CAPITAL CITY BANK GROUP INC

Signatures

INTRODUCTORY NOTE

Special Cautionary Notice Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q

contains “forward-looking

statements” within

the meaning of the Private Securities Litigation Reform

Act of 1995. These forward-looking

statements include,

among others, statements about our beliefs, plans, objectives,

goals, expectations,

estimates and intentions that are subject

to significant risks

and uncertainties and are subject to

change based

on various factors,

many

of

which are beyond our control.

The words “may,” “could,” “should,”

“would,” “believe,” “anticipate,”

“estimate,” “expect,”

“intend,” “plan,”

“target,” “vision,” “goal,” “will,”

“project,” “continue,” “outlook,”

“approximate,” “seasonal,”

“future,” and similar expressions

are intended

to identify forward

All forward-looking statements,

by their nature, are subject

to risks and uncertainties.

Forward-looking statements

are based

on current

assumptions and expectations that are subject

to change and may

prove to be inaccurate.

Our actual future results may

differ materially from

those set forth

in our forward-looking statements.

Our ability to

achieve

objectives could

be adversely affected

by the factors

discussed in detail in Part II,

Item

1A. “Risk

Factors” in this Quarterly Report on Form

10-Q and in

Part I, Item 1A. “Risk Factors” in

our Annual Report on Form

10-K for the year ended

December 31, 2025 (the “2025 Form

10-K”), as updated in our subsequent

quarterly reports filed on

Form 10-Q, as well as, among other

factors

:

●

Changes in trade, monetary, and fiscal

policies and laws, including

actual changes in

interest rates and the Fed Funds rate and

changes in international

trade policies, tariffs

and treaties

affecting

imports and

exports, and

their related impacts

on

macroeconomic

conditions, customer

behavior, funding

costs and

loan and

securities portfolios;

●

Inflation,

interest rate, market

and monetary

fluctuations;

●

Local, regional, national,

and international

economic conditions

(including the value of

the U.S. Dollar in relation to the

currencies of other advanced and emerging

market countries and the performance of both domestic and

international

equity

and debt markets and valuation of

securities traded on recognized

domestic and international

exchanges), and the impact they

may have

on us and

our clients and our assessment

of that

impact;

●

Supply-demand imbalances and general

economic conditions affecting local real estate prices and

a general deterioration

in

market fundamentals;

●

The costs and

effects of

legal and regulatory

developments,

the outcomes

of legal proceedings or regulatory or other

governmental

inquiries, the results of regulatory examinations

or reviews and the ability to

obtain required

regulatory

approvals;

●

The effect

of changes

in laws and regulations (including laws and

regulations concerning taxes,

banking, securities, and

insurance) and

their application

with which we and our subsidiaries must

comply;

●

The effect of changes in accounting policies and practices,

as may

be adopted

by the regulatory

agencies, as well as other

standard

setters;

●

The accuracy

of our financial

statement

assumptions;

●

Changes in the creditworthiness,

financial performance

and/or condition

of our borrowers;

●

Changes in the mix

of loan geographies,

sectors and types

or the level of non-performing

charge-offs;

●

Changes in estimates

of future credit

loss reserve requirements based

upon the periodic

review thereof under relevant

regulatory and

requirements;

●

Changes in our liquidity position;

●

Changes in our capital

levels, capital requirements

or our ability to maintain

adequate

regulatory capital

ratios;

●

The timely development and acceptance

of new products and services as

well as risks (including reputational and

litigation)

attendant

thereto, and

perceived overall value

of these products

and services by users;

●

Changes in consumer

spending, borrowing, and saving

habits;

●

Changes in deposit

levels, deposit mix, pricing, or the availability and

cost of other

funding sources;

●

Greater than

expected costs

or difficulties related to the

integration of new products

and lines of business;

●

Increased

competition and

its effect on

pricing (including deposit fees), spending, third-party

relationships and

revenues;

●

Technological changes;

●

Risks associated

with the development

and use of

artificial intelligence;

●

The cost and effects

of cyber incidents or other

failures, interruptions, or security breaches

of our systems

or those of our

customers or third-party

providers;

●

Fraud or misconduct

by internal or external

parties which we may

not be able

to prevent, detect

or mitigate;

●

Dispositions, acquisitions and

integration of acquired

businesses;

●

Impairment

of our goodwill or other intangible assets;

●

Changes in the reliability of our

vendors, internal control

systems, or information

systems;

●

Our ability to increase market

share and

control expenses;

●

Our ability to attract

and retain

qualified employees;

●

Changes in our organization,

compensation,

and benefit

plans;

●

The soundness

of other financial

institutions;

●

Volatility and

disruption in national

and international

financial and

commodity

markets;

●

Changes in the competitive

in our markets and

among banking

organizations

financial service

providers;

●

Action or inaction by the federal government,

including as a result of any

prolonged government

shutdown or government

intervention in the U.S. financial

system;

●

A deterioration of the credit rating for U.S. long-term sovereign debt, actions

that the

U.S. government may

take to

avoid

exceeding the debt

ceiling, and uncertainties surrounding

the federal budget

and economic

policy;

●

The effects of natural disasters (including

hurricanes), widespread health

emergencies (including pandemics),

military conflict

(including impacts related

to the conflicts

in the Middle East and

resulting disruptions to energy and

other commodities

markets and

supply chains)

,

terrorism, civil unrest, climate change or other

geopolitical events;

●

Our ability to declare and

pay dividends;

●

Structural changes

in the markets

for origination, sale and

servicing of residential mortgages;

●

Any inability to implement

and maintain

effective internal

control over financial

reporting and/or disclosure

control;

●

Potential claims, damages,

penalties, fines, costs and

reputational

damage

resulting from pending or future

litigation,

regulatory proceedings and

enforcement

actions;

●

Negative publicity and the impact on our

reputation,

including the speed and scale at which information

can spread

through

social media or digital channels,

which could amplify

adverse market

or customer reactions;

and

●

The limited trading activity

and concentration

of ownership of our

common

stock.

However, other factors besides those listed

in

or discussed in this Form 10-Q also could adversely

affect

our results,

and you

should not consider

any such

list of factors to

be a complete

set of all potential

risks or uncertainties.

Any forward-looking

statements made by us or on our behalf

speak only

as of the

date they

are made.

We do not undertake

to update

any forward

-looking

statement,

except as

required by applicable

law.

PART

I.

FINANCIAL INFORMATION

INC.

OF FINANCIAL

CONDITION

Except Par Value)

ASSETS

Due From Banks

$

71,617

$

62,189

Federal Funds Sold and

340,015

467,782

Total Cash

and Cash

Equivalents

411,632

529,971

Securities, Available for

Sale, at fair value

(amortized cost of $

893,054

and $

656,546

)

862,097

643,922

Securities, Held to Maturity (fair

value of $

293,832

and $

369,320

)

315,142

377,446

3,203

2,069

Total Investment

1,180,442

1,023,437

Loans Held For Sale,

23,455

21,695

Allowance for Credit

Losses

(30,369)

(31,001)

Investment,

Net

2,459,355

2,515,117

Premises and

Equipment, Net

83,257

79,457

Goodwill

89,095

89,095

Owned

2,353

1,936

Other Assets

147,163

125,057

Total Assets

$

$

LIABILITIES

Deposits:

Noninterest Bearing

$

1,331,669

$

1,251,886

2,334,899

2,410,426

Total Deposits

3,666,568

3,662,312

38,881

50,092

33,303

42,582

Other Liabilities

83,571

77,248

Total Liabilities

3,822,890

3,832,914

SHAREOWNERS’

EQUITY

Preferred Stock, $

0.01

par value;

3,000,000

shares authorized;

no

shares issued and

Common

Stock, $

0.01

par value;

90,000,000

shares authorized;

and

17,084,386

shares issued and

respectively

Additional Paid-In Capital

41,516

41,650

Retained Earnings

543,611

508,443

(Loss) Income, net

of tax

2,587

Total Shareowners’

Equity

573,862

552,851

Total Liabilities

and Shareowners’

Equity

$

$

INC.

OF INCOME

Except Per Share

Data)

INTEREST INCOME

Loans, including Fees

$

38,652

$

40,279

$

115,118

$

121,629

Securities:

Taxable

10,629

7,175

29,920

19,644

Tax Exempt

Funds Sold and

3,194

3,964

10,271

11,369

Income

52,486

51,431

155,344

152,672

INTEREST EXPENSE

6,780

7,265

21,108

22,053

1,205

1,473

Expense

7,476

7,874

23,319

24,384

NET INTEREST

INCOME

45,010

43,557

132,025

128,288

Losses

(80)

1,881

1,551

3,269

Net Interest

Income

After Provision For Credit Losses

45,090

41,676

130,474

125,019

NONINTEREST INCOME

5,168

5,877

16,422

16,258

Bank Card

Fees

3,830

3,733

11,318

11,021

Wealth Management

Fees

4,640

5,173

12,876

16,142

3,673

4,794

12,585

12,804

Other

2,073

2,754

6,715

6,027

Income

19,384

22,331

59,916

62,252

NONINTEREST EXPENSE

25,620

26,056

77,159

78,794

Occupancy,

Net

7,294

7,037

21,696

20,901

Other

9,381

9,823

27,453

24,460

Expense

42,295

42,916

126,308

124,155

INCOME BEFORE

INCOME TAXES

22,179

21,091

64,082

63,116

Income

Tax Expense

5,239

5,141

15,048

15,264

NET INCOME

$

16,940

$

15,950

$

49,034

$

47,852

BASIC NET INCOME

PER SHARE

$

0.99

$

0.93

$

2.87

$

2.81

DILUTED NET INCOME

PER SHARE

$

0.99

$

0.93

$

2.86

$

2.80

Average

Common

Basic Shares Outstanding

17,113

17,068

17,114

17,050

Average

Common

Diluted Shares Outstanding

17,152

17,114

17,141

17,083

INC.

OF COMPREHENSIVE

INCOME (LOSS)

NET INCOME

$

16,940

$

15,950

$

49,034

$

47,852

income, before tax:

Securities:

Change in net unrealized

loss on securities available

for sale

(12,163)

2,932

(18,326)

10,676

unrealized losses on securities

transferred from

for sale to held to

1,044

Derivative:

Change in net unrealized

gain on effective

cash flow derivative

(253)

(1,442)

cash flow derivative

gain

(202)

(600)

(loss) income, before

tax

(12,365)

2,881

(18,762)

10,278

Deferred tax (benefit)

expense related

to other comprehensive

(loss) income

(3,117)

(4,739)

2,571

(loss) income, net of

tax

(9,248)

2,161

7,707

TOTAL COMPREHENSIVE

INCOME

$

7,692

$

18,111

$

35,011

$

55,559

INC.

OF CHANGES IN SHAREOWNERS’

EQUITY

Other

Additional

Shares

Common

Paid-In

Retained

(Loss) Income,

(Dollars In Thousands,

Except Share

Data)

Outstanding

Stock

Capital

Earnings

Net of Taxes

Total

Balance, July 1, 2026

17,111,077

$

$

40,821

$

531,291

$

(2,188)

$

570,095

16,940

16,940

Loss, net of tax

(9,248)

(9,248)

0.2700

(4,620)

(4,620)

net

2,220

Balance, September 30, 2026

$

$

41,516

$

543,611

$

$

573,862

Balance, July 1, 2025

17,066,395

$

$

39,527

$

487,665

$

(940)

$

526,423

15,950

15,950

Income, net

of tax

2,161

2,161

0.2600

(4,439)

(4,439)

net

2,255

Balance, September 30, 2025

17,068,650

$

$

40,067

$

499,176

$

1,221

$

540,635

Balance, January

1, 2026

17,084,386

$

$

41,650

$

508,443

$

2,587

$

552,851

49,034

49,034

Loss, net of tax

0.8100

Repurchase

of Common

Stock

(63,088)

(2,639)

(2,639)

1,478

1,478

net

91,999

1,027

1,027

Balance, September 30, 2026

$

$

41,516

$

543,611

$

$

573,862

Balance, January

1, 2025

16,974,513

$

$

37,684

$

463,949

$

(6,486)

$

495,317

47,852

47,852

Income, net

of tax

7,707

7,707

0.7400

1,373

1,373

net

94,137

1,010

1,011

Balance, September 30, 2025

17,068,650

$

$

40,067

$

499,176

$

1,221

$

540,635

INC.

OF CASH FLOWS

30,

OPERATING

ACTIVITIES

$

49,034

$

47,852

Adjustments

to Reconcile Net Income

to

Cash Provided by

Operating Activities:

Losses

1,551

3,269

Depreciation

5,521

5,548

Premiums, Discounts and

Fees, net

2,280

3,403

Intangible Asset

Gain on Sale of Subsidiary

(773)

Originations of

Loans Held-for-Sale

(315,284)

(332,760)

Proceeds From Sales

of Loans

Held-for-Sale

328,332

350,882

(12,585)

(12,804)

Net Deletions for Capitalized

Mortgage Servicing Rights

1,478

1,373

Net Tax

Benefit from

(132)

(154)

Deferred Income

Taxes

(2,532)

2,429

Net Change

in Operating Leases

(18)

Net Gain on Sales and

Write-Downs of Other Real

Estate Owned

(796)

(4,514)

Gain from Insurance

Claim on Premises

(453)

Net (Increase)

Decrease in Other Assets

(1,000)

3,770

Net Increase

in Other Liabilities

6,425

8,364

Provided By Operating Activities

61,837

76,054

INVESTING ACTIVITIES

Securities Held to Maturity:

(113,266)

(66,697)

Proceeds from Payments,

Maturities, and

Calls

175,326

228,784

(360,296)

(225,039)

Proceeds from Payments,

Maturities, and

Calls

116,071

60,899

Equity Securities:

(1,219)

(60)

Net Decrease in

1,191

Purchases of

(7,013)

(958)

Proceeds from Sales of

Loans

53,229

39,802

Net Decrease in

1,147

23,666

Purchase of

Bank Owned Life Insurance

(6,000)

Received for Divestitures

2,375

Proceeds from Insurance

Claims on Premises

Proceeds From Sales

of Other Real Estate

Owned

3,921

7,340

Purchases of

Premises and

Equipment

(10,571)

(5,967)

(Used In) Provided By Investing

Activities

(148,133)

65,336

FINANCING ACTIVITIES

Net Increase

(Decrease) in Deposits

4,256

(57,065)

Net (Decrease) Increase

in Short-Term Borrowings

(11,211)

11,940

Principal Payments

of Subordinated

Notes

(9,279)

(10,305)

Dividends Paid

Payments

to Repurchase

Common

Stock

(2,639)

Proceeds from Issuance

of Common

Stock Under Purchase

Plans

Used In Financing Activities

(32,043)

(67,345)

NET (DECREASE)

INCREASE IN CASH AND

CASH EQUIVALENTS

(118,339)

74,045

Cash Equivalents

at Beginning of Period

529,971

391,854

Cash Equivalents

at End of

Period

$

411,632

$

465,899

Supplemental Cash

Flow Disclosures:

Interest Paid

$

23,949

$

24,148

Federal Income

Taxes Paid

$

10,975

$

7,700

State and

Local Income

Taxes Paid:

Florida

$

1,975

$

All Other

$

$

Supplemental Noncash

Items:

Loans and

Premises Transferred to

Owned

$

3,542

$

4,290

Loans Transferred

from Held for Investment

to Held for Sale, net

$

55,452

$

40,652

INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 1 –

BUSINESS AND BASIS

OF PRESENTATION

Nature of Operations

.

Group, Inc. (“CCBG” or the “Company”)

provides a full range of

banking and

banking-

related services to

individual and

clients through its wholly owned

subsidiary, Capital

City Bank

(“CCB” or the “Bank”),

with banking offices

located in Florida, Georgia,

and Alabama.

is subject to competition

from other financial

institutions, is subject

to regulation by certain

government agencies

and undergoes

periodic examinations

by those regulatory

authorities.

Basis of Presentation

.

The consolidated

financial statements

in this Quarterly Report on Form

10-Q include the accounts

of CCBG

and CCB.

All material inter

-company

transactions

and accounts

have been

eliminated.

Certain previously reported

amounts

have

been reclassified

to conform

to the current year’s

presentation.

The accompanying

unaudited consolidated

financial statements have

been prepared in accordance

with generally accepted

principles for interim

financial information

and with the instructions

to Form 10-Q and

Article 10 of Regulation S-X.

Accordingly,

they do not

include all of the information

required by generally accepted

principles for complete financial

In the opinion

of management,

all adjustments

(consisting of normal recurring accruals)

considered necessary

for a fair

presentation

have been

included.

The Consolidated

31, 2025 has

been derived from

the audited

financial

at that

date,

but does not

include all of the information

required by generally accepted

principles for

complete financial statements.

For further information,

refer to the consolidated

financial statements

thereto included

in the

2025 Form 10-K.

Updates

Proposed Accounting Standards

,

ASU No. 2023-06, “Disclosure

Improvements: Codification

Amendments in Response

to the SEC’s

Disclosure Update

and Simplification

Initiative.”

Update

(“ASU”) 2023-06 is intended to

clarify or improve

disclosure and

presentation

requirements of

a variety of

topics, which will allow users to more easily compare

entities subject

to the

SEC’s existing

disclosures with those

entities that were not

previously subject

to the requirements

and align the requirements

in the

FASB accounting

standard

codification with the

SEC’s regulations. ASU 2023-06 is to be applied

prospectively, and

early adoption

is

prohibited. For reporting

entities subject to

the SEC’s existing

disclosure requirements,

the effective

dates of

ASU 2023-06 will be the

date on

which the SEC’s removal

of that

related disclosure requirement

from Regulation

S-X or Regulation S-K becomes

effective. If

by June 30, 2027,

the SEC has not

removed the

applicable requirement

from Regulation

S-X or Regulation S-K, the pending content

of the related

amendment

will not become effective

for any entities. The

Company

and the

ASU No. 2024-03,

“Income Statement

— Reporting

Income — Expense Disaggregation

Disclosures (Subtopic

220-

40): Disaggregation

of Income Statement

Expenses.”

ASU 2024-03 introduces new requirements

to disclose additional

about

certain types

of expenses, including employee

compensation,

depreciation, intangible

asset amortization,

and selling expenses.

ASU 2024-03 is effective

for the Company

as of January 1, 2027. The

Company

impact of

the incremental

disclosures that

will be required under the standard.

ASU 2025-06, “Intangibles

• Goodwill and

Other -Internal-Use Software

(Subtopic

350-40): Targeted

Improvements to the

Accounting

for Internal-Use Software.”

The ASU updates accounting

for internal-use software

by shifting from a

stage-based

model

to a principles-based

approach

aligned with modern development.

Key provisions include new capitalization

criteria based on

authorization,

funding commitment,

and probable

completion, removal

of development

stages, integrated website guidance,

and

enhanced

disclosures. ASU 2025-06 is effective

for the Company

1, 2028. The Company

and the

and disclosures.

ASU 2025-08, “Financial

Instruments—Credit

Losses (Topic 326):

Purchased Loans.”

The ASU updates the

for

purchased

loans under ASC 326.

The amendments

expand

the population

of loans subject

to the “gross-up” accounting

model by

eliminating the former

distinction between purchased

credit-deteriorated

(“PCD”) and non-PCD loans. Under

the new guidance,

entities will apply

a single model for purchased

loans by recognizing an

losses and adjusting

the amorti

zed cost

basis for the associated

noncredit discount

at acquisition.

ASU 2025-08 is effective for

1, 2027. The

Company

provisions of the amendments

and the

and

disclosures.

ASU 2025-11, “Interim

Reporting (Topic

270): Narrow-Scope

Improvements.”

The ASU aims to clarify

and enhance

interim financial

reporting by defining

its scope, consolidating

GAAP disclosures in

Topic 270, adding

a principle for material

post-year

-end event

disclosure, and

refining statement

format

guidance to improve

consistency for

all preparers. These changes

do not alter

the

fundamental

requirements of

interim reporting but seek to

streamline and

standardize

the process. ASU 2025-11 is effective

for the

Company

in interim reporting periods beginning as

of January

1, 2028.

and the

ASU 2025-12, “Codification

Improvements.”

The ASU was issued to make

technical corrections, clarify

ambiguous

guidance and

generally streamline

the Accounting Standards

across various

topics, affecting

most reporting entities, with key

changes

including clarifications

for diluted EPS during losses,

lease receivable disclosures,

beneficial interest

calculations, and

treasury stock

accounting, aiming

for better usability

without significantly

altering core accounting

outcomes.

ASU 2025-12 is effective for

the

Company

1, 2027. The Company

provisions of the amendments

and the

its future

NOTE 2 –

INVESTMENT SECURITIES

Investment Portfolio

Composition

. The following table summarizes

the amortized

cost and

related fair value

of investment

securities available

-for-sale (“AFS”) and

securities held-to-maturity

(“HTM”) and the

corresponding amounts

of gross

unrealized gains and

losses.

Amortized

Allowance for

Fair

Cost

Gains

Losses

Value

$

605,514

$

$

11,171

$

$

594,343

Agency

164,330

4,095

160,311

35,004

2,429

32,575

(1)

55,044

10,715

44,329

33,162

2,574

(49)

30,539

Total

$

893,054

$

$

30,984

$

(49)

$

862,097

$

331,495

$

1,940

$

$

$

333,264

Agency

174,527

2,484

172,114

36,918

2,045

34,911

(1)

59,699

7,697

52,004

45,810

2,236

(42)

43,532

Other Securities

(2)

8,097

8,097

Total

$

656,546

$

2,051

$

14,633

$

(42)

$

643,922

Amortized

Fair

Cost

Gains

Losses

Value

(1)

315,142

21,310

293,832

Total

$

315,142

$

$

21,310

$

293,832

$

129,782

$

$

$

129,268

(1)

247,664

8,542

240,052

Total

$

377,446

$

$

9,056

$

369,320

(1)

Comprised of residential mortgage-backed securities.

(2)

Includes Federal

Home Loan Bank stock

and Federal

Reserve Bank stock

at cost of $

3.0

$

5.1

These securities are

presented

in Other Assets beginning

September 30, 2026.

the investment

portfolio had

$

3.2

2.1

million, respectively, in equity

securities. These securities

do not have

a readily determinable

fair value and

were not credit impaired.

Securities with an

cost of $

605.5

461.3

respectively,

were pledged to

secure public deposits

and for other

purposes.

Investment Sales.

There were

no

sales of investment

securities for the three and

Maturity Distribution

.

,

’s investment

securities had the following maturity

distribution based

on

contractual

maturity.

Expected maturities

may differ

from contractual

maturities because

borrowers may have

the right to call or

prepay obligations.

Mortgage-backed

securities, certain amortizing U.S.

government agency

securities and other

securities are shown

separately

because they

are not due

at a certain

date.

Amortized Cost

Amortized Cost

Due in one year

or less

$

159,015

$

158,279

$

$

Due after

one year through

five years

532,658

516,640

55,044

44,329

315,142

293,832

Agency

146,337

142,849

Total

$

893,054

$

862,097

$

315,142

$

293,832

Unrealized Losses

on Investment Securities.

The following table summarizes

the available

for sale and

held to maturity

securities with unrealized

losses aggregated by

major security

type and

length of time in a continuous

unrealized loss position:

Less Than

Greater Than

Total

Fair

Fair

Fair

Value

Losses

Value

Losses

Value

Losses

$

591,355

$

11,156

$

2,988

$

$

594,343

$

11,171

Agency

54,953

1,648

74,492

2,447

129,445

4,095

1,842

28,453

2,408

30,295

2,429

44,274

10,714

44,321

10,715

28,782

2,574

29,439

2,574

Total

$

648,854

$

12,826

$

178,989

$

18,158

$

827,843

$

30,984

201,991

9,348

91,838

11,962

293,829

21,310

Total

$

201,991

$

9,348

$

91,838

$

11,962

$

293,829

$

21,310

$

31,319

$

$

8,902

$

$

40,221

$

Agency

62,809

91,760

2,302

154,569

2,484

3,030

30,705

1,921

33,735

2,045

51,932

7,697

51,932

7,697

42,333

2,236

42,333

2,236

Total

$

97,158

$

$

225,632

$

14,305

$

322,790

$

14,633

129,268

129,268

33,589

106,262

8,444

139,851

8,542

Total

$

33,589

$

$

235,530

$

8,958

$

269,119

$

9,056

30, 2026, there

were

positions (combined

AFS and HTM) with unrealized

pre-tax losses totaling

$

52.3

of these positions

are U.S. Treasury

bonds and carry

the full faith and

credit of the U.S. Government.

are U.S. government agency

securities issued by

U.S. government

sponsored entities.

We believe

the long history of

no credit losses on government

securities

the expectation

cost basis is effectively

zero.

all collateralized

mortgage obligation

securities, mortgage

-backed

securities, Small Business Administration

securities, U.S. Agency,

and U.S. Treasury

bonds held were AAA

rated.

The remaining

positions (municipal securities

bonds) have

a credit component.

At

2026, corporate

debt securities had

an

credit losses of $

49,000

.

No

ne of the securities held by

the

Company

were past due or in nonaccrual

status

at

Credit Quality Indicators

monitors the credit quality

of its investment

securities through various risk management

procedures, including the

monitoring of

credit ratings.

A majority

of the debt

securities in the Company’s

portfolio were issued by a

U.S.

government entity

or agency and

are either explicitly or implicitly guaranteed

by the U.S. government.

believes the

long history of no

credit losses on these

securities indicates

that the

expectation

cost basis is

effectively zero, even

if the U.S. government

were to technically default.

Further, certain municipal

securities held by the

Company

have been pre-refunded

and secured by

government guaranteed

treasuries.

Therefore, for the aforementioned

securities, the Company

does

no

t assess or record expected

credit losses due to the

zero loss assumption.

monitors the credit quality

of its

municipal and

securities portfolio via credit rating

s

which are updated

on a quarterly

basis.

On a quarterly

basis, municipal

securities in an unrealized loss position

are evaluated

to determine

if the loss is attributable

to credit related factors

and

if an allowance

for credit loss is needed.

NOTE 3 – LOANS HELD

FOR INVESTMENT

AND ALLOWANCE

FOR CREDIT LOSSES

Loan Portfolio

Composition

.

The composition

of the held for

(“HFI”) loan portfolio

was as follows:

$

168,144

$

180,341

149,335

146,920

736,380

768,731

(1)

246,120

240,897

(2)

185,307

183,539

Loans Held For Investment,

Net of Unearned

Income

$

$

(1)

Includes loans

in process balances

of $

0.5

$

5.6

December 31, 2025, respectively.

(2)

Includes overdraft

balances of

$

1.3

$

1.2

December 31, 2025, respectively.

Net deferred loan

costs, which include premiums

on purchased

loans, included in loans

were $

8.8

$

8.6

Accrued interest receivable

on loans which is

excluded from

cost, totaled

$

9.4

$

9.8

31, 2025, and

is reported separately

in Other Assets.

has pledged a

blanket floating

lien on all 1-4 family residential

mortgage loans,

mortgage loans,

and home

equity loans to

support available

borrowing capacity

at the FHLB

of Atlanta

and has

pledged a blanket

floating lien on all

consumer loans,

commercial loans,

and construction

loans to support

borrowing capacity

at the Federal

Reserve Bank

of

Atlanta.

Loan Purchase

s.

will periodically purchase commercial

real estate loans

for its portfolio.

Commercial loan

purchases

6.7

million for the three and

30, 2026, and

were not credit impaired.

No

ne were purchased

during the comparable

2025 periods.

Allowance for Credit Losses

.

The methodology

for estimating the

amount

of credit losses reported in the

losses

(“ACL”) has

two basic components:

first, an asset-specific component

involving 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 – Significant

Accounting

Policies in the Company’s

details the activity

in the allowance

for credit losses by portfolio segment.

Allocation of

a portion of

the

allowance to

one category

of loans does

not preclude its availability

to absorb

losses in other categories.

Commercial,

Financial,

Commercial

Agricultural

Residential

Home Equity

Total

$

1,828

$

1,282

$

7,540

$

14,877

$

2,467

$

3,013

$

31,007

(25)

(241)

(837)

(52)

(129)

(251)

(9)

(1,883)

(2,136)

1,171

1,627

Net Recoveries (Charge-Offs)

(712)

(509)

$

1,834

$

1,461

$

7,306

$

14,194

$

2,426

$

3,148

$

30,369

$

1,751

$

1,681

$

6,859

$

15,317

$

2,368

$

3,025

$

31,001

(220)

(1,343)

1,788

1,410

(1,128)

(47)

(6)

(4,503)

(5,684)

2,838

3,642

(707)

(1,665)

(2,042)

$

1,834

$

1,461

$

7,306

$

14,194

$

2,426

$

3,148

$

30,369

$

1,425

$

1,811

$

6,256

$

15,264

$

2,014

$

3,092

$

29,862

(352)

1,550

(373)

(12)

(10)

(1,573)

(1,968)

(278)

(941)

(1,210)

$

1,517

$

1,459

$

6,532

$

15,429

$

2,214

$

3,051

$

30,202

$

1,514

$

2,384

$

5,867

$

14,568

$

1,952

$

2,966

$

29,251

(925)

2,329

3,351

(615)

(69)

(34)

(4,359)

(5,077)

2,115

2,677

(328)

(2,244)

(2,400)

$

1,517

$

1,459

$

6,532

$

15,429

$

2,214

$

3,051

$

30,202

the allowance

for credit losses for loans

HFI totaled $

30.4

to $

31.0

million

at

2025 and

$

30.2

million

at

2025. Activity within the allowance

for the nine month

period ended September

reflected a provision

expense of $

1.4

million and net

loan charge-

offs

of $

2.0

million. The September

30, 2026 allowance reflected

the

utilization of a

lower forecasted

unemployment

rate in forecasting

loan loss rates and

lower loan balances,

as

to the

allowance. At September

30, 2025, the

loans HFI totaled

$

30.2

million, a $

1.0

million increase over

December 31, 2024. Activity

within the allowance for

the nine-month period

ended September 30, 2025,

reflected a provision

expense

of $

3.4

million and net

loan charge-

offs

of $

2.4

million. The net increase in the allowance

to qualitative

factor adjustments

that were partially

lower loan balances.

Four unemployment

forecast scenarios

were utilized to estimate

probability of default

and are weighted based

on management’s

estimate of probabilit

y.

See Note 8 – Commitments

and Contingencies

for information

on the allowance

for off-balance

sheet credit commitments.

Loan Portfolio

Aging.

A loan is defined as a

past due loan when

one full payment

is past due or a contractual

is over 30 days

past due

(“DPD”).

presents the aging of

the amortized

cost basis in accruing past

due loans by

class of loans.

30-59

60-89

90 +

Total

Total

Total

DPD

DPD

DPD

Past Due

Current

Loans

Loans

$

$

$

$

$

167,780

$

$

168,144

148,322

149,335

1,829

1,829

732,478

2,073

736,380

1,000,227

3,825

245,734

246,120

183,641

185,307

Total

$

3,365

$

$

$

4,187

$

2,478,182

$

7,355

$

$

$

$

$

$

178,354

$

1,278

$

180,341

146,625

146,920

1,386

1,386

764,785

2,560

768,731

1,930

2,737

1,020,810

2,143

239,061

1,769

240,897

1,561

1,823

180,871

183,539

Total

$

4,653

$

2,364

$

$

7,017

$

2,530,506

$

8,595

$

Nonaccrual Loans

.

Loans are generally placed

on nonaccrual status

if principal or interest payments

become 90

days past

due and/or

deems

the collectability of

the principal and/or

interest to be doubtful.

Loans are

returned to accrual

status when

the

principal and

interest amounts

contractually

due are brought

current or when future

are reasonably

assured.

presents the amortized

cost basis of loans

in nonaccrual

status and loans past

due over 90 days

and still on accrual

by class of loans.

With No

With

90 + Days

With No

With

90 + Days

ACL

ACL

Still Accruing

ACL

ACL

Still Accruing

$

$

$

$

1,038

$

$

1,405

1,807

1,810

2,015

1,275

1,382

Total Nonaccrual

Loans

$

2,478

$

4,877

$

$

4,448

$

4,147

$

Collateral

Dependent Loans.

The following table presents the

cost basis of collateral

-dependent

loans.

Non Real Estate

Non Real Estate

Secured

Secured

Secured

Secured

$

$

$

$

1,087

11,697

2,450

2,168

1,275

1,561

Total Collateral

Dependent Loans

$

14,635

$

$

5,286

$

1,087

A loan is collateral

dependent

when the borrower is experiencing financial

difficulty and

repayment

is dependent on

the

sale or operation

of the underlying collateral.

The Bank’s

collateral dependent

loan portfolio is comprised

primarily of real estate

secured loans, collateralized

by either residential

or commercial collateral

types.

The loans are carried at

fair value based on

current values determined

by either independent

or internal evaluations,

for selling costs or other amounts

to be deducted

when estimating expected

net sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

.

had $

0.4

million of 1-4 family

residential real estate

loans for which formal

foreclosure proceedings were

in process, compared

to $

0.2

million at December 31,

Modifications to Borrowers Experiencing Financial Difficulty.

Occasionally, the

Company

may modify

loans to borrowers who are

experiencing financial

difficulty.

Loan modifications

to borrowers in financial difficulty

are loans in 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 extension

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

the results of either a

discounted 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 restructured at

market terms

and qualifies

as a new loan.

During the nine months

Company

did

no

t modify any

loans to borrowers experiencing financial

difficulty.

During the nine months

30, 2025,

one

commercial mortgage

loan for $

2.5

million was provided a

month interest

only extension in exchange

for additional

collateral.

closely monitors the performance

of loans modified

for borrowers experiencing financial

difficulty to evaluate

the

effectiveness

of its modification

strategies. At September 30,

2026, there were

no

of loans modified

during the

preceding twelve months

.

At September 30, 202

5, the amortized

cost basis of loans

modified during the preceding

twelve months

was

$

2.8

million, of which $

2.5

million were current and

$

0.3

million were 30 -59 days

past due.

Credit Risk Management

.

has adopted

lending policies, underwriting standards and

loan review

procedures designed

to maximize loan income

within

an

acceptable

level of risk.

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

potential problem

loans.

and the

Credit Risk Oversight Committee

periodically review 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, loan

type, geographic area,

or other relevant

classifications of

loans.

Specific segments of the

are monitored

and reported

to the Board

on a quarterly

basis and

have strategic

plans in place

to supplement

Board approved

credit policies governing exposure limits and

underwriting standards.

Detailed below are the types

of

loans within the

and risk characteristics

unique to each.

and Agricultural – Loans

in this category are primarily

made

identified cash

flows of the borrower

with consideration

given to underlying collateral

and personal

or other guarantees.

Lending policy establishes debt

service coverage

ratio limits that

require a borrower’s cash

flow to be 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 other business assets such

as

account

s

receivable, inventory,

or

equipment.

are determined based

upon third party appraisals

Loan to value ratios

at

origination are

governed by established

policy guidelines.

consists

of short-term construction

loans, revolving and

non-revolving credit lines

and construction/permanent

loans made

to individuals and

investors to finance

the acquisition, development,

construction or

rehabilitation of real

property.

primarily made

based on identified cash

flows of the borrower or

project and

generally

secured by the

property being financed,

including 1-4 family residential

properties and

commercial properties

either owner-

occupied or investment

in nature.

These properties

may

include either vacant

or improved property.

loans are generally

estimates of

costs and

value associated

with the completed

project.

third

party appraisals

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 progress of

the project and

as

such these loans

are closely monitored

by on-

site inspections.

Commercial Mortgage

consists of commercial

secured by property

that is either

owner-occupied or

in nature.

primarily made

identified cash

flows of the borrower or project

with consideration

given to underlying real estate

collateral and

personal guarantees.

Lending policy establishes debt

service

coverage ratios

and loan

to value ratios

specific to the property

type.

third party

Real Estate Residential

– Residential mortgage

loans held in the Company’s

loan portfolio are made

to borrowers that demonstrate

the

ability to make

scheduled payments

with full consideration to underwriting

factors 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.

third party appraisals

and evaluati

ons.

does not

originate sub-prime loans.

Home Equity

– Home equity

lines are made

to qualified individuals

for legitimate purposes

generally secured

by senior or junior mortgage

liens on owner-occupied

1-4 family

homes or vacation

homes.

Borrower qualifications

include

favorable

credit history combined

with supportive income

and debt

ratio requirements

and combined

loan to value

ratios within

established policy guidelines.

third party appraisals

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 automobile

loans.

Lending policy

establishes maximum

debt to income ratios, minimum

credit scores, and includes

guidelines for verification

of applicants’ income and

receipt of credit reports.

Indicators

.

As part of the ongoing

monitoring of the

quality, management

categorizes loans

into risk categories

relevant information

about

the ability of borrowers to

service their debt such as:

current financial

historical payment

performance,

credit documentation,

and current

economic and

market

trends, among

other

Risk ratings are assigned

to each loan

and revised

as

needed through

established monitoring

procedures for individual

loan

relationships over

a predetermined amount

and review of smaller balance

homogenous

loan pools.

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, but weaknesses are

apparent

which, if not corrected, could

cause future

problems.

Loans in this category

may

not meet

required underwriting criteria and have

no mitigating factors.

More than

the ordinary amount

of attention

is warranted for these

loans.

exhibit well-defined weaknesses

that would typically

bring normal repayment

into jeopardy.

no longer adequately

protected due

to well-defined weaknesses

that affect

the repayment

capacity

of the

borrower.

The possibility of

loss is much more

evident and

above

average supervision

is required for these loans.

Doubtful – Loans

in this category have

all the weaknesses

inherent in a loan

categorized

as

Substandard,

with the characteristic

that

the weaknesses

make collection

or liquidation in full, on the

basis of currently existing

facts, conditions,

and values,

highly

questionable

and improbable.

Performing/Nonperforming

– Loans within certain

homogenous loan

pools (home equity and

consumer) are

not individually reviewed,

but are monitored for

credit quality via

the aging status

and by

payment

activity.

The performing or nonperforming

status

is updated

on

an

ongoing basis dependent

upon improvement

and deterioration

in credit quality.

s

summarize

gross loans held for investment

31, 2025

and current

period

gross writeoffs for

the nine months

and 12

December 31, 202

by years of

origination and

internally assigned

credit risk ratings (refer

to Credit Risk

section for detail on

risk rating system).

Term Loans

by Origination

Year

Revolving

As of September 30, 2026

Prior

Loans

Total

Agriculture:

Pass

$

34,032

$

28,937

$

16,563

$

13,119

$

13,790

$

13,510

$

43,485

$

163,436

2,340

1,090

4,296

Total

$

34,146

$

28,998

$

16,705

$

15,508

$

14,947

$

13,513

$

44,327

$

168,144

$

$

$

$

$

$

$

$

1,128

• Construction:

Pass

$

56,034

$

70,866

$

2,433

$

2,212

$

9,694

$

$

6,545

$

147,837

1,013

Total

$

56,034

$

70,866

$

3,067

$

2,591

$

10,179

$

$

6,545

$

149,335

• Commercial

Mortgage:

Pass

$

73,556

$

81,383

$

63,168

$

83,575

$

146,789

$

203,907

$

20,802

$

673,180

3,993

4,780

3,431

27,590

8,159

1,250

49,470

4,202

3,559

1,857

2,470

12,328

Doubtful

1,402

1,402

Total

$

77,549

$

90,365

$

68,396

$

87,102

$

176,236

$

214,536

$

22,196

$

736,380

• Residential:

Pass

$

110,864

$

115,191

$

105,477

$

231,979

$

292,824

$

129,618

$

10,575

$

996,528

1,172

1,622

3,252

6,288

Total

$

111,658

$

115,477

$

106,032

$

232,925

$

293,729

$

134,042

$

10,575

$

$

$

$

$

$

$

$

$

Real Estate - Home Equity:

$

$

$

$

$

$

$

244,418

$

245,928

Total

$

$

$

$

$

$

$

244,610

$

246,120

$

$

$

$

$

$

(33)

$

$

Consumer:

$

61,018

$

46,514

$

14,991

$

17,655

$

18,508

$

12,339

$

13,586

$

184,611

Total

$

61,131

$

46,690

$

15,060

$

17,731

$

18,679

$

12,430

$

13,586

$

185,307

$

2,364

$

$

$

$

$

$

$

4,503

Term Loans

by Origination

Year

Revolving

As of December

31, 2025

Prior

Loans

Total

Agriculture:

Pass

$

37,680

$

23,425

$

22,907

$

23,068

$

10,922

$

8,740

$

48,354

$

175,096

2,740

3,593

1,114

1,652

Total

$

38,002

$

23,692

$

25,742

$

23,376

$

10,942

$

8,956

$

49,631

$

180,341

$

$

$

$

$

$

$

$

• Construction:

Pass

$

76,850

$

39,024

$

3,298

$

14,996

$

$

$

9,295

$

143,703

2,127

2,499

Total

$

76,850

$

39,024

$

4,388

$

17,123

$

$

$

9,295

$

146,920

• Commercial

Mortgage:

Pass

$

93,723

$

76,348

$

101,262

$

174,959

$

92,388

$

152,307

$

22,555

$

713,542

9,830

4,477

5,725

20,547

3,922

4,074

49,295

1,402

1,229

1,847

5,894

Total

$

104,303

$

82,227

$

107,085

$

195,924

$

97,539

$

158,228

$

23,425

$

768,731

$

$

$

$

$

$

$

$

• Residential:

Pass

$

142,278

$

130,895

$

269,844

$

316,402

$

59,950

$

87,545

$

10,521

$

1,017,435

2,255

1,201

1,310

2,341

6,000

Total

$

142,278

$

131,453

$

270,273

$

317,719

$

62,214

$

90,693

$

11,060

$

$

$

$

$

$

$

$

$

Real Estate - Home Equity:

$

$

$

$

$

$

$

237,678

$

239,201

1,696

1,696

Total

$

$

$

$

$

$

$

239,374

$

240,897

$

$

$

$

$

$

$

$

Consumer:

$

63,443

$

21,866

$

27,919

$

31,464

$

21,524

$

5,164

$

11,315

$

182,695

Total

$

63,629

$

22,057

$

28,068

$

31,679

$

21,596

$

5,195

$

11,315

$

183,539

$

2,789

$

$

1,003

$

1,036

$

$

$

$

5,954

NOTE 4 – MORTGAGE

BANKING ACTIVITIES

mortgage banki

ng activities include mandatory

delivery loan sales, forward sales

contracts used

to manage

residential

loan pipeline price

risk, utilization of

warehouse lines to fund

market

residential loan closings, and

residential mortgage

servicing.

Residential Mortgage Loan Production

originates, markets,

and services conventional

and government

-sponsored residential mortgage

loans.

Generally,

conforming fixed

rate residential mortgage

loans are held for

sale in the secondary

market

and non-conforming

and adjustable

-rate

residential mortgage

loans

may

be held for investment.

The volume of

originated for sale and

market

prices are the primary

drivers of origination revenue.

are generally outstanding

for 30 to 90

days, which represents

the typical period

from

to originate a residential

mortgage loan

to when the closed

loan is sold to

an

investor.

loan

to both credit and

price risk.

Credit risk is managed

through underwriting policies and

procedures, including

collateral requirements,

which are generally

accepted

by the secondary

loan markets.

Price risk is primarily related to interest rate

fluctuations

and is partially managed

through forward

sales of residential mortgage

-backed

securities (primarily to-be announced

securities, or TBAs)

or mandatory

delivery commitments

with investors.

The unpaid principal balance

loans held for sale,

notional amounts

of derivative contracts

related to residential

mortgage loan commitments

,

such

as

interest rate lock commitments

(“IRLCs”) and forward contract

sales and their related fair values

are set forth

below.

Unpaid Principal

Unpaid Principal

Balance/Notional

Balance/Notional

Sale

$

22,937

$

23,455

$

20,944

$

21,695

(1)

29,368

20,699

(2)

20,500

25,500

(1)

Recorded in other assets at fair value.

(2)

Recorded in other assets and other liabilities at fair value at

September 30, 2026 and December 31, 2025, respectively.

31, 2025, the

Company

had

no

held for sale 30-89

days past

due or

on nonaccrual

status.

Mortgage banking

revenue was

as

Net realized gains

on sales of mortgage

loans

$

2,991

$

3,871

$

9,470

$

10,356

in unrealized (loss) gain on

held for

sale

(595)

(266)

in the fair value

of IRLCs

(152)

(45)

in the fair value

of forward sales

contracts

(85)

Pair-Offs on

net settlement

of forward sales

contracts

(234)

(404)

Mortgage servicing rights

additions

Net origination fees

2,488

2,192

Total mortgage

$

3,673

$

4,794

$

12,585

$

12,804

Residential Mortgage Servicing

may

retain the right to service residential mortgage

loans sold.

The unpaid

principal balance

of loans serviced

for

others is the primary

driver of servicing revenue.

The following represents

a summary

of mortgage

Number of residential

serviced for others

Outstanding principal

balance

loans serviced for others

$

119,277

$

118,429

interest rate

5.78%

5.69%

Remaining contractual

term (in months)

Conforming conventional

loans serviced by the

Company

are sold to Federal National

Mortgage Association

(“FNMA”) on a non-

recourse basis, whereby

foreclosure losses

are generally the responsibility

of FNMA and

not the Company.

The government

loans

serviced by the

Company

are secured through

the Government

National Mortgage

Association (“GNMA”),

whereby the Company

is

insured against

loss by the Federal Housing

Administration or

partially guaranteed

against loss by the

United States Department

of

Veterans

Affairs.

the servicing portfolio balance

consisted of the

following loan types: FNMA (

62.5

%),

GNMA (

4.6

%), and private

investor (

32.9

%).

FNMA and

private investor loans

are structured

as

actual

/actual

payment

remittance

.

did

no

t have delinquent

in GNMA pools

serviced by the

The right to repurchase

these loans and

the corresponding liability has

been recorded in other

other liabilities, respectively,

in the Consolidated

of Financial Condition.

had

no

repurchases for

the three

2025, and

no

repurchases and

$

0.3

million repurchases in the nine

September

2025, respectively,

of GNMA delinquent or defaulted

with the intention to

modify their terms

and

include the loans

in new GNMA pools.

Activity in the

capitalized mortgage

servicing rights was

as

Beginning balance

$

$

$

$

Additions due to

loans sold with servicing

retained

Deletions and

amortization

(47)

(44)

(140)

(132)

Ending balance

$

$

$

$

did

no

t record any

permanent

impairment

losses on mortgage servicing rights for the three

or nine months

ended

2026 or 2025.

The key unobservable

inputs used in determining the

mortgage servicing rights were

as

Minimum

Maximum

Minimum

Maximum

Discount rates

9.50%

12.00%

9.50%

12.00%

Annual prepayment

speeds

8.78%

17.99%

8.50%

18.73%

Cost of servicing (per

loan)

$

$

$

$

Changes in residential

mortgage interest rates

directly affect

the prepayment

speeds used in valuing the

mortgage

A separate

third party model

is used to estimate

speeds based

on interest rates, housing

turnover rates,

loan curtailment,

anticipated

defaults, and

other relevant

The weighted average

annual

speed was

11.75

% at September

13.05

%

at

Warehouse

Line Borrowings

has the following warehouse

lines of credit and master

repurchase agreements

with various financial

institutions

at

2026:

Amounts

Outstanding

$

million master repurchase

agreement without

defined expiration.

Interest is at the

secured overnight

financing rate

(SOFR) rate plus

2.25%

to

3.25%

, with a floor rate of

3.25%

to

4.25%

.

A cash pledge deposit of

$

0.1

million is required

by the lender.

$

13,528

$

million warehouse line of

credit agreement

expiring in

September 2027

.

Interest is at the

SOFR rate plus

2.50%

to

6.00%

, with a floor rate

of

3.00%

to

6.50%

.

18,166

Total Warehouse

$

31,694

Warehouse

line borrowings are

classified as short-term

borrowings.

At December 31, 2025,

warehouse line borrowings

28.1

million. At September

30, 2026, the Company

had residential

held for sale pledged as

collateral under the

above

warehouse lines of

credit and master

repurchase agreements.

The above

agreements also

contain covenants

which include certain

financial requirements,

including maintenance

of minimum

tangible net worth, minimum

liquid assets, and

maximum

debt to net

worth ratio, as defined

in the agreements.

was in compliance with all significant

debt covenants

30, 2026.

NOTE 5 – DERIVATIVES

enters into derivative

financial instruments

to manage

exposures that

arise from business activities

that result in the

receipt or payment

of future known and uncertain

cash amounts,

the value of

which are determined

by interest rates.

derivative financial

instruments are

used to manage

differences in the

amount,

timing, and duration

of the Company’s

known or

expected cash

receipts and its known

or expected cash

principally related to the

debt.

Cash Flow Hedges of

Interest Rate

Risk

previously maintained

interest rate swaps

with notional amounts

totaling $

million designated as a

cash flow hedge

for subordinated

debt. Under the swap

arrangement,

paid a fixed

interest rate of

2.50

% and received

a variable

interest

rate based

on three-month

CME Term SOFR. In October

2025, the

Company

the swaps and

derecognized the derivative

assets. The unrealized

gain of $

2.7

million was deferred in

accumulated

income and

will be amortized on a

straight-line basis into

interest expense through

the remaining term

of the original cash

flow hedge. The Company

estimates there

will

be approximately

$

0.8

million reclassified as a decrease

to interest expense

within the next 12 months.

For derivatives designated

and that

qualify as

cash flow hedges of

interest rate risk, the gain or loss on

the derivative is recorded

in

accumulated

income (“AOCI”) and

subsequently

reclassified into interest expense

in the same period(s) during

which the hedged

affects

earnings. Amounts reported

in AOCI related to derivatives

will be reclassified to interest expense

as interest payments

are made

on the Company’s

variable-rate

debt.

presents the change

in net gains (losses) recorded in

AOCI and

the consolidated

of income related

to

the cash flow derivative

instruments (interest rate

swaps related to

debt).

Change in Gain

Amount of Gain

(Loss) Recognized

Reclassified

Category

in AOCI

from AOCI to Income

Three months

$

$

Three months

30, 2025

(189)

Nine months

$

$

Nine months

30, 2025

(1,076)

NOTE 6 – LEASES

Operating leases in

which the Company

is the lessee are recorded as

operating lease right of use

(“ROU”) assets and operating

liabilities, included

in other assets and

liabilities, respectively, on

its Consolidated Statements

of Financial Condition.

operating leases primarily

relate to banking

offices with remaining lease

terms from less than

one to

years.

The

leases are not

complex and

do not contain

residual value guarantees,

variable lease payments,

or significant assumptions

or judgments made

in applying the requirements

of Topic 842.

Operating leases with an initial term of 12 months or less are not

recorded on the Consolidated Statements of Financial Condition and the related lease expense is recognized on a straight-line basis

over the lease term.

operating lease ROU assets

and liabilities were $

24.8

25.5

respectively. At

ROU assets and

liabilities were $

26.3

26.9

million, respectively. The

Company

does not have

any finance

leases.

The table below summarizes

our lease expense

related to the

operating leases.

Operating lease expense

$

$

$

2,746

$

2,689

Short-term lease expense

Total lease

expense

$

1,061

$

1,099

$

3,213

$

3,411

Other information:

Cash paid

for amounts

included in the measurement

of lease liabilities:

Operating cash

flows from operating

leases

$

$

$

2,775

$

2,676

Right-of-use assets

obtained

in exchange for

new operating lease liabilities

4,041

remaining lease term

— operating leases (in years)

15.4

15.7

15.4

15.7

discount rate

— operating leases

3.7%

3.7%

3.7%

3.7%

The table below summarizes

the maturity

of remaining lease

liabilities:

$

3,478

3,201

2,911

2,919

2031 and

thereafter

18,790

Total

$

32,214

Less: Interest

(6,757)

Present Value

of Lease liability

$

25,457

A related party

is the lessor in a land lease

with the Company.

The payments

under the lease

agreement provide

for annual

lease

of approximately $

0.1

million annually through December

2033, and thereafter,

increase by

% every

years until 2053

at

which time the rent

amount

will adjust based on reappraisal

of the parcel rental value.

then has

four

successive options

the lease for

five years

each with rental

increases of

% at each

extension.

The aggregate remaining

obligation of the

lease

1.9

30, 2026.

Further, in accordance

with the lease agreement,

made a

$

0.2

million

payment

in July 2025 to the

lessor as reimbursement

for a portion

of the costs related

to the development

of subject

property to

support the construction

of a new banking

office by the

NOTE 7 - EMPLOYEE

BENEFIT PLANS

has a defined

benefit pension

plan covering substantially

all full-time and eligible part-time associates

and a

Supplemental

Executive Retirement

Plan (“SERP”) and a

Supplemental

Executive Retirement

Plan II (“SERP II”)

covering its

executive officers.

The defined benefit

plan was amended

in December 2019

to remove plan

eligibility

for new associates

hired after

December 31, 2019.

The SERP II was

adopted

by the Company’s

Board on

May 21, 2020

and covers

certain executive

officers that

were not covered

by the SERP.

The components

of the net periodic

benefit cost for

qualified benefit

pension plan

were as follows:

30,

Service Cost

$

$

$

2,498

$

2,581

Interest Cost

1,531

1,676

4,594

5,029

Expected Return

on Plan Assets

(2,218)

(2,265)

(6,653)

(6,794)

Net Loss Amortization

(474)

(413)

(1,421)

(1,240)

Net Periodic Benefit

Cost

$

(328)

$

(141)

$

(982)

$

(424)

Discount Rate

5.67%

5.82%

5.67%

5.82%

Long-term Rate

of Return on

Assets

6.50%

6.75%

6.50%

6.75%

The components

of the net periodic

benefit cost for

SERP and SERP II were as

30,

Service Cost

$

$

$

$

Interest Cost

Prior Service Cost Amortization

Net Loss Amortization

(30)

(88)

Net Periodic Benefit

Cost

$

$

$

1,296

$

Discount Rate

5.24%

5.57%

5.24%

5.57%

The service cost component

of net periodic benefit

cost is reflected in compensation

expense in the accompanying

of

income.

The other components

of net periodic cost

are included in “other”

within the noninterest expense

category in the

of Income.

NOTE 8 - COMMITMENTS

AND CONTINGENCIES

Lending Commitments

.

is a party to

financial instruments

with off-balance

sheet risks in the normal course

of business

to meet the

financing needs

of its clients.

These financial

instruments consist

of commitments

credit and standby

letters of

credit.

maximum exposure

to credit loss under standby

letters of credit and

credit is represented by

the contractual

amount

of those instruments.

uses the same

credit policies in establishing commitments

and issuing

letters of credit as

it does for on-balance

sheet instruments.

The amounts

associated

with the Company’s

off-balance

sheet

obligations were as

Fixed

Variable

Total

Fixed

Variable

Total

to Extend Credit

(1)

$

187,468

$

441,355

$

628,823

$

188,834

$

456,328

$

645,162

Standby

Letters of Credit

7,287

7,287

7,828

7,828

Total

$

194,755

$

441,355

$

636,110

$

196,662

$

456,328

$

652,990

(1)

Commitments include

unfunded

loans, revolving

lines of credit,

and off-balance

sheet residential

loan commitments.

credit are agreements

to lend to a

client so long

as

there is no violation of

any condition

established in the

contract.

generally have fixed

expiration dates

or other termination

clauses and

may

require payment

of a fee.

Since

many

of the commitments

are expected

to expire without being drawn

upon, the total

amounts

do not necessarily

represent future

cash requirements.

Standby

letters of credit are conditional

issued by the Company

to guarantee

the performance

of a client to a

third

party.

The credit risk involved

in issuing letters of credit

is essentially the

same

as

that involved

in extending loan facilities. In

general, management

does not anticipate any

material losses

as

a result of participating

in these types of

transactions.

However, any

potential losses arising

from such transactions

are reserved for in the

same manner

as

reserves for its other credit

facilities.

For both on-

and off-balance

sheet financial

instruments, the

Company

requires collateral to support

such instruments

when it is

deemed necessary.

evaluates

each client’s creditworthiness

on a case

-by-case basis.

The amount

of collateral

obtained

upon extension

of credit is based on

management’s

credit evaluation

of the counterparty.

Collateral held varies, but

may

include deposits

held in financial

institutions; U.S. Treasury

securities; other marketable

securities; real estate;

receivable;

property, plant

and equipment;

and inventory.

The

al

lowance for credit losses

for off-balance

sheet credit commitments

not unconditionally

cancellable by

the bank

is

as

a provision for credit loss expense

and is recorded in other

shows the activity

in the

allowance.

September

30,

30,

$

2,197

$

1,738

$

2,107

$

2,155

Losses

(60)

$

2,241

$

2,095

$

2,241

$

2,095

Other Commitments.

In the normal

course of business, the

Company

enters into lease commitments

which are classified as operating

leases. See Note 6 – Leases

for additional

on the maturity

of the Company’s

operating lease commitments.

has an

of up to $

1.0

million in a bank tech

venture capital

fund focused

on finding and

funding technology

solutions for community

banks

and a

of up to $

10.0

million in a solar tax credit equity

fund.

At

September 30, 202

6, the amount remaining

to be funded

for the bank

tech venture

capital and

solar tax credit equity

fund

was $

0.2

8.9

million, respectively.

Contingencies

.

is a party to lawsuits and

claims arising out of the normal

course of business.

In management's

opinion,

there are

no

known pending claims

or litigation, the outcome

of which would, individually or in the

aggregate, have

a material

effect

on the consolidated