinedbased uponthird party

appraisalsand evaluations.

Real Estate Residential– Residential mortgageloans held in the Company’sloan portfolio are madeto borrowers that demonstratethe

ability to makescheduled paymentswith full consideration to underwritingfactors such

as

current income, employmentstatus, current

assets, andother financialresources, credit history, andthe value ofthe collateral.Collateral consists ofmortgage liens on 1-4 family

residential properties.Collateral valuesare determinedbased uponthird party appraisalsand evaluations.The Companydoes not

originate sub-prime loans.

Real EstateHome Equity– Home equityloans andlines are madeto qualified individualsfor legitimate purposesgenerally secured

by senior or junior mortgageliens on owner-occupied1-4 familyhomes or vacationhomes.Borrower qualificationsinclude

favorablecredit history combinedwith supportive incomeand debtratio requirementsand combinedloan to valueratios within

established policy guidelines.Collateral valuesare determinedbased uponthird party appraisalsand evaluations.

Consumer Loans– This loan portfolioincludes personal installmentloans, direct andindirect automobilefinancing, andoverdraft

lines of credit.The majorityof the consumerloan categoryconsists of direct andindirect automobileloans.Lending policy

establishes maximumdebt to income ratios, minimumcredit scores, and includesguidelines for verificationof applicants’ income and

receipt of credit reports.

Credit QualityIndicators

.As part of the ongoingmonitoring of theCompany’sloan portfolioquality, managementcategorizes loans

into risk categoriesbased onrelevant informationaboutthe ability of borrowers toservice their debt such as:current financial

information,historical paymentperformance,credit documentation,and currenteconomic andmarkettrends, amongother

factors.Risk ratings are assignedto each loanand revised

as

needed throughestablished monitoringprocedures for individualloan

relationships overa predetermined amountand review of smaller balancehomogenousloan pools.The Companyuses the definitions

noted below for categorizingand managingits criticized loans.Loans categorized

as

“Pass” do notmeet the criteria setforth below

and arenot consideredcriticized.

Special Mention – Loansin this category are presentlyprotected fromloss, but weaknesses areapparentwhich, if not corrected, could

cause futureproblems.Loans in this category

may

not meetrequired underwriting criteria and haveno mitigating factors.More than

the ordinary amountof attentionis warranted for theseloans.

Substandard– Loans in this categoryexhibit well-defined weaknessesthat would typicallybring normal repaymentinto jeopardy.

These loans areno longer adequatelyprotected dueto well-defined weaknessesthat affectthe repaymentcapacityof the

borrower.The possibility ofloss is much moreevident andaboveaverage supervisionis required for these loans.

Doubtful – Loansin this category haveall the weaknessesinherent in a loancategorized

as

Substandard,with the characteristicthat

the weaknessesmake collectionor liquidation in full, on thebasis of currently existingfacts, conditions,and values,highly

questionableand improbable.

Performing/Nonperforming– Loans within certainhomogenous loanpools (home equity andconsumer) arenot individually reviewed,

but are monitored forcredit quality viathe aging statusof the loanand bypaymentactivity.The performing or nonperformingstatus

is updatedon

an

ongoing basis dependentupon improvementand deteriorationin credit quality.

The following tablessummarizegross loans held for investmentat September30, 2026and December31, 2025and currentperiod

gross writeoffs forthe nine monthsended September30, 2026and 12months endedDecember 31, 2025by years oforigination and

internally assignedcredit risk ratings (referto Credit RiskManagementsection for detail onrisk rating system).

(Dollars in Thousands)

Term Loansby OriginationYear

Revolving

As of September 30, 2026

2026

2025

2024

2023

2022

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

$

34,032

$

28,937

$

16,563

$

13,119

$

13,790

$

13,510

$

43,485

$

163,436

Special Mention

-

61

37

2,340

1,090

-

768

4,296

Substandard

114

-

105

49

67

3

74

412

Total

$

34,146

$

28,998

$

16,705

$

15,508

$

14,947

$

13,513

$

44,327

$

168,144

Current-Period Gross

Writeoffs

$

26

$

82

$

110

$

279

$

184

$

12

$

435

$

1,128

Real Estate- Construction:

Pass

$

56,034

$

70,866

$

2,433

$

2,212

$

9,694

$

53

$

6,545

$

147,837

Special Mention

-

-

-

-

485

-

-

485

Substandard

-

-

634

379

-

-

-

1,013

Total

$

56,034

$

70,866

$

3,067

$

2,591

$

10,179

$

53

$

6,545

$

149,335

Real Estate- Commercial

Mortgage:

Pass

$

73,556

$

81,383

$

63,168

$

83,575

$

146,789

$

203,907

$

20,802

$

673,180

Special Mention

3,993

4,780

267

3,431

27,590

8,159

1,250

49,470

Substandard

-

4,202

3,559

96

1,857

2,470

144

12,328

Doubtful

-

-

1,402

-

-

-

-

1,402

Total

$

77,549

$

90,365

$

68,396

$

87,102

$

176,236

$

214,536

$

22,196

$

736,380

Real Estate- Residential:

Pass

$

110,864

$

115,191

$

105,477

$

231,979

$

292,824

$

129,618

$

10,575

$

996,528

Special Mention

337

-

-

-

113

1,172

-

1,622

Substandard

457

286

555

946

792

3,252

-

6,288

Total

$

111,658

$

115,477

$

106,032

$

232,925

$

293,729

$

134,042

$

10,575

$

1,004,438

Current-Period Gross

Writeoffs

$

-

$

-

$

-

$

-

$

-

$

17

$

30

$

47

Real Estate - Home Equity:

Performing

$

600

$

269

$

-

$

219

$

16

$

406

$

244,418

$

245,928

Nonperforming

-

-

-

-

-

-

192

192

Total

$

600

$

269

$

-

$

219

$

16

$

406

$

244,610

$

246,120

Current-Period Gross

Writeoffs

$

-

$

-

$

-

$

-

$

-

$

(33)

$

39

$

6

Consumer:

Performing

$

61,018

$

46,514

$

14,991

$

17,655

$

18,508

$

12,339

$

13,586

$

184,611

Nonperforming

113

176

69

76

171

91

-

696

Total

$

61,131

$

46,690

$

15,060

$

17,731

$

18,679

$

12,430

$

13,586

$

185,307

Current-Period Gross

Writeoffs

$

2,364

$

613

$

200

$

454

$

487

$

257

$

128

$

4,503